UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172022
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,REIT I, INC.
(Exact Name of Registrant as Specified in Its Charter)
Maryland | 20-1237795 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
1985 Cedar Bridge Avenue, Suite 1 | ||
Lakewood, New Jersey | 08701 | |
(Address of Principal Executive Offices) | (Zip Code) |
(732)367-0129
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yesþ ☑ 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).
Yesþ ☑ 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 | ☑ | 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 ☑
Yes ¨ No þ
As of November 1, 2017,7, 2022, there were approximately 24.9 million outstanding shares of common stock of Lightstone Value Plus Real Estate Investment Trust,REIT I, Inc., including shares issued pursuant to the dividend reinvestment plan.
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST,REIT I, INC. AND SUBSIDIARIES
INDEX
i
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST,REIT I, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
As of September 30, 2017 | As of December 31, 2016 | As of September 30, 2022 | As of December 31, 2021 | |||||||||||||
(Unaudited) | (unaudited) | |||||||||||||||
Assets | ||||||||||||||||
Investment property: | ||||||||||||||||
Land and improvements | $ | 49,667 | $ | 60,485 | $ | 24,566 | $ | 27,301 | ||||||||
Building and improvements | 162,689 | 203,054 | 51,424 | 88,830 | ||||||||||||
Furniture and fixtures | 2,118 | 17,613 | 1,873 | 2,479 | ||||||||||||
Construction in progress | 979 | 962 | 22 | 10 | ||||||||||||
Gross investment property | 215,453 | 282,114 | 77,885 | 118,620 | ||||||||||||
Less accumulated depreciation | (36,377 | ) | (49,773 | ) | (14,485 | ) | (37,019 | ) | ||||||||
Net investment property | 179,076 | 232,341 | 63,400 | 81,601 | ||||||||||||
Investment in related parties | 153,936 | 142,752 | ||||||||||||||
Development projects | 287,873 | 234,214 | ||||||||||||||
Investments in related parties | 6,930 | 15,509 | ||||||||||||||
Cash and cash equivalents | 127,381 | 105,539 | 37,872 | 39,405 | ||||||||||||
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 | ||||||||||||||
Marketable securities | 41,494 | 62,814 | ||||||||||||||
Notes receivable, net | 46,729 | 26,854 | ||||||||||||||
Prepaid expenses, restricted cash and other assets | 6,983 | 5,391 | ||||||||||||||
Total Assets | $ | 523,023 | $ | 547,295 | $ | 491,281 | $ | 465,788 | ||||||||
Liabilities and Stockholders' Equity | ||||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||
Mortgages payable, net | $ | 157,879 | $ | 183,313 | $ | 240,710 | $ | 165,706 | ||||||||
Notes payable, net | 18,598 | 18,586 | ||||||||||||||
Accounts payable, accrued expenses and other liabilities | 21,653 | 18,827 | 14,615 | 11,764 | ||||||||||||
Due to related parties | 553 | 573 | 276 | 208 | ||||||||||||
Tenant allowances and deposits payable | 1,009 | 1,429 | ||||||||||||||
Distributions payable | 4,396 | 4,432 | 3,831 | 3,885 | ||||||||||||
Deferred rental income | 685 | 1,105 | ||||||||||||||
Acquired below market lease intangibles, net | 340 | 446 | ||||||||||||||
Total Liabilities | 205,113 | 228,711 | 259,432 | 181,563 | ||||||||||||
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 | ||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Company’s Stockholders Equity: | ||||||||||||||||
Preferred shares, $ par value, million shares authorized, issued and outstanding | - | - | ||||||||||||||
Common stock, $ par value; million shares authorized, million and million shares issued and outstanding, respectively | 219 | 222 | ||||||||||||||
Additional paid-in-capital | 194,986 | 197,036 | 164,727 | 168,363 | ||||||||||||
Accumulated other comprehensive income | 13,571 | 15,954 | ||||||||||||||
Accumulated other comprehensive loss | (276 | ) | (40 | ) | ||||||||||||
Accumulated surplus | 90,302 | 84,240 | 54,028 | 93,134 | ||||||||||||
Total Company's stockholders' equity | 299,108 | 297,481 | ||||||||||||||
- | - | |||||||||||||||
Total Company’s stockholders’ equity | 218,698 | 261,679 | ||||||||||||||
Noncontrolling interests | 18,802 | 21,103 | 13,151 | 22,546 | ||||||||||||
Total Stockholders' Equity | 317,910 | 318,584 | ||||||||||||||
Total Liabilities and Stockholders' Equity | $ | 523,023 | $ | 547,295 | ||||||||||||
Total Stockholders’ Equity | 231,849 | 284,225 | ||||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 491,281 | $ | 465,788 |
The accompanying notes are an integral part of these consolidated financial statements.
1
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST,REIT I, 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, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenues: | ||||||||||||||||
Rental income | $ | 2,370 | $ | 2,300 | $ | 7,117 | $ | 7,486 | ||||||||
Tenant recovery income | 13 | 32 | 80 | 109 | ||||||||||||
Total revenues | 2,383 | 2,332 | 7,197 | 7,595 | ||||||||||||
Expenses: | ||||||||||||||||
Property operating expenses | 922 | 1,368 | 3,315 | 3,240 | ||||||||||||
Real estate taxes | 61 | 71 | 185 | 291 | ||||||||||||
General and administrative costs | 538 | 616 | 1,710 | 1,787 | ||||||||||||
Pre-opening costs | 317 | - | 671 | - | ||||||||||||
Impairment charge | - | 11,341 | - | 11,341 | ||||||||||||
Depreciation and amortization | 478 | 1,545 | 1,976 | 3,826 | ||||||||||||
Total expenses | 2,316 | 14,941 | 7,857 | 20,485 | ||||||||||||
Other income/(loss), net | 1,609 | 297 | 2,839 | (96 | ) | |||||||||||
Interest and dividend income | 2,320 | 3,193 | 6,712 | 10,352 | ||||||||||||
Interest expense, net | (677 | ) | (580 | ) | (1,427 | ) | (1,977 | ) | ||||||||
Gain on disposition of real estate | 1,105 | 213 | 1,154 | 3,802 | ||||||||||||
Loss on demolition | (16,593 | ) | - | (16,593 | ) | - | ||||||||||
Unrealized (loss)/gain on marketable equity securities | (1,190 | ) | (3,521 | ) | (19,964 | ) | 10,556 | |||||||||
Gain on sale of marketable securities | - | 4,669 | �� | 1,160 | 4,653 | |||||||||||
Net (loss)/income | (13,359 | ) | (8,338 | ) | (26,779 | ) | 14,400 | |||||||||
Less: net income attributable to noncontrolling interests | (183 | ) | (582 | ) | (783 | ) | (3,332 | ) | ||||||||
Net (loss)/income attributable to Company’s common shares | $ | (13,542 | ) | $ | (8,920 | ) | $ | (27,562 | ) | $ | 11,068 | |||||
Net (loss)/income per Company’s common share, basic and diluted | $ | (0.62 | ) | $ | (0.40 | ) | $ | (1.25 | ) | $ | 0.50 | |||||
Weighted average number of common shares outstanding, basic and diluted | 21,887 | 22,221 | 21,996 | 22,276 |
The accompanying notes are an integral part of these consolidated financial statements.
2
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 |
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net (loss)/income | $ | (13,359 | ) | $ | (8,338 | ) | $ | (26,779 | ) | $ | 14,400 | |||||
Other comprehensive(loss)/income | ||||||||||||||||
Holding (loss)/gain on available for sale debt securities | (107 | ) | 4,605 | 919 | 4,696 | |||||||||||
Reclassification adjustment for gain included in net (loss)/income | - | (4,669 | ) | (1,160 | ) | (4,653 | ) | |||||||||
Other comprehensive (loss)/income | (107 | ) | (64 | ) | (241 | ) | 43 | |||||||||
Comprehensive (loss)/income | (13,466 | ) | (8,402 | ) | (27,020 | ) | 14,443 | |||||||||
Less: Comprehensive income attributable to noncontrolling interests | (181 | ) | (581 | ) | (778 | ) | (3,333 | ) | ||||||||
Comprehensive (loss)/income attributable to Company’s common shares | $ | (13,647 | ) | $ | (8,983 | ) | $ | (27,798 | ) | $ | 11,110 |
The accompanying notes are an integral part of these consolidated financial statements.
3
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST,REIT I, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)STOCKHOLDERS’ EQUITY
(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 |
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||
Common | Paid-In | Comprehensive | Accumulated | Noncontrolling | Stockholders’ | |||||||||||||||||||||||
Shares | Amount | Capital | Income | Surplus | Interests | Equity | ||||||||||||||||||||||
BALANCE, June 30, 2021 | 22,309 | $ | 223 | $ | 169,810 | $ | 483 | $ | 101,813 | $ | 29,903 | 302,232 | ||||||||||||||||
Net loss | - | - | - | - | (8,920 | ) | 582 | (8,338 | ) | |||||||||||||||||||
Other comprehensive loss | - | - | - | (63 | ) | - | (1 | ) | (64 | ) | ||||||||||||||||||
Distributions declared (a) | - | - | - | - | (3,889 | ) | - | (3,889 | ) | |||||||||||||||||||
Distributions paid to noncontrolling interests | - | - | - | - | - | (1,340 | ) | (1,340 | ) | |||||||||||||||||||
Contributions received from noncontrolling interests | - | - | - | - | - | 146 | 146 | |||||||||||||||||||||
Redemption and cancellation of common shares | (111 | ) | (1 | ) | (1,245 | ) | - | - | - | (1,246 | ) | |||||||||||||||||
Shares issued from distribution reinvestment program | 8 | - | 81 | - | - | - | 81 | |||||||||||||||||||||
BALANCE, September 30, 2021 | 22,206 | $ | 222 | $ | 168,646 | $ | 420 | $ | 89,004 | $ | 29,290 | $ | 287,582 |
(a) | Distributions per share were $0.525. |
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||
Common | Paid-In | Comprehensive | Accumulated | Noncontrolling | Stockholders’ | |||||||||||||||||||||||
Shares | Amount | Capital | Income | Surplus | Interests | Equity | ||||||||||||||||||||||
BALANCE, December 31, 2020 | 22,294 | $ | 223 | $ | 169,649 | $ | 378 | $ | 89,639 | $ | 36,294 | 296,183 | ||||||||||||||||
Net income | - | - | - | - | 11,068 | 3,332 | 14,400 | |||||||||||||||||||||
Other comprehensive income | - | - | - | 42 | - | 1 | 43 | |||||||||||||||||||||
Distributions declared (a) | - | - | - | - | (11,703 | ) | - | (11,703 | ) | |||||||||||||||||||
Distributions paid to noncontrolling interests | - | - | - | - | - | (10,523 | ) | (10,523 | ) | |||||||||||||||||||
Contributions received from noncontrolling interests | - | - | - | - | - | 186 | 186 | |||||||||||||||||||||
Redemption and cancellation of common shares | (111 | ) | (1 | ) | (1,245 | ) | - | - | - | (1,246 | ) | |||||||||||||||||
Shares issued from distribution reinvestment program | 23 | - | 242 | - | - | - | 242 | |||||||||||||||||||||
BALANCE, September 30, 2021 | 22,206 | $ | 222 | $ | 168,646 | $ | 420 | $ | 89,004 | $ | 29,290 | $ | 287,582 |
(a) | Distributions per share were $0.525. |
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||
Common | Paid-In | Comprehensive | Accumulated | Noncontrolling | Stockholders’ | |||||||||||||||||||||||
Shares | Amount | Capital | Income | Surplus | Interests | Equity | ||||||||||||||||||||||
BALANCE, June 30, 2022 | 21,923 | $ | 219 | $ | 165,323 | $ | (171 | ) | $ | 71,402 | $ | 27,943 | $ | 264,716 | ||||||||||||||
Net loss | - | - | - | - | (13,542 | ) | 183 | (13,359 | ) | |||||||||||||||||||
Other comprehensive loss | - | - | - | (105 | ) | - | (2 | ) | (107 | ) | ||||||||||||||||||
Distributions declared (a) | - | - | - | - | (3,832 | ) | - | (3,832 | ) | |||||||||||||||||||
Distributions paid to noncontrolling interests | - | - | - | - | - | (14,973 | ) | (14,973 | ) | |||||||||||||||||||
Redemption and cancellation of common shares | (58 | ) | - | (678 | ) | - | - | - | (678 | ) | ||||||||||||||||||
Shares issued from distribution reinvestment program | 7 | - | 82 | - | - | - | 82 | |||||||||||||||||||||
BALANCE, September 30, 2022 | 21,872 | $ | 219 | $ | 164,727 | $ | (276 | ) | $ | 54,028 | $ | 13,151 | $ | 231,849 |
(a) | Distributions per share were $0.175. |
Accumulated | ||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||
Common | Paid-In | Comprehensive | Accumulated | Noncontrolling | Stockholders’ | |||||||||||||||||||||||
Shares | Amount | Capital | Income | Surplus | Interests | Equity | ||||||||||||||||||||||
BALANCE, December 31, 2021 | 22,181 | $ | 222 | $ | 168,363 | $ | (40 | ) | $ | 93,134 | $ | 22,546 | $ | 284,225 | ||||||||||||||
Net loss | - | - | - | - | (27,562 | ) | 783 | (26,779 | ) | |||||||||||||||||||
Other comprehensive loss | - | - | - | (236 | ) | - | (5 | ) | (241 | ) | ||||||||||||||||||
Distributions declared (a) | - | - | - | - | (11,544 | ) | - | (11,544 | ) | |||||||||||||||||||
Distributions paid to noncontrolling interests | - | - | - | - | - | (32,068 | ) | (32,068 | ) | |||||||||||||||||||
Contributions received from noncontrolling interests | - | - | - | - | - | 21,895 | 21,895 | |||||||||||||||||||||
Redemption and cancellation of common shares | (331 | ) | (3 | ) | (3,885 | ) | - | - | - | (3,888 | ) | |||||||||||||||||
Shares issued from distribution reinvestment program | 22 | - | 249 | - | - | - | 249 | |||||||||||||||||||||
BALANCE, September 30, 2022 | 21,872 | $ | 219 | $ | 164,727 | $ | (276 | ) | $ | 54,028 | $ | 13,151 | $ | 231,849 |
(a) | Distributions per share were $0.525. |
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,REIT I, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITYCASH FLOWS
(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 Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net (loss)/income | $ | (26,779 | ) | $ | 14,400 | |||
Adjustments to reconcile net (loss)/income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 1,976 | 3,826 | ||||||
Impairment charge | - | 11,341 | ||||||
Unrealized loss/(gain) on marketable equity securities | 19,964 | (10,556 | ) | |||||
Gain on sale of marketable securities | (1,160 | ) | (4,653 | ) | ||||
Mark to market adjustment on derivative financial instruments | (2,847 | ) | (114 | ) | ||||
Gain on disposition of real estate | (1,154 | ) | (3,802 | ) | ||||
Loss on demolition | 16,593 | - | ||||||
Noncash interest income | (2,995 | ) | (4,203 | ) | ||||
Other non-cash adjustments | 225 | 596 | ||||||
Changes in assets and liabilities: | ||||||||
Increase in prepaid expenses and other assets | (1,537 | ) | (671 | ) | ||||
(Decrease)/increase in tenant allowances and deposits payable | (38 | ) | 26 | |||||
Increase in accounts payable, accrued expenses and other liabilities | 6,717 | 5,711 | ||||||
Decrease in due to related parties | 68 | (131 | ) | |||||
Net cash provided by operating activities | 9,033 | 11,770 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of development property and investment property | (54,401 | ) | (42,797 | ) | ||||
Purchase of marketable securities | (12,052 | ) | (4,188 | ) | ||||
Proceeds from sale of marketable securities | 14,326 | 11,859 | ||||||
Proceeds from disposition of real estate | - | 20,052 | ||||||
Investment in joint venture | - | (12 | ) | |||||
Proceeds from joint venture | 79 | 138 | ||||||
Proceeds from redemption of preferred investment in related party | 8,500 | - | ||||||
Funding of notes receivable | (44,420 | ) | - | |||||
Proceeds from repayment of notes receivable | 27,540 | 43,326 | ||||||
Net cash (used in)/provided by investing activities | (60,428 | ) | 28,378 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from mortgage financing | 74,318 | 40,596 | ||||||
Mortgage principal payments | (1,034 | ) | (63,745 | ) | ||||
Payment of loan fees and expenses | (627 | ) | (5,692 | ) | ||||
Redemption and cancellation of common shares | (3,888 | ) | (1,246 | ) | ||||
Contributions received from noncontrolling interests | 21,895 | 186 | ||||||
Distributions paid to noncontrolling interests | (32,068 | ) | (10,523 | ) | ||||
Distributions paid to Company’s common stockholders | (11,349 | ) | (11,477 | ) | ||||
Net cash provided by/(used in) financing activities | 47,247 | (51,901 | ) | |||||
Net change in cash, cash equivalents and restricted cash | (4,148 | ) | (11,753 | ) | ||||
Cash, cash equivalents and restricted cash, beginning of year | 42,592 | 46,841 | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | 38,444 | $ | 35,088 | ||||
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 | $ | 37,872 | $ | 33,378 | ||||
Restricted cash | 572 | 1,710 | ||||||
Total cash, cash equivalents and restricted cash | $ | 38,444 | $ | 35,088 |
The accompanying notes are an integral part of these consolidated financial statements.
5
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST,REIT I, 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
(Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
1. |
Lightstone Value Plus REIT I, Inc., which was formerly known as Lightstone Value Plus Real Estate Investment Trust, Inc., before September 16, 2021, a Maryland corporation (“Lightstone REIT”REIT I”) 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.. Lightstone REIT I was formed primarily for the purpose of engaging in the business of investing in and owning commercial and residential real estate properties located throughout the United States. The Company also has and will continue to seek to originate, acquire and manage a diverse portfolio of real estate-related investments.
Lightstone REIT I 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 as the general partner, held a 98% interest as. As of September 30, 2017.2022, the Company held a 98% general partnership interest in the Company’s Operating Partnership’s common units (“Common Units”).
The Lightstone REIT I and the Operating Partnership and its subsidiaries are collectively referred to as the ‘‘Company’’“Company” and the use of ‘‘we,’’ ‘‘our,’’ ‘‘us’’“we,” “our,” “us” or similar pronouns refers to the Lightstone REIT I, its Operating Partnership or the Company as required by the context in which such pronoun is used.
Through its Operating Partnership, the Company owns, operates and develops commercial, residential, and hospitality properties and makes 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 in its best interests.
Since its inception, the Company has owned and managed various commercial and residential properties located throughout the United States. The Company evaluates all of its real estate investments as one operating segment. As of September 30, 2022, the Company has ownership interests in (i) one consolidated operating property, (ii) two consolidated development properties, (iii) certain consolidated land holdings, and (iv) seven unconsolidated operating properties. With respect to its consolidated operating property, the Company has a majority ownership interest of 59.2% in Gantry Park Landing, a multi-family residential property containing 199 apartment units located in the Queens neighborhood of New York City. With respect to its development properties, the Company wholly owns two projects consisting of the Lower East Side Moxy Hotel, which opened on October 27, 2022, and the Exterior Street Project. The Company also wholly owns and consolidates certain land holdings located in St. Augustine, Florida. Additionally, the Company holds a 2.5% ownership interest in seven hotel properties through a joint venture (the “Joint Venture”) which the Company accounts for using a measurement alternative under which the Joint Venture is measured at cost, adjusted for observable price changes and impairments, if any. The Joint Venture is between the Company and the operating partnership of Lightstone Value Plus REIT II, Inc., 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 a preferred investment in related party and a nonrecourse loan made to unaffiliated third-party borrower.
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 shares of the Lightstone Group, Inc.Company’s common stock (“Common Shares”) which were issued on July 6, 2004 for $200, underor $ 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”) 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 I or the Operating Partnership.
6
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The Company does not have any employees. The Advisor receives compensation and fees for services related to the investment and management of the Company’s assets.
The Company’s stock isAdvisor has affiliates which may manage and develop certain of its properties. However, the Company also contracts with other unaffiliated third-party property managers.
The Company’s Common Shares are not currently listed on a national securities exchange. The Company may seek to list its stock for trading on a national securities exchange only if a majority of 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
Related Parties
The Advisor and its affiliates, and Lightstone SLP, LLC are related parties of the eventCompany. Certain of these entities are entitled to compensation for services related to the investment, management and disposition of the Company’s assets. The compensation is based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements.
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, does not obtain listing prior to October 10, 2018 (the tenth anniversaryan equal number of shares of Common Shares.
In connection with the Offering, Lightstone SLP, LLC, an affiliate of the completionAdvisor, purchased an aggregate of its initial public offering,) its charter requires that$30.0 million of SLP Units. As 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 liquidationmajority owner of the corporation.
On October 20, 2017,SLP Units, Mr. Lichtenstein is the Company filedbeneficial owner of a definitive proxy statement with the Securities99% interest in such SLP Units and Exchange Commission pursuantthus receives an indirect benefit from any distributions made in respect thereof. These SLP Units may be entitled to which it is seeking stockholder approval to amend its charter to remove the requirementa 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 approvalstated preferred return.
In addition, an aggregate 497,209 Common Units were issued to adopt a plan of liquidation ofother unrelated parties during the corporation on or before October 10, 2018 (the “Charter Amendment”). In the event that the stockholders do not approve the Charter Amendmentyears ended December 31, 2008 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.
As2009 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.2022.
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 (see Note 5). PRO’s holdings principally consist of Marco OP Units and Marco II OP Units (see Note 6). The 2nd Street Joint Venture owns Gantry Park Landing.
7
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST,REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
2. | Summary of Significant Accounting Policies |
Basis of Presentation
The consolidated financial statements include the accounts of the Lightstone REIT I 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, 2016.2021. 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,REIT I, 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 108 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, 20162021 included herein has been derived from the consolidated balance sheet included in the Company'sCompany’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 PronouncementsDerivative Financial Instruments
In January 2017, the Financial Accounting Standards Board (“FASB”) issued guidance that clarifies the definition of a business and assistsThe Company utilizes derivative financial instruments to reduce interest rate risk. The Company does not hold or issue derivative financial instruments for trading purposes. The Company recognizes all derivatives as either assets or liabilities in the evaluation 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 assetsconsolidated balance sheets and activities acquired is not a business. When substantially all of themeasures those instruments at fair value. Changes in 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 to have a material impact on the Company’s consolidated financial statements.
In November 2016, the FASB issued guidance that requires amounts thatinstruments 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 paymentsreported in the statementconsolidated statements 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.operations.
8
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST,REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
Pre-Opening Costs
The Company expenses the costs associated with pre-opening activities associated with its development and construction projects as incurred. Pre-opening costs generally consist of non-recurring personnel, marketing and other costs.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and it remains highly unpredictable and dynamic and its ultimate duration and extent continue to be dependent on various developments, such as the emergence of variants to the virus that may cause additional strains of COVID-19, and the ongoing development, administration and ultimate effectiveness of vaccines, including booster shots. Accordingly, the ongoing COVID-19 pandemic may continue to have negative effects on the U.S. and global economies for the foreseeable future.
During the COVID-19 pandemic, the occupancy of the Company’s St. Augustine Outlet Center significantly declined and because of limited leasing success, the Company began exploring various strategic alternatives for the property, which ultimately led to the Company ceasing operations of the center effective July 15, 2022 and demolishing the existing building and improvements during the third quarter of 2022. See “St. Augustine Outlet Center” for additional information.
Additionally, during 2020 the Company saw 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 was negatively impacted by the COVID-19 pandemic. However, both occupancy and rental rates consistently improved throughout 2021 and returned to pre-COVID-19 levels. Thereafter, occupancy has continued to remain stable and the property has experienced strong growth in its rental rates thus far in 2022.
To-date, the COVID-19 pandemic has not had any significant impact on the Company’s development projects. Furthermore, the Company’s other real estate-related investments (both its preferred investment in related party and its nonrecourse loan made to an unaffiliated third-party borrower) also relate to various development projects, which are at different stages in their respective development process. These investments, which are subject to similar risks, have also not yet been significantly impacted by the COVID-19 pandemic.
The extent to which the Company’s business may be affected by the ongoing COVID-19 pandemic will largely depend on both current and future developments, all of which are 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 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.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation.
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 adoption of this standard will not have a material impacteffect on the Company’s consolidated financial statements.position, results of operations or cash flows.
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.
9
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Supplemental Cash Flow Information
Supplemental cash flow information for the periods indicated is as follows:
Schedule of summary of supplemental cash flow information | ||||||||
For the Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Cash paid for interest | $ | 9,691 | $ | 6,424 | ||||
Distributions declared but not paid | $ | 3,831 | $ | 3,889 | ||||
Investment property acquired but not paid | $ | 2,059 | $ | 4,483 | ||||
Amortization of deferred financing costs included in development projects | $ | 2,094 | $ | 848 | ||||
Holding loss/gain on marketable securities | $ | 241 | $ | 43 | ||||
Value of shares issued from distribution reinvestment program | $ | 249 | $ | 242 | ||||
Accrued loan exit fee included in deferred financing costs | $ | - | $ | 1,100 |
St. Augustine Outlet Center
During the COVID-19 pandemic, the occupancy of the Company’s St. Augustine Outlet Center, a retail property located in St. Augustine Florida, which consisted of 0.3 million of gross leasable area, significantly declined and because of limited leasing success, the Company began exploring various strategic alternatives for the property. As a result, during the third quarter of 2021, the Company determined that it would no longer continue to pursue leasing of space to tenants and therefore, began to enter into lease termination agreements with certain tenants and also provided notice to its other tenants that it would not renew their leases at the scheduled expiration of their lease. Due to this change in leasing strategy and resulting decrease in the fair value of the St. Augustine Outlet Center, the Company recorded a non-cash loss on impairment of real estate of $11.3 million during the third quarter of 2021.
Because of the aforementioned lease terminations and scheduled expirations, substantially all of the tenants vacated the property during the first quarter of 2022 and on June 29, 2022, the Company entered into a lease termination agreement with the property’s final tenant providing for them to receive an aggregate of $750 provided they vacated the property no later than July 15, 2022. The final tenant vacated the property in July 2022 and the Company ceased operations of the St. Augustine Outlet Center effective July 15, 2022 and shortly thereafter, commenced demolition of the property’s building and improvements in order to prepare the various land parcels for sale and/or lease. The demolition of the property’s buildings and improvements was substantially completed during the third quarter of 2022 and the Company recognized a loss on demolition of $16.6 million consisting of the write-off of the carrying value of the property’s building and improvements plus related costs.
In connection with the terms of certain of the lease termination agreements, the Company agreed to make various payments to certain tenants provided they closed their store and vacated the property. The Company expenses lease termination fees in the period the lease termination agreement is executed and such expenses are included in property operating expenses on the consolidated statements of operations. During the nine months ended September 30, 2022, the Company recognized aggregate lease termination fees of $825. During the three and nine months ended September 30, 2021, the Company recognized a lease termination fee of $425.
10
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
3. | Development Projects |
Lower East Side Moxy Hotel
On December 3, 2018, the Company, through a subsidiary of the Operating Partnership, acquired three adjacent parcels of land located at 147-151 Bowery in the Lower East Side neighborhood of Manhattan in New York City from unaffiliated third parties for aggregate consideration of $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 in the Lower East Side neighborhood of Manhattan in New York City from an unaffiliated third party for $2.4 million, excluding closing and other acquisition related costs. The land and air rights were acquired for the development and construction of a 296-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”). On June 3, 2021, the Company entered into a development agreement (the “Development Agreement”) with an affiliate of the Advisor (the “Moxy Lower East Side Developer”) pursuant to which the Lower East Side Moxy Developer is being paid a development fee equal to 3% of hard and soft costs incurred in connection with the development and construction of the Lower East Side Moxy Hotel. The advisor and its affiliates are also reimbursed for certain development-related costs attributable to the Lower East Side Moxy Hotel. Additionally on June 3, 2021, the Company obtained construction financing for the Lower East Side Moxy Hotel. As of September 30, 2022, the construction of the Lower East Side Moxy Hotel was substantially complete and the hotel and two of its five food and beverage venues subsequently opened in October 2022. The remaining food and beverage venues are currently expected to open by the end of 2022.
In preparation for the opening of the Lower East Side Moxy Hotel, the Company incurred pre-opening costs of $0.3 million and $0.7 million during the three and nine months ended September 30, 2022, respectively. No pre-opening costs were incurred in the 2021 periods. Pre-opening costs generally consist of non-recurring personnel, marketing and other costs.
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 in the Bronx neighborhood of New York City from unaffiliated third parties for an aggregate purchase price of $59.0 million, excluding closing and other acquisition related costs. In September 2021, the Company subsequently acquired an additional adjacent parcel of land at cost from an affiliate of its Advisor for $1.0 million in order to achieve certain zoning compliance. The land parcels were acquired for the development of a multi-family residential property (the “Exterior Street Project”).
The following is a summary of the total amounts incurred and capitalized to each of the Company’s development projects as of the dates indicated and the amounts of interest capitalized to the Company’s development projects for the periods indicated:
Schedule of development projects | ||||||||||||||||||||||||
Amounts Capitalized to Construction in Progress | Capitalized Interest | Capitalized Interest | ||||||||||||||||||||||
As of September 30, | As of December 31, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
Development Project | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||
Lower East Side Moxy Hotel | $ | 196,284 | $ | 146,747 | $ | 4,024 | $ | 1,722 | $ | 9,792 | $ | 4,068 | ||||||||||||
Exterior Street Project | 91,589 | 87,467 | 901 | 477 | 2,137 | 1,516 | ||||||||||||||||||
Total | $ | 287,873 | $ | 234,214 | $ | 4,925 | $ | 2,199 | $ | 11,929 | $ | 5,584 |
11
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
4. | Investments in Related Parties |
Preferred Investments
The Company entered into agreements with various related party entities that provided for it to make preferred contributions pursuant to certain instruments (the “Preferred Investments”) that entitle it to certain prescribed monthly preferred distributions at an annual rate of 12%. During the nine months ended September 30, 2022, the Company redeemed $8.5 million (including $4.5 million in the third quarter of 2022) of its East 11th Street Preferred Investment, which is now fully redeemed. As a result, as of September 30, 2022, the Company’s only has one remaining Preferred Investment, which is its 40 East End Avenue Preferred Investment with an outstanding balance of $6.0 million. The Preferred Investments 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 the Company’s remaining Preferred Investment approximates its carrying value based on market rates for similar instruments as of September 30, 2022.
The Preferred Investments are summarized as follows:
Schedule of preferred investments | ||||||||||||||||||||||||||||
Preferred Investments | Dividend Rate | Preferred Investment Balance | Investment Income(1) | |||||||||||||||||||||||||
As of September 30, | As of December 31, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
40 East End Avenue | 12% | $ | 6,000 | $ | 6,000 | $ | 184 | $ | 184 | $ | 546 | $ | 546 | |||||||||||||||
East 11th Street | 12% | - | 8,500 | 108 | 261 | 593 | 774 | |||||||||||||||||||||
Total | $ | 6,000 | $ | 14,500 | $ | 292 | $ | 445 | $ | 1,139 | $ | 1,320 |
Note:
(1) | Included in interest and dividend income on the consolidated statements of operations. |
The Joint Venture
The Company has a 2.5% membership interest in the Joint Venture, which holds ownership interests in seven hotels. The carrying value of its investment was $0.9 million and $1.0 million, as of September 30, 2022 and December 31, 2021, respectively, which is included in investment in related parties on the consolidated balance sheets.
5. | Notes Receivable |
The Company has formed certain joint ventures (collectively, the “NR Joint Ventures”) between wholly-owned subsidiaries of the Operating Partnership (collectively, the “NR Subsidiaries”) and affiliates of the Sponsor (the “NR Affiliates”) which have originated nonrecourse loans (collectively, the “Joint Venture Promissory Notes”) to unaffiliated third-party borrowers (collectively, the “Joint Venture Borrowers”).
The NR Subsidiaries and NR Affiliates may have varying ownership interests in the NR Joint Ventures, however; certain other wholly-owned subsidiaries of the Operating Partnership serve as the manager and are the sole decision-maker for each of the NR Joint Ventures.
The Company has determined that the NR Joint Ventures are VIEs and the NR Subsidiaries are the primary beneficiaries. Since the NR Subsidiaries are the primary beneficiaries, beginning on the applicable date of formation, the Company has consolidated the operating results and financial condition of the NR Joint Ventures and accounted for the respective ownership interests of the NR Affiliates as noncontrolling interests.
12
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The Joint Venture Promissory Notes generally provide for monthly interest at a prescribed variable rate, subject to a floor. In connection with the initial funding of the Joint Venture Promissory Notes, the NR Joint Ventures receive origination fees (ranging from 1.00% to 1.50%) based on the principal commitment under the loan and retain a portion of the loan proceeds to establish a reserve for interest and other items (the “Loan Reserves”). The Joint Venture Promissory Notes are recorded in notes receivable, net on the consolidated balance sheets.
The Joint Venture Promissory Notes generally have an initial term of one or two years and may provide for additional extension options subject to satisfaction of certain conditions, including the funding of additional Loan Reserves and payment of extension fees. The Joint Venture Promissory Notes are collateralized by either the membership interests of the Joint Venture Borrowers in the borrowing entity or the underlying real property being developed by the Joint Venture Borrower.
Origination fees are presented in the consolidated balance sheets as a direct deduction from the carrying value of the Joint Venture Promissory Notes and are amortized into interest income, using a straight-line method that approximates the effective interest method, over the initial term of the Joint Venture Promissory Notes. The Loan Reserves are presented in the consolidated balance sheets as a direct deduction from the carrying value of the Joint Venture Promissory Notes and are applied against the monthly interest due over the term.
During the nine months ended September 30, 2022 and 2021, both the NR Subsidiaries and the NR Affiliates made aggregate contributions to the NR Joint Ventures of $21.9 million and $0.2 million, respectively. Additionally, during the nine months ended September 30, 2022 and 2021, the NR Joint Ventures made aggregate distributions to both the NR Subsidiaries and NR Affiliates of $29.3 million and $8.6 million, respectively, based on their respective membership interests.
The following tables summarize the Notes Receivable as of the dates indicated:
Schedule of summary of notes receivable | |||||||||||||||||||||||||||||||||||
As of September 30, 2022 | |||||||||||||||||||||||||||||||||||
Joint Venture/Lender | Company’s Percentage | Loan Commitment Amount | Origination Fee | Origination Date | Maturity Date | Contractual Interest Rate | Outstanding Principal | Reserves | Unamortized Origination Fee | Carrying Value | Unfunded Commitment | ||||||||||||||||||||||||
LSC 1543 7th LLC | 50% | 49,000 | 1.00% | March 2, 2022 | August 31, 2023 | SOFR plus 7.00% (Floor of 7.15%) | $ | 49,000 | $ | (1,821 | ) | $ | (450 | ) | $ | 46,729 | $ | - |
As of December 31, 2021 | |||||||||||||||||||||||||||||||||||
Joint Venture/Lender | Company’s Percentage | Loan Commitment Amount | Origination Fee | Origination Date | Maturity Date | Contractual Interest Rate | Outstanding Principal | Reserves | Unamortized Origination Fee | Carrying Value | Unfunded Commitment | ||||||||||||||||||||||||
LSC 1543 7th LLC (1) | 50% | 20,000 | 1.00% | August 27, 2019 | February 28, 2022 | Libor plus 5.40% (Floor of 7.90%) | $ | 17,500 | $ | - | $ | (33 | ) | $ | 17,467 | $ | - | ||||||||||||||||||
LSC 11640 Mayfield LLC (2) | 50% | 18,000 | 1.50% | March 4, 2020 | March 1, 2022 | Libor plus 11.00% (Floor of 13.00%) | 10,040 | (629 | ) | (24 | ) | 9,387 | 6,960 | ||||||||||||||||||||||
Total | $ | 27,540 | $ | (629 | ) | $ | (57 | ) | $ | 26,854 | $ | 6,960 |
(1) | Repaid in full during March 2022. |
(2) | Repaid in full during February 2022. |
13
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The 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:
Schedule of interest earned for each of the joint venture promissory notes | ||||||||||||||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
Joint Venture/Lender | 2022 | 2021 | 2022 | 2021 | ||||||||||||
LSC 1543 7th LLC | $ | 1,230 | 454 | $ | 2,957 | $ | 1,348 | |||||||||
LSC 162nd Capital I LLC | - | 123 | - | 373 | ||||||||||||
LSC 162nd Capital II LLC | - | 266 | - | 807 | ||||||||||||
LSC 1650 Lincoln LLC | - | 545 | - | 1,618 | ||||||||||||
LSC 11640 Mayfield LLC | - | 383 | 455 | 1,125 | ||||||||||||
LSC 11640 Newkirk LLC | - | - | - | 1,585 | ||||||||||||
Total | $ | 1,230 | $ | 1,771 | $ | 3,412 | $ | 6,856 |
6. | Marketable Securities, |
Marketable Securities:Securities
The following is a summary of the Company’s available for sale securities assecurities:
Schedule of summary of available for sale securities and other investments | ||||||||||||||||
As of September 30, 2022 | ||||||||||||||||
Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
Marketable Securities: | ||||||||||||||||
Equity securities: | ||||||||||||||||
Common and Preferred Equity Securities | $ | 24,600 | $ | - | $ | (2,905 | ) | $ | 21,695 | |||||||
Marco OP Units and Marco II OP Units | 19,227 | - | (448 | ) | 18,779 | |||||||||||
43,827 | - | (3,353 | ) | 40,474 | ||||||||||||
Debt securities: | ||||||||||||||||
Corporate Bonds | 1,290 | (270 | ) | 1,020 | ||||||||||||
Total | $ | 45,117 | $ | - | $ | (3,623 | ) | $ | 41,494 |
As of December 31, 2021 | ||||||||||||||||
Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
Marketable Securities: | ||||||||||||||||
Equity securities: | ||||||||||||||||
Common and Preferred Equity Securities | $ | 24,932 | $ | 2,541 | $ | (135 | ) | $ | 27,338 | |||||||
Marco OP Units and Marco II OP Units | 19,227 | 14,204 | - | 33,431 | ||||||||||||
44,159 | 16,745 | (135 | ) | 60,769 | ||||||||||||
Debt securities: | ||||||||||||||||
Corporate Bonds | 2,073 | - | (28 | ) | 2,045 | |||||||||||
Total | $ | 46,232 | $ | 16,745 | $ | (163 | ) | $ | 62,814 |
14
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
As of both September 30, 2022 and December 31, 2021, the dates indicated:
As of September 30, 2017 | ||||||||||||||||
Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
Equity Securities, primarily REITs | $ | 1,405 | $ | 165 | $ | - | $ | 1,570 | ||||||||
Marco OP Units and Marco II OP Units | 19,227 | 14,585 | - | 33,812 | ||||||||||||
Corporate Bonds and Preferred Equities | 16,463 | 516 | - | 16,979 | ||||||||||||
Mortgage Backed Securities ("MBS") | 1,915 | - | (298 | ) | 1,617 | |||||||||||
Total | $ | 39,010 | $ | 15,266 | $ | (298 | ) | $ | 53,978 |
As of December 31, 2016 | ||||||||||||||||
Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
Equity Securities, primarily REITs | $ | 1,405 | $ | 325 | $ | - | $ | 1,730 | ||||||||
Marco OP Units and Marco II OP Units | 19,227 | 17,949 | - | 37,176 | ||||||||||||
Corporate Bonds and Preferred Equities | 11,382 | - | (397 | ) | 10,985 | |||||||||||
Mortgage Backed Securities ("MBS") | 2,918 | - | (314 | ) | 2,604 | |||||||||||
Total | $ | 34,932 | $ | 18,274 | $ | (711 | ) | $ | 52,495 |
Company held an aggregate of 209,243 Marco OP Units and Marco II OP Units, of which 89,695 were owned by PRO. The Marco OP Units and the Marco II OP Units are both exchangeable for a similar number of common operating partnership units (“Simon OP Units”) of Simon Property Group, L.P., (“Simon OP”), the operating partnership of Simon Property Group, Inc. (“Simon”Simon Inc.”)., a public REIT that is an owner and operator of shopping malls and outlet centers. Subject to the various conditions, the Company may elect to exchange the Marco OP Units and/or the Marco II OP Units to Simon OP Units which must be immediately delivered to Simon Inc. in exchange for cash or similar number of shares of Simon’sSimon Inc.’s common stock (“Simon Stock”). Accordingly, the Marco OP Units and Marco II OP Units are valued based on the closing price of Simon Stock, which was $ per share and $ per share as of September 30, 2022 and December 31, 2021, respectively.
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIESThroughout 2022, financial markets have been experiencing significant increases in interest rates primarily as a result of higher inflation, leading to the substantially lower market prices of the Company equity’s securities, especially those highly sensitive to movements in interest rates, such are REITs and preferred securities. Because of the change in the closing price of Simon Stock and the market price of the Company’s other equity securities, the Company incurred unrealized losses of $1.2 million and $20.0 million for the three and nine months ended September 30, 2022, respectively, compared to unrealized loss of $3.5 million and an unrealized gain of $10.6 million for the three and nine months ended September 30, 2021, respectively. These unrealized gains and losses incurred on the Company’s marketable equity securities are included in its consolidated statements of operations.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit dataAdditionally, as of September 30, 2022 and where indicated in millions)(Unaudited)
TheDecember 31, 2021, certain of the Company’s marketable debt securities had net unrealized losses of $270 and $28, respectively. However, the Company considers thedoes not consider these declines in market value of certain of its investments to be other than temporary in nature as the unrealized losses were caused primarily by changes in market interest rates or widening credit spreads.nature. When evaluating thesethe debt investments 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 investment before recovery of the investment’s amortized cost basis. During the three and nine months ended September 30, 20172022 and 2016,2021, the Company did not recognize any other-than-temporary impairment charges. As of both September 30, 2017,2022 and December 31, 2021, the Company doesdid not consider any of its investments to be other-than-temporarily impaired.
The Company may sell certain of its investments 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 PayableDerivative Financial Instruments
Margin Loan
The Company has accessentered into two interest rate cap contracts with unrelated financial institutions in order to a margin loan (the “Margin Loan”) from a financial institution that holds custodyreduce the effect of interest rate fluctuations or risk of certain real estate investment’s interest expense on its variable rate debt. The Company is exposed to credit risk in the event of non-performance by the counterparty to these financial instruments. Management believes the risk of loss due to non-performance to be minimal.
The Company is accounting for the interest rate cap contracts as economic hedges, marking these contracts to market, taking into account present interest rates compared to the contracted fixed rate over the life of the Company’s marketable securities. The Margin Loan,contract and recording the unrealized gain or loss on the interest rate cap contracts in the consolidated statements of operations.
For the three and nine months ended September 30, 2022, the Company recorded an unrealized gain of $1.6 million and $2.8 million, 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 securitiesincluded in other income/(expense), net in the Company’s account. consolidated statement of operations, representing the change in the fair value of these economic hedges during such periods.
The two interest rate cap contracts have notional amounts available toof $90.0 million and $40.0 million, respectively, and effectively cap the Company under the Margin Loan areLondon Interbank Offered Rate (“LIBOR”) through June 30, 2023 and its replacement rate thereafter at the discretion3.00% and 2.50%, respectively. Both interest rate cap contracts mature on June 3, 2024. The aggregate fair value 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 Creditrate cap contracts was $18.6$3.1 million as of September 30, 2017 and December 31, 20162022 and is included in Notes Payableprepaid expenses, restricted cash and other assets on the consolidated balance sheets. See Note 7 for additional information.
15
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
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. |
Marketable securities available for sale,and derivative financial instruments measured at fair value on a recurring basis as of the dates indicated are as follows:
Schedule of marketable securities measured at fair value on a recurring basis | ||||||||||||||||
Fair Value Measurement Using | ||||||||||||||||
As of September 30, 2022 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Marketable Securities: | ||||||||||||||||
Common and Preferred Equity Securities | $ | 870 | $ | 20,825 | $ | - | $ | 21,695 | ||||||||
Marco OP and OP II Units | - | 18,779 | - | 18,779 | ||||||||||||
Corporate Bonds | - | 1,020 | - | 1,020 | ||||||||||||
Total | $ | 870 | $ | 40,624 | $ | - | $ | 41,494 | ||||||||
Derivative Financial Instruments: | ||||||||||||||||
Interest Rate Cap Contracts | $ | - | $ | 3,110 | $ | - | $ | 3,110 |
Fair Value Measurement Using | ||||||||||||||||
As of December 31, 2021 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Marketable Securities: | ||||||||||||||||
Common and Preferred Equity Securities | $ | 6,825 | $ | 20,513 | $ | - | $ | 27,338 | ||||||||
Marco OP and OP II Units | - | 33,431 | - | 33,431 | ||||||||||||
Corporate Bonds | - | 2,045 | - | 2,045 | ||||||||||||
Total | $ | 6,825 | $ | 55,989 | $ | - | $ | 62,814 |
16
Fair Value Measurement Using | ||||||||||||||||
As of September 30, 2017 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Marketable Securities: | ||||||||||||||||
Equity Securities, primarily REITs | $ | 1,570 | $ | - | $ | - | $ | 1,570 | ||||||||
Marco OP and OP II Units | - | 33,812 | - | 33,812 | ||||||||||||
Corporate Bonds and Preferred Equities | - | 16,979 | - | 16,979 | ||||||||||||
MBS | - | 1,617 | - | 1,617 | ||||||||||||
Total | $ | 1,570 | $ | 52,408 | $ | - | $ | 53,978 |
Fair Value Measurement Using | ||||||||||||||||
As of December 31, 2016 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Marketable Securities: | ||||||||||||||||
Equity Securities, primarily REITs | $ | 1,730 | $ | - | $ | - | $ | 1,730 | ||||||||
Marco OP and OP II Units | - | 37,176 | - | 37,176 | ||||||||||||
Corporate Bonds and Preferred Equities | - | 10,985 | - | 10,985 | ||||||||||||
MBS | - | 2,604 | - | 2,604 | ||||||||||||
Total | $ | 1,730 | $ | 50,765 | $ | - | $ | 52,495 |
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The fair values of the Company’s common equity securities are measured using readily quoted prices for these investments in Corporate Bondswhich are listed for trade on active markets. The fair values of the Company’s preferred equity securities and Preferred Equities and MBScorporate bonds are measured using readily available quoted prices for similar assets.these securities; however, the markets for these securities are not active. The fair values of the Company’s interest rate cap contracts are measured using other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Additionally, as noted and disclosed above, the Company’s Marco OP and Marco OP II Unitsunits are both ultimately exchangeable for cash or similar number of shares of Simon Stock, therefore the Company uses the quoted market price of Simon Stock to measure the fair value of the Company’s Marco OP and Marco OP II Units.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:
Schedule of contractual maturity | ||||
As of | ||||
September 30, 2022 | ||||
Due in 1 year | $ | - | ||
Due in 1 year through 5 years | - | |||
Due in 5 years through 10 years | - | |||
Due after 10 years | 1,020 | |||
Total | $ | 1,020 |
The Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized at fair value.
In June 2011,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 + 0.85% (3.99% as of September 30, 2022) and is collateralized by the marketable securities in the Company’s account. The amounts available to the Company acquired a senior mortgage note (the “Senior Mortgage”) with an outstanding principal balanceunder the Margin Loan are at the discretion of $8.8 million for $5.6 million from, an unaffiliated third party. The purchase price reflected a discount of $3.2 millionthe financial institution and not limited to the thenamount of collateral in its account. There were no amounts outstanding principal balance.under this Margin Loan as of September 30, 2022 and December 31, 2021.
Line of Credit
The Senior Mortgage was originated by BancCompany has a non-revolving credit facility (the “Line of America in July 2007 with an initial principal balanceCredit”) that provides for borrowings up to a maximum of $9.1 million. It was collateralized by$20.0 million, subject to a Holiday Inn Express located in East Brunswick, New Jersey and bore interest at a fixed rate55% loan-to-value ratio based on the fair value 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, tomatures on November 30, 2022 and bears interest at LIBOR + 1.35% (4.49% as of September 30, 2022). The Line of Credit is collateralized by an aggregate of of Marco OP and OP II Units and is guaranteed by PRO. As of September 30, 2022, 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 borrowings available to be drawn under the Senior Mortgage.Line of Credit was $10.3 million. No amounts were outstanding under the Line of Credit as of both September 30, 2022 and December 31, 2021.
17
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.
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST,REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
7. | Mortgages Payable, Net |
Mortgages payable, net consists of the following:
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 |
Schedule of mortgages payable | ||||||||||||||||||||
Property/Investment | Interest Rate | Weighted Average | Maturity Date | Amount Due at Maturity | As of September 30, 2022 | As of December 31, | ||||||||||||||
Gantry Park Landing | 4.48% | 4.48% | November 2024 | $ | 65,317 | $ | 68,506 | $ | 69,540 | |||||||||||
Lower East Side Moxy Hotel Senior | LIBOR + 7.50% (floor of 7.75%) | 8.59% | June 2024 | 64,631 | 64,631 | 35,610 | ||||||||||||||
Lower East Side Moxy Hotel Junior | LIBOR + 13.50% (floor of 14.00%) | 14.73% | June 2024 | 40,000 | 40,000 | 24,603 | ||||||||||||||
Exterior Street Project | LIBOR + 2.25% | 3.30% | November 2022 | 35,000 | 35,000 | 35,000 | ||||||||||||||
Exterior Street Project Supplemental | LIBOR + 2.50% | 3.55% | November 2022 | 7,000 | 7,000 | 7,000 | ||||||||||||||
LSC 1543 7th LLC Note Receivable | SOFR + 3.50% | 5.66% | December 2023 | 29,900 | 29,900 | - | ||||||||||||||
Total mortgages payable | 7.19% | $ | 241,848 | 245,037 | 171,753 | |||||||||||||||
Less: Deferred financing costs | (4,327 | ) | (6,047 | ) | ||||||||||||||||
Total mortgages payable, net | $ | 240,710 | $ | 165,706 |
The Company’s 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 foreclosure (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.
LiborLIBOR as of September 30, 20172022 and December 31, 20162021 was 1.24%3.14% and 0.53%0.10%, respectively. SOFR as of September 30, 2022 was 2.52%. The Company’s loans are secured by the indicated real estate and are non-recourse to the Company.Company, unless otherwise indicated.
LSC 1543 7th LLC Loan
On June 30, 2022, LSC 1543 7th LLC entered into a $31.3 million loan (the “LSC 1543 7th LLC Loan”) which bears interest at SOFR + 3.50% (5.19% as of September 30, 2022). The LSC 1543 7th LLC Loan is initially scheduled to mature on December 30, 2023, but may be further extended through December 30, 2024 and September 30, 2025, through the exercise of two extension options. The LSC 1543 7th LLC Loan requires monthly interest-only payments with the outstanding principal balance due at its maturity date and is collateralized by a nonrecourse loan originated by LSC 1543 7th LLC (the “LSC 1543 7th LLC Note Receivable”). See Note 5. On June 30, 2022, $28.6 million of the net proceeds from the LSC 1543 7th LLC Loan were temporarily funded to an affiliate of the Company’s advisor and were subsequently transferred to the Company and then distributed to the members of LSC 1543 7th LLC in July 2022, of which the Company’s 50% share was $14.3 million. As of September 30, 2022, the outstanding principal balance of the LSC 1543 7th LLC Loan was $29.9 million and the remaining availability under the facility was up to $1.4 million.
Moxy Construction Loans
On June 3, 2021, the Company, through a wholly owned subsidiary, closed on a recourse construction loan facility (the “Moxy Senior Loan”) providing for up to $90.0 million of funds for the development, construction and certain pre-opening costs associated with the Lower East Side Moxy Hotel. At closing, $35.6 million of proceeds were initially advanced under the Moxy Senior Loan, which were used to repay in full a then outstanding mortgage loan. The Moxy Senior Loan bears interest at LIBOR + 7.50%, subject to an 8.00% floor, and initially matures on June 3, 2024, with two one-year extension options, subject to the satisfaction of certain conditions. The Moxy Senior Loan is collateralized by the Lower East Side Moxy Hotel. As of September 30, 2022, the outstanding principal balance of the Moxy Senior Loan was $64.6 million, the interest rate was 10.64% and the remaining availability under the facility was up to $25.4 million, which is expected to be used to fund the remaining construction and pre-opening costs for the project.
18
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Simultaneously on June 3, 2021, the Company, through the same wholly owned subsidiary, also entered into a mezzanine construction loan facility (the “Moxy Junior Loan” and together with the Moxy Senior Loan, the “Moxy Construction Loans”) providing for up to $40.0 million of additional funds for the development, construction and certain pre-opening costs associated with the Lower East Side Moxy Hotel. The Moxy Junior Loan bears interest at LIBOR + 13.50%, subject to a 14.00% floor, and initially matures on June 3, 2024, with two one-year extension options, subject to the satisfaction of certain conditions. The Moxy Junior Loan is subordinate to the Moxy Senior Loan but also collateralized by the Lower East Side Moxy Hotel. The Company has provided a principal guarantee of up to $7.0 million with respect to the Moxy Junior Loan. As of September 30, 2022, the outstanding principal balance of the Moxy Junior Loan was $40.0 million as it was fully drawn and its interest rate was 16.64%.
In connection with the Moxy Construction Loans, the Company has provided certain completion and carry cost guarantees. The Company has also entered into two interest rate cap agreements with notional amounts of $90.0 million and $40.0 million pursuant to which LIBOR through June 30, 2023 and its replacement rate thereafter is capped at 3.00% and 2.50%, respectively, through June 3, 2024. Furthermore, in connection with the Moxy Construction Loans, the Company paid $5.3 million of loan fees and expenses and accrued $1.1 million of loan exit fees which are due at the initial maturity date and are included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets as of September 30, 2022 and December 31, 2021.
Exterior Street Loans
On March 29, 2019, the Company entered into a $35.0 million loan (the “Exterior Street Loan”) which, commencing on October 10, 2020, bears interest at LIBOR + 2.25% (5.39% as of September 30, 2022) through its scheduled maturity date. The Exterior Street Loan requires monthly interest-only payments with the outstanding principal balance due in full at its maturity date. The Exterior Street Loan was initially scheduled to mature on April 9, 2021 but has been further extended to November 24, 2022. Additionally, on December 21, 2021, the loan agreement was amended to provide an additional $7.0 million loan (the “Exterior Street Supplemental Loan” and collectively with the Exterior Street Loan, the “Exterior Street Loans”) which bears interest at LIBOR + 2.50% (5.39% as of September 30, 2022) and requires monthly interest-only payments with the outstanding balance due in full at its maturity date. The Exterior Street Loans and are collateralized by the Exterior Street Project.
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, 2017:2022:
Scheduled of contractually principal maturities during next five years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | |||||||||||||||||||||||||||||||||||||||||||
Principal maturities | $ | 50,307 | $ | 21,967 | $ | 1,621 | $ | 14,924 | $ | 1,328 | $ | 69,540 | $ | 159,687 | $ | 42,355 | $ | 31,353 | $ | 171,329 | $ | - | $ | - | $ | - | $ | 245,037 | ||||||||||||||||||||||||||||
Less: Deferred financing costs | (1,808 | ) | (4,327 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Total principal maturities, net | $ | 157,879 | $ | 240,710 |
Certain of the Company’s debt agreements require the maintenance of certain ratios, including debt service coverage. TheAs of September 30, 2022, the Company is currentlywas in compliance with all of its financial debt covenants other than the debt associated with the Gulf Coast Industrial Portfolio as discussed below.covenants. Additionally, certain of our mortgages payable also contain clauses providing for prepayment penalties.
As a result
Debt Maturities
The Exterior Street Loans (outstanding aggregate principal balance of not meeting certain debt service coverage ratios$42.0 million as of September 30, 2022) mature on November 24, 2022. The Company currently intends to seek to extend or refinance 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 notifiedExterior Street Loans on or before their maturity date.
However, if the Company thatis unable to extend or refinance its maturing indebtedness at favorable terms, it will look to repay the Gulf Coast Industrial Portfolio Mortgage was in default and although originally due in February 2017 became due on demand.then outstanding balance with available cash and/or proceeds from selective asset sales. The Company believeshas no additional significant maturities of mortgage debt over 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.next 12 months.
19
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST,REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
8. | Equity |
Although the lender is not currently charging or being paid interest at the stated default rate,Share Repurchase Program
The Company’s share repurchase program (the “SRP”) may provide its stockholders with limited, interim liquidity by enabling them to sell their shares of common stock back to the Company, is accruing default interest expensesubject to restrictions.
On March 25, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of all redemptions effective immediately.
Effective March 18, 2021 and May 14, 2021, the Board of Directors partially reopened the SRP to allow, subject to various conditions as set forth below, for redemptions submitted in connection with a stockholder’s death and hardship, respectively, and set the price for all such purchases to our current net asset value per share (“NAV per Share”), as determined by the Board of Directors and reported by the Company from time to time. Deaths that occurred subsequent to January 1, 2020 were eligible for consideration, subject to certain conditions. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by the Company within one year of the stockholder’s date of death for consideration.
At the above noted dates, the Board of Directors established that on an annual basis, the Gulf Coast Industrial Portfolio Mortgage pursuantCompany would not redeem in excess of 0.5% of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Additionally, redemption requests generally would be processed on a quarterly basis and would be subject to pro ration if either type of redemption requests exceeded the annual limitation.
On March 18, 2022, the Board of Directors approved an increase to the terms of its loan agreement. Additionally,annual threshold for death redemptions from up to 0.5% to 1.0%.
For 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 $9.2 million is included in accounts payable, accrued expenses and other liabilities on our consolidated balance sheets as of September 30, 2017 and December 31, 2016, respectively. However,2022 the Company does not expectrepurchased shares of common stock, pursuant to pay anyits SRP at an average price per share of the accrued default interest expense as these mortgage loans are non-recourse to it.$ per share.
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.Net Earnings Per Share
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 disposition 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.
Oakview Plaza
The Oakview Plaza Mortgage secured by 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.
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 outstanding during the applicable period. Diluted netDilutive 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.
20
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST,REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
9. | Related Party Transactions |
The Company has various agreements, including an advisory agreement, with the Advisor and Lightstone Value Plus REIT Management LLC (the “Property Manager”) to pay certain fees in exchange for services performed by these entities and other affiliated entities. The Company’s ability to secure financing and subsequent real estate operations are dependent upon its Advisor, Property Manager and their affiliates to perform such services as provided in these agreements. Amounts the Company owes to the Advisor and its affiliated entities are principally for asset management fees, and are classified as due to related parties on the consolidated balance sheets.
The Company, pursuant to the related party arrangements, has recorded the following amounts for the periods indicated:
Schedule of summary of amount recorded in pursuant to related party arrangement | ||||||||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
Asset management fees (general and administrative costs) | $ | 556 | $ | 562 | $ | 1,684 | $ | 1,804 | $ | 124 | $ | 206 | $ | 449 | $ | 661 | ||||||||||||||||
Property management fees (property operating expenses) | 199 | 190 | 576 | 739 | 68 | 99 | 223 | 267 | ||||||||||||||||||||||||
Development fees and leasing commissions* | 125 | 29 | 706 | 80 | ||||||||||||||||||||||||||||
Development fees and cost reimbursement(1) | 641 | 877 | 2,258 | 2,789 | ||||||||||||||||||||||||||||
Total | $ | 880 | $ | 781 | $ | 2,966 | $ | 2,623 | $ | 833 | $ | 1,182 | $ | 2,930 | $ | 3,717 |
(1) | Development fees and the reimbursement of development-related costs that the Company pays to the Advisor and its affiliates are capitalized and are included in the carrying value of the associated development project which are classified as development projects on the consolidated balance sheets. As of September 30, 2022 and December 31, 2021, the Company owed the Advisor and its affiliated entities $0.3 million and $0.7 million, respectively, for development fees, which is included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets. |
* Generally, capitalizedSee Notes 3, 4 and amortized over5 for other related party transactions.
The advisory agreement has a one-year term and is renewable for an unlimited number of successive one-year periods upon the estimated useful lifemutual consent of the associated asset.Advisor and the Company’s independent directors. Payments to the Advisor or its affiliates may include asset acquisition fees and the reimbursement of acquisition-related expenses, development fees and the reimbursement of development-related costs, financing coordination fees, asset management fees or asset management participation, and construction management fees. The Company may also reimburse the Advisor and its affiliates for actual expenses it incurs for administrative and other services provided for it. Upon the liquidation of the Company’s assets, it may pay the Advisor or its affiliates a disposition commission.
In connection with the Company’s Offering, Lightstone SLP, LLC purchased an 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, 2017,2022 and 2021, distributions of $1.5$0.5 million and $1.5 million were declared and paid on the SLP units.
21
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”) that entitle the Company to certain prescribed monthly preferred distributions. The Preferred Investments had an aggregate balance of $152.7 million and $141.3 million as of September 30, 2017 and December 31, 2016, 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, the Company made $13.7 million of additional contributions and redeemed $2.3 million of the Preferred Investments and as 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.
The Preferred Investments are summarized as follows:
Preferred Investment Balance | Unfunded Contributions | Investment Income | ||||||||||||||||||||||||||||||
Dividend | As of September 30, | As of December 31, | As of September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||
Preferred Investments | Rate | 2017 | 2016 | 2017 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||
365 Bond Street | 12 | % | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 2,252 | ||||||||||||||||
40 East End Avenue | 8% to 12 | % | 30,000 | 30,000 | - | 920 | 613 | 2,463 | 1,795 | |||||||||||||||||||||||
30-02 39th Avenue | 9% to 12 | % | 10,000 | 12,300 | 40,000 | 307 | 436 | 946 | 1,009 | |||||||||||||||||||||||
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 | |||||||||||||||||||||||
Miami Moxy | 12 | % | 11,699 | 7,682 | 8,302 | 346 | - | 905 | - | |||||||||||||||||||||||
Total Preferred Investments | $ | 152,693 | $ | 141,253 | $ | 64,808 | $ | 4,568 | $ | 3,962 | $ | 12,909 | $ | 12,211 |
The Joint Venture
We have 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, holds ownership interests in the seven remaining hotels as of September 30, 2017.
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST,REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(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.
10. | Financial Instruments |
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, prepaid expenses, restricted escrows, tenants’cash and other accountsassets, notes receivable, interest receivable from related parties, accounts payable, and accrued expenses and other liabilities, due to related parties, approximatedand distributions payable approximate their fair values because of the short maturity of these instruments. The estimated fair valueThe carrying amounts of the notes payable (linereceivable approximate their fair values because the interest rates are variable and reflective of credit) approximated its carrying value ($18.6 million) because of its floating interest rate. market rates.
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.
Theand 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 |
Schedule of mortgage debt | ||||||||||||||||
As of 2022 | As of 2021 | |||||||||||||||
Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
Mortgages payable | $ | 245.0 | $ | 245.2 | $ | 171.8 | $ | 174.4 |
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)
11. | Commitments and Contingencies |
Legal Proceedings
From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.
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.
12. | Subsequent Events |
Distribution Payment
On October 16, 2017,15, 2022, the distribution for the three-month period ending September 30, 20172022 of $4.4$3.8 million was paid in cash.full using a combination of cash and approximately shares of the Company’s common stock issued pursuant to the Company’s DRIP, at a discounted price of $ per share, equal to 95% of the Company’s most recently published estimated net asset value per share of $ as of September 30, 2021.
Distribution Declaration
On November 14, 2017,9, 2022, 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, 2017.2022. 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 $ 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 $10.00.$ 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 9, 2022, the Board of Directors declared a quarterly distribution for the quarterly period ending December 31, 2017.2022 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, if any, declared will be at the discretion of the Board of Directors based on their analysis of the Company’s performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, operating and interest expenses, the Company’s ability to refinance near-term debt, as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. The Company cannot assure that any future distributions will be made or that it will maintain any particular level of distributions that it has previously established or may establish.
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PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust,REIT I, Inc. and Subsidiaries and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Lightstone Value Plus REIT I, Inc., which was formerly known as Lightstone Value Plus Real Estate Investment Trust, Inc., before September 16, 2021, 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.
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,REIT I, 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 theirits 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,I, Inc. (the “Operating Partnership”“Lightstone REIT I”) 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.
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As of September 30, 2022, we have ownership interests in (i) one consolidated operating property, (ii) two consolidated development properties, (iii) certain consolidated land holdings, and (iv) seven unconsolidated operating properties. With respect to our consolidated operating property, we have a majority ownership interest of 59.2% in Gantry Park Landing, a multi-family residential property containing 199 apartment units located in the Queens neighborhood of New York City. With respect to our consolidated development properties, we wholly own two projects consisting of the Lower East Side Moxy Hotel, which opened on October 27, 2022, and the Exterior Street Project. We also wholly own and consolidate certain land parcels located in St. Augustine, Florida. Additionally, we hold a 2.5% ownership interest in seven hotel properties through a joint venture (the “Joint Venture”) which we account for using a measurement alternative under which the Joint Venture is measured at cost, adjusted for observable price changes and impairments, if any. The Joint Venture is between us and the operating partnership of Lightstone Value Plus REIT II, Inc., a real estate investment trust 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 preferred contributions that were made pursuant to agreement with a related party entity (the “Preferred Investment”) and a nonrecourse promissory note made to unaffiliated third-party. Our commercial holdings consist of retail (primarily multi-tenant shopping centers), lodging, industrial propertiesreal estate investments have been and residential properties comprised of multi-family complexes. The Company also has and willare 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 board of directors.directors (the “Board of Directors”). We pay the Advisor fees for services related to the investment and management of our assets, and we will reimburse the Advisor for certain expenses incurred on our behalf.
To maintain our qualification as a REIT, we engage in certain activities through taxable REIT subsidiaries (“TRSs”). As such, we 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 operating properties consisted of one retail property (the St. Augustine Outlet Center) and one multi-family residential property (Gantry Park Landing) as of September 30, 2022. We also own various parcels of land and air rights we are using for the development and construction of real estate properties. Additionally, we have made preferred investments in related parties and originated nonrecourse loans through joint ventures 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 recession.man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, competition, inflation, recession, supply disruptions and labor shortages.
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Our
COVID-19 Pandemic
On March 20, 2020, the World Health Organization declared COVID-19 a global pandemic and it remains highly unpredictable and dynamic and its ultimate duration and extent continue to be dependent on various developments, such as the emergence of variants to the virus that may cause additional strains of COVID-19, and the ongoing development, administration and ultimate effectiveness of vaccines, including booster shots. Accordingly, the ongoing COVID-19 pandemic may continue to have negative effects on the U.S. and global economies for the foreseeable future.
During the COVID-19 pandemic, the occupancy of our St. Augustine Outlet Center, which is located in St. Augustine, Florida, significantly declined and because of limited leasing success, we began exploring various strategic alternatives for the St. Augustine Outlet Center, which ultimately led to us ceasing operations of the center effective July 15, 2022 and demolishing the existing building and improvements during the third quarter of 2022. See “St. Augustine Outlet Center” for additional information.
Additionally, during 2020 we saw 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 was negatively impacted by the COVID-19 pandemic. However, both occupancy and rental rates consistently improved throughout 2021 and returned to pre-COVID-19 levels. Thereafter, occupancy has continued to remain stable and the property has experienced strong growth in its rental rates thus far in 2022.
To-date, the COVID-19 pandemic has not had any significant impact on our development projects Furthermore, our other real estate-related investments (both our preferred investment in related party and nonrecourse loan made to an unaffiliated third-party borrower) also relate to various development projects which are at different stages in their respective development process. These investments, which are subject to similar risks, have also not yet been significantly impacted by the COVID-19 pandemic.
The extent to which our business may be affected by marketthe ongoing COVID-19 pandemic will largely depend on both current and economic challenges experienced by the U.S.future developments, all of which are highly uncertain and global economies. These conditions may materially affect the valuecannot be reasonably predicted.
If our operating properties, development projects and performance of our properties,real estate-related investments are negatively impacted for an extended period because (i) occupancy levels and may affect our abilityrental 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 the availability or the terms of financing that we have or may anticipate utilizing,on our preferred investments in related parties, our business and our ability to make principalfinancial results could be materially and interest payments on, or refinance, any outstanding debt when due.adversely impacted.
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. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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.
Wholly Owned and Consolidated Real Estate Properties:
St. Augustine Outlet Center
We wholly owned the St. Augustine Outlet Center, located in St. Augustine, Florida, which was originally built in 1998 and subsequently acquired by us in 2006 and renovated and further expanded in 2008.
During the COVID-19 pandemic, the occupancy of our St. Augustine Outlet Center, a retail property which consisted of 0.3 million of gross leasable area, significantly declined and because of limited leasing success, we began exploring various strategic alternatives for the property. As a result, during the third quarter of 2021, we determined that we would no longer continue to pursue leasing of space to tenants and therefore, began to enter into lease termination agreements with certain tenants and also provided notice to our other tenants that we would not renew their leases at the scheduled expiration of their lease. Due to this change in leasing strategy and resulting decrease in the fair value of the St. Augustine Outlet Center, we recorded a non-cash loss on impairment of real estate of $11.3 million during the third quarter of 2021.
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Portfolio Summary –
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 |
Because of the aforementioned lease terminations and scheduled expirations, substantially all of the tenants vacated the property during the first quarter of 2022 and on June 29, 2022, we entered into a lease termination agreement with the property’s final tenant providing for them to receive an aggregate of $750 provided they vacated the property no later than July 15, 2022. The final tenant vacated the property in July 2022 and we ceased operations of the St. Augustine Outlet Center effective July 15, 2022 and shortly thereafter, commenced demolition of the property’s building and improvements in order to prepare the various land parcels for sale and/or lease. The demolition of the property’s buildings and improvements was substantially completed during the third quarter of 2022 and we recognized a loss on demolition of $16.6 million consisting of the write-off of the carrying value of the property’s building and improvements plus related costs.
In connection with the terms of certain of the lease termination agreements, we agreed to make various payments to certain tenants provided they closed their store and vacated the property. We expense lease termination fees in the period the lease termination agreement is executed and such expenses are included in property operating expenses on the consolidated statements of operations. During the nine months ended September 30, 2022, we recognized aggregate lease termination fees of $825. During the three and nine months ended September 30, 2021, we recognized a lease termination fee of $425.
Gantry Park Landing
We have a 59.2% membership interest in a consolidated joint venture which developed, constructed and owns Gantry Park Landing, a multi-family apartment building located in the Queens neighborhood of New York City. The following table contains certain information for Gantry Park Landing as of September 30, 2022.
Location | Year Built | Leaseable Units | Percentage 2022 | Annualized Revenues | Annualized Revenues per unit at September 30, 2022 | |||||||||||||||||
Gantry Park Landing (Multi-Family Apartment Building) | Queens, New York | 2013 | 199 | 98.0 | % | $ | 9.6 million | $ | 49,465 |
Annualized revenue is defined as the minimum monthly payments due as of September 30, 2017 annualized, excluding periodic contractual fixed increases and rents calculated based on a percentage2022 annualized.
Development Properties
Lower East Side Moxy Hotel
On December 3, 2018, we acquired three adjacent parcels of tenants’ sales. The annualized base rent disclosedland located at 147-151 Bowery in the table above includes all concessions, abatementsLower East Side neighborhood of Manhattan in New York City and reimbursementson December 6, 2018, we acquired certain air rights located at 329 Broome Street in the Lower East Side neighborhood of rentManhattan in New York The land and air rights were acquired for the development and construction of a 296-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”), that opened on October 27, 2022.
Exterior Street Project
On February 27, 2019, we, initially acquired two adjacent parcels of land located at 355 and 399 Exterior Street in the Bronx neighborhood of New York City and subsequently acquired an additional adjacent parcel in September 2021. The land parcels were acquired for the development of a multi-family residential property (the “Exterior Street Project”).
The following is a summary of the total amounts incurred and capitalized to tenants.
Critical Accounting Policies and Estimates
There were no material changes during the nine months endedour 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, 2016.2022:
Development Project | ||||
Lower East Side Moxy Hotel | $ | 196,284 | ||
Exterior Street Project | 91,589 | |||
Total | $ | 287,873 |
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Results of Operations
Dispositions
DoubleTree – Danvers
On September 7, 2017, we 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, we recorded a gain on the disposition of real estate of approximately $10.5 million during the third quarter of 2017.
Oakview Plaza
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 foreclosure (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.
Southeastern Michigan Multi-Family Properties
On May 17, 2016, the Company disposed of three of the four apartment communities contained in the Southeastern Michigan Multi-Family Properties to an unrelated third party for aggregate consideration of approximately $50.6 million. In connection 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 in an aggregate gain on the disposition of real estate of approximately $23.7 million during the nine months ended September 30, 2016.
The dispositions of the DoubleTree – Danvers, Oakville Plaza and the Southeastern Michigan Multi-Family Properties did not qualify to be reported as discontinued operations since none of the dispositions represented a strategic shift that had a major effect on the Company’s operations and financial results. Accordingly, the operating results of the DoubleTree – Danvers, Oakville Plaza and the Southeastern Michigan Multi-Family Properties are reflected in the Company’s results from continuing operations for all periods presented through their respective dates 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, 20172022 vs. September 30, 20162021
Consolidated
Revenues
Our revenues are comprised of rental revenues,income and tenant recovery income and other service income. Total revenues decreasedincreased slightly by approximately $2.2$0.1 million to $10.9$2.4 million for the three months ended September 30, 20172022 compared to $13.1$2.3 million for the same period in 2016. See “Segment Results2021. This increase reflects higher revenues of Operations$0.6 million for Gantry Park Landing resulting from higher occupancy and rental rates substantially offset by lower revenues of $0.5 million for the Three Months Ended September 30, 2017 compared to September 30, 2016” for additional information on revenues by segment.St. Augustine Outlet Center, which ceased operations effective July 15, 2022.
Property operating expenses
Property operating expenses decreased by approximately $1.1$0.5 million to $5.7$0.9 million for the three months ended September 30, 20172022 compared to $6.8$1.4 million for the same period in 2016. This2021. The decrease is primarily reflectsattributable to lower expenses in our Hospitality Segment principally due toproperty operating costs for 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 forSt. Augustine Outlet Center, which ceased operations effective July 15, 2022. Additionally, during the three months ended September 30, 2017 compared2021, we recognized a lease termination fee of $0.4 million related to $0.7 million for the same periodSt. Augustine Outlet Center, which is included in 2016.property operating expenses.
General and administrative expensesReal estate taxes
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 expensesReal estate taxes were flat at $2.7$0.1 million for both the three months ended September 30, 20172022 and 2016.2021.
InterestGeneral and dividend incomeadministrative costs
InterestGeneral and dividend income increasedadministrative costs decreased slightly by approximately $1.0$0.1 million to $5.6$0.5 million for the three months ended September 30, 20172022 compared to $4.6$0.6 million for the same period in 2016. The increase reflects an increase2021.
Pre-opening costs
In preparation for the opening of $0.7the Lower East Side Moxy Hotel, which opened on October 26, 2022, we incurred pre-opening costs of $0.3 million in investment income from our Preferred Investments (see Note 8)during the three months ended September 30, 2022. No pre-opening costs were incurred during the 2021 period.
Depreciation and an increase in earnings on our investments.amortization
Interest expense
Interest expense, includingDepreciation and amortization of deferred financing costs, increaseddecreased by approximately by approximately $0.5$1.0 million to $3.6$0.5 million for the three months ended September 30, 20172022 compared to $3.1$1.5 million for the same period in 2016.2021. The increasedecrease is primarily relatesattributable to lower depreciation and amortization for the accrualSt. Augustine Outlet Center, which ceased operations effective July 15, 2022.
Interest and dividend income
Interest and dividend income decreased by $0.9 million to $2.3 million for the three months ended September 30, 2022 compared to $3.2 million for the same period in 2021. The decrease primarily reflects lower interest and dividend income earned on our notes receivable of default$0.5 million, marketable securities of $0.2 million and preferred investments of $0.2 million.
Interest expense, net
Interest expense, net, including amortization of deferred financing costs, increased slightly by $0.1 million to $0.7 million for the three months ended September 30, 2022 compared to $0.6 million for the same period in 2021. During the three months ended September 30, 2022 and 2021, $4.9 million and $2.2 million, respectively, of interest in 2017 on the Oakview Plaza Mortgage.was capitalized to our development projects.
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Gain on disposition of real estate
During the third quarter of 20172022, we recognized a gain on disposition of real estate of approximately $10.5$1.1 million related to Oakview, a shopping center located in Omaha, Nebraska, which we previously disposed of in September 2017.
During the third quarter of 2021, we recognized a gain on the disposition of real estate of $0.2 million related to the sale of the DoubleTree – Danvers.Santa Clara Data Center on July 7, 2021.
Loss on demolition
We ceased operations of the St. Augustine Outlet Center effective July 15, 2022 and shortly thereafter, commenced demolition of the property’s building and improvements. During the third quarter of 20162022, the demolition was substantially completed and we recognized a loss on demolition of $16.6 million consisting of the write-off of the carrying value of the property’s building and improvements plus related costs.
Unrealized (loss)/gain on dispositionmarketable equity securities
During the three months ended September 30, 2022 and 2021, we recorded unrealized losses on marketable equity securities of real estate$1.2 million and $3.5 million, respectively. Unrealized gains and losses represent the change in the fair value of approximately $3.8 million related toour marketable equity securities during the indicated periods.
Gain on sale of marketable securities
During the three months ended September 30, 2021, we recorded a gain on the sale of marketable securities of $4.7 million that represented the remaining apartment community contained indifference between the sales price and carrying value of our Southeastern Michigan Multi-Family Properties.marketable securities sold. There were no sales of marketable securities during the three months ended September 30, 2022.
Noncontrolling interests
The net earnings allocated to noncontrolling interests relates to (i) the interestsparties 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 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 result of the disposition of an apartment community contained in the Southeastern Michigan Multi-Family Properties on July 26, 2016. Revenues and NOI decreased by approximately $0.1 million and $0.1 million, respectively, for the three months ended September 30, 2017 compared to the same period in 2016 for the Southeastern Michigan Multi-Family Properties. Revenues 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 rate 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 same 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, 20172022 vs. September 30, 20162021
Consolidated
Revenues
Our revenues are comprised of rental revenues,income and tenant recovery income and other service income. Total revenues decreased by approximately $5.1$0.4 million to $35.1$7.2 million for the nine months ended September 30, 20172022 compared to $40.2$7.6 million for the same period in 2016. See “Segment Results2021. This decrease reflects lower revenues of Operations$1.6 million for the nine months ended September 30, 2017 compared to September 30, 2016”St. Augustine Outlet Center resulting from substantially all of its tenants vacating during the first quarter of 2022 and us subsequently ceasing operations of the property effective July 15, 2022, partially offset by higher revenues of $1.2 million for additional information on revenues by segment.Gantry Park Landing resulting from higher occupancy and rental rates.
Property operating expenses
Property operating expenses decreasedincreased slightly by approximately $2.4$0.1 million to $18.5$3.3 million for the nine months ended September 30, 20172022 compared to $20.9$3.2 million for the same period in 2016. This decrease2021. The increase is primarily reflectsattributable to lease termination fees, which are included in property operating expenses, of $0.8 million and $0.4 million, recognized during the nine months ended September 30, 2022 and 2021, respectively. The increase in lease termination fees was offset by lower expenses in our Multi-Family Residential Segment principally due toproperty operating costs for the disposition of the Southeastern Michigan Multi-Family Properties and our Hospitality Segment principally due to the disposition of the DoubleTree – Danvers.St. Augustine Outlet Center, which ceased operations effective July 15, 2022.
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Real estate taxes
Real estate taxes expensedecreased slightly by $0.1 million to $0.2 million for the nine months ended September 30, 2022 compared to $0.3 million for the same period in 2021.
General and administrative costs
General and administrative costs decreased slightly by $0.1 million to $1.7 million for the nine months ended September 30, 2022 compared to $1.8 million for the same period in 2021.
Pre-opening costs
In preparation for the opening of the Lower East Side Moxy Hotel, which opened on October 27, 2022, we incurred pre-opening costs of $0.7 million during the nine months ended September 30, 2022. No pre-opening costs were incurred during the 2021 period.
Depreciation and amortization
Depreciation and amortization decreased by approximately $0.4$1.8 million to $2.0 million for the nine months ended September 30, 20172022 compared to $2.4$3.8 million for the same period in 2016. This2021. The decrease is primarily reflectsattributable to lower expenses in our Multi-Family Residential Segment principally due todepreciation and amortization for the disposition of the Southeastern Michigan Multi-Family Properties.St. Augustine Outlet Center, which ceased operations effective July 15, 2022.
GeneralInterest and administrative expensesdividend income
GeneralInterest and administrative expenses increaseddividend income decreased by approximately $0.9$3.7 million to $4.6$6.7 million for the nine months ended September 30, 20172022 compared to $3.7$10.4 million for the same period in 2016. This increase was2021. The decrease primarily due to an increase in professional fees.reflects lower interest and dividend income earned on our notes receivable of $3.4 million and preferred investments of $0.2 million.
Interest expense, net
Depreciation and
Interest expense, net, including amortization
Depreciation and amortization expense of deferred financing costs, decreased by approximately $0.3$0.6 million to $8.3$1.4 million for the nine months ended September 30, 20172022 compared to $8.6$2.0 million for the same period in 2016. This decrease primarily reflects lower depreciation expense in our Multi-Family Residential Segment principally due to the disposition of the Southeastern Michigan Multi-Family Properties.
Interest and dividend income
Interest and dividend income increased by approximately $0.6 million to $15.4 million for2021. During the nine months ended September 30, 2017 compared2022 and 2021, $11.9 million and $5.6 million, respectively, of interest was capitalized to $14.8 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) partially offset by lower interest and dividend income from our investments in marketable securities of $0.1 million.development projects.
Interest expense
Interest expense, including amortization of deferred financing costs, increased by approximately $0.7 million to $10.8 million for the nine months ended September 30, 2017 compared to $10.1 million for the same period in 2016. The increase primarily relates to the accrual of default interest on the Oakview Plaza Mortgage.
Gain on disposition of real estate
During the nine months ended September 30, 2017third quarter of 2022, we recognized a gain on disposition of real estate of approximately $10.5$1.1 million related to Oakview, a shopping center located in Omaha, Nebraska, which we previously disposed of in September 2017.
During the nine months ended September 30, 2021, we recognized an aggregate gain on the disposition of real estate of $3.8 million consisting of a second quarter gain of $3.6 million related to the sale of a parcel of land adjacent to the St. Augustine Outlet Center on May 21, 2021 and a third quarter gain of $0.2 million related to the sale of the DoubleTree – Danvers. Santa Clara Data Center on July 7, 2021.
Loss on demolition
We ceased operations of the St. Augustine Outlet Center effective July 15, 2022 and shortly thereafter, commenced demolition of the property’s building and improvements. During the third quarter of 2022, the demolition was substantially completed and we recognized a loss on demolition of $16.6 million consisting of the write-off of the carrying value of the property’s building and improvements plus related costs.
Unrealized (loss)/gain on marketable equity securities
During the nine months ended September 30, 20162022, we recognizedrecorded an unrealized loss on marketable equity securities of $20.0 million and during the nine months ended September 30, 2021, we recorded an unrealized gain on marketable equity securities of $10.6 million. Unrealized gains and losses represent the change in the fair value of our marketable equity securities during the indicated periods.
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Gain on sale of marketable securities
During the nine months ended September 30, 2022, we recorded a gain on disposition of real estate of approximately $23.7 million related to the sale of marketable securities of $1.2 million and during the Southeastern Michigan Multi-Family Properties.
Gain on satisfaction of mortgage receivable
During the second quarter of 2017nine months ended September 30, 2021, we recognizedrecorded a gain on satisfactionthe sale of mortgage receivablemarketable securities of approximately $3.2 million related to$4.7 million. These gains and losses represented the repayment in fulldifference between the sales price and carrying 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 securities sold during those periods.
Noncontrolling interests
The net earnings allocated to noncontrolling interests relates to (i) the interestsparties 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 for the Nine Months Ended September 30, 2017 compared to September 30, 2016
Retail Segment
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 and NOI decreased for the nine 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 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 NOI decreased for the nine months ended September 30, 2017 compared to the same period in 2016 primarily as a result of the disposition of the four apartment communities contained in the Southeastern Michigan Multi-Family Properties during 2016. Revenues and NOI decreased by approximately $3.9 million and $1.8 million, respectively, for the nine months ended September 30, 2017 compared to the same period in 2016 for the Southeastern Michigan Multi-Family Properties. Revenues and NOI were relatively flat for Gantry Park, our only remaining multi-family residential property.
Industrial Segment
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.
Revenues and NOI increased for the nine months ended September 30, 2017 compared to the same period in 2016 primarily as a result of the higher average occupancy rate during the 2017 period.
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 | % |
Revenues decreased and NOI increased slightly during the nine months ended September 30, 2017 compared to the same period in 2016 resulting from the disposition of the DoubleTree – Danvers on September 7, 2017 partially offset by increased occupancy levels and RevPAR at the DoubleTree – Danvers, which was our only remaining hospitality property.
Financial Condition, Liquidity and Capital Resources
Overview:
Rental revenue,As of September 30, 2022, we had $37.9 million of cash on hand, $0.6 million of restricted cash and $41.5 million of marketable securities. We also have the ability to make draws from a line of credit up to a maximum of $20.0 million ($10.3 million was available as of September 30, 2022), subject to certain conditions (see “Notes Payable – Line of Credit”). We currently believe that these items along with rental income from our operating properties; interest and dividend income earned on our marketable securities, notes receivable and borrowings arepreferred investment; as well as proceeds received from the repayment of the notes receivable and redemption of the preferred investment will be sufficient to satisfy our principal source of funds to payexpected cash requirements primarily consisting our anticipated operating expenses, scheduled debt service, capital expenditures (including certain of our development activities) and distributions excluding non-recurring capital expenditures.
We expect to meet our short-term liquidity requirements generally through working capital and borrowings. We believe that these cash resources will be sufficientshareholders, if any, required to satisfymaintain our cash requirementsstatus as a REIT for the foreseeable future,future. However, we may also obtain additional funds through selective asset dispositions, joint venture arrangements, new borrowings and we do not anticipate a need to raise funds from other than these sources within the next twelve months.refinancing of existing debt.
We currently have $159.7 milliontwo development projects. Construction of outstanding mortgageour Lower East Side Moxy Hotel was substantially complete as of September 30, 2022 and the hotel and two of its five food and beverage venues subsequently opened on October 27, 2022. Additionally, our Exterior Street Project is currently under development and we expect to seek construction financing to fund a substantial portion of its future development and construction costs. See “Development Activities” for additional information.
Our borrowings consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties.
In general the type of future financing executed by us to a large extent will be dictated by the nature of the investment and current market conditions. To the extent floating rate debt is used to finance the purchase of real estate, management will evaluate a number of protections against significant increases in interest rates, including the purchase of interest rate cap instruments.
Additionally, in order to leverage our investments in marketable securities and an $18.6 million outstandingseek a higher rate of return, we have access to borrowings under a linemargin loan collateralized by the securities held with the financial institution that has provided the margin loan. This loan is due on demand and any outstanding balance must be paid upon the liquidation of credit. We have and intend to continue to limit our aggregate long-term permanent borrowings to 75% of the aggregate fair market value of all properties unless any excess borrowing is approved by a majority of the independent directors and is disclosed to our stockholders. We may also incur short-term indebtedness, having a maturity of two years or less.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 satisfactoryjustification showing that a higher level is appropriate, the approval of ourthe 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, 2017,2022, our total borrowings of $178.3$245.0 million represented 50%99% of net assets.
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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. 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. We expect that such properties may be purchased by our Sponsor’s affiliates on our behalf, in our name, in order to minimize the imposition of a transfer tax upon a transfer of such properties to us.
We have various agreements, including an advisory agreement, with the Advisor to pay certain fees in exchange for services performed by the Advisor and/or its affiliated entities. Additionally, our ability to secure financing and our real estate operations are dependent upon our Advisor and its affiliates to perform such services as provided in these agreements.
In addition to meeting working capital needs and distributions, if any, to our stockholders, our capital resources are used to make certain payments to our Advisor and our Property Manager,its affiliates, including payments related to asset acquisition fees and asset management fees, the reimbursement of acquisition related expenses to our Advisoracquisition-related costs, development fees and cost reimbursement, property management fees.and leasing commissions, and asset management fee. 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 advisory agreement has a one-year term and is renewable for an unlimited number of successive one-year periods upon the mutual consent of the Advisor and our independent directors.
The following table represents the fees incurred associated with the payments to our Advisor and our Property Managerits affiliates:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Asset management fees (general and administrative costs) | $ | 124 | $ | 206 | $ | 449 | $ | 661 | ||||||||
Property management fees (property operating expenses) | 68 | 99 | 223 | 267 | ||||||||||||
Development fees and cost reimbursement(1) | 641 | 877 | 2,258 | 2,789 | ||||||||||||
Total | $ | 833 | $ | 1,182 | $ | 2,930 | $ | 3,717 |
(1) | Development fees and development costs that we reimburse our Advisor for are capitalized and are included in the carrying value of the associated development project and classified as development projects on the consolidated balance sheets. As of September 30, 2022 and December 31, 2021, the Company owed the Advisor and its affiliated entities $0.3 million and $0.7 million, respectively, for development fees and cost reimbursements, which is included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets. See Note 3 of the Notes to Consolidated Financial Statements for additional information. |
Additionally, we may be required to make distributions on the periods indicated:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Asset management fees (general and administrative costs) | $ | 556 | $ | 562 | $ | 1,684 | $ | 1,804 | ||||||||
Property management fees (property operating expenses) | 199 | 190 | 576 | 739 | ||||||||||||
Development fees and leasing commissions* | 125 | 29 | 706 | 80 | ||||||||||||
Total | $ | 880 | $ | 781 | $ | 2,966 | $ | 2,623 |
* Generally, capitalized and amortized overspecial general partner interests (“SLP Units”) in the estimated useful lifeOperating Partnership held by Lightstone SLP, LLC, an affiliate of the associated asset.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.
As ofDuring both the three and nine months ended September 30, 2017, we had approximately $127.42022 and 2021, distributions of $0.5 million of cash and cash equivalents$1.5 million were declared and paid on hand and $54.0 million of marketable securities, available for sale.the SLP units.
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Summary of Cash Flows
The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below:
For the 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, | ||||||||
2022 | 2021 | |||||||
Net cash flows provided by operating activities | $ | 9,033 | $ | 11,770 | ||||
Net cash flows (used in)/provided by investing activities | (60,428 | ) | 28,378 | |||||
Net cash flows provided by/(used in) financing activities | 47,247 | (51,901 | ) | |||||
Net change in cash, cash equivalents and restricted cash | (4,148 | ) | (11,753 | ) | ||||
Cash, cash equivalents and restricted cash, beginning of year | 42,592 | 46,841 | ||||||
Cash, cash equivalents and restricted cash, end of the period | $ | 38,444 | $ | 35,088 |
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. 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.
Our principal demands for liquidity are (i) our property operating expenses, (ii) real estate taxes, (iii) insurance costs, (iv) leasing costs and related tenant improvements, (v) capital expenditures, (vi) acquisition, investment and development activities, (vii) scheduled debt service and (viii) distributions to our stockholders and noncontrolling interests. The principal sources of funding for our operations are operating cash flows and proceeds from (i) the sale and redemption of marketable securities, (ii) the selective disposition of properties or interests in properties, (iii) redemptions of our preferred investments in related parties, (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$9.0 million for the nine months ended September 30, 20172022 consists of the following:
cash inflows of |
cash inflows of |
Investing activities
The net cash provided byused in investing activities of $21.7$60.4 million for the nine months ended September 30, 20172022 consists primarily of the following:
net |
Financing activities
The net cash usedprovided by financing activities of approximately $18.4$47.2 million for the nine months ended September 30, 20172022 is primarily related to the following:
debt principal payments of $1.0 million; |
● | net proceeds from mortgage financing of $73.7 million; |
● | redemption and cancellation of common shares of $3.9 million; |
● | contributions received from our noncontrolling interests of $21.9 million; |
● | distributions to our noncontrolling interests of $32.1 million; and |
● | distributions to our common shareholders of |
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Preferred InvestmentsDevelopment Activities
We haveLower 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 in the Lower East Side neighborhood of Manhattan in New York City from unaffiliated third parties for aggregate consideration of $56.5 million, excluding closing and other acquisition related costs. Additionally, on December 6, 2018, we, though a subsidiary of the Operating Partnership, acquired certain air rights located at 329 Broome Street in the Lower East Side neighborhood of Manhattan in New York City from an unaffiliated third party for $2.4 million, excluding closing and other acquisition related costs. The land and air rights were acquired for the development and construction of a 296-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”). On June 3, 2021, we entered into severala development agreement (the “Development Agreement”) with an affiliate of the Advisor (the “Moxy Lower East Side Developer”) pursuant to which the Lower East Side Moxy Developer is being paid a development fee equal to 3% of hard and soft costs incurred in connection with the development and construction of the Lower East Side Moxy Hotel. The advisor and its affiliates are also reimbursed for certain development-related costs attributable to the Lower East Side Moxy Hotel. Additionally on June 3, 2021, we obtained construction financing for the Lower East Side Moxy Hotel. As of September 30, 2022, construction of the Lower East Side Moxy Hotel was substantially complete and the hotel and two of its five food and beverage venues opened in October 2022. The remaining food and beverage venues are currently expected to open by the end of 2022.
On June 3, 2021, we, through a wholly owned subsidiary, closed on a recourse construction loan facility (the “Moxy Senior Loan”) providing for up to $90.0 million of funds for the development, construction and certain pre-opening costs associated with the Lower East Side Moxy Hotel. At closing, $35.6 million of proceeds were initially advanced under the Moxy Senior Loan, which were used to repay in full a then outstanding mortgage loan. The Moxy Senior Loan bears interest at LIBOR + 7.50%, subject to an 8.00% floor, and initially matures on June 3, 2024, with two one-year extension options, subject to the satisfaction of certain conditions. The Moxy Senior Loan is collateralized by the Lower East Side Moxy Hotel. As of September 30, 2022, the outstanding principal balance of the Moxy Senior Loan was $64.6 million, the interest rate was 10.64% and the remaining availability under the facility was up to $25.4 million, which is expected to be used to fund the remaining construction and pre-opening costs for the project.
Simultaneously on June 3, 2021, we, through the same wholly owned subsidiary, also entered into a mezzanine construction loan facility (the “Moxy Junior Loan” and together with the Moxy Senior Loan, the “Moxy Construction Loans”) providing for up to $40.0 million of additional funds for the development, construction and certain pre-opening costs associated with the Lower East Side Moxy Hotel. The Moxy Junior Loan bears interest at LIBOR + 13.50%, subject to a 14.00% floor, and initially matures on June 3, 2024, with two one-year extension options subject to the satisfaction of certain conditions. The Moxy Junior Loan is subordinate to the Moxy Senior loan but also collateralized by the Lower East Side Moxy Hotel. We provided a principal guarantee of up to $7.0 million with respect to the Moxy Junior Loan. As of September 30, 2022, the outstanding principal balance of the Moxy Junior Loan was $40.0 million as it was fully drawn and the interest rate was 16.64%.
In connection with the Moxy Construction Loans, we provided certain completion and carry cost guarantees. We also entered into two interest rate cap agreements with notional amounts of $90.0 million and $40.0 million pursuant to which LIBOR through June 30, 2023 and its replacement rate thereafter is capped at 3.00% and 2.5%, respectively, through June 3, 2024. Furthermore, in connection with the Moxy Construction Loans, we paid $5.3 million of loan fees and expenses and accrued $1.1 million of loan exit fees which are due at the initial maturity date and are included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets as of September 30, 2022 and December 31, 2021.
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 in the Bronx neighborhood of New York City from unaffiliated third parties for an aggregate purchase price of $59.0 million, excluding closing and other acquisition related costs. In September 2021, we subsequently acquired an additional adjacent parcel of land at cost from an affiliate of our Advisor for $1.0 million in order to achieve certain zoning compliance. The land parcels were acquired for the development of a multi-family residential property (the “Exterior Street Project”).
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On March 29, 2019, we entered into a $35.0 million loan (the “Exterior Street Loan”) which commencing on October 10, 2020 bears interest at LIBOR + 2.25% (5.39% as of September 30, 2022) through its scheduled maturity date. The Exterior Street Loan requires monthly interest-only payments with the outstanding principal balance due in full at its maturity date. The Exterior Street Loan was initially scheduled to mature on April 9, 2021 but has been further extended to November 24, 2022. Additionally, on December 21, 2021, the loan agreement was amended to provide an additional $7.0 million loan (the “Exterior Street Supplemental Loan” and collectively with the Exterior Street Loan, the “Exterior Street Loans”) which bears interest at LIBOR + 2.50% (5.39% as of September 30, 2022) and requires monthly interest-only payments with the outstanding principal balance due in full at its maturity date. The Exterior Street Loans are collateralized by the Exterior Street Project.
The following is a summary of the total amounts incurred and capitalized to development projects on the consolidated balance sheet for the Lower East Side Moxy Hotel and the Exterior Street Project as of September 30, 2022:
Development Project | ||||
Lower East Side Moxy Hotel | $ | 196,284 | ||
Exterior Street Project | 91,589 | |||
Total | $ | 287,873 |
To-date the ongoing COVID-19 pandemic as well as other economic conditions and uncertainties have not had a significant impact on our development activities associated with either the Lower East Side Moxy Hotel or the Exterior Street Project. As discussed above, we have already obtained construction financing for the Lower East Side Moxy Hotel and the remaining availability under the facility is expected to be used to fund the remaining construction and pre-opening costs related to the project. However, with respect to our Exterior Street Project which is currently under development, we currently expect to seek construction financing to fund a substantial portion of its future development and construction costs. However, the ongoing COVID-19 pandemic as well as other economic conditions and uncertainties may (i) affect our ability to obtain construction financing, and/or (ii) cause delays or increase costs associated with building materials or construction services necessary for construction, which could adversely impact our ability to either ultimately commence and/or complete construction as planned, on budget or at all for the Exterior Street Project.
Although we currently believe our capital resources are sufficient to fund our expected development activities for the next 12 months, there can be no assurance we will be successful in obtaining construction financing at favorable terms, if at all.
Preferred Investments
We entered into agreements with various related party entities that provideprovided for us to make preferred contributions pursuant to certain instruments (the “Preferred Investments”) that entitle us to certain prescribed monthly preferred distributions. Thedistributions at an annual rate of 12%. During the nine months ended September 30, 2022, we redeemed $8.5 million (including $4.5 million in the third quarter of 2022) of our East 11th Street Preferred Investments had an aggregate balance of $152.7 million and $141.3 millionInvestment, which is now fully redeemed. As a result, as of September 30, 2017 and December 31, 2016, respectively, and2022, we only have one remaining Preferred Investment, which is our 40 East End Avenue Preferred Investment with an outstanding balance of $6.0 million. The Preferred Investments are classified as held-to-maturity securities, recorded at cost and included in investments in related parties on the consolidated balance sheets. During the three and nine months endedThe fair value of our remaining Preferred Investment approximates its carrying value based on market rates for similar instruments as of September 30, 2017,2022.
The Preferred Investments are summarized as follows:
Preferred Investment Balance | Investment Income (1) | ||||||||||||||||||||||||||
Dividend | As of September 30, | As of December 31, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
Preferred Investments | Rate | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
40 East End Avenue | 12% | $ | 6,000 | $ | 6,000 | $ | 184 | $ | 184 | $ | 546 | $ | 546 | ||||||||||||||
East 11th Street | 12% | - | 8,500 | 108 | 261 | 593 | 774 | ||||||||||||||||||||
Total | $ | 6,000 | $ | 14,500 | $ | 292 | $ | 445 | $ | 1,139 | $ | 1,320 |
Note:
(1) | – Included in interest and dividend income on the consolidated statements of operations. |
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Notes Receivable
We have formed certain joint ventures (collectively, the Company recognized investment“NR Joint Ventures”) between wholly-owned subsidiaries of the Operating Partnership (collectively, the “NR Subsidiaries”) and affiliates of the Sponsor (the “NR Affiliates”) which have originated nonrecourse loans (collectively, the “Joint Venture Promissory Notes”) to unaffiliated third-party borrowers (collectively, the “Joint Venture Borrowers”).
The N/R Subsidiaries and NR Affiliates may have varying ownership interests in the N/R Joint Ventures, however; certain other wholly owned subsidiaries of the Operating Partnership serve as the manager and the sole decision-maker for each of the N/R Joint Ventures. We have determined that the NR Joint Ventures are VIEs and the NR Subsidiaries are the primary beneficiaries. Since the NR Subsidiaries are the primary beneficiaries, beginning on the applicable date of formation, we consolidated the operating results and financial condition of the NR Joint Ventures and accounted for the respective ownership interests of the NR Affiliates as noncontrolling interests.
The Joint Venture Promissory Notes generally provide for monthly interest at a prescribed variable rate, subject to a floor. In connection with the initial funding of the Joint Venture Promissory Notes, the NR Joint Ventures receive origination fees (ranging from 1.00% to 1.50%) based on the principal commitment under the loan and retain a portion of the loan proceeds to establish a reserve for interest and other items (the “Loan Reserves”). The Joint Venture Promissory Notes are recorded in notes receivable, net on the consolidated balance sheets.
The Joint Venture Promissory Notes generally have an initial term of one or two years and may provide for additional one-year extension options subject to satisfaction of certain conditions, including the funding of additional Loan Reserves and payment of extension fees. The Joint Venture Promissory Notes are collateralized by either the membership interests of the Joint Venture Borrowers in the borrowing entity or the underlying real property being developed by the Joint Venture Borrower.
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 $4.6 millionthe 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 $12.9 million, respectively, and duringare applied against the three and nine months ended September 30, 2016,monthly interest due over the Company recognized investment incomeinitial term.
The following tables summarize the Notes Receivable as of $4.0 million and $12.2 million, respectively, which is includedthe dates indicated:
As of September 30, 2022 | |||||||||||||||||||||||||||||||||||
Joint Venture/Lender | Company’s Percentage | Loan Commitment Amount | Origination Fee | Origination Date | Maturity Date | Contractual Interest Rate | Outstanding Principal | Reserves | Unamortized Origination Fee | Carrying Value | Unfunded Commitment | ||||||||||||||||||||||||
LSC 1543 7th LLC | 50% | 49,000 | 1.00% | March 2, 2022 | August 31, 2023 | SOFR plus 7.00% (Floor of 7.15%) | $ | 49,000 | $ | (1,821 | ) | $ | (450 | ) | $ | 46,729 | $ | - |
As of December 31, 2021 | |||||||||||||||||||||||||||||||||||
Joint Venture/Lender | Company’s Percentage | Loan Commitment Amount | Origination Fee | Origination Date | Maturity Date | Contractual Interest Rate | Outstanding Principal | Reserves | Unamortized Origination Fee | Carrying Value | Unfunded Commitment | ||||||||||||||||||||||||
LSC 1543 7th LLC (1) | 50% | 20,000 | 1.00% | August 27, 2019 | February 28, 2022 | Libor plus 5.40% (Floor of 7.90%) | $ | 17,500 | $ | - | $ | (33 | ) | $ | 17,467 | $ | - | ||||||||||||||||||
LSC 11640 Mayfield LLC (2) | 50% | 18,000 | 1.50% | March 4, 2020 | March 1, 2022 | Libor plus 11.00% (Floor of 13.00%) | 10,040 | (629 | ) | (24 | ) | 9,387 | 6,960 | ||||||||||||||||||||||
- | |||||||||||||||||||||||||||||||||||
Total | $ | 27,540 | $ | (629 | ) | $ | (57 | ) | $ | 26,854 | $ | 6,960 |
(1) | Repaid in full during March 2022. |
(2) | Repaid in full during February 2022. |
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The following summarizes the interest earned (included in interest and dividend income on the consolidated statements of operations.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 | 2022 | 2021 | 2022 | 2021 | ||||||||||||
LSC 1543 7th LLC | $ | 1,230 | 454 | $ | 2,957 | $ | 1,348 | |||||||||
LSC 162nd Capital I LLC | - | 123 | - | 373 | ||||||||||||
LSC 162nd Capital II LLC | - | 266 | - | 807 | ||||||||||||
LSC 1650 Lincoln LLC | - | 545 | - | 1,618 | ||||||||||||
LSC 11640 Mayfield LLC | - | 383 | 455 | 1,125 | ||||||||||||
LSC 11640 Newkirk LLC | - | - | - | 1,585 | ||||||||||||
Total | $ | 1,230 | $ | 1,771 | $ | 3,412 | $ | 6,856 |
LSC 1543 7th LLC Loan
On June 30, 2022, LSC 1543 7th LLC entered into a $31.3 million loan (the “LSC 1543 7th LLC Loan”) which bears interest at SOFR + 3.50% (5.19% as of September 30, 2022). The Preferred Investments are summarized as follows:LSC 1543 7th LLC Loan is initially scheduled to mature on December 30, 2023, but may be further extended through December 30, 2024 and September 30, 2025, through the exercise of two extension options. The LSC 1543 7th LLC Loan requires monthly interest-only payments with the outstanding principal balance due at its maturity date and is collateralized by a nonrecourse loan originated by LSC 1543 7th LLC (the “LSC 1543 7th LLC Note Receivable”). See Note 5. On June 30, 2022, $28.6 million of the net proceeds from the LSC 1543 7th LLC Loan were temporarily funded to an affiliate of our advisor and were subsequently transferred to us and then distributed to the members of LSC 1543 7th LLC in July 2022, of which our 50% share was $14.3 million. As of September 30, 2022, the outstanding principal balance of the LSC 1543 7th LLC Loan was $29.9 million and the remaining availability under the facility was up to $1.4 million.
Preferred Investment Balance | Unfunded Contributions | Investment Income | ||||||||||||||||||||||||||||
Dividend | As of September 30, | As of December 31, | As of September 30, | Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||||||||||||
Preferred Investments | Rate | 2017 | 2016 | 2017 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||
365 Bond Street | 12% | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 2,252 | |||||||||||||||
40 East End Avenue | 8% to 12% | 30,000 | 30,000 | - | 920 | 613 | 2,463 | 1,795 | ||||||||||||||||||||||
30-02 39th Avenue | 9% to 12% | 10,000 | 12,300 | 40,000 | 307 | 436 | 946 | 1,009 | ||||||||||||||||||||||
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 | ||||||||||||||||||||||
Miami Moxy | 12% | 11,699 | 7,682 | 8,302 | 346 | - | 905 | - | ||||||||||||||||||||||
Total Preferred Investments | $ | 152,693 | $ | 141,253 | $ | 64,808 | $ | 4,568 | $ | 3,962 | $ | 12,909 | $ | 12,211 |
Distribution Reinvestment PlanProgram (“DRIP”) and Share Repurchase Program
Our DRIPdistribution reinvestment program (“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.
The DRIP had been suspended since 2015 until our DRIP 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 following its reactivation, 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 our current estimated net asset value per share (“NAV per Share”), as determined by the Board of Directors and reported by us from time to time. On December 16, 2021, the Board of Directors determined our NAV per Share of $11.75, as of September 30, 2021, which resulted in a purchase price for shares under the DRIP of $11.16 per share. As of September 30, 2022, 9.9 million shares remain available for issuance under our DRIP.
The 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 (the “SRP”) may provide our stockholders with limited, interim liquidity by enabling them to sell their shares of common stock back to us, subject to restrictions. From
On March 25, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of all redemptions effective immediately.
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Effective March 15, 2021 and May 14, 2021, the Board of Directors partially reopened the SRP to allow, subject to various conditions as set forth below, for redemptions submitted in connection with a stockholder’s death and hardship, respectively, and set the price for all such purchases to our inception through December 31, 2016current NAV per Share, as determined by the Board of Directors and reported by us from time to time. Deaths that occurred subsequent to January 1, 2020 were eligible for consideration, subject to certain conditions. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by us within one year of the stockholder’s date of death for consideration.
At the above noted dates, the Board of Directors established that on an annual basis, we repurchased approximately 3.1 millionwould not redeem in excess of 0.5% of the number of shares outstanding as of common stock. the end of the preceding year for either death or hardship redemptions, respectively. Additionally, redemption requests generally would be processed on a quarterly basis and would be subject to pro ration if either type of redemption requests exceeded the annual limitation.
On March 18, 2022, the Board of Directors approved an increase to the annual threshold for death redemptions from up to 0.5% to 1.0%.
For the nine months ended September 30, 2017,2022 we repurchased 205,189330,738 shares of common stock, for $10.00 per share, pursuant to our SRP at an average price per 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.$11.75 per share.
On January 19, 2015, 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 of the share repurchase program to all stockholders.
Contractual Obligations
The following is a summary of our contractual obligations outstanding over the next five years and thereafter as of September 30, 2017.2022.
Contractual Obligations | Remainder of 2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | ||||||||||||||||||||||||||||||||||||||||||
Mortgage Payable | $ | 50,307 | $ | 21,967 | $ | 1,621 | $ | 14,924 | $ | 1,328 | $ | 69,540 | $ | 159,687 | $ | 42,355 | $ | 31,353 | $ | 171,329 | $ | - | $ | - | $ | - | $ | 245,037 | ||||||||||||||||||||||||||||
Interest Payments1 | 1,286 | 4,727 | 3,867 | 3,534 | 3,191 | 9,112 | 25,717 | 6,787 | 18,615 | 9,911 | - | - | - | 35,313 | ||||||||||||||||||||||||||||||||||||||||||
Total Contractual Obligations | $ | 51,593 | $ | 26,694 | $ | 5,488 | $ | 18,458 | $ | 4,519 | $ | 78,652 | $ | 185,404 | $ | 49,142 | $ | 49,968 | $ | 181,240 | $ | - | $ | - | $ | - | $ | 280,350 |
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 plusLIBOR + 0.85% (2.09%(3.99% as of September 30, 2017)2022) 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, 20172022 and December 31, 2016.2021.
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 June 19, 2019the fair value of the underlying collateral, matures on November 30, 2022 and bears interest at Libor plusLIBOR + 1.35% (2.59%(4.49% as of September 30, 2017)2022). The Line of Credit is collateralized by approximately 252,000an aggregate of 209,243 of Marco OP Units and PROMarco II OP Units and was guaranteed by PRO. As of September 30, 2022, the amount of borrowings available to be drawn under the Line of Credit. The amountCredit was $10.3 million. No amounts were outstanding under the Line of Credit was $18.6as of both September 30, 2022 and December 31, 2021.
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Debt Maturities
The Exterior Street Loans (outstanding principal balance of $42.0 million as of September 30, 2017 and is included in Notes Payable2022) mature on the consolidated balance sheets.November 24, 2022. We currently intend to seek to extend or replacerefinance the Line of CreditExterior Street Loans on or before its expiration. Iftheir maturity date.
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, which implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be less informative.
Because of these factors, the National Association of Real Estate Investment Trusts ("NAREIT"(“NAREIT”), an industry trade group, has published a standardized measure of performance known as funds from operations ("FFO"(“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'sREIT’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"“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'sNAREIT’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"“IPA”), an industry trade group, published a standardized measure of performance known as modified funds from operations ("MFFO"(“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.
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We define MFFO, a non-GAAP measure, consistent with the IPA'sIPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the "Practice Guideline"“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.
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The below table illustrates the items deducted in the calculation of FFO and MFFO. Items are presented net of non-controlling interest portions where applicable.
For the Three Months Ended | For the 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 |
Notes:
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
Net (loss)/income | $ | (13,359 | ) | $ | (8,338 | ) | $ | (26,779 | ) | $ | 14,400 | |||||
FFO adjustments: | ||||||||||||||||
Depreciation and amortization of real estate assets | 478 | 1,545 | 1,976 | 3,826 | ||||||||||||
Gain on disposal of investment property | (1,105 | ) | (213 | ) | (1,154 | ) | (3,802 | ) | ||||||||
Loss on disposal of asset | 16,593 | - | 16,593 | - | ||||||||||||
Impairment loss | - | 11,341 | - | 11,341 | ||||||||||||
FFO | 2,607 | 4,335 | (9,364 | ) | 25,765 | |||||||||||
MFFO adjustments: | ||||||||||||||||
Other Adjustment | ||||||||||||||||
Acquisition and other transaction related costs expensed(1) | - | - | - | - | ||||||||||||
Amortization of above or below market leases and liabilities(2) | - | - | - | - | ||||||||||||
Mark-to-market adjustments(3) | (415 | ) | 3,407 | 17,116 | (10,670 | ) | ||||||||||
(Gain)/loss on debt extinguishment(4) | - | (175 | ) | - | 143 | |||||||||||
Gain on sale of marketable securities(4) | - | (4,669 | ) | (1,160 | ) | (4,653 | ) | |||||||||
MFFO | 2,192 | 2,898 | 6,592 | 10,585 | ||||||||||||
Straight-line rent(5) | 2 | 22 | 27 | (16 | ) | |||||||||||
MFFO - IPA recommended format | $ | 2,194 | $ | 2,920 | $ | 6,619 | $ | 10,569 | ||||||||
Net (loss)/income | $ | (13,359 | ) | $ | (8,338 | ) | $ | (26,779 | ) | $ | 14,400 | |||||
Less: income attributable to noncontrolling interests | (183 | ) | (582 | ) | (783 | ) | (3,332 | ) | ||||||||
Net (loss)/income applicable to Company’s common shares | $ | (13,542 | ) | $ | (8,920 | ) | $ | (27,562 | ) | $ | 11,068 | |||||
Net (loss)/income per common share, basic and diluted | $ | (0.62 | ) | $ | (0.40 | ) | $ | (1.25 | ) | $ | 0.50 | |||||
FFO | $ | 2,607 | $ | 4,335 | $ | (9,364 | ) | $ | 25,765 | |||||||
Less: FFO attributable to noncontrolling interests | (698 | ) | (1,018 | ) | (1,650 | ) | (4,058 | ) | ||||||||
FFO attributable to Company’s common shares | $ | 1,909 | $ | 3,317 | $ | (11,014 | ) | $ | 21,707 | |||||||
FFO per common share, basic and diluted | $ | 0.09 | $ | 0.15 | $ | (0.50 | ) | $ | 0.97 | |||||||
MFFO - IPA recommended format | $ | 2,194 | $ | 2,920 | $ | 6,619 | $ | 10,569 | ||||||||
Less: MFFO attributable to noncontrolling interests | (736 | ) | (923 | ) | (2,623 | ) | (3,421 | ) | ||||||||
MFFO attributable to Company’s common shares | $ | 1,458 | $ | 1,997 | $ | 3,996 | $ | 7,148 | ||||||||
Weighted average number of common shares outstanding, basic and diluted | 21,887 | 22,221 | 21,996 | 22,276 |
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. |
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(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, 2022 | ||||||||
FFO attributable to Company’s common shares | $ | 190,420 | $ | 255,719 | ||||
Distributions paid | $ | 194,172 | $ | 274,906 |
On October 16, 2017,15, 2022, the distribution for the three-month period ending September 30, 20172022 of $4.4$3.8 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 $11.16 per share, equal to 95% of the Company’s most current estimated net asset value (“NAV”) per share of $11.75 as of September 30, 2021.
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 2017,2022, if any, and certain accounting standards that we have not yet been required to implement and may be applicable to our future operations.
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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.
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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.
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None.
* | Filed herewith |
*Filed herewith
SIGNATURES44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LIGHTSTONE VALUE PLUS
| |||
Date: | November 14, | By: | /s/ David Lichtenstein |
David Lichtenstein | |||
Chairman and Chief Executive Officer
|
Date: | November 14, 2022 | By: | /s/ Seth Molod | |
Seth Molod | ||||
Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial and Accounting Officer) |
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