Structure | 1. Structure Lightstone Value Plus Real Estate Investment Trust II, Inc. (’‘Lightstone REIT II’’), is a Maryland corporation, formed on April 28, 2008, which elected to qualify as a real estate investment trust (’‘REIT’’) for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2009. Lightstone REIT II is structured as an umbrella partnership REIT, or UPREIT, and substantially all of its current and future business will be conducted through Lightstone Value Plus REIT II LP, a Delaware limited partnership (the ’‘Operating Partnership’’). As of December 31, 2020, Lightstone REIT II held an approximately 99% general partnership interest in the Operating Partnership’s common units. Lightstone REIT II and the Operating Partnership and its subsidiaries are collectively referred to as the ’‘Company’’ and the use of ’‘we,’’ ’‘our,’’ ’‘us’’ or similar pronouns refers to Lightstone REIT II, its Operating Partnership or the Company as required by the context in which such pronoun is used. The Company has and will continue to seek to acquire a diverse portfolio of real estate assets and real estate-related investments, including hotels, other commercial and/or residential properties, primarily located in the United States. All such properties may be acquired and operated by the Company alone or jointly with another party. The Company may also originate or acquire mortgage loans secured by real estate. Although the Company expects that most of its investments will be of these types, it may invest in whatever types of real estate-related investments that it believes are in its best interests. The Company currently has one operating segment. As of December 31, 2020, we (i) majority owned and consolidated the operating results and financial condition of 14 limited service hotels containing a total of 1,802 rooms, (ii) held an unconsolidated 48.6% membership interest in Brownmill, LLC (“Brownmill”), an affiliated entity that owns two retail properties, and (iii) held an unconsolidated 50.0% membership interest in LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”), an affiliated real estate entity that owns and operates a 183-room limited service hotel located in Long Island City, New York (the “Hilton Garden Inn – Long Island City”). The Company accounts for its membership interests in Brownmill and the Hilton Garden Inn Joint Venture under the equity method of accounting. As of December 31, 2020, seven of our consolidated limited service hotels are held in a joint venture (the “Joint Venture”) formed between us and Lightstone Value Plus Real Estate Investment Trust, Inc. (“Lightstone I”), a related party REIT also sponsored by The Lightstone Group, LLC. The Company and Lightstone I have 97.5% and 2.5% membership interests in the Joint Venture, respectively. Additionally, as of December 31, 2020, certain of our consolidated hotels also have ownership interests held by unrelated minority owners. The membership interests of Lightstone I and the unrelated minority owners are accounted for as noncontrolling interests. The Company’s advisor is Lightstone Value Plus REIT II LLC (the “Advisor”), which is majority owned by David Lichtenstein. On May 20, 2008, the Advisor contributed $2 to the Operating Partnership in exchange for 200 limited partner common units in the Operating Partnership. The Advisor also owns 20,000 shares of the Company’s common stock (“Common Shares”) which were issued on May 20, 2008 for $200, or $10.00 per share. Mr. Lichtenstein also is a majority owner of the equity interests of the Lightstone Group, LLC. The Lightstone Group, LLC served as the Company’s sponsor (the ’’Sponsor’’) during its initial public offering (the “Offering”) and follow-on offering (the “Follow-on Offering”, and collectively, “the Offerings”), which terminated on August 15, 2012 and September 27, 2014, respectively. The Advisor, pursuant to the terms of an advisory agreement, together with the Company’s board of directors (the “Board of Directors”), is primarily responsible for making investment decisions on behalf of the Company and managing its day-to-day operations. Through his ownership and control of the Lightstone Group, LLC, Mr. Lichtenstein is the indirect owner and manager of Lightstone SLP II LLC, a Delaware limited liability company (the “Associate General Partner”), which has subordinated profits interests in the Operating Partnership which were acquired for aggregate consideration of $17.7 million in connection with the Company’s Offerings. Mr. Lichtenstein also acts as the Company’s Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT II or the Operating Partnership. The Company does not have any employees. The Advisor receives compensation and fees for services related to the investment and management of the Company’s assets. The Company’s Advisor has certain affiliates which may manage the properties the Company acquires. However, the Company also contracts with other unaffiliated third-party property managers, principally for the management of its hospitality properties. The Company’s Common Shares are not currently listed on a national securities exchange. The Company may seek to list its Common Shares 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 Common Shares until they are listed for trading. In the event the Company does not obtain listing prior to September 27, 2024, which is the tenth anniversary of the termination of its Follow-On Offering, its charter requires that the Board of Directors must either (i) seek stockholder approval of an extension or amendment of this listing deadline; or (ii) seek stockholder approval to adopt a plan of liquidation of the corporation. COVID-19 Pandemic Operations and Liquidity Update On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic leading many countries, including the United States, particularly at the individual state level, to subsequently impose various degrees of restrictions and other measures, including, but not limited to, mandatory temporary closures, quarantine guidelines, limitations on travel, and “shelter in place” rules in an effort to reduce its duration and the severity of its spread. Although the COVID-19 pandemic has continued to evolve, most of these previously imposed restrictions and other measures have now been reduced and/or lifted. However, the COVID-19 pandemic remains highly unpredictable and dynamic and its duration and extent is likely dependent on numerous developments such as the regulatory approval, mass production, administration and ultimate effectiveness of vaccines, as well as the timeline to achieve a level of sufficient herd immunity amongst the general population. Accordingly, the COVID-19 pandemic may continue to have negative effects on the overall health of the U.S. economy for the foreseeable future. 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. As a result of the COVID-19 pandemic, room demand for the Company’s consolidated and unconsolidated hotels began to significantly decline in March 2020 and while there has been some slight improvement; room demand continues to be substantially below historical levels. The COVID-19 pandemic has had a significant negative impact on the Company’s operations and financial results to date and the Company currently expects that the COVID-19 pandemic will continue to have a significant negative impact on its results of operations, financial position and cash flow for the foreseeable future. The Company cannot currently estimate if and when room demand will fully recover to pre-pandemic levels for its hotels. Additionally, the Company has an unconsolidated 48.6% membership interest in Brownmill, which owns two retail properties located in New Jersey that have been subject to various restrictions. If Brownmill’s retail properties are negatively impacted for an extended period because its tenants are unable to pay their rent, the Company’s equity earnings and the carrying value of its investment in Brownmill could be materially and adversely impacted. In light of the impact of the COVID-19 pandemic on the operating results of its hotels, the Company has taken various actions to preserve its liquidity, including, but not limited to, those described below: ● The Company implemented cost reduction strategies for all of its hotels, leading to reductions in certain operating expenses and capital expenditures. ● Amendments to Revolving Credit Facility – On June 2, 2020, the Company’s revolving credit facility (the “Revolving Credit Facility”) was amended to provide for (i) the deferral of the six monthly debt service payments aggregating $2.6 million for the period from April 1, 2020 through September 30, 2020, which are now due on November 15, 2021; (ii) a 100 bps reduction in the interest rate spread to LIBOR + 2.15%, subject to a 3.00% floor, for the six-month period from September 1, 2020 through February 28, 2021; (iii) the Company pre-funding $2.5 million into a cash collateral reserve account to cover the six monthly debt service payments due from October 1, 2020 through March 1, 2021; and (iv) a waiver of all financial covenants for quarter-end periods before June 30, 2021. Additionally, the Company and the lender have agreed in principle to certain The Company intends to timely pledge the additional collateral and extend the maturity date of the Revolving Credit Facility to September 15, 2021. See Note 6 for additional information. ● Paycheck Protection Program Loans - In April 2020, the Company’s hotels received $3.3 million from loans provided under the federal Paycheck Protection Program (“PPP Loans”). Subsequently, during the first quarter of 2021, the Company’s hotels received an additional $3.7 million from PPP Loans. See Note 7 for additional information. ● On March 19, 2020, the Board of Directors determined to suspend regular quarterly distributions and, as a result, did not declare any distributions on the Company’s Common Shares during 2020. Additionally, on March 19, 2020, the Board of Directors approved the suspension of all redemptions under the Company’s shareholder redemption program. See Note 8 for additional information. ● In May 2020, the Company had approximately $7.2 million of funds released to it from an escrow account. See Note 3 for additional information. ● The Hilton Garden Inn Joint Venture and the lender have agreed in principle to Based on these actions, along with its cash and cash equivalents on hand, the Company believes that it will have sufficient liquidity to meet its obligations for at least 12 months from the date of issuance of these financial statements. Noncontrolling Interests - Partners of the Operating Partnership Limited Partner On May 20, 2008, the Advisor contributed $2 to the Operating Partnership in exchange for 200 limited partner common units in the Operating Partnership. The Advisor has the right to convert limited partner common units into cash or, at the Company’s option, an equal number of Common Shares. Associate General Partner In connection with the Company’s Offerings, which concluded on September 27, 2014, the Associate General Partner contributed (i) cash of approximately $12.9 million and (ii) equity interests totaling 48.6% in Brownmill, which were valued at $4.8 million, to the Operating Partnership in exchange for 177.0 Subordinated Profits Interests in the Operating Partnership with an aggregate value of $17.7 million. As the indirect majority owner of the Associate General Partner, Mr. Lichtenstein is the beneficial owner of a 99% interest in such Subordinated Profits Interests and thus receives an indirect benefit from any distributions made in respect thereof. These Subordinated Profits Interests may entitle the Associate General Partner to a portion of any regular and liquidation distributions that the Company makes to its stockholders, but only after its stockholders have received a stated preferred return. There were no distributions declared on the Subordinated Profits Interests during the year ended December 31, 2020. For the year ended December 31, 2019, total distributions declared on the Subordinated Profits Interests were $1.2 million. Since the Company’s inception through December 31, 2020, the cumulative distributions declared and paid on the Subordinated Profits Interests were $7.9 million. Any future distributions on the Subordinated Profits Interests will always be subordinated until stockholders receive a stated preferred return, as described above. See Note 9 for additional information with respect to the Subordinated Profits Interests. Other Noncontrolling Interests in Consolidated Subsidiaries Other noncontrolling interests consist of the (i) membership interest in the Joint Venture held by Lightstone I and (ii) membership interests held by minority owners in certain of the Company’s hotels. The Advisor and its affiliates and Associate General Partner are related parties of the Company. Certain of these entities are entitled to compensation and fees for services related to the investment, management and disposition of the Company’s assets during its acquisition, operational and liquidation stages. The compensation levels during the Company’s acquisition and operational stages are based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and reimbursements as outlined in each of the respective agreements. See Note 9 for additional information. |