UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20172020
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-52610
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.
(Exact Name of Registrant as Specified in Its Charter)
Maryland | 20-1237795 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
1985 Cedar Bridge Avenue, Suite 1 | ||
Lakewood, New Jersey | 08701 | |
(Address of Principal Executive Offices) | (Zip Code) |
(732) 367-0129
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ | Accelerated filer ¨ | ||
Non-accelerated filer þ | Smaller reporting company | ||
Emerging growth company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
As of November 1, 2017,6, 2020, there were approximately 24.922.3 million outstanding shares of common stock of Lightstone Value Plus Real Estate Investment Trust, Inc., including shares issued pursuant to the dividend reinvestment plan.
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
(Amounts in thousands, except per share data)
As of September 30, 2017 | As of December 31, 2016 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Investment property: | ||||||||
Land and improvements | $ | 49,667 | $ | 60,485 | ||||
Building and improvements | 162,689 | 203,054 | ||||||
Furniture and fixtures | 2,118 | 17,613 | ||||||
Construction in progress | 979 | 962 | ||||||
Gross investment property | 215,453 | 282,114 | ||||||
Less accumulated depreciation | (36,377 | ) | (49,773 | ) | ||||
Net investment property | 179,076 | 232,341 | ||||||
Investment in related parties | 153,936 | 142,752 | ||||||
Cash and cash equivalents | 127,381 | 105,539 | ||||||
Marketable securities, available for sale | 53,851 | 52,495 | ||||||
Restricted escrows | 4,362 | 2,818 | ||||||
Tenant and other accounts receivable | 1,083 | 1,875 | ||||||
Mortgage receivable | - | 4,893 | ||||||
Intangible assets, net | 376 | 693 | ||||||
Prepaid expenses and other assets | 2,958 | 3,889 | ||||||
Total Assets | $ | 523,023 | $ | 547,295 | ||||
Liabilities and Stockholders' Equity | ||||||||
Mortgages payable, net | $ | 157,879 | $ | 183,313 | ||||
Notes payable, net | 18,598 | 18,586 | ||||||
Accounts payable, accrued expenses and other liabilities | 21,653 | 18,827 | ||||||
Due to related parties | 553 | 573 | ||||||
Tenant allowances and deposits payable | 1,009 | 1,429 | ||||||
Distributions payable | 4,396 | 4,432 | ||||||
Deferred rental income | 685 | 1,105 | ||||||
Acquired below market lease intangibles, net | 340 | 446 | ||||||
Total Liabilities | 205,113 | 228,711 | ||||||
Commitments and contingencies | ||||||||
Stockholders' equity: | ||||||||
Company's Stockholders Equity: | ||||||||
Preferred shares, $0.01 par value, 10,000 shares authorized, none issued and outstanding | - | - | ||||||
Common stock, $0.01 par value; 60,000 shares authorized, 24,896 and 25,101 shares issued and outstanding, respectively | 249 | 251 | ||||||
Additional paid-in-capital | 194,986 | 197,036 | ||||||
Accumulated other comprehensive income | 13,571 | 15,954 | ||||||
Accumulated surplus | 90,302 | 84,240 | ||||||
Total Company's stockholders' equity | 299,108 | 297,481 | ||||||
- | - | |||||||
Noncontrolling interests | 18,802 | 21,103 | ||||||
Total Stockholders' Equity | 317,910 | 318,584 | ||||||
Total Liabilities and Stockholders' Equity | $ | 523,023 | $ | 547,295 |
The accompanying notes are an integral part of these consolidated financial statements.
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues: | ||||||||||||||||
Rental income | $ | 8,085 | $ | 9,391 | $ | 24,705 | $ | 28,559 | ||||||||
Tenant recovery income | 738 | 930 | 2,553 | 3,122 | ||||||||||||
Other service income | 2,069 | 2,739 | 7,834 | 8,489 | ||||||||||||
Total revenues | 10,892 | 13,060 | 35,092 | 40,170 | ||||||||||||
Expenses: | ||||||||||||||||
Property operating expenses | 5,652 | 6,784 | 18,513 | 20,880 | ||||||||||||
Real estate taxes | 602 | 673 | 1,951 | 2,387 | ||||||||||||
General and administrative costs | 2,174 | 1,042 | 4,615 | 3,680 | ||||||||||||
Depreciation and amortization | 2,738 | 2,705 | 8,252 | 8,595 | ||||||||||||
Total operating expenses | 11,166 | 11,204 | 33,331 | 35,542 | ||||||||||||
Operating (loss)/income | (274 | ) | 1,856 | 1,761 | 4,628 | |||||||||||
Other (expense)/income, net | (69 | ) | 6 | (75 | ) | 142 | ||||||||||
Mark to market adjustment on derivative financial instruments | 26 | 130 | 83 | (282 | ) | |||||||||||
Interest and dividend income | 5,635 | 4,646 | 15,432 | 14,764 | ||||||||||||
Interest expense | (3,581 | ) | (3,065 | ) | (10,776 | ) | (10,128 | ) | ||||||||
Loss on sale and redemption of marketable securities | (18 | ) | (15 | ) | (67 | ) | (952 | ) | ||||||||
Gain on satisfaction of mortgage receivable | - | - | 3,216 | - | ||||||||||||
Gain on disposition of real estate | 10,483 | 3,799 | 10,483 | 23,705 | ||||||||||||
Net income | 12,202 | 7,357 | 20,057 | 31,877 | ||||||||||||
Less: net income attributable to noncontrolling interests | (392 | ) | (310 | ) | (915 | ) | (1,166 | ) | ||||||||
Net income attributable to Company's common shares | $ | 11,810 | $ | 7,047 | $ | 19,142 | $ | 30,711 | ||||||||
Net income per Company’s common share, basic and diluted | $ | 0.47 | $ | 0.28 | $ | 0.77 | $ | 1.21 | ||||||||
Weighted average number of common shares outstanding, basic and diluted | 24,931 | 25,379 | 24,993 | 25,479 |
The accompanying notes are an integral part of these consolidated financial statements.
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(Amounts in thousands)
(Unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income | $ | 12,202 | $ | 7,357 | $ | 20,057 | $ | 31,877 | ||||||||
Other comprehensive income | ||||||||||||||||
Holding (loss)/gain on available for sale securities | (48 | ) | (1,979 | ) | (2,789 | ) | 2,713 | |||||||||
Reclassification adjustment for loss included in net income | 18 | 15 | 67 | 952 | ||||||||||||
Other comprehensive (loss)/income | (30 | ) | (1,964 | ) | (2,722 | ) | 3,665 | |||||||||
Comprehensive income | 12,172 | 5,393 | 17,335 | 35,542 | ||||||||||||
Less: Comprehensive income attributable to noncontrolling interests | (379 | ) | (933 | ) | (576 | ) | (1,452 | ) | ||||||||
Comprehensive income attributable to Company's common shares | $ | 11,793 | $ | 4,460 | $ | 16,759 | $ | 34,090 |
As of | As of | |||||||
September 30, 2020 | December 31, 2019 | |||||||
Assets | (unaudited) | |||||||
Investment property: | ||||||||
Land and improvements | $ | 30,143 | $ | 30,664 | ||||
Building and improvements | 101,489 | 101,827 | ||||||
Furniture and fixtures | 2,432 | 2,404 | ||||||
Construction in progress | 176,943 | 152,896 | ||||||
Gross investment property | 311,007 | 287,791 | ||||||
Less accumulated depreciation | (32,140 | ) | (29,685 | ) | ||||
Net investment property | 278,867 | 258,106 | ||||||
Investments in related parties | 15,636 | 35,738 | ||||||
Cash and cash equivalents | 57,506 | 77,569 | ||||||
Marketable securities and other investments | 36,774 | 54,738 | ||||||
Restricted cash | 2,599 | 2,231 | ||||||
Notes receivable, net | 101,991 | 55,723 | ||||||
Prepaid expenses and other assets | 2,118 | 2,075 | ||||||
Total Assets | $ | 495,491 | $ | 486,180 | ||||
Liabilities and Stockholders' Equity | ||||||||
Mortgages payable, net | $ | 191,085 | $ | 164,705 | ||||
Accounts payable, accrued expenses and other liabilities | 8,586 | 4,380 | ||||||
Due to related parties | 240 | 244 | ||||||
Tenant allowances and deposits payable | 516 | 594 | ||||||
Distributions payable | 3,904 | 3,960 | ||||||
Deferred rental income | 367 | 524 | ||||||
Total Liabilities | 204,698 | 174,407 | ||||||
Commitments and contingencies | ||||||||
Stockholders' equity: | ||||||||
Company's Stockholders Equity: | ||||||||
Preferred shares, $0.01 par value, 10.0 million shares authorized,none issued and outstanding | - | - | ||||||
Common stock, $0.01 par value; 60.0 million shares authorized, 22.3 million and 22.6 million shares issued and outstanding, respectively | 223 | 226 | ||||||
Additional paid-in-capital | 169,567 | 172,749 | ||||||
Accumulated other comprehensive (loss)/income | (426 | ) | 408 | |||||
Accumulated surplus | 84,908 | 109,559 | ||||||
Total Company's stockholders' equity | 254,272 | 282,942 | ||||||
Noncontrolling interests | 36,521 | 28,831 | ||||||
Total Stockholders' Equity | 290,793 | 311,773 | ||||||
Total Liabilities and Stockholders' Equity | $ | 495,491 | $ | 486,180 |
The accompanying notes are an integral part of these consolidated financial statements.
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues: | ||||||||||||||||
Rental income | $ | 2,460 | $ | 3,681 | $ | 8,502 | $ | 10,944 | ||||||||
Tenant recovery income | 86 | 283 | 271 | 950 | ||||||||||||
Total revenues | 2,546 | 3,964 | 8,773 | 11,894 | ||||||||||||
Expenses: | ||||||||||||||||
Property operating expenses | 996 | 1,260 | 2,956 | 3,523 | ||||||||||||
Real estate taxes | 95 | 289 | 324 | 1,024 | ||||||||||||
General and administrative costs | 608 | 692 | 2,342 | 2,281 | ||||||||||||
Depreciation and amortization | 939 | 1,241 | 2,907 | 3,822 | ||||||||||||
Total operating expenses | 2,638 | 3,482 | 8,529 | 10,650 | ||||||||||||
Operating (loss)/income | (92 | ) | 482 | 244 | 1,244 | |||||||||||
Other income/(expense), net | 31 | (2 | ) | 83 | 111 | |||||||||||
Interest and dividend income | 3,650 | 4,310 | 9,431 | 12,045 | ||||||||||||
Interest expense | (798 | ) | (441 | ) | (2,097 | ) | (1,128 | ) | ||||||||
Gain on disposition of real estate | - | 1,013 | 1,562 | 1,013 | ||||||||||||
Unrealized loss on marketable equity securities | (1,472 | ) | (582 | ) | (20,083 | ) | (2,247 | ) | ||||||||
Loss on sale and redemption of marketable securities | - | (94 | ) | (230 | ) | (719 | ) | |||||||||
Net income/(loss) from continuing operations | 1,319 | 4,686 | (11,090 | ) | 10,319 | |||||||||||
Net income from discontinued operations | - | - | - | 13,481 | ||||||||||||
Net income/(loss) | 1,319 | 4,686 | (11,090 | ) | 23,800 | |||||||||||
Less: income attributable to noncontrolling interests | (1,094 | ) | (809 | ) | (1,835 | ) | (1,968 | ) | ||||||||
Net income/(loss) attributable to Company's common shares | $ | 225 | $ | 3,877 | $ | (12,925 | ) | $ | 21,832 | |||||||
Basic and diluted net income/(loss) per Company's common share: | ||||||||||||||||
Continuing operations | $ | 0.01 | $ | 0.17 | $ | (0.58 | ) | $ | 0.36 | |||||||
Discontinued operations | - | - | - | 0.58 | ||||||||||||
Net income/(loss) per Company’s common share, basic and diluted | $ | 0.01 | $ | 0.17 | $ | (0.58 | ) | $ | 0.94 | |||||||
Weighted average number of common shares outstanding, basic and diluted | 22,304 | 22,859 | 22,351 | 23,168 |
The accompanying notes are an integral part of these consolidated financial statements.
4
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITYCOMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
Common | Additional Paid-In | Accumulated Other Comprehensive | Accumulated | Noncontrolling | Total Stockholders' | |||||||||||||||||||||||
Shares | Amount | Capital | Income | Surplus | Interests | Equity | ||||||||||||||||||||||
BALANCE, December 31, 2016 | 25,101 | $ | 251 | $ | 197,036 | $ | 15,954 | $ | 84,240 | $ | 21,103 | $ | 318,584 | |||||||||||||||
Net income | - | - | - | - | 19,142 | 915 | 20,057 | |||||||||||||||||||||
Other comprehensive losss | - | - | - | (2,383 | ) | - | (339 | ) | (2,722 | ) | ||||||||||||||||||
Distributions declared | - | - | - | - | (13,080 | ) | - | (13,080 | ) | |||||||||||||||||||
Distributions paid to noncontrolling interests | - | - | - | - | - | (2,885 | ) | (2,885 | ) | |||||||||||||||||||
Contributions received from noncontrolling interests | - | - | - | - | - | 8 | 8 | |||||||||||||||||||||
Redemption and cancellation of shares | (205 | ) | (2 | ) | (2,050 | ) | - | - | - | (2,052 | ) | |||||||||||||||||
BALANCE, September 30, 2017 | 24,896 | $ | 249 | $ | 194,986 | $ | 13,571 | $ | 90,302 | $ | 18,802 | $ | 317,910 |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net income/(loss) | $ | 1,319 | $ | 4,686 | $ | (11,090 | ) | $ | 23,800 | |||||||
Other comprehensive income/(loss) | ||||||||||||||||
Holding gain/(loss) on available for sale debt securities | 627 | 210 | (853 | ) | 1,711 | |||||||||||
Reclassification adjustment for loss included in net income/(loss) | - | 94 | - | 719 | ||||||||||||
Other comprehensive income/(loss) | 627 | 304 | (853 | ) | 2,430 | |||||||||||
Comprehensive income/(loss) | 1,946 | 4,990 | (11,943 | ) | 26,230 | |||||||||||
Less: Comprehensive income attributable to noncontrolling interests | (1,105 | ) | (816 | ) | (1,816 | ) | (2,019 | ) | ||||||||
Comprehensive income/(loss) attributable to Company's common shares | $ | 841 | $ | 4,174 | $ | (13,759 | ) | $ | 24,211 |
The accompanying notes are an integral part of these consolidated financial statements.
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in thousands)
(Unaudited)
Common | Accumulated | |||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||
Paid-In | Comprehensive | Accumulated | Noncontrolling | Stockholders' | ||||||||||||||||||||||||
Shares | Amount | Capital | Income/(loss) | Surplus | Interests | Equity | ||||||||||||||||||||||
BALANCE, June 30, 2019 | 23,052 | $ | 231 | $ | 177,559 | $ | (169 | ) | $ | 111,215 | $ | 25,848 | $ | 314,684 | ||||||||||||||
Net income | - | - | - | - | 3,877 | 809 | 4,686 | |||||||||||||||||||||
Other comprehensive income | - | - | - | 297 | - | 7 | 304 | |||||||||||||||||||||
Distributions declared (a) | - | - | - | - | (3,990 | ) | - | (3,990 | ) | |||||||||||||||||||
Distributions paid to noncontrolling interests | - | - | - | - | - | (785 | ) | (785 | ) | |||||||||||||||||||
Contributions received from noncontrolling interests | - | - | - | - | - | 21,170 | 21,170 | |||||||||||||||||||||
Redemption, cancellation and tender of shares | (266 | ) | (3 | ) | (2,879 | ) | - | - | - | (2,882 | ) | |||||||||||||||||
Shares issued from distribution reinvestment program | 7 | - | 74 | - | - | - | 74 | |||||||||||||||||||||
BALANCE, September 30, 2019 | 22,793 | $ | 228 | $ | 174,754 | $ | 128 | $ | 111,102 | $ | 47,049 | $ | 333,261 | |||||||||||||||
(a) Distributions per share were $0.175. |
Common | Accumulated | |||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||
Paid-In | Comprehensive | Accumulated | Noncontrolling | Stockholders' | ||||||||||||||||||||||||
Shares | Amount | Capital | Income/(loss) | Surplus | Interests | Equity | ||||||||||||||||||||||
BALANCE, December 31, 2018 | 23,708 | $ | 237 | $ | 184,469 | $ | (2,251 | ) | $ | 101,382 | $ | 14,404 | $ | 298,241 | ||||||||||||||
Net income | - | - | - | - | 21,832 | 1,968 | 23,800 | |||||||||||||||||||||
Other comprehensive income | - | - | - | 2,379 | - | 51 | 2,430 | |||||||||||||||||||||
Distributions declared (a) | - | - | - | - | (12,112 | ) | - | (12,112 | ) | |||||||||||||||||||
Distributions paid to noncontrolling interests | - | - | - | - | - | (2,496 | ) | (2,496 | ) | |||||||||||||||||||
Contributions received from noncontrolling interests | - | - | - | - | - | 33,122 | 33,122 | |||||||||||||||||||||
Redemption, cancellation and tender of shares | (933 | ) | (9 | ) | (9,915 | ) | - | - | - | (9,924 | ) | |||||||||||||||||
Shares issued from distribution reinvestment program | 18 | - | 200 | - | - | - | 200 | |||||||||||||||||||||
BALANCE, September 30, 2019 | 22,793 | $ | 228 | $ | 174,754 | $ | 128 | $ | 111,102 | $ | 47,049 | $ | 333,261 | |||||||||||||||
(a) Distributions per share were $0.525. |
Common | Accumulated | |||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||
Paid-In | Comprehensive | Accumulated | Noncontrolling | Stockholders' | ||||||||||||||||||||||||
Share | Amount | Capital | Loss | Surplus | Interests | Equity | ||||||||||||||||||||||
BALANCE, June 30, 2020 | 22,335 | $ | 223 | $ | 169,784 | $ | (1,042 | ) | $ | 88,586 | $ | 30,644 | $ | 288,195 | ||||||||||||||
Net income | - | - | - | - | 225 | 1,094 | 1,319 | |||||||||||||||||||||
Other comprehensive income | - | - | - | 616 | - | 11 | 627 | |||||||||||||||||||||
Distributions declared (a) | - | - | - | - | (3,903 | ) | - | (3,903 | ) | |||||||||||||||||||
Distributions paid to noncontrolling interests | - | - | - | - | - | (13,664 | ) | (13,664 | ) | |||||||||||||||||||
Contributions received from noncontrolling interests | - | - | - | - | - | 18,436 | 18,436 | |||||||||||||||||||||
Tender of common stock | (55 | ) | - | (301 | ) | - | (301 | ) | ||||||||||||||||||||
Shares issued from distribution reinvestment program | 7 | - | 84 | - | - | - | 84 | |||||||||||||||||||||
BALANCE, September 30, 2020 | 22,287 | $ | 223 | $ | 169,567 | $ | (426 | ) | $ | 84,908 | $ | 36,521 | $ | 290,793 | ||||||||||||||
(a) Distributions per share were $0.175. |
Common | Accumulated | |||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||
Paid-In | Comprehensive | Accumulated | Noncontrolling | Stockholders' | ||||||||||||||||||||||||
Shares | Amount | Capital | Income/(Loss) | Surplus | Interests | Equity | ||||||||||||||||||||||
BALANCE, December 31, 2019 | 22,608 | $ | 226 | $ | 172,749 | $ | 408 | $ | 109,559 | $ | 28,831 | 311,773 | ||||||||||||||||
Net loss | - | - | - | - | (12,925 | ) | 1,835 | (11,090 | ) | |||||||||||||||||||
Other comprehensive loss | - | - | - | (834 | ) | - | (19 | ) | (853 | ) | ||||||||||||||||||
Distributions declared (a) | - | - | - | - | (11,726 | ) | - | (11,726 | ) | |||||||||||||||||||
Distributions paid to noncontrolling interests | - | - | - | - | - | (16,052 | ) | (16,052 | ) | |||||||||||||||||||
Contributions received from noncontrolling interests | - | - | - | - | - | 21,926 | 21,926 | |||||||||||||||||||||
Redemption, cancellation and tender of shares | (343 | ) | (3 | ) | (3,429 | ) | - | - | - | (3,432 | ) | |||||||||||||||||
Shares issued from distribution reinvestment program | 22 | - | 247 | - | - | - | 247 | |||||||||||||||||||||
BALANCE, September 30, 2020 | 22,287 | $ | 223 | $ | 169,567 | $ | (426 | ) | $ | 84,908 | $ | 36,521 | $ | 290,793 | ||||||||||||||
(a) Distributions per share were $0.525. |
The accompanying notes are an integral part of these consolidated financial statements.
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
For the Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net (loss)/income | $ | (11,090 | ) | $ | 23,800 | |||
Less net income – discontinued operations | - | 13,481 | ||||||
Net (loss)/income – continuing operations | (11,090 | ) | 10,319 | |||||
Adjustments to reconcile net (loss)/income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 2,907 | 3,822 | ||||||
Mark to market adjustment on derivative financial instruments | - | 162 | ||||||
Gain on disposition of real estate | (1,562 | ) | (1,013 | ) | ||||
Unrealized loss on marketable equity securities | 20,083 | 2,247 | ||||||
Loss on sale and redemption of marketable securities | 230 | 719 | ||||||
Amortization of deferred financing costs | 453 | 1,330 | ||||||
Bad debt expense | 397 | 210 | ||||||
Noncash interest income | (3,701 | ) | (1,770 | ) | ||||
Other non-cash adjustments | 14 | 188 | ||||||
Changes in assets and liabilities: | ||||||||
Increase in prepaid expenses and other assets | (528 | ) | (223 | ) | ||||
Decrease in tenant allowances and deposits payable | (78 | ) | (24 | ) | ||||
Increase/(decrease) in accounts payable, accrued expenses and other liabilities | 2,758 | (127 | ) | |||||
Decrease in due to related parties | (4 | ) | (95 | ) | ||||
Decrease in deferred rental income | (157 | ) | (139 | ) | ||||
Net cash provided by operating activities – continuing operations | 9,722 | 15,606 | ||||||
Net cash used in operating activities – discontinued operations | - | (55 | ) | |||||
Net cash provided by operating activities | 9,722 | 15,551 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of investment property | (21,654 | ) | (85,130 | ) | ||||
Purchase of marketable securities | (7,460 | ) | (10,526 | ) | ||||
Proceeds from sale of marketable securities | 4,260 | 61,376 | ||||||
Proceeds from sale of investment property | 2,082 | 19,502 | ||||||
Investment in joint venture | (123 | ) | (89 | ) | ||||
Proceeds from joint venture | 211 | 140 | ||||||
Funding of notes receivable | (43,068 | ) | (65,363 | ) | ||||
Proceeds from repayment of notes receivable | 500 | - | ||||||
Proceeds from investments in related parties | 20,000 | 27,000 | ||||||
Investments in related parties | - | (2,266 | ) | |||||
Net cash used in investing activities – continuing operations | (45,252 | ) | (55,356 | ) | ||||
Net cash used in investing activities – discontinued operations | - | (239 | ) | |||||
Net cash used in investing activities | (45,252 | ) | (55,595 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from mortgage financing | 26,390 | 36,685 | ||||||
Mortgage principal payments | (935 | ) | (14,974 | ) | ||||
Payment of loan fees and expenses | (526 | ) | (2,453 | ) | ||||
Redemption, cancellation and tender of common shares | (3,432 | ) | (9,924 | ) | ||||
Contributions received from noncontrolling interests | 21,926 | 33,122 | ||||||
Distributions paid to noncontrolling interests | (16,052 | ) | (2,496 | ) | ||||
Distributions paid to Company's common stockholders | (11,536 | ) | (12,056 | ) | ||||
Net cash provided by financing activities | 15,835 | 27,904 | ||||||
Net change in cash, cash equivalents and restricted cash | (19,695 | ) | (12,140 | ) | ||||
Cash, cash equivalents and restricted cash, beginning of year | 79,800 | 36,582 | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | 60,105 | $ | 24,442 | ||||
See Note 2 for supplemental cash flow information. | ||||||||
The following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in our statements of cash flows for the periods presented: | ||||||||
Cash and cash equivalents | $ | 57,506 | $ | 22,834 | ||||
Restricted cash | 2,599 | 1,608 | ||||||
Total cash, cash equivalents and restricted cash | $ | 60,105 | $ | 24,442 |
The accompanying notes are an integral part of these consolidated financial statements.
7
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)(Unaudited)
For the Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 20,057 | $ | 31,877 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 8,252 | 8,595 | ||||||
Mark to market adjustment on derivative financial instruments | (83 | ) | 282 | |||||
Loss on sale of marketable securities, available for sale | 67 | 952 | ||||||
Gain on disposition of real estate | (10,483 | ) | (23,705 | ) | ||||
Gain on satisfaction of mortgage receivable | (3,216 | ) | - | |||||
Other non-cash adjustments | 568 | 427 | ||||||
Changes in assets and liabilities: | ||||||||
(Decrease)/increase in prepaid expenses and other assets | (339 | ) | 97 | |||||
Increase/(decrease) in tenant and other accounts receivable | 426 | (122 | ) | |||||
Decrease in tenant allowances and deposits payable | (287 | ) | (634 | ) | ||||
Increase in accounts payable, accrued expenses and other liabilities | 3,676 | 2,053 | ||||||
(Decrease)/increase in due to related parties | (20 | ) | 679 | |||||
Decrease in deferred rental income | (127 | ) | (30 | ) | ||||
Net cash provided by operating activities | 18,491 | 20,471 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of investment property, net | (2,290 | ) | (2,557 | ) | ||||
Contributions in preferred investments in related parties | (13,739 | ) | (51,032 | ) | ||||
Proceeds from preferred investments in related parties | 2,300 | 42,237 | ||||||
Investment in joint venture | 255 | (17 | ) | |||||
Collections on mortgage receivable | 8,109 | 110 | ||||||
Purchase of marketable securities | (5,081 | ) | - | |||||
Proceeds from sale and redemption of marketable securities | 936 | 28,395 | ||||||
Distributions from investment in unconsolidated affiliated real estate entity | - | 1,989 | ||||||
Proceeds from sale of investment property and other real estate assets | 32,651 | 60,691 | ||||||
(Funding)/refund of restricted escrows | (1,439 | ) | 5,436 | |||||
Net cash provided by investing activities | 21,702 | 85,252 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from mortgage financing | - | 20,400 | ||||||
Mortgage payments | (306 | ) | (62,937 | ) | ||||
Payment of loan fees and expenses | - | (733 | ) | |||||
Redemption and cancellation of common stock | (2,052 | ) | (3,179 | ) | ||||
Contributions received from noncontrolling interests | 8 | 6 | ||||||
Distributions paid to noncontrolling interests | (2,885 | ) | (9,861 | ) | ||||
Distributions paid to Company's common stockholders | (13,116 | ) | (13,426 | ) | ||||
Net cash used in financing activities | (18,351 | ) | (69,730 | ) | ||||
Net change in cash and cash equivalents | 21,842 | 35,993 | ||||||
Cash and cash equivalents, beginning of year | 105,539 | 68,459 | ||||||
Cash and cash equivalents, end of period | $ | 127,381 | $ | 104,452 | ||||
Supplemental cash flow information for the periods indicated is as follows: | ||||||||
Cash paid for interest | $ | 5,694 | $ | 6,192 | ||||
Distributions declared but not paid | $ | 4,396 | $ | 4,471 | ||||
Non cash purchase of investment property | $ | 336 | $ | 16 | ||||
Assets transferred due to foreclosure | $ | 27,028 | $ | - | ||||
Liabilities extinguished in foreclosure | $ | (27,028 | ) | $ | - |
The accompanying notes are an integral part of these consolidated financial statements.
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)
1. | Business and Organization |
Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation (“Lightstone REIT”) was, formed on June 8, 2004, (date of inception)which has elected to be taxed and subsequently qualifiedqualify as a real estate investment trust for U.S. federal income tax purposes (“REIT”) during the year ending December 31, 2006.. The Lightstone REIT was formed primarily for the purpose of engaging in the business of investing in and owning commercial and residential real estate properties located throughout the United States. The Company also has and will continue to seek to originate, acquire and manage a diverse portfolio of real estate-related investments.
The Lightstone REIT is structured as an umbrella partnership REIT,real estate investment trust, or UPREIT, and substantially all of itsthe Company’s current and future business is and will be conducted through Lightstone Value Plus REIT, L.P. (the “Operating Partnership”), a Delaware limited partnership formed on July 12, 2004 (the “Operating Partnership”), in which Lightstone REIT as2004. As of September 30, 2020, the general partner,Company held a 98% general partnership interest as of September 30, 2017.in the Company’s Operating Partnership’s common units (“Common Units”).
The Lightstone REIT and the Operating Partnership and its subsidiaries are collectively referred to as the ‘‘Company’’ and the use of ‘‘we,’’ ‘‘our,’’ ‘‘us’’ or similar pronouns refers to the Lightstone REIT, its Operating Partnership or the Company as required by the context in which such pronoun is used.
Through its Operating Partnership, the Company owns, operates and develops commercial, residential, and hospitality properties and make real estate-related investments, principally in the United States. The Company’s real estate investments are held alone or jointly with other parties. The Company also originates or acquires mortgage loans secured by real estate. Although most of its investments are of these types, the Company may invest in whatever types of real estate or real estate-related investments that it believes is managedin its best interests. Because of the composition of the Company’s real estate and real estate investments, the Company evaluates all of its real estate investments as one operating segment.
As of September 30, 2020, the Company has ownership interests in (i) two consolidated operating properties, (ii) three consolidated development properties and (iii) seven unconsolidated operating properties. With respect to its consolidated operating properties, the Company wholly owns the St. Augustine Outlet Center, a retail outlet shopping center located in St. Augustine, Florida which contains approximately 0.3 million square feet of gross leasable area, and has a majority ownership interest of approximately 59.2% in Gantry Park Landing, a multi-family residential property located in Long Island City, New York which contains 199 apartment units. With respect to its consolidated development properties, the Company wholly owns three projects consisting of the Lower East Side Moxy Hotel, the Exterior Street Project and the Santa Clara Data Center, all of which were under development as of September 30, 2020. The Company also holds a 2.5% ownership interest in seven hotel properties through a joint venture (the “Joint Venture”). The Joint Venture is between the Company and the operating partnership of Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone II”), a REIT also sponsored by the Company’s Sponsor, which has a 97.5% ownership interest in the Joint Venture. Furthermore, the Company has other real estate-related investments, including several agreements with various related party entities that provide for it to make preferred contributions pursuant to certain instruments (the “Preferred Investments”) and nonrecourse loans made to unaffiliated third-party borrowers.
The Company’s advisor is Lightstone Value Plus REIT, LLC (the “Advisor”), an affiliatewhich is majority owned by David Lichtenstein. On July 6, 2004, the Advisor contributed $2 to the Operating Partnership in exchange for 200 Common Units. The Company’s Advisor also owns 20,000 shares of the Lightstone Group, Inc., underCompany’s common stock (“Common Shares”) which were issued on July 6, 2004 for $200, or $10.00 per share. Mr. Lichtenstein also is the terms and conditionsmajority owner of an advisory agreement.the equity interests of The Lightstone Group, Inc. previouslyLLC. The Lightstone Group, LLC served as the Company’s sponsor (the “Sponsor”‘‘Sponsor’’) during itsthe Company’s initial public offering (the “Offering”), which closedterminated on October 10, 2008. Subject to the oversight of theThe Company’s Advisor, together with its board of directors (the “Board of Directors”), the Advisor has primary responsibilityis primarily responsible for making investment decisions on the Company’s behalf and managing the Company’sits day-to-day operations. Through his ownership and control of The Lightstone Group, DavidLLC, Mr. Lichtenstein is the indirect owner of the Advisor and the indirect owner and manager of Lightstone SLP, LLC, a Delaware limited liability company, which has subordinated profitsowns an aggregate of $30.0 million of special general partner interests (“SLP units”Units”) in the Operating Partnership.Partnership which were purchased, at a cost of $100,000 per unit, in connection with the Company’s Offering. Mr. Lichtenstein also acts as the Company’s Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control the Lightstone REIT or the Operating Partnership.
The Company does not have any employees. The Advisor receives compensation and fees for services related to the investment and management of the Company’s stock isassets.
The Company’s Advisor has affiliates which manage and develop certain of its properties. However, the Company also contracts with other unaffiliated third-party property managers.
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)
The Company’s Common Shares are not currently listed on a national securities exchange. The Company may seek to list its stock for trading on a national securities exchange only if a majority of its independent directors believe listing would be in the best interest of its stockholders. The Company does not intend to list its shares at this time. The Company does not anticipate that there would be any market for its shares of common stock until they are listed for trading. In the event the Company does not obtain listing prior to October 10, 2018 (the tenth anniversary of the completion of its initial public offering,) its charter requires that the Board of Directors must either (i) seek stockholder approval of an extension or amendment of this listing deadline; or (ii) seek stockholder approval to adopt a plan of liquidation of the corporation.
On October 20, 2017, theTender Offer
The Company filedcommenced a definitive proxy statement with the Securities and Exchange Commissiontender offer on June 15, 2020, pursuant to which it offered to acquire up to 225,000 Common Shares at a purchase price of $5.00 per share, or approximately $1.1 million in the aggregate (the “Tender Offer”). Pursuant to the terms of the Tender Offer, which expired on July 24, 2020, the Company repurchased approximately 0.1 million Common Shares for an aggregate of approximately $0.3 million in August 2020.
Related Parties
The Advisor and its affiliates, and Lightstone SLP, LLC are related parties of the Company. Certain of these entities are entitled to compensation for services related to the investment, management and disposition of the Company’s assets. The compensation is seeking stockholder approvalbased on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements.
Discontinued Operations
During the first quarter of 2019, a portfolio comprised of the Company’s 10 industrial properties located in Louisiana (seven properties located in New Orleans and three properties located in Baton Rouge, and collectively, the “Louisiana Assets”) met the criteria to amend its charterbe classified as discontinued operations in the consolidated statements of operations for all periods presented, through their date of disposition. The disposition of the Louisiana Assets, which represented all of the Company’s remaining industrial properties, represented a strategic shift that had a major effect on the Company’s operations and financial results and therefore, upon their disposition, the operating results of the Louisiana Assets were classified as discontinued operations in the Company’s consolidated statements of operations for all periods presented through their date of disposition (See Note 8).
Gain on Disposition of Real Estate
On April 6, 2020, the Company completed the disposition of a parcel of land adjacent to remove the requirementSt. Augustine Outlet Center for a contractual sales price of $2.1 million and recognized a gain on the disposition of real estate of approximately $1.6 million during the second quarter of 2020.
Noncontrolling Interests
Partners of Operating Partnership
On July 6, 2004, the Advisor contributed $2 to the Operating Partnership in exchange for 200 Common Units in the Operating Partnership. The Advisor has the right to convert the Common Units into cash or, at the option of the Company, an equal number of shares of Common Shares.
In connection with the Offering, Lightstone SLP, LLC, an affiliate of the Advisor, purchased an aggregate of $30.0 million of SLP Units. As the majority owner of the SLP Units, Mr. Lichtenstein is the beneficial owner of a 99% interest in such SLP Units and thus receives an indirect benefit from any distributions made in respect thereof. These SLP Units may be entitled to a portion of any regular and liquidation distributions that the Company must either listmakes to its stock onstockholders, but only after the Company’s stockholders have received a national securities exchange or seek stockholder approval to adopt a plan of liquidation of the corporation on or before October 10, 2018 (the “Charter Amendment”). In the event that the stockholders do not approve the Charter Amendment and the Company does not obtain listing of its stock on a national securities exchange prior to October 10, 2018 its charter requires that the Board of Directors must seek stockholder approval to adopt a plan of liquidation of the corporation.stated preferred return.
AsIn addition, an aggregate 497,209 Common Units were issued to other unrelated parties during the years ended December 31, 2008 and 2009 and remain outstanding as of September 30, 2017, on a collective basis, the Company wholly or majority owned and consolidated the operating results and financial condition of 2 retail properties containing a total of approximately 0.5 million square feet of retail space, 14 industrial properties containing a total of approximately 1.0 million square feet of industrial space and one multi-family residential property containing a total of 199 units. All of the Company’s properties are located within the United States. As of September 30, 2017, the retail properties, the industrial properties and the multi-family residential properties were 85%, 74% and 96% occupied based on a weighted-average basis, respectively.2020.
Other Noncontrolling Interests in Consolidated Subsidiaries
As of September 30, 2017, the noncontrolling interests consist of (i) parties of the Company that hold units in the Operating Partnership and (ii) certain interests in consolidated subsidiaries. The units include SLP units, limited partner units and common units. TheOther noncontrolling interests in consolidated subsidiaries include ownership interests in (i) Pro-DFJV Holdings LLC (“PRO”) andheld by the Company’s Sponsor, (ii) 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”)., held by the Company’s Sponsor and other affiliates and (iii) various joint ventures held by affiliates of the Sponsor that have originated promissory notes to unaffiliated third parties. PRO’s holdings principally consist of Marco OP Units and Marco II OP Units. The 2nd Street Joint Venture owns Gantry Park Landing.
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)
2. | Summary of Significant Accounting Policies |
Basis of Presentation
The consolidated financial statements include the accounts of the Lightstone REIT and its Operating Partnership and its subsidiaries (over which the Company exercises financial and operating control). All inter-company balances and transactions have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on applicable accounting principles generally accepted in the United States of America (“GAAP”), and if deemed to be variable interest entities (“VIE”) in which the Company is the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which the Company has control, substantive participating rights or both under the respective ownership agreement. For entities in which the Company has less than a controlling interest but have significant influence, the Company accounts for the investment using the equity method of accounting.
There are judgments and estimates involved in determining if an entity in which the Company has made an investment is a VIE and, if so, whether the Company is the primary beneficiary. The entity is evaluated to determine if it is a VIE by, among other things, calculating the percentage of equity being risked compared to the total equity of the entity. Determining expected future losses involves assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each possibility and using a discount rate to determine the net present value of those future losses. A change in the judgments, assumptions, and estimates outlined above could result in consolidating an entity that should not be consolidated or accounting for an investment using the equity method that should in fact be consolidated, the effects of which could be material to our financial statements.
The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of the Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2019. The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of the results for the periods presented. The accompanying unaudited consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust, Inc. and its Subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of real estate and real-estate related investments, marketable securities, notes receivable, depreciable lives, and revenue recognition. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
The consolidated balance sheet as of December 31, 20162019 included herein has been derived from the consolidated balance sheet included in the Company's Annual Report on Form 10-K.
The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.
New Accounting PronouncementsCOVID-19 Pandemic
In January 2017,On March 11, 2020, the Financial Accounting Standards Board (“FASB”) issued guidance that clarifiesWorld Health Organization declared COVID-19 a global pandemic leading many countries, including the definitionUnited States, particularly at the individual state level, to impose various restrictions and other measures, including, but not limited to, mandatory closures, quarantines, limitations on travel, “shelter in place” rules and certain other measures in an effort to reduce its duration and spread. The COVID-19 pandemic has continued to evolve and while most states have initiated a phased approach allowing for reductions and/or lifting of restrictions, the situation remains highly unpredictable and dynamic.
As a businessresult of previous restrictions, the Company closed its St. Augustine Outlet Center from March 20, 2020 through May 7, 2020. Primarily because of the impact of the COVID-19 pandemic on the operating performance of the St. Augustine Outlet Center’s tenancy, especially during the closure period, the Company has provided forbearance of certain rent payments to various tenants. Additionally, the Company has seen some deterioration in both the occupancy and assistsrental rates for Gantry Park Landing, which is located on Long Island, New York, as the luxury rental market in the evaluationgreater New York City metropolitan area has been negatively impacted by the COVID-19 pandemic. However, none of whether a transaction will be accounted for as an acquisition of an asset or as a business combination. The guidance provides a test to determine when a set of assets and activities acquired is not a business. When substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. Under the updated guidance, an acquisition of a single property will likely be treated as an asset acquisition as opposed to a business combination and associated transaction costs will be capitalized rather than expensed as incurred. Additionally, assets acquired, liabilities assumed, and any noncontrolling interest will be measured at their relative fair values. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. This guidance is not expected tothese items have a material impact onyet materially impacted the Company’s consolidatedresults from operations or its financial statements.
In November 2016, the FASB issued guidance that requires amounts that are generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is effective for public companies for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted and the pronouncement requires a retrospective transition method of adoption. This guidance is not expected to have a material impact on the Company’s consolidated financial statements.
In August 2016, the FASB issued an accounting standards update which provides guidance on the classification of certain cash receipts and cash payments in the statement of cash flows, including those related to debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance, and distributions received from equity method investees. This guidance is effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. The guidance must be adopted on a retrospective basis and must be applied to all periods presented, but may be applied prospectively if retrospective application would be impracticable. This guidance will not have a material impact on the Company’s consolidated financial statements.condition.
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)
To-date, the COVID-19 pandemic has not had any significant impact on the Company’s three development projects. Furthermore, the Company’s other real estate-related investments (both its preferred investments in related parties and nonrecourse loans made to unaffiliated third-party borrowers) also relate to various development projects which are at different stages in their respective development process. These investments, which are subject to similar restrictions and other measures, have also not yet been significantly impacted by the COVID-19 pandemic.
While the Company’s business has not yet seen any material impact from the COVID-19 pandemic, the extent to which it may be affected in future periods remains highly uncertain and cannot be reasonably predicted.
If the Company’s operating properties, development projects and real estate-related investments are negatively impacted for an extended period because (i) occupancy levels and rental rates further decline, (ii) tenants are unable to pay their rent, (iii) borrowers are unable to pay scheduled debt service on notes receivable, (iv) development activities are delayed and/or (v) various related party entities are unable to pay monthly preferred distributions on the Company’s preferred investments in related parties, the Company’s business and financial results could be materially and adversely impacted. While the Company has implemented various cost reduction strategies, including the deferral of certain non-critical capital expenditures, there can be no assurance that these cost savings will fully mitigate the potential adverse impact of any lost revenue and income.
COVID-19 Lease Modification Accounting Relief
Due to the business disruptions and challenges severely affecting the global economy caused by the COVID-19 pandemic, many lessors may be required to provide rent deferrals and other lease concessions to lessees. While the lease modification guidance addresses routine changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance did not contemplate concessions being so rapidly executed to address the sudden liquidity constraints of some lessees arising from the COVID-19 pandemic and restrictions intended to prevent its spread.
In April 2020, the Financial Accounting Standards Board (“FASB”) staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing GAAP, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. The Company has elected to apply such relief and will avail itself of the election to avoid performing a lease by lease analysis. The Lease Modification Q&A had no material impact on the Company’s consolidated financial statements as of and for the three and nine months ended September 30, 2020, however, its future impact to the Company is dependent upon the extent of lease concessions, if any, granted to tenants as a result of the COVID-19 pandemic in future periods and the elections made by the Company at the time of entering into such concessions.
New Accounting Pronouncements
In June 2016, the FASB issued an accounting standards update which replaces the Company incurred loss impairment methodology currently in use with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new guidance is effective for fiscal years beginning after December 15, 2019,2022, including interim periods within those fiscal years. This guidanceThe Company is currently in the process of evaluating the impact the adoption of this standard will not have a material impact on the Company’s consolidated financial statements.
In January 2016, the FASB issued an accounting standards update that eliminates the requirement for public business entities to disclose the method and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet and is effective for periods beginning after December 15, 2017 and early adoption is not permitted. This guidance will not have a material impact on the Company’s consolidated financial statements.
In January 2016, the FASB issued an accounting standards update that generally requires companies to measure investments in equity securities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income. The new guidance must be applied using a modified-retrospective approach and is effective for periods beginning after December 15, 2017 and early adoption is not permitted. If this standard had been in effect for the three and nine months ended September 30, 2017 it would have resulted in a decrease in net income of approximately $30 and $2.7 million, respectively and if this standard had been in effect for the three and nine months ended September 30, 2016 it would have resulted in a decrease and an increase to net income of approximately $2.0 million and $3.7 million, respectively.
[In May 2014, the FASB issued an accounting standards update that provides for a single five-step model to be applied to all revenue contracts with customers as well as requires additional financial statement disclosures that will enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows relating to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard. This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is continuing to evaluate the standard; however, we do not expect its adoption to have a significant impact on the consolidated financial statements, as substantially all revenues consist of rental income from leasing arrangements, which is specifically excluded from the standard.
The Company has reviewed and determined that other recently issued accounting pronouncements will not have a material impact on its financial position, results of operations and cash flows, or do not apply to its current operations.
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)
Supplemental Cash Flow Information
Supplemental cash flow information for the periods indicated is as follows:
For the Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Cash paid for interest | $ | 6,524 | $ | 5,621 | ||||
Distributions declared but not paid | $ | 3,904 | $ | 3,992 | ||||
Investment property acquired but not paid | $ | 2,532 | $ | 300 | ||||
Assets transferred in connection with assignment transaction | $ | - | $ | 37,299 | ||||
Liabilities extinguished in connection with assignment transaction | $ | - | $ | 50,914 | ||||
Amortization of deferred financing costs included in construction in progress | $ | 997 | $ | - | ||||
Holding loss/gain on marketable securities | $ | 853 | $ | 2,430 | ||||
Value of shares issued from distribution reinvestment program | $ | 247 | $ | 200 |
Reclassifications
Certain prior period amounts may have been reclassified to conform to the current year presentation.
3. | Development Projects |
Lower East Side Moxy Hotel
On December 3, 2018, the Company, through a subsidiary of the Operating Partnership, acquired adjacent three parcels of land located at 147-151 Bowery, New York, New York (collectively, the “Bowery Land”) from 151 Emmut Properties LLC and 145-149 Bowery LLC, both unaffiliated third parties, for aggregate consideration of approximately $56.5 million, excluding closing and other acquisition related costs. Additionally, on December 6, 2018, the Company, though a subsidiary of the Operating Partnership, acquired certain air rights located at 329 Broome Street, New York, New York (the “Air Rights”) from B.R.P. Realty Corp., an unaffiliated third party, for approximately $2.4 million, excluding closing and other acquisition related costs. The Company is using the Bowery Land and Air Rights for the development and construction of a 296-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”). In connection with the acquisition of the Bowery Land and the Air Rights, the Advisor earned an acquisition fee equal to 2.75% of the aggregate gross contractual purchase price, which was approximately $1.6 million. The Lower East Side Moxy Hotel is currently under development.
Exterior Street Project
On February 27, 2019, the Company, through subsidiaries of the Operating Partnership, acquired two adjacent parcels of land located at 355 and 399 Exterior Street, New York, New York (collectively, the “Exterior Street Land”), from Borden Realty Corp and 399 Exterior Street Associates LLC, unaffiliated third parties, for an aggregate purchase price of approximately $59.0 million, excluding closing and other acquisition related costs. The Company is using the Exterior Street Land for the development and construction of a multi-family residential property (the “Exterior Street Project”). The Exterior Street Project is currently under development.
On March 29, 2019, the Company entered into a $35.0 million loan (the “Exterior Street Loan”) which initially bore interest at 4.50% and matured on April 9, 2020. However, because the Company has already exercised the second of two six-month extension options, the current maturity date is now April 9, 2021 and upon the exercise of the second extension option on October 9, 2020, the interest rate became Libor plus 2.25%. The Exterior Street Loan requires monthly interest payments through its maturity date and is collateralized by the Exterior Street Project. In connection with the acquisition of the Exterior Street Land, the Advisor earned an acquisition fee equal to 2.75% of the gross aggregate contractual purchase price, which was approximately $1.6 million.
Santa Clara Data Center
On January 10, 2019, the Company, through subsidiaries of the Operating Partnership, acquired a parcel of land located at 2175 Martin Avenue, Santa Clara, California (the “Martin Avenue Land”) from The Chioini Living Trust, an unaffiliated third party, for approximately $10.6 million, excluding closing and other acquisition related costs. The Company intends to use the Martin Avenue Land for the development and construction of a data center (the “Santa Clara Data Center”). In connection with the acquisition of the Martin Avenue Land, the Advisor earned an acquisition fee equal to 2.75% of the gross contractual purchase price, which was approximately $0.2 million. The Santa Clara Data Center is currently under development.
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)
The following is a summary of the amounts incurred and capitalized to construction in progress as of the dates indicated and the amounts of interest capitalized to construction in progress for the periods indicated:
Amounts Capitalized to Construction in Progress | Capitalized Interest | Capitalized Interest | ||||||||||||||||||||||
As of | As of | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
Development Projects | September 30, 2020 | December 31, 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||
Lower East Side Moxy Hotel | $ | 91,365 | $ | 73,776 | $ | 1,146 | $ | 991 | $ | 3,253 | $ | 3,159 | ||||||||||||
Exterior Street Project | 72,089 | 66,084 | 722 | 1,083 | 2,510 | 2,552 | ||||||||||||||||||
Santa Clara Data Center | 13,478 | 13,027 | 103 | 96 | 295 | 336 | ||||||||||||||||||
Total Developments Projects | $ | 176,932 | $ | 152,887 | $ | 1,971 | $ | 2,170 | $ | 6,058 | $ | 6,047 |
4. | Marketable Securities, |
Marketable Securities:
The following is a summary of the Company’s available for sale securities as of the dates indicated:securities:
As of September 30, 2017 | As of September 30, 2020 | |||||||||||||||||||||||||||||||
Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||||||||
Marketable Securities: | ||||||||||||||||||||||||||||||||
Equity securities: | ||||||||||||||||||||||||||||||||
Equity Securities, primarily REITs | $ | 1,405 | $ | 165 | $ | - | $ | 1,570 | $ | 8,798 | $ | 104 | $ | (2,194 | ) | $ | 6,708 | |||||||||||||||
Marco OP Units and Marco II OP Units | 19,227 | 14,585 | - | 33,812 | 19,227 | - | (5,693 | ) | 13,534 | |||||||||||||||||||||||
Corporate Bonds and Preferred Equities | 16,463 | 516 | - | 16,979 | ||||||||||||||||||||||||||||
Mortgage Backed Securities ("MBS") | 1,915 | - | (298 | ) | 1,617 | |||||||||||||||||||||||||||
28,025 | 104 | (7,887 | ) | 20,242 | ||||||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||||||||||
Corporate Bonds | 16,964 | 147 | (579 | ) | 16,532 | |||||||||||||||||||||||||||
Total | $ | 39,010 | $ | 15,266 | $ | (298 | ) | $ | 53,978 | $ | 44,989 | $ | 251 | $ | (8,466 | ) | $ | 36,774 |
As of December 31, 2016 | As of December 31, 2019 | |||||||||||||||||||||||||||||||
Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||||||||
Marketable Securities: | ||||||||||||||||||||||||||||||||
Equity securities: | ||||||||||||||||||||||||||||||||
Equity Securities, primarily REITs | $ | 1,405 | $ | 325 | $ | - | $ | 1,730 | $ | 6,799 | $ | 375 | $ | (17 | ) | $ | 7,157 | |||||||||||||||
Marco OP Units and Marco II OP Units | 19,227 | 17,949 | - | 37,176 | 19,227 | 11,942 | - | 31,169 | ||||||||||||||||||||||||
Corporate Bonds and Preferred Equities | 11,382 | - | (397 | ) | 10,985 | |||||||||||||||||||||||||||
Mortgage Backed Securities ("MBS") | 2,918 | - | (314 | ) | 2,604 | |||||||||||||||||||||||||||
26,026 | 12,317 | (17 | ) | 38,326 | ||||||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||||||||||
Corporate Bonds | 15,993 | 442 | (23 | ) | 16,412 | |||||||||||||||||||||||||||
Total | $ | 34,932 | $ | 18,274 | $ | (711 | ) | $ | 52,495 | $ | 42,019 | $ | 12,759 | $ | (40 | ) | $ | 54,738 |
As of both September 30, 2020 and December 31, 2019, the Company held an aggregate of 209,243 Marco OP Units and Marco II OP Units, of which 89,695 were owned by PRO. The Marco OP Units and the Marco II OP Units are exchangeable for a similar number of common operating partnership units (“Simon OP Units”) of Simon Property Group, L.P., (“Simon OP”), the operating partnership of Simon Property Group, Inc. (“Simon”)., a public REIT that is an owner and operator of shopping malls and outlet centers. Subject to the various conditions, the Company may elect to exchange the Marco OP Units and/or the Marco II OP Units to Simon OP Units which must be immediately delivered to Simon in exchange for cash or similar number of shares of Simon’s common stock (“Simon Stock”). Accordingly, the Marco OP Units and Marco II OP Units are valued based on the closing price of Simon Stock, which was $64.68 per share and $148.96 per share as of September 30, 2020 and December 31, 2019, respectively.
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)
As of December 31, 2019, the Company’s marketable equity securities had an aggregate unrealized holding gain of approximately $12.3 million, which was principally attributable to its Marco OP Units and Marco II OP Units. During 2020, financial markets experienced significant volatility in response to the current COVID-19 pandemic, including significant changes in market interest rates and market prices of certain equity securities. Primarily because of this volatility, the Company incurred unrealized losses of approximately $1.5 million and $20.1 million, respectively, for the three and nine months ended September 30, 2020. These unrealized losses incurred on the Company’s marketable equity securities are included in its consolidated statements of operations. As a result, the Company’s marketable equity securities had an aggregate net unrealized loss of approximately $7.8 million, of which approximately $5.7 million was attributable to its Marco OP Units and Marco II OP Units, as of September 30, 2020.
As of December 31, 2019, the Company’s marketable debt securities had an aggregate unrealized holding gain of approximately $0.4 million. During the three and nine months ended September 30, 2020, the Company experienced a holding gain of approximately $0.6 million and a holding loss of approximately $0.9 million, respectively, on its available for sale marketable debt securities. This holding gain and loss on the Company’s marketable debt securities are included in its consolidated statements of comprehensive income. As a result, the Company’s marketable debt securities had an aggregate net unrealized loss of approximately $0.4 million as of September 30, 2020.
The Company considers the declines in market value of certain of its investments in marketable debt securities to be temporary in nature as the unrealized losses as of September 30, 2020 were caused primarily by changesfinancial market volatility associated with the current COVID-19 pandemic which resulted in significant volatility in market interest rates or widening credit spreads.and market prices of certain debt securities. When evaluating theseits investments in marketable debt securities for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investmentmarketable debt security before recovery of the investment’sits amortized cost basis. During the three and nine months ended September 30, 20172020 and 2016,2019, the Company did not recognize any impairment charges.charges on its investments in marketable debt securities. As of September 30, 2017,2020, the Company does not consider any of its investments in marketable debt securities to be other-than-temporarily impaired.
The Company may sell certain of its investments in marketable debt securities prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management. The maturities of the Company’s MBS generally ranged from 27 years to 30 years.
Notes Payable
Margin Loan
The Company has access to a margin loan (the “Margin Loan”) from a financial institution that holds custody of certain of the Company’s marketable securities. The Margin Loan, which is due on demand, bears interest at Libor plus 0.85% (2.09% as of September 30, 2017) and is collateralized by the marketable securities in the Company’s account. The amounts available to the Company under the Margin Loan are at the discretion of the financial institution and not limited to the amount of collateral in its account. There were no amounts outstanding under this Margin Loan as of September 30, 2017 and December 31, 2016.
Line of Credit
On September 14, 2012, the Company 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, 2019 and bears interest at Libor plus 1.35% (2.59% as of September 30, 2017). The Line of Credit is collateralized by approximately 252,000 Marco OP Units and PRO guaranteed the Line of Credit. The amount outstanding under the Line of Credit was $18.6 million as of September 30, 2017 and December 31, 2016 and is included in Notes Payable on the consolidated balance sheets.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
• | Level 1 – Quoted prices in active markets for identical assets or liabilities. | ||
• | Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | ||
• | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
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)
Marketable securities available for sale, measured at fair value on a recurring basis as of the dates indicated are as follows:
Fair Value Measurement Using | Fair Value Measurement Using | |||||||||||||||||||||||||||||||
As of September 30, 2017 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||
As of September 30, 2020 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||
Marketable Securities: | ||||||||||||||||||||||||||||||||
Equity Securities, primarily REITs | $ | 1,570 | $ | - | $ | - | $ | 1,570 | $ | 6,708 | $ | - | $ | - | $ | 6,708 | ||||||||||||||||
Marco OP and OP II Units | - | 33,812 | - | 33,812 | - | 13,534 | - | 13,534 | ||||||||||||||||||||||||
Corporate Bonds and Preferred Equities | - | 16,979 | - | 16,979 | ||||||||||||||||||||||||||||
MBS | - | 1,617 | - | 1,617 | ||||||||||||||||||||||||||||
Corporate Bonds | - | 16,532 | - | 16,532 | ||||||||||||||||||||||||||||
Total | $ | 1,570 | $ | 52,408 | $ | - | $ | 53,978 | $ | 6,708 | $ | 30,066 | $ | - | $ | 36,774 |
Fair Value Measurement Using | Fair Value Measurement Using | |||||||||||||||||||||||||||||||
As of December 31, 2016 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||
As of December 31, 2019 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||
Marketable Securities: | ||||||||||||||||||||||||||||||||
Equity Securities, primarily REITs | $ | 1,730 | $ | - | $ | - | $ | 1,730 | $ | 7,157 | $ | - | $ | - | $ | 7,157 | ||||||||||||||||
Marco OP and OP II Units | - | 37,176 | - | 37,176 | - | 31,169 | - | 31,169 | ||||||||||||||||||||||||
Corporate Bonds and Preferred Equities | - | 10,985 | - | 10,985 | ||||||||||||||||||||||||||||
MBS | - | 2,604 | - | 2,604 | ||||||||||||||||||||||||||||
Corporate Bonds | - | 16,412 | - | 16,412 | ||||||||||||||||||||||||||||
Total | $ | 1,730 | $ | 50,765 | $ | - | $ | 52,495 | $ | 7,157 | $ | 47,581 | $ | - | $ | 54,738 |
The fair values of the Company’s investments in Corporate Bonds and Preferred Equities and MBS are measured using readily available quoted prices for similar assets. Additionally, as noted and disclosed above, the Company’s Marco OP and Marco OP II Units are ultimately exchangeable for cash or similar number of shares of Simon Stock, therefore the Company uses the quoted market price of Simon Stock to measure the fair value of the Company’s Marco OP and Marco OP II Units.
The following table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:
As of September 30, 2020 | ||||
Due in 1 year | $ | 1,888 | ||
Due in 1 year through 5 years | 4,272 | |||
Due in 5 years through 10 years | - | |||
Due after 10 years | 10,372 | |||
Total | $ | 16,532 |
The Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized at fair value.
Notes Payable |
In June 2011, the Company acquired a senior mortgage note (the “Senior Mortgage”) with an outstanding principal balance of $8.8 million for $5.6 million from, an unaffiliated third party. The purchase price reflected a discount of $3.2 million to the then outstanding principal balance.
The Senior Mortgage was originated by Banc of America in July 2007 with an initial principal balance of $9.1 million. It was collateralized by a Holiday Inn Express located in East Brunswick, New Jersey and bore interest at a fixed rate of 6.33% per annum with scheduled monthly principal and interest payments of approximately $56 through its stated maturity in August 2017. However, the Senior Mortgage was transferred to special servicing in February 2010 due to payment defaults. Because the Senior Mortgage was in default, the aforementioned discount was not amortized by the Company.
As a result of the payment defaults, the borrower was required to transfer any excess cash flow from the underlying collateral to the Company on a monthly basis. The Company applied the cash receipts method of income recognition, whereby the Company recognized any excess cash, after the required funding for real estate taxes and insurance and other escrow-related disbursements, as interest income until such time as the borrower was current on all amounts owed to the Company for interest and then any remaining cash was applied as a reduction to the Company’s carrying amount of the Senior Mortgage.
In June 2017, the Company received a payment of approximately $8.1 million in full satisfaction of the Senior Mortgage and recorded a gain on satisfaction of mortgage receivable of $3.2 million representing the difference between the $8.1 million received and the Company’s $4.9 million carrying value of the Senior Mortgage.
Margin Loan
The Company has access to a margin loan (the “Margin Loan”) from a financial institution that holds custody of certain of the Company’s marketable securities. The Margin Loan, which is due on demand, bears interest at Libor plus 0.85% (1.00% as of September 30, 2020) and is collateralized by the marketable securities in the Company’s account. The amounts available to the Company under the Margin Loan are at the discretion of the financial institution and not limited to the amount of collateral in its account. There were no amounts outstanding under this Margin Loan as of September 30, 2020 and December 31, 2019.
Line of Credit
The Company has a non-revolving credit facility (the “Line of Credit”) that provides for borrowings up to a maximum of $20.0 million, subject to a 55% loan-to-value ratio based on the fair value of the underlying collateral, matures on June 19, 2021 and bears interest at Libor plus 1.35% (1.50% as of September 30, 2020). The Line of Credit is collateralized by an aggregate of 209,243 of Marco OP Units and Marco II OP Units and is guaranteed by PRO. As of September 30, 2020, the amount of borrowings available to be drawn under the Line of Credit was approximately $7.4 million. No amounts were outstanding under the Line of Credit as of September 30, 2020 and December 31, 2019.
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)
5. |
Mortgages payable, net consistsBeginning in 2019, the Company has formed certain joint ventures (collectively, the “NR Joint Ventures”) between wholly-owned subsidiaries of the following:Operating Partnership (collectively, the “NR Subsidiaries”) and affiliates of the Sponsor (the “NR Affiliates”) which have originated nonrecourse loans (collectively, the “Joint Venture Promissory Notes”) to unaffiliated third-party borrowers (collectively, the “Joint Venture Borrowers”).
Property | Interest Rate | Weighted Average Interest Rate as of September 30, 2017 | Maturity Date | Amount Due at Maturity | As of September 30, 2017 | As of December 31, 2016 | ||||||||||||||
Oakview Plaza | (Extinguished in foreclosure on September 15, 2017) | $ | - | $ | - | $ | 25,583 | |||||||||||||
Gulf Coast Industrial Portfolio | 9.83% | 9.83 | % | Due on demand | 50,205 | 50,205 | 50,205 | |||||||||||||
St. Augustine Outlet Center | LIBOR + 4.50% | 5.52 | % | August 2018 | 20,400 | 20,400 | 20,400 | |||||||||||||
Gantry Park | 4.48% | 4.48 | % | November 2024 | 65,317 | 74,500 | 74,500 | |||||||||||||
DePaul Plaza | LIBOR + 2.75% | 3.76 | % | June 2020 | 13,494 | 14,582 | 14,888 | |||||||||||||
Total mortgages payable | 6.23 | % | $ | 149,416 | $ | 159,687 | $ | 185,576 | ||||||||||||
Less: Deferred financing costs | (1,808 | ) | (2,263 | ) | ||||||||||||||||
Total mortgages payable, net | $ | 157,879 | $ | 183,313 |
The Company’s non-recourse mortgage loan (the “Oakview Plaza Mortgage”) secured byNR Subsidiaries and NR Affiliates have varying ownership interests in the NR Joint Ventures and certain other wholly-owned subsidiaries of the Operating Partnership serve as the manager and are the sole decision-maker for each of the NR Joint Ventures.
The Company has determined that the NR Joint Ventures are VIEs and the NR Subsidiaries are the primary beneficiaries. Since the NR Subsidiaries are the primary beneficiaries, beginning on the applicable date of formation, the Company has consolidated the operating results and financial condition of the NR Joint Ventures and accounted for the respective ownership interests of the NR Affiliates as noncontrolling interests.
The Joint Venture Promissory Notes provide for monthly interest at a retail power center located in Omaha, Nebraska (“Oakview Plaza”) matured in January 2017 and was not repaid which constituted a maturity default. The Oakview Plaza Mortgage was transferredprescribed variable rate, subject to a special servicerfloor. In connection with funding of the Joint Venture Promissory Notes, the NR Joint Ventures have received origination fees (1.00% - 1.50%) based on the principal amount of the loan and on September 15, 2017, ownershipretained a portion of Oakview Plaza was transferredthe loan proceeds to the lender via foreclosureestablish a reserve for interest and other items (the “Oakview Plaza Foreclosure”“Loan Reserves”). The Joint Venture Promissory Notes are recorded in notes receivable, net on the consolidated balance sheets.
The Joint Venture Promissory Notes generally have an initial term of one or two years and may provide for additional extension options subject to satisfaction of certain prescribed conditions, including the funding of an additional Loan Reserves and payment of an extension fee. The Joint Venture Promissory Notes are collateralized by either the membership interests of the Joint Venture Borrowers in the borrowing entity or the underlying real property being developed by the Joint Venture Borrower.
The origination fees received are presented in the consolidated balance sheets as a direct deduction from the carrying value of the assets transferred Joint Venture Promissory Notes and are amortized into interest income, using a straight-line method that approximates the effective interest method, over the initial term of the Joint Venture Promissory Notes. The Loan Reserves are presented in the consolidated balance sheets as a direct deduction from the carrying value of the Joint Venture Promissory Notes and are applied against the monthly interest due over the term.
During nine months ended September 30, 2020, the NR Subsidiaries and the liabilities extinguished in connection withNR Affiliates made aggregate contributions to the Oakview Plaza Foreclosure both approximated $27.0 million. The balanceNR Joint Ventures of approximately $21.9 million and $21.9 million, respectively, principally to fund their respective shares of the Oakview Plaza Mortgage asJoint Venture Promissory Notes that were originated. During the nine months ended September 30, 2019, the NR Subsidiaries and the NR Affiliates made aggregate contributions to the NR Joint Ventures of approximately $31.5 million and $32.5 million, respectively, principally to fund their respective shares of the date of foreclosure was $25.6 million andJoint Venture Promissory Notes that were originated. Additionally, during the associated accrued default interest was $1.0 million.
Libor as ofnine months ended September 30, 20172020, the NR Joint Ventures made aggregate distributions of approximately $14.2 million to both the NR Subsidiaries and December 31, 2016 was 1.24% and 0.53%, respectively. The Company’s loans are secured byNR Affiliates, based on their respective membership interests. During the indicated real estate and are non-recourse to the Company.
The following table shows the contractually scheduled principal maturities of the Company’s mortgage debt during the next five years and thereafter as ofnine months ended September 30, 2017:
2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | ||||||||||||||||||||||
Principal maturities | $ | 50,307 | $ | 21,967 | $ | 1,621 | $ | 14,924 | $ | 1,328 | $ | 69,540 | $ | 159,687 | ||||||||||||||
Less: Deferred financing costs | (1,808 | ) | ||||||||||||||||||||||||||
Total principal maturities, net | $ | 157,879 |
Certain2019, the NR Joint Ventures made aggregate distributions of approximately $0.5 million to both the Company’s debt agreements require the maintenance of certain ratios, including debt service coverage. The Company is currently in compliance with all of its financial debt covenants other than the debt associated with the Gulf Coast Industrial Portfolio as discussed below. Additionally, certain of our mortgages payable also contain clauses providing for prepayment penalties.
As a result of not meeting certain debt service coverage ratiosNR Subsidiaries and NR Affiliates, based on the non-recourse mortgage indebtedness secured by the Gulf Coast Industrial Portfolio (the “Gulf Coast Industrial Portfolio Mortgage”), the lender elected to retain the excess cash flow from these properties beginning in July 2011. During the third quarter of 2012, the Gulf Coast Industrial Portfolio Mortgage was transferred to a special servicer, who discontinued scheduled debt service payments and notified the Company that the Gulf Coast Industrial Portfolio Mortgage was in default and although originally due in February 2017 became due on demand. The Company believes the continued loss of excess cash flow from the Gulf Coast Industrial Portfolio or the loss of these properties will not have a material impact on its results of operations or financial position.their respective membership interests.
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)
Although the lender is not currently charging or being paid interest at the stated default rate, the Company is accruing default interest expense on the Gulf Coast Industrial Portfolio Mortgage pursuant to the terms of its loan agreement. Additionally, the Company accrued default interest expense on the Oakview Plaza Mortgage pursuant to the terms of its loan agreement from January 2017 through September 15, 2017. Default interest expense of $0.8 million and $2.5 million was accrued during the three and nine months ended September 30, 2017 and default interest expense of $0.5 million and $1.5 million was accrued during the three and nine months ended September 30, 2016. Additionally, as disclosed above, in connection with the Oakview Plaza Foreclosure, approximately $1.0 million of default interest related to the Oakview Plaza Mortgage was extinguished. As a result, cumulative accrued default interest expense (solely related the Gulf Coast Industrial Portfolio Mortgage) of $10.7 million and $9.2 million is included in accounts payable, accrued expenses and other liabilities on our consolidated balance sheets as of September 30, 2017 and December 31, 2016, respectively. However, the Company does not expect to pay any of the accrued default interest expense as these mortgage loans are non-recourse to it.
In addition, the Company’s recourse mortgage loan secured by the St. Augustine Outlet Center located in St. Augustine, Florida (outstanding principal balance of $20.4 million as of September 30, 2017) initially matures in August 2018 and has two one-year extensions, subject to satisfaction of certain conditions. The Company currently intends to exercise the extension option before the initial maturity. Other than these financings, the Company has no additional significant maturities of mortgage debt over the next 12 months.
DoubleTree – Danvers
On September 7, 2017, the Company disposed of a hotel and water park (the “DoubleTree – Danvers”) located in Danvers, Massachusetts, to an unrelated third party for aggregate consideration of approximately $31.5 million. In connection with the disposition, the Company recorded a gain on the disposition of real estate of approximately $10.5 million during the third quarter of 2017.
The dispositionfollowing tables summarize the Notes Receivable as of the DoubleTree – Danvers did not qualify to be reported as discontinued operations since the disposition did not represent a strategic shift in the Company’s operations that had a major effect on the Company’s operations and financial results (see note 10). Accordingly, the operating results of the DoubleTree – Danvers are reflected in the Company’s results from continuing operations for all periods presented through its respective date of disposition.dates indicated:
Company's Ownership Percentage | Loan Commitment Amount | Origination Fee | Origination Date | Maturity Date | Contractual Interest Rate | As of September 30, 2020 | ||||||||||||||||||||||||||
Outstanding Principal | Reserves | Unamortized Origination Fee | Carrying Value | Unfunded Commitment | ||||||||||||||||||||||||||||
Joint Venture/Lender | ||||||||||||||||||||||||||||||||
LSC 162nd Capital I LLC | 45.45 | % | $ | 4,234 | 1.50 | % | February 5, 2019 | November 11,2020 | Libor plus 7.50% (Floor of 11%) | $ | 4,076 | $ | (71 | ) | $ | (10 | ) | $ | 3,995 | $ | - | |||||||||||
LSC 162nd Capital II LLC | 45.45 | % | 9,166 | 1.50 | % | February 5, 2019 | November 11,2020 | Libor plus 7.50% (Floor of 11%) | 8,824 | (153 | ) | (22 | ) | 8,649 | - | |||||||||||||||||
LSC 1543 7th LLC | 50 | % | 20,000 | 1.00 | % | August 27, 2019 | February 26, 2021 | Libor plus 5.40% (Floor of 7.90%) | 20,000 | - | (83 | ) | 19,917 | - | ||||||||||||||||||
LSC 1650 Lincoln LLC | 50 | % | 24,000 | 1.00 | % | August 27, 2019 | February 26, 2021 | Libor plus 5.40% (Floor of 7.90%) | 24,000 | - | (100 | ) | 23,900 | - | ||||||||||||||||||
LSC 11640 Mayfield LLC | 50 | % | 18,000 | 1.50 | % | March 4, 2020 | March 1, 2022 | Libor plus 10.50% (Floor of 12.50%) | 10,750 | (2,712 | ) | (192 | ) | 7,846 | 7,250 | |||||||||||||||||
LSC 87 Newkirk LLC | 50 | % | 42,700 | 1.25 | % | July 2, 2020 | December 1, 2021 | Libor plus 6.00% (Floor of 7.00%) | 42,700 | (4,570 | ) | (446 | ) | 37,684 | - | |||||||||||||||||
Total | $ | 110,350 | $ | (7,506 | ) | $ | (853 | ) | $ | 101,991 | $ | 7,250 |
Company's Ownership Percentage | Loan Commitment Amount |
Origination Fee |
Origination Date | Current Maturity Date | Contractual Interest Rate | As of December 31, 2019 | ||||||||||||||||||||||||||||
Outstanding Principal | Loan | Unamortized Origination Fee | Carrying | |||||||||||||||||||||||||||||||
Joint Venture/Lender | ||||||||||||||||||||||||||||||||||
LSC 162nd Capital I LLC | 45.45 | % | $ | 4,234 | 1.50 | % | February 5, 2019 | March 1,2020 | Libor plus 7.50% (Floor of 10%) | $ | 4,234 | $ | (82 | ) | $ | (6 | ) | $ | 4,146 | |||||||||||||||
LSC 162nd Capital II LLC | 45.45 | % | 9,166 | 1.50 | % | February 5, 2019 | March 1,2020 | Libor plus 7.50% (Floor of 10%) | 9,166 | (178 | ) | (14 | ) | 8,974 | ||||||||||||||||||||
LSC 47-16 Greenpoint LLC | 50 | % | 13,000 | 1.00 | % | April 5, 2019 | April 4, 2020 | Libor plus 5.75% (Floor of 8.25%) | - | - | - | - | ||||||||||||||||||||||
LSC 1543 7th LLC | 50 | % | 20,000 | 1.00 | % | August 27, 2019 | August 26, 2020 | Libor plus 5.15% (Floor of 7.65%) | 20,000 | (504 | ) | (131 | ) | 19,365 | ||||||||||||||||||||
LSC 1650 Lincoln LLC | 50 | % | 24,000 | 1.00 | % | August 27, 2019 | August 26, 2020 | Libor plus 5.15% (Floor of 7.65%) | 24,000 | (605 | ) | (157 | ) | 23,238 | ||||||||||||||||||||
Total | $ | 57,400 | $ | (1,369 | ) | $ | (308 | ) | $ | 55,723 |
Oakview Plaza
The Oakview Plaza Mortgage secured by Oakview Plaza maturedfollowing summarizes the interest earned (included in January 2017interest and was not repaid which constituted a maturity default. The Oakview Plaza Mortgage was transferred to a special servicer anddividend income on September 15, 2017, ownershipthe consolidated statements of Oakview Plaza was transferred to the lender via the Oakview Plaza Foreclosure. The carrying valueoperations) for each of the assets transferred and the liabilities extinguished in connection with the Oakview Plaza Foreclosure both approximated $27.0 million. The balance of the Oakview Plaza Mortgage as of the date of foreclosure was $25.6 million and the associated accrued default interest was $1.0 million.
The disposition of Oakview Plaza did not qualify to be reported as discontinued operations since the disposition did not represent a strategic shift that had a major effect on the Company’s operations and financial results. Accordingly, the operating results of the Oakview Plaza are reflected in the Company’s results from continuing operations for all periods presented through its respective date of disposition.
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 outstandingJoint Venture Promissory Notes 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, there were no exercises of outstanding options and, therefore, dilutive net income per share is equivalent to basic net income per share.indicated:
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
Joint Venture/Lender | 2020 | 2019 | 2020 | 2019 | ||||||||||||
LSC 162nd Capital I LLC | $ | 145 | $ | 118 | $ | 508 | $ | 321 | ||||||||
LSC 162nd Capital II LLC | 314 | 269 | 1,099 | 695 | ||||||||||||
LSC 47-16 Greenpoint LLC | - | 313 | - | 597 | ||||||||||||
LSC 1543 7th LLC | 444 | 168 | 1,317 | 168 | ||||||||||||
LSC 1650 Lincoln LLC | 532 | 201 | 1,580 | 202 | ||||||||||||
LSC 11640 Mayfield LLC | 377 | - | 866 | - | ||||||||||||
LSC 87 Newkirk LLC | 812 | - | 812 | - | ||||||||||||
Total | $ | 2,624 | $ | 1,069 | $ | 6,182 | $ | 1,983 |
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)
6. | Mortgages Payable, Net |
Mortgages payable, net consists of the following:
Property/Investment | Interest Rate | Weighted Average Interest Rate as of September 30, 2020 | Maturity Date | Amount Due at Maturity | As of September 30, 2020 | As of December 31, 2019 | ||||||||||||||
Gantry Park Landing | 4.48% | 4.48 | % | November 2024 | $ | 65,317 | $ | 71,193 | $ | 72,128 | ||||||||||
Lower East Side Moxy Hotel | LIBOR + 4.25% (floor of 6.63%) | 6.63 | % | December 2020 | 35,168 | 35,168 | 34,828 | |||||||||||||
Exterior Street Project | 4.50% | 4.50 | % | April 2021 | 35,000 | 35,000 | 35,000 | |||||||||||||
Santa Monica Notes Receivable | LIBOR + 3.75% (floor of 5.50%) | 5.50 | % | February 2021 | 25,000 | 25,000 | 25,000 | |||||||||||||
87 Newkirk Note Receivable | LIBOR + 3.80% (floor of 4.80%) | 4.80 | % | January 2022 | 26,051 | 26,051 | - | |||||||||||||
Total mortgages payable | 5.05 | % | $ | 186,536 | 192,412 | 166,956 | ||||||||||||||
Less: Deferred financing costs | (1,327 | ) | (2,251 | ) | ||||||||||||||||
Total mortgages payable, net | $ | 191,085 | $ | 164,705 |
LIBOR as of September 30, 2020 and December 31, 2019 was 0.15% and 1.76%, respectively. The Company’s loans are secured by the indicated real estate and are non-recourse to the Company, unless otherwise indicated.
On July 22, 2020, the Company, through LSC 87 Newkirk LLC (the “87 Newkirk Joint Venture”), entered into a $27.5 million loan (the “87 Newkirk Loan”) which bears interest at LIBOR+3.80%, subject to a 4.80% floor, and is scheduled to initially mature on January 1, 2022 but may be further extended through the exercise of two, six-month extension options, which the 87 Newkirk Joint Venture may exercise by providing the lender with advance written notice. The 87 Newkirk Loan requires monthly interest payments through its maturity date and is collateralized by a nonrecourse loan originated by the 87 Newkirk Joint Venture. Through September 30, 2020, the Company received proceeds of $26.1 million under the 87 Newkirk Loan. As a result, the 87 Newkirk Loan had an outstanding balance and remaining availability of $26.1 million and $1.4 million, respectively, as of September 30, 2020.
On November 12, 2019, the Company, through LSC 1543 7th LLC and LSC 1650 Lincoln LLC (collectively, the “Santa Monica Joint Ventures”), entered into a $25.0 million loan (the “Santa Monica Loan”) which bears interest at LIBOR+3.75%, subject to a 5.50% floor, and was initially scheduled to mature on August 12, 2020 but had two six-month extension options. However, because the Company has exercised the first extension option, the current maturity date is now February 12, 2021. The Santa Monica Joint Ventures may exercise the remaining extension option by providing the lender with advance written notice. The Santa Monica Loan requires monthly interest payments through its maturity date and is cross-collateralized by two nonrecourse loans originated by the Santa Monica Joint Ventures.
On March 29, 2019, the Company entered into the $35.0 million Exterior Street Loan which initially bore interest at 4.50% and was scheduled to mature on April 9, 2020, but had two six-month extension options. However, because the Company has now exercised both extension options, the current maturity date is now April 9, 2021 and upon the exercise of the second extension option on October 9, 2020, the interest rate became Libor plus 2.25%. The Exterior Street Loan requires monthly interest payments through its maturity date and is collateralized by the Exterior Street Project.
On December 3, 2018, the Company entered into a mortgage loan collateralized by the Lower East Side Moxy Hotel (the “Bowery Mortgage”) for up to $35.6 million. The Bowery Mortgage has a term of two years, bears interest at LIBOR+4.25%, subject to a 6.63% floor, and requires monthly interest-only payments through its stated maturity with the entire unpaid balance due upon maturity. Through September 30, 2020, the Company received aggregate proceeds of $35.2 million under the Bowery Mortgage. As a result, the Bowery Mortgage had an outstanding balance and remaining availability of $35.2 million and $0.4 million, respectively, as of September 30, 2020.
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)
The following table shows the contractually scheduled principal maturities of the Company’s mortgage debt during the next five years and thereafter as of September 30, 2020:
2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | ||||||||||||||||||||||
Principal maturities | $ | 35,493 | $ | 61,328 | $ | 27,440 | $ | 1,454 | $ | 66,697 | $ | - | $ | 192,412 | ||||||||||||||
Less: Deferred financing costs | (1,327 | ) | ||||||||||||||||||||||||||
Total principal maturities, net | $ | 191,085 |
Certain of the Company’s debt agreements require the maintenance of certain ratios, including debt service coverage. As of September 30, 2020, the Company was in compliance with all of its financial debt covenants. Additionally, certain of our mortgages payable also contain clauses providing for prepayment penalties.
Debt Maturities
The Exterior Street Loan (outstanding principal balance of $35.0 million as of September 30, 2020) is scheduled to mature on April 9, 2021. The Company intends to refinance the Exterior Street Loan on or before the its maturity date.
The Santa Monica Loan (outstanding principal balance of $25.0 million as of September 30, 2020) is scheduled to mature on February 12, 2021. The Company currently intends to exercise the second extension option or refinance the Santa Monica Loan on or before its current maturity date.
The Bowery Mortgage (outstanding principal balance of $35.2 million as of September 30, 2020) matures on December 3, 2020. The Company currently expects to obtain an extension for the Bowery Mortgage until such time as it can obtain construction financing.
However, if the Company is unable to extend or refinance any of its maturing indebtedness at favorable terms, it will look to repay the then outstanding balance with available cash and/or proceeds from selective asset sales. The Company has no additional significant maturities of mortgage debt over the next 12 months.
7. | Leases |
The Company’s retail property (St. Augustine Outlet Center) and multi-family residential property (Gantry Park Landing) are both leased to tenants under operating leases. Substantially all of our multi-family residential property leases have initial terms of 12 months or less. Our retail space leases expire between the remainder of 2020 and 2026.
The Company, as a lessor, retains substantially all of the risks and benefits of ownership of the investment properties and continues to account for its leases as operating leases. The Company accrues fixed lease income on a straight-line basis over the terms of the leases. Some of the Company’s tenants are also required to pay overage rents based on sales over a stated base amount during the lease year. The Company recognizes this variable lease consideration only when each tenant’s sales exceed the applicable sales threshold. The Company amortizes any tenant inducements as a reduction of revenue utilizing the straight-line method over the term of the related lease.
The Company structures its leases to allow it to recover a portion of its property operating expenses from its tenants. A portion of The Company’s leases require the tenant to reimburse it for a portion of its operating expenses, including common area maintenance (“CAM”), real estate taxes and insurance. Such property operating expenses typically include utility, insurance and other administrative expenses. For some of the Company’s leases it receives a fixed payment from the tenant for the CAM component which is recognized as revenue on a straight-line basis over the term of the lease. When not reimbursed by the fixed CAM component, CAM expense reimbursements are based on the tenant’s proportionate share of the allocable operating expenses for the property. The Company accrues reimbursements from tenants for recoverable portions of all of these expenses as variable lease consideration in the period the applicable expenditures are incurred. The Company recognizes differences between estimated recoveries and the final billed amounts in the subsequent year. These differences were not material in any period presented.
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)
As of September 30, 2020, the approximate fixed future minimum rent payments, excluding variable lease consideration, from the Company’s retail property, due to us under non-cancelable leases are as follows:
2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | ||||||||||||||||||||
$ | 423 | $ | 1,455 | $ | 1,170 | $ | 1,114 | $ | 457 | $ | 229 | $ | 4,848 |
Pursuant to the lease agreements, tenants of the property may be required to reimburse the Company for some or the entire portion of the particular tenant's pro rata share of the real estate taxes and operating expenses of the property. Such amounts are not included in the future minimum lease payments above, but are included in tenant recovery income on the accompanying consolidated statements of operations. Lease income of approximately $0.1 million and $0.3 million for the three and nine months ended September 30, 2020, respectively, and, lease income of approximately $0.1 million and $0.8 million for the three and nine months ended September 30, 2019, respectively, related to variable lease payments was included in tenant recovery income on the accompanying consolidated statements of operations.
The Company has excluded its multi-family residential property’s leases from this table as substantially all of its multi-family residential property’s leases have initial terms of 12 months of less.
8. | Dispositions |
Disposition - Continuing Operations
The following disposition did not represent a strategic shift that had a major effect on the Company’s operations and financial results and therefore did not qualify to be reported as discontinued operations and its operating results are reflected in the Company’s results from continuing operations in the consolidated statements of operations for all periods presented through the date of disposition:
DePaul Plaza
On September 20, 2019, the Company disposed of a retail center located in Bridgeton, Missouri (“DePaul Plaza”), to an unrelated third party for aggregate consideration of approximately $19.8 million, excluding closing and other related costs. In connection with the disposition, the Company recorded a gain on the disposition of real estate of approximately $1.0 million during the third quarter of 2019.
Disposition – Discontinued Operations
The following dispositions qualified to be reported as discontinued operations and their operating results are classified as discontinued operations in the consolidated statements of operations for all periods presented through their respective dates of disposition:
Disposition Transactions related to Gulf Coast Industrial Portfolio
The Company had an outstanding non-recourse mortgage loan (the “Gulf Coast Industrial Portfolio Mortgage Loan”) which was originated in February 2007 and subsequently transferred during the third quarter of 2012 to a special servicer that discontinued scheduled debt service payments and notified the Company that the loan was in default and due on demand. The Gulf Coast Industrial Portfolio Mortgage Loan was initially cross-collateralized by a portfolio of 14 industrial properties (collectively, the “Gulf Coast Industrial Portfolio”) including the Louisiana Assets and four properties located in San Antonio, Texas (the “San Antonio Assets”).
Foreclosure of San Antonio Assets
On June 5, 2018, the special servicer completed a partial foreclosure of the Gulf Coast Industrial Portfolio pursuant to which it foreclosed on the San Antonio Assets. The San Antonio Assets were sold in a foreclosure sale by the special servicer for an aggregate amount of approximately $20.7 million.
Assignment of Ownership in Louisiana Assets to Lender
On February 12, 2019, the Company and the lender of the Gulf Coast Industrial Portfolio Mortgage entered into an assignment agreement (the “Assignment Agreement”) pursuant to which the Company assigned its membership interests in the Louisiana Assets to the lender with an effective date of February 7, 2019. Under the terms of the Assignment Agreement, the lender assumed the significant risks and rewards of ownership and took legal title and physical possession of the Louisiana Assets and assumed all the other assets and related liabilities, including the Gulf Coast Industrial Mortgage and its accrued and unpaid interest, and released the Company of any claims against the liabilities assumed.
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)
As a result of the Assignment Agreement, the Company has fully satisfied all of its obligations with respect to the Gulf Coast Industrial Portfolio Mortgage and all amounts accrued but not paid for interest (including default interest) and no amounts are due to the lender. Additionally, the Company has no continuing involvement with the Louisiana Assets.
The aggregate carrying value of the assets transferred and the liabilities extinguished in connection with the Company’s assignment of its ownership interests in the Louisiana Assets to the lender was approximately $37.0 million and $49.6 million, respectively.
Since the Company’s performance obligations were met upon the assignment of its ownership interests in the Louisiana Assets to the lender and the Company has no continuing involvement with the Louisiana Assets, an aggregate gain on debt extinguishment of approximately $13.6 million was recognized during the first quarter of 2019.
The disposition of the Louisiana Assets, which comprised all of the Company’s remaining industrial properties, represented a strategic shift that had a major effect on the Company’s operations and financial results. As a result, the operating results of the Louisiana Assets have been classified as discontinued operations in the Company’s consolidated statements of operations for all periods presented through their date of disposition.
The following summary presents the operating results of the Louisiana Assets included in discontinued operations in the Consolidated Statements of Operations for the periods indicated.
For the Three Months Ended September 30, 2019 | For the Nine Months Ended September 30, 2019 | |||||||
Revenues | $ | - | $ | 409 | ||||
Operating expenses | - | 317 | ||||||
Operating income | - | 92 | ||||||
Interest expense and other, net | - | (226 | ) | |||||
Gain on debt extinguishment | - | 13,615 | ||||||
Net income from discontinued operations | $ | - | $ | 13,481 |
Cash flows generated from discontinued operations are presented separately on the Company’s consolidated statements of cash flows.
Net Earnings Per Share |
Basic net earnings per share is calculated by dividing net income/(loss) attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the applicable period. Diluted net income/(loss) per share includes the potentially dilutive effect, if any, which would occur if our outstanding options to purchase our common stock were exercised. For all periods presented, dilutive net income/(loss) per share is equivalent to basic net income/(loss) per share.
10. | 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.
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)
The Company, pursuant to the related party arrangements, has recorded the following amounts for the periods indicated:
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
Acquisition fees (capitalized and are reflected in the carrying value of the investment) | $ | - | $ | - | $ | - | $ | 1,823 | ||||||||||||||||||||||||
Asset management fees (general and administrative costs) | $ | 556 | $ | 562 | $ | 1,684 | $ | 1,804 | 245 | 303 | 675 | 941 | ||||||||||||||||||||
Property management fees (property operating expenses) | 199 | 190 | 576 | 739 | 93 | 67 | 306 | 222 | ||||||||||||||||||||||||
Development fees and leasing commissions* | 125 | 29 | 706 | 80 | - | - | - | 167 | ||||||||||||||||||||||||
Total | $ | 880 | $ | 781 | $ | 2,966 | $ | 2,623 | $ | 338 | $ | 370 | $ | 981 | $ | 3,153 | ||||||||||||||||
* Generally, capitalized and amortized over the estimated useful life of the associated asset. | * Generally, capitalized and amortized over the estimated useful life of the associated asset. |
* Generally, capitalized and amortized overIn connection with the estimated useful life of the associated asset.
Company’s Offering, Lightstone SLP, LLC purchased an affiliateaggregate of the Company’s Sponsor, has purchased$30.0 million of SLP unitsUnits which are included in noncontrolling interests in the consolidated balance sheets. These SLP units,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 both the three and nine months ended September 30, 2017,2020 and 2019, distributions of $1.5$0.5 million and $1.6 million, respectively, were declared and paid on the SLP units.
The Company’s Sponsor, has a 19.17% membership interest in PRO, a subsidiary of the Operating Partnership, which is accounted for as noncontrolling interests.
Preferred Investments
The Company has entered into several agreements with various related party entities that provide for it to make preferred contributions pursuant to certain instruments (the “Preferred Investments”)Preferred Investments that entitle the Companyit to certain prescribed monthly preferred distributions. The Preferred Investments had an aggregate balance of $152.7$14.5 million and $141.3$34.5 million as of September 30, 20172020 and December 31, 2016,2019, respectively, and are classified as held-to-maturity securities, recorded at cost and included in investments in related parties on the consolidated balance sheets. The fair value of these investments approximated their carrying values based on market rates for similar instruments.
During the nine months ended September 30, 2017,2020, the Company made $13.7 million of additional contributions and redeemed $2.3$11.0 million of the 40 East End Avenue Preferred InvestmentsInvestment and asthe entire remaining Miami Moxy Preferred Investment of September 30, 2017, remaining contributions of up to $64.8 million were unfunded. During the three and nine months ended September 30, 2017, the Company recognized investment income of $4.6 million and $12.9 million, respectively, and during the three and nine months ended September 30, 2016, the Company recognized investment income of $4.0 million and $12.2 million, respectively, which is included in interest and dividend income on the consolidated statements of operations. The Company did not enter into any new Preferred Investments during the nine months ended September 30, 2017.$9.0 million.
The Preferred Investments are summarized as follows:
Preferred Investment Balance | Unfunded Contributions | Investment Income | Preferred Investment Balance | Investment Income (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividend | As of September 30, | As of December 31, | As of September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | As of | As of | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Investments | Rate | 2017 | 2016 | 2017 | 2017 | 2016 | 2017 | 2016 | Dividend Rate | September 30, 2020 | December 31, 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||
365 Bond Street | 12 | % | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 2,252 | ||||||||||||||||||||||||||||||||||||||||||||
40 East End Avenue | 8% to 12 | % | 30,000 | 30,000 | - | 920 | 613 | 2,463 | 1,795 | 12 | % | $ | 6,000 | $ | 17,000 | $ | 184 | $ | 920 | $ | 702 | $ | 2,730 | |||||||||||||||||||||||||||||||||||||
30-02 39th Avenue | 9% to 12 | % | 10,000 | 12,300 | 40,000 | 307 | 436 | 946 | 1,009 | 12 | % | - | - | - | - | - | 140 | |||||||||||||||||||||||||||||||||||||||||||
485 7th Avenue | 12 | % | 60,000 | 60,000 | - | 1,840 | 1,840 | 5,460 | 5,480 | |||||||||||||||||||||||||||||||||||||||||||||||||||
East 11th Street | 12 | % | 40,994 | 31,271 | 16,506 | 1,155 | 1,073 | 3,135 | 1,675 | 12 | % | 8,500 | 8,500 | 261 | 797 | 779 | 2,705 | |||||||||||||||||||||||||||||||||||||||||||
Miami Moxy | 12 | % | 11,699 | 7,682 | 8,302 | 346 | - | 905 | - | 12 | % | - | 9,000 | - | 615 | 45 | 1,705 | |||||||||||||||||||||||||||||||||||||||||||
Total Preferred Investments | $ | 152,693 | $ | 141,253 | $ | 64,808 | $ | 4,568 | $ | 3,962 | $ | 12,909 | $ | 12,211 | ||||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 14,500 | $ | 34,500 | $ | 445 | $ | 2,332 | $ | 1,526 | $ | 7,280 |
Note:
(1) | Included in interest and dividend income on the consolidated statements of operations. |
The Joint Venture
We haveThe Company has a 2.5% membership interest in a joint venture (the “Joint Venture”) with Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone II”), a related party REIT also sponsored by our Sponsor. The Joint Venture previously acquired our membership interests in a portfolio of 11 hotels in a series of transactions completed during 2015. During the third quarter of 2017, the Joint Venture, sold its ownership interests in four of the hotels to an unrelated third party and as a result,which holds ownership interests in the seven remaining hotels as of both September 30, 2017.2020 and December 31, 2019, the carrying value of its investment was $1.1 million and $1.2 million, respectively, which is included in investment in related parties on the consolidated balance sheets.
11. | Financial Instruments |
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted escrows, tenants’ accounts receivable, and accounts payable and accrued expenses approximate their fair values because of the short maturity of these instruments. The carrying amounts of the notes receivable approximate their fair values because the interest rates are variable and reflective of market 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)(Unaudited)
We account for our 2.5% membership interest in the Joint Venture under the cost method and as of September 30, 2017 and December 31, 2016, the carrying value of our investment was $1.2 million and $1.5 million, respectively, which is included in investment in related parties on the consolidated balance sheets.
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted escrows, tenants’ and other accounts receivable, interest receivable from related parties, accounts payable and accrued expenses and due to related parties approximated their fair values because of the short maturity of these instruments. The estimated fair value of the notes payable (line of credit) approximated its carrying value ($18.6 million) because of its floating interest rate. 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, 2017 | As of December 31, 2016 | |||||||||||||||
Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
Mortgages payable | $ | 159.7 | $ | 158.0 | $ | 185.6 | $ | 183.2 |
As of September 30, 2020 | As of December 31, 2019 | |||||||||||||||
Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
Mortgages payable | $ | 192.4 | $ | 197.3 | $ | 167.0 | $ | 167.9 |
The fair value of the mortgages payable was determined by discounting the future contractual interest and principal payments by estimated current market interest rates.
The Company currently operates in three business segments as of September 30, 2017: (i) retail real estate (the “Retail Segment”), (ii) multi-family residential real estate (the “Multi-family Residential Segment”) and (iii) industrial real estate (the “Industrial Segment”). Prior to the disposition of the DoubleTree – Danvers during the third quarter of 2017, the Company also had one remaining hotel that was classified as a hospitality property (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, 2017 and 2016 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, 2017 and December 31, 2016. 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, 2016 Annual Report on Form 10-K. Unallocated assets, revenues and expenses relate to corporate related accounts, including the Company’s Preferred Investments in Related Parties (see Note 8).
The Company evaluates performance based upon net operating income/(loss) from the combined properties in each real estate segment.
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)
Selected results of operations for the three and nine months ended September 30, 2017 and 2016, and total assets as of September 30, 2017 and December 31, 2016 regarding the Company’s operating segments are as follows:
For the Three Months Ended September 30, 2017 | ||||||||||||||||||||||||
Retail | Multi-Family | Industrial | Hospitality | Unallocated | Total | |||||||||||||||||||
Total revenues | $ | 2,452 | 2,118 | $ | 1,581 | $ | 4,741 | $ | - | $ | 10,892 | |||||||||||||
Property operating expenses | 905 | 492 | 631 | 3,620 | 4 | 5,652 | ||||||||||||||||||
Real estate taxes | 361 | 19 | 162 | 60 | - | 602 | ||||||||||||||||||
General and administrative costs | 39 | 3 | 6 | 107 | 2,019 | 2,174 | ||||||||||||||||||
Net operating income/(loss) | 1,147 | 1,604 | 782 | 954 | (2,023 | ) | 2,464 | |||||||||||||||||
Depreciation and amortization | 1,387 | 407 | 458 | 486 | - | 2,738 | ||||||||||||||||||
- | ||||||||||||||||||||||||
Operating (loss)/income | $ | (240 | ) | $ | 1,197 | $ | 324 | $ | 468 | $ | (2,023 | ) | $ | (274 | ) | |||||||||
�� | ||||||||||||||||||||||||
As of September 30, 2017: | ||||||||||||||||||||||||
Total Assets | $ | 71,896 | $ | 68,382 | $ | 50,351 | $ | 2,777 | $ | 329,617 | $ | 523,023 |
For the Three Months Ended September 30, 2016 | ||||||||||||||||||||||||
Retail | Multi-Family | Industrial | Hospitality | Unallocated | Total | |||||||||||||||||||
Total revenues | $ | 2,904 | $ | 2,283 | $ | 1,341 | $ | 6,532 | $ | - | $ | 13,060 | ||||||||||||
Property operating expenses | 811 | 536 | 523 | 4,913 | 1 | 6,784 | ||||||||||||||||||
Real estate taxes | 356 | 32 | 208 | 77 | - | 673 | ||||||||||||||||||
General and administrative costs | (9 | ) | 8 | 1 | 64 | 978 | 1,042 | |||||||||||||||||
Net operating income/(loss) | 1,746 | 1,707 | 609 | 1,478 | (979 | ) | 4,561 | |||||||||||||||||
Depreciation and amortization | 1,161 | 420 | 415 | 709 | - | 2,705 | ||||||||||||||||||
Operating income/(loss) | $ | 585 | $ | 1,287 | $ | 194 | $ | 769 | $ | (979 | ) | $ | 1,856 | |||||||||||
As of December 31, 2016: | ||||||||||||||||||||||||
Total Assets | $ | 100,105 | $ | 71,170 | $ | 49,509 | $ | 25,071 | $ | 301,440 | $ | 547,295 |
For the Nine Months Ended September 30, 2017 | ||||||||||||||||||||||||
Retail | Multi-Family | Industrial | Hospitality | Unallocated | Total | |||||||||||||||||||
Total revenues | $ | 7,805 | $ | 6,443 | $ | 4,683 | $ | 16,161 | $ | - | $ | 35,092 | ||||||||||||
Property operating expenses | 2,782 | 1,430 | 1,679 | 12,617 | 5 | 18,513 | ||||||||||||||||||
Real estate taxes | 1,120 | 55 | 555 | 221 | - | 1,951 | ||||||||||||||||||
General and administrative costs | 129 | 33 | (10 | ) | 225 | 4,238 | 4,615 | |||||||||||||||||
Net operating income/(loss) | 3,774 | 4,925 | 2,459 | 3,098 | (4,243 | ) | 10,013 | |||||||||||||||||
Depreciation and amortization | 3,759 | 1,218 | 1,339 | 1,936 | - | 8,252 | ||||||||||||||||||
Operating income/(loss) | $ | 15 | $ | 3,707 | $ | 1,120 | $ | 1,162 | $ | (4,243 | ) | $ | 1,761 |
For the Nine Months Ended September 30, 2016 | ||||||||||||||||||||||||
Retail | Multi-Family | Industrial | Hospitality | Unallocated | Total | |||||||||||||||||||
Total revenues | $ | 8,546 | $ | 10,405 | $ | 4,115 | $ | 17,104 | $ | - | $ | 40,170 | ||||||||||||
Property operating expenses | 2,648 | 3,064 | 1,543 | 13,623 | 2 | 20,880 | ||||||||||||||||||
Real estate taxes | 1,079 | 463 | 607 | 238 | - | 2,387 | ||||||||||||||||||
General and administrative costs | 54 | 54 | 87 | 235 | 3,250 | 3,680 | ||||||||||||||||||
Net operating income/(loss) | 4,765 | 6,824 | 1,878 | 3,008 | (3,252 | ) | 13,223 | |||||||||||||||||
Depreciation and amortization | 3,468 | 1,790 | 1,237 | 2,100 | - | 8,595 | ||||||||||||||||||
Operating income/(loss) | $ | 1,297 | $ | 5,034 | $ | 641 | $ | 908 | $ | (3,252 | ) | $ | 4,628 |
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)
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.
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.
Subsequent Events |
Distribution Payment
On October 16, 2017,15, 2020, the distribution for the three-month period ending September 30, 20172020 of $4.4$3.9 million was paid in cash.full using a combination of cash and approximately 7,000 shares of the Company’s common stock issued pursuant to the Company’s distribution reinvestment program (the “DRIP”), at a discounted price of $11.23 per share, equal to 95% of the Company’s most recently published estimated net asset value per share of $11.82 as of September 30, 2019.
Distribution Declaration
On November 14, 2017,6, 2020, the Company’s Board of Directors authorized and the Company declared a distribution of $0.175 per share for the three-monthquarterly period ending December 31, 2017.2020. The quarterly distribution will be calculated based on shareholdersis the pro rata equivalent of record each day during this three-month period at aan annual distribution of $0.70 per share, or an annualized rate of $0.0019178 per day, and will equal7.0% assuming a daily amount that, if paid each day for a 365-day period, would equal a 7.0% annualized rate based on a sharepurchase price of $10.00.$10.00 per share. The distribution will be paid in cash on or about January 15, 2018the 15th day of the month following the quarter-end to shareholdersstockholders of record asat the close of business on the last day of the quarter-end. The stockholders have an option to elect the receipt of shares under the Company’s DRIP.
Additionally, on November 6, 2020, the Board of Directors declared a quarterly distribution for the quarterly period ending December 31, 2017.2020 on the SLP Units at an annualized rate of 7.0%. Any future distributions on the SLP Units will always be subordinated until stockholders receive a stated preferred return.
Future distributions declared will be at the discretion of the Board of Directors based on their analysis of our performance over the previous periods and expectations of performance for future periods and may differ from the amount of the distribution determined for this period. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, current rental revenues, operating and interest expenses and our ability to refinance near-term debt. In addition, the Company currently intends to continue to comply with REIT distribution requirements. The Company cannot assure that regular distributions will continue to be made or that it will maintain any particular level of distributions that it has established or may establish.
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 Notes 1 and 8 of the Notes to Consolidated Financial Statements, the results of operations presented below exclude certain properties due to their classification as discontinued operations.
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 and uncertainties regarding the impact of the current COVID-19 pandemic, and restrictions intended to prevent its spread on our business and the economy generally, 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, (together with the Operating Partnership (as defined below), the “Company”, also referred to as the ‘‘Company’’ and the use of ‘‘we,’’ ‘‘our,’’ ‘‘us’’“we”, “our” 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“us” herein) has and mayexpects to continue to acquire and operate or develop in the future, commercial, residential and hospitality properties and/or make real estate-related investments, principally in the United States. PrincipallyOur acquisitions and investments are, principally conducted through the Operating Partnership, our acquisitions have includedand may include both portfolios and individual properties. Our commercial holdings consist
As of retail (primarily multi-tenant shopping centers), lodging, industrialSeptember 30, 2020, we have ownership interests in (i) two consolidated operating properties, (ii) three consolidated development properties and (iii) seven unconsolidated operating properties. With respect to our consolidated operating properties, we wholly own the St. Augustine Outlet Center, a retail outlet shopping center located in St. Augustine, Florida which contains approximately 0.3 million square feet of gross leasable area, and have a majority ownership interest of approximately 59.2% in Gantry Park Landing, a multi-family residential property located in Long Island City, New York which contains 199 apartment units. With respect to our consolidated development properties, comprisedwe wholly own three projects consisting of multi-family complexes.the Lower East Side Moxy Hotel, the Exterior Street Project and the Santa Clara Data Center, all of which were under development as of September 30, 2020. We also hold a 2.5% ownership interest in seven hotel properties through a joint venture (the “Joint Venture”). The CompanyJoint Venture is between us and the operating partnership of Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone II”), a real estate investment trust (“REIT”) also sponsored by our Sponsor, which has a 97.5% ownership interest in the Joint Venture. Furthermore, we have other real estate-related investments, including several agreements with various related party entities that provide for us to make preferred contributions pursuant to certain instruments (the “Preferred Investments”) and willnonrecourse promissory notes made to unaffiliated third-parties. Our real estate investments have been and are expected to continue to seek to originate, acquire and manage a diverse portfolio of real estate-related investments.be held by the Company alone or jointly with other parties.
We do not have employees. We haveentered into 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 boardBoard of directors.Directors. We pay the Advisor fees for services related to the investment and management of our assets, and we will reimburse the Advisor for certain expenses incurred on our behalf.
To maintain our qualification as a REIT, we engage in certain activities such as providing real estate-related services through taxable REIT subsidiaries (“TRSs”). As such, we may still be subject to U.S. federal and state income and franchise taxes from these activities.
Acquisitions and Investment Strategy
We have, to date, acquired and/or developed residential, commercial and hospitality properties principally, all of which are located in the United States and also made other real estate-related investments. Our acquisitions have included both portfolios and individual properties. Our current operating properties consist of one retail property (the St. Augustine Outlet Center) and one multi-family residential property (Gantry Park Landing). We have also acquired various parcels of land and air rights related to the development and construction of real estate properties. Additionally, we have made Preferred Investments and originated nonrecourse loans to unaffiliated third-party borrowers.
Investments in real estate are generally made through the purchase of all or part of a fee simple ownership, or all or part of a leasehold interest. We may also purchase limited partnership interests, limited liability company interests and other equity securities. We may also enter into joint ventures with related parties for the acquisition, development or improvement of properties as well as general partnerships, co-tenancies and other participations with real estate developers, owners and others for the purpose of developing, owning and operating real properties. We will not enter into a joint venture to make an investment that we would not be permitted to make on our own. Not more than 10% of our total assets will be invested in unimproved real property. For purposes of this paragraph, “unimproved real properties” does not include properties acquired for the purpose of producing rental or other operating income, properties under construction and properties for which development or construction is planned within one year.
Current Environment
Our operating results as well as our investment opportunities are substantially impacted by the overall health of the North American economies. Ourlocal, U.S. national and global economies and may be influenced by market and other challenges. Additionally, our business and financial performance may be adversely affected by current and future economic conditions, such as anand other conditions; including, but not limited to, availability or terms of credit,financings, financial markets volatility, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, and recession.
OurCOVID-19 Pandemic
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic leading many countries, including the United States, particularly at the individual state level, to impose various restrictions and other measures, including, but not limited to, mandatory closures, quarantines, limitations on travel, “shelter in place” rules and certain other measures in an effort to reduce its duration and spread. The COVID-19 pandemic has continued to evolve and while most states have initiated a phased approach allowing for reductions and/or lifting of restrictions, the situation remains highly unpredictable and dynamic.
As a result of previous restrictions, we closed our St. Augustine Outlet Center from March 20, 2020 through May 7, 2020. Primarily because of the impact of the COVID-19 pandemic on the operating performance of the St. Augustine Outlet Center’s tenancy, especially during the closure period, we have provided forbearance of certain rent payments to various tenants. Additionally, we have seen some deterioration in both the occupancy and rental rates for Gantry Park Landing, which is located on Long Island, New York, as the luxury rental market in the greater New York City metropolitan area has been negatively impacted by the COVID-19 pandemic. However, none of these items have yet materially impacted our results from operations or our financial condition.
To-date, the COVID-19 pandemic has not had any significant impact on our three development projects. Furthermore, our other real estate-related investments (both our preferred investments in related parties and nonrecourse loans made to unaffiliated third-party borrowers) also relate to various development projects which are at different stages in their respective development process. These investments, which are subject to similar restrictions and other measures, have also not yet been significantly impacted by the COVID-19 pandemic.
While our business has not yet seen any material impact from the COVID-19 pandemic, the extent to which it may be affected byin future periods remains highly uncertain and cannot be reasonably predicted.
If our operating properties, development projects and real estate-related investments are negatively impacted for an extended period because (i) occupancy levels and rental rates further decline, (ii) tenants are unable to pay their rent, (iii) borrowers are unable to pay scheduled debt service on notes receivable, (iv) development activities are delayed and/or (v) various related party entities are unable to pay monthly preferred distributions on our preferred investments in related parties, our business and financial results could be materially and adversely impacted. While we have implemented various cost reduction strategies, including the deferral of certain non-critical capital expenditures, there can be no assurance that these cost savings will fully mitigate the potential adverse impact of any lost revenue and income.
These and other market and economic challenges experienced by the U.S. and global economies. These conditions maycould materially affect (i) the value and performance of our properties, and may affectinvestments, (ii) our ability to pay future distributions, if any, (iii) the availability or the terms of financing that we have or may anticipate utilizing, andfinancings, (iv) our ability to make scheduled principal and interest payments, on, orand (v) our ability to refinance any outstanding debt when contractually due.
We are not currently 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,our operations, other than those referred to inabove or throughout this Form 10-Q.
Portfolio Summary – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period.
Location | Year Built (Range of years built) | Gross Leasable Area (GLA") in Square Feet | Percentage Occupied as of September 30, 2017 | Annualized Revenues based on rents at September 30, 2017 | Annualized Revenues per square foot at September 30, 2017 | |||||||||||||
Wholly Owned and Consolidated Real Estate Properties: | ||||||||||||||||||
Retail | ||||||||||||||||||
St. Augustine Outlet Center | St. Augustine, FL | 1998 | 335,455 | 83.0 | % | $3.7 million | $ | 13.33 | ||||||||||
DePaul Plaza | Bridgeton, MO | 1985 | 187,090 | 87.6 | % | $1.9 million | $ | 11.88 | ||||||||||
Retail Total | 522,545 | 84.7 | % | |||||||||||||||
Industrial | ||||||||||||||||||
7 Flex/Office/Industrial Buildings within the Gulf Coast Industrial Portfolio | New Orleans, LA | 1980-2000 | 339,700 | 58.4 | % | $2.2 million | $ | 10.94 | ||||||||||
4 Flex/Industrial Buildings within the Gulf Coast Industrial Portfolio | San Antonio, TX | 1982-1986 | 484,369 | 82.6 | % | $2.0 million | $ | 5.02 | ||||||||||
3 Flex/Industrial Buildings within the Gulf Coast Industrial Portfolio | Baton Rouge, LA | 1985-1987 | 182,792 | 80.9 | % | $1.1 million | $ | 7.10 | ||||||||||
Industrial Total | 1,006,861 | 74.1 | % | |||||||||||||||
Multi - Family Residential | Location | Year Built (Range of years built) | Leasable Units | Percentage Occupied as of September 30, 2017 | Annualized Revenues based September 30, 2017 | Annualized Revenues per unit at September 30, 2017 | ||||||||||||
Gantry Park (Multi-Family Apartment Building) | Queens, NY | 2013 | 199 | 96.0 | % | $8.2 million | $ | 43,082 |
Wholly Owned and Consolidated Real Estate Properties:
Location | Year Built (Range of years built) | Date Acquired | Gross Leasable Area ("GLA") in Square Feet/Leaseable Units | Percentage Occupied as of September 30, 2020 | Annualized Revenues based on rents at September 30, 2020 | Annualized Revenues per square foot/unit at September 30, 2020 | ||||||||||||||
St. Augustine Outlet Center (Retail Outlet Shopping Center (1) | St. Augustine, Florida | 1998 | March 2006 | 328,120 GLA | 74.8 | % | $2.0 million | $ | 8.02 | sqft | ||||||||||
Gantry Park Landing (Multi-Family Apartment Building) | Long Island City, New York | 2013 | August 2013 | 199 units | 86.9 | % | $8.1 million | $ | 46,793 | unit |
Annualized revenue is defined as the minimum monthly payments due as of September 30, 20172020 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.tenants as September 30, 2020.
Critical Accounting Policies and EstimatesDevelopment Projects
There were no material changes duringLower East Side Moxy Hotel
On December 3, 2018, we acquired three adjacent parcels of land located at 147-151 Bowery, New York, New York on which we are developing and constructing a 296-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”).
Exterior Street Pro ject
On February 27, 2019, we, acquired two adjacent parcels of land located at 355 and 399 Exterior Street, New York, New York, on which we are developing and constructing a multi-family residential property (the “Exterior Street Project”).
Santa Clara Data Center
On January 10, 2019, we acquired a parcel of land located at 2175 Martin Avenue, Santa Clara, CA, on which we are developing and constructing a data center (the “Santa Clara Data Center”).
The following is a summary of the nine months endedamounts incurred and capitalized to construction in progress for our development projects as of September 30, 2017 to our critical accounting policies as reported in our Annual Report on Form 10-K, for the year ended December 31, 2016.2020:
Development Projects | ||||
Lower East Side Moxy Hotel | $ | 91,365 | ||
Exterior Street Project | 72,089 | |||
Santa Clara Data Center | 13,478 | |||
Total Developments Projects | $ | 176,932 |
Results of Operations
Dispositions - Continuing Operations
The following disposition did not represent a strategic shift that had a major effect on our operations and financial results and therefore did not qualify to be reported as discontinued operations and its operating results are reflected in our results from continuing operations in the consolidated statements of operations for all periods presented through the date of disposition:
DispositionsDePaul Plaza
DoubleTree – Danvers
On September 7, 2017,20, 2019, we disposed of a hotel and water park (the “DoubleTree – Danvers”)retail center located in Danvers, Massachusetts,Bridgeton, Missouri (“DePaul Plaza”), to an unrelated third party for aggregate consideration of approximately $31.5 million.$19.8 million, excluding closing and other related costs. In connection with the disposition, we recorded a gain on the disposition of real estate of approximately $10.5$1.0 million during the third quarter of 2017.2019.
Oakview PlazaDispositions - Discontinued Operations
OurThe following dispositions qualified to be reported as discontinued operations and their operating results are classified as discontinued operations in the consolidated statements of operations for all periods presented through their respective dates of disposition:
Disposition Transactions related to Gulf Coast Industrial Portfolio
We had an outstanding non-recourse mortgage loan (the “Oakview Plaza Mortgage”“Gulf Coast Industrial Portfolio Mortgage Loan”) secured by a retail power center locatedwhich was originated in Omaha, Nebraska (“Oakview Plaza”) matured in January 2017February 2007 and was not repaid which constituted a maturity default. The Oakview Plaza Mortgage wassubsequently transferred during the third quarter of 2012 to a special servicer that discontinued scheduled debt service payments and notified us that the loan was in default and due on September 15, 2017, ownershipdemand. The Gulf Coast Industrial Portfolio Mortgage Loan was initially cross-collateralized by a portfolio of Oakview Plaza was transferred14 industrial properties (collectively, the “Gulf Coast Industrial Portfolio”) including 10 properties located in Louisiana (seven properties located in New Orleans and three properties located in Baton Rouge, and collectively, the “Louisiana Assets”) and four properties located in San Antonio, Texas (the “San Antonio Assets”).
Foreclosure of San Antonio Assets
On June 5, 2018, the special servicer completed a partial foreclosure of the Gulf Coast Industrial Portfolio pursuant to which it foreclosed on the San Antonio Assets. The San Antonio Assets were sold in a foreclosure sale by the special servicer for an aggregate amount of approximately $20.7 million.
Assignment of Ownership in Louisiana Assets to Lender
On February 12, 2019, we and the lender of the Gulf Coast Industrial Portfolio Mortgage entered into an assignment agreement (the “Assignment Agreement”) pursuant to which we assigned our membership interests in the Louisiana Assets to the lender via foreclosure (the “Oakview Plaza Foreclosure”). with an effective date of February 7, 2019. Under the terms of the Assignment Agreement, the lender assumed the significant risks and rewards of ownership and took legal title and physical possession of the Louisiana Assets and assumed all the other assets and related liabilities, including the Gulf Coast Industrial Mortgage and its accrued and unpaid interest, and released us of any claims against the liabilities assumed.
As a result of the Assignment Agreement, we have fully satisfied all of our obligations with respect to the Gulf Coast Industrial Portfolio Mortgage and all amounts accrued but not paid for interest (including default interest) and no amounts are due to the lender. Additionally, we have no continuing involvement with the Louisiana Assets.
The aggregate carrying value of the assets transferred and the liabilities extinguished in connection with our assignment of our ownership interests in the Oakview Plaza Foreclosure both approximated $27.0 million. The balance ofLouisiana Assets to the Oakview Plaza Mortgage as of the date of foreclosurelender was $25.6approximately $37.0 million and the associated accrued default interest was $1.0 million.
Southeastern Michigan Multi-Family Properties$49.6 million, respectively.
On May 17, 2016,Since our performance obligations were met upon the Company disposedassignment of three of the four apartment communities containedour ownership interests in the Southeastern Michigan Multi-Family PropertiesLouisiana Assets to an unrelated third party for aggregate consideration of approximately $50.6 million. In connectionthe lender and we have no continuing involvement with the disposition, the Company recorded a gain on the disposition of real estate of approximately $19.9 million during the second quarter of 2016. Approximately $38.2 million of the proceeds were used to repay in full the outstanding principal balance of the mortgage that was secured by the Southeastern Michigan Multi-Family Properties.
On July 26, 2016, the remaining apartment community in the Southeastern Michigan Multi-Family Properties was disposed of to the same unrelated third party for approximately $10.3 million. In connection with the disposition, the Company recorded a gain on the disposition of real estate of approximately $3.8 million during the third quarter of 2016. The complete disposition of the Southeastern Michigan Multi-Family Properties resulted inLouisiana Assets, an aggregate gain on the disposition of real estatedebt extinguishment of approximately $23.7$13.6 million was recognized during the nine months ended September 30, 2016.first quarter of 2019.
The dispositionsdisposition of the DoubleTree – Danvers, Oakville Plaza and the Southeastern Michigan Multi-Family Properties did not qualify to be reported as discontinued operations since noneLouisiana Assets, which comprised all of the dispositionsour remaining industrial properties, represented a strategic shift that had a major effect on the Company’sour operations and financial results. Accordingly,
As a result, the operating results of the DoubleTree – Danvers, Oakville Plaza and the Southeastern Michigan Multi-Family Properties are reflectedLouisiana Assets have been classified as discontinued operations in the Company’s results from continuingour consolidated statements of operations for all periods presented through their respective datesdate of disposition. The operating results of the apartment communities contained in the Southeastern Michigan Properties were included in our Multi-Family Residential Segment, the DoubleTree – Danvers in our Hospitality Segment and Oakville in our Retail Segment, through their respective dates of disposition.
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.
For the Three Months Ended September 30, 20172020 vs. September 30, 20162019
Consolidated – Continuing Operations
Revenues
Our revenues are comprised of rental revenues,income and tenant recovery income and other service income. Total revenues decreased by approximately $2.2$1.5 million to $10.9$2.5 million for the three months ended September 30, 20172020 compared to $13.1$4.0 million for the same period in 2016. See “Segment Results of Operations for2019. Excluding the Three Months Ended September 30, 2017 compared to September 30, 2016” for additional information on revenues by segment.
Property operating expenses
Property operating expenses decreased by approximately $1.1 million to $5.7 million for the three months ended September 30, 2017 compared to $6.8 million for the same period in 2016. This decrease primarily reflects lower expenses in our Hospitality Segment principally due to the disposition of the DoubleTree – Danvers.
Real estate taxes
Real estate taxes expense were relatively flat decreasing by approximately $0.1 million to $0.6 million for the three months ended September 30, 2017 compared to $0.7 million for the same period in 2016.
General and administrative expenses
General and administrative expenses increased by approximately $1.2 million to $2.2 million for the three months ended September 30, 2017 compared to $1.0 million for the same period in 2016. This increase was primarily due to an increase in professional fees.
Depreciation and amortization
Depreciation and amortization expenses were flat at $2.7 million for both the three months ended September 30, 2017 and 2016.
Interest and dividend income
Interest and dividend income increased by approximately $1.0 million to $5.6 million for the three months ended September 30, 2017 compared to $4.6 million for the same period in 2016. The increase reflects an increase of $0.7 million in investment income from our Preferred Investments (see Note 8) and an increase in earnings on our investments.
Interest expense
Interest expense, including amortization of deferred financing costs, increased by approximately by approximately $0.5 million to $3.6 million for the three months ended September 30, 2017 compared to $3.1 million for the same period in 2016. The increase primarily relates to the accrual of default interest in 2017 on the Oakview Plaza Mortgage.
Gain on disposition of real estate
During the third quarter of 2017 we recognized a gain on disposition of real estate of approximately $10.5 million related to the sale of the DoubleTree – Danvers. During the third quarter of 2016 we recognized a gain on disposition of real estate of approximately $3.8 million related to the sale of the remaining apartment community contained in our Southeastern Michigan Multi-Family Properties.
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 and (iii) the ownership interests in 50-01 2nd St Associates LLC (the “2nd Street Joint Venture”) held by our Sponsor and other affiliates.
Segment Results of Operations for the Three Months Ended September 30, 2017 compared to September 30, 2016
Retail Segment
For the Three Months Ended September 30, | Variance Increase/(Decrease) | |||||||||||||||
2017 | 2016 | $ | % | |||||||||||||
(unaudited) | ||||||||||||||||
Revenues | $ | 2,452 | $ | 2,904 | $ | (452 | ) | -15.6 | % | |||||||
NOI | 1,147 | 1,746 | (599 | ) | -34.3 | % | ||||||||||
Average Occupancy Rate for period | 84.7 | % | 85.9 | % | -1.2 | % |
The following table represents lease expirations for the Retail Segment as of September 30, 2017:
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 | |||||||||||||||
2017 | 6 | 15,337 | 188,733 | 3.9 | % | 3.6 | % | |||||||||||||
2018 | 11 | 43,285 | 658,666 | 10.9 | % | 12.6 | % | |||||||||||||
2019 | 16 | 72,742 | 1,404,525 | 18.4 | % | 27.0 | % | |||||||||||||
2020 | 10 | 156,195 | 1,555,082 | 39.3 | % | 29.9 | % | |||||||||||||
2021 | 5 | 27,564 | 418,471 | 7.0 | % | 8.0 | % | |||||||||||||
2022 | 3 | 7,818 | 126,832 | 2.0 | % | 2.4 | % | |||||||||||||
2023 | 1 | 28,000 | 479,920 | 7.1 | % | 9.2 | % | |||||||||||||
2024 | 1 | 1,163 | 53,375 | 0.3 | % | 1.0 | % | |||||||||||||
2025 | 4 | 15,517 | 270,237 | 3.9 | % | 5.2 | % | |||||||||||||
2026 | 2 | 28,687 | 56,382 | 7.2 | % | 1.1 | % | |||||||||||||
Thereafter | - | - | - | - | - | |||||||||||||||
59 | 396,308 | 5,212,223 | 100.0 | % | 100.0 | % |
As of September 30, 2017, we had three tenants, Kohl’s Inc., Saks & Company and H& M Hennes & Mauritz L.P., each with one store, representing approximately 19.0%, 5.4% and 5.0%, respectively, of the total GLA in our Retail Segment. Additionally, as of that date, we did not have any other tenants whose GLA was 5% or more of the total GLA in our Retail Segment.
Revenues and NOI decreased for the three months ended September 30, 2017 compared to the same period in 2016 primarily as a result of the lower average occupancy rate during the 2017 period.
Multi-Family Residential Segment
For the Three Months Ended September 30, | Variance Increase/(Decrease) | |||||||||||||||
2017 | 2016 | $ | % | |||||||||||||
(unaudited) | ||||||||||||||||
Revenues | $ | 2,118 | $ | 2,283 | $ | (165 | ) | -7.2 | % | |||||||
NOI | 1,604 | 1,707 | (103 | ) | -6.0 | % | ||||||||||
Average Occupancy Rate for period | 96.0 | % | 64.7 | % | 31.3 | % |
Revenues and NOI decreased for the three months ended September 30, 2017 compared to the same period in 2016 primarily as a resulteffect of the disposition of an apartment community contained in the Southeastern Michigan Multi-Family Properties on July 26, 2016. Revenues and NOIDePaul Plaza, revenues decreased by approximately $0.1$0.8 million and $0.1 million, respectively, for the three months ended September 30, 2017 comparedprimarily attributable to the same period in 2016 for the Southeastern Michigan Multi-Family Properties. Revenuesreduced occupancy at both our St. Augustine Outlet Center and NOI were relatively flat for Gantry Park our only remaining multi-family residential property.
Industrial Segment
For the Three Months Ended September 30, | Variance Increase/(Decrease) | |||||||||||||||
2017 | 2016 | $ | % | |||||||||||||
(unaudited) | ||||||||||||||||
Revenues | $ | 1,581 | $ | 1,341 | $ | 240 | 17.9 | % | ||||||||
NOI | 782 | 609 | 173 | 28.4 | % | |||||||||||
Average Occupancy Rate for period | 73.3 | % | 61.4 | % | 11.9 | % |
The following table represents lease expirations for our Industrial Segment as of September 30, 2016:
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 | |||||||||||||||
2017 | 11 | 37,380 | - | 5.0 | % | 0.0 | % | |||||||||||||
2018 | 32 | 243,433 | 1,711,343 | 32.7 | % | 34.4 | % | |||||||||||||
2019 | 19 | 103,085 | 583,374 | 13.8 | % | 11.7 | % | |||||||||||||
2020 | 24 | 158,916 | 1,381,840 | 21.3 | % | 27.8 | % | |||||||||||||
2021 | 3 | 10,054 | 89,567 | 1.3 | % | 1.8 | % | |||||||||||||
2022 | 11 | 104,475 | 692,166 | 14.0 | % | 13.9 | % | |||||||||||||
2023 | 1 | 88,800 | 519,480 | 11.9 | % | 10.4 | % | |||||||||||||
Thereafter | - | - | - | - | - | |||||||||||||||
101 | 746,143 | 4,977,770 | 100.0 | % | 100.0 | % |
As of September 30, 2017, we did not have any tenants whose GLA was 5% or more of the total GLA in our Industrial Segment.
Revenues and NOI increased for the three months ended September 30, 2017 compared to the same period in 2016 primarily as a result of the higher average occupancy rateLanding during the 2017 period.
Hospitality Segment
For the Three Months Ended September 30, | Variance Increase/(Decrease) | |||||||||||||||
2017 | 2016 | $ | % | |||||||||||||
(unaudited) | ||||||||||||||||
Revenues | $ | 4,741 | $ | 6,532 | $ | (1,791 | ) | -27.4 | % | |||||||
NOI | 954 | 1,478 | (524 | ) | -35.5 | % | ||||||||||
Average Occupancy Rate for period | 76.4 | % | 84.8 | % | -8.4 | % | ||||||||||
Rev PAR | $ | 108.25 | $ | 113.56 | $ | (5.31 | ) | -4.7 | % |
Revenues and NOI decreased during the three months ended September 30, 2017 compared to the same2020 period in 2016 resulting from the disposition of the DoubleTree – Danvers, which was our only remaining hospitality property, on September 7, 2017, as well as decreased occupancy levels and RevPAR during the 2017 period.
For the Nine Months Ended September 30, 2017 vs. September 30, 2016
Consolidated
Revenues
Our revenues are comprised of rental revenues, tenant recovery income and other service income. Total revenues decreased by approximately $5.1 million to $35.1 million for the nine months ended September 30, 2017 compared to $40.2 million for the same period in 2016. See “Segment Results of Operations for the nine months ended September 30, 2017 compared to September 30, 2016” for additional information on revenues by segment.COVID-19 pandemic.
Property operating expenses
Property operating expenses decreased by approximately $2.4$0.3 million to $18.5$1.0 million for the ninethree months ended September 30, 20172020 compared to $20.9$1.3 million for the same period in 2016. This decrease primarily reflects lower expenses in our Multi-Family Residential Segment principally due to2019. Excluding the effect of the disposition of the Southeastern Michigan Multi-Family Properties and our Hospitality Segment principally due to the disposition of the DoubleTree – Danvers.DePaul Plaza, property operating expenses decreased by $0.1 million.
Real estate taxes
Real estate taxes expense decreased by approximately $0.4$0.2 million to $2.0$0.1 million for the ninethree months ended September 30, 20172020 compared to $2.4$0.3 million for the same period in 2016. This decrease primarily reflects lower expenses in our Multi-Family Residential Segment principally due to2019. Excluding the effect of the disposition of the Southeastern Michigan Multi-Family Properties.DePaul Plaza, real estate taxes were flat.
General and administrative expenses
General and administrative expenses increaseddecreased slightly by approximately $0.9$0.1 million to $4.6$0.6 million for the ninethree months ended September 30, 20172020 compared to $3.7$0.7 million for the same period in 2016. This increase was primarily due to an increase in professional fees.2019.
Depreciation and amortization
Depreciation and amortization expense decreased by approximately $0.3 million to $8.3$0.9 million for the ninethree months ended September 30, 20172020 compared to $8.6$1.2 million for the same period in 2016. This decrease primarily reflects lower depreciation expense in our Multi-Family Residential Segment principally due to2019. Excluding the effect of the disposition of the Southeastern Michigan Multi-Family Properties.DePaul Plaza, depreciation and amortization decreased by $0.1 million.
Interest and dividend income
Interest and dividend income increaseddecreased by approximately $0.6 million to $15.4$3.7 million for the ninethree months ended September 30, 20172020 compared to $14.8$4.3 million for the same period in 2016.2019. The increasedecrease primarily reflects an increase of $0.7 million inlower investment income of $1.9 million from our Preferred Investments (see Note 8) partially offset by lower and a decrease in dividend and interest and dividend income from our investments in marketable securities of $0.1$0.3 million, partially offset by an increase in interest income earned on our notes receivable of $1.6 million.
Interest expense
Interest expense, including amortization of deferred financing costs, increased by approximately $0.7$0.4 million to $10.8$0.8 million for the ninethree months ended September 30, 20172020 compared to $10.1$0.4 million for the same period in 2016. The2019. This increase primarily relatesreflects higher interest expense resulting from an increase in the amount of debt outstanding during the 2020 period. During the three months ended September 30, 2020 and 2019, $2.0 million and $2.2 million, respectively, of interest was capitalized to the accrual of default interest on the Oakview Plaza Mortgage.
Gain on disposition of real estateconstruction in progress for our development projects.
Unrealized gain/loss on marketable equity securities
During the ninethree months ended September 30, 20172020 and 2019, we recognized a gainrecorded unrealized losses on dispositionmarketable equity securities of real estate of approximately $10.5$1.5 million related toand $0.6 million, respectively, which represented the sale ofchange in the DoubleTree – Danvers. During the nine months ended September 30, 2016 we recognized a gain on disposition of real estate of approximately $23.7 million related to the sale of the Southeastern Michigan Multi-Family Properties.
Gain on satisfaction of mortgage receivable
During the second quarter of 2017 we recognized a gain on satisfaction of mortgage receivable of approximately $3.2 million related to the repayment in fullfair value of our mortgage receivable collateralized by a Holiday Inn Express located in East Brunswick, New Jersey which we acquired at a discount in 2011. See Note 4.marketable equity securities during those periods.
Noncontrolling interests
The net earnings allocated to noncontrolling interests relates to (i) parties of the interestsCompany that hold units 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, and (iii) the ownership interests in 50-01 2nd St2nd St. Associates LLC (the “2nd Street Joint Venture”) held by our Sponsor and other affiliates. affiliates and (iv) the ownership interest in various joint ventures held by affiliates of our Sponsor that have originated nonrecourse loans to unaffiliated third-party borrowers.
Segment Results of Operations forFor the Nine Months Ended September 30, 2017 compared to2020 vs. September 30, 20162019
Retail SegmentConsolidated – Continuing Operations
For the Nine Months Ended September 30, | Variance Increase/(Decrease) | |||||||||||||||
2017 | 2016 | $ | % | |||||||||||||
(unaudited) | ||||||||||||||||
Revenues | $ | 7,805 | $ | 8,546 | $ | (741 | ) | -8.7 | % | |||||||
NOI | 3,774 | 4,765 | (991 | ) | -20.8 | % | ||||||||||
Average Occupancy Rate for period | 97.0 | % | 86.6 | % | 11.0 | % |
Revenues
Revenues
Our revenues are comprised of rental income and NOItenant recovery income. Total revenues decreased by approximately $3.1 million to $8.8 million for the nine months ended September 30, 20172020 compared to $11.9 million for the same period in 2016 primarily as a result2019. Excluding the effect of the lower averagedisposition of DePaul Plaza, revenues decreased by $1.1 million primarily attributable to reduced occupancy rateat our St. Augustine Outlet Center during the 2017 period.2020 period resulting from the COVID-19 pandemic.
Multi-Family Residential SegmentProperty operating expenses
For the Nine Months Ended September 30, | Variance Increase/(Decrease) | |||||||||||||||
2017 | 2016 | $ | % | |||||||||||||
(unaudited) | ||||||||||||||||
Revenues | $ | 6,443 | $ | 10,405 | $ | (3,962 | ) | -38.1 | % | |||||||
NOI | 4,925 | 6,824 | (1,899 | ) | -27.8 | % | ||||||||||
Average Occupancy Rate for period | 86.4 | % | 86.0 | % | 0.4 | % |
Revenues and NOIProperty operating expenses decreased by approximately $0.5 million to $3.0 million for the nine months ended September 30, 20172020 compared to $3.5 million for the same period in 2016 primarily as a result2019. Excluding the effect of the disposition of the four apartment communities contained in the Southeastern Michigan Multi-Family Properties during 2016. Revenues and NOIDePaul Plaza, property operating expenses decreased slightly by $0.1 million.
Real estate taxes
Real estate taxes decreased by approximately $3.9$0.7 million and $1.8to $0.3 million respectively, for the nine months ended September 30, 20172020 compared to $1.0 million for the same period in 2016 for2019. Excluding the Southeastern Michigan Multi-Family Properties. Revenues and NOI were relatively flat for Gantry Park, our only remaining multi-family residential property.effect of the disposition of DePaul Plaza, real estate taxes decreased by $0.2 million.
Industrial SegmentGeneral and administrative expenses
General and administrative expenses were $2.3 million for both the nine months ended September 30, 2020 and 2019.
For the Nine Months Ended September 30, | Variance Increase/(Decrease) | |||||||||||||||
2017 | 2016 | $ | % | |||||||||||||
(unaudited) | ||||||||||||||||
Revenues | $ | 4,683 | $ | 4,115 | $ | 568 | 13.8 | % | ||||||||
NOI | 2,459 | 1,878 | 581 | 30.9 | % | |||||||||||
Average Occupancy Rate for period | 71.8 | % | 62.1 | % | 9.7 | % |
As of September 30, 2017, we did not have any tenants whose GLA was 5% or more of the total GLA in our Industrial Segment.Depreciation and amortization
RevenuesDepreciation and NOI increasedamortization decreased by approximately $0.9 million to $2.9 million for the nine months ended September 30, 20172020 compared to $3.8 million for the same period in 2016 primarily as a result2019. Excluding the effect of the higher average occupancy rate during the 2017 period.disposition of DePaul Plaza, depreciation and amortization decreased by $0.2 million.
Interest and dividend income
Hospitality Segment
For the Nine Months Ended September 30, | Variance Increase/(Decrease) | |||||||||||||||
2017 | 2016 | $ | % | |||||||||||||
(unaudited) | ||||||||||||||||
Revenues | $ | 16,161 | $ | 17,104 | $ | (943 | ) | -5.5 | % | |||||||
NOI | 3,098 | 3,008 | 90 | 3.0 | % | |||||||||||
Average Occupancy Rate for period | 70.2 | % | 67.6 | % | 2.6 | % | ||||||||||
Rev PAR | $ | 92.12 | $ | 86.61 | $ | 5.51 | 6.4 | % |
RevenuesInterest and dividend income decreased and NOI increased slightly duringby approximately $2.6 million to $9.4 million for the nine months ended September 30, 20172020 compared to $12.0 million for the same period in 20162019. The decrease primarily reflects lower investment income of $5.8 million from our Preferred Investments and a decrease in dividend and interest income from our investments in marketable securities of $1.0 million, partially offset by an increase in interest income earned on our notes receivable of $4.2 million.
Interest expense
Interest expense, including amortization of deferred financing costs, increased by approximately $1.0 million to $2.1 million for the nine months ended September 30, 2020 compared to $1.1 million for the same period in 2019. This increase reflects higher interest expense resulting from an increase in the amount of debt outstanding during the 2020 period. During the nine months ended September 30, 2020 and 2019, $6.1 million and $6.0 million, respectively, of interest was capitalized to construction in progress for our development projects.
Gain on disposition of real estate
On April 6, 2020, we completed the disposition of a parcel of land adjacent to the DoubleTree – DanversSt. Augustine Outlet Center for a contractual sales price of $2.1 million and recognized a gain on September 7, 2017 partially offset by increased occupancy levels and RevPAR at the DoubleTree – Danvers, which was our only remaining hospitality property.disposition of real estate of approximately $1.6 million during the second quarter of 2020.
Unrealized loss on marketable equity securities
During the nine months ended September 30, 2020 and 2019, we recorded unrealized losses on marketable equity securities of $20.1 million and $2.2 million, respectively, which represented the change in the fair value of our marketable equity securities during those periods.
Noncontrolling interests
The net earnings allocated to noncontrolling interests relates to (i) parties of the Company that hold units in the Operating Partnership, (ii) the interest in PRO-DFJV Holdings LLC (“PRO”) held by our Sponsor, (iii) the ownership interests in 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”) held by our Sponsor and other affiliates and (iv) the ownership interest in various joint ventures held by affiliates of our Sponsor that have originated nonrecourse loans to unaffiliated third-party borrowers.
Financial Condition, Liquidity and Capital Resources
Overview:
Rental revenue,income, interest and dividend income and borrowings are our principal source of funds to pay operating expenses, scheduled debt service, routine capital expenditures and distributions, excluding non-recurring capital expenditures.distributions.
We expect to meet our short-term liquidity requirements, including the costs of our expected non-recurring capital expenditures, including development activities, and scheduled debt service generally through working capital, redemptions of our Preferred Investments, repayments of our outstanding notes receivable, the remaining availability on the Bowery Mortgage ($0.4 million as of September 30, 2020) and borrowings.87 Newkirk Loan ($1.4 million as of September 30, 2020) and/or new borrowings and refinancing of existing debt. We ultimately expect to obtain construction financing to fund a substantial portion of our development projects’ future development costs. However, there can be no assurance we will be successful in obtaining construction financing at favorable terms, if at all. As of September 30, 2020, we had approximately $57.5 million of cash and cash equivalents on hand and $36.8 million of marketable securities, available for sale. 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.
Our borrowings consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. We currentlytypically have $159.7 millionobtained level payment financing, meaning that the amount of outstanding mortgage 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 an $18.6 million outstandingare at a fixed interest rate.
Additionally, in order to leverage our investments in marketable securities and seek a higher rate of return, we have access to borrowings under a margin loan and line of credit. We havecredit collateralized by the securities held with the financial institution that provided the margin loan and intend to continue to limitline of credit as well as a portion of our aggregate long-term permanent borrowings to 75%Marco OP Units. These loans are due on demand and any outstanding balance must be paid upon the liquidation 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.securities.
Our charter provides that the aggregate amount of borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a 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, 2017,2020, our total borrowings of $178.3$192.4 million represented 50%59% 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 or investments we may make may be funded through a combination of borrowings, proceeds generated from the sale and redemption of our marketable securities, available for sale, proceeds received from the selective disposition of our properties and proceeds received from the redemption of our preferred investments in related parties.Preferred Investments. 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 making distributions, if any, to our stockholders and non-controlling interests, our capital resources are used to make certain payments to our Advisor and our Property Manager,its affiliates, including payments related to asset acquisition fees, development fees and leasing commissions, asset management fees, the reimbursement of acquisition related expenses to our Advisor and property management fees. We also reimburse our Advisor and its affiliates for actual expenses it incurs for administrative and other services provided to us. Additionally, the Operating Partnership may be required to make distributions to Lightstone SLP, LLC, an affiliate of the Advisor.
The following table represents the fees incurred associated with the payments to our Advisor and our Property Managerits affiliates for the periods indicated:
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
Acquisition fees (capitalized and are reflected in the carrying value of the investment) | $ | - | $ | - | $ | - | $ | 1,823 | ||||||||||||||||||||||||
Asset management fees (general and administrative costs) | $ | 556 | $ | 562 | $ | 1,684 | $ | 1,804 | 245 | 303 | 675 | 941 | ||||||||||||||||||||
Property management fees (property operating expenses) | 199 | 190 | 576 | 739 | 93 | 67 | 306 | 222 | ||||||||||||||||||||||||
Development fees and leasing commissions* | 125 | 29 | 706 | 80 | - | - | - | 167 | ||||||||||||||||||||||||
Total | $ | 880 | $ | 781 | $ | 2,966 | $ | 2,623 | $ | 338 | $ | 370 | $ | 981 | $ | 3,153 |
* Generally, capitalized and amortized over the estimated useful life of the associated asset.
AsAdditionally, we may be required to make distributions on the special general partner interests (“SLP Units”) in the Operating Partnership held by Lightstone SLP, LLC, an affiliate of the Advisor. In connection with the Company’s initial public offering, Lightstone SLP, LLC purchased an aggregate of $30.0 million of SLP Units. These SLP Units, the purchase price of which will be repaid only after stockholders receive a stated preferred return and their net investment, entitle Lightstone SLP, LLC to a portion of any regular distributions made by the Operating Partnership.
During both the three and nine months ended September 30, 2017, we had approximately $127.42020 and 2019, distributions of $0.5 million of cash and cash equivalents$1.6 million, respectively, were declared and paid on hand and $54.0 million of marketable securities, available for sale.the SLP units.
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, | ||||||||
2017 | 2016 | |||||||
(unaudited) | ||||||||
Cash flows provided by operating activities | $ | 18,491 | $ | 20,471 | ||||
Cash flows provided by investing activities | 21,702 | 85,252 | ||||||
Cash flows used in financing activities | (18,351 | ) | (69,730 | ) | ||||
Net change in cash and cash equivalents | 21,842 | 35,993 | ||||||
Cash and cash equivalents, beginning of the year | 105,539 | 68,459 | ||||||
Cash and cash equivalents, end of the period | $ | 127,381 | $ | 104,452 |
For the Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Net cash flows provided by operating activities | $ | 9,722 | $ | 15,551 | ||||
Net cash flows used in investing activities | (45,252 | ) | (55,595 | ) | ||||
Net cash flows provided by financing activities | 15,835 | 27,904 | ||||||
Net change in cash, cash equivalents and restricted cash | (19,695 | ) | (12,140 | ) | ||||
Cash, cash equivalents and restricted cash, beginning of year | 79,800 | 36,582 | ||||||
Cash, cash equivalents and restricted cash, end of the period | $ | 60,105 | 24,442 |
Our principal sources of cash flow are derived from the operation of our rental properties, interest and dividend income on our marketable securities and real estate-related investments, as well as loan proceeds investment income, and proceeds from preferred investments in related parties.redemptions of Preferred Investments. We intend that our properties and real estate-related investments will provide a relatively consistent stream of cash flow that provides us with resources to fund operating expenses, debt service and quarterly distributions.distributions if authorized by our board of directors.
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)(vi) funding of notes receivable, (viii) scheduled debt service and (viii)(ix) 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 and redemption of marketable securities, (ii) the selective disposition of properties or interests in properties, (iii) redemptions of our preferred investments in related parties,Preferred Investments, (iv) the issuance of equity and debt securities and (v) the placement of mortgage loans or other indebtedness.
Operating activities
NetThe net cash flows provided by operating activities of $18.5$9.7 million for the nine months ended September 30, 20172020 consists of the following:
· | cash inflows of approximately |
· | cash inflows of approximately |
Investing activities
The net cash provided byused in investing activities of $21.7$45.3 million for the nine months ended September 30, 20172020 consists primarily of the following:
· |
· | net |
· | proceeds from the sale of investment property of $2.1 million; |
· | proceeds from Preferred Investments of $20.0 million; and |
· | net purchases of marketable securities of |
Financing activities
The net cash usedprovided by financing activities of approximately $18.4$15.8 million for the nine months ended September 30, 20172020 is primarily related to the following:
· |
· | net proceeds from mortgages payable of $25.9 million; |
· | debt principal payments of $0.9 million; |
· | redemptions and cancellation of common stock of |
· |
· |
Development Activities
Lower East Side Moxy Hotel
On December 3, 2018, we, through a subsidiary of the Operating Partnership, acquired three adjacent parcels of land located at 147-151 Bowery, New York, New York (collectively, the “Bowery Land”) from 151 Emmut Properties LLC and 145-149 Bowery LLC, both unaffiliated third parties, for aggregate consideration of approximately $56.5 million, excluding closing and other acquisition related costs. Additionally, on December 6, 2018, we, though a subsidiary of the Operating Partnership, acquired certain air rights located at 329 Broome Street, New York, New York (the “Air Rights”) from B.R.P. Realty Corp., an unaffiliated third party, for approximately $2.4 million, excluding closing and other acquisition related costs. We are using the Bowery Land and Air Rights in connection with the development and construction of a 296-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”). The Lower East Side Moxy Hotel is currently under development.
On December 3, 2018, we entered into a mortgage loan collateralized by the Lower East Side Moxy Hotel (the “Bowery Mortgage”) for approximately $35.6 million. The Bowery Mortgage has a term of two years, bears interest at LIBOR+4.25%, subject to a 6.63% floor, and requires monthly interest-only payments through its stated maturity with the entire unpaid balance due upon maturity. Through September 30, 2020, we received aggregate proceeds of $35.2 million under the Bowery Mortgage. As a result, the Bowery Mortgage had an outstanding balance and remaining availability of $35.2 million and $0.4 million, respectively, as of September 30, 2020.
Exterior Street Project
On February 27, 2019, we, through subsidiaries of the Operating Partnership, acquired two adjacent parcels of land located at 355 and 399 Exterior Street, New York, New York (collectively, the “Exterior Street Land”), from Borden Realty Corp and 399 Exterior Street Associates LLC, unaffiliated third parties, for an aggregate purchase price of approximately $59.0 million, excluding closing and other acquisition related costs. We are using the Exterior Street Land for the development and construction of a multi-family residential property (the “Exterior Street Project”). The Exterior Street Project is currently under development.
On March 29, 2019, we entered into a $35.0 million loan (the “Exterior Street Loan”) which initially bore interest at 4.50% and was scheduled to mature on April 9, 2020. However, because we have already exercised the second of two six-month extension options, the current maturity date is now April 9, 2021and upon the exercise of the second extension option on October 9, 2020, the interest rate became Libor plus 2.25%. The Exterior Street Loan requires monthly interest payments through its maturity date and is collateralized by the Exterior Street Project.
Santa Clara Data Center
On January 10, 2019, we, through subsidiaries of the Operating Partnership, acquired a parcel of land located at 2175 Martin Avenue, Santa Clara, California (the “Martin Avenue Land”) from The Chioini Living Trust, an unaffiliated third party, for approximately $10.6 million, excluding closing and other acquisition related costs. We intend to use the Martin Avenue Land for the development and construction of a data center (the “Santa Clara Data Center”). The Santa Clara Data Center is currently under development.
The following is a summary of the amounts incurred and capitalized to construction in progress for our development projects as of September 30, 2020:
Development Projects | ||||
Lower East Side Moxy Hotel | $ | 91,365 | ||
Exterior Street Project | 72,089 | |||
Santa Clara Data Center | 13,478 | |||
Total Developments Projects | $ | 176,932 |
To-date the COVID-19 pandemic has not had any significant impact on our three development projects. We intend to obtain construction financing on our development projects to fund a substantial portion of their future development costs. However, the COVID-19 pandemic may (i) affect our ability to obtain construction financing, and/or (ii) cause delays or increase costs associated with building materials or construction services necessary for construction, which could adversely impact our ability to either ultimately commence and/or complete construction as planned, on budget or at all for our development projects.
We currently believe our capital resources are sufficient to fund our expected development activities related to the Lower East Side Moxy Hotel, the Exterior Street Project and the Santa Clara Data Center for the next 12 months. However, we ultimately expect to finance a substantial portion of our development costs through construction loans. Due to the uncertainty in capital and financial markets in the United States because of the current COVID-19 pandemic, there can be no assurance we will be successful in obtaining construction financing at favorable terms, if at all.
Preferred Investments
We have entered into several agreements with various related party entities that provide for us to make preferred contributions pursuant to certain instruments (the “Preferred Investments”)Preferred Investments that entitle us to monthly preferred distributions. The Preferred Investments had an aggregate balance of $152.7$14.5 million and $141.3$34.5 million as of September 30, 20172020 and December 31, 2016,2019, respectively, and are classified as held-to-maturity securities, recorded at cost and included in investments in related parties on the consolidated balance sheets. The fair value of these investments approximated their carrying values based on market rates for similar instruments.
During the three and nine months ended September 30, 2017,2020, we (i) redeemed $11.0 million of the Company recognized investment income40 East End Avenue Preferred Investment and the entire remaining Miami Moxy Preferred Investment of $4.6 million and $12.9 million, respectively, and during the three and nine months ended September 30, 2016, the Company recognized investment income of $4.0 million and $12.2 million, respectively, which is included in interest and dividend income on the consolidated statements of operations.$9.0 million.
The Preferred Investments are summarized as follows:
Preferred Investment Balance | Unfunded Contributions | Investment Income | Preferred Investment Balance | Investment Income (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividend | As of September 30, | As of December 31, | As of September 30, | Three Months Ended September 30, | Six Months Ended September 30, | As of | As of | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Investments | Rate | 2017 | 2016 | 2017 | 2017 | 2016 | 2017 | 2016 | Dividend Rate | September 30, 2020 | December 31, 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||
365 Bond Street | 12% | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 2,252 | |||||||||||||||||||||||||||||||||||||||||||
40 East End Avenue | 8% to 12% | 30,000 | 30,000 | - | 920 | 613 | 2,463 | 1,795 | 12 | % | $ | 6,000 | $ | 17,000 | $ | 184 | $ | 920 | $ | 702 | $ | 2,730 | ||||||||||||||||||||||||||||||||||||
30-02 39th Avenue | 9% to 12% | 10,000 | 12,300 | 40,000 | 307 | 436 | 946 | 1,009 | 12 | % | - | - | - | - | - | 140 | ||||||||||||||||||||||||||||||||||||||||||
485 7th Avenue | 12% | 60,000 | 60,000 | - | 1,840 | 1,840 | 5,460 | 5,480 | ||||||||||||||||||||||||||||||||||||||||||||||||||
East 11th Street | 12% | 40,994 | 31,271 | 16,506 | 1,155 | 1,073 | 3,135 | 1,675 | 12 | % | 8,500 | 8,500 | 261 | 797 | 779 | 2,705 | ||||||||||||||||||||||||||||||||||||||||||
Miami Moxy | 12% | 11,699 | 7,682 | 8,302 | 346 | - | 905 | - | 12 | % | - | 9,000 | - | 615 | 45 | 1,705 | ||||||||||||||||||||||||||||||||||||||||||
Total Preferred Investments | $ | 152,693 | $ | 141,253 | $ | 64,808 | $ | 4,568 | $ | 3,962 | $ | 12,909 | $ | 12,211 | ||||||||||||||||||||||||||||||||||||||||||||
Total | $ | 14,500 | $ | 34,500 | $ | 445 | $ | 2,332 | $ | 1,526 | $ | 7,280 |
Note:
(1) | – Included in interest and dividend income on the statements of operations. |
Notes Receivable
Beginning in 2019, we formed certain joint ventures (collectively, the “NR Joint Ventures”) between wholly-owned subsidiaries of the Operating Partnership (collectively, the “NR Subsidiaries”) and affiliates of the Sponsor (the “NR Affiliates”) which have originated nonrecourse loans (collectively, the “Joint Venture Promissory Notes”) to unaffiliated third-party borrowers (collectively, the “Joint Venture Borrowers”).
We determined that the NR Joint Ventures are VIEs and the NR Subsidiaries are the primary beneficiaries. Since the NR Subsidiaries are the primary beneficiaries, beginning on the applicable date of formation, we consolidated the operating results and financial condition of the NR Joint Ventures and accounted for the respective ownership interests of the NR Affiliates as noncontrolling interests.
The Joint Venture Promissory Notes provide for monthly interest at a prescribed variable rate, subject to a floor. In connection with funding of the Joint Venture Promissory Notes, the NR Joint Ventures have received origination fees (1.00% - 1.50%) based on the principal amount of the loan and retained a portion of the loan proceeds to establish a reserve for interest and other items (the “Loan Reserves”). The Joint Venture Promissory Notes are recorded in notes receivable, net on the consolidated balance sheets.
The Joint Venture Promissory Notes generally have an initial term of one or two years and may provide for additional one-year extension options subject to satisfaction of certain prescribed conditions, including the funding of an additional reserve for interest and payment of an extension fee. The Joint Venture Promissory Notes are collateralized by either the membership interests of the Joint Venture Borrowers in the borrowing entity or the underlying real property being developed by the Joint Venture Borrower.
The Joint Venture Promissory Notes are recorded in notes receivable, net on the consolidated balance sheets. The origination fees received are presented in the consolidated balance sheets as a direct deduction from the carrying value of the Joint Venture Promissory Notes and are amortized into interest income, using a straight-line method that approximates the effective interest method, over the initial term of the Joint Venture Promissory Notes. The Loan Reserves are presented in the consolidated balance sheets as a direct deduction from the carrying value of the Joint Venture Promissory Notes and are applied against the monthly interest due over the initial term.
The Notes Receivable are summarized as follows:
As of September 30, 2020 | |||||||||||||||||||||||||||||||||
Company' Ownership | Loan Commitment | Origination | Origination | Maturity | Contractual Interest | Outstanding | Unamortized Origination | Carrying | Unfunded | ||||||||||||||||||||||||
Joint Venture/Lender | Percentage | Amount | Fee | Date | Date | Rate | Principal | Reserves | Fee | Value | Commitment | ||||||||||||||||||||||
LSC 162nd Capital I LLC (1) | 45.45 | % | $ | 4,234 | 1.50 | % | February 5, 2019 | November 11, 2020 | Libor plus 7.50% (Floor of 11%) | $ | 4,076 | $ | (71 | ) | $ | (10 | ) | $ | 3,995 | $ | - | ||||||||||||
LSC 162nd Capital II LLC (1) | 45.45 | % | 9,166 | 1.50 | % | February 5, 2019 | November 11,2020 | Libor plus 7.50% (Floor of 11%) | 8,824 | (153 | ) | (22 | ) | 8,649 | - | ||||||||||||||||||
LSC 1543 7th LLC | 50 | % | 20,000 | 1.00 | % | August 27, 2019 | February 26, 2021 | Libor plus 5.40% (Floor of 7.90%) | 20,000 | - | (83 | ) | 19,917 | - | |||||||||||||||||||
LSC 1650 Lincoln LLC | 50 | % | 24,000 | 1.00 | % | August 27, 2019 | February 26, 2021 | Libor plus 5.40% (Floor of 7.90%) | 24,000 | - | (100 | ) | 23,900 | - | |||||||||||||||||||
LSC 11640 Mayfield LLC | 50 | % | 18,000 | 1.50 | % | March 4, 2020 | March 1, 2022 | Libor plus 10.50% (Floor of 12.50%) | 10,750 | (2,712 | ) | (192 | ) | 7,846 | 7,250 | ||||||||||||||||||
LSC 87 Newkirk LLC | 50 | % | 42,700 | 1.25 | % | July 2, 2020 | December 1, 2021 | Libor plus 6.00% (Floor of 7.00%) | 42,700 | (4,570 | ) | (446 | ) | 37,684 | - | ||||||||||||||||||
Total | $ | 110,350 | $ | (7,506 | ) | $ | (853 | ) | $ | 101,991 | $ | 7,250 |
The following summarizes the interest earned (included in interest and dividend income on the consolidated statements of operations) for each of the Joint Venture Promissory Notes during the periods indicated:
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
Joint Venture/Lender | 2020 | 2019 | 2020 | 2019 | ||||||||||||
LSC 162nd Capital I LLC | $ | 145 | $ | 118 | $ | 508 | $ | 321 | ||||||||
LSC 162nd Capital II LLC | 314 | 269 | 1,099 | 695 | ||||||||||||
LSC 47-16 Greenpoint LLC | - | 313 | - | 597 | ||||||||||||
LSC 1543 7th LLC | 444 | 168 | 1,317 | 168 | ||||||||||||
LSC 1650 Lincoln LLC | 532 | 201 | 1,580 | 202 | ||||||||||||
LSC 11640 Mayfield LLC | 377 | - | 866 | - | ||||||||||||
LSC 87 Newkirk LLC | 812 | - | 812 | - | ||||||||||||
Total | $ | 2,624 | $ | 1,069 | $ | 6,182 | $ | 1,983 |
Distribution Reinvestment PlanProgram (“DRIP”) and Share Repurchase Program
Our DRIP provides our stockholdersshareholders with an opportunity to purchase additional shares of our common stock at a discount by reinvesting distributions. Under our distribution reinvestment program, a shareholder may acquire, from time to time, additional shares of our common stock by reinvesting cash distributions payable by us to such shareholder, without incurring any brokerage commission, fees or service charges.
Our Registration Statement on Form S-3D was filed and became effective as amended and restated, under the Securities Act of 1933 on October 25, 2018.
Pursuant to the DRIP, our stockholders who elect to participate may invest all or a portion of the cash distributions that we pay them on shares of our common stock in additional shares of our common stock without paying any fees or commissions. The purchase price for shares under the DRIP will be equal to 95% of the Company’s current estimated per-share net asset value (the “Estimated Per-Share NAV”), as determined by the Company’s board of directors and reported by the Company from time to time. On December 10, 2019, our Board of Directors determined our Estimated Per-Share NAV of $11.82 as of September 30, 2019, which resulted in a purchase price for shares under the DRIP of $11.23 per share. As of September 30, 2020, we had approximately 10.0 million shares available for issuance under our DRIP.
Our Board of Directors reserves the right to terminate the DRIP for any reason without cause by providing written notice of termination of the DRIP to all participants.
Share Repurchase Program
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. From our inception through December 31, 20162019 we repurchased approximately 3.112.9 million shares of common stock. For the nine months ended September 30, 2017,period from January 1 through March 24, 2020, we repurchased 205,189287,987 shares of common stock for $10.00$10.87 per share, pursuant to our share repurchase program. We funded share repurchases for the periods noted above from the cumulative proceeds of the sale of our shares pursuant to our DRIP.
On January 19, 2015,May 10, 2018, the Board of Directors suspended our DRIP effective April 15, 2015. For so long as the DRIP remains suspended, all future distributions will be in the form of cash.
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 ofamended the share repurchase program to set the price for all stockholders.purchases under our share repurchase program equal to 92% of the Estimated Per-Share NAV and the number of shares repurchased during any calendar year to five (5.0%) of the weighted average number of shares outstanding during the previous year.
On March 25, 2020, the Board of Directors amended the share repurchase program to remove stockholder notice requirements and also approved the suspension of all redemptions effective immediately.
Tender Offer
We commenced a tender offer on June 15, 2020, pursuant to which we offered to acquire up to 225,000 of our shares of common stock (the “Common Shares”) at a purchase price of $5.00 per share, or approximately $1.1 million in the aggregate (the “Tender Offer”). Pursuant to the terms of the Tender Offer, which expired on July 24, 2020, we repurchased approximately 0.1 million Common Shares for an aggregate of approximately $0.3 million in August 2020.
Contractual Obligations
The following is a summary of our contractual obligations outstanding over the next five years and thereafter as of September 30, 2017.2020.
Contractual Obligations | Remainder of 2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | ||||||||||||||||||||||||||||||||||||||||||
Mortgage Payable | $ | 50,307 | $ | 21,967 | $ | 1,621 | $ | 14,924 | $ | 1,328 | $ | 69,540 | $ | 159,687 | $ | 35,493 | $ | 61,328 | $ | 27,440 | $ | 1,454 | $ | 66,697 | $ | - | $ | 192,412 | ||||||||||||||||||||||||||||
Interest Payments1 | 1,286 | 4,727 | 3,867 | 3,534 | 3,191 | 9,112 | 25,717 | 2,091 | 5,010 | 3,133 | 3,065 | 2,917 | - | 16,216 | ||||||||||||||||||||||||||||||||||||||||||
Total Contractual Obligations | $ | 51,593 | $ | 26,694 | $ | 5,488 | $ | 18,458 | $ | 4,519 | $ | 78,652 | $ | 185,404 | $ | 37,584 | $ | 66,338 | $ | 30,573 | $ | 4,519 | $ | 69,614 | $ | - | $ | 208,628 |
1) |
Certain of our debt agreements require the maintenance of certain ratios, including debt service coverage. We are currently in compliance with all of its financial debt covenants other than the debt associated with the Gulf Coast Industrial Portfolio 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 “Gulf Coast Industrial Portfolio Mortgage”), the lender elected to retain the excess cash flow from these properties beginning in July 2011. During the third quarter of 2012, the Gulf Coast Industrial Portfolio Mortgage was transferred to a special servicer, who discontinued scheduled debt service payments and notified the Company that the Gulf Coast Industrial Portfolio Mortgage was in default and although originally due in February 2017 became due on demand. We believe the continued loss of excess cash flow from the Gulf Coast Industrial Portfolio will not have a material impact on our results of operations or financial position.
Our non-recourse mortgage loan (the “Oakview Plaza Mortgage”) secured by a retail power center located in Omaha, Nebraska (“Oakview Plaza”) matured in January 2017 and was not repaid which constituted a maturity default. The Oakview Plaza Mortgage was transferred to a special servicer and on September 15, 2017, ownership of Oakview Plaza was transferred to the lender via the Oakview Plaza Foreclosure”. The carrying value of the assets transferred and the liabilities extinguished in connection with the Oakview Plaza Foreclosure both approximated $27.0 million. The balance of the Oakview Plaza Mortgage as of the date of foreclosure was $25.6 million and the associated accrued default interest was $1.0 million.
Although the lender is not currently charging or being paid interest at the stated default rate, we are accruing default interest expense on the Gulf Coast Industrial Portfolio Mortgage pursuant to the terms of its loan agreement. Additionally, we accrued default interest expense on the Oakview Plaza Mortgage pursuant to the terms of its loan agreement from January 2017 through the date of the Oakview Plaza Foreclosure (September 15, 2017). Default interest expense of $0.8 million and $2.5 million was accrued during the three and nine months ended September 30, 2017 and default interest expense of $0.5 million and $1.5 million was accrued during the three and nine months ended September 30, 2016. Additionally, as disclosed above, in connection with the Oakview Plaza Foreclosure, approximately $1.0 million of default interest related to the Oakview Plaza Mortgage was extinguished. As a result, cumulative accrued default interest expense (solely related the Gulf Coast Industrial Portfolio Mortgage) of $10.7 million and $9.2 million is included in accounts payable, accrued expenses and other liabilities on our consolidated balance sheets as of September 30, 2017 and December 31, 2016, respectively. However, we do not expect to pay any of the accrued default interest expense as this mortgage loan is non-recourse to it.
In addition, our recourse mortgage loan secured by the St. Augustine Outlet Center located in St. Augustine, Florida (outstanding principal balance of $20.4 million as of September 30, 2017) initially matures in August 2018 and has two one-year extension options, subject to satisfaction of certain conditions. We currently intend to seek to exercise the extension option before the initial maturity. Other than these financings, we have no additional significant maturities of mortgage debt over the next 12 months.
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% (2.09%(1.00% as of September 30, 2017)2020) and is collateralized by the marketable securities in our account. The amounts available to us under the Margin Loan are at the discretion of the financial institution and not limited to the amount of collateral in our account. There were no amounts outstanding under the Margin Loan as of September 30, 20172020 and December 31, 2016.2019.
Line of Credit
On September 14, 2012, we entered intoWe have a non-revolving credit facility (the “Line of Credit”) with a financial institution which permitsthat provides for borrowings up to $25.0 million. The Linea maximum of Credit expires$20.0 million, subject to a 55% loan-to-value ratio based on the fair value of the underlying collateral, matures on June 19, 20192021 and bears interest at Libor plus 1.35% (2.59%(1.50% as of September 30, 2017)2020). The Line of Credit is collateralized by approximately 252,000209,243 of Marco OP Units and PROMarco II OP Units and is guaranteed by PRO. As of September 30, 2020, the amount of borrowings available to be drawn under the Line of Credit. The amountCredit was approximately $7.4 million. No amounts were outstanding under the Line of Credit was $18.6as of September 30, 2020 and December 31, 2019.
Financings
On July 22, 2020, we, through LSC 87 Newkirk LLC (the “87 Newkirk Joint Venture”), entered into a $27.5 million loan (the “87 Newkirk Loan”) which bears interest at LIBOR+3.80%, subject to a 4.80% floor, and initially scheduled to mature on January 1, 2022 but may be further extended through the exercise of two, six-month extension options, which the 87 Newkirk Joint Venture may exercise by providing the lender with advance written notice. The 87 Newkirk Loan requires monthly interest payments through its maturity date and is collateralized by a nonrecourse loan originated by the 87 Newkirk Joint Venture. Through September 30, 2020, we received proceeds of $26.1 million under the 87 Newkirk Loan. As a result, the 87 Newkirk Loan had an outstanding balance and remaining availability of $26.1 million and $1.4 million, respectively, as of September 30, 2020.
Debt Maturities
The Exterior Street Loan (outstanding principal balance of $35.0 million as of September 30, 2017 and2020) initially matured on April 9, 2020. However, because we have already exercised the second of two six-month extension options, the current maturity date is included in Notes Payable on the consolidated balance sheets.now April 9, 2021. We currently intend to seek to extend or replacerefinance the Line of CreditExterior Street Loan on or before its expiration. Ifmaturity date.
On November 12, 2019, we, through LSC 1543 7th LLC and LSC 1650 Lincoln LLC (collectively, the “Santa Monica Joint Ventures”), entered into a $25.0 million loan (the” Santa Monica Loan”) which bears interest at LIBOR+3.75%, subject to a 5.50% floor, that was initially scheduled to mature on August 12, 2020 but had two six-month extension options. However, because we have already exercised the first extension option, the current maturity date is now February 12, 2021. We currently intend to exercise the second extension option or refinance the Santa Monica Loan on or before the current maturity date. The Santa Monica Joint Ventures may exercise the extension option by providing the lender with advance written notice. The Santa Monica Loan requires monthly interest payments through its maturity date and is cross-collateralized by two nonrecourse loans originated by the Santa Monica Joint Ventures.
The Bowery Mortgage (outstanding principal balance of $35.2 million as of September 30, 2020) matures on December 3, 2020. We currently expect to obtain an extension for the Bowery Mortgage until such time as we can obtain construction financing.
However, if we are unable to extend or replace the Linerefinance any of Credit,our maturing indebtedness at favorable terms, we will look to repay the then outstanding balance in full at the expiration date usingwith available cash and/or proceeds from selective asset sales. We have no additional significant maturities of mortgage debt over the sale of assets or redemptions of our preferred investments in related parties.next 12 months.
Funds from Operations and Modified Funds from Operations
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings, improvements, and straight-line amortization of intangibles, whichwh5ich implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be less informative.
Because of these factors, the National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has published a standardized measure of performance known as funds from operations ("FFO"), which is used in the REIT industry as a supplemental performance measure. We believe FFO, which excludes certain items such as real estate-related depreciation and amortization, is an appropriate supplemental measure of a REIT's operating performance. FFO is not equivalent to our net income or loss as determined under GAAP.
We definecalculate FFO, a non-GAAP measure, consistent with the standards set forthestablished over time by the Board of Governors of NAREIT, as restated in thea White Paper on FFO approved by the Board of Governors of NAREIT as revisedeffective in February 2004December 2018 (the "White Paper"). The White Paper defines FFO as net income or loss computed in accordance with GAAP, but excluding gains or losses from sales of property and real estate related impairments, plus real estate related depreciation and amortization related to real estate, gains and after adjustments for unconsolidated partnershipslosses from the sale of certain real estate assets, gains and joint ventures.losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Our FFO calculation complies with NAREIT's definition.
We believe that the use of FFO provides a more complete understanding of our performance to investors and to management and reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.
Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT's definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.
Because of these factors, the Investment Program Association (the "IPA"), an industry trade group, published a standardized measure of performance known as modified funds from operations ("MFFO"), which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that both before and after we have deployed all of our offering proceeds and are no longer incurring a significant amount of acquisition fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP.
We define MFFO, a non-GAAP measure, consistent with the IPA's Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the "Practice Guideline") issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction-related fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and excludeacquisition and transaction-related fees and expenses (which includes costs incurred in connection with strategic alternatives), amounts relating to straight line rent receivables and amortization of market lease and other intangibles, net (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), accretion of discounts and amortization of premiums on debt investments and borrowings, mark-to-market adjustments included in net income (including gains or losses incurred on assets held for sale), gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis.
We believe that, because MFFO excludes costs that we consider more reflective of acquisition activities and other non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.
Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO.
Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guidelines or the SEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry, and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.
The below table illustrates the items deducted in the calculation of FFO and MFFO. Items are presented net of non-controlling interest portions where applicable.
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||
Net income | $ | 12,202 | $ | 7,357 | $ | 20,057 | $ | 31,877 | ||||||||
FFO adjustments: | ||||||||||||||||
Depreciation and amortization: | ||||||||||||||||
Depreciation and amortization of real estate assets | 2,738 | 2,705 | 8,252 | 8,595 | ||||||||||||
Equity in depreciation and amortization for unconsolidated affiliated real estate entities | - | - | - | - | ||||||||||||
Adjustments to equity in earnings from unconsolidated entities, net | - | - | - | - | ||||||||||||
Gain on disposal of investment property | (10,483 | ) | (3,799 | ) | (10,483 | ) | (23,705 | ) | ||||||||
Gain on satisfaction of mortgage receivable | - | - | (3,216 | ) | - | |||||||||||
FFO | 4,457 | 6,263 | 14,610 | 16,767 | ||||||||||||
MFFO adjustments: | ||||||||||||||||
Other Adjustment | ||||||||||||||||
Acquisition and other transaction related costs expensed(1) | - | - | - | 20 | ||||||||||||
Amortization of above or below market leases and liabilities(2) | (33 | ) | (28 | ) | (97 | ) | (84 | ) | ||||||||
Loss on debt extinguishment | - | - | - | 2 | ||||||||||||
Accretion of discounts and amortization of premiums on debt investments | - | - | - | - | ||||||||||||
Mark-to-market adjustments(3) | (26 | ) | (130 | ) | (83 | ) | 282 | |||||||||
Non-recurring (losses)/gains from extinguishment/sale of debt, derivatives or securities holdings(4) | - | - | - | - | ||||||||||||
Loss on sale of marketable securities | 18 | 15 | 67 | 952 | ||||||||||||
MFFO | 4,416 | 6,120 | 14,497 | 17,939 | ||||||||||||
Straight-line rent(5) | $ | 12 | $ | 65 | $ | (44 | ) | $ | 101 | |||||||
MFFO - IPA recommended format(6) | $ | 4,428 | $ | 6,185 | $ | 14,453 | $ | 18,040 | ||||||||
Net income | $ | 12,202 | $ | 7,357 | $ | 20,057 | $ | 31,877 | ||||||||
Less: loss attributable to noncontrolling interests | (392 | ) | (310 | ) | (915 | ) | (1,166 | ) | ||||||||
Net income applicable to Company's common shares | $ | 11,810 | $ | 7,047 | $ | 19,142 | $ | 30,711 | ||||||||
Net income per common share, basic and diluted | $ | 0.47 | $ | 0.28 | $ | 0.77 | $ | 1.21 | ||||||||
FFO | $ | 4,457 | $ | 6,263 | $ | 14,610 | $ | 16,767 | ||||||||
Less: FFO attributable to noncontrolling interests | (404 | ) | (449 | ) | (1,296 | ) | (1,359 | ) | ||||||||
FFO attributable to Company's common shares | $ | 4,053 | $ | 5,814 | $ | 13,314 | $ | 15,408 | ||||||||
FFO per common share, basic and diluted | $ | 0.16 | $ | 0.23 | $ | 0.53 | $ | 0.60 | ||||||||
MFFO - IPA recommended format | $ | 4,428 | $ | 6,185 | $ | 14,453 | $ | 18,040 | ||||||||
Less: MFFO attributable to noncontrolling interests | (411 | ) | (442 | ) | (1,289 | ) | (1,372 | ) | ||||||||
MFFO attributable to Company's common shares | $ | 4,017 | $ | 5,743 | $ | 13,164 | $ | 16,668 | ||||||||
Weighted average number of common shares outstanding, basic and diluted | 24,931 | 25,379 | 24,993 | 25,479 |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net income/(loss) | $ | 1,319 | $ | 4,686 | $ | (11,090 | ) | $ | 23,800 | |||||||
FFO adjustments: | ||||||||||||||||
Depreciation and amortization of real estate assets | 939 | 1,241 | 2,907 | 3,822 | ||||||||||||
Gain on disposal of investment property | - | (1,013 | ) | - | (1,013 | ) | ||||||||||
Discontinued operations | ||||||||||||||||
Depreciation and amortization of real estate assets | - | - | - | 121 | ||||||||||||
Gain on disposal of investment property | - | - | (1,562 | ) | (70 | ) | ||||||||||
FFO | 2,258 | 4,914 | (9,745 | ) | 26,660 | |||||||||||
MFFO adjustments: | ||||||||||||||||
Other Adjustment | ||||||||||||||||
Acquisition and other transaction related costs expensed(1) | - | - | - | (22 | ) | |||||||||||
Amortization of above or below market leases and liabilities(2) | - | (35 | ) | - | (105 | ) | ||||||||||
Discontinued operations: | ||||||||||||||||
Gain on debt extinguishment | - | - | - | (13,615 | ) | |||||||||||
Accretion of discounts and amortization of premiums on debt investments | - | - | - | - | ||||||||||||
Mark-to-market adjustments(3) | 1,472 | 609 | 20,083 | 2,408 | ||||||||||||
Non-recurring (losses)/gains from extinguishment/sale of debt, derivatives or securities holdings(4) | - | 94 | 230 | 719 | ||||||||||||
MFFO | 3,730 | 5,582 | 10,568 | 16,045 | ||||||||||||
Straight-line rent(5) | 89 | 29 | 102 | 33 | ||||||||||||
MFFO - IPA recommended format(6) | $ | 3,819 | $ | 5,611 | $ | 10,670 | $ | 16,078 | ||||||||
Net income/(loss) | $ | 1,319 | $ | 4,686 | $ | (11,090 | ) | $ | 23,800 | |||||||
Less: (income)/loss attributable to noncontrolling interests | (1,094 | ) | (809 | ) | (1,835 | ) | (1,968 | ) | ||||||||
Net income/(loss) applicable to Company's common shares | $ | 225 | $ | 3,877 | $ | (12,925 | ) | $ | 21,832 | |||||||
Net income/(loss) per common share, basic and diluted | $ | 0.01 | $ | 0.17 | $ | (0.58 | ) | $ | 0.94 | |||||||
FFO | $ | 2,258 | $ | 4,914 | $ | (9,745 | ) | $ | 26,660 | |||||||
Less: FFO attributable to noncontrolling interests | (544 | ) | (764 | ) | (857 | ) | (2,307 | ) | ||||||||
FFO attributable to Company's common shares | $ | 1,714 | $ | 4,150 | $ | (10,602 | ) | $ | 24,353 | |||||||
FFO per common share, basic and diluted | $ | 0.08 | $ | 0.18 | $ | (0.47 | ) | $ | 1.05 | |||||||
MFFO - IPA recommended format | $ | 3,819 | $ | 5,611 | $ | 10,670 | $ | 16,078 | ||||||||
Less: MFFO attributable to noncontrolling interests | (887 | ) | (1,026 | ) | (2,842 | ) | (2,402 | ) | ||||||||
MFFO attributable to Company's common shares | $ | 2,932 | $ | 4,585 | $ | 7,828 | $ | 13,676 | ||||||||
Weighted average number of common shares outstanding, basic and diluted | 22,304 | 22,859 | 22,351 | 23,168 |
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 equity securities and any other items that GAAP requires we make a mark-to-market adjustment for. The need to reflect mark-to-market adjustments is a continuous process and is analyzed on a quarterly and/or annual basis in accordance with GAAP. |
(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. |
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||
Gulf Coast Industrial Portfolio - Default interest expense(a) | $ | (514 | ) | $ | (541 | ) | $ | (1,523 | ) | $ | (1,538 | ) | ||||
Oakview Plaza - Default interest expenes(b) | (273 | ) | - | (991 | ) | - | ||||||||||
Total default interest expense | (787 | ) | (541 | ) | (2,514 | ) | (1,538 | ) | ||||||||
Allocations to noncontrolling interests | 15 | 10 | 48 | 30 | ||||||||||||
Total after allocations to noncontrolling interests | $ | (772 | ) | $ | (531 | ) | $ | (2,466 | ) | $ | (1,508 | ) |
Excluding the impact of these unusual items from our MFFO, after taking into consideration allocations to noncontrolling interests, our adjusted MFFO would have been $5,642 and $6,274 for the three months ended September 30, 2017 and 2016, respectively and $16,483 and $18,176 for the nine months ended September 30, 2017 and 2016, respectively.
The table below presents our cumulative distributions paid and cumulative FFO attributable to the Company’s common shares:
From inception through | ||||||||
September 30, 2017 | From inception through | |||||||
September 30, 2020 | ||||||||
FFO attributable to Company’s common shares | $ | 190,420 | $ | 225,439 | ||||
Distributions paid | $ | 194,172 | $ | 243,796 |
On October 16, 2017,15, 2020, the distribution for the three-month period ending September 30, 20172020 of $4.4$3.9 million was paid in cash.full using a combination of cash and approximately 7,000 shares of the Company’s common stock issued pursuant to the Company’s DRIP, at a discounted price of $11.23 per share, equal to 95% of the Company’s most recently published estimated net asset value per share of $11.82 as of September 30, 2019.
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.
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 2017,2020, if any, 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 October 1, 2017 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, 2017, we held various marketable securities with a fair value of approximately $54.0 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, 2017, a hypothetical adverse 10% movement in market values would result in a hypothetical loss in fair value of approximately $5.4 million.
The following table shows the contractually scheduled principal maturities of our mortgage debt during the next five years and thereafter as of September 30, 2017:
Remainder of 2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | ||||||||||||||||||||
$ | 50,307 | $ | 21,967 | $ | 1,621 | $ | 14,924 | $ | 1,328 | $ | 69,540 | $ | 159,687 |
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 due to related parties approximated their fair values because of the short maturity of these instruments. The estimated fair value of the notes payable (line of credit) approximated its carrying value ($18.6 million) because of its floating interest rate.
The estimated fair value of the Company’s mortgage debt is summarized as follows:
As of September 30, 2017 | As of December 31, 2016 | |||||||||||||||
Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
Mortgages payable | $ | 159.7 | $ | 158.0 | $ | 185.6 | $ | 183.2 |
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 chiefprincipal 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 chiefprincipal 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.
From time to time in the ordinary course of business, we may become subject to legal proceedings, claims or disputes.
As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.
We discuss in our Annual Report on Form 10-K various risks that may materially affect our business. We use this section to update this discussion to reflect material developments since our Form 10-K was filed. For the quarter ended September 30, 2017, there were no such material developments.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
*Filed herewith
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: November | By: | /s/ David Lichtenstein |
David Lichtenstein | ||
Chairman and Chief Executive Officer
|
Date: November 10, 2020 | By: | /s/ Seth Molod |
Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial and Accounting Officer) |