Lightstone Value Plus REIT IV 10Q 2019 Q2 Quarterly report

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 June 30, 2019

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number000-55773

LIGHTSTONE REAL ESTATE INCOME TRUST INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland

47-1796830

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

1985 Cedar Bridge Avenue, Suite 1
Lakewood, New Jersey		08701
(Address of Principal Executive Offices)		(Zip Code)

(732) 367-0129

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer þ		Smaller reporting company þ
		Emerging growth companyþ

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

As of August 10, 2019, there were 8.6 million outstanding shares of common stock of Lightstone Real Estate Income Trust Inc.

LIGHTSTONE REAL ESTATE INCOME TRUST INC. AND SUBSIDIARIES

INDEX

		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	3

	Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	3

	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018	4

	Consolidated Statements of Comprehensive Loss/Income for the Three and Six Months Ended June 30, 2019 and 2018	5

	Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018	6

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 4.	Controls and Procedures	26

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	26

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26

Item 3.	Defaults Upon Senior Securities	26

Item 4.	Mine Safety Disclosures	26

Item 5.	Other Information	26

Item 6.	Exhibits	27

PART I. FINANCIAL INFORMATION:

ITEM 1. FINANCIAL STATEMENTS:

LIGHTSTONE REAL ESTATE INCOME TRUST INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30, 2019			December 31, 2018
	(unaudited)
Assets

Investment in related party	$	10,500,000		$	37,000,000
Investments in unconsolidated affiliated real estate entities		29,347,246			30,783,855
Cash and cash equivalents		22,400,926			4,350,896
Marketable securities, available for sale		4,833,361			-
Other assets		70,834			10,374

Total Assets	$	67,152,367		$	72,145,125

Liabilities and Stockholders' Equity

Accounts payable and other accrued expenses	$	41,907		$	90,468
Due to related parties		120,304			57,775
Distributions payable		565,541			587,405
Subordinated advances - related party		13,170,492			13,077,784

Total liabilities		13,898,244			13,813,432

Commitments and Contingencies

Stockholders' Equity:

Preferred stock, $0.01 par value; 50.0 million shares authorized, none issued and outstanding		-			-
Common stock, $0.01 par value; 200.0 million shares authorized, 8.6 million and 8.7 million shares issued and outstanding, respectively		86,210			86,653
Additional paid-in-capital		72,468,758			72,898,310
Accumulated other comprehensive income		73,738			-
Accumulated deficit		(19,374,583	)		(14,653,270	)
Total Stockholders' Equity		53,254,123			58,331,693

Total Liabilities and Stockholders' Equity	$	67,152,367		$	72,145,125

The accompanying notes are an integral part of these consolidated financial statements.

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

LIGHTSTONE REAL ESTATE INCOME TRUST INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018

Income:
Investment income	$	578,402		$	1,122,333		$	1,655,161		$	2,232,333
Loss from investments in unconsolidated affiliated real estate entities		(1,224,822	)		(551,428	)		(2,228,531	)		(1,326,535	)

Total (loss)/income		(646,420	)		570,905			(573,370	)		905,798

Expenses:
General and administrative costs		295,324			288,119			596,346			602,736
Interest expense		46,611			46,611			92,709			92,709
Foreign currency transaction loss		17,117			-			43,965			-

Total expenses		359,052			334,730			733,020			695,445

Net (loss)/income	$	(1,005,472	)	$	236,175		$	(1,306,390	)	$	210,353

Net (loss)/income per common share, basic and diluted	$	(0.12	)	$	0.03		$	(0.15	)	$	0.02

Weighted average number of common shares outstanding, basic and diluted		8,624,242			8,759,662			8,632,531			8,815,410

The accompanying notes are an integral part of these consolidated financial statements.

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED.

LIGHTSTONE REAL ESTATE INCOME TRUST INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS/INCOME

(Unaudited)

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2019			2018		2019			2018

Net (loss)/income	$	(1,005,472	)	$	236,175	$	(1,306,390	)	$	210,353

Other comprehensive income:
Holding gain on marketable securities, available for sale		46,812			-		73,738			-

Other comprehensive income		46,812			-		73,738			-

Comprehensive (loss)/income	$	(958,660	)	$	236,175	$	(1,232,652	)	$	210,353

The accompanying notes are an integral part of these consolidated financial statements.

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED.

LIGHTSTONE REAL ESTATE INCOME TRUST INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

							Additional
	Common						Paid-In			Accumulated Other		Accumulated			Total
	Shares			Amount			Capital			Comprehensive Income		Deficit			Equity

BALANCE, March 31, 2018		8,812,838		$	88,128		$	74,293,758		$	-	$	(9,260,312	)	$	65,121,574

Net income		-			-			-			-		236,175			236,175
Distributions declared (a)		-			-			-			-		(1,738,547	)		(1,738,547	)
Redemption and cancellation of shares		(78,745	)		(787	)		(735,981	)		-		-			(736,768	)

BALANCE, June 30, 2018		8,734,093		$	87,341		$	73,557,777		$	-	$	(10,762,684	)	$	62,882,434

(a) Dividends per share were $0.20.

							Additional
	Common						Paid-In			Accumulated Other		Accumulated			Total
	Shares			Amount			Capital			Comprehensive Income		Deficit			Equity

BALANCE, December 31, 2017		8,952,132		$	89,521		$	75,586,926		$	-	$	(7,494,640	)	$	68,181,807

Net income		-			-			-			-		210,353			210,353
Distributions declared (a)		-			-			-			-		(3,478,397	)		(3,478,397	)
Redemption and cancellation of shares		(218,039	)		(2,180	)		(2,029,149	)		-		-			(2,031,329	)

BALANCE, June 30, 2018		8,734,093		$	87,341		$	73,557,777		$	-	$	(10,762,684	)	$	62,882,434

(a) Dividends per share were $0.40.

							Additional
	Common						Paid-In			Accumulated Other		Accumulated			Total
	Shares			Amount			Capital			Comprehensive Income		Deficit			Equity

BALANCE, March 31, 2019		8,635,242		$	86,353		$	72,611,615		$	26,926	$	(16,653,633	)	$	56,071,261

Net loss		-			-			-			-		(1,005,472	)		(1,005,472	)
Distributions declared (a)		-			-			-			-		(1,715,478	)		(1,715,478	)
Redemption and cancellation of shares		(14,300	)		(143	)		(142,857	)		-		-			(143,000	)
Other comprehensive income		-			-			-			46,812		-			46,812

BALANCE, June 30, 2019		8,620,942		$	86,210		$	72,468,758		$	73,738	$	(19,374,583	)	$	53,254,123

(a) Dividends per share were $0.20.

							Additional
	Common						Paid-In			Accumulated Other		Accumulated			Total
	Shares			Amount			Capital			Comprehensive Income		Deficit			Equity

BALANCE, December 31, 2018		8,665,262		$	86,653		$	72,898,310		$	-	$	(14,653,270	)	$	58,331,693

Net loss		-			-			-					(1,306,390	)		(1,306,390	)
Distributions declared (a)		-			-			-			-		(3,414,923	)		(3,414,923	)
Redemption and cancellation of shares		(44,320	)		(443	)		(429,552	)		-		-			(429,995	)
Other comprehensive income		-			-			-			73,738		-			73,738

BALANCE, June 30, 2019		8,620,942		$	86,210		$	72,468,758		$	73,738	$	(19,374,583	)	$	53,254,123

(a) Dividends per share were $0.40.

The accompanying notes are an integral part of these consolidated financial statements.

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

LIGHTSTONE REAL ESTATE INCOME TRUST INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Six Months Ended June 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/income	$	(1,306,390	)	$	210,353
Adjustments to reconcile net (loss)/income to net cash provided by operating activities:
Loss from investments in unconsolidated affiliated real estate entities		2,228,531			1,326,535
Amortization of discount on debt securities		(77,827	)		-
Foreign currency transaction loss		43,965			-
Changes in assets and liabilities:
Increase in other assets		(60,460	)		(38,985	)
Increase in accrued interest on marketable securities		(25,764	)		-
(Decrease)/increase in accounts payable and other accrued expenses		(48,562	)		3,035
Increase in accrued interest on subordinated advances - related party		92,708			92,709
Increase/(decrease) in due to related parties		62,529			(882	)

Net cash provided by operating activities		908,730			1,592,765

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities		(4,656,031	)		-
Proceeds from preferred investment in related party		26,500,000			-
Investments in unconsolidated affiliated real estate entities		(791,922	)		(1,588,237	)

Cash provided by/(used in) investing activities		21,052,047			(1,588,237	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption and cancellation of common stock		(429,995	)		(2,031,329	)
Distributions paid to Company's common stockholders		(3,436,787	)		(3,512,313	)

Cash used in financing activities		(3,866,782	)		(5,543,642	)

Effect of exchange rate changes on cash and cash equivalents		(43,965	)		-

Net change in cash and cash equivalents		18,050,030			(5,539,114	)
Cash and cash equivalents, beginning of year		4,350,896			14,064,001
Cash and cash equivalents, end of period	$	22,400,926		$	8,524,887

Supplemental disclosure of cash flow information:
Distributions declared, but not paid	$	565,541		$	572,981
Holding gain on marketable securities, available for sale	$	73,738		$	-

The accompanying notes are an integral part of these consolidated financial statements.

LIGHTSTONE REAL ESTATE INCOME TRUST INC. AND SUBSIDIARIES

Notes To Consolidated Financial Statements

(Unaudited)

Organization

Lightstone Real Estate Income Trust Inc. (‘‘Lightstone Income Trust’’), incorporated in Maryland on September 9, 2014, elected to qualify to be taxed as a real estate investment trust for U.S. federal income tax purposes (‘‘REIT’’) beginning with the taxable year ended December 31, 2016.

On September 12, 2014, Lightstone Income Trust sold 20,000 Common Shares to Lightstone Real Estate Income LLC, a Delaware limited liability company (the ‘‘Advisor’’), an entity majority owned by David Lichtenstein, for $200,000, or $10.00 per share. Mr. Lichtenstein also is a majority owner of the equity interests of Lightstone Income Trust’s sponsor, The Lightstone Group, LLC (the ‘‘Sponsor’’).

Subject to the oversight of Lightstone Income Trust’s board of directors (the “Board of Directors”), the Advisor has primary responsibility for making investment decisions and managing Lightstone Income Trust’s day-to-day operations. Mr. Lichtenstein also acts as the Chairman and Chief Executive Officer of Lightstone Income Trust. As a result, he exerts influence over but does not control Lightstone Income Trust.

Lightstone Income Trust, together with its subsidiaries is collectively referred to as the ‘‘Company’’ and the use of ‘‘we,’’ ‘‘our,’’ ‘‘us’’ or similar pronouns refers to Lightstone Income Trust or the Company as required by the context in which any such pronoun is used.

The Company’s registration statement on Form S-11 (the “Offering”), pursuant to which it offered to sell up to 30,000,000 shares of its common stock, par value $0.01 per share (which may be referred to herein as ‘‘shares of common stock’’ or as ‘‘Common Shares’’) at an initial price of $10.00 per share, subject to certain volume and other discounts (the “Primary Offering”) (exclusive of 10,000,000 shares which were available pursuant to its distribution reinvestment program (the ‘‘DRIP’’) which were offered at a discounted price equivalent to 95% of the initial price per Common Share) was declared effective on February 26, 2015 by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933.

The Offering, which terminated on March 31, 2017, raised aggregate gross proceeds of approximately $85.6 million from the sale of approximately 8.9 million shares of common stock (including $2.0 million in Common Shares at a purchase price of $9.00 per Common Share to an entity 100% owned by David Lichtenstein, who also owns a majority interest in the Company’s Sponsor). After including aggregate principal advances from our Sponsor of $12.6 million made under a subordinated loan agreement (the “Subordinated Agreement”) (as discussed in Note 6) and allowing for the payment of approximately $7.6 million in selling commissions and dealer manager fees and $3.2 million in organization and offering expenses, the Offering generated aggregate net proceeds of approximately $87.5 million.

On April 21, 2017, the Company’s board of directors approved the termination of the DRIP effective May 15, 2017. Previously, the Company’s stockholders had an option to elect the receipt of shares of the Company’s common stock in lieu of cash distributions under the Company’s DRIP. As a result, all subsequent distributions have been in the form of cash. In addition, through May 15, 2017 (the termination date of the DRIP), the Company had issued approximately 0.1 million shares of common stock under its DRIP, representing approximately $1.2 million of additional proceeds under the Offering.

The Company has and will continue to seek to originate, acquire and manage a diverse portfolio of real estate and real estate-related investments; including investments in mezzanine loans, first lien mortgage loans, second lien mortgage loans, bridge loans and preferred equity interests, in each case with a focus on investments intended to finance development or redevelopment opportunities. The Company may also invest in debt and derivative securities related to real estate assets. A substantial portion of the Company’s investments by value may be secured by or related to properties or entities advised by, or wholly or partially, directly or indirectly owned by, the Sponsor, by its affiliates or by real estate investment programs sponsored by it. Although the Company expects that most of its investments will be of these types, it may make other investments. In fact, it may invest in whatever types of real estate-related investments that it believes are in its best interests.

The Company has no employees. The Company retains the Advisor to manage its affairs on a day-to-day basis. The Advisor is an affiliate of the Sponsor and will receive compensation and fees for services related to the investment and management of the Company’s assets.

LIGHTSTONE REAL ESTATE INCOME TRUST INC. AND SUBSIDIARIES

Notes To Consolidated Financial Statements

(Unaudited)

Summary of Significant Accounting Policies

The accompanying 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 theLightstone Income Trust and Subsidiaries have been prepared in accordance with generally accepted accounting principles in the United States of America(‘‘GAAP’’). for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X.

The financial statements have been prepared in accordance with GAAP. 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 debt investments and securities, the valuation of the investment in related party 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 unaudited statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.

Marketable Securities

The Company’s marketable securities currently consist of debt securities that are designated as available-for-sale and are recorded at fair value. Amortization of discounts and accretion of premiums on debt securities are recorded in interest income under the effective interest method. Unrealized holding gains or losses for debt securities are reported as a component of accumulated other comprehensive income (“AOCI”). Realized gains or losses resulting from the sale of these securities are determined based on the specific identification of the securities sold.

An impairment charge is recognized when the decline in the fair value of a security below the amortized cost basis is determined to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the duration and severity of any decline in fair value below our amortized cost basis, any adverse changes in the financial condition of the issuers and its intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

Foreign Currency Transactions

The Company maintains funds in a bank account that is denominated in New Israeli Shekel (“ILS”) and is re-measured into U.S. Dollars at the current exchange rate at the end of each reporting period. As of June 30, 2019, the Company maintained approximately 14,899 ILS in a bank account, which was re-measured to $4,178, and is included in cash and cash equivalents on the Company’s consolidated balance sheet. For the three and six months ended June 30, 2019, the Company recorded a foreign currency transaction loss of $17,117 and $43,965 respectively, to reflect both the exchange rate at the end of the reporting period and the effect of exchange rate changes on the amount of functional currency paid or received while settling transactions during the period.

The Company did not have any ILS denominated financial instruments as of December 31, 2018.

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Lightstone Income Trust and Subsidiaries (over which the Company exercises financial and operating control).All inter-company accounts and transactions have been eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a variable interest entity for which the Company is the primary beneficiary.

Recently Adopted Accounting Pronouncements

In August 2018, the Securities and Exchange Commission adopted the final rule amending certain disclosure requirements that have become redundant, duplicative, overlapping, outdated, or superseded. In addition, the amendments expand the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The rule was effective on November 5, 2018 and will be effective for the quarter that begins after the effective date. Since the Company already includes a year to date consolidated statement of stockholders’ equity in our interim financial statement filings, the adoption of this guidance resulted in the inclusion of a quarter to date consolidated statement of stockholders equity in our second and third quarter interim financial statement filings and the inclusion of corresponding prior periods statement of stockholders’ equity for all periods presented.

LIGHTSTONE REAL ESTATE INCOME TRUST INC. AND SUBSIDIARIES

Notes To Consolidated Financial Statements

(Unaudited)

New Accounting Pronouncements

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.

Investments in Unconsolidated Affiliated Real Estate Entities

The entities listed below are partially owned by the Company. The Company accounts for these investments under the equity method of accounting as the Company exercises significant influence, but does not exercise financial and operating control over these entities. A summary of the Company’s investments in the unconsolidated affiliated real estate entities is as follows:

					As of
Entity	Date of Ownership	Ownership %			June 30, 2019		December 31, 2018
RP Maximus Cove, L.L.C. (the "Cove Joint Venture")	January 31, 2017		22.50	%	$	15,680,282	$	17,214,789
40 East End Ave. Pref Member LLC ( “40 East End Ave. Joint Venture”)	March 31, 2017		33.30	%		13,666,964		13,569,066

Total investments in unconsolidated affiliated real estate entities					$	29,347,246	$	30,783,855

The Cove Joint Venture

On January 31, 2017, the Company, through its wholly owned subsidiary, REIT IV COVE LLC along with LSG Cove LLC, an affiliate of the Sponsor and a related party, REIT III COVE LLC, a subsidiary of the operating partnership of Lightstone Value Plus Real Estate Investment Trust III, Inc., a real estate investment trust also sponsored by the Company’s Sponsor and a related party and Maximus Cove Investor LLC (“Maximus”), an unrelated third party, completed the acquisition of all of RP Cove, L.L.C’s membership interest in RP Maximus Cove, L.L.C. (the “Cove Joint Venture”) for aggregate consideration of approximately $255.0 million (the “Cove Transaction”). The Cove Joint Venture owns and operates The Cove at Tiburon (the “Cove”), a 281-unit, luxury waterfront multifamily residential property located in Tiburon, California. Prior to entering into The Cove Transaction, Maximus previously owned a separate noncontrolling interest in the Cove Joint Venture.

The Company paid approximately $20.0 million for a 22.5% membership interest in the Cove Joint Venture. The Company’s ownership interest in the Cove Joint Venture is a non-managing interest. The Company has determined that the Cove Joint Venture is a variable interest entity but the Company is not the primary beneficiary. The Company accounts for its ownership interest in the Cove Joint Venture in accordance with the equity method of accounting because it exerts significant influence over but does not control the Cove Joint Venture. All capital contributions and distributions of earnings from the Cove Joint Venture are made on a pro rata basis in proportion to each member’s equity interest percentage. Any distributions in excess of earnings from the Cove Joint Venture are made to the members pursuant to the terms of the Cove Joint Venture’s operating agreement. An affiliate of Maximus is the asset manager of the Cove and receives certain fees as defined in the Property Management Agreement for the management of the Cove. The Company commenced recording its allocated portion of profit/loss and cash distributions, if any, beginning as of January 31, 2017 with respect to its membership interest of 22.5% in the Cove Joint Venture.

Subsequent to the Company’s acquisition through June 30, 2019, the Company has made an aggregate of $2.3 million (including $0.1 million during the six months ended June 30, 2019) of additional capital contributions to the Cove Joint Venture.

In connection with the closing of the Cove Transaction, the Cove Joint Venture simultaneously entered into a $175.0 million loan (the “Loan”) which was initially scheduled to mature on January 31, 2020. The Loan required monthly interest payments through its maturity date. The Loan bore interest at Libor plus 3.85%. The Loan was collateralized by the Cove and an affiliate of the Company’s Sponsor (the “Guarantor”) had guaranteed the Cove Joint Venture‘s obligation to pay the outstanding balance of the Loan up to approximately $43.8 million (the “Loan Guarantee”). The members had agreed to reimburse the Guarantor for any balance that may become due under the Loan Guarantee, of which the Company’s share was up to approximately $10.9 million.

On May 8, 2019, the Cove Joint Venture entered into loans aggregating $180.0 million (the “Cove Loans”). The Cove Loans mature in five years and require monthly interest payments through their maturity dates. The Cove Loans bear interest at a weighted average of LIBOR (with a floor of 2.0%) plus 2.15% and are collateralized by the Cove. The Cove Joint Venture used the proceeds from the Cove Loans to fully repay the Loan. In connection with the refinancing, the Cove Joint Venture incurred a loss on the early extinguishment of debt of approximately $1.5 million during the second quarter of 2019, of which the Company’s proportionate share was approximately $0.3 million.

LIGHTSTONE REAL ESTATE INCOME TRUST INC. AND SUBSIDIARIES

Notes To Consolidated Financial Statements

(Unaudited)

The Cove Joint Venture Financial Information

The Company’s carrying value of its interest in the Cove Joint Venture differs from its share of member’s equity reported in the condensed balance sheets of the Cove Joint Venture due to the Company’s basis of its investment in excess of the historical net book value of the Cove Joint Venture. The Company’s additional basis allocated to depreciable assets is being recognized on a straight-line basis over the lives of the appropriate assets.

The following table represents the condensed income statements for the Cove Joint Venture:

(amounts in thousands)	For the Three Months Ended June 30, 2019			For the Three Months Ended June 30, 2018			For the Six Months Ended June 30, 2019			For the Six Months Ended June 30, 2018
Revenue	$	3,992		$	3,638		$	7,685		$	7,233
Property operating expenses		1,237			1,193			2,477			2,421
General and administrative costs		24			48			66			95
Depreciation and amortization		2,899			2,398			5,736			4,794
Operating loss		(168	)		(1	)		(594	)		(77	)
Loss on debt extinguishment		(1,526	)		-			(1,526	)		-
Interest expense and other, net		(2,517	)		(2,741	)		(5,451	)		(5,311	)
Net loss	$	(4,211	)	$	(2,742	)	$	(7,571	)	$	(5,388	)
Company's share of net loss (22.50%)	$	(947	)	$	(617	)	$	(1,703	)	$	(1,213	)
Additional depreciation and amortization expense⁽¹⁾		(10	)		103			(20	)		(76	)
Company's loss from investment	$	(957	)	$	(514	)	$	(1,723	)	$	(1,289	)

The following table represents the condensed balance sheets for the Cove Joint Venture:

	As of			As of
(amounts in thousands)	June 30, 2019			December 31, 2018

Real estate, at cost (net)	$	143,512		$	148,441
Cash and restricted cash		3,335			2,138
Other assets		1,274			1,810
Total assets	$	148,121		$	152,389

Mortgage payable, net	$	178,161		$	174,098
Other liabilities		1,176			2,776
Members' deficit⁽¹⁾		(31,216	)		(24,485	)
Total liabilities and members' deficit	$	148,121		$	152,389

⁽¹⁾

The adjustment to depreciation and amortization expense relates to the difference between the Company’s basis in the Cove Joint Venture and the amount of the underlying equity in net assets of the Cove Joint Venture.

40 East End Ave. Joint Venture

On March 31, 2017, the Company entered into a joint venture agreement (the “40 East End Ave. Transaction”) with SAYT Master Holdco LLC, an entity majority-owned and controlled by David Lichtenstein, who also majority owns and controls the Company’s Sponsor, and a related party, (the “40 East End Seller”), providing for the Company to acquire 33.3% of the 40 East End Seller’s approximate 100% membership interest in 40 East End Ave. Pref Member LLC ( “40 East End Ave. Joint Venture”) for aggregate consideration of approximately $10.3 million.

The Company’s ownership interest in the 40 East End Ave. Joint Venture is a non-managing interest. Because the Company exerts significant influence over but does not control the 40 East End Ave. Joint Venture, it accounts for its ownership interest in the 40 East End Ave. Joint Venture in accordance with the equity method of accounting. All contributions to and distributions of earnings from the 40 East End Ave. Joint Venture are made on a pro rata basis in proportion to each member’s equity interest percentage. Any distributions in excess of earnings from the 40 East End Ave. Joint Venture are made to the members pursuant to the terms of its operating agreement. The Company commenced recording its allocated portion of earnings and cash distributions, if any, from the 40 East End Ave. Joint Venture beginning as of March 31, 2017 with respect to its membership interest of approximately 33.3% in the 40 East End Ave. Joint Venture. Additionally, Lightstone Value Plus Real Estate Investment Trust, Inc. (“Lightstone I”), a real estate investment trust also sponsored by the Company’s Sponsor, has made $30.0 million of preferred equity contributions to a subsidiary of the 40 East End Ave. Joint Venture, pursuant to an instrument that entitles Lightstone I to monthly preferred distributions at a rate of 12% per annum. No distributions may be paid to the members until the Preferred Contributions are redeemed in full.

LIGHTSTONE REAL ESTATE INCOME TRUST INC. AND SUBSIDIARIES

Notes To Consolidated Financial Statements

(Unaudited)

The 40 East End Ave. Joint Venture, through affiliates, has acquired a parcel of land located at the corner of 81^st Street and East End Avenue in the Upper East Side neighborhood of New York City on which it is constructing a luxury residential project consisting of 29 condominium units (the “40 East End Ave. Project”). On March 21, 2017, the 40 East End Ave. Joint Venture obtained financing from a financial institution of up to $85.3 million (the “Mortgage Payable”) for the land acquisition and construction of the 40 East End Ave. Project. The Mortgage Payable initially matures on September 21, 2020 but may be further extended one additional year, subject to satisfaction of certain conditions. The Mortgage Payable bears interest at Libor plus 4.50% (subject to floor of 5.00%) and is collateralized by the 40 East End Ave. Project. During the initial term, the monthly interest due on the Mortgage Payable is funded under the remaining availability under the Mortgage Payable and thereafter, interest is payable monthly and principal payments are required to be made from condominium sales proceeds. As of June 30, 2019, the outstanding principal balance of the Mortgage Payable was approximately $72.6 million and the remaining availability was approximately $12.7 million. The Company’s Sponsor (the “40 East End Guarantor”) has provided certain guarantees with respect to the Mortgage Payable, including a completion guarantee and a carry costs guarantee for the 40 East End Ave. Project. The members have agreed to reimburse the 40 East End Guarantor for any balance that may become due under the guarantees (the “40 East End Guarantee”), of which the Company’s share is 33.3%.

The Company has determined that the fair value of the 40 East End Guarantee is immaterial.

As of June 30, 2019, the 40 East End Ave. Project was still under development but has incurred certain selling, general and administrative costs; including marketing/advertising costs and staffing, rent and other costs, and depreciation and amortization expense of furnishing and fixtures related to an off-site sales office, which opened in May 2018. To date, such costs have been fully funded under the Mortgage Payable.

Subsequent to the Company’s acquisition through June 30, 2019, it has made an aggregate of $4.4 million (including $0.6 million during the six months ended June 30, 2019) of additional capital contributions to the 40 East End Ave. Joint Venture.

The 40 East End Ave. Joint Venture Financial Information

The following table represents the condensed income statements for the 40 East End Ave. Joint Venture:

(amounts in thousands)	For the Three Months June 30, 2019			For the Three Months June 30, 2018			For the Six Months Ended June 30, 2019			For the Six Months Ended June 30, 2018
Selling, general and administrative costs	$	619		$	14		$	1,012		$	14
Depreciation and amortization		214			99			534			99
Operating loss		(833	)		(113	)		(1,546	)		(113	)
Other income		30			-			30			-
Net loss	$	(803	)	$	(113	)	$	(1,516	)	$	(113	)
Company's share of net loss (33.3%)	$	(268	)	$	(38	)	$	(505	)	$	38

LIGHTSTONE REAL ESTATE INCOME TRUST INC. AND SUBSIDIARIES

Notes To Consolidated Financial Statements

(Unaudited)

The following table represents the condensed balance sheets for the 40 East End Ave. Joint Venture:

	As of		As of
(amounts in thousands)	June 30, 2019		December 31, 2018

Real estate inventory	$	146,060	$	131,397
Cash and restricted cash		1,314		303
Other assets		228		229
Total assets	$	147,602	$	131,929

Mortgage payable, net	$	71,087	$	51,976
Other liabilities		5,413		9,145
Members' capital		71,102		70,808
Total liabilities and members' capital	$	147,602	$	131,929

Marketable Securities and Fair Value Measurements

Marketable Securities

The following is a summary of the Company’s available for sale securities as of the dates indicated:

	As of June 30, 2019
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt securities:
Israeli Bonds	$	4,759,623	$	73,738	$	-	$	4,833,361

During the first half of 2019, the Company acquired an aggregate of approximately $4.8 million of unsecured corporate bonds that are publicly traded on the Tel Aviv Stock Exchange (the “Israeli Bonds”) and are denominated in ILS. The fair value of the Israeli Bonds is translated using period-end exchange rates. Gains and losses resulting from the changes in exchange rates and market prices from period to period are reported as a component of AOCI.When evaluating the 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, changes in market interest rates and foreign exchange rates, 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. As of June 30, 2019, the Company did not recognize any impairment charges. The Company did not have any marketable securities during 2018.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

•

Level 1 – Quoted prices in active markets for identical assets or liabilities.

•

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

LIGHTSTONE REAL ESTATE INCOME TRUST INC. AND SUBSIDIARIES

Notes To Consolidated Financial Statements

(Unaudited)

As of June 30, 2019, all of the Company’s debt securities and were classified as Level 2 assets and there were no transfers between the level classifications during the six months ended June 30, 2019.

The fair value of the Company’s investments in debt securities are measured using quoted prices in markets that are not active.

The following table summarizes the estimated fair value of our investments in debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:

	As of June 30, 2019
Due in 1 year	$	966,673
Due in 1 year through 5 years		3,866,688
Due in 5 year through 10 years		-
Due after 10 years		-
Total	$	4,833,361

The Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized at fair value.

Stockholders’ Equity

Earnings per Share

The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, earnings per share is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding during the applicable period.

Distributions

On July 11, 2019, the Company’s Board of Directors authorized and the Company declared a distribution of $0.033 per share for each month during the three-month period ending September 30, 2019. The monthly distribution is the pro rata equivalent of an annual distribution of $0.40 per share, or an annualized rate of 4.0% assuming a purchase price of $10.00 per share. The distribution will be paid on or about the 15th day following each month-end to stockholders of record at the close of business on the last day of the prior month.

Previously, distributions in an amount equal to an 8.0% annualized rate were declared on a monthly basis beginning on October 28, 2015 through June 30, 2019 and were paid on or about the 15th day following each month end.

Future distributions declared will be at the discretion of the Board of Directors based on their analysis of our performance over the previous periods and expectations of performance for future periods and may differ from the amount of the distribution determined for this period. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, operating and interest expenses and our ability to refinance near-term debt. In addition, the Company currently intends to continue to comply with the REIT distribution requirement that it annually distribute no less than 90% of its taxable income. The Company cannot assure that regular distributions will continue to be made or that it will maintain any particular level of distributions that it has established or may establish.

Related Party Transaction and Other Arrangements

The Company has agreements with the Advisor to pay certain fees, in exchange for services performed by the Advisor and/or its affiliated entities.

The following table represents the fees incurred associated with the payments to the Company’s Advisor for the periods indicated:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018
Asset management fees (general and administrative costs)	$	170,854	$	156,622	$	334,203	$	312,864

LIGHTSTONE REAL ESTATE INCOME TRUST INC. AND SUBSIDIARIES

Notes To Consolidated Financial Statements

(Unaudited)

Investment in Related Party

105-109 W. 28^th Street Preferred Investment

The Company has entered into an agreement, as amended, with various related party entities that provided for the Company to make aggregate preferred equity contributions (the “105-109 W. 28^thStreet Preferred Investment”) of up to $37.0 million in an affiliate of its Sponsor (the “Moxy Developer”), which owns a parcel of land located at 105-109 W. 28^thStreet, New York, New York on which it constructed a 343-room Marriott Moxy hotel, which opened during February 2019. The 105-109 W. 28^thStreet Preferred Investment was made pursuant to an instrument that entitles the Company to monthly preferred distributions at a rate of 12% per annum and if then still outstanding, is redeemable by the Company on November 25, 2020. The 105-109 W. 28^thStreet Preferred Investment is classified as a held-to-maturity security and recorded at cost.

The Company made an initial contribution of $4.0 million during the fourth quarter of 2015 and subsequent contributions totaling $33.0 million during 2016 and, as result, the 105-109 W. 28^th Street Preferred Investment has been fully funded. The 105-109 W. 28^th Street Preferred Investment is classified as an investment in related party on the consolidated balance sheets. As of December 31, 2018, the 105-109 W. 28^th Street Preferred Investment had an outstanding balance of $37.0 million and the Company received aggregate repayments of $26.5 million during March 2019 reducing the outstanding balance to $10.5 million as of June 30, 2019. During the three and six months ended June 30, 2019, the Company recorded approximately $0.3 million and $1.4 million, respectively, and during the three and six months ended June 30, 2018, the Company recorded approximately $1.1 million and $2.2 million, respectively, of investment income related to the 105-109 W. 28^thStreet Preferred Investment.

Subordinated Advances – Related Party

On March 18, 2016, the Company and its Sponsor entered into the Subordinated Agreement, a subordinated unsecured loan agreement, pursuant to which the Sponsor made aggregate principal advances of $12.6 million through March 31, 2017 (the termination date of the Offering). The outstanding principal advances bear interest at a rate of 1.48%, but no interest or principal is due or payable to the Sponsor until holders of the Company’s Common Shares have received liquidation distributions equal to their respective net investments (defined as $10.00 per Common Share) plus a cumulative, pre-tax, non-compounded annual return of 8.0% on their respective net investments.

Distributions in connection with a liquidation of the Company initially will be made to holders of its Common Shares until holders of its Common Shares have received liquidation distributions equal to their respective net investments plus a cumulative, pre-tax, non-compounded annual return of 8.0% on their respective net investments. Thereafter, only if additional liquidating distributions are available, the Company will be obligated to repay the outstanding principal advances and related accrued interest to the Sponsor, as described in the Subordinated Agreement. In the event that additional liquidation distributions are available after the Company repays its holders of common stock their respective net investments plus their 8% return on investment and then the outstanding principal advances under the Subordinated Agreement and accrued interest to its Sponsor, such additional distributions will be paid to holders of its Common Shares and its Sponsor: 85.0% of the aggregate amount will be payable to holders of the Company’s Common Shares and the remaining 15.0% will be payable to the Sponsor.

The principal advances and the related interest are subordinate to all of the Company’s obligations as well as to the holders of its Common Shares in an amount equal to the shareholder’s net investment plus a cumulative, pre-tax, non-compounded annual return of 8.0% and only potentially payable in the event of a liquidation of the Company.

In connection with the termination of the Offering, on March 31, 2017, the Company and the Sponsor simultaneously terminated the Subordinated Agreement. As a result of the termination, the Sponsor is no longer obligated to make any additional principal advances to the Company. Interest will continue to accrue on the outstanding principal advances and repayment, if any, of the principal advances and related accrued interest will be made according to the terms of the Subordinated Agreement disclosed above.

As of both June 30, 2019 and December 31, 2018, an aggregate of approximately $12.6 million of principal advances have been funded, which along with the related accrued interest of $538,480 and $445,771, respectively, are classified as Subordinated Advances – Related Party, a liability on the consolidated balance sheets. During both the three and six months ended June 30, 2019 and 2018, the Company accrued $46,611 and $92,709 of interest on the principal advances.

LIGHTSTONE REAL ESTATE INCOME TRUST INC. AND SUBSIDIARIES

Notes To Consolidated Financial Statements

(Unaudited)

Commitments and Contingencies

Legal Proceedings

From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.

Subsequent Events

Acquisition of Land for Development

Williamsburg Land

On July 17, 2019, the Company, through a wholly-owned subsidiary, acquired four adjacent parcels of land located at 353-361 Bedford Avenue in Brooklyn, New York (collectively, the “Williamsburg Land”), from unaffiliated third parties, for an aggregate purchase price of approximately $30.4 million, excluding closing and other acquisition related costs. The acquisition was funded with cash on hand ($14.4 million) and proceeds from a mortgage loan ($16.0 million). The Company currently expects to develop and construct a 210-room branded-hotel (the “Williamsburg Hotel”) on the Williamsburg Land.

In connection with the closing of the acquisition of the Williamsburg Land, the Company simultaneously entered into a mortgage loan collateralized by the Williamsburg Land (the “Williamsburg Mortgage”) for approximately $16.0 million. The Williamsburg Mortgage has a term of one year, with two, six-month extension options, bears interest at 4.50% and requires monthly interest-only payments through its stated maturity with the entire unpaid balance due upon maturity.

In connection with the acquisition of the Williamsburg Land, the Advisor earned an acquisition fee equal to 1.00% of the gross aggregate contractual purchase price, which was approximately $0.3 million.

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 Real Estate Income Trust Inc. and Subsidiaries(‘‘Lightstone Income Trust’’),and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Lightstone Real Estate Income Trust Inc., a Maryland corporation, andits subsidiaries.

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 (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 Real Estate Income Trust Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements.

Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements.

Risks and other factors that might cause differences, some of which could be material, include, but are not limited to, economic and market conditions, competition, tenant or joint venture partner(s) bankruptcies, our lack of operating history, the availability of cash flows from operations to pay distributions, 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 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, 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 and the Sponsor and their affiliates, failure of joint venture relationships, significant costs related to environmental issues as well as other risks listed from time to time in this Form 10-Q, our Form 10-K and in the Company’s other reports filed with the SEC.

We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless required by law.

Overview

Lightstone Real Estate Income Trust Inc. (the “Lightstone Income Trust”), incorporated in Maryland on September 9, 2014, elected to qualify to be taxed as a real estate investment trust for U.S federal tax purposes (“REIT”) beginning with the taxable year ended December 31, 2016.

Lightstone Income Trust, together with its subsidiaries is collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns refers to Lightstone Income Trust or the Company as required by the context in which any such pronoun is used.

The Company has and will continue to seek to originate, acquire and manage a diverse portfolio of real estate-related investments, including investments in mezzanine loans, first lien mortgage loans, second lien mortgage loans, bridge loans and/or preferred equity interests, in each case with a focus on investments intended to finance development or redevelopment opportunities. The Company may also invest in debt and derivative securities related to real estate assets. A substantial portion of the Company’s investments by value may be secured by or related to properties or entities advised by, or wholly or partially, directly or indirectly owned by, the Sponsor, by its affiliates or by real estate investment programs sponsored by it.

Our registration statement on Form S-11 (the “Offering”), pursuant to which we offered to sell up to 30,000,000 shares of our common stock, par value $0.01 per share (which may be referred to herein as ‘‘shares of common stock’’ or as ‘‘Common Shares’’) at an initial price of $10.00 per share, subject to certain volume and other discounts (the “Primary Offering”) (exclusive of 10,000,000 shares available pursuant to its distribution reinvestment plan (the “DRIP”) at an initial purchase price of $9.50 per share) was declared effective by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933 on February 26, 2015.

The Offering, which terminated on March 31, 2017, raised aggregate gross proceeds of approximately $85.6 million from the sale of approximately 8.9 million shares of common stock (including $2.0 million in Common Shares at a purchase price of $9.00 per Common Share to an entity 100% owned by David Lichtenstein, who also owns a majority interest in the Company’s Sponsor). After including aggregate principal advances from our Sponsor of $12.6 million made under a subordinated loan agreement (the “Subordinated Agreement”) (as discussed below) and allowing for the payment of approximately $7.6 million in selling commissions and dealer manager fees and $3.2 million in organization and offering expenses, the Offering generated aggregate net proceeds of approximately $87.5 million. In addition, the Company issued approximately 0.1 million shares of common stock under its DRIP, representing approximately $1.2 million of additional proceeds under the Offering. The DRIP was terminated effective May 15, 2017.

On March 18, 2016, the Company and its Sponsor entered into the Subordinated Agreement, a subordinated unsecured loan agreement pursuant to which the Sponsor made aggregate principal advances of $12.6 million through March 31, 2017 (the termination date of the Offering). The outstanding principal advances bear interest at a rate of 1.48%, but interest or principal is not due or payable to the Sponsor until holders of the Company’s Common Shares have received liquidation distributions equal to their respective net investments (defined as $10.00 per Common Share) plus a cumulative, pre-tax, non-compounded annual rate of 8% on their respective net investments.

Distributions in connection with a liquidation of the Company initially will be made to holders of its Common Shares until holders of its Common Shares have received liquidation distributions equal to their respective net investments plus a cumulative, pre-tax, non-compounded annual return of 8.0% on their respective net investments. Thereafter, only if additional liquidating distributions are available, the Company will be obligated to repay the outstanding principal advances and related accrued interest to the Sponsor, as described in the Subordinated Agreement. In the event that additional liquidation distributions are available after the Company repays its holders of common stock their respective net investments plus their 8% return on investment and then the outstanding advances under the Subordinated Agreement and accrued interest to its Sponsor, such additional distributions will be paid to holders of its Common Shares and its Sponsor: 85.0% of the aggregate amount will be payable to holders of the Company’s Common Shares and the remaining 15.0% will be payable to the Sponsor.

In connection with the termination of the Offering, on March 31, 2017, the Company and the Sponsor simultaneously terminated the Subordinated Agreement. As a result of the termination, the Sponsor is no longer obligated to make any additional principal advances to the Company. Interest will continue to accrue on the outstanding principal advances and repayment, if any, of the principal advances and related accrued interest will still be made according to the terms of the Subordinated Agreement disclosed above.

As of both June 30, 2019 and December 31, 2018, $12.6 million of principal advances were outstanding. The outstanding principal advances, together with the related accrued interest of $538,480 and $445,771, as of June 30, 2019 and December 31, 2018, respectively, are classified as Subordinated advances – related party, a liability, on the consolidated balance sheets.

We do not have employees. We entered into an advisory agreement with Lightstone Real Estate Income LLC, a Delaware limited liability company, which we refer to as the “Advisor,” pursuant to which the Advisor supervises and manages our day-to-day operations and selects our real estate and real estate related investments, subject to oversight by our Board of Directors. We pay the Advisor fees for services related to the investment and management of our assets, and we reimburse the Advisor for certain expenses incurred on our behalf.

To qualify and maintain our qualification as a REIT, we engage in certain activities through a wholly-owned taxable REIT subsidiary (“TRS”). As such, we are subject to U.S. federal and state income and franchise taxes from these activities.

Current Environment

Our operating results as well as our investment opportunities are mainly impacted by the health of the North American economy. Our business and financial performance may be adversely affected by current and future economic conditions, such as availability of credit, financial markets volatility, and recession.

Our business may be affected by market and economic challenges experienced by the U.S. and global economies. These conditions may materially affect the value and performance of our investments, and may affect our ability to continue to pay regular monthly distributions to our shareholders, the availability or the terms of financing that we have or may anticipate utilizing, and our ability to make principal and interest payments on, or refinance, any outstanding debt when due.

We are not aware of any other material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting real estate generally, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from our real estate and real estate related investments, other than those referred to in this Form 10-Q.

Operating Portfolio Summary –

Unconsolidated Affiliated Real Estate Entitiy:

Multi - Family Residential

Location

Year Built

Leasable Units

Percentage
Occupied as of
June 30, 2019

Annualized
Revenues based
on rents at
June 30, 2019

Annualized
Revenues per
unit at
June 30, 2019

The Cove (Multi-Family Complex)

Tiburon, California

1967

281

$16.2 million

59,503

Critical Accounting Policies and Estimates

There were no material changes during the six months ended June 30, 2019 to our critical accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2018 except for as discussed in Note 2 to the financial statements.

Results of Operations

Through June 30, 2019, we have made four real estate and real estate-related investments. During 2015 and 2016 we made aggregate contributions of $37.0 million in our first investment, which we refer to as the 105-109 W. 28^th Street Preferred Investment, which was made pursuant to an instrument that entitles us to monthly preferred distributions at a rate of 12% per annum. During March 2019, we received aggregate repayments of $26.5 million from the 105-109 W. 28^th Street Preferred Investment. As a result, the outstanding balance of our 105-109 W. 28^th Street Preferred Investment was $10.5 million as of June 30, 2019. On January 31, 2017, we made our second investment when we acquired a 22.5% membership in the Cove Joint Venture. On March 31, 2017, we made our third investment when we acquired an approximate 33.3% interest in the 40 East End Ave. Joint Venture. We account for our ownership interests in the Cove Joint Venture and 40 East End Ave. Joint Venture under the equity method of accounting. Our ownership interests in the Cove Joint Venture and the 40 East End Ave. Joint Venture are classified on our consolidated balance sheets in investments in unconsolidated affiliated real estate entities. We made our fourth investment during 2019, which areunsecured corporate bonds that are publicly traded on the Tel Aviv Stock Exchange (the “Israeli Bonds”) and denominated in New Israeli Shekel (“ILS”).

The operating results of our investments are reflected in our consolidated statements of operations commencing from their respective dates of acquisition. The Cove Joint Venture owns and operates the Cove, a 281-unit, luxury waterfront multifamily rental property located in Tiburon, California. The 40 East End Ave. Joint Venture, through affiliates, owns a parcel of land located at the corner of 81^st Street and East End Avenue in the Upper East Side neighborhood of New York, New York, on which it is constructing a luxury residential project consisting of 29 condominium units (the “40 East End Ave. Project”). As of and for all periods through June 30, 2019, the 40 East End Ave. Project was still under development but the 40 East End Ave. Joint Venture has incurred certain selling, general and administrative costs and depreciation and amortization expense related to an off-site sales office, which opened during May 2018.

See Note 3, Note 4 and Note 6 of the Notes to Consolidated Financial Statements for additional information on our investments.

For the Three Months Ended June 30, 2019 vs. June 30, 2018

Investment income

Our investment income during the 2019 period consists of preferred distributions related to our 105-109 W. 28^th Street Preferred Investment and interest income on our cash and cash equivalents and the Israeli Bonds. Our investment income during the 2018 period consists of preferred distributions related to our 105-109 W. 28^th Street Preferred Investment.

Our investment income decreased by approximately $0.5 million to $0.6 millionduring thethree months endedJune 30, 2019 compared to$1.1 millionfor the same period in 2018. The decrease was primarily attributable to $0.8 million of lower preferred distributions on our 105-109 W. 28^th Street Preferred Investment during the 2019 period as a result of aggregate repayments of $26.5 million on the 105-109 W. 28^th Street Preferred Investmentreceived during March 2019. This decrease was partially offset by an aggregate of approximately $0.3 million of interest income on our cash and cash equivalents and the Israeli Bonds during the 2019 period. We did not earn any interest income on the Israeli Bonds during the 2018 period.

Loss from investment in unconsolidated affiliated real estate entities

Our loss from investments in unconsolidated affiliated real estate entities during thethree months endedJune 30, 2019 was$1.2 millioncompared to$0.6 millionfor the same period in 2018.Our loss from investments in unconsolidated affiliated real estate entities is attributable to our ownership interests in the Cove Joint Venture and the 40 East End Ave. Joint Venture.We account for our ownership in the Cove Joint Venture and the 40 East End Ave. Joint Venture under the equity method of accounting.

General and administrative expenses

General and administrative expenses were $0.3 million for both the threemonths ended June 30, 2019and 2018.

Foreign currency transaction loss

We maintain funds in a bank account that is denominated in New Israeli Shekel (“ILS”) and is re-measured into U.S. Dollars at the current exchange rate at the end of each reporting period. As of June 30, 2019, we maintained approximately 14,899 ILS in a bank account, which was re-measured to $4,178, and is included in cash and cash equivalents on our consolidated balance sheet. For the three months ended June 30, 2019, the foreign currency transaction loss was $17,117.

Interest expense

Interest expense, which is attributable to the outstanding principal advances of $12.6 million included in Subordinated Advances – Related Party, was $46,611 for both the threemonths ended June 30, 2019and 2018. See Note 6 of the Notes to Financial Statements for additional information with to the outstanding principal advances and accrued interest thereon.

For the Six Months Ended June 30, 2019 vs. June 30, 2018

Investment income

Our investment income decreased by approximately $0.5 million to $1.7 millionduring thesix months endedJune 30, 2019 compared to$2.2 millionfor the same period in 2018. The decrease was primarily attributable to $0.8 million of lower preferred distributions on our 105-109 W. 28th Street Preferred Investment during the 2019 period as a result of aggregate repayments of $26.5 million on the 105-109 W. 28th Street Preferred Investment received during March 2019. This decrease was partially offset by an aggregate of approximately $0.3 million of interest income on our cash and cash equivalents and the Israeli Bonds during the 2019 period.We did not earn any interest income on the Israeli Bonds during the 2018 period.

Loss from investment in unconsolidated affiliated real estate entities

Our loss from investments in unconsolidated affiliated real estate entities during thesix months endedJune 30, 2019 was$2.2 millioncompared to$1.3 millionfor the same period in 2018.Our loss from investments in unconsolidated affiliated real estate entities is attributable to our ownership interests in the Cove Joint Venture and the 40 East End Ave. Joint Venture.We account for our ownership in the Cove Joint Venture and the 40 East End Ave. Joint Venture under the equity method of accounting.

General and administrative expenses

General and administrative expenses were $0.6 million for both the sixmonths ended June 30, 2019and 2018.

Foreign currency transaction loss

We maintain funds in a bank account that is denominated in New Israeli Shekel (“ILS”) and is re-measured into U.S. Dollars at the current exchange rate at the end of each reporting period. As of June 30, 2019, we maintained approximately 14,899 ILS in a bank account, which was re-measured to $4,178, and is included in cash and cash equivalents on our consolidated balance sheet. For the six months ended June 30, 2019, the foreign currency transaction loss was $43,965.

Interest expense

Interest expense, which is attributable to the outstanding principal advances of $12.6 million included in Subordinated Advances – Related Party, was $92,709 for both the sixmonths ended June 30, 2019and 2018. See Note 6 of the Notes to Financial Statements for additional information with to the outstanding principal advances and accrued interest thereon.

Financial Condition, Liquidity and Capital Resources

For the six months endedJune 30, 2019 our primary source of funds were aggregate repayments of $26.5 million on our 105-109 W. 28^th Street Preferred Investment and $0.9 million of cash flows from operations. As of June 30, 2019, we had cash and cash equivalents of $22.4 million, marketable securities, available for sale of $4.8 million (Israeli Bonds) and our remaining 105-109 W. 28th Street Preferred Investment of $10.5 million, which is redeemable on November 25, 2020.

On July 17, 2019, we, through a subsidiary, acquired four adjacent parcels of land located at 353-361 Bedford Avenue in Brooklyn, New York (collectively, the “Williamsburg Land”), from unaffiliated third parties, for an aggregate purchase price of approximately $30.4 million, excluding closing and other acquisition related costs. The acquisition was funded with cash on hand ($14.4 million) and proceeds from a mortgage loan ($16.0 million). We currently expect to develop and construct a 210-room branded-hotel (the “Williamsburg Hotel”) on the Williamsburg Land.

In connection with the closing of the acquisition of the Williamsburg Land, we simultaneously entered into a mortgage loan collateralized by the Williamsburg Land (the “Williamsburg Mortgage”) for approximately $16.0 million. The Williamsburg Mortgage has a term of one year, with two, six-month extension options, bears interest at 4.50% and requires monthly interest-only payments through its stated maturity with the entire unpaid balance due upon maturity.

Our future sources of funds over the next twelve months are expected to consist of cash flows from our operations and the potential early repayment of our remaining outstanding 105-109 W. 28^th Street Preferred Investment of $10.5 million. We currently believe that these cash resources along with our current available cash on hand and marketable securities, available for sale will be sufficient to satisfy our expected cash requirements (primarily consisting of our anticipated operating expenses, capital contributions, redemptions and cancellations of shares of our common stock, if approved, and distributions to our shareholders, if any, required to maintain our qualification as a REIT, and our development activities associated with the Williamsburg Hotel) for the foreseeable future, and we do not anticipate a need to raise funds from other than these sources within the next twelve months.

Although we believe our capital resources are sufficient to fund our expected development activities related to the Williamsburg Hotel for the next twelve months, we ultimately expect to finance a substantial portion of our development costs through construction loans. Accordingly, we currently do not intend to commence construction activities prior to obtaining construction financing. However, there can be no assurance we will be successful in obtaining construction financing at favorable terms, if at all.

We intend 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. Market conditions will dictate our overall leverage limit; as such our aggregate long-term permanent borrowings may be less than 75% of aggregate fair market value of all properties. We may also incur short-term indebtedness, having a maturity of two years or less.

Our charter provides that the aggregate amount of our borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a satisfactory showing that a higher level is appropriate, the approval of our Board of Directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. Market conditions will dictate our overall leverage limit; as such our aggregate borrowings may be less than 300% of net assets.

Our future 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 non-recourse debt. 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.

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. For long-term real estate investments, it is our intent to finance future acquisitions using long-term fixed rate debt. However there may be certain types of investments and market circumstances which may result in variable rate debt being the more appropriate choice of financing. 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.

We may also obtain lines of credit to be used to acquire real estate and/or real estate related investments. If obtained, these lines of credit will be at prevailing market terms and will be repaid from offering proceeds, proceeds from the sale or refinancing of real estate and/or real estate related investments, working capital and/or permanent financing. Our Sponsor and/or its affiliates may guarantee our lines of credit although they are not 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.

In connection with the closing of the Cove Transaction, the Cove Joint Venture simultaneously entered into a $175.0 million loan (the “Loan”) which was initially scheduled to mature on January 31, 2020. The Loan required monthly interest payments through its maturity date. The Loan bore interest at Libor plus 3.85%. The Loan was collateralized by the Cove and an affiliate of the Company’s Sponsor (the “Guarantor”) had guaranteed the Cove Joint Venture‘s obligation to pay the outstanding balance of the Loan up to approximately $43.8 million (the “Loan Guarantee”). The Members had agreed to reimburse the Guarantor for any balance that may become due under the Loan Guarantee, of which the Company’s share was up to approximately $10.9 million.

On May 8, 2019, the Cove Joint Venture entered into a five year, $180.0 million non-recourse loan (the “Cove Loan”). The Cove Loan requires monthly interest payments through its maturity date. The Cove Loan bears interest at Libor (with a floor of 2.0%) plus 2.15% and is collateralized by the Cove. The Cove Joint Venture used the proceeds from the Cove Loan to fully repay the Loan. In connection with the refinancing, the Cove Joint Venture incurred a loss on the early extinguishment of debt of approximately $1.5 million during the second quarter of 2019, of which the Company’s proportionate share was approximately $0.3 million.

On March 21, 2017, the 40 East End Ave. Joint Venture obtained financing from a financial institution of up to $85.3 million (the “Mortgage Payable”) for the land acquisition and construction of the 40 East End Ave. Project. The Mortgage Payable initially matures on September 21, 2020 but may be further extended one additional year, subject to satisfaction of certain conditions. The Mortgage Payable bears interest at Libor plus 4.50% (subject to floor of 5.00%) and is collateralized by the 40 East End Ave. Project. During the initial term, the monthly interest due on the Mortgage Payable is funded under the remaining availability under the Mortgage Payable and thereafter, interest is payable monthly and principal payments are required to be made from condominium sales proceeds. As of June 30, 2019, the outstanding principal balance of the Mortgage Payable was approximately $72.6 million and the remaining availability was approximately $12.7 million. The Company’s Sponsor (the “40 East End Guarantor”) has provided certain guarantees with respect to the Mortgage Payable, including a completion guarantee and a carry costs guarantee for the 40 East End Ave. Project. The members have agreed to reimburse the 40 East End Guarantor for any balance that may become due under the guarantees, of which the Company’s share is 33.3%.

In addition to making investments in accordance with our investment objectives, we expect to use our capital resources to make certain payments to our Advisor. We have agreements with the Advisor to pay certain fees, in exchange for services performed by the Advisor and/or its affiliated entities.

The following table represents the fees incurred associated with the payments to the Company’s Advisor for the periods indicated:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018
Asset management fees (general and administrative costs)	$	170,854	$	156,622	$	334,203	$	312,864

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 our Advisor and our independent directors. During our acquisition and development stage, payments include asset acquisition fees and financing coordination fees, and the reimbursement of acquisition-related expenses to our Advisor. During our operational stage, we pay our Advisor an asset management fee or asset management participation or construction management fees. We also reimburse our Advisor and its affiliates for actual expenses it incurs for administrative and other services provided for us. Upon the liquidation of assets, we may pay our Advisor or its affiliates a real estate disposition commission.

Summary of Cash Flows

The following summary discussion of our cash flows is based on the 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 Six Months Ended June 30, 2019			For the Six Months Ended June 30, 2018

Cash flows provided by operating activities	$	908,730		$	1,592,765
Cash flows provided by/(used in) investing activities		21,052,047			(1,588,237	)
Cash flows used in financing activities		(3,866,782	)		(5,543,642	)
Effect of exchange rate changes on cash and cash equivalents		(43,965	)		-
Net change in cash, cash equivalents and restricted cash		18,050,030			(5,539,114	)
Cash, cash equivalents and restricted cash, beginning of the year		4,350,896			14,064,001
Cash, cash equivalents and restricted cash, end of the period	$	22,400,926		$	8,524,887

During the six months ended June 30, 2019, our principal sources of cash flow have been derived from repayments of our 105-109 W. 28th Street Preferred Investment and operating cash flows.

Operating activities

The net cash provided by operating activities of $0.9 million during the 2019 period primarily related to our net loss of $1.3 million adjusted by adding back our loss from investments in unconsolidated affiliated real estate entities of $2.2 million.

Investing activities

The cash provided by investing activities of $21.1 million during the 2019 period consisted of proceeds from our investment in related party of $26.5 million offset by purchases of marketable securities of $4.7 million and capital contributions of $0.8 million to our investments in unconsolidated affiliated real estate entities.

Financing activities

The net cash used by financing activities of $3.9 million during the 2019 period principally consists of distributions of $3.4 million to common stockholders and redemptions and cancellation of common stock of $0.4 million.

Share Repurchase Program

Our share repurchase program may provide our stockholders with limited, interim liquidity by enabling them to sell their shares of common stock back to us, subject to restrictions. From our date of inception through December 31, 2018, we repurchased 286,870 shares of common stock pursuant to our share repurchase program at an average price per share of $9.38 per share. For the six months ended June 30, 2019, we repurchased 44,320 shares of common stock pursuant to our share repurchase program at an average price per share of $9.70 per share. We funded share repurchases for the periods noted above from the cumulative proceeds of the sale of our shares pursuant to our DRIP (prior to its termination) and available cash on hand.

The Board of Directors reserves the right to terminate our share repurchase program without cause by providing written notice of termination of the share repurchase program to all stockholders.

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"), an industry trade group, has published a standardized measure of performance known as funds from operations ("FFO"), which is used in the REIT industry as a supplemental performance measure. We believe FFO, which excludes certain items such as real estate-related depreciation and amortization, is an appropriate supplemental measure of a REIT's operating performance. FFO is not equivalent to our net income or loss as determined under GAAP.

We calculate FFO, a non-GAAP measure, consistent with the standards established over time by the Board of Governors of NAREIT, as restated in a White Paper approved by the Board of Governors of NAREIT effective in December 2018 (the "White Paper"). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Our FFO calculation complies with NAREIT's definition.

We believe that the use of FFO provides a more complete understanding of our performance to investors and to management and reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.

Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT's definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.

Because of these factors, the Investment Program Association (the "IPA"), an industry trade group, published a standardized measure of performance known as modified funds from operations ("MFFO"), which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that both before and after we have deployed all of our offering proceeds and are no longer incurring a significant amount of acquisition fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP.

We define MFFO, a non-GAAP measure, consistent with the IPA's Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the "Practice Guideline") issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction-related fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline andacquisition and transaction-related fees and expenses (which includes costs incurred in connection with strategic alternatives), amounts relating to deferred 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.Certain of the above adjustments are also made to reconcile net income (loss) to net cash provided by (used in) operating activities, such as for the amortization of a premium and accretion of a discount on debt and securities investments, amortization of fees, any unrealized gains (losses) on derivatives, securities or other investments, as well as other adjustments.

MFFO excludes non-recurring impairment of real estate-related investments. We assess the credit quality of our investments and adequacy of reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. We consider the estimated net recoverable value of a loan as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive situation of the region where the borrower does business.

We believe that, because MFFO excludes costs that we consider more reflective of acquisition activities and other non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.

Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO.

Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guidelines or the SEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry, and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.

The below table illustrates the items deducted in the calculation of FFO and MFFO. Items are presented net of non-controlling interest portions where applicable.

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2019			2018		2019			2018
Net loss	$	(1,005,472	)	$	236,175	$	(1,306,390	)	$	210,353
FFO adjustments:
Adjustments to equity earnings from unconsolidated affiliated real estate entities		733,407			469,282		1,488,459			1,188,123
FFO		(272,065	)		705,457		182,069			1,398,476
MFFO adjustments:
Amortization of discount on debt securities		(74,035	)		-		(76,443	)		-
Foreign currency transaction loss		17,117			-		43,965			-
Adjustments to equity earnings from unconsolidated affiliated real estate entities (loss on debt extinguishment)⁽¹⁾		343,429			-		343,429			-
MFFO		14,446			705,457		493,020			1,398,476
Straight-line rent⁽²⁾		-			-		-			-
MFFO - IPA recommended format	$	14,446		$	705,457	$	493,020		$	1,398,476

Net loss	$	(1,005,472	)	$	236,175	$	(1,306,390	)	$	210,353
Net loss per common share, basic and diluted	$	(0.12	)	$	0.03	$	(0.15	)	$	0.02

FFO	$	(272,065	)	$	705,457	$	182,069		$	1,398,476
FFO per common share, basic and diluted	$	(0.03	)	$	0.08	$	0.02		$	0.16

MFFO - IPA recommended format	$	14,446		$	705,457	$	493,020		$	1,398,476

Weighted average number of common shares outstanding, basic and diluted		8,624,242			8,759,662		8,632,531			8,815,410

(1)

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.

(2)

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.

The table below presents our cumulative FFO and distributions declared:

	For the period September 9, 2014
	(date of inception) through
	June 30, 2019

FFO	$	7,099,296
Distributions declared	$	19,724,093

ITEM 4. CONTROLS AND PROCEDURES.

As of the end of the period covered by this report, management, including our chief executive officer and principal 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 principal 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 the six months ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION:

ITEM 1. 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. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

During the period covered by this Form 10-Q, we did not sell any unregistered securities.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit Number		Description

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”
32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”
101*		XBRL (eXtensible Business Reporting Language).The following financial information from Lightstone Real Estate Income Trust Inc. on Form 10-Q for the quarter ended June 30, 2019, filed with the SEC on August 14, 2019, formatted in XBRL includes: (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations, (3) Consolidated Statements of Stockholders’ Equity, (4) Consolidated Statements of Cash Flows, and (5) the Notes to the Consolidated Financial Statement.

*Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	LIGHTSTONE REAL ESTATE INCOME TRUST INC.

Date: August 14, 2019	By:	/s/ David Lichtenstein
		David Lichtenstein
		Chairman and Chief Executive Officer (Principal Executive Officer)

Date: August 14, 2019

By:

/s/ Seth Molod

Seth Molod

Chief Financial Officer

(Duly Authorized Officer and Principal Financial and Accounting Officer)

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Lightstone Value Plus REIT IV (LTSV) 10-Q2019 Q2 Quarterly report

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