| Summary of Significant Accounting Policies | 2.
Summary of Significant Accounting Policies Use
of Estimates in the Preparation of Financial Statements The
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America (“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 and investments in other
real estate entities. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result,
actual results could differ from these estimates. Principles
of Consolidation and Basis of Presentation The
consolidated financial statements include the accounts of Lightstone REIT IV and its subsidiaries (over which it exercises financial
and operating control). All inter-company balances and transactions have been eliminated in consolidation. In addition, interests
in entities acquired are evaluated based on applicable GAAP, and if deemed to be variable interest entities (“VIE”) in which
we are the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is
evaluated for consolidation based on legal form, economic substance, and the extent to which we have control, substantive participating
rights or both under the respective ownership agreement. Investments in other real estate entities where the Company has the ability
to exercise significant influence, but does not exercise financial and operating control, and is not considered to be the primary
beneficiary are accounted for using the equity method. There
are judgments and estimates involved in determining if an entity in which the Company has made an investment is a VIE and, if so,
whether the Company is the primary beneficiary. The entity is evaluated to determine if it is a VIE by, among other things,
calculating the percentage of equity being risked compared to the total equity of the entity. Determining expected future losses
involves assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each
possibility and using a discount rate to determine the net present value of those future losses. A change in the judgments,
assumptions, and estimates outlined above could result in consolidating an entity that should not be consolidated or accounting for
an investment using the equity method that should in fact be consolidated, the effects of which could be material to our financial
statements. Cash
and Cash Equivalents and Restricted Cash The
Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
The Company maintains its cash in bank deposit accounts, which, at times, may exceed U.S. federally insured limits. The Company
has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on its cash and
cash equivalents. If
required by the Company’s lenders, restricted cash is held in escrow accounts for anticipated capital expenditures, real estate
taxes, and/or other reserves for certain of our consolidated properties. Capital reserves are typically utilized for non-operating expenses
such as major capital expenditures. Alternatively, a lender may require its own formula for an escrow of capital reserves. The
following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in our statements of cash
flows for the periods presented:
Schedule of cash, cash equivalents, and restricted cash
December 31,
2021 2020
Cash and cash equivalents $ 11,955,515 $ 31,406,204
Restricted cash 241,604 84,622
Total cash, cash equivalents and restricted cash $ 12,197,119 $ 31,490,826 Investments
in Real Estate Accounting
for Asset Acquisitions When
the Company makes an investment in real estate assets, the cost of real estate assets acquired in an asset acquisition are allocated
to the acquired tangible assets, consisting of land, building and improvements, furniture and fixtures and identified intangible assets
and liabilities, consisting of the value of above-market and below-market leases, acquired in-place leases, and the value of tenant relationships,
based in each case on their relative fair values, at the date of acquisition, based on evaluation of information including independent
appraisals that may be obtained in connection with the acquisition or financing of the respective property and other relevant market
data. Fees incurred related to asset acquisitions are capitalized as part of the cost of the investment. Accounting
for Development Projects The
Company incurs a variety of costs in the development of a property. The costs of land and building under development include specifically
identifiable costs. The capitalized costs include, but are not limited to, pre-construction costs essential to the development of the
property, development costs, construction costs, interest costs, real estate taxes and other costs incurred during the period of development.
The Company ceases capitalization when the development project is substantially complete and placed
in service, which may occur in phases Once
the development project is placed in service, which may occur in phases or for an entire building or project, the costs capitalized to
construction in progress are transferred to land and improvements, buildings and improvements, and furniture and fixtures on the Company’s
consolidated balance sheets at the historical cost of the property. Carrying
Value of Assets The
amounts to be capitalized as a result of periodic improvements and additions to real estate property, when applicable, and the periods
over which the assets are depreciated or amortized, are determined based on the application of accounting standards that may require
estimates as to fair value and the allocation of various costs to the individual assets. Differences in the amount attributed to the
assets may be significant based upon the assumptions made in calculating these estimates. Impairment
Evaluation Management
evaluates the recoverability of its investments in real estate assets at the lowest identifiable level, the individual property level.
Long-lived assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not
be recoverable. An impairment loss is recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its
fair value. The
Company evaluates the long-lived assets for potential impairment whenever events or changes in circumstances indicate that their carrying
amount may not be recoverable and records an impairment charge when the undiscounted projected cash flows are less than the carrying
amount for a particular property. The estimated cash flows used for the impairment analysis and the determination of estimated fair value
is based on the Company’s plans for the respective assets and the Company’s views of market and economic conditions. The
estimates consider matters such as future operating income, market and other applicable trends and residual value, as well as the effects
of demand, competition, and recent sales data for comparable properties. Changes in estimated future cash flows due to changes in the
Company’s plans or views of market and economic conditions could result in recognition of impairment losses, which, under the applicable
accounting guidance, may be substantial. Investments
in Unconsolidated Entities The
Company evaluates its investments in other entities for consolidation. It considers its percentage interest in the joint venture, evaluation
of control and whether a VIE exists when determining whether or not the investment qualifies for consolidation or if it should be accounted
for as an unconsolidated investment under either the equity method of accounting. If
an investment qualifies for the equity method of accounting, the Company’s investment is recorded initially at cost, and subsequently
adjusted for equity in net income (loss) and cash contributions and distributions. The net income or loss of an unconsolidated investment
is allocated to its investors in accordance with the provisions of the operating agreement of the entity. The allocation provisions in
these agreements may differ from the ownership interest held by each investor. Differences, if any, between the carrying amount of our
investment in the respective joint venture and the Company’s share of the underlying equity of such unconsolidated entity are amortized
over the respective lives of the underlying assets as applicable. These items are reported as a single line item in the statements of
operations as income or loss from investments in unconsolidated affiliated entities. We
review investments for impairment in value whenever events or changes in circumstances indicate
that the carrying amount of such investment may not be recoverable. Deferred
Financing Costs Deferred
financing costs are recorded at cost and consist of loan fees and other direct costs incurred in issuing debt. Amortization of deferred
financing costs is computed using a method that approximates the effective interest method over the term of the related debt and is included
in interest expense in the consolidated statements of operations. Unamortized deferred financing costs are included as a direct deduction
from the related debt in the consolidated balance sheets. Income
Taxes The
Company elected to qualify and be taxed as a REIT for U.S. federal income tax purposes commencing with the taxable year ended December
31, 2016. As a REIT, the Company generally will not be subject to U.S. federal income tax on its net taxable income that it distributes
currently to its stockholders. To maintain its REIT qualification under the Internal Revenue Code of 1986, as amended, or the Code, the
Company must meet a number of organizational and operational requirements, including a requirement that it annually distribute to its
stockholders at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined
without regard to the deduction for dividends paid and excluding any net capital gain. If the Company fails to remain qualified for taxation
as a REIT in any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed
at the regular corporate rate, and it may be precluded from qualifying for treatment as a REIT for the four-year period following its
failure to qualify as a REIT. Such an event could materially adversely affect the Company’s net income and net cash available for
distribution to stockholders. The
Company engages in certain activities through taxable REIT subsidiaries (“TRSs”). As such, the Company is subject to U.S.
federal and state income taxes and franchise taxes from these activities. As
of December 31, 2021 and 2020, the Company had no material uncertain income tax positions. Additionally, even if the Company continues
to qualify as a REIT, it may still be subject to some U.S. federal, state and local taxes on our income and property and to U.S. federal
income taxes and excise taxes on its undistributed income. Foreign
Currency Transactions We
previously maintained funds in a bank account that was denominated in New Israeli Shekels (“ILS”) and was re-measured into
U.S. Dollars at the current exchange rate at the end of each reporting period. During the first quarter of 2020, we converted all of
our ILS to U.S. Dollars and as a result, no longer have any ILS in the bank account. For
the year ended December 31, 2020, the Company recorded a foreign currency transaction loss of $ 47,648 Financial
Instruments The
carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash and other assets, accounts
payable and accrued expenses and other liabilities approximate their fair values because of the short maturity of these instruments. The
estimated fair value our mortgage payable approximated its carrying value because of the floating interest rate. Noncontrolling
Interest Noncontrolling
interest represents the noncontrolling member’s share of the equity in certain of the Company’s consolidated real estate
investments. Income and losses are allocated to noncontrolling interest holders based generally on their ownership percentage. Net
Earnings per Common Share Net
earnings per Common Share on a basic and fully diluted basis is earnings divided by the weighted average number of shares of common stock
outstanding. The Company does not have any potentially dilutive securities. COVID-19
Pandemic The
World Health Organization declared COVID-19 a global pandemic on March 11, 2020 and since that time many of the previously imposed restrictions
and other measures which were instituted in response have been subsequently reduced or lifted. However, the continuing COVID-19 pandemic
remains highly unpredictable and dynamic and its ultimate duration and extent continue to be dependent on various developments, such
as the emergence of variants to the virus that may cause additional strains of COVID-19, the ongoing administration and ultimate effectiveness
of vaccines, including booster shots, and the eventual timeline to achieve a sufficient level of herd immunity among the general population.
Accordingly, the ongoing COVID-19 pandemic may have negative effects on the health of the U.S. economy for the foreseeable future. To-date,
the COVID-19 pandemic has not had any significant impact on the Company’s 210-room branded hotel (the “Williamsburg Moxy
Hotel”) development project. The Company’s other investment is its approximately 33.3 The
extent to which the Company’s business may be affected by the ongoing COVID-19 pandemic will largely depend on both current and
future developments, all of which are highly uncertain and cannot be reasonably predicted. If the Company’s investments in the
Williamsburg Moxy Hotel development project and/or 40 East End Ave. Joint Venture are negatively impacted, its business and financial
results could be materially and adversely impacted. New
Accounting Pronouncements The
Company has reviewed and determined that 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. |
