Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2019 | Mar. 24, 2020 | Jun. 30, 2019 | |
Document and Entity Information [Abstract] | |||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2019 | ||
Entity Registrant Name | LODGING FUND REIT III, INC. | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Interactive Data Current | Yes | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Small Business | true | ||
Entity Emerging Growth Company | true | ||
Entity Ex Transition Period | false | ||
Entity Shell Company | false | ||
Entity Public Float | $ 3,288,371 | ||
Entity Common Stock, Shares Outstanding | 6,962,813 | ||
Entity Central Index Key | 0001745032 | ||
Current Fiscal Year End Date | --12-31 | ||
Document Fiscal Year Focus | 2019 | ||
Document Fiscal Period Focus | FY | ||
Amendment Flag | false |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Assets | ||
Investment in hotel properties, net of accumulated depreciation of $1,255,712 and $43,810 | $ 65,408,308 | $ 7,815,745 |
Cash and cash equivalents | 10,898,556 | 3,732,404 |
Restricted cash | 5,275,815 | 800,000 |
Accounts receivable, net | 107,976 | 25,606 |
Franchise fees, net | 721,690 | 49,444 |
Due from related parties | 1,285 | |
Prepaid expenses and other assets | 1,623,584 | 785,168 |
Total Assets | 84,035,929 | 13,209,652 |
Liabilities and Equity | ||
Debt, net | 40,980,632 | 4,999,140 |
Accounts payable | 543,669 | 148,907 |
Accrued expenses | 925,265 | 281,946 |
Due to related parties | 966,379 | 713,350 |
Other liabilities | 434,974 | 81,619 |
Total liabilities | 43,850,919 | 6,224,962 |
Commitments and contingencies (See Note 12) | ||
Equity | ||
Preferred stock, $0.01 par value, 100,000,000 shares authorized; no shares issued and outstanding | ||
Common stock, $0.01 par value, 900,000,000 shares authorized; 6,005,743 and 1,135,010 shares issued and outstanding | 60,057 | 11,350 |
Additional paid-in capital | 58,961,101 | 11,083,985 |
Accumulated deficit | (18,396,163) | (4,041,428) |
Total stockholders' equity | 40,624,995 | 7,053,907 |
Non-controlling interest | (439,985) | (69,217) |
Total equity | 40,185,010 | 6,984,690 |
Total Liabilities and Equity | $ 84,035,929 | $ 13,209,652 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
CONSOLIDATED BALANCE SHEETS | ||
Accumulated depreciation | $ 1,255,712 | $ 43,810 |
Preferred stock, Par Value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 100,000,000 | 100,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 900,000,000 | 900,000,000 |
Common stock, shares issued | 6,005,743 | 1,135,010 |
Common stock, shares outstanding | 6,005,743 | 1,135,010 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Revenues | ||
Revenues | $ 8,575,470 | $ 123,730 |
Expenses | ||
General and administrative | 4,553,432 | 589,427 |
Sales and marketing | 997,080 | 334,442 |
Property operations | 3,364,836 | 65,059 |
Franchise fees | 826,843 | 11,412 |
Property management fees | 818,315 | 22,446 |
Acquisition expense | 470,786 | 212,464 |
Depreciation | 1,211,902 | 43,810 |
Total expenses | 12,243,194 | 1,279,060 |
Other Income (Expense) | ||
Other income (expense), net | (53,749) | 94 |
Interest expense | (1,366,533) | (74,858) |
Total other income (expense) | (1,420,282) | (74,764) |
Net Loss Before Income Taxes | (5,088,006) | (1,230,094) |
Income tax benefit | 186,572 | 19,236 |
Net loss | (4,901,434) | (1,210,858) |
Net loss attributable to non-controlling interest | (244,521) | (60,473) |
Net Loss Attributable to Common Stockholders | $ (4,656,913) | $ (1,150,385) |
Basic and Diluted Net Loss Per Share of Common Stock | $ (1.36) | $ (3.45) |
Weighted-average Shares of Common Stock Outstanding, Basic and Diluted | 3,432,099 | 332,971 |
Room | ||
Revenues | ||
Revenues | $ 8,460,842 | $ 123,024 |
Other | ||
Revenues | ||
Revenues | $ 114,628 | $ 706 |
CONSOLIDATED STATEMENTS OF CHAN
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($) | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total Stockholder's Equity | Non-controlling Interest | Total |
Balance - Beginning at Apr. 09, 2018 | ||||||
Balance - Beginning (Shares) at Apr. 09, 2018 | ||||||
Issuance of common stock | $ 11,298 | 11,034,507 | 11,045,805 | 11,045,805 | ||
Issuance of common stock (Shares) | 1,129,796 | |||||
Offering costs | (2,724,585) | (2,724,585) | (2,724,585) | |||
Distributions declared | (166,458) | (166,458) | (8,744) | (175,202) | ||
Distributions reinvested | $ 52 | 49,478 | 49,530 | 49,530 | ||
Distributions reinvested (Shares) | 5,214 | |||||
Net loss | (1,150,385) | (1,150,385) | (60,473) | (1,210,858) | ||
Balance - Ending at Dec. 31, 2018 | $ 11,350 | 11,083,985 | (4,041,428) | 7,053,907 | (69,217) | 6,984,690 |
Balance - Ending (Shares) at Dec. 31, 2018 | 1,135,010 | |||||
Issuance of common stock | $ 47,866 | 47,078,824 | 47,126,690 | 47,126,690 | ||
Issuance of common stock (Shares) | 4,786,614 | |||||
Offering costs | (7,299,159) | (7,299,159) | (7,299,159) | |||
Distributions declared | (2,398,663) | (2,398,663) | (126,247) | (2,524,910) | ||
Distributions reinvested | $ 841 | 798,292 | 799,133 | 799,133 | ||
Distributions reinvested (Shares) | 84,119 | |||||
Net loss | (4,656,913) | (4,656,913) | (244,521) | (4,901,434) | ||
Balance - Ending at Dec. 31, 2019 | $ 60,057 | $ 58,961,101 | $ (18,396,163) | $ 40,624,995 | $ (439,985) | $ 40,185,010 |
Balance - Ending (Shares) at Dec. 31, 2019 | 6,005,743 |
CONSOLIDATED STATEMENTS OF CH_2
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares | 9 Months Ended | 12 Months Ended |
Dec. 31, 2018 | Dec. 31, 2019 | |
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | ||
Distributions declared (in dollars per share) | $ 0.70 | $ 0.70 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Cash Flows from Operating Activities: | ||
Net loss | $ (4,901,434) | $ (1,210,858) |
Adjustments to reconcile net loss to cash used in operating activities: | ||
Depreciation | 1,211,902 | 43,810 |
Amortization | 250,787 | 48,007 |
Write-off of unamortized deferred financing costs | 25,629 | |
Change in operating assets and liabilities: | ||
Accounts receivable | (82,370) | (25,606) |
Franchise fees | (700,000) | (50,000) |
Due from related parties | 1,285 | (1,285) |
Prepaid expenses and other assets | (838,416) | (785,168) |
Accounts payable | 410,036 | 89,782 |
Accrued expenses | 460,124 | 229,349 |
Due to related parties | 129,904 | 230,314 |
Other liabilities | 364,750 | 81,619 |
Net cash used in operating activities | (3,667,803) | (1,350,036) |
Cash Flows from Investing Activities: | ||
Acquisitions of hotel properties | (40,686,810) | (7,754,857) |
Improvements and additions to hotel properties | (308,188) | (1,222) |
Net cash used in investing activities | (40,994,998) | (7,756,079) |
Cash Flows from Financing Activities: | ||
Proceeds from issuance of debt | 25,078,427 | 6,229,000 |
Principal payments on debt | (5,919,455) | (1,000,000) |
Payments of deferred financing costs | (1,027,619) | (173,368) |
Proceeds from issuance of common stock | 47,126,690 | 11,045,805 |
Payments of offering costs | (7,456,709) | (2,383,862) |
Distributions paid | (1,496,566) | (79,056) |
Net cash provided by financing activities | 56,304,768 | 13,638,519 |
Net change in cash, cash equivalents, and restricted cash | 11,641,967 | 4,532,404 |
Beginning Cash, Cash Equivalents, and Restricted Cash | 4,532,404 | |
Ending Cash, Cash Equivalents, and Restricted Cash | 16,174,371 | 4,532,404 |
Supplemental Disclosure of Cash Flow Information: | ||
Interest paid | 1,021,163 | 1,389 |
Supplemental Disclosure of Non-Cash Investing and Financing Activities: | ||
Debt assumed in connection with hotel property acquisition | 17,699,541 | |
Costs to acquire hotel properties included in due to related parties | 109,926 | 103,476 |
Debt issuance costs included in due to related parties | 109,459 | 103,943 |
Offering costs included in accounts payable | (15,274) | 59,125 |
Offering costs included in due to related parties | (151,133) | 266,873 |
Offering costs included in accrued expenses | 8,857 | 14,725 |
Distributions included in accrued expenses | 174,338 | 37,872 |
Distributions included in due to related parties | 54,873 | 8,744 |
Reinvested distributions | 799,133 | 49,530 |
Reconciliation of Cash, Cash Equivalents, and Restricted Cash: | ||
Cash and cash equivalents, beginning of period | 3,732,404 | |
Restricted cash, beginning of period | 800,000 | |
Cash, cash equivalents, and restricted cash, beginning of period | 16,174,371 | 4,532,404 |
Cash and Cash Equivalents, at Carrying Value, Ending Balance | 10,898,556 | 3,732,404 |
Restricted cash, end of period | 5,275,815 | 800,000 |
Cash, cash equivalents, and restricted cash, end of period | $ 16,174,371 | $ 4,532,404 |
ORGANIZATION
ORGANIZATION | 12 Months Ended |
Dec. 31, 2019 | |
ORGANIZATION | |
ORGANIZATION | 1. ORGANIZATION Lodging Fund REIT III, Inc. (“LF REIT III”), was formed on April 9, 2018 as a Maryland corporation. LF REIT III, together with its subsidiaries (the “Company”), was formed for the principal purpose of acquiring, through purchase or contribution, direct or indirect ownership interests in a diverse portfolio of limited-service, select-service and extended stay hotel properties located primarily in “America’s Heartland,” which the Company defines as the geographic area from North Dakota to Texas and the Appalachian Mountains to the Rocky Mountains. LF REIT III has elected to be treated as a real estate investment trust, or REIT, for federal income tax purposes beginning with the taxable year ended December 31, 2018. The Company’s business activities are directed and managed by Legendary Capital REIT III, LLC (the “Advisor”) and its affiliates, which are related parties through common management, pursuant to the Amended and Restated Advisory Agreement (the “Advisory Agreement”), dated June 1, 2018. The Company has no foreign operations or assets and its operating structure includes only one operating and reportable segment. Substantially all of the Company’s assets and liabilities are held by, and substantially all of its operations are conducted through, Lodging Fund REIT III OP, LP (the “Operating Partnership,” or “OP”), a wholly-owned subsidiary of LF REIT III. The OP has two voting classes of partnership units, General Partnership Units and Common Limited Partnership Units, and one class of non-voting partnership units, Series B Limited Partnership Units. LF REIT III was the sole general partner of the OP, as of December 31, 2019 and 2018. As of December 31, 2019 and 2018, there were no outstanding Common Partnership Units, and there were 1,000 outstanding Series B Limited Partnership Units, all of which were owned by the Advisor. On June 1, 2018, the Company commenced a private offering of shares of common stock, $0.01 par value per share, with a maximum offering of $100,000,000 (the “Offering”) to accredited investors only, pursuant to a confidential private placement memorandum exempt from registration under the Securities Act of 1933, as amended. In addition to sales of common shares for cash, the Company has adopted a dividend reinvestment plan (“DRIP”), which permits stockholders to reinvest their distributions back into the Company. As of December 31, 2019, the Company had issued and sold 6,005,743 shares of common stock, including 89,333 shares attributable to the DRIP, and received aggregate proceeds of $59.0 million. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2019 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation —The accompanying consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the SEC applicable to annual financial information. The consolidated financial statements include the accounts of LF REIT III, the OP and its wholly-owned subsidiaries. For the controlled subsidiaries that are not wholly-owned, the interests owned by an entity other than the Company represent a noncontrolling interest, which is presented separately in the consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates —The preparation of the Company’s consolidated financial statements and the accompanying notes in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and the amounts of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition —Revenues consist of amounts derived from hotel operations, including room sales and other hotel revenues, and are presented on a disaggregated basis in the Company’s consolidated statements of operations. These revenues are recorded net of any sales and occupancy taxes collected from the hotel guests. All revenues are recorded on an accrual basis as they are earned. Any cash received prior to a guest’s arrival is recorded as an advance deposit from the guest and recognized as revenue at the time of the guest’s occupancy at the hotel property. Investment in Hotel Properties —The Company evaluates whether each hotel property acquisition should be accounted for as an asset acquisition or a business combination. If substantially all of the fair value of the gross assets acquired is concentrated in a single asset or a group of similar identifiable assets, then the transaction is considered to be an asset acquisition. All of the Company’s acquisitions since inception have been determined to be asset acquisitions. Transaction costs associated with asset acquisitions are capitalized and transaction costs associated with business combinations would be expensed as incurred. The Company’s acquisitions generally consist of land, land improvements, buildings, building improvements, and furniture, fixtures and equipment (“FF&E”). The Company may also acquire intangible assets or liabilities related to in-place leases, management agreements, debt, and advanced bookings. For transactions determined to be asset acquisitions, the Company allocates the purchase price among the assets acquired and the liabilities assumed on a relative fair value basis at the date of acquisition. The Company determines the fair value of assets acquired and liabilities assumed with the assistance of third-party valuation specialists, using cash flow analysis as well as available market and cost data. The determination of fair value includes making numerous estimates and assumptions. The difference between the fair value and the face value of debt assumed in connection with an acquisition is recorded as a premium or discount and amortized to interest expense over the remaining term of the debt assumed. The valuation of assumed debt liabilities is based on our estimate of the current market rates for similar liabilities in effect at the acquisition date. The Company’s investments in hotel properties are carried at cost and are depreciated using the straight-line method over the estimated useful lives of 15 years for land improvements, 15 years for building improvements, 40 years for buildings and three to seven years for FF&E. Maintenance and repair costs are expensed in the period incurred and major renewals or improvements to the hotel properties are capitalized. The Company assesses the carrying value of its hotel properties whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The recoverability is measured by comparing the carrying amount of the property to the estimated future undiscounted cash flows of the property, which take into account current market conditions and the Company’s intent with respect to holding or disposing of the hotel properties. If the Company’s analysis indicates that the carrying value is not recoverable on an undiscounted cash flow basis, the Company will recognize an impairment loss for the amount by which the carrying value exceeds the fair value. The fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions or third-party appraisals. The use of projected future cash flows is based on assumptions that are consistent with a market participant’s future expectations for the industry and the economy in general and the Company’s expected use of the underlying hotel properties. The assumptions and estimates related to the future cash flows and the capitalization rates are complex and subjective in nature. Changes in economic and operating conditions that occur subsequent to a current impairment analysis and the Company’s ultimate use of the hotel property could impact the assumptions and result in future impairment losses to the hotel properties. Advertising Costs —The Company expenses advertising costs as incurred. These costs represent the expense for franchise advertising and reservation systems under the terms of the hotel management and franchise agreements and expenses that are directly attributable to advertising and promotion. Advertising expense was $311,172 and $7,339 for the year ended December 31, 2019 and period ended December 31, 2018 respectively and is included in sales and marketing in the consolidated statements of operations. Non-controlling Interest —Non-controlling interests represent the portion of equity in a subsidiary held by owners other than the Company. Non-controlling interests are reported in the consolidated balance sheets within equity, separate from stockholders’ equity. Revenue and expenses attributable to both the Company and the non-controlling interests are reported in the consolidated statements of operations, with net income or loss attributable to non-controlling interests reported separately from net income or loss attributable to the Company. Cash and Cash Equivalents —Cash and cash equivalents include cash in bank accounts as well as highly liquid investments with an original maturity of three months or less. The Company deposits cash with several high-quality financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to an insurance limit of $250,000. At times, the Company’s cash and cash equivalents may exceed federally insured levels. Restricted Cash —Restricted cash primarily consists of earnest money deposits related to hotel property acquisitions, as well as certain funds maintained in escrow accounts to fund future payments for insurance, property tax obligations, and reserves for future capital expenditures, as required by our debt agreements. Accounts Receivable —Accounts receivable consist primarily of receivables due from hotel guests for room stays and meeting and banquet room rentals, which are uncollateralized customer obligations. Management determines the likelihood of collectability of receivables on an individual customer basis, based on the amount of time the balance has been outstanding, likelihood of collecting, and the customer’s current economic status. The carrying amount of the accounts receivables is reduced by a valuation allowance that reflects management’s best estimate of the amounts that will not be collected. Deferred Financing Costs —Deferred financing costs represent origination fees, legal fees, and other costs associated with obtaining financing. Deferred financing costs are presented on the consolidated balance sheets as a direct deduction from the carrying amount of the related debt liability. These costs are amortized to interest expense over the terms of the respective financing agreements using the straight-line method, which approximates the effective interest method. The Company expenses unamortized deferred financing costs when the associated financing agreement is refinanced or repaid before maturity unless certain criteria are met that would allow for the carryover of such costs to the refinanced agreement. Costs incurred in connection with potential financial transactions that are not completed are expensed in the period in which it is determined the financing will not be completed. Offering Costs —The Company has incurred certain costs related directly to the Company’s private offering consisting of, among other costs, commissions, legal, due diligence costs, printing, marketing, filing fees, postage, data processing fees, and other offering related costs. These costs are capitalized and recorded as a reduction of equity proceeds on the accompanying consolidated balance sheets. Property Operations Expenses —Property operations expenses consist of expenses related to room rental, food and beverage sales, telephone usage, and other miscellaneous service costs, as well as all costs of operating the Company’s hotel properties such as building repairs, maintenance, property taxes, utilities, and other related costs. Property Management Fees —Property management fees include expenses incurred for management services provided for the day-to-day operations of our hotel properties, which are generally charged at a rate of 4% of gross revenues. Property management fees also include asset management fees, which may be charged at an annual rate of up to 0.75% of gross assets and are paid to the Advisor. For the year ended December 31, 2019 and period ended December 31, 2018, asset management fees were charged only on the value of investments in hotel properties. Franchise Fees —The Company pays initial fees related to hotel franchise rights prior to acquiring a hotel property. The fees are included in prepaid expenses and other assets until the time the related hotel property is acquired. Initial franchise fees related to hotel properties that are acquired are amortized on a straight-line basis over the life of the agreement. Initial franchise fees related to hotel properties that are not acquired are refunded to the Company, net of any associated fees, and any fees are expensed as incurred. Franchise fees on the accompanying consolidated statements of operations include the amortization of initial franchise fees, as well as monthly fees paid to franchisors for royalty, marketing, and reservation fees and other related costs. Acquisition Costs —The Company incurs costs during the review of potential hotel property acquisitions including legal fees, environmental reviews, market studies, financial advisory services, and other professional service fees. If the Company does complete a property acquisition, an acquisition fee of up to 1.4% is charged by the Advisor, based on the purchase price of the property plus any estimated property improvement plan (“PIP”) costs. For transactions determined to be asset acquisitions, these costs are capitalized as part of the overall cost of the project. For transactions determined to be business combinations, these costs would be expensed in the period incurred. Acquisition-related and acquisition due diligence costs that relate to a property that is not acquired, are expensed and included in acquisition costs on the accompanying consolidated statements of operations. Prior to the ultimate determination of whether a property will be acquired or not, acquisition-related and acquisition due diligence costs are recorded as, and included in, prepaid expenses and other assets on the accompanying consolidated balance sheets. Net Loss Per Share of Common Stock —Basic net loss per common share is computed based upon the weighted average number of shares outstanding during the period. Diluted net loss per common share is calculated after giving effect to all potential common shares that were dilutive and outstanding for the period. Basic and diluted net loss per common share were the same for the periods presented. Income Taxes —The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it distribute at least 90% of its REIT taxable income, subject to certain adjustments and excluding any net capital gain, to stockholders. The Company’s intention is to adhere to the REIT qualification requirements and to maintain its qualification for taxation as a REIT. As a REIT, the Company is generally not subject to U.S. federal corporate income tax on the portion of taxable income that is distributed to stockholders. If the Company fails to qualify for taxation as a REIT in any taxable year, the Company will be subject to U.S. federal income taxes at regular corporate rates and it may not be able to qualify as a REIT for four subsequent taxable years. As a REIT, the Company may be subject to certain state and local taxes on its income and property, and to U.S. federal income and excise taxes on undistributed taxable income. Taxable income from non-REIT activities managed through the Company’s taxable REIT subsidiary (“TRS”) is subject to U.S. federal, state, and local income taxes at the applicable rates. The TRS accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax basis, and for net operating loss, capital loss and tax credit carryforwards. The deferred tax assets and liabilities are measured using the enacted income tax rates in effect for the year in which those temporary differences are expected to be realized or settled. The effect on the deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of all available evidence, including the future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company performs periodic reviews for any uncertain tax positions and, if necessary, will record the expected future tax consequences of uncertain tax positions in the consolidated financial statements. Fair Value Measurement —The Company establishes fair value measures based on the fair value definition and hierarchy levels established by GAAP. These fair values are based on a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1 —Observable inputs such as quoted prices in active markets. Level 2 —Directly or indirectly observable inputs, other than quoted prices in active markets. Level 3 —Unobservable inputs in which there is little or no market data, which require a reporting entity to develop its own assumptions. The Company’s estimates of fair value were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts. The Company classifies assets and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. Reclassifications —Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the current year presentation with no effect on previously reported net loss or equity. In the prior year, certain earnest money deposits held in escrow accounts at the end of the period in the amount of $500,000 were included in separate line item titled deposit, and in the current year presentation this amount is included in restricted cash due to the similar nature of the earnest money deposits and the other amounts included within restricted cash. In the prior year, the Company’s net deferred tax assets in the amount of $19,236 were presented in a separate line item titled deferred tax asset, and in the current year presentation this amount is included within prepaid expenses and other assets due to its insignificance compared to the balance sheet. Recent Accounting Pronouncements —The Company, as an emerging growth company, has elected to use the extended transition period which allows us to defer the adoption of new or revised accounting standards. This allows the Company to adopt new or revised accounting standards as of the effective date for non-public business entities. In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014‑09, Revenue from Contracts with Customers (Topic 606). The core principle of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014‑09 is effective for fiscal years beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company adopted ASU 2014‑09 as of January 1, 2019 and has applied it on a modified retrospective basis. Based on the Company’s completed assessment of this updated accounting guidance, it does not materially affect the amount or timing of revenue recognition for the Company and the Company did not recognize any cumulative-effect adjustment as a result of adoption. In February 2016, the FASB issued ASU No. 2016‑02, “Leases” (“ASU No. 2016‑02”) (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU No. 2016‑02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right of use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. ASU No. 2016‑02 is effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. We plan to adopt ASU 2016‑02 for the year ending December 31, 2021. We do not anticipate any reclassifications or significant impacts on our consolidated financial statements as a result of this adoption. In November 2016, the FASB issued ASU No. 2016‑18, Statement of Cash Flows (Topic 230), Restricted Cash, which is intended to reduce diversity in practice in the classification and presentation of changes in restricted cash in the statement of cash flows. Under this standard, restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown in the statement of cash flows. ASU 2016‑18 is effective for fiscal years beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company early adopted this standard as of its inception. Amounts included in restricted cash on the Company’s consolidated balance sheets are included with cash and cash equivalents in the Company’s consolidated statement of cash flows for the period presented. In January 2017, the FASB issued ASU No. 2017‑01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU No. 2017‑01”), which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. Under the new guidance, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set of transferred assets and activities is not a business. If it is not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. ASU 2017‑01 is effective for fiscal years beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company early adopted this standard as of its inception and its hotel property acquisitions to date have been determined to be asset acquisitions and acquisition costs related to these asset acquisitions have been capitalized. |
INVESTMENT IN HOTEL PROPERTIES
INVESTMENT IN HOTEL PROPERTIES | 12 Months Ended |
Dec. 31, 2019 | |
INVESTMENT IN HOTEL PROPERTIES | |
INVESTMENT IN HOTEL PROPERTIES | 3. INVESTMENT IN HOTEL PROPERTIES Investment in hotel properties as of December 31, 2019 and 2018 consisted of the following: December 31, 2019 2018 Land and land improvements $ 7,738,495 $ 1,536,966 Building and building improvements 53,238,276 5,558,557 Furniture, fixtures, and equipment 5,687,249 764,032 Investment in hotel properties, at cost 66,664,020 7,859,555 Less: accumulated depreciation (1,255,712) (43,810) Investment in hotel properties, net $ 65,408,308 $ 7,815,745 As of December 31, 2019, the Company owned five hotel properties with an aggregate of 506 rooms located in five states. Acquisitions of Hotel Properties The Company acquired four properties during the year ended December 31, 2019 and one property during the period ended December 31, 2018. Each of the Company’s hotel acquisitions to date have been determined to be asset acquisitions. The table below outlines the details of the properties acquired during the years ended December 31, 2019 and 2018, respectively. 2019 Acquisitions Number Date of Guest Purchase Transaction % Hotel Property Type Location Purchased Rooms Price Costs Total Interest Hampton Inn & Suites Limited Service Pineville, NC March 19, 2019 111 $ 13,897,358 $ 303,744 $ 14,201,102 100 % Hampton Inn Limited Service Eagan, MN June 19, 2019 122 13,950,000 278,333 14,228,333 100 % Home2 Suites Extended Stay Prattville, AL July 11, 2019 90 14,750,000 356,014 15,106,014 100 % Home2 Suites Extended Stay Lubbock, TX December 30, 2019 100 14,150,000 284,776 14,434,776 100 % 423 $ 56,747,358 $ 1,222,867 $ 57,970,225 2018 Acquisitions Number Date of Guest Purchase Transaction % Hotel Property Type Location Purchased Rooms Price Costs Total Interest Holiday Inn Express Limited Service Cedar Rapids, IA November 30, 2018 83 $ 7,700,000 $ 158,333 $ 7,858,333 100 % 83 $ 7,700,000 $ 158,333 $ 7,858,333 Each of the hotel properties listed above is subject to a management agreement with NHS, LLC dba National Hospitality Services (“NHS”) with an initial term expiring on December 31 st of the fifth full calendar year following the effective date of the agreement, which will automatically renew for successive 5‑year periods unless terminated earlier in accordance with its terms. The Pineville Property is currently being managed on a day-to-day basis by Beacon IMG, Inc. (“Beacon”), an affiliate of the seller of the Pineville Property, pursuant to a sub-management agreement. The seller of the Pineville Property, an affiliate of Beacon, may be entitled to additional cash consideration if the property exceeds certain performance criteria based on increases in the property’s net operating income (“NOI”) for a selected 12‑month period of time. At any time during the period beginning April 1, 2021 through the date of the final NOI determination (on or about April 30, 2023), the seller of the property may make a one-time election to receive the additional consideration. The variable amount of the additional consideration, if any, is based on the excess of the property’s actual NOI over a base NOI for the applicable 12‑month calculation period divided by the stated cap rate for such calculation period. Further, if the Company sells the Pineville Property or terminates the Beacon sub-management agreement without cause prior to March 31, 2021, the Company will be required to pay liquidated damages of at least $1.0 million unless the seller elects to receive the additional consideration described above. As of December 31, 2019, no amounts were owed or paid to the seller of the Pineville Property, and no election to receive the additional consideration had been made. The aggregate purchase price for the hotel properties acquired during the years ended December 31, 2019 and 2018 were allocated as follows: December 31, 2019 2018 Land and land improvements $ 6,201,529 $ 1,536,966 Building and building improvements 47,412,115 5,558,997 Furniture, fixtures, and equipment 4,772,707 762,370 Total assets acquired 58,386,351 7,858,333 Premium on assumed debt (416,126) — Total liabilities assumed (416,126) — Total purchase price (1) 57,970,225 7,858,333 Assumed mortgage debt 17,283,415 — Net purchase price $ 40,686,810 $ 7,858,333 (1) Total purchase price includes purchase price plus all transaction costs. |
PREPAID EXPENSES AND OTHER ASSE
PREPAID EXPENSES AND OTHER ASSETS | 12 Months Ended |
Dec. 31, 2019 | |
PREPAID EXPENSES AND OTHER ASSETS | |
PREPAID EXPENSES AND OTHER ASSETS | 4. PREPAID EXPENSES AND OTHER ASSETS Prepaid expenses and other assets consisted of the following: December 31, 2019 2018 Franchise fees $ 475,000 $ 392,500 Acquisition costs 472,569 158,575 Deferred tax assets, net 205,808 19,236 Insurance 113,571 22,495 Other 356,636 192,362 $ 1,623,584 $ 785,168 |
ACCRUED EXPENSES
ACCRUED EXPENSES | 12 Months Ended |
Dec. 31, 2019 | |
ACCRUED EXPENSES | |
ACCRUED EXPENSES | 5. ACCRUED EXPENSES Accrued expenses consisted of the following: December 31, 2019 2018 Distributions payable $ 342,515 $ 37,871 Acquisition costs 187,800 114,526 Property taxes 114,960 56,317 Interest 136,960 26,018 Other 143,030 47,214 $ 925,265 $ 281,946 |
DEBT
DEBT | 12 Months Ended |
Dec. 31, 2019 | |
DEBT | |
DEBT | 6. DEBT Lines of Credit On August 22, 2018, the Company entered into a $3.0 million revolving line of credit, collateralized by 300,000 partnership units of Lodging Fund REIT III OP, LP. The line of credit has a variable interest rate equal to the U.S. Prime Rate, plus 1.00%, with a minimum rate of 5.00%. As of December 31, 2019 and 2018, the interest rate was 5.75% and 6.50%, respectively, and there was no outstanding balance on the line of credit. The line of credit requires monthly payments of interest only, with all principal due at maturity. In November 2019, the line of credit was amended to extend the maturity date from November 22, 2019 to November 22, 2020, and lower the minimum interest rate from 6.0% to 5.0% per annum. The amendment also revised the guarantee of the line of credit to include a partial guarantee by each of Corey Maple and Norman Leslie, as the members of the Advisor, each in the amount of $1.2 million. On November 15, 2018, the Company entered into a $25.0 million revolving line of credit to provide immediate funds to acquire hotel properties. The facility had a variable interest rate equal to 30‑day LIBOR, plus 3.25% and had an initial term of 12 months. Each advance made under the facility was secured by a hotel property, required monthly payments of interest for the first three months following the advance, and monthly payments of principal and interest thereafter. The Company drew $5.2 million on the line of credit in connection with the purchase of the Cedar Rapids Property, which remained outstanding at December 31, 2018. The outstanding balance was repaid in full in March 2019 when the Cedar Rapids property was refinanced. As of December 31, 2018, the interest rate was 5.60%, and the line of credit was closed in September 2019. Mortgage Debt As of December 31, 2019, the Company had $41.7 million in outstanding mortgage debt secured by five properties, with maturity dates ranging from March 2024 to October 2026, with fixed interest rates ranging from 4.13% to 5.33%, and a weighted-average interest rate of 4.72%. The loans generally require monthly payments of principal and interest on an amortized basis, with certain loans allowing for an interest-only period up to 12 months following origination, and generally require a balloon payment due at maturity. As of December 31, 2019, certain mortgage debt was guaranteed by the members of the Advisor. As of December 31, 2018, the Company did not have any outstanding mortgage debt. The Company was in compliance with all debt covenants as of December 31, 2019 and 2018. The following table sets forth the hotel properties securing each loan, the interest rate, maturity date, and the outstanding balance as of December 31, 2019 for each of the Company’s mortgage debt obligations. Interest Outstanding Rate as of Balance as of December 31, Maturity December 31, Hotel Property 2019 Date 2019 Holiday Inn Express - Cedar Rapids (1) 5.33% 03/01/2024 $ 5,527,392 Hampton Inn & Suites - Pineville 5.13% 06/06/2024 9,154,289 Hampton Inn - Eagan 4.60% 07/01/2024 9,369,276 Home2 Suites - Prattville (1) 4.13% 08/01/2024 9,620,000 Home2 Suites - Lubbock 4.69% 10/06/2026 8,000,430 41,671,387 Premium on assumed debt, net 389,285 Deferred financing costs, net (1,080,040) Debt, net $ 40,980,632 (1) Loan is interest-only for the first 12 months after origination. Future Minimum Payments As of December 31, 2019, the future minimum principal payments on the Company’s debt were as follows: 2020 $ 745,181 2021 979,421 2022 1,027,297 2023 1,077,500 2024 30,969,668 Thereafter 6,872,320 41,671,387 Premium on assumed debt, net 389,285 Deferred financing costs, net (1,080,040) $ 40,980,632 |
FAIR VALUE OF FINANCIAL INSTRUM
FAIR VALUE OF FINANCIAL INSTRUMENTS | 12 Months Ended |
Dec. 31, 2019 | |
FAIR VALUE OF FINANCIAL INSTRUMENTS | |
FAIR VALUE OF FINANCIAL INSTRUMENTS | 7. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company’s financial instruments as of December 31, 2019 and 2018 consisted of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, lines of credit, and mortgage debt. With the exception of the Company’s mortgage debt, the carrying amounts of the financial instruments presented in the consolidated financial statements approximate their fair value as of December 31, 2019. The fair value of the Company’s mortgage debt was estimated by discounting each loan’s future cash flows over the remaining term of the mortgage using an estimate of current borrowing rates for debt instruments with similar terms and maturities, which are Level 3 inputs in the fair value hierarchy. As of December 31, 2019, the estimated fair value of the Company’s mortgage debt was $42.7 million, compared to the gross carrying value $41.7 million. As of December 31, 2018, the carrying amounts of all of the financial instruments presented in the consolidated financial statements approximate their fair value. |
INCOME TAXES
INCOME TAXES | 12 Months Ended |
Dec. 31, 2019 | |
INCOME TAXES | |
INCOME TAXES | 8. INCOME TAXES The Company’s earnings (losses), other than those generated by the Company’s TRS, are not generally subject to federal corporate and state income taxes due to the Company’s REIT election. The Company did not pay any federal and state income taxes for the periods ended December 31, 2019 and 2018. The Company did not have any uncertain tax positions as of December 31, 2019 and 2018, respectively. For the year ended December 31, 2019 and period ended December 31, 2018, all distributions paid were determined to be 100% returns of capital distributions. The Company’s TRS generated a net operating loss (“NOL”) for the year ended December 31, 2019 and period ended December 31, 2018, which can be carried forward to offset future taxable income. As of December 31, 2019 and 2018, the Company had recorded net deferred tax assets of $205,808 and $19,236, respectively, primarily attributable to its NOLs generated in the current year and prior periods, net of temporary differences primarily related to deprecation. The Company’s NOLs will expire in 2038‑2039 for state tax purposes and will not expire for federal tax purposes. As of December 31, 2019 and 2018, the Company had NOL carryforwards for federal income tax purposes of $1.1 million and $14,263, respectively, and NOL carryforwards for state income tax purposes of $268,502 and $4,973, respectively. The Company expects to fully utilize the NOLs to offset future taxable income. As of December 31, 2019, the tax years 2018 and 2019 remain subject to examination by the U.S. Internal Revenue Service (“IRS”) and various state tax jurisdictions. The components of the Company’s income tax benefit are as follows: For the Year Ended December 31, 2019 2018 Federal: Deferred $ 143,746 $ 14,263 State: Deferred 42,826 4,973 Income tax benefit $ 186,572 $ 19,236 The provision for income taxes is difference from the income tax expense that is determined by applying the applicable U.S. statutory federal income tax rate to pretax income as a result of the following differences: For the Year Ended December 31, 2019 % 2018 % Expected income tax benefit at U.S. Federal statutory rate $ 1,068,481 -21.0% $ 258,320 -21.0% Tax impact of REIT election (927,264) 18.2% (242,363) 19.7% Expected tax benefit at TRS 141,217 -2.8% 15,957 -1.3% State income tax benefit, net 42,826 -0.8% 4,956 -0.4% Temporary differences - deprecation 2,529 -0.1% (1,677) 0.1% Income tax benefit $ 186,572 -3.7% $ 19,236 -1.6% As of December 31, 2019 and 2018, the Company’s deferred tax assets and liabilities consisted of the following: December 31, 2019 2018 Deferred Tax Assets: Net operating loss carryforwards - Federal $ 1,148,996 $ 14,263 Net operating loss carryforwards - State 268,502 4,973 1,417,498 19,236 Deferred Tax Liabilities: Tax FF&E basis less than book basis - Federal (990,986) - Tax FF&E basis less than book basis - State (220,704) - (1,211,690) - Deferred tax assets, net $ 205,808 $ 19,236 |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 12 Months Ended |
Dec. 31, 2019 | |
RELATED PARTY TRANSACTIONS | |
RELATED PARTY TRANSACTIONS | 9. RELATED PARTY TRANSACTIONS Legendary Capital REIT III, LLC —Substantially all of the Company’s business is managed by the Advisor and its affiliates, pursuant to the Advisory Agreement. The Company has no direct employees. The employees of Legendary Capital, LLC (the “Sponsor”), an affiliate of the Advisor, provide services to the Company related to the negotiations of property acquisitions and financing, asset management, accounting, investor relations, and all other administrative services. The Company reimburses the Advisor and its affiliates, at cost, for certain expenses incurred on behalf of the Company. The Advisory Agreement has a term of 10 years. The Advisor earns a one-time acquisition fee of up to 1.4% of the hotel purchase price including funds allocated for any PIP at the time of each hotel property acquisition, a financing fee of up to 1.4% of the hotel purchase price including funds allocated for any PIP at the time of closing the initial financing, and an annual asset management fee of up to 0.75% of the gross assets of the Company, which is payable on a monthly basis. The Advisor will also be paid a refinancing fee of up to 0.75% of the principal amount of any refinancing at the time of closing the refinancing, and a disposition fee equal to between 0.0% and 4.0% of the hotel sales price, payable at the closing of the disposition, and real estate commissions of up to 3.0% of the hotel purchase price in connection with the sale of a hotel property in which the Advisor or its affiliates provided substantial services, but in no event greater than one-half of the total commissions paid with respect to such property if a commission is paid to a third-party as well as the Advisor, and in no event will total commissions exceed 5.0% of the hotel sales price. Certain affiliates of the Advisor may receive an annual guarantee fee equal to 1.0% of the guaranty amount, paid on a monthly basis, for debt obligations of the hotel properties personally guaranteed by such affiliates. The Advisor may earn an annual subordinated performance fee equal to 20% of the distributions after the common stockholders and Operating Partnership limited partners (other than the Series B Limited Partnership Unit (“Series B LP Unit”) holders) have received a 6% cumulative, but not compounded, return per annum. Per the terms of the Operating Partnership’s operating agreement, the Advisor receives distributions from the Operating Partnership in connection with their ownership of non-voting Series B LP Units. The Advisor’s ownership of Series B LP Units is presented as non-controlling interest on the accompanying consolidated financial statements. In years other than the year of liquidation, after the Company’s common stockholders have received a 6% cumulative but not compounded return on their original capital contributions, the Advisor receives distributions equal to 5% of the total distributions made. In the year of liquidation, termination, merger or other cessation of the general partner, or the liquidation of the Operating Partnership, holders of the Series B LP Units shall be distributed an amount equal to 5% of the limited partners’ capital contributions after the common stockholders and the limited partners have received a return of their original capital contributions plus a 6% cumulative but not compounded return. In the year of liquidation, termination, merger or other cessation of the general partner, or the liquidation of the Operating Partnership holders of the Series B LP Units shall also be distributed an amount equal to 20% of the net proceeds from the sale of the properties, after the common stockholders and the limited partners have received a return of their original capital contributions plus a 6% cumulative but not compounded return from all distributions. The Advisor and its affiliates may be reimbursed by the Company for certain organization and offering expenses in connection with the Offering, including legal, printing, marketing and other Offering-related costs and expenses. Following the termination of the Offering, the Advisor will reimburse the Company for any such amounts incurred by the Company in excess of 15% of the gross proceeds of the Offering. In addition, the Company may pay directly or reimburse the Advisor and its affiliates for certain costs incurred in connection with its provision of services to the Company, including certain acquisition costs, financing costs, and sales and marketing costs, as well as an allocable share of general and administrative overhead costs. All reimbursements are paid to the Advisor and its affiliates at cost. Fees and reimbursements earned and payable to the Advisor and its affiliates, for the year ended December 31, 2019 and period ended December 31 2018, were as follows: For the Year Ended December 31, 2019 2018 Fees: Acquisition fees $ 818,521 $ 103,476 Financing fees 818,521 103,476 Asset management fees 305,398 10,286 Performance fees 68,534 4,747 $ 2,010,974 $ 221,985 Reimbursements: Offering costs $ 2,174,471 $ 939,873 General and administrative 2,699,813 484,310 Sales and marketing 386,694 127,041 Financing costs — 45,114 Acquisition costs 989,346 41,467 Other 11,053 7,140 $ 6,261,377 $ 1,644,945 For the year ended December 31, 2019 and period ended December 31 2018, the Operating Partnership recognized distributions payable to the Advisor in the amount of $126,247 and $8,744, respectively, in connection with the Advisor’s ownership of Series B LP Units. For the year ended December 31, 2019 and period ended December 31 2018, the Company paid distributions in the amount of $37,634 and $18,765, respectively, to Corey Maple and Norman Leslie in connection with their ownership of 53,763 shares each, of the Company’s common stock. As of December 31, 2019 and 2018, the Company had amounts due and payable to the Advisor and its affiliates of $918,863 and $685,685, respectively, which is included in due to related parties on the accompanying consolidated balance sheets. NHS, LLC dba National Hospitality Services —NHS is wholly-owned by Norman Leslie, a director and executive officer of the Company and a principal of the Advisor. NHS provides property management and hotel operations management services for the Company’s hotel properties, pursuant to individual management agreements. The agreements have an initial term expiring on December 31 st of the fifth full calendar year following the effective date of the agreement, which automatically renews for a period of five years on each successive five-year period, unless terminated in accordance with its terms. NHS earns a monthly base management fee for property management services, including overseeing the day-to-day operations of the hotel properties equal to 4% of gross revenue. NHS may also earn an accounting fee of $14.00 per room for accounting services, payable monthly, and an administrative fee equal to 0.60% of gross revenues for administrative and other services. The Company reimburses NHS for certain costs of operating the properties incurred on behalf of the Company. All reimbursements are paid to NHS at cost. Fees and reimbursements earned and payable to, NHS for the year ended December 31, 2019 and period ended December 31 2018, were as follows: For the Year Ended December 31, 2019 2018 Fees: Management fees $ 342,101 $ 4,950 Administrative fees 52,605 687 Accounting fees 49,028 2,324 $ 443,734 $ 7,961 Reimbursements $ 227,398 $ 10,588 As of December 31, 2019 and 2018, the Company had amounts due and payable to NHS of $47,516 and $15,360, respectively, which is included in due to related parties on the accompanying consolidated balance sheets. |
FRANCHISE AGREEMENTS
FRANCHISE AGREEMENTS | 12 Months Ended |
Dec. 31, 2019 | |
FRANCHISE AGREEMENTS | |
FRANCHISE AGREEMENTS | 10. FRANCHISE AGREEMENTS As of December 31, 2019 and 2018, all of the Company’s hotel properties were operated under franchise agreements with initial terms of 10 to 18 years. Franchise agreements allow the hotel properties to operate under the respective brands. Pursuant to the franchise agreements, the Company pays a royalty fee of 5% to 6% of room revenue, plus additional fees for marketing, central reservation systems and other franchisor costs. Certain hotels are also charged a program fee of generally between 3% and 4% of room revenue. The Company paid an initial fee of $50,000 to $175,000 at the time of entering into each franchise agreement which is being amortized over the term of each agreement. |
STOCKHOLDERS_ EQUITY
STOCKHOLDERS’ EQUITY | 12 Months Ended |
Dec. 31, 2019 | |
STOCKHOLDERS’ EQUITY | |
STOCKHOLDERS’ EQUITY | 11. STOCKHOLDERS’ EQUITY The Company is authorized to issue 900,000,000 shares of common stock and 100,000,000 shares of preferred stock. Each share of common stock entitles the holder to one vote per share on all matters upon which stockholders are entitled to vote and to receive distributions as authorized by the Company’s board of directors. The rights of the holders of shares of preferred stock may be defined at such time any series of preferred shares are issued. Initial Offering On June 1, 2018, the Company commenced a private offering of shares of common stock, $0.01 par value per share, at a price of $10.00 per share, with a maximum offering of $100,000,000, to accredited investors only pursuant to a confidential private placement memorandum exempt from registration under the Securities Act of 1933, as amended. Dividend Reinvestment Plan The Company has adopted a dividend reinvestment plan (“DRIP”), which permits stockholders to reinvest their distributions back into the Company, purchasing shares of common stock at 95% of the then-current share net asset value (“NAV”). Distributions Distributions are determined by the board of directors based on the Company’s financial condition and other relevant factors. Effective the first day of each fiscal quarter since inception, the board of directors declared a cash distribution at a daily rate of $0.00191781 per share of common stock to the stockholders of record on the last day of each calendar month within the respective quarter, up to, and including the period ended December 31, 2019. Share Repurchase Plan The board of directors has adopted a share repurchase plan that may enable its stockholders to have their shares repurchased in limited circumstances. In its sole discretion, the board of directors could choose to terminate or suspend the plan or to amend its provisions without stockholder approval. The repurchase plan may be reviewed and modified by the board of directors as it deems necessary in its sole discretion. The price at which the Company will repurchase shares is dependent on the amount of time the holder has owned the shares, and the then current value of the shares. There are several limitations on the Company’s ability to repurchase shares under the share repurchase pla n, including, but not limited to, a limitation that during any calendar year, the maximum number of shares potentially eligible for repurchase can only be the number of shares that the Company could purchase with the amount of net proceeds from the sale of shares under the Company’s dividend reinvestment plan during the prior calendar year. The board of directors may, in its sole discretion, reject any request for repurchase and may, at any time and without stockholder approval, upon 10 business days’ written notice to the stockholders (i) amend, suspend or terminate its share repurchase plan and (ii) increase or decrease the funding available for the repurchase of shares pursuant to our share repurchase plan. At December 31, 2019 and 2018, the Company had $799,133 and $49,530, respectively, available for eligible repurchases. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2019 | |
COMMITMENTS AND CONTINGENCIES | |
COMMITMENTS AND CONTINGENCIES | 12. COMMITMENTS AND CONTINGENCIES Legal Matters —From time to time, the Company may become party to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on the Company’s results of operations, cash flows or financial condition. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 12 Months Ended |
Dec. 31, 2019 | |
SUBSEQUENT EVENTS | |
SUBSEQUENT EVENTS | 13. SUBSEQUENT EVENTS On January 1, 2020, the Company’s board of directors declared cash distributions on the outstanding shares of common stock based on daily record dates for (i) the period from January 1, 2020 through January 31, 2020, which was paid in February 2020, and (ii) the period from February 1, 2020 through February 29, 2020, which was paid in March 2020. Our board of directors also authorized cash distributions on the outstanding shares of common stock based on daily record dates for the period from March 1, 2020 through March 31, 2020. Investors may choose to receive cash distributions or purchase additional shares through the DRIP. Distributions for these periods will be calculated based on stockholders of record each day during these periods at a rate of $0.00191781 per share per day. On January 8, 2020, the Company acquired a 101-room Fairfield Inn & Suites by Marriott hotel property in Lubbock, Texas, for $15.15 million, exclusive of closing costs. In connection with the acquisition, the Company assumed the existing loan secured by the property, which had an outstanding balance of $9.4 million at the time of the transaction. The loan has a fixed interest rate of 4.93% per annum, matures on April 6, 2029, and requires monthly payments of principal and interest with a balloon payment due at maturity. In connection with the acquisition, the Company also entered into an agreement with NHS to manage the property at terms consistent with the Company’s existing agreements with NHS. Additionally, the Company signed a new franchise agreement with Marriott that expires in August 2037. On January 10, 2020, the Company paid distributions of $342,515, declared for daily record dates for each day in the period from December 1, 2019 through December 31, 2019, which included $130,304 of distributions paid pursuant to the DRIP. On February 10, 2020, the Company paid distributions of $358,474, declared for daily record dates for each day in the period from January 1, 2020, through January 31, 2020, which included $139,094 of distributions paid pursuant to the DRIP. On March 10, 2020, the Company paid distributions of $382,325, declared for daily record dates for each day in the period from February 1, 2020 through February 29, 2020, which included $150,022 of distributions paid pursuant to the DRIP. On February 10, 2020, the Company entered into a $5.0 million revolving line of credit loan agreement (the “Line of Credit”). The Line of Credit requires monthly payments of interest only, with all outstanding principal amounts being due and payable at maturity on February 10, 2021. The Line of Credit has a variable interest rate equal to the Prime Rate as published in the Wall Street Journal, plus 0.50%, resulting in an effective rate of 5.25% per annum as of February 10, 2020. The Line of Credit is secured by our Cedar Rapids Property and our Eagan Property, which are also subject to term loans with the same lender, and 100,000 limited partnership units of the Operating Partnership. The Line of Credit includes cross-collateralization and cross-default provisions such that the existing mortgage loan agreements with respect to the Cedar Rapids Property and the Eagan Property, as well as future loan agreements that the Company may enter into with this lender, are cross-defaulted and cross-collateralized with each other. The Line of Credit, including all cross-collateralized debt, is guaranteed by Corey Maple, the Company’s Chief Executive Officer. As of March 24, 2020, the outstanding balance on the Line of Credit was $3.2 million. On February 17, 2020, the due diligence period expired under the purchase agreement in which the Company agreed to acquire a 108-room Fairfield Inn & Suites by Marriott hotel in Hershey, Pennsylvania, a 107-room Home2 Suites by Hilton hotel in York, Pennsylvania, and a 100-room Hampton Inn & Suites by Hilton hotel in York, Pennsylvania (collectively, the “Pennsylvania Hotel Properties”). The contractual purchase price of the Pennsylvania Hotel Properties is approximately $46.9 million plus closing costs, subject to adjustment as provided in the purchase agreement. As required by the purchase agreement, the Company has deposited a total of $1.5 million into escrow as earnest money pending the closing or termination of the purchase agreement. Except in certain circumstances described in the purchase agreement, if the Company fails to complete the acquisition, it will forfeit the earnest money. There can be no assurance that the Company will complete these acquisitions on the contemplated terms, or at all. On February 21, 2020, the Company acquired a 99-room Homewood Suites by Hilton hotel property located in Southaven, Mississippi, for $20.5 million, exclusive of closing costs. In connection with the acquisition, the Company entered into a $13.46 million term loan. The loan has a fixed interest rate of 3.695% per annum, matures on March 3, 2025, requires monthly payments of interest-only through March 31, 2021, and thereafter requires monthly payments of principal and interest with a balloon payment due at maturity. The loan requires the maintenance of certain financial covenants, and pursuant to the loan agreement, Corey Maple, the Company’s Chief Executive Officer (the “Guarantor”), entered into a Guaranty, which is (i) a full recourse guarantee to the lender in certain circumstances, including the occurrence of certain events, including, without limitation, certain bankruptcy or insolvency proceedings involving the borrower, and (ii) recourse guarantee limited to the payment of all claims, actions, suits, damages, losses, expenses or other obligations actually incurred by the lender as a result of certain “bad boy” events, including criminal acts, fraud or misrepresentation in connection with the loan documents, damage to the collateral caused by gross negligence, reckless or intentional acts or omissions, or certain other intentional acts or omissions of the borrower or Guarantor, all as further described in the Guaranty. In connection with the acquisition the Company also entered a management agreement with Vista Host Inc. (“Vista Host”), a third-party management company, to provide property management and hotel operations management services. The agreement has an initial term expiring on February 21, 2025, which automatically renews for two successive five-year periods, unless terminated in accordance with its terms. The Company will pay Vista Host a base management fee for property management services equal to 3% of the prior month’s gross revenues, a monthly accounting fee of $1,000, and Vista Host may earn annual incentive management fees if certain growth and operational performance metrics are achieved. On March 16, 2020, the Company drew $2.0 million on our $3.0 million revolving line of credit, which was outstanding as of March 24, 2020. As of March 24, 2020, the Company’s private offering remained open for new investment, and since the inception of the offering the Company had issued and sold 6,962,813 shares of common stock, including 133,482 shares issued pursuant to the DRIP, resulting in the receipt of gross offering proceeds of $68.4 million. Subsequent to December 31, 2019, there was a global outbreak of a new strain of coronavirus, COVID-19. The global and domestic response to the COVID-19 outbreak continues to rapidly evolve. Thus far, certain responses to the COVID-19 outbreak have included mandates from federal, state and/or local authorities that required temporary closure of certain travel and hospitality. The COVID-19 outbreak and associated responses could negatively impact future hotel revenues and operations at our properties, which could result in a material impact to the Company’s future results of operations, cash flows and financial condition. ****** |
SCHEDULE III - Real Estate and
SCHEDULE III - Real Estate and Accumulated Depreciation | 12 Months Ended |
Dec. 31, 2019 | |
SCHEDULE III - Real Estate and Accumulated Depreciation | |
SCHEDULE III - Real Estate and Accumulated Depreciation | SCHEDULE III Real Estate and Accumulated Depreciation As of December 31, 2019 Costs Capitalized Subsequent to Initial Cost Acquisition Gross Amounts at End of Year Building, Building, Building, Land and Building Building Land and Building Date Number Land Improvements Improvements Land Improvements Accumulated Depreciable Description Acquired of Rooms Encumbrances Improvements and FF&E and FF&E Improvements and FF&E Total (1) Depreciation Lives Holiday Inn Express - Nov - 2018 83 $ 5,527,392 $ 1,536,966 $ 6,321,367 $ 290,720 $ 1,536,966 $ 6,612,087 $ 8,149,053 $ (310,451) 3 - 40 yrs. Hampton Inn & Suites - Mar - 2019 111 9,154,289 2,014,533 12,327,740 38,090 2,014,533 12,365,830 14,380,363 (376,530) 3 - 40 yrs. Hampton Inn - Jun - 2019 122 9,369,276 1,691,813 12,536,520 80,770 1,691,813 12,617,290 14,309,103 (291,830) 3 - 40 yrs. Home2 Suites - Jul - 2019 90 9,620,000 1,691,954 13,414,060 8,860 1,691,954 13,422,920 15,114,874 (233,425) 3 - 40 yrs. Home2 Suites - Dec - 2019 100 8,000,430 803,229 13,906,502 896 803,229 13,907,398 14,710,627 (43,476) 3 - 40 yrs. 506 $ 41,671,387 $ 7,738,495 $ 58,506,189 $ 419,336 $ 7,738,495 $ 58,925,525 $ 66,664,020 $ (1,255,712) (1) The aggregate cost for federal income tax purposes is approximately $66.3 million at December 31, 2019 (unaudited). Investment in Real Estate: 2019 2018 Balance at beginning of period $ 7,859,555 $ - Acquisitions 58,386,351 7,858,333 Improvements 418,114 1,222 Balance at end of period $ 66,664,020 $ 7,859,555 Accumulated Depreciation: 2019 2018 Balance at beginning of period $ (43,810) $ - Depreciation expense (1,211,902) (43,810) Balance at end of period $ (1,255,712) $ (43,810) |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2019 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Basis of Presentation and Principles of Consolidation | Basis of Presentation and Principles of Consolidation —The accompanying consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the SEC applicable to annual financial information. The consolidated financial statements include the accounts of LF REIT III, the OP and its wholly-owned subsidiaries. For the controlled subsidiaries that are not wholly-owned, the interests owned by an entity other than the Company represent a noncontrolling interest, which is presented separately in the consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. |
Use of Estimates | Use of Estimates —The preparation of the Company’s consolidated financial statements and the accompanying notes in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and the amounts of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Revenue Recognition | Revenue Recognition —Revenues consist of amounts derived from hotel operations, including room sales and other hotel revenues, and are presented on a disaggregated basis in the Company’s consolidated statements of operations. These revenues are recorded net of any sales and occupancy taxes collected from the hotel guests. All revenues are recorded on an accrual basis as they are earned. Any cash received prior to a guest’s arrival is recorded as an advance deposit from the guest and recognized as revenue at the time of the guest’s occupancy at the hotel property. |
Investment in Hotel Properties | Investment in Hotel Properties —The Company evaluates whether each hotel property acquisition should be accounted for as an asset acquisition or a business combination. If substantially all of the fair value of the gross assets acquired is concentrated in a single asset or a group of similar identifiable assets, then the transaction is considered to be an asset acquisition. All of the Company’s acquisitions since inception have been determined to be asset acquisitions. Transaction costs associated with asset acquisitions are capitalized and transaction costs associated with business combinations would be expensed as incurred. The Company’s acquisitions generally consist of land, land improvements, buildings, building improvements, and furniture, fixtures and equipment (“FF&E”). The Company may also acquire intangible assets or liabilities related to in-place leases, management agreements, debt, and advanced bookings. For transactions determined to be asset acquisitions, the Company allocates the purchase price among the assets acquired and the liabilities assumed on a relative fair value basis at the date of acquisition. The Company determines the fair value of assets acquired and liabilities assumed with the assistance of third-party valuation specialists, using cash flow analysis as well as available market and cost data. The determination of fair value includes making numerous estimates and assumptions. The difference between the fair value and the face value of debt assumed in connection with an acquisition is recorded as a premium or discount and amortized to interest expense over the remaining term of the debt assumed. The valuation of assumed debt liabilities is based on our estimate of the current market rates for similar liabilities in effect at the acquisition date. The Company’s investments in hotel properties are carried at cost and are depreciated using the straight-line method over the estimated useful lives of 15 years for land improvements, 15 years for building improvements, 40 years for buildings and three to seven years for FF&E. Maintenance and repair costs are expensed in the period incurred and major renewals or improvements to the hotel properties are capitalized. The Company assesses the carrying value of its hotel properties whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The recoverability is measured by comparing the carrying amount of the property to the estimated future undiscounted cash flows of the property, which take into account current market conditions and the Company’s intent with respect to holding or disposing of the hotel properties. If the Company’s analysis indicates that the carrying value is not recoverable on an undiscounted cash flow basis, the Company will recognize an impairment loss for the amount by which the carrying value exceeds the fair value. The fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions or third-party appraisals. The use of projected future cash flows is based on assumptions that are consistent with a market participant’s future expectations for the industry and the economy in general and the Company’s expected use of the underlying hotel properties. The assumptions and estimates related to the future cash flows and the capitalization rates are complex and subjective in nature. Changes in economic and operating conditions that occur subsequent to a current impairment analysis and the Company’s ultimate use of the hotel property could impact the assumptions and result in future impairment losses to the hotel properties. |
Advertising Costs | Advertising Costs —The Company expenses advertising costs as incurred. These costs represent the expense for franchise advertising and reservation systems under the terms of the hotel management and franchise agreements and expenses that are directly attributable to advertising and promotion. Advertising expense was $311,172 and $7,339 for the year ended December 31, 2019 and period ended December 31, 2018 respectively and is included in sales and marketing in the consolidated statements of operations. |
Non-controlling Interests | Non-controlling Interest —Non-controlling interests represent the portion of equity in a subsidiary held by owners other than the Company. Non-controlling interests are reported in the consolidated balance sheets within equity, separate from stockholders’ equity. Revenue and expenses attributable to both the Company and the non-controlling interests are reported in the consolidated statements of operations, with net income or loss attributable to non-controlling interests reported separately from net income or loss attributable to the Company. |
Cash and Cash Equivalents | Cash and Cash Equivalents —Cash and cash equivalents include cash in bank accounts as well as highly liquid investments with an original maturity of three months or less. The Company deposits cash with several high-quality financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to an insurance limit of $250,000. At times, the Company’s cash and cash equivalents may exceed federally insured levels. |
Restricted Cash | Restricted Cash —Restricted cash primarily consists of earnest money deposits related to hotel property acquisitions, as well as certain funds maintained in escrow accounts to fund future payments for insurance, property tax obligations, and reserves for future capital expenditures, as required by our debt agreements. |
Accounts Receivable | Accounts Receivable —Accounts receivable consist primarily of receivables due from hotel guests for room stays and meeting and banquet room rentals, which are uncollateralized customer obligations. Management determines the likelihood of collectability of receivables on an individual customer basis, based on the amount of time the balance has been outstanding, likelihood of collecting, and the customer’s current economic status. The carrying amount of the accounts receivables is reduced by a valuation allowance that reflects management’s best estimate of the amounts that will not be collected. |
Deferred Financing Costs | Deferred Financing Costs —Deferred financing costs represent origination fees, legal fees, and other costs associated with obtaining financing. Deferred financing costs are presented on the consolidated balance sheets as a direct deduction from the carrying amount of the related debt liability. These costs are amortized to interest expense over the terms of the respective financing agreements using the straight-line method, which approximates the effective interest method. The Company expenses unamortized deferred financing costs when the associated financing agreement is refinanced or repaid before maturity unless certain criteria are met that would allow for the carryover of such costs to the refinanced agreement. Costs incurred in connection with potential financial transactions that are not completed are expensed in the period in which it is determined the financing will not be completed. |
Offering Costs | Offering Costs —The Company has incurred certain costs related directly to the Company’s private offering consisting of, among other costs, commissions, legal, due diligence costs, printing, marketing, filing fees, postage, data processing fees, and other offering related costs. These costs are capitalized and recorded as a reduction of equity proceeds on the accompanying consolidated balance sheets. |
Property Operations Expenses | Property Operations Expenses —Property operations expenses consist of expenses related to room rental, food and beverage sales, telephone usage, and other miscellaneous service costs, as well as all costs of operating the Company’s hotel properties such as building repairs, maintenance, property taxes, utilities, and other related costs. |
Property Management Fees | Property Management Fees —Property management fees include expenses incurred for management services provided for the day-to-day operations of our hotel properties, which are generally charged at a rate of 4% of gross revenues. Property management fees also include asset management fees, which may be charged at an annual rate of up to 0.75% of gross assets and are paid to the Advisor. For the year ended December 31, 2019 and period ended December 31, 2018, asset management fees were charged only on the value of investments in hotel properties. |
Franchise Fees | Franchise Fees —The Company pays initial fees related to hotel franchise rights prior to acquiring a hotel property. The fees are included in prepaid expenses and other assets until the time the related hotel property is acquired. Initial franchise fees related to hotel properties that are acquired are amortized on a straight-line basis over the life of the agreement. Initial franchise fees related to hotel properties that are not acquired are refunded to the Company, net of any associated fees, and any fees are expensed as incurred. Franchise fees on the accompanying consolidated statements of operations include the amortization of initial franchise fees, as well as monthly fees paid to franchisors for royalty, marketing, and reservation fees and other related costs. |
Acquisition Costs | Acquisition Costs —The Company incurs costs during the review of potential hotel property acquisitions including legal fees, environmental reviews, market studies, financial advisory services, and other professional service fees. If the Company does complete a property acquisition, an acquisition fee of up to 1.4% is charged by the Advisor, based on the purchase price of the property plus any estimated property improvement plan (“PIP”) costs. For transactions determined to be asset acquisitions, these costs are capitalized as part of the overall cost of the project. For transactions determined to be business combinations, these costs would be expensed in the period incurred. Acquisition-related and acquisition due diligence costs that relate to a property that is not acquired, are expensed and included in acquisition costs on the accompanying consolidated statements of operations. Prior to the ultimate determination of whether a property will be acquired or not, acquisition-related and acquisition due diligence costs are recorded as, and included in, prepaid expenses and other assets on the accompanying consolidated balance sheets. |
Net Loss Per Share of Common Stock | Net Loss Per Share of Common Stock —Basic net loss per common share is computed based upon the weighted average number of shares outstanding during the period. Diluted net loss per common share is calculated after giving effect to all potential common shares that were dilutive and outstanding for the period. Basic and diluted net loss per common share were the same for the periods presented. |
Income Taxes | Income Taxes —The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it distribute at least 90% of its REIT taxable income, subject to certain adjustments and excluding any net capital gain, to stockholders. The Company’s intention is to adhere to the REIT qualification requirements and to maintain its qualification for taxation as a REIT. As a REIT, the Company is generally not subject to U.S. federal corporate income tax on the portion of taxable income that is distributed to stockholders. If the Company fails to qualify for taxation as a REIT in any taxable year, the Company will be subject to U.S. federal income taxes at regular corporate rates and it may not be able to qualify as a REIT for four subsequent taxable years. As a REIT, the Company may be subject to certain state and local taxes on its income and property, and to U.S. federal income and excise taxes on undistributed taxable income. Taxable income from non-REIT activities managed through the Company’s taxable REIT subsidiary (“TRS”) is subject to U.S. federal, state, and local income taxes at the applicable rates. The TRS accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax basis, and for net operating loss, capital loss and tax credit carryforwards. The deferred tax assets and liabilities are measured using the enacted income tax rates in effect for the year in which those temporary differences are expected to be realized or settled. The effect on the deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of all available evidence, including the future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company performs periodic reviews for any uncertain tax positions and, if necessary, will record the expected future tax consequences of uncertain tax positions in the consolidated financial statements. |
Fair Value Measurement | Fair Value Measurement —The Company establishes fair value measures based on the fair value definition and hierarchy levels established by GAAP. These fair values are based on a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1 —Observable inputs such as quoted prices in active markets. Level 2 —Directly or indirectly observable inputs, other than quoted prices in active markets. Level 3 —Unobservable inputs in which there is little or no market data, which require a reporting entity to develop its own assumptions. The Company’s estimates of fair value were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts. The Company classifies assets and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. |
Reclassifications | Reclassifications —Certain prior year amounts in the consolidated financial statements have been reclassified to conform to the current year presentation with no effect on previously reported net loss or equity. In the prior year, certain earnest money deposits held in escrow accounts at the end of the period in the amount of $500,000 were included in separate line item titled deposit, and in the current year presentation this amount is included in restricted cash due to the similar nature of the earnest money deposits and the other amounts included within restricted cash. In the prior year, the Company’s net deferred tax assets in the amount of $19,236 were presented in a separate line item titled deferred tax asset, and in the current year presentation this amount is included within prepaid expenses and other assets due to its insignificance compared to the balance sheet. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements —The Company, as an emerging growth company, has elected to use the extended transition period which allows us to defer the adoption of new or revised accounting standards. This allows the Company to adopt new or revised accounting standards as of the effective date for non-public business entities. In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014‑09, Revenue from Contracts with Customers (Topic 606). The core principle of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014‑09 is effective for fiscal years beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company adopted ASU 2014‑09 as of January 1, 2019 and has applied it on a modified retrospective basis. Based on the Company’s completed assessment of this updated accounting guidance, it does not materially affect the amount or timing of revenue recognition for the Company and the Company did not recognize any cumulative-effect adjustment as a result of adoption. In February 2016, the FASB issued ASU No. 2016‑02, “Leases” (“ASU No. 2016‑02”) (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU No. 2016‑02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right of use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. ASU No. 2016‑02 is effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. We plan to adopt ASU 2016‑02 for the year ending December 31, 2021. We do not anticipate any reclassifications or significant impacts on our consolidated financial statements as a result of this adoption. In November 2016, the FASB issued ASU No. 2016‑18, Statement of Cash Flows (Topic 230), Restricted Cash, which is intended to reduce diversity in practice in the classification and presentation of changes in restricted cash in the statement of cash flows. Under this standard, restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown in the statement of cash flows. ASU 2016‑18 is effective for fiscal years beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company early adopted this standard as of its inception. Amounts included in restricted cash on the Company’s consolidated balance sheets are included with cash and cash equivalents in the Company’s consolidated statement of cash flows for the period presented. In January 2017, the FASB issued ASU No. 2017‑01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU No. 2017‑01”), which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. Under the new guidance, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set of transferred assets and activities is not a business. If it is not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. ASU 2017‑01 is effective for fiscal years beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company early adopted this standard as of its inception and its hotel property acquisitions to date have been determined to be asset acquisitions and acquisition costs related to these asset acquisitions have been capitalized. |
INVESTMENT IN HOTEL PROPERTIES
INVESTMENT IN HOTEL PROPERTIES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
INVESTMENT IN HOTEL PROPERTIES | |
Schedule of investment in hotel properties | December 31, 2019 2018 Land and land improvements $ 7,738,495 $ 1,536,966 Building and building improvements 53,238,276 5,558,557 Furniture, fixtures, and equipment 5,687,249 764,032 Investment in hotel properties, at cost 66,664,020 7,859,555 Less: accumulated depreciation (1,255,712) (43,810) Investment in hotel properties, net $ 65,408,308 $ 7,815,745 |
Schedule of acquisitions of hotel properties | 2019 Acquisitions Number Date of Guest Purchase Transaction % Hotel Property Type Location Purchased Rooms Price Costs Total Interest Hampton Inn & Suites Limited Service Pineville, NC March 19, 2019 111 $ 13,897,358 $ 303,744 $ 14,201,102 100 % Hampton Inn Limited Service Eagan, MN June 19, 2019 122 13,950,000 278,333 14,228,333 100 % Home2 Suites Extended Stay Prattville, AL July 11, 2019 90 14,750,000 356,014 15,106,014 100 % Home2 Suites Extended Stay Lubbock, TX December 30, 2019 100 14,150,000 284,776 14,434,776 100 % 423 $ 56,747,358 $ 1,222,867 $ 57,970,225 2018 Acquisitions Number Date of Guest Purchase Transaction % Hotel Property Type Location Purchased Rooms Price Costs Total Interest Holiday Inn Express Limited Service Cedar Rapids, IA November 30, 2018 83 $ 7,700,000 $ 158,333 $ 7,858,333 100 % 83 $ 7,700,000 $ 158,333 $ 7,858,333 |
Schedule of aggregate purchase price for the hotel properties | December 31, 2019 2018 Land and land improvements $ 6,201,529 $ 1,536,966 Building and building improvements 47,412,115 5,558,997 Furniture, fixtures, and equipment 4,772,707 762,370 Total assets acquired 58,386,351 7,858,333 Premium on assumed debt (416,126) — Total liabilities assumed (416,126) — Total purchase price (1) 57,970,225 7,858,333 Assumed mortgage debt 17,283,415 — Net purchase price $ 40,686,810 $ 7,858,333 (1) Total purchase price includes purchase price plus all transaction costs. |
PREPAID EXPENSES AND OTHER AS_2
PREPAID EXPENSES AND OTHER ASSETS (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
PREPAID EXPENSES AND OTHER ASSETS | |
Prepaid expenses and other assets | December 31, 2019 2018 Franchise fees $ 475,000 $ 392,500 Acquisition costs 472,569 158,575 Deferred tax assets, net 205,808 19,236 Insurance 113,571 22,495 Other 356,636 192,362 $ 1,623,584 $ 785,168 |
ACCRUED EXPENSES (Tables)
ACCRUED EXPENSES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
ACCRUED EXPENSES | |
Accrued expenses | December 31, 2019 2018 Distributions payable $ 342,515 $ 37,871 Acquisition costs 187,800 114,526 Property taxes 114,960 56,317 Interest 136,960 26,018 Other 143,030 47,214 $ 925,265 $ 281,946 |
DEBT - (Tables)
DEBT - (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
DEBT | |
Schedule of mortgage debt outstanding | Interest Outstanding Rate as of Balance as of December 31, Maturity December 31, Hotel Property 2019 Date 2019 Holiday Inn Express - Cedar Rapids (1) 5.33% 03/01/2024 $ 5,527,392 Hampton Inn & Suites - Pineville 5.13% 06/06/2024 9,154,289 Hampton Inn - Eagan 4.60% 07/01/2024 9,369,276 Home2 Suites - Prattville (1) 4.13% 08/01/2024 9,620,000 Home2 Suites - Lubbock 4.69% 10/06/2026 8,000,430 41,671,387 Premium on assumed debt, net 389,285 Deferred financing costs, net (1,080,040) Debt, net $ 40,980,632 (1) Loan is interest-only for the first 12 months after origination. |
Schedule of future minimum principal payments | 2020 $ 745,181 2021 979,421 2022 1,027,297 2023 1,077,500 2024 30,969,668 Thereafter 6,872,320 41,671,387 Premium on assumed debt, net 389,285 Deferred financing costs, net (1,080,040) $ 40,980,632 |
INCOME TAXES - (Tables)
INCOME TAXES - (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
INCOME TAXES | |
Schedule of the components of the Company's income tax benefit | For the Year Ended December 31, 2019 2018 Federal: Deferred $ 143,746 $ 14,263 State: Deferred 42,826 4,973 Income tax benefit $ 186,572 $ 19,236 |
Schedule of reconciliation of income taxes at U.S statutory federal income tax rate | For the Year Ended December 31, 2019 % 2018 % Expected income tax benefit at U.S. Federal statutory rate $ 1,068,481 -21.0% $ 258,320 -21.0% Tax impact of REIT election (927,264) 18.2% (242,363) 19.7% Expected tax benefit at TRS 141,217 -2.8% 15,957 -1.3% State income tax benefit, net 42,826 -0.8% 4,956 -0.4% Temporary differences - deprecation 2,529 -0.1% (1,677) 0.1% Income tax benefit $ 186,572 -3.7% $ 19,236 -1.6% |
Schedule of the Company's deferred tax assets and liabilities | December 31, 2019 2018 Deferred Tax Assets: Net operating loss carryforwards - Federal $ 1,148,996 $ 14,263 Net operating loss carryforwards - State 268,502 4,973 1,417,498 19,236 Deferred Tax Liabilities: Tax FF&E basis less than book basis - Federal (990,986) - Tax FF&E basis less than book basis - State (220,704) - (1,211,690) - Deferred tax assets, net $ 205,808 $ 19,236 |
RELATED PARTY TRANSACTIONS (Tab
RELATED PARTY TRANSACTIONS (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Legendary Capital REIT III, LLC | |
Related Party Transactions | |
Schedule of fees and reimbursements earned and payable | For the Year Ended December 31, 2019 2018 Fees: Acquisition fees $ 818,521 $ 103,476 Financing fees 818,521 103,476 Asset management fees 305,398 10,286 Performance fees 68,534 4,747 $ 2,010,974 $ 221,985 Reimbursements: Offering costs $ 2,174,471 $ 939,873 General and administrative 2,699,813 484,310 Sales and marketing 386,694 127,041 Financing costs — 45,114 Acquisition costs 989,346 41,467 Other 11,053 7,140 $ 6,261,377 $ 1,644,945 |
NHS | |
Related Party Transactions | |
Schedule of fees and reimbursements earned and payable | For the Year Ended December 31, 2019 2018 Fees: Management fees $ 342,101 $ 4,950 Administrative fees 52,605 687 Accounting fees 49,028 2,324 $ 443,734 $ 7,961 Reimbursements $ 227,398 $ 10,588 |
ORGANIZATION - (Details)
ORGANIZATION - (Details) | 12 Months Ended | ||
Dec. 31, 2019USD ($)segmentVote$ / sharesshares | Dec. 31, 2018Vote$ / sharesshares | Jun. 01, 2018USD ($)$ / shares | |
Organization | |||
Number of reportable segments | segment | 1 | ||
Number of voting classes of partnership units | Vote | 2 | 2 | |
Number of non voting classes of partnership units | Vote | 1 | 1 | |
Common stock, par value (in dollars per share) | $ / shares | $ 0.01 | $ 0.01 | |
Cumulative number of shares issued | 6,005,743 | ||
Cumulative number of shares issued pursuant to the DRIP | 89,333 | ||
Cumulative gross proceeds from issuance of stock | $ | $ 59,000,000 | ||
Private offering | |||
Organization | |||
Common stock, par value (in dollars per share) | $ / shares | $ 0.01 | ||
Maximum offering | $ | $ 100,000,000 | ||
Operating Partnership | Common Partnership Units | |||
Organization | |||
Number of outstanding partnership units | 0 | 0 | |
Operating Partnership | Series B Limited Partnership Units | |||
Organization | |||
Number of outstanding partnership units | 1,000 | 1,000 |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) | 12 Months Ended | |
Dec. 31, 2019USD ($)segment | Dec. 31, 2018USD ($) | |
Basis of Presentation and Principles of Consolidation | ||
Number of Reportable Segments | segment | 1 | |
Advertising Costs | ||
Advertising Expense | $ 311,172 | $ 7,339 |
Property Management Fees | ||
Property management fees (as a percent) | 4.00% | |
Asset management fees (as a percent) | 0.75% | |
Acquisition Costs | ||
Acquisition fee (as a percent) | 1.40% | |
Income Taxes | ||
Non eligibility term for REIT non compliance | 4 years | |
Reclassifications | ||
Earnest money deposits held in escrow accounts | 500,000 | |
Deferred tax assets, net | $ 205,808 | $ 19,236 |
Land improvements | ||
Investment in Hotel Properties | ||
Estimated useful lives | 15 years | |
Building improvements | ||
Investment in Hotel Properties | ||
Estimated useful lives | 15 years | |
Buildings | ||
Investment in Hotel Properties | ||
Estimated useful lives | 40 years | |
Furniture, fixtures, and equipment | Minimum | ||
Investment in Hotel Properties | ||
Estimated useful lives | 3 years | |
Furniture, fixtures, and equipment | Maximum | ||
Investment in Hotel Properties | ||
Estimated useful lives | 7 years |
INVESTMENT IN HOTEL PROPERTIE_2
INVESTMENT IN HOTEL PROPERTIES - Summary (Details) | Dec. 31, 2019USD ($)statepropertyroom | Dec. 31, 2018USD ($) |
Investment in hotel properties consisted of the following: | ||
Land and land improvements | $ 7,738,495 | $ 1,536,966 |
Building and building improvements | 53,238,276 | 5,558,557 |
Furniture, fixtures, and equipment | 5,687,249 | 764,032 |
Investment in hotel properties, at cost | 66,664,020 | 7,859,555 |
Less: accumulated depreciation | (1,255,712) | (43,810) |
Investment in hotel properties, net | $ 65,408,308 | $ 7,815,745 |
Other disclosures | ||
Number of hotel properties owned | property | 5 | |
Aggregate number of rooms in hotel properties | room | 506 | |
Number of states where hotel properties are owned | state | 5 |
INVESTMENT IN HOTEL PROPERTIE_3
INVESTMENT IN HOTEL PROPERTIES - Acquisitions (Details) | Dec. 30, 2019USD ($)room | Jul. 11, 2019USD ($)room | Jun. 19, 2019USD ($)room | Mar. 19, 2019USD ($)room | Nov. 30, 2018USD ($)room | Dec. 31, 2019USD ($)propertyroom | Dec. 31, 2018USD ($)propertyroom |
Acquisitions | |||||||
Number of Rooms | room | 423 | 83 | |||||
Purchase Price | $ 56,747,358 | $ 7,700,000 | |||||
Transaction Costs | 1,222,867 | 158,333 | |||||
Total | $ 57,970,225 | $ 7,858,333 | |||||
Other disclosures | |||||||
Management agreement, automatic renewal term | 5 years | ||||||
Hampton Inn & Suites(the "Pineville Property") | |||||||
Acquisitions | |||||||
Number of Rooms | room | 111 | ||||||
Purchase Price | $ 13,897,358 | ||||||
Transaction Costs | 303,744 | ||||||
Total | $ 14,201,102 | ||||||
Interest (as a percent) | 100.00% | ||||||
Other disclosures | |||||||
Liquidated damage payable | $ 1,000,000 | ||||||
Hampton Inn (the "Eagan Property") | |||||||
Acquisitions | |||||||
Number of Rooms | room | 122 | ||||||
Purchase Price | $ 13,950,000 | ||||||
Transaction Costs | 278,333 | ||||||
Total | $ 14,228,333 | ||||||
Interest (as a percent) | 100.00% | ||||||
Holiday Inn Express (the "Cedar Rapids Property") | |||||||
Acquisitions | |||||||
Number of Rooms | room | 83 | ||||||
Purchase Price | $ 7,700,000 | ||||||
Transaction Costs | 158,333 | ||||||
Total | $ 7,858,333 | ||||||
Interest (as a percent) | 100.00% | ||||||
Home2 Suites (the "Prattville Property") | |||||||
Acquisitions | |||||||
Number of Rooms | room | 90 | ||||||
Purchase Price | $ 14,750,000 | ||||||
Transaction Costs | 356,014 | ||||||
Total | $ 15,106,014 | ||||||
Interest (as a percent) | 100.00% | ||||||
Home2 Suites (the “Lubbock Home2 Property”) | |||||||
Acquisitions | |||||||
Number of Rooms | room | 100 | ||||||
Purchase Price | $ 14,150,000 | ||||||
Transaction Costs | 284,776 | ||||||
Total | $ 14,434,776 | ||||||
Interest (as a percent) | 100.00% | ||||||
Asset Acquisitions 2019 | |||||||
Other disclosures | |||||||
Number of properties acquired | property | 4 | ||||||
Asset Acquisitions 2018 | |||||||
Other disclosures | |||||||
Number of properties acquired | property | 1 |
INVESTMENT IN HOTEL PROPERTIE_4
INVESTMENT IN HOTEL PROPERTIES - Purchase Price Allocation (Details) - Nonrecurring - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
2019 Acquisitions | ||
INVESTMENT IN HOTEL PROPERTIES | ||
Land and land improvements | $ 6,201,529 | |
Building and building improvements | 47,412,115 | |
Furniture, fixtures, and equipment | 4,772,707 | |
Total assets acquired | 58,386,351 | |
Premium on assumed debt | (416,126) | |
Total liabilities assumed | (416,126) | |
Total purchase price | 57,970,225 | |
Assumed mortgage debt | 17,283,415 | |
Net purchase price | $ 40,686,810 | |
2018 Acquisitions | ||
INVESTMENT IN HOTEL PROPERTIES | ||
Land and land improvements | $ 1,536,966 | |
Building and building improvements | 5,558,997 | |
Furniture, fixtures, and equipment | 762,370 | |
Total assets acquired | 7,858,333 | |
Total purchase price | 7,858,333 | |
Net purchase price | $ 7,858,333 |
PREPAID EXPENSES AND OTHER AS_3
PREPAID EXPENSES AND OTHER ASSETS (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
PREPAID EXPENSES AND OTHER ASSETS | ||
Franchise fees | $ 475,000 | $ 392,500 |
Acquisition costs | 472,569 | 158,575 |
Deferred tax assets, net | 205,808 | 19,236 |
Insurance | 113,571 | 22,495 |
Other | 356,636 | 192,362 |
Total | $ 1,623,584 | $ 785,168 |
ACCRUED EXPENSES (Details)
ACCRUED EXPENSES (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
ACCRUED EXPENSES | ||
Distributions payable | $ 342,515 | $ 37,871 |
Acquisition costs | 187,800 | 114,526 |
Property taxes | 114,960 | 56,317 |
Interest | 136,960 | 26,018 |
Other | 143,030 | 47,214 |
Accrued Liabilities | $ 925,265 | $ 281,946 |
DEBT - Lines of Credit (Details
DEBT - Lines of Credit (Details) - Revolving line of credit - USD ($) $ in Millions | Nov. 15, 2018 | Aug. 22, 2018 | Dec. 31, 2018 | Dec. 31, 2019 | Nov. 30, 2019 | Oct. 31, 2019 |
Lender One | ||||||
Debt | ||||||
Revolving line of credit | $ 3 | |||||
Partnership units pledged | 300,000 | |||||
Variable interest rate (as a percent) | 6.50% | 5.75% | ||||
Outstanding amount | $ 0 | $ 0 | ||||
Lender One | Corey Maple | ||||||
Debt | ||||||
Line of credit guarantee amount | 1.2 | |||||
Lender One | Norman Leslie | ||||||
Debt | ||||||
Line of credit guarantee amount | $ 1.2 | |||||
Lender One | Minimum | ||||||
Debt | ||||||
Variable interest rate (as a percent) | 5.00% | 5.00% | 6.00% | |||
Lender One | U.S. Prime Rate | ||||||
Debt | ||||||
Basis spread (as a percent) | 1.00% | |||||
Lender Two | ||||||
Debt | ||||||
Revolving line of credit | $ 25 | |||||
Variable interest rate (as a percent) | 5.60% | |||||
Initial term | 12 months | |||||
Amount drew from line of credit | $ 5.2 | |||||
Lender Two | 30‑day LIBOR | ||||||
Debt | ||||||
Basis spread (as a percent) | 3.25% |
DEBT - Mortgage Debt (Details)
DEBT - Mortgage Debt (Details) | 12 Months Ended | |
Dec. 31, 2019USD ($)property | Dec. 31, 2018USD ($) | |
Outstanding Mortgage Debt: | ||
Outstanding balance | $ 41,671,387 | |
Premium on assumed debt, net | 389,285 | |
Deferred financing costs, net | (1,080,040) | |
Debt, net | 40,980,632 | |
Interest payable | $ 136,960 | $ 26,018 |
Mortgage Debt | ||
Debt | ||
Number of properties as security for mortgage debt | property | 5 | |
Weighted-average interest rate (as a percent) | 4.72% | |
Outstanding Mortgage Debt: | ||
Outstanding balance | $ 41,671,387 | |
Premium on assumed debt, net | 389,285 | |
Deferred financing costs, net | (1,080,040) | |
Debt, net | $ 40,980,632 | |
Mortgage Debt | Minimum | ||
Debt | ||
Fixed interest rate (as a percent) | 4.13% | |
Mortgage Debt | Maximum | ||
Debt | ||
Fixed interest rate (as a percent) | 5.33% | |
Holiday Inn Express (the "Cedar Rapids Property") | Mortgage Debt | ||
Outstanding Mortgage Debt: | ||
Outstanding balance | $ 5,527,392 | |
Interest rate (as a percent) | 5.33% | |
Hampton Inn & Suites(the "Pineville Property") | Mortgage Debt | ||
Outstanding Mortgage Debt: | ||
Outstanding balance | $ 9,154,289 | |
Interest rate (as a percent) | 5.13% | |
Hampton Inn (the "Eagan Property") | Mortgage Debt | ||
Outstanding Mortgage Debt: | ||
Outstanding balance | $ 9,369,276 | |
Interest rate (as a percent) | 4.60% | |
Home2 Suites (the "Prattville Property") | Mortgage Debt | ||
Outstanding Mortgage Debt: | ||
Outstanding balance | $ 9,620,000 | |
Interest rate (as a percent) | 4.13% | |
Loan interest applicable term | 12 years | |
Home2 Suites (the “Lubbock Home2 Property”) | Mortgage Debt | ||
Outstanding Mortgage Debt: | ||
Outstanding balance | $ 8,000,430 | |
Interest rate (as a percent) | 4.69% |
DEBT - Future Minimum Payments
DEBT - Future Minimum Payments (Details) | Dec. 31, 2019USD ($) |
Future minimum payments | |
2020 | $ 745,181 |
2021 | 979,421 |
2022 | 1,027,297 |
2023 | 1,077,500 |
2024 | 30,969,668 |
Thereafter | 6,872,320 |
Total | 41,671,387 |
Premium on assumed debt, net | 389,285 |
Deferred financing costs, net | (1,080,040) |
Debt, net | $ 40,980,632 |
FAIR VALUE OF FINANCIAL INSTR_2
FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) | Dec. 31, 2019USD ($) |
Fair value of financial instruments | |
Gross carrying value | $ 41,671,387 |
Mortgage Debt | |
Fair value of financial instruments | |
Fair value | 42,700,000 |
Gross carrying value | $ 41,671,387 |
INCOME TAXES - Narrative (Detai
INCOME TAXES - Narrative (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Operating Loss Carryforwards [Line Items] | ||
Percentage of distributions paid that were determined to be returns of capital distributions | 100.00% | 100.00% |
Net deferred tax assets | $ 205,808 | $ 19,236 |
Federal | ||
Operating Loss Carryforwards [Line Items] | ||
NOL carryforwards | 1,100,000 | 14,263 |
State | ||
Operating Loss Carryforwards [Line Items] | ||
NOL carryforwards | $ 268,502 | $ 4,973 |
INCOME TAXES - Components of In
INCOME TAXES - Components of Income Tax Benefit (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Federal: | ||
Deferred | $ 143,746 | $ 14,263 |
State: | ||
Deferred | 42,826 | 4,973 |
Income tax benefit | $ 186,572 | $ 19,236 |
INCOME TAXES - Reconciliation (
INCOME TAXES - Reconciliation (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Effective income tax reconciliation, amount | ||
Expected income tax benefit at U.S. Federal statutory rate | $ 1,068,481 | $ 258,320 |
Tax impact of REIT election | (927,264) | (242,363) |
Expected tax benefit at TRS | 141,217 | 15,957 |
State income tax benefit, net | 42,826 | 4,956 |
Temporary differences - depreciation | 2,529 | (1,677) |
Income tax benefit | $ 186,572 | $ 19,236 |
Effective income tax reconciliation, percent | ||
Expected income tax benefit at U.S. Federal statutory rate (as a percent) | (21.00%) | (21.00%) |
Tax impact of REIT election (as a percent) | 18.20% | 19.70% |
State income tax benefit, net (as a percent) | (0.80%) | (0.40%) |
Temporary differences - depreciation (as a percent) | (0.10%) | 0.10% |
Income tax benefit (as a percent) | (3.70%) | (1.60%) |
INCOME TAXES - Deferred Taxes (
INCOME TAXES - Deferred Taxes (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Deferred Tax Assets | ||
Net operating loss carryforwards - Federal | $ 1,148,996 | $ 14,263 |
Net operating loss carryforwards - State | 268,502 | 4,973 |
Total, deferred tax assets | 1,417,498 | 19,236 |
Deferred Tax Liabilities | ||
Tax FF&E basis less than book basis - Federal | (990,986) | |
Tax FF&E basis less than book basis - State | (220,704) | |
Total, deferred tax liabilities | (1,211,690) | |
Deferred tax assets, net | $ 205,808 | $ 19,236 |
RELATED PARTY TRANSACTIONS - Na
RELATED PARTY TRANSACTIONS - Narratives (Details) | 12 Months Ended | |
Dec. 31, 2019USD ($)$ / roomshares | Dec. 31, 2018USD ($)shares | |
Related Party Transactions | ||
Distributions paid | $ 1,496,566 | $ 79,056 |
Amounts due and payable | 966,379 | 713,350 |
Advisor And Affiliates | ||
Related Party Transactions | ||
Reimbursements paid to advisor and affiliates | 6,261,377 | 1,644,945 |
Amounts due and payable | $ 918,863 | 685,685 |
NHS | ||
Related Party Transactions | ||
Renewal term of advisory agreement | 5 years | |
Monthly base management fee (as a percent) | 4.00% | |
Accounting fee per room | $ / room | 14 | |
Administrative fee (as a percent) | 0.60% | |
Reimbursements paid to advisor and affiliates | $ 227,398 | 10,588 |
Amounts due and payable | $ 47,516 | 15,360 |
Advisory Agreement | Legendary Capital REIT III, LLC | ||
Related Party Transactions | ||
Term of advisory agreement | 10 years | |
Acquisition fee (as a percent) | 1.40% | |
Financing fee (as a percent) | 1.40% | |
Asset management fee (as a percent) | 0.75% | |
Refinancing fee (as a percent) | 0.75% | |
Real estate commissions, maximum (as a percent) | 5.00% | |
Annual guarantee fee (as a percent) | 1.00% | |
Annual subordinated performance fee (as a percent) | 20.00% | |
Cumulative return (as a percent) | 6.00% | |
Distributions (as a percent) | 5.00% | |
Distributions as a percent of the limited partners' capital contributions in event of liquidation, termination, merger or other cessation (as a percent) | 5.00% | |
Distributions as a percent of net proceeds from sale of properties in event of liquidation, termination, merger or other cessation (as a percent) | 20.00% | |
Reimbursement after termination of the Offering (as a percent) | 15.00% | |
Distributions payable | $ 126,247 | 8,744 |
Advisory Agreement | Legendary Capital REIT III, LLC | Maximum | ||
Related Party Transactions | ||
Disposal fee (as a percent) | 4.00% | |
Real estate commissions (as a percent) | 3.00% | |
Advisory Agreement | Legendary Capital REIT III, LLC | Minimum | ||
Related Party Transactions | ||
Disposal fee (as a percent) | 0.00% | |
Advisory Agreement | Legendary Capital REIT III, LLC | Corey Maple | ||
Related Party Transactions | ||
Distributions paid | $ 37,634 | $ 18,765 |
Number of shares held by shareholders | shares | 53,763 | 53,763 |
Advisory Agreement | Legendary Capital REIT III, LLC | Norman Leslie | ||
Related Party Transactions | ||
Distributions paid | $ 37,634 | $ 18,765 |
Number of shares held by shareholders | shares | 53,763 | 53,763 |
RELATED PARTY TRANSACTIONS - Le
RELATED PARTY TRANSACTIONS - Legendary Capital (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Related Party Transactions | ||
Amounts due and payable | $ 966,379 | $ 713,350 |
Advisor And Affiliates | ||
Related Party Transactions | ||
Reimbursements | 6,261,377 | 1,644,945 |
Amounts due and payable | 918,863 | 685,685 |
Advisor And Affiliates | Offering Costs | ||
Related Party Transactions | ||
Reimbursements | 2,174,471 | 939,873 |
Advisor And Affiliates | General and Administrative | ||
Related Party Transactions | ||
Reimbursements | 2,699,813 | 484,310 |
Advisor And Affiliates | Sales and Marketing | ||
Related Party Transactions | ||
Reimbursements | 386,694 | 127,041 |
Advisor And Affiliates | Financing Costs | ||
Related Party Transactions | ||
Reimbursements | 45,114 | |
Advisor And Affiliates | Acquisition Costs | ||
Related Party Transactions | ||
Reimbursements | 989,346 | 41,467 |
Advisor And Affiliates | Other Costs | ||
Related Party Transactions | ||
Reimbursements | 11,053 | 7,140 |
Legendary Capital REIT III, LLC | Advisory Agreement | ||
Related Party Transactions | ||
Acquisition fees | 818,521 | 103,476 |
Financing fees | 818,521 | 103,476 |
Asset management fees | 305,398 | 10,286 |
Performance fees | 68,534 | 4,747 |
Distributions | 126,247 | 8,744 |
Total fees and distributions | $ 2,010,974 | $ 221,985 |
RELATED PARTY TRANSACTIONS - NH
RELATED PARTY TRANSACTIONS - NHS (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Related Party Transactions | ||
Amounts due and payable | $ 966,379 | $ 713,350 |
NHS | ||
Related Party Transactions | ||
Reimbursements | 227,398 | 10,588 |
Amounts due and payable | 47,516 | 15,360 |
NHS | ||
Related Party Transactions | ||
Management fees | 342,101 | 4,950 |
Administrative fees | 52,605 | 687 |
Accounting fees | 49,028 | 2,324 |
Total fees | $ 443,734 | $ 7,961 |
FRANCHISE AGREEMENTS - (Details
FRANCHISE AGREEMENTS - (Details) | 12 Months Ended |
Dec. 31, 2019USD ($) | |
Maximum | |
Franchise Agreements | |
Initial term of franchise agreement | 18 years |
Royalty fee (as a percent) | 6.00% |
Program fee (as a percent) | 4.00% |
Initial franchise fee | $ 175,000 |
Minimum | |
Franchise Agreements | |
Initial term of franchise agreement | 10 years |
Royalty fee (as a percent) | 5.00% |
Program fee (as a percent) | 3.00% |
Initial franchise fee | $ 50,000 |
STOCKHOLDERS' EQUITY (Details)
STOCKHOLDERS' EQUITY (Details) | 12 Months Ended | ||
Dec. 31, 2019USD ($)Vote$ / sharesshares | Dec. 31, 2018USD ($)$ / sharesshares | Jun. 01, 2018USD ($)$ / shares | |
Stockholders' Equity | |||
Common stock, shares authorized | shares | 900,000,000 | 900,000,000 | |
Preferred stock, shares authorized | shares | 100,000,000 | 100,000,000 | |
Common stock voting rights | Vote | 1 | ||
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 | |
Percentage of current share net asset value | 95.00% | ||
Common stock dividends per share declared on daily rate basis | $ 0.00191781 | ||
Share repurchase plan, amount available for eligible repurchases | $ | $ 799,133 | $ 49,530 | |
Private offering | |||
Stockholders' Equity | |||
Common stock, par value (in dollars per share) | $ 0.01 | ||
Common stock, offering price | $ 10 | ||
Maximum offering | $ | $ 100,000,000 |
SUBSEQUENT EVENTS - (Details)
SUBSEQUENT EVENTS - (Details) | Mar. 16, 2020USD ($) | Mar. 10, 2020USD ($) | Feb. 21, 2020USD ($)room | Feb. 10, 2020USD ($)shares | Jan. 10, 2020USD ($) | Jan. 01, 2020$ / shares | Aug. 22, 2018USD ($) | Dec. 31, 2019USD ($)$ / sharesshares | Dec. 31, 2018USD ($) | Mar. 24, 2020USD ($)shares | Feb. 17, 2020USD ($)room | Jan. 08, 2020USD ($)room |
Subsequent Events | ||||||||||||
Common stock dividends per share declared on daily rate basis | $ / shares | $ 0.00191781 | |||||||||||
Outstanding balance | $ 41,671,387 | |||||||||||
Distributions paid | $ 1,496,566 | $ 79,056 | ||||||||||
Cumulative number of shares issued since inception of the Offering | shares | 6,005,743 | |||||||||||
Cumulative number of shares issued pursuant to the DRIP | shares | 89,333 | |||||||||||
Cumulative gross proceeds from issuance of stock since inception of the Offering | $ 59,000,000 | |||||||||||
Revolving line of credit | Lender One | ||||||||||||
Subsequent Events | ||||||||||||
Revolving line of credit | $ 3,000,000 | |||||||||||
Outstanding amount | $ 0 | $ 0 | ||||||||||
Revolving line of credit | Lender One | U.S. Prime Rate | ||||||||||||
Subsequent Events | ||||||||||||
Variable interest rate | 1.00% | |||||||||||
Subsequent Event | ||||||||||||
Subsequent Events | ||||||||||||
Common stock dividends per share declared on daily rate basis | $ / shares | $ 0.00191781 | |||||||||||
Distributions paid | $ 382,325 | $ 358,474 | $ 342,515 | |||||||||
Distributions paid pursuant to the DRIP | $ 150,022 | 139,094 | $ 130,304 | |||||||||
Cumulative number of shares issued since inception of the Offering | shares | 6,962,813 | |||||||||||
Cumulative number of shares issued pursuant to the DRIP | shares | 133,482 | |||||||||||
Cumulative gross proceeds from issuance of stock since inception of the Offering | $ 68,400,000 | |||||||||||
Subsequent Event | Revolving line of credit | Lender One | ||||||||||||
Subsequent Events | ||||||||||||
Revolving line of credit | $ 3,000,000 | |||||||||||
Amount drew from line of credit | $ 2,000,000 | |||||||||||
Subsequent Event | Revolving line of credit | Lender Three | ||||||||||||
Subsequent Events | ||||||||||||
Revolving line of credit | $ 5,000,000 | |||||||||||
Effective interest rate | 5.25% | |||||||||||
Partnership units held as collateral | shares | 100,000 | |||||||||||
Outstanding amount | $ 3,200,000 | |||||||||||
Subsequent Event | Revolving line of credit | Lender Three | U.S. Prime Rate | ||||||||||||
Subsequent Events | ||||||||||||
Variable interest rate | 0.50% | |||||||||||
Subsequent Event | Fairfield Inn Lubbock Hotel | ||||||||||||
Subsequent Events | ||||||||||||
Number of rooms in hotel property | room | 101 | |||||||||||
Contractual purchase price | $ 15,150,000 | |||||||||||
Subsequent Event | Fairfield Inn Lubbock Hotel | Loan Maturing April 2029 | ||||||||||||
Subsequent Events | ||||||||||||
Loan assumed | $ 9,400,000 | |||||||||||
Interest rate (as a percent) | 4.93% | |||||||||||
Subsequent Event | Pennsylvania hotel properties | ||||||||||||
Subsequent Events | ||||||||||||
Escrow deposit | $ 1,500,000 | |||||||||||
Subsequent Event | Fairfield Inn & Suites, Hershey, Pennsylvania | ||||||||||||
Subsequent Events | ||||||||||||
Number of rooms in hotel property | room | 108 | |||||||||||
Subsequent Event | Home2 Suites, York, Pennsylvania | ||||||||||||
Subsequent Events | ||||||||||||
Number of rooms in hotel property | room | 107 | |||||||||||
Subsequent Event | Hampton Inn & Suites, York, Pennsylvania | ||||||||||||
Subsequent Events | ||||||||||||
Number of rooms in hotel property | room | 100 | |||||||||||
Subsequent Event | Homewood Suites, Southhaven, Mississippi | ||||||||||||
Subsequent Events | ||||||||||||
Number of rooms in hotel property | room | 99 | |||||||||||
Contractual purchase price | $ 20,500,000 | |||||||||||
Subsequent Event | Homewood Suites, Southhaven, Mississippi | Term Loan Maturing March 2025 | ||||||||||||
Subsequent Events | ||||||||||||
Interest rate (as a percent) | 3.695% | |||||||||||
Term loan | $ 13,460,000 | |||||||||||
Subsequent Event | Management Agreement with Vista Host | Homewood Suites, Southhaven, Mississippi | ||||||||||||
Subsequent Events | ||||||||||||
Number of renewal terms | 2 years | |||||||||||
Term of agreement | 5 years | |||||||||||
Property management fee (as a percent) | 3.00% | |||||||||||
Management fees | $ 1,000 | |||||||||||
Subsequent Event | Forecast | Pennsylvania hotel properties | ||||||||||||
Subsequent Events | ||||||||||||
Contractual purchase price | $ 46,900,000 |
SCHEDULE III - Real Estate an_2
SCHEDULE III - Real Estate and Accumulated Depreciation - Changes in Real Estate and Accumulated Depreciation (Details) | 12 Months Ended | |
Dec. 31, 2019USD ($)room | Dec. 31, 2018USD ($) | |
Real Estate and Accumulated Depreciation. | ||
Number of Rooms | room | 506 | |
Encumbrances | $ 41,671,387 | |
Initial Cost | ||
Land and Land Improvements | 7,738,495 | |
Building, Building Improvements and FF&E | 58,506,189 | |
Costs Capitalized Subsequent to Acquisition | ||
Building, Building Improvements and FF&E | 419,336 | |
Gross Amount at End of Year | ||
Land and Land Improvements | 7,738,495 | |
Building, Building Improvements and FF&E | 58,925,525 | |
Total | 66,664,020 | $ 7,859,555 |
Accumulated Depreciation | (1,255,712) | $ (43,810) |
Aggregate cost for federal income tax purposes | $ 66,300,000 | |
Holiday Inn Express (the "Cedar Rapids Property") | ||
Real Estate and Accumulated Depreciation. | ||
Number of Rooms | room | 83 | |
Encumbrances | $ 5,527,392 | |
Initial Cost | ||
Land and Land Improvements | 1,536,966 | |
Building, Building Improvements and FF&E | 6,321,367 | |
Costs Capitalized Subsequent to Acquisition | ||
Building, Building Improvements and FF&E | 290,720 | |
Gross Amount at End of Year | ||
Land and Land Improvements | 1,536,966 | |
Building, Building Improvements and FF&E | 6,612,087 | |
Total | 8,149,053 | |
Accumulated Depreciation | $ (310,451) | |
Hampton Inn & Suites(the "Pineville Property") | ||
Real Estate and Accumulated Depreciation. | ||
Number of Rooms | room | 111 | |
Encumbrances | $ 9,154,289 | |
Initial Cost | ||
Land and Land Improvements | 2,014,533 | |
Building, Building Improvements and FF&E | 12,327,740 | |
Costs Capitalized Subsequent to Acquisition | ||
Building, Building Improvements and FF&E | 38,090 | |
Gross Amount at End of Year | ||
Land and Land Improvements | 2,014,533 | |
Building, Building Improvements and FF&E | 12,365,830 | |
Total | 14,380,363 | |
Accumulated Depreciation | $ (376,530) | |
Hampton Inn (the "Eagan Property") | ||
Real Estate and Accumulated Depreciation. | ||
Number of Rooms | room | 122 | |
Encumbrances | $ 9,369,276 | |
Initial Cost | ||
Land and Land Improvements | 1,691,813 | |
Building, Building Improvements and FF&E | 12,536,520 | |
Costs Capitalized Subsequent to Acquisition | ||
Building, Building Improvements and FF&E | 80,770 | |
Gross Amount at End of Year | ||
Land and Land Improvements | 1,691,813 | |
Building, Building Improvements and FF&E | 12,617,290 | |
Total | 14,309,103 | |
Accumulated Depreciation | $ (291,830) | |
Home2 Suites (the "Prattville Property") | ||
Real Estate and Accumulated Depreciation. | ||
Number of Rooms | room | 90 | |
Encumbrances | $ 9,620,000 | |
Initial Cost | ||
Land and Land Improvements | 1,691,954 | |
Building, Building Improvements and FF&E | 13,414,060 | |
Costs Capitalized Subsequent to Acquisition | ||
Building, Building Improvements and FF&E | 8,860 | |
Gross Amount at End of Year | ||
Land and Land Improvements | 1,691,954 | |
Building, Building Improvements and FF&E | 13,422,920 | |
Total | 15,114,874 | |
Accumulated Depreciation | $ (233,425) | |
Home2 Suites (the “Lubbock Home2 Property”) | ||
Real Estate and Accumulated Depreciation. | ||
Number of Rooms | room | 100 | |
Encumbrances | $ 8,000,430 | |
Initial Cost | ||
Land and Land Improvements | 803,229 | |
Building, Building Improvements and FF&E | 13,906,502 | |
Costs Capitalized Subsequent to Acquisition | ||
Building, Building Improvements and FF&E | 896 | |
Gross Amount at End of Year | ||
Land and Land Improvements | 803,229 | |
Building, Building Improvements and FF&E | 13,907,398 | |
Total | 14,710,627 | |
Accumulated Depreciation | $ (43,476) | |
Minimum | Holiday Inn Express (the "Cedar Rapids Property") | ||
Gross Amount at End of Year | ||
Depreciable Lives | 3 years | |
Minimum | Hampton Inn & Suites(the "Pineville Property") | ||
Gross Amount at End of Year | ||
Depreciable Lives | 3 years | |
Minimum | Hampton Inn (the "Eagan Property") | ||
Gross Amount at End of Year | ||
Depreciable Lives | 3 years | |
Minimum | Home2 Suites (the "Prattville Property") | ||
Gross Amount at End of Year | ||
Depreciable Lives | 3 years | |
Minimum | Home2 Suites (the “Lubbock Home2 Property”) | ||
Gross Amount at End of Year | ||
Depreciable Lives | 3 years | |
Maximum | Holiday Inn Express (the "Cedar Rapids Property") | ||
Gross Amount at End of Year | ||
Depreciable Lives | 40 years | |
Maximum | Hampton Inn & Suites(the "Pineville Property") | ||
Gross Amount at End of Year | ||
Depreciable Lives | 40 years | |
Maximum | Hampton Inn (the "Eagan Property") | ||
Gross Amount at End of Year | ||
Depreciable Lives | 40 years | |
Maximum | Home2 Suites (the "Prattville Property") | ||
Gross Amount at End of Year | ||
Depreciable Lives | 40 years | |
Maximum | Home2 Suites (the “Lubbock Home2 Property”) | ||
Gross Amount at End of Year | ||
Depreciable Lives | 40 years |
SCHEDULE III- Real Estate and A
SCHEDULE III- Real Estate and Accumulated Depreciation - Investment in Real Estate and Accumulated Depreciation (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Investment in Real Estate: | ||
Balance at beginning of period | $ 7,859,555 | |
Acquisitions | 58,386,351 | $ 7,858,333 |
Improvements | 418,114 | 1,222 |
Balance at end of period | 66,664,020 | 7,859,555 |
Accumulated Depreciation: | ||
Balance at beginning of period | (43,810) | |
Depreciation expense | (1,211,902) | (43,810) |
Balance at end of period | $ (1,255,712) | $ (43,810) |