UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2018
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-52610
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Maryland | 20-1237795 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| 1985 Cedar Bridge Avenue, Suite 1 | ||
| Lakewood, New Jersey | 08701 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(732) 367-0129
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer ¨ | Accelerated filer ¨ | |
| Non-accelerated filer þ | Smaller reporting company þ | |
| Emerging growth company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
As of November 1, 2018, there were approximately 24.0 million outstanding shares of common stock of Lightstone Value Plus Real Estate Investment Trust, Inc., including shares issued pursuant to the dividend reinvestment plan.
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
| As of September 30, 2018 | As of December 31, 2017 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Investment property: | ||||||||
| Land and improvements | $ | 44,647 | $ | 49,681 | ||||
| Building and improvements | 153,419 | 164,418 | ||||||
| Furniture and fixtures | 2,236 | 2,154 | ||||||
| Construction in progress | 270 | 204 | ||||||
| Gross investment property | 200,572 | 216,457 | ||||||
| Less accumulated depreciation | (39,548 | ) | (37,956 | ) | ||||
| Net investment property | 161,024 | 178,501 | ||||||
| Investment in related parties | 114,791 | 159,792 | ||||||
| Cash and cash equivalents | 61,829 | 116,434 | ||||||
| Marketable securities, available for sale | 120,166 | 57,944 | ||||||
| Restricted cash | 9,157 | 2,785 | ||||||
| Tenant and other accounts receivable | 979 | 1,143 | ||||||
| Intangible assets | 220 | 337 | ||||||
| Prepaid expenses and other assets | 2,923 | 2,738 | ||||||
| Total Assets | $ | 471,089 | $ | 519,674 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Mortgages payable, net | $ | 117,186 | $ | 157,927 | ||||
| Notes payable | 18,613 | 18,602 | ||||||
| Accounts payable, accrued expenses and other liabilities | 21,451 | 20,388 | ||||||
| Due to related parties | 293 | 496 | ||||||
| Tenant allowances and deposits payable | 1,052 | 1,483 | ||||||
| Distributions payable | 4,240 | 4,387 | ||||||
| Deferred rental income | 829 | 716 | ||||||
| Acquired below market lease intangibles | 199 | 305 | ||||||
| Total Liabilities | 163,863 | 204,304 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity: | ||||||||
| Company's Stockholders Equity: | ||||||||
| Preferred shares, $0.01 par value, 10,000 shares authorized, none issued and outstanding | - | - | ||||||
| Common stock, $0.01 par value; 60,000 shares authorized, 24,012 and 24,847 shares issued and outstanding, respectively | 240 | 248 | ||||||
| Additional paid-in-capital | 187,908 | 194,497 | ||||||
| Accumulated other comprehensive (loss)/income | (1,273 | ) | 15,467 | |||||
| Accumulated surplus | 105,122 | 86,956 | ||||||
| Total Company's stockholders' equity | 291,997 | 297,168 | ||||||
| Noncontrolling interests | 15,229 | 18,202 | ||||||
| Total Stockholders' Equity | 307,226 | 315,370 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 471,089 | $ | 519,674 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Revenues: | ||||||||||||||||
| Rental income | $ | 4,511 | $ | 8,085 | $ | 14,151 | $ | 24,705 | ||||||||
| Tenant recovery income | 485 | 738 | 1,877 | 2,553 | ||||||||||||
| Other service income | - | 2,069 | - | 7,834 | ||||||||||||
| Total revenues | 4,996 | 10,892 | 16,028 | 35,092 | ||||||||||||
| Expenses: | ||||||||||||||||
| Property operating expenses | 1,600 | 5,652 | 5,005 | 18,513 | ||||||||||||
| Real estate taxes | 318 | 602 | 1,283 | 1,951 | ||||||||||||
| General and administrative costs | 1,084 | 2,174 | 3,291 | 4,615 | ||||||||||||
| Depreciation and amortization | 1,639 | 2,738 | 5,217 | 8,252 | ||||||||||||
| Total operating expenses | 4,641 | 11,166 | 14,796 | 33,331 | ||||||||||||
| Operating income/(loss) | 355 | (274 | ) | 1,232 | 1,761 | |||||||||||
| Other income/(loss), net | 116 | (43 | ) | 228 | 8 | |||||||||||
| Interest and dividend income | 4,590 | 5,635 | 14,328 | 15,432 | ||||||||||||
| Interest expense | (2,005 | ) | (3,581 | ) | (7,333 | ) | (10,776 | ) | ||||||||
| Gain on disposition of real estate | - | 10,483 | 7,137 | 10,483 | ||||||||||||
| Loss on sale and redemption of marketable securities | (3 | ) | (18 | ) | (81 | ) | (67 | ) | ||||||||
| Unrealized gain on marketable equity securities | 1,436 | - | 1,096 | - | ||||||||||||
| Gain on satisfaction of mortgage receivable | - | - | - | 3,216 | ||||||||||||
| Net income | 4,489 | 12,202 | 16,607 | 20,057 | ||||||||||||
| Less: net income attributable to noncontrolling interests | (465 | ) | (392 | ) | (1,108 | ) | (915 | ) | ||||||||
| Net income attributable to Company's common shares | $ | 4,024 | $ | 11,810 | $ | 15,499 | $ | 19,142 | ||||||||
| Net income per Company’s common share, basic and diluted | $ | 0.17 | $ | 0.47 | $ | 0.63 | $ | 0.77 | ||||||||
| Weighted average number of common shares outstanding, basic and diluted | 24,299 | 24,931 | 24,575 | 24,993 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Net income | $ | 4,489 | $ | 12,202 | $ | 16,607 | $ | 20,057 | ||||||||
| Other comprehensive income/(loss) | ||||||||||||||||
| Holding gain/(loss) on marketable securities, available for sale | 127 | (48 | ) | (1,370 | ) | (2,789 | ) | |||||||||
| Reclassification adjustment for loss included in net income | 3 | 18 | 81 | 67 | ||||||||||||
| Other comprehensive gain/(loss) | 130 | (30 | ) | (1,289 | ) | (2,722 | ) | |||||||||
| Comprehensive income | 4,619 | 12,172 | 15,318 | 17,335 | ||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | (468 | ) | (379 | ) | (1,083 | ) | (576 | ) | ||||||||
| Comprehensive income attributable to Company's common shares | $ | 4,151 | $ | 11,793 | $ | 14,235 | $ | 16,759 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Amounts in thousands)
(Unaudited)
| Common | Additional Paid-In- | Accumulated Other Comprehensive | Accumulated | Noncontrolling | Total Stockholders' | |||||||||||||||||||||||
| Shares | Amount | Capital | Income/(loss) | Surplus | Interests | Equity | ||||||||||||||||||||||
| BALANCE, December 31, 2017 | 24,847 | $ | 248 | $ | 194,497 | $ | 15,467 | $ | 86,956 | $ | 18,202 | $ | 315,370 | |||||||||||||||
| Reclassification of other accumulated comprehensive income to accumulated surplus (See Note 3) | - | - | - | (15,476 | ) | 15,476 | - | - | ||||||||||||||||||||
| Net income | - | - | - | - | 15,499 | 1,108 | 16,607 | |||||||||||||||||||||
| Transfer of membership interests (See Note 7) | - | - | 1,500 | - | - | (1,500 | ) | - | ||||||||||||||||||||
| Other comprehensive loss | - | - | - | (1,264 | ) | - | (25 | ) | (1,289 | ) | ||||||||||||||||||
| Distributions declared | - | - | - | - | (12,809 | ) | - | (12,809 | ) | |||||||||||||||||||
| Distributions paid to noncontrolling interests | - | - | - | - | - | (2,562 | ) | (2,562 | ) | |||||||||||||||||||
| Contributions received from noncontrolling interests | - | - | - | - | - | 6 | 6 | |||||||||||||||||||||
| Redemption and cancellation of shares | (835 | ) | (8 | ) | (8,089 | ) | - | - | - | (8,097 | ) | |||||||||||||||||
| BALANCE, September 30, 2018 | 24,012 | $ | 240 | $ | 187,908 | $ | (1,273 | ) | $ | 105,122 | $ | 15,229 | $ | 307,226 | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)(Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2018 | 2017 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | 16,607 | $ | 20,057 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 5,217 | 8,252 | ||||||
| Unrealized gain on marketable equity securities, available for sale | (1,096 | ) | - | |||||
| Loss on sale of marketable securities, available for sale | 81 | 67 | ||||||
| Gain on disposition of real estate | (7,137 | ) | (10,483 | ) | ||||
| Gain on satisfaction of mortgage receivable | - | (3,216 | ) | |||||
| Other non-cash adjustments | 126 | 485 | ||||||
| Changes in assets and liabilities: | ||||||||
| Increase in prepaid expenses and other assets | (467 | ) | (339 | ) | ||||
| Decrease in tenant and other accounts receivable | 211 | 426 | ||||||
| Decrease in tenant allowances and deposits payable | (219 | ) | (287 | ) | ||||
| Increase in accounts payable, accrued expenses and other liabilities | 2,224 | 3,781 | ||||||
| Decrease in due to related parties | (203 | ) | (20 | ) | ||||
| (Decrease)/increase in deferred rental income | 126 | (127 | ) | |||||
| Net cash provided by operating activities | 15,470 | 18,596 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of investment property, net | (1,032 | ) | (2,290 | ) | ||||
| Purchase of marketable securities | (72,477 | ) | (5,081 | ) | ||||
| Collections on mortgage receivable | - | 8,109 | ||||||
| Proceeds from sale and redemption of marketable securities | 9,982 | 936 | ||||||
| Proceeds from preferred investments in related parties | 60,000 | 2,300 | ||||||
| Proceeds from joint venture | 765 | 372 | ||||||
| Investments in joint venture | (644 | ) | (117 | ) | ||||
| Investments in related parties | (15,120 | ) | (13,739 | ) | ||||
| Proceeds from sale of investment property and other real estate assets | - | 32,651 | ||||||
| Net cash (used in)/provided by investing activities | (18,526 | ) | 23,141 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Mortgage payments | (21,568 | ) | (306 | ) | ||||
| Redemption and cancellation of common stock | (8,097 | ) | (2,052 | ) | ||||
| Contributions received from noncontrolling interests | 6 | 8 | ||||||
| Distributions paid to noncontrolling interests | (2,562 | ) | (2,885 | ) | ||||
| Distributions paid to Company's common stockholders | (12,956 | ) | (13,116 | ) | ||||
| Net cash used in financing activities | (45,177 | ) | (18,351 | ) | ||||
| Net change in cash, cash equivalents and restricted cash | (48,233 | ) | 23,386 | |||||
| Cash, cash equivalents and restricted cash, beginning of year | 119,219 | 108,357 | ||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 70,986 | $ | 131,743 | ||||
| Supplemental cash flow information for the periods indicated is as follows: | ||||||||
| Cash paid for interest | $ | 5,163 | $ | 5,694 | ||||
| Distributions declared but not paid | $ | 4,240 | $ | 4,396 | ||||
| Non cash purchase of investment property | $ | 125 | $ | 336 | ||||
| Unrealized loss on marketable securities | $ | 1,289 | $ | 2,722 | ||||
| Assets transferred due to foreclosure | $ | 13,521 | $ | 27,028 | ||||
| Liabilities credited in foreclosure | $ | 20,658 | $ | 27,028 | ||||
| Reclassification of accumulated other comprehensive income to accumulated surplus | $ | 15,476 | $ | - | ||||
| Transfer of membership interests from noncontrolling interests to additional paid-in-capital | $ | 1,500 | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements.
7
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
| 1. | Organization |
Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation (“Lightstone REIT”) was formed on June 8, 2004 (date of inception) and subsequently qualified as a real estate investment trust (“REIT”) during the year ending December 31, 2006. Lightstone REIT was formed primarily for the purpose of engaging in the business of investing in and owning commercial and residential real estate properties located throughout the United States. The Company also has and will continue to seek to originate, acquire and manage a diverse portfolio of real estate-related investments.
Lightstone REIT is structured as an umbrella partnership REIT, or UPREIT, and substantially all of its current and future business is and will be conducted through Lightstone Value Plus REIT, L.P., a Delaware limited partnership formed on July 12, 2004 (the “Operating Partnership”), in which Lightstone REIT as the general partner, held a 98% interest as of September 30, 2018.
The Lightstone REIT and the Operating Partnership and its subsidiaries are collectively referred to as the ‘‘Company’’ and the use of ‘‘we,’’ ‘‘our,’’ ‘‘us’’ or similar pronouns refers to the Lightstone REIT, its Operating Partnership or the Company as required by the context in which such pronoun is used.
The Company is managed by Lightstone Value Plus REIT, LLC (the “Advisor”), an affiliate of the Lightstone Group, Inc., under the terms and conditions of an advisory agreement. The Lightstone Group, Inc. previously served as the Company’s sponsor (the “Sponsor”) during its initial public offering, which closed on October 10, 2008. Subject to the oversight of the Company’s board of directors (the “Board of Directors”), the Advisor has primary responsibility for making investment decisions and managing the Company’s day-to-day operations. Through his ownership and control of The Lightstone Group, David Lichtenstein is the indirect owner of the Advisor and the indirect owner and manager of Lightstone SLP, LLC, which has subordinated profits interests (“SLP units”) in the Operating Partnership. Mr. Lichtenstein also acts as the Company’s Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control the Lightstone REIT or the Operating Partnership.
The Company’s stock is not currently listed on a national securities exchange. The Company may seek to list its stock for trading on a national securities exchange only if a majority of its independent directors believe listing would be in the best interest of its stockholders. The Company does not intend to list its shares at this time. The Company does not anticipate that there would be any market for its shares of common stock until they are listed for trading.
As of September 30, 2018, on a collective basis, the Company wholly or majority owned and consolidated the operating results and financial condition of 2 retail properties containing a total of approximately 0.5 million square feet of retail space, 10 industrial properties containing a total of approximately 0.5 million square feet of industrial space and one multi-family residential property containing a total of 199 units. All of the Company’s properties are located within the United States. As of September 30, 2018, the retail properties, the industrial properties and the multi-family residential properties were 83%, 68% and 97% occupied based on a weighted-average basis, respectively.
Noncontrolling Interests
As of September 30, 2018, the noncontrolling interests consist of (i) parties of the Company that hold units in the Operating Partnership and (ii) certain interests in consolidated subsidiaries. The units include SLP units, limited partner units and common units. The noncontrolling interests in consolidated subsidiaries include ownership interests in Pro-DFJV Holdings LLC (“PRO”) held by the Company’s Sponsor and 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”) held by the Company’s Sponsor and other affiliates. PRO’s holdings principally consist of Marco OP Units and Marco II OP Units (see Note 3). The 2nd Street Joint Venture owns Gantry Park, a multi-family apartment building located in Queens, NY.
| 2. | Summary of Significant Accounting Policies |
Basis of Presentation
The consolidated financial statements include the accounts of the Lightstone REIT and its Operating Partnership and its subsidiaries (over which the Company exercises financial and operating control). All inter-company balances and transactions have been eliminated in consolidation.
8
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of the Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of the results for the periods presented. The accompanying unaudited consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust, Inc. and its Subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of real estate and real-estate related investments, marketable securities, depreciable lives, and revenue recognition. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
The consolidated balance sheet as of December 31, 2017 included herein has been derived from the consolidated balance sheet included in the Company's Annual Report on Form 10-K.
The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.
Recently Adopted Accounting Pronouncements
Effective January 1, 2018, the Company adopted guidance issued by the Financial Accounting Standards Board (“FASB”) that requires amounts that are generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this standard using the retrospective transition method.
As required by the Company’s lenders, restricted cash is held in escrow accounts for anticipated capital expenditures, real estate taxes, and other reserves for certain of our consolidated properties. Capital reserves are typically utilized for non-operating expenses such as tenant improvements, leasing commissions, and major capital expenditures. Alternatively, a lender may require its own formula for an escrow of capital reserves. Restricted cash may also include deposits for the purchase of real estate or certain funds temporarily placed in escrow with qualified intermediaries to facilitate potential like-kind exchange transactions in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended.
The following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in our statements of cash flows for the periods presented:
| September 30, | ||||||||
| 2018 | 2017 | |||||||
| Cash and cash equivalents | $ | 61,829 | $ | 127,381 | ||||
| Restricted cash | 9,157 | 4,362 | ||||||
| Total cash, cash equivalents and restricted cash | $ | 70,986 | $ | 131,743 | ||||
Effective January 1, 2018, the Company adopted guidance issued by the FASB that that requires companies to measure investments in equity securities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income, using a modified-retrospective approach. This resulted in a $15.5 million reclassification of aggregate net unrealized gains from accumulated other comprehensive income (“AOCI”) to opening accumulated surplus see Note 3.
Effective January 1, 2018, the Company adopted guidance issued by the FASB that clarifies the definition of a business and assists in the evaluation of whether a transaction will be accounted for as an acquisition of an asset or as a business combination. The guidance provides a test to determine when a set of assets and activities acquired is not a business. When substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. Additionally, assets acquired, liabilities assumed, and any noncontrolling interest will be measured at their relative fair values. The Company anticipates future acquisitions of real estate assets, if any, will likely qualify as an asset acquisition. Therefore, any future transaction costs associated with an asset acquisition will be capitalized and accounted for in accordance with this guidance.
9
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
Effective January 1, 2018, the Company adopted guidance issued by the FASB that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. The new guidance requires companies to apply a five-step model in accounting for revenue arising from contracts with customers, as well as enhance disclosures regarding revenue recognition. Lease contracts are excluded from this revenue recognition criteria; however, the sale of real estate is required to follow the new model. The Company has adopted this standard for the year beginning on January 1, 2018 using the modified retrospective approach. The adoption of this pronouncement had no effect on our consolidated financial statements since, with the disposal of the DoubleTree – Danvers in September 2017, substantially all revenues now consist of rental income from leasing arrangements, which is specifically excluded from the standard.
New Accounting Pronouncements
In August 2018, the Securities and Exchange Commission adopted the final rule amending certain disclosure requirements that have become redundant, duplicative, overlapping, outdated, or superseded. In addition, the amendments expand the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The rule was effective on November 5, 2018 and will be effective for the quarter that begins after the effective date. Since the Company already includes a year to date consolidated statement of stockholders’ equity in our interim financial statement filings, the adoption of this guidance will result in the inclusion of a quarter to date consolidated statement of stockholders equity in our second and third quarter interim financial statement filings and the inclusion of corresponding prior periods statement of stockholders’ equity for all periods presented.
In June 2016, the FASB issued an accounting standards update which replaces the incurred loss impairment methodology currently in use with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This guidance will not have a material impact on the Company’s consolidated financial statements.
In February 2016, the FASB issued an accounting standards update which supersedes the existing lease accounting model, and modifies both lessee and lessor accounting. The new guidance will require lessees to recognize a liability to make lease payments and a right-of-use asset, initially measured at the present value of lease payments, for both operating and financing leases, with classification affecting the pattern of expense recognition in the statement of earnings. For leases with a term of 12 months or less, lessees will be permitted to make an accounting policy election by class of underlying asset to not recognize lease liabilities and lease assets. The standard offers several practical expedients for transition and certain expedients specific to lessees or lessors. Both lessees and lessors are permitted to make an election to apply a package of practical expedients available for implementation under the standard. The Company intends to apply the package of practical expedients and certain other transition expedients. For transition, the Company intends to recognize all effects of transition in the beginning of the adoption reporting period on January 1, 2019. We expect that the adoption of this standard will result in the recognition of right-of-use assets and related lease liability accounts on the consolidated balance sheet but is not expected to have a material effect on our consolidated financial position or our results of operations, however, the ultimate impact of adopting this standard will depend on the Company’s lease portfolio as of the adoption date.
The Company has reviewed and determined that other recently issued accounting pronouncements will not have a material impact on its financial position, results of operations and cash flows, or do not apply to its current operations.
Reclassifications
Certain prior period amounts may have been reclassified to conform to the current year presentation.
10
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
| 3. | Marketable Securities, Fair Value Measurements and Notes Payable |
Marketable Securities:
The following is a summary of the Company’s available for sale securities as of the dates indicated:
| As of September 30, 2018 | ||||||||||||||||
| Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| Marketable Securities: | ||||||||||||||||
| Equity securities: | ||||||||||||||||
| Equity Securities, primarily REITs | $ | 1,405 | $ | 315 | $ | (5 | ) | $ | 1,715 | |||||||
| Marco OP Units and Marco II OP Units | 19,227 | 17,757 | - | 36,984 | ||||||||||||
| 20,632 | 18,072 | (5 | ) | 38,699 | ||||||||||||
| Debt securities: | ||||||||||||||||
| Corporate Bonds and Preferred Securities | 81,102 | 57 | (1,055 | ) | 80,104 | |||||||||||
| Mortgage Backed Securities ("MBS") | 1,663 | - | (300 | ) | 1,363 | |||||||||||
| 82,765 | 57 | (1,355 | ) | 81,467 | ||||||||||||
| Total | $ | 103,397 | $ | 18,129 | $ | (1,360 | ) | $ | 120,166 | |||||||
| As of December 31, 2017 | ||||||||||||||||
| Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| Marketable Securities: | ||||||||||||||||
| Equity securities: | ||||||||||||||||
| Equity Securities, primarily REITs | $ | 1,405 | $ | 263 | $ | - | $ | 1,668 | ||||||||
| Marco OP Units and Marco II OP Units | 19,227 | 16,708 | - | 35,935 | ||||||||||||
| 20,632 | 16,971 | - | 37,603 | |||||||||||||
| Debt securities: | ||||||||||||||||
| Corporate Bonds and Preferred Securities | 18,494 | 371 | (81 | ) | 18,784 | |||||||||||
| Mortgage Backed Securities | 1,856 | - | (299 | ) | 1,557 | |||||||||||
| 20,350 | 371 | (380 | ) | 20,341 | ||||||||||||
| Total | $ | 40,982 | $ | 17,342 | $ | (380 | ) | $ | 57,944 | |||||||
As of both September 30, 2018 and December 31, 2017, the Company held an aggregate of 209,243 Marco OP Units and Marco II OP Units, of which 89,695 were owned by PRO. The Marco OP Units and the Marco II OP Units are exchangeable for a similar number of common operating partnership units (“Simon OP Units”) of Simon Property Group, L.P., (“Simon OP”), the operating partnership of Simon Property Group, Inc. (“Simon”). Subject to the various conditions, the Company may elect to exchange the Marco OP Units and/or the Marco II OP Units to Simon OP Units which must be immediately delivered to Simon in exchange for cash or similar number of shares of Simon’s common stock (“Simon Stock”).
Prior to January 1, 2018, the Company accounted for marketable equity securities at fair value with unrealized gains and losses recognized in AOCI on the consolidated balance sheet. Realized gains and losses on marketable equity securities sold or impaired were recognized on the consolidated statements of operations.
On January 1, 2018, the Company adopted guidance issued by the FASB that required it to change the way it accounts for marketable equity securities. The Company’s marketable equity securities are measured at fair value and starting January 1, 2018 unrealized gains and losses are recognized on the consolidated statements of operations. Upon adoption, the Company reclassified $15.5 million of aggregate net unrealized gains from AOCI to opening accumulated surplus.
The Company considers the declines in market value of certain of its investments to be temporary in nature as the unrealized losses were caused primarily by changes in market interest rates or widening credit spreads. When evaluating these investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s amortized cost basis. During the nine months ended September 30, 2018 and 2017, the Company did not recognize any impairment charges. As of September 30, 2018, the Company does not consider any of its investments to be other-than-temporarily impaired.
The Company may sell certain of its investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management. At the time of purchase, the maturities of the Company’s MBS generally ranged from 27 years to 30 years.
11
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
| • | Level 1 – Quoted prices in active markets for identical assets or liabilities. |
| • | Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| • | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Marketable securities, available for sale, measured at fair value on a recurring basis as of the dates indicated are as follows:
| Fair Value Measurement Using | ||||||||||||||||
| As of September 30, 2018 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Marketable Securities: | ||||||||||||||||
| Equity Securities, primarily REITs | $ | 1,715 | $ | - | $ | - | $ | 1,715 | ||||||||
| Marco OP and OP II Units | - | 36,984 | - | 36,984 | ||||||||||||
| Corporate Bonds and Preferred Securities | - | 80,104 | - | 80,104 | ||||||||||||
| MBS | - | 1,363 | - | 1,363 | ||||||||||||
| Total | $ | 1,715 | $ | 118,451 | $ | - | $ | 120,166 | ||||||||
| Fair Value Measurement Using | ||||||||||||||||
| As of December 31, 2017 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Marketable Securities: | ||||||||||||||||
| Equity Securities, primarily REITs | $ | 1,668 | $ | - | $ | - | $ | 1,668 | ||||||||
| Marco OP and OP II Units | - | 35,935 | - | 35,935 | ||||||||||||
| Corporate Bonds and Preferred Securities | - | 18,784 | - | 18,784 | ||||||||||||
| MBS | - | 1,557 | - | 1,557 | ||||||||||||
| Total | $ | 1,668 | $ | 56,276 | $ | - | $ | 57,944 | ||||||||
The fair values of the Company’s investments in Corporate Bonds and Preferred Securities and MBS are measured using readily available quoted prices for similar assets. Additionally, as noted and disclosed above, the Company’s Marco OP and Marco OP II Units are ultimately exchangeable for cash or similar number of shares of Simon Stock, therefore the Company uses the quoted market price of Simon Stock to measure the fair value of the Company’s Marco OP and Marco OP II Units.
12
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
The following table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:
| As of September 30, 2018 | ||||
| Due in 1 year | $ | 18,677 | ||
| Due in 1 year through 5 years | 44,716 | |||
| Due in 5 years through 10 years | 16,711 | |||
| Due after 10 years | 1,363 | |||
| Total | $ | 81,467 | ||
The Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized at fair value.
Notes Payable
Margin Loan
The Company has access to a margin loan (the “Margin Loan”) from a financial institution that holds custody of certain of the Company’s marketable securities. The Margin Loan, which is due on demand, bears interest at Libor plus 0.85% (3.11% as of September 30, 2018) and is collateralized by the marketable securities in the Company’s account. The amounts available to the Company under the Margin Loan are at the discretion of the financial institution and not limited to the amount of collateral in its account. There were no amounts outstanding under this Margin Loan as of September 30, 2018 and December 31, 2017.
Line of Credit
The Company has a non-revolving credit facility (the “Line of Credit”) with a financial institution which permits borrowings up to $25.0 million. The Line of Credit expires on June 19, 2019 and bears interest at Libor plus 1.35% (3.61% as of September 30, 2018). The Line of Credit is collateralized by approximately 209,000 Marco OP Units and PRO guaranteed the Line of Credit. The amount outstanding under the Line of Credit was $18.6 million as of September 30, 2018 and December 31, 2017 and is included in Notes Payable on the consolidated balance sheets. The Company currently intends to seek to extend or replace the Line of Credit on or before its expiration. If we are unable to extend or replace the Line of Credit, we will repay the then outstanding balance in full at the expiration date using working capital, cash proceeds from the sale of assets and/or redemptions of our preferred investments in related parties.
| 4. | Mortgages Payable, Net |
Mortgages payable, net consists of the following:
| Property | Interest Rate | Weighted
Average Interest Rate as of September 30, 2018 | Maturity Date | Amount Due
at Maturity | As of September 30, 2018 | As of December 31, 2017 | ||||||||||||||||
| Gulf Coast Industrial Portfolio | 9.83 | % | 9.83 | % | Due on demand | $ | 30,642 | $ | 30,642 | $ | 50,205 | |||||||||||
| St. Augustine Outlet Center | (Repaid in full - see below) | - | - | 20,400 | ||||||||||||||||||
| Gantry Park | 4.48 | % | 4.48 | % | November 2024 | 65,317 | 73,638 | 74,500 | ||||||||||||||
| DePaul Plaza | LIBOR + 2.75 | % | 4.62 | % | June 2020 | 13,494 | 14,174 | 14,480 | ||||||||||||||
| Total mortgages payable | 5.92 | % | $ | 109,453 | 118,454 | 159,585 | ||||||||||||||||
| Less: Deferred financing costs | (1,268 | ) | (1,658 | ) | ||||||||||||||||||
| Total mortgages payable, net | $ | 117,186 | $ | 157,927 | ||||||||||||||||||
13
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
Libor as of September 30, 2018 and December 31, 2017 was 2.26% and 1.57%, respectively. The Company’s loans are secured by the indicated real estate and are non-recourse to the Company, unless otherwise indicated.
On May 29, 2018, the Company repaid in full its $20.4 million recourse mortgage loan secured by the St. Augustine Outlet Center located in St. Augustine, Florida, with a scheduled maturity in August 2018.
Certain of the Company’s debt agreements require the maintenance of certain ratios, including debt service coverage. The Company is currently in compliance with all of its financial debt covenants other than the non-recourse mortgage indebtedness originally secured by a portfolio of industrial properties (collectively, the “Gulf Coast Industrial Portfolio”) located in New Orleans, Louisiana (seven properties), Baton Rouge, Louisiana (three properties) and San Antonio, Texas (four properties), as discussed below. Additionally, certain of our mortgages payable also contain clauses providing for prepayment penalties.
As a result of not meeting certain debt service coverage ratios on the non-recourse mortgage indebtedness secured by the Gulf Coast Industrial Portfolio (the “Gulf Coast Industrial Portfolio Mortgage”), the lender elected to retain the excess cash flow from these properties beginning in July 2011. During the third quarter of 2012, the Gulf Coast Industrial Portfolio Mortgage was transferred to a special servicer, who discontinued scheduled debt service payments and notified the Company that the Gulf Coast Industrial Portfolio Mortgage was in default and although originally due in February 2017 became due on demand.
On June 5, 2018, the special servicer completed a partial foreclosure of the Gulf Coast Industrial Portfolio pursuant to which it foreclosed on the four properties located in San Antonio, Texas (the “San Antonio Assets”). The San Antonio Assets were sold in a foreclosure sale by the special servicer for an aggregate amount of approximately $20.7 million. (See Note 6)
Upon consummation of the foreclosure sale, the buyers assumed the significant risks and rewards of ownership and took legal title and physical possession of the San Antonio Assets for the aggregate sales price of $20.7 million. The Company simultaneously received an aggregate credit of approximately $20.7 million against the total outstanding indebtedness of the Gulf Coast Industrial Portfolio Mortgage, of which $19.6 million and $1.1 million were applied by the Company against the outstanding principal and outstanding accrued interest payable, respectively, under the Gulf Coast Industrial Portfolio Mortgage.
As a result, the remaining outstanding principal of the Gulf Coast Industrial Portfolio Mortgage was approximately $30.6 million as of September 30, 2018. The Company accrues default interest expense on the Gulf Coast Industrial Portfolio Mortgage pursuant to the terms of its loan agreement.
Additionally, the Company previously accrued default interest expense on a non-recourse mortgage loan (the “Oakview Plaza Mortgage”), pursuant to the terms of its loan agreement during the period from January 2017 through September 2017. The Oakview Plaza Mortgage was secured by a retail shopping center located in Omaha, Nebraska (“Oakview Plaza”). The lender foreclosed on Oakview Plaza in September 2017.
Default interest expense related to the Gulf Coast Industrial Mortgage of $0.3 million and $1.3 million was accrued during the three and nine months ended September 30, 2018, respectively, and default interest expense related to both the Gulf Coast Industrial Portfolio Mortgage and the Oakview Plaza Mortgage of $0.8 million and $2.5 million was accrued during the three and nine months ended September 30, 2017, respectively. Cumulative accrued default interest expense (solely related the Gulf Coast Industrial Portfolio Mortgage) of $12.5 million and $11.2 million is included in accounts payable, accrued expenses and other liabilities on our consolidated balance sheets as of September 30, 2018 and December 31, 2017, respectively. Additionally, the Company believes the continued loss of excess cash flow from the Gulf Coast Industrial Portfolio and the special servicer’s placement of the non-recourse mortgage indebtedness in default will not have a material impact on its results of operations or financial position.
Other than the Gulf Coast Industrial Portfolio Mortgage, the Company has no additional significant maturities of mortgage debt over the next 12 months.
14
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
The following table shows the contractually scheduled principal maturities of the Company’s mortgage debt during the next five years and thereafter as of September 30, 2018:
| 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | ||||||||||||||||||||||
| Principal maturities | $ | 31,041 | $ | 1,621 | $ | 14,924 | $ | 1,328 | $ | 1,389 | $ | 68,151 | $ | 118,454 | ||||||||||||||
| Less: Deferred financing costs | (1,268 | ) | ||||||||||||||||||||||||||
| Total principal maturities, net | $ | 117,186 | ||||||||||||||||||||||||||
| 5. | Net Earnings Per Share |
Basic net earnings per share is calculated by dividing net income attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the applicable period. Diluted net income per share includes the potentially dilutive effect, if any, which would occur if our outstanding options to purchase our common stock were exercised. For all periods presented, dilutive net income per share is equivalent to basic net income per share.
| 6. | Disposition |
Gulf Coast Industrial Portfolio – San Antonio Assets
As previously discussed in Note 4, on June 5, 2018, the special servicer for the Gulf Coast Industrial Portfolio Mortgage completed a partial foreclosure of the Gulf Coast Industrial Portfolio pursuant to which it foreclosed on the San Antonio Assets. The San Antonio Assets were sold in a foreclosure sale by the special servicer for an aggregate amount of approximately $20.7 million.
Upon consummation of the foreclosure sale, the buyers assumed the significant risks and rewards of ownership and took legal title and physical possession of the San Antonio Assets for the agreed upon sales price of $20.7 million. The Company simultaneously received an aggregate credit of approximately $20.7 million which it applied against the total outstanding indebtedness (approximately $19.6 million and $1.1 million of principal and accrued interest payable, respectively) of the Gulf Coast Industrial Portfolio Mortgage.
The aggregate carrying value of the assets transferred and the liabilities extinguished in connection with the foreclosure of the San Antonio Assets were approximately $13.6 million and $20.7 million, respectively.
Since the Company’s performance obligations were met at the closing of the foreclosure sales and the Company has no continuing involvement with the San Antonio Assets an aggregate gain on disposition of real estate of approximately $7.1 million was recognized during the second quarter of 2018.
The disposition of San Antonio Assets did not qualify to be reported as discontinued operations since the disposition did not represent a strategic shift that had a major effect on the Company’s operations and financial results. Accordingly, the operating results of the San Antonio Assets are reflected in the Company’s results from continuing operations for all periods presented through their respective date of disposition.
| 7. | Related Party Transactions |
The Company has agreements with the Advisor and Lightstone Value Plus REIT Management LLC (the “Property Manager”) to pay certain fees in exchange for services performed by these entities and other affiliated entities. The Company’s ability to secure financing and subsequent real estate operations are dependent upon its Advisor, Property Manager and their affiliates to perform such services as provided in these agreements.
15
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
The Company, pursuant to the related party arrangements, has recorded the following amounts for the periods indicated:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Asset management fees (general and administrative costs) | $ | 392 | $ | 556 | $ | 1,283 | $ | 1,684 | ||||||||
| Property management fees (property operating expenses) | 120 | 199 | 409 | 576 | ||||||||||||
| Development fees and leasing commissions* | 62 | 125 | 182 | 706 | ||||||||||||
| Total | $ | 574 | $ | 880 | $ | 1,874 | $ | 2,966 | ||||||||
* Generally, capitalized and amortized over the estimated useful life of the associated asset.
In connection with the Company’s initial public offering, Lightstone SLP, LLC, an affiliate of the Company’s Sponsor, previously purchased an aggregate of $30.0 million of SLP units which are included in noncontrolling interests in the consolidated balance sheets. These SLP units, the purchase price of which will be repaid only after stockholders receive a stated preferred return and their net investment, entitle Lightstone SLP, LLC to a portion of any regular distributions made by the Operating Partnership.
During the three and nine months ended September 30, 2018, distributions of $0.5 million and $1.5 million were declared and paid on the SLP units.
On September 19, 2018, the Company’s Sponsor transferred approximately 9.14% of its ownership in PRO, valued at the estimated fair value of $1.5 million to the Operating Partnership, accounted for as an increase in equity of the Company and decrease in non-controlling interest. As of September 30, 2018 and December 31, 2017, the Sponsor, had a 10.03% and a 19.17% membership interest in PRO, respectively, which is accounted for as noncontrolling interests.
Preferred Investments
The Company has entered into several agreements with various related party entities that provide for it to make preferred contributions pursuant to certain instruments (the “Preferred Investments”) that entitle the Company to certain prescribed monthly preferred distributions. The Preferred Investments had an aggregate balance of $113.4 million and $158.3 million as of September 30, 2018 and December 31, 2017, respectively, and are classified as held-to-maturity securities, recorded at cost and included in investments in related parties on the consolidated balance sheets. The fair value of these investments approximated their carrying values based on market rates for similar instruments.
During the nine months ended September 30, 2018, the Company made an aggregate $15.1 million of additional contributions and redeemed the entire $60.0 million outstanding on the 485 7th Avenue Preferred Investment and as of September 30, 2018, remaining contributions of up to $4.1 million were unfunded. The Company did not enter into any new Preferred Investments during the nine months ended September 30, 2018.
The Preferred Investments are summarized as follows:
| Preferred Investment Balance | Unfunded Contributions | Investment Income | ||||||||||||||||||||||||||||||
| As of | As of | As of | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| Preferred Investments | Dividend Rate | September 30, 2018 | December 31, 2017 | September 30, 2018 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
| 40 East End Avenue (1) | 8% to 12 | % | $ | 30,000 | $ | 30,000 | $ | - | $ | 920 | $ | 920 | $ | 2,730 | $ | 2,463 | ||||||||||||||||
| 30-02 39th Avenue | 12 | % | 10,000 | 10,000 | - | 307 | 307 | 910 | 946 | |||||||||||||||||||||||
| 485 7th Avenue | 12 | % | - | 60,000 | - | - | 1,840 | 1,095 | 5,460 | |||||||||||||||||||||||
| East 11th Street | 12 | % | 57,500 | 46,119 | - | 1,763 | 1,155 | 4,970 | 3,135 | |||||||||||||||||||||||
| Miami Moxy | 12 | % | 15,933 | 12,195 | 4,067 | 457 | 346 | 1,229 | 905 | |||||||||||||||||||||||
| Total Preferred Investments | $ | 113,433 | $ | 158,314 | $ | 4,067 | $ | 3,447 | $ | 4,568 | $ | 10,934 | $ | 12,909 | ||||||||||||||||||
Note:
(1) - The dividend rate increased from 8% to 12% during March 2017 in connection with the procurement of construction financing on this project.
The Joint Venture
The Company has a 2.5% membership interest in a joint venture (the “Joint Venture”) with Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone II”), a related party REIT also sponsored by our Sponsor. The Joint Venture previously acquired our membership interests in a portfolio of 11 hotels in a series of transactions completed during 2015. During the third quarter of 2017, the Joint Venture sold its ownership interests in four of the hotels to an unrelated third party. On November 6, 2017, the Joint Venture acquired a 170-room select service hotel located in New Orleans, Louisiana (the “Hyatt – New Orleans”) from an unrelated third party. As a result, the Joint Venture holds ownership interests in eight hotels as of September 30, 2018.
16
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
The Company accounts for its 2.5% membership interest in the Joint Venture under the cost method and as of September 30, 2018 and December 31, 2017, the carrying value of its investment was $1.4 million and $1.5 million, respectively, which is included in investment in related parties on the consolidated balance sheets.
| 8. | Financial Instruments |
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, tenant and other accounts receivable, accounts payable, accrued expenses and other liabilities and due to related parties approximated their fair values because of the short maturity of these instruments. The estimated fair value of the notes payable (line of credit) approximated its carrying value ($18.6 million) because of its floating interest rate.
The estimated fair value (in millions) of the Company’s mortgage debt is summarized as follows:
| As of September 30, 2018 | As of December 31, 2017 | |||||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
| Mortgages payable | $ | 118.5 | $ | 116.7 | $ | 159.6 | $ | 158.6 | ||||||||
The fair value of the mortgages payable was determined by discounting the future contractual interest and principal payments by estimated current market interest rates.
| 9. | Segment Information |
The Company has historically operated within four business segments which are: (i) retail real estate (the “Retail Segment”), (ii) multi-family residential real estate (the “Multi-Family Residential Segment”), (iii) industrial real estate (the “Industrial Segment”) and (iv) hospitality (the “Hospitality Segment”). However, during the third quarter of 2017, the Company sold its only remaining consolidated hospitality property and therefore, no longer has a Hospitality Segment. The Company’s Advisor and its affiliates provide leasing, property and facilities management, acquisition, development, construction and tenant-related services for its portfolio. The Company’s revenues for the three and nine months ended September 30, 2018 and 2017 were exclusively derived from activities in the United States. No revenues from foreign countries were received or reported. The Company had no long-lived assets in foreign locations as of September 30, 2018 and December 31, 2017. The accounting policies of the segments are the same as those described in Note 2: Summary of Significant Accounting Policies of the Company’s December 31, 2017 Annual Report on Form 10-K. Unallocated assets, revenues and expenses relate to corporate related accounts, including the Company’s Preferred Investments in Related Parties (see Note 7).
The Company evaluates performance based upon net operating income/(loss) from the combined properties in each real estate segment.
17
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
Selected results of operations for the three and nine months ended September 30, 2018 and 2017, and total assets as of September 30, 2018 and December 31, 2017 regarding the Company’s operating segments are as follows:
| For the Three Months Ended September 30, 2018 | ||||||||||||||||||||||||
| Retail | Multi-Family | Industrial | Hospitality | Unallocated | Total | |||||||||||||||||||
| Total revenues | $ | 1,774 | 2,256 | 966 | $ | - | $ | - | $ | 4,996 | ||||||||||||||
| Property operating expenses | 727 | 497 | 376 | - | - | 1,600 | ||||||||||||||||||
| Real estate taxes | 212 | 18 | 88 | - | - | 318 | ||||||||||||||||||
| General and administrative costs | 5 | (4 | ) | (1 | ) | - | 1,084 | 1,084 | ||||||||||||||||
| Net operating income/(loss) | 830 | 1,745 | 503 | - | (1,084 | ) | 1,994 | |||||||||||||||||
| Depreciation and amortization | 889 | 411 | 339 | - | - | 1,639 | ||||||||||||||||||
| Operating (loss)/income | $ | (59 | ) | $ | 1,334 | $ | 164 | $ | - | $ | (1,084 | ) | $ | 355 | ||||||||||
| As of September 30, 2018: | ||||||||||||||||||||||||
| Total Assets | $ | 69,098 | $ | 66,845 | $ | 37,018 | $ | - | $ | 298,128 | $ | 471,089 | ||||||||||||
| For the Three Months Ended September 30, 2017 | ||||||||||||||||||||||||
| Retail | Multi-Family | Industrial | Hospitality | Unallocated | Total | |||||||||||||||||||
| Total revenues | $ | 2,452 | 2,118 | $ | 1,581 | $ | 4,741 | $ | - | $ | 10,892 | |||||||||||||
| Property operating expenses | 905 | 492 | 631 | 3,620 | 4 | 5,652 | ||||||||||||||||||
| Real estate taxes | 361 | 19 | 162 | 60 | - | 602 | ||||||||||||||||||
| General and administrative costs | 39 | 3 | 6 | 107 | 2,019 | 2,174 | ||||||||||||||||||
| Net operating income/(loss) | 1,147 | 1,604 | 782 | 954 | (2,023 | ) | 2,464 | |||||||||||||||||
| Depreciation and amortization | 1,387 | 407 | 458 | 486 | - | 2,738 | ||||||||||||||||||
| Operating (loss)/income | $ | (240 | ) | $ | 1,197 | $ | 324 | $ | 468 | $ | (2,023 | ) | $ | (274 | ) | |||||||||
| As of December 31, 2017: | ||||||||||||||||||||||||
| Total Assets | $ | 70,758 | $ | 67,966 | $ | 49,461 | $ | 61,316 | $ | 270,173 | 519,674 | |||||||||||||
| For the Nine Months Ended September 30, 2018 | ||||||||||||||||||||||||
| Retail | Multi-Family | Industrial | Hospitality | Unallocated | Total | |||||||||||||||||||
| Total revenues | $ | 5,345 | 6,702 | $ | 3,981 | $ | - | $ | - | $ | 16,028 | |||||||||||||
| Property operating expenses | 2,170 | 1,485 | 1,350 | - | - | 5,005 | ||||||||||||||||||
| Real estate taxes | 735 | 54 | 494 | - | - | 1,283 | ||||||||||||||||||
| General and administrative costs | 1 | 1 | (8 | ) | - | 3,297 | 3,291 | |||||||||||||||||
| Net operating income/(loss) | 2,439 | 5,162 | 2,145 | - | (3,297 | ) | 6,449 | |||||||||||||||||
| Depreciation and amortization | 2,756 | 1,231 | 1,230 | - | - | 5,217 | ||||||||||||||||||
| Operating (loss)/income | $ | (317 | ) | $ | 3,931 | $ | 915 | $ | - | $ | (3,297 | ) | $ | 1,232 | ||||||||||
| For the Nine Months Ended September 30, 2017 | ||||||||||||||||||||||||
| Retail | Multi-Family | Industrial | Hospitality | Unallocated | Total | |||||||||||||||||||
| Total revenues | $ | 7,805 | $ | 6,443 | $ | 4,683 | $ | 16,161 | $ | - | $ | 35,092 | ||||||||||||
| Property operating expenses | 2,782 | 1,430 | 1,679 | 12,617 | 5 | 18,513 | ||||||||||||||||||
| Real estate taxes | 1,120 | 55 | 555 | 221 | - | 1,951 | ||||||||||||||||||
| General and administrative costs | 129 | 33 | (10 | ) | 225 | 4,238 | 4,615 | |||||||||||||||||
| Net operating income/(loss) | 3,774 | 4,925 | 2,459 | 3,098 | (4,243 | ) | 10,013 | |||||||||||||||||
| Depreciation and amortization | 3,759 | 1,218 | 1,339 | 1,936 | - | 8,252 | ||||||||||||||||||
| Operating income/(loss) | $ | 15 | $ | 3,707 | $ | 1,120 | $ | 1,162 | $ | (4,243 | ) | $ | 1,761 | |||||||||||
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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)
| 10. | Commitments and Contingencies |
Legal Proceedings
From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.
As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss.
| 11. | Subsequent Events |
Distribution Payment
On October 15, 2018, the distribution for the three-month period ending September 30, 2018 of $4.2 million was paid in cash.
Distribution Declaration
On November 8, 2018 the Board of Directors authorized and the Company declared a distribution for the three-month period ending December 31, 2018. The distribution will be calculated based on shareholders of record each day during this three-month period at a rate of $0.0019178 per day, and will equal a daily amount that, if paid each day for a 365-day period, would equal a 7.0% annualized rate based on a share price of $10.00. The distribution will be paid in cash on or about January 15, 2019 to shareholders of record as of December 31, 2018.
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PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust, Inc. and Subsidiaries and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation, and, as required by context, Lightstone Value Plus REIT, L.P. and its wholly owned subsidiaries, which we collectively refer to as “the Operating Partnership.” Dollar amounts are presented in thousands, except per share data and where indicated in millions.
Forward-Looking Statements
Certain information included in this Quarterly Report on Form 10-Q contains, and other materials filed or to be filed by us with the Securities and Exchange Commission, or the SEC, contain or will contain, forward-looking statements. All statements, other than statements of historical facts, including, among others, statements regarding our possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives, are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of Lightstone Value Plus Real Estate Investment Trust, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements.
Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements.
Risks and other factors that might cause differences, some of which could be material, include, but are not limited to, economic and market conditions, competition, tenant or joint venture partner(s) bankruptcies, changes in governmental, tax, real estate and zoning laws and regulations, failure to increase tenant occupancy and operating income, rejection of leases by tenants in bankruptcy, financing and development risks, construction and lease-up delays, cost overruns, the level and volatility of interest rates, the rate of revenue increases versus expense increases, the financial stability of various tenants and industries, the failure of the Company (defined herein) to make additional investments in real estate properties, the failure to upgrade our tenant mix, restrictions in current financing arrangements, the failure to fully recover tenant obligations for common area maintenance (“CAM”), insurance, taxes and other property expenses, the failure of the Company to continue to qualify as a real estate investment trust (“REIT”), the failure to refinance debt at favorable terms and conditions, an increase in impairment charges, loss of key personnel, failure to achieve earnings/funds from operations targets or estimates, conflicts of interest with the Advisor, Sponsor and their affiliates, failure of joint venture relationships, significant costs related to environmental issues as well as other risks listed from time to time in this Form 10-Q, our Form 10-K and in the Company’s other reports filed with the SEC.
We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless required by law.
Overview
Lightstone Value Plus Real Estate Investment Trust, Inc. (the “Lightstone REIT”) and Lightstone Value Plus REIT, LP, (the “Operating Partnership”) and its subsidiaries are collectively referred to as the ‘‘Company’’ and the use of ‘‘we,’’ ‘‘our,’’ ‘‘us’’ or similar pronouns refers to the Lightstone REIT, its Operating Partnership or the Company as required by the context in which such pronoun is used.
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Lightstone REIT has and expects to continue to invest in and operate commercial, residential and hospitality properties, principally in the United States. Principally through the Operating Partnership, our investments have included both portfolios and individual properties. Our commercial holdings currently consist of retail (primarily multi-tenant shopping centers), industrial properties and residential properties comprised of multi-family complexes. The Company also has and will continue to seek to originate, acquire and manage a diverse portfolio of real estate-related investments.
We do not have employees. We have an advisory agreement with Lightstone Value Plus REIT LLC, a Delaware limited liability company, which we refer to as the “Advisor,” pursuant to which the Advisor supervises and manages our day-to-day operations and selects our real estate and real estate related investments, subject to oversight by our board of directors. We pay the Advisor fees for services related to the investment and management of our assets, and we reimburse the Advisor for certain expenses incurred on our behalf.
Current Environment
Our operating results as well as our investment opportunities are impacted by the health of the North American economies. Our business and financial performance may be adversely affected by current and future economic conditions, such as an availability of credit, financial markets volatility and recession.
Our business may be affected by market and economic challenges experienced by the U.S. and global economies. These conditions may materially affect the value and performance of our properties, and may affect our ability to pay distributions, the availability or the terms of financing that we have or may anticipate utilizing, and our ability to make principal and interest payments on, or refinance, any outstanding debt when due.
We are not aware of any other material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting real estate generally, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from the acquisition and operation of real estate and real estate related investments, other than those referred to in this Form 10-Q.
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Portfolio Summary –
| Location | Year
Built (Range of years built) | Gross
Leasable Area (GLA") in Square Feet | Percentage
as
of | Annualized
Revenues based on rents at September 30, 2018 | Annualized
September
30, | |||||||||||||
| Wholly Owned and Consolidated Real Estate Properties: | ||||||||||||||||||
| Retail | ||||||||||||||||||
| St. Augustine Outlet Center | St. Augustine, FL | 1998 | 327,862 | 79.8 | % | $3.3 million | $ | 12.65 | ||||||||||
| DePaul Plaza | Bridgeton, MO | 1985 | 187,090 | 89.5 | % | $2.0 million | $ | 12.23 | ||||||||||
| Retail Total | 514,952 | 83.4 | % | |||||||||||||||
| Industrial | ||||||||||||||||||
| 7 Flex/Office/Industrial Buildings within the Gulf Coast Industrial Portfolio | New Orleans, LA | 1980-2000 | 339,700 | 58.5 | % | $2.2 million | $ | 11.00 | ||||||||||
| 3 Flex/Industrial Buildings within the Gulf Coast Industrial Portfolio | Baton Rouge, LA | 1985-1987 | 182,792 | 85.2 | % | $1.1 million | $ | 7.34 | ||||||||||
| Industrial Total | 522,492 | 67.8 | % | |||||||||||||||
| Multi - Family Residential | Location | Year
Built (Range of years built) | Leasable
Units | Percentage
Occupied as of September 30, 2018 | Annualized
Revenues based on rents at September 30, 2018 | Annualized
September 30,
| ||||||||||||
| Gantry Park (Multi-Family Apartment Building) | Queens, NY | 2013 | 199 | 97.0 | % | $ | 8.50 | $ | 44,168 | |||||||||
Annualized revenue is defined as the minimum monthly payments due as of September 30, 2018 annualized, excluding periodic contractual fixed increases and rents calculated based on a percentage of tenants’ sales. The annualized base rent disclosed in the table above includes all concessions, abatements and reimbursements of rent to tenants.
Critical Accounting Policies and Estimates
There were no material changes during the nine months ended September 30, 2018 to our critical accounting policies as reported in our Annual Report on Form 10-K, for the year ended December 31, 2017, except for the newly adopted accounting standards discussed in Note 2 to the financial statements.
Results of Operations
Our primary financial measure for evaluating each of our properties is net operating income (“NOI”). NOI represents revenues less property operating expenses, real estate taxes and general and administrative expenses. We believe that NOI is helpful to investors as a supplemental measure of the operating performance of a real estate company because it is a direct measure of the actual operating results of our properties.
Dispositions
Gulf Coast Industrial Portfolio – San Antonio Assets
As a result of not meeting certain debt service coverage ratios on the non-recourse mortgage indebtedness (the “Gulf Coast Industrial Portfolio Mortgage”) originally secured by a portfolio of industrial properties (collectively, the “Gulf Coast Industrial Portfolio”) located in New Orleans, Louisiana (seven properties), Baton Rouge, Louisiana (three properties) and San Antonio, Texas (four properties), the lender elected to retain the excess cash flow from these properties beginning in July 2011. During the third quarter of 2012, the Gulf Coast Industrial Portfolio Mortgage was transferred to a special servicer.
On June 5, 2018, the special servicer completed a partial foreclosure of the Gulf Coast Industrial Portfolio pursuant to which it foreclosed on the four properties located in San Antonio, Texas (the “San Antonio Assets”). The San Antonio Assets were sold in a foreclosure sale by the special servicer for an aggregate amount of approximately $20.7 million. Since our performance obligations were met at the closing of the foreclosure sales and we have no continuing involvement with the San Antonio Assets an aggregate gain on disposition of assets of approximately $7.1 million was recognized during the second quarter of 2018.
The dispositions of (i) the San Antonio Assets on June 5, 2018, (ii) a hotel and water park located in Danvers, Massachusetts (the “DoubleTree – Danvers”) on September 7, 2017 and (iii) a retail power center located in Omaha, Nebraska (“Oakview Plaza”) on September 15, 2017 did not qualify to be reported as discontinued operations since none of the dispositions represented a strategic shift that had a major effect on our operations and financial results. Accordingly, the operating results of the San Antonio Assets (Industrial Segment), the DoubleTree – Danvers (Hospitality Segment) and Oakview Plaza (Retail Segment) are reflected in our results from continuing operations for all periods presented through their respective dates of disposition.
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For the Three Months Ended September 30, 2018 vs. September 30, 2017
Consolidated
Revenues
Our revenues are comprised of rental income, tenant recovery income and other service income. Total revenues decreased by approximately $5.9 million to $5.0 million for the three months ended September 30, 2018 compared to $10.9 million for the same period in 2017. See “Segment Results of Operations for the Three Months Ended September 30, 2018 compared to September 30, 2017” for additional information on revenues by segment.
Property operating expenses
Property operating expenses decreased by approximately $4.1 million to $1.6 million for the three months ended September 30, 2018 compared to $5.7 million for the same period in 2017. This decrease is primarily is attributable to lower expenses as a result of the disposition of the DoubleTree – Danvers and to a lesser extent the San Antonio Assets and Oakview Plaza.
Real estate taxes
Real estate taxes expense decreased by approximately $0.3 million to $0.3 million for the three months ended September 30, 2018 compared to $0.6 million for the same period in 2017. This decrease is primarily attributable to lower expenses as a result of the dispositions of the DoubleTree – Danvers, the San Antonio Assets and Oakview Plaza.
General and administrative expenses
General and administrative expenses decreased by approximately $1.1 million to $1.1 million for the three months ended September 30, 2018 compared to $2.2 million for the same period in 2017 principally due to lower professional fees and asset management fees as a result of the dispositions of the DoubleTree – Danvers, the San Antonio Assets and Oakview Plaza.
Depreciation and amortization
Depreciation and amortization expense decreased by approximately $1.1 million to $1.6 million for the three months ended September 30, 2018 compared to $2.7 million for the same period in 2017. This decrease is primarily attributable to lower expense resulting from the dispositions of the DoubleTree – Danvers, the San Antonio Assets and Oakview Plaza.
Gain on disposition of real estate
During the third quarter of 2017 we recognized a gain on disposition of real estate of approximately $10.5 million related to the sale of the DoubleTree – Danvers.
Interest and dividend income
Interest and dividend income decreased by approximately $1.0 million to $4.6 million for the three months ended September 30, 2018 compared to $5.6 million for the same period in 2017. The decrease reflects lower investment income of $1.2 million from our Preferred Investments offset by increased interest and dividend income from our investments in marketable securities of $0.2 million.
Interest expense
Interest expense, including amortization of deferred financing costs, decreased by approximately $1.6 million to $2.0 million for the three months ended September 30, 2018 compared to $3.6 million for the same period in 2017. This decrease primarily reflects lower interest expense resulting from reductions in mortgage indebtedness in connection with the dispositions of the San Antonio Assets and Oakview Plaza as well as the repayment of the St. Augustine Outlet Center Mortgage.
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Unrealized gain on marketable equity securities
During the three months ended September 30, 2018, we recorded an unrealized gain on marketable equity securities of $1.4 million which represents the change in the fair value of our marketable equity securities during the three months ended September 30, 2018. No unrealized gain on marketable equity securities was recorded for the 2017 period as these amounts were previously recorded as a component of other comprehensive income prior the adoption, on January 1, 2018, of guidance issued by FASB that now requires companies to measure investments in marketable equity securities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income.
Noncontrolling interests
The net earnings allocated to noncontrolling interests relates to (i) parties of the Company that hold units in the Operating Partnership (ii) the interest in PRO-DFJV Holdings LLC (“PRO”) held by our Sponsor and (iii) the ownership interests in 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”) held by our Sponsor and other affiliates.
Segment Results of Operations for the Three Months Ended September 30, 2018 compared to September 30, 2017
Retail Segment
| For the Three Months
Ended September 30, | Variance Increase/(Decrease) | |||||||||||||||
| 2018 | 2017 | $ | % | |||||||||||||
| Revenues | $ | 1,774 | $ | 2,452 | $ | (678 | ) | -27.7 | % | |||||||
| NOI | 830 | 1,147 | (317 | ) | -27.6 | % | ||||||||||
| Average Occupancy Rate for period | 82.3 | % | 84.7 | % | -2.4 | % | ||||||||||
The following table represents lease expirations for the Retail Segment as of September 30, 2018:
| Lease Expiration Year | Number of Expiring Leases | GLA of Expiring Leases (Sq. Ft.) | Annualized Base Rent of Expiring Leases ($) | Percent of Total GLA | Percent of Total Annualized Base Rent | |||||||||||||||
| 2018 | 5 | 16,472 | 254,481 | 4.3 | % | 5.4 | % | |||||||||||||
| 2019 | 17 | 73,449 | 1,159,082 | 19.4 | % | 24.6 | % | |||||||||||||
| 2020 | 11 | 155,734 | 1,608,852 | 41.1 | % | 34.1 | % | |||||||||||||
| 2021 | 5 | 34,959 | 375,987 | 9.2 | % | 8.0 | % | |||||||||||||
| 2022 | 4 | 14,318 | 270,853 | 3.8 | % | 5.7 | % | |||||||||||||
| 2023 | 2 | 30,700 | 535,621 | 8.1 | % | 11.4 | % | |||||||||||||
| 2024 | 1 | 1,163 | 54,977 | 0.3 | % | 1.2 | % | |||||||||||||
| 2025 | 4 | 15,517 | 274,032 | 4.1 | % | 5.8 | % | |||||||||||||
| 2026 | 2 | 28,687 | 56,382 | 7.6 | % | 1.2 | % | |||||||||||||
| 2027 | - | - | - | - | - | |||||||||||||||
| Thereafter | 1 | 7,959 | 123,365 | 2.1 | % | 2.6 | % | |||||||||||||
| 52 | 378,958 | 4,713,632 | 100.0 | % | 100.0 | % | ||||||||||||||
As of September 30, 2018, we had three tenants, Kohl’s Inc., Saks & Company and H&M Hennes & Mauritz L.P., each with one store, representing approximately 19.9%, 5.4% and 5.1%, respectively, of the total GLA in our Retail Segment. Additionally, as of that date, we did not have any other tenants whose GLA was 5% or more of the total GLA in our Retail Segment.
Revenues and NOI decreased for the three months ended September 30, 2018 compared to the same period in 2017. Revenues and NOI decreased by approximately $0.4 million and $0.3 million, respectively, for the three months ended September 30, 2018 compared to the same period in 2017 as a result of the disposition of Oakview Plaza. Revenues and NOI decreased by approximately $0.3 million and $0.1 million, respectively, for the three months ended September 30, 2018 compared to the same period in 2017 for our remaining retail properties primarily as a result of the lower average occupancy rate during the 2018 period.
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Multi-Family Residential Segment
| For the Three Months
Ended September 30, | Variance Increase/(Decrease) | |||||||||||||||
| 2018 | 2017 | $ | % | |||||||||||||
| Revenues | $ | 2,256 | $ | 2,118 | $ | 138 | 6.5 | % | ||||||||
| NOI | 1,745 | 1,604 | 141 | 8.8 | % | |||||||||||
| Average Occupancy Rate for period | 96.3 | % | 96.0 | % | 0.3 | % | ||||||||||
Revenues and NOI increased slightly for the three months ended September 30, 2018 compared to the same period in 2017 primarily as a result of higher average occupancy for Gantry Park, our only multi-family residential property.
Industrial Segment
| For the Three Months
Ended September 30, | Variance Increase/(Decrease) | |||||||||||||||
| 2018 | 2017 | $ | % | |||||||||||||
| Revenues | $ | 966 | $ | 1,581 | $ | (615 | ) | -38.9 | % | |||||||
| NOI | 503 | 782 | (279 | ) | -35.7 | % | ||||||||||
| Average Occupancy Rate for period | 66.6 | % | 73.3 | % | -6.7 | % | ||||||||||
The following table represents lease expirations for our Industrial Segment as of September 30, 2018
| Lease Expiration Year | Number of Expiring Leases | GLA of Expiring Leases (Sq. Ft.) | Annualized Base Rent of Expiring Leases ($) | Percent of Total GLA | Percent of Total Annualized Base Rent | |||||||||||||||
| 2018 | 5 | 12,853 | 128,293 | 3.6 | % | - | ||||||||||||||
| 2019 | 5 | 24,081 | 215,836 | 6.8 | % | - | ||||||||||||||
| 2020 | 10 | 110,723 | 1,238,929 | 31.2 | % | 41.5 | % | |||||||||||||
| 2021 | 6 | 22,214 | 198,748 | 6.3 | % | 6.7 | % | |||||||||||||
| 2022 | 7 | 62,046 | 519,958 | 17.5 | % | 17.4 | % | |||||||||||||
| 2023 | 6 | 122,578 | 1,027,006 | 34.6 | % | 34.4 | % | |||||||||||||
| 39 | 354,495 | 3,328,770 | 100.0 | % | 100.0 | % | ||||||||||||||
As of September 30, 2018, we had two tenants, Carrier Enterprise, LLC and PSS World Medical, Inc., representing approximately 17.0% and 7.8%, respectively, of the total GLA in our Industrial Segment. Additionally, as of that date, we did not have any other tenants whose GLA was 5% or more of the total GLA in our Industrial Segment.
Revenues and NOI decreased for the three months ended September 30, 2018 compared to the same period in 2017 primarily as a result of the disposition of the San Antonio Assets on June 5, 2018.
Hospitality Segment
| For the Three Months
Ended September 30, | ||||||||
| 2018 | 2017 | |||||||
| Revenues | $ | - | $ | 4,741 | ||||
| NOI | - | 954 | ||||||
| Average Occupancy Rate for period | 0.0 | % | 76.4 | % | ||||
| Rev PAR | $ | - | $ | 108.25 | ||||
On September 7, 2017, the Company disposed of the DoubleTree – Danvers, which was its only remaining consolidated hospitality property and therefore, no longer has a Hospitality Segment.
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For the Nine Months Ended September 30, 2018 vs. September 30, 2017
Consolidated
Revenues
Our revenues are comprised of rental income, tenant recovery income and other service income. Total revenues decreased by approximately $19.1 million to $16.0 million for the nine months ended September 30, 2018 compared to $35.1 million for the same period in 2017. See “Segment Results of Operations for the Nine Months Ended September 30, 2018 compared to September 30, 2017” for additional information on revenues by segment.
Property operating expenses
Property operating expenses decreased by approximately $13.5 million to $5.0 million for the nine months ended September 30, 2018 compared to $18.5 million for the same period in 2017. This decrease is primarily attributable to lower expenses in our Hospitality Segment as a result of the disposition of the DoubleTree – Danvers and to a lesser extent the San Antonio Assets and Oakview Plaza.
Real estate taxes
Real estate taxes expense decreased by approximately $0.7 million to $1.3 million for the nine months ended September 30, 2018 compared to $2.0 million for the same period in 2017. This decrease is primarily attributable to lower expenses resulting from the dispositions of the DoubleTree – Danvers, the San Antonio Assets and Oakview Plaza.
General and administrative expenses
General and administrative expenses decreased by approximately $1.3 million to $3.3 million for the nine months ended September 30, 2018 compared to $4.6 million for the same period in 2017 principally due to a decrease in professional fees, lower asset management fees as a result of the dispositions of the DoubleTree – Danvers, the San Antonio Assets and Oakview Plaza.
Depreciation and amortization
Depreciation and amortization expense decreased by approximately $3.0 million to $5.2 million for the nine months ended September 30, 2018 compared to $8.2 million for the same period in 2017. This decrease is primarily attributable to lower expense resulting from the dispositions of the DoubleTree – Danvers, Oakview Plaza and the San Antonio Assets.
Gain on disposition of real estate
During the nine months ended September 30, 2018 we recognized a second quarter gain on disposition of real estate of approximately $7.1 million related to the foreclosure sale of the San Antonio Assets. During the nine months ended September 30, 2017 we recognized a third quarter gain on disposition of real estate of approximately $10.5 million related to the sale of the DoubleTree – Danvers.
Interest and dividend income
Interest and dividend income decreased by approximately $1.1 million to $14.3 million for the nine months ended September 30, 2018 compared to $15.4 million for the same period in 2017. The decrease reflects lower investment income of $2.0 million from our Preferred Investments partially offset by higher interest and dividend income from our investments in marketable securities of $0.9 million.
Interest expense
Interest expense, including amortization of deferred financing costs, decreased by approximately $3.5 million to $7.3 million for the nine months ended September 30, 2018 compared to $10.8 million for the same period in 2017. This decrease primarily reflects lower interest expense resulting from reductions in mortgage indebtedness in connection with the dispositions of the San Antonio Assets and Oakview Plaza.
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Unrealized loss on marketable equity securities
During the nine months ended September 30, 2018, we recorded an unrealized loss on marketable equity securities of $1.1 million which represents the change in the fair value of our marketable equity securities during the nine months ended September 30, 2018. No unrealized loss on marketable equity securities was recorded for the 2017 period as these amounts were previously recorded as a component of other comprehensive income prior the adoption, on January 1, 2018, of guidance issued by FASB that now requires companies to measure investments in equity securities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income.
Gain on satisfaction of mortgage receivable
During the second quarter of 2017 we recognized a gain on satisfaction of mortgage receivable of approximately $3.2 million related to the repayment in full of our mortgage receivable collateralized by a Holiday Inn Express located in East Brunswick, New Jersey which we acquired at a discount in 2011.
Noncontrolling interests
The net earnings allocated to noncontrolling interests relates to (i) parties of the Company that hold units in the Operating Partnership (ii) the interest in PRO-DFJV Holdings LLC (“PRO”) held by our Sponsor and (iii) the ownership interests in the 2nd Street Joint Venture held by our Sponsor and other affiliates.
Segment Results of Operations for the Nine Months Ended September 30, 2018 compared to September 30, 2017
Retail Segment
| For the Nine Months Ended
September 30, | Variance Increase/(Decrease) | |||||||||||||||
| 2018 | 2017 | $ | % | |||||||||||||
| Revenues | $ | 5,345 | $ | 7,805 | $ | (2,460 | ) | -31.5 | % | |||||||
| NOI | 2,439 | 3,774 | (1,335 | ) | -35.4 | % | ||||||||||
| Average Occupancy Rate for period | 80.9 | % | 97.0 | % | -16.1 | % | ||||||||||
Revenues and NOI decreased by approximately $1.8 million and $1.2 million, respectively, for the nine months ended September 30, 2018 compared to the same period in 2017 as a result of the disposition of Oakview Plaza. Revenues and NOI decreased by approximately $0.7 million and $0.2 million, respectively, for the nine months ended September 30, 2018 compared to the same period in 2017 for our remaining retail properties primarily as a result of the lower average occupancy rate during the 2018 period.
Multi-Family Residential Segment
| For the Nine Months Ended
September 30, | Variance Increase/(Decrease) | |||||||||||||||
| 2018 | 2017 | $ | % | |||||||||||||
| Revenues | $ | 6,702 | $ | 6,443 | $ | 259 | 4.0 | % | ||||||||
| NOI | 5,162 | 4,925 | 237 | 4.8 | % | |||||||||||
| Average Occupancy Rate for period | 97.4 | % | 86.4 | % | 11.0 | % | ||||||||||
Revenues and NOI increased for the three months ended September 30, 2018 compared to the same period in 2017 primarily as a result of higher average occupancy for Gantry Park, our only multi-family residential property.
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Industrial Segment
| For the Nine Months Ended
September 30, | Variance Increase/(Decrease) | |||||||||||||||
| 2018 | 2017 | $ | % | |||||||||||||
| Revenues | $ | 3,981 | $ | 4,683 | $ | (702 | ) | -15.0 | % | |||||||
| NOI | 2,145 | 2,459 | (314 | ) | -12.8 | % | ||||||||||
| Average Occupancy Rate for period | 71.3 | % | 71.8 | % | -0.5 | % | ||||||||||
Revenues and NOI decreased by approximately $0.8 million and $0.5 million, respectively, for the nine months ended September 30, 2018 compared to the same period in 2017 as a result of the disposition of the San Antonio Assets on June 5, 2018. Revenues and NOI increased by approximately $0.1 million and $0.2 million, respectively, for the nine months ended September 30, 2018 compared to the same period in 2017 for our remaining industrial properties.
Hospitality Segment
| For the Nine Months Ended
September 30, | ||||||||
| 2018 | 2017 | |||||||
| Revenues | $ | - | $ | 16,161 | ||||
| NOI | - | 3,098 | ||||||
| Average Occupancy Rate for period | 0.0 | % | 70.2 | % | ||||
| Rev PAR | $ | - | $ | 92.12 | ||||
On September 7, 2017, the Company disposed of the DoubleTree – Danvers, which was its only remaining consolidated hospitality property and therefore, no longer has a Hospitality Segment.
Financial Condition, Liquidity and Capital Resources
Overview:
Rental income, interest and dividend income and borrowings are our principal source of funds to pay operating expenses, scheduled debt service, capital expenditures and distributions, excluding non-recurring capital expenditures.
We expect to meet our short-term liquidity requirements, including the funding of our remaining contributions for investments in related parties (Preferred Investments) of up to $4.1 million as of September 30, 2018, generally through working capital and borrowings. As of September 30, 2018, we had approximately $61.8 million of cash and cash equivalents on hand and $120.2 million of marketable securities, available for sale. We believe that these cash resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other than these sources within the next twelve months.
We currently have $117.2 million of outstanding mortgage debt and an $18.6 million outstanding under a line of credit. We have and intend to continue to limit our aggregate long-term permanent borrowings to 75% of the aggregate fair market value of all properties unless any excess borrowing is approved by a majority of the independent directors and is disclosed to our stockholders. We may also incur short-term indebtedness, having a maturity of two years or less.
Our borrowings consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. We typically have obtained level payment financing, meaning that the amount of debt service payable would be substantially the same each year. As such, most of the mortgages on our properties provide for a so-called “balloon” payment and are at a fixed interest rate.
Additionally, in order to leverage our investments in marketable securities and seek a higher rate of return, we borrowed using a margin loan collateralized by the securities held with the financial institution that provided the margin loan. This loan is due on demand and will be paid upon the liquidation of securities.
On May 29, 2018, we repaid in full our $20.4 million recourse mortgage loan secured by the St. Augustine Outlet Center (“St. Augustine Outlet Center Mortgage”) located in St. Augustine, Florida, with a scheduled maturity in August 2018.
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Certain of our debt agreements require the maintenance of certain ratios, including debt service coverage. We are currently in compliance with all of its financial debt covenants other than the debt originally associated with a portfolio of industrial properties (collectively, the “Gulf Coast Industrial Portfolio”) located in New Orleans, Louisiana (seven properties), Baton Rouge, Louisiana (three properties) and San Antonio, Texas (four properties), as discussed below.
As a result of not meeting certain debt service coverage ratios on the non-recourse mortgage indebtedness secured by the Gulf Coast Industrial Portfolio (the “Gulf Coast Industrial Portfolio Mortgage”), the lender elected to retain the excess cash flow from these properties beginning in July 2011. During the third quarter of 2012, the Gulf Coast Industrial Portfolio Mortgage was transferred to a special servicer, who discontinued scheduled debt service payments and notified the Company that the Gulf Coast Industrial Portfolio Mortgage was in default and although originally due in February 2017 became due on demand.
On June 5, 2018, the special servicer completed a partial foreclosure of the Gulf Coast Industrial Portfolio pursuant to which it foreclosed on the four properties located in San Antonio, Texas (the “San Antonio Assets”.) The San Antonio Assets were sold in a foreclosure sale by the special servicer for an aggregate amount of approximately $20.7 million. (See Note 6)
Upon consummation of the foreclosure sale, the buyers assumed the significant risks and rewards of ownership and took legal title and physical possession of the San Antonio Assets for the aggregate sales price of $20.7 million. We simultaneously received an aggregate credit of approximately $20.7 million against the total indebtedness of the Gulf Coast Industrial Portfolio Mortgage, of which $19.6 million and $1.1 million were applied by us against the outstanding principal and outstanding accrued interest payable respectively, under the Gulf Coast Industrial Portfolio Mortgage.
As a result, the remaining outstanding principal balance of the Gulf Coast Industrial Portfolio Mortgage was approximately $30.6 million as of September 30, 2018. We accrue default interest expense on the Gulf Coast Industrial Portfolio Mortgage pursuant to the terms of its loan agreement.
Additionally, the Company previously accrued default interest expense on a non-recourse mortgage loan (the “Oakview Plaza Mortgage”), pursuant to the terms of its loan agreement during the period from January 2017 through September 2017. The Oakview Plaza Mortgage was secured by a retail shopping center located in Omaha, Nebraska (“Oakview Plaza”). The lender foreclosed on Oakview Plaza in September 2017.
Default interest expense related to the Gulf Coast Industrial Portfolio Mortgage of $0.3 million and $1.3 million was accrued during the three and nine months ended September 30, 2018, respectively, and default interest expense related to both the Gulf Coast Industrial Mortgage and the Oakview Plaza Mortgage of $0.8 million and $2.5 million was accrued during the three and nine months ended September 30, 2017, respectively. Cumulative accrued default interest expense (solely related to the Gulf Coast Industrial Portfolio Mortgage) of $12.5 million and $11.2 million is included in accounts payable, accrued expenses and other liabilities on our consolidated balance sheets as of September 30, 2018 and December 31, 2017, respectively. Additionally, we believe the continued loss of excess cash flow from the Gulf Coast Industrial Portfolio and the special servicer’s placement of the non-recourse mortgage indebtedness in default will not have a material impact on our results of operations or financial position.
Other than the Gulf Coast Industrial Portfolio Mortgage, we have no additional significant maturities of mortgage debt over the next 12 months.
Our charter provides that the aggregate amount of borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a satisfactory showing that a higher level is appropriate, the approval of our Board of Directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. As of September 30, 2018, our total borrowings of $137.1 million represented 39% of net assets.
Any future properties that we may acquire or investments we may make may be funded through a combination of borrowings, proceeds generated from the sale and redemption of our marketable securities, available for sale, proceeds received from the selective disposition of our properties and proceeds received from the redemption of our preferred investments in related parties. These borrowings may consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. Such mortgages may be put in place either at the time we acquire a property or subsequent to our purchasing a property for cash. In addition, we may acquire properties that are subject to existing indebtedness where we choose to assume the existing mortgages. Generally, though not exclusively, we intend to seek to encumber our properties with debt, which will be on a non-recourse basis. This means that a lender’s rights on default will generally be limited to foreclosing on the property. However, we may, at our discretion, secure recourse financing or provide a guarantee to lenders if we believe this may result in more favorable terms. When we give a guaranty for a property owning entity, we will be responsible to the lender for the satisfaction of the indebtedness if it is not paid by the property owning entity.
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We may also obtain lines of credit to be used to acquire properties or real estate-related assets. These lines of credit will be at prevailing market terms and will be repaid from proceeds from the sale or refinancing of properties, working capital or permanent financing. Our Sponsor or its affiliates may guarantee the lines of credit although they will not be obligated to do so.
In addition to meeting working capital needs and distributions, if any, to our stockholders, our capital resources are used to make certain payments to our Advisor and our Property Manager, including payments related to asset acquisition fees, development fees and leasing commissions, asset management fees, the reimbursement of acquisition related expenses to our Advisor and property management fees. We also reimburse our Advisor and its affiliates for actual expenses it incurs for administrative and other services provided to us. Additionally, the Operating Partnership may be required to make distributions to Lightstone SLP, LLC, an affiliate of the Advisor.
The following table represents the fees incurred associated with the payments to our Advisor and our Property Manager for the periods indicated:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Asset management fees (general and administrative costs) | $ | 392 | $ | 556 | $ | 1,283 | $ | 1,684 | ||||||||
| Property management fees (property operating expenses) | 120 | 199 | 409 | 576 | ||||||||||||
| Development fees and leasing commissions* | 62 | 125 | 182 | 706 | ||||||||||||
| Total | $ | 574 | $ | 880 | $ | 1,874 | $ | 2,966 | ||||||||
| * | Generally, capitalized and amortized over the estimated useful life of the associated asset. |
Summary of Cash Flows
The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below:
| For the Nine Months Ended
September 30, | ||||||||
| 2018 | 2017 | |||||||
| Net cash flows provided by operating activities | $ | 15,470 | $ | 18,596 | ||||
| Net cash flows (used in)/provided by investing activities | (18,526 | ) | 23,141 | |||||
| Net cash flows used in financing activities | (45,177 | ) | (18,351 | ) | ||||
| Net change in cash and cash equivalents | (48,233 | ) | 23,386 | |||||
| Cash and cash equivalents, beginning of year | 119,219 | 108,357 | ||||||
| Cash and cash equivalents, end of the period | $ | 70,986 | $ | 131,743 | ||||
Our principal sources of cash flow are derived from the operation of our rental properties, interest and dividend income on our marketable securities and real estate-related investments, as well as loan proceeds and proceeds from redemptions of preferred investments in related parties. We intend that our properties and real estate-related investments will provide a relatively consistent stream of cash flow that provides us with resources to fund operating expenses, debt service and quarterly distributions if declared by our board of directors.
Our principal demands for liquidity are (i) our property operating expenses, (ii) real estate taxes, (iii) insurance costs, (iv) leasing costs and related tenant improvements, (v) capital expenditures, (vi) acquisition, investment and development activities, (vii) scheduled debt service and (viii) distributions to our stockholders and noncontrolling interests. The principal sources of funding for our operations are operating cash flows and proceeds from (i) the sale and redemption of marketable securities, (ii) the selective disposition of properties or interests in properties, (iii) redemptions of our preferred investments in related parties, (iv) the issuance of equity and debt securities and (v) the placement of mortgage loans or other indebtedness.
Operating activities
Net cash flows provided by operating activities of $15.5 million for the nine months ended September 30, 2018 consists of the following:
| · | cash inflows of approximately $13.8 million from our net income after adjustment for non-cash items; and |
| · | cash inflows of approximately $1.7 million associated with the net changes in operating assets and liabilities. |
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Investing activities
The net cash used in investing activities of $18.5 million for the nine months ended September 30, 2018 consists primarily of the following:
| · | net purchases of investment property of approximately $1.0 million; |
| · | net proceeds from preferred investments in related parties of $45.0 million; and |
| · | net purchases of marketable securities of $62.5 million; |
Financing activities
The net cash used in financing activities of approximately $45.2 million for the nine months ended September 30, 2018 is primarily related to the following:
| · | distributions to our common shareholders of $13.0 million; |
| · | redemptions and cancellation of common stock of $8.1 million; |
| · | aggregate distributions to our noncontrolling interests of $2.5 million; and |
| · | debt principal payments $21.6 million. |
Preferred Investments
We have entered into several agreements with various related party entities that provide for us to make preferred contributions pursuant to certain instruments (the “Preferred Investments”) that entitle us to monthly preferred distributions. The Preferred Investments had an aggregate balance of $113.4 million and $158.3 million as of September 30, 2018 and December 31, 2017, respectively, and are classified as held-to-maturity securities, recorded at cost and included in investments in related parties on the consolidated balance sheets. The fair value of these investments approximated their carrying values based on market rates for similar instruments.
During the nine months ended September 30, 2018, we made an aggregate $15.1 million of additional contributions and redeemed $60.0 million of the Preferred Investments and as of September 30, 2018, remaining contributions of up to $4.1 million were unfunded.
The Preferred Investments are summarized as follows:
| Preferred
Investment Balance | Unfunded
Contributions | Investment Income | ||||||||||||||||||||||||||||||
| As of September 30, | As of December 31, | As of September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| Preferred Investments | Dividend Rate | 2018 | 2017 | 2018 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
| 40 East End Avenue (1) | 8% to 12 | % | $ | 30,000 | $ | 30,000 | $ | - | $ | 920 | $ | 920 | $ | 2,730 | $ | 2,463 | ||||||||||||||||
| 30-02 39th Avenue | 12 | % | 10,000 | 10,000 | - | 307 | 307 | 910 | 946 | |||||||||||||||||||||||
| 485 7th Avenue | 12 | % | - | 60,000 | - | - | 1,840 | 1,095 | 5,460 | |||||||||||||||||||||||
| East 11th Street | 12 | % | 57,500 | 46,119 | - | 1,763 | 1,155 | 4,970 | 3,135 | |||||||||||||||||||||||
| Miami Moxy | 12 | % | 15,933 | 12,195 | 4,067 | 457 | 346 | 1,229 | 905 | |||||||||||||||||||||||
| Total Preferred Investments | $ | 113,433 | $ | 158,314 | $ | 4,067 | $ | 3,447 | $ | 4,568 | $ | 10,934 | $ | 12,909 | ||||||||||||||||||
Note:
(1) - The dividend rate increased from 8% to 12% during March 2017 in connection with the procurement of construction financing on this project.
Distribution Reinvestment Program (“DRIP”) and Share Repurchase Program
Our DRIP provides our stockholders with an opportunity to purchase additional shares of our common stock at a discount by reinvesting distributions. Our share repurchase program may provide our stockholders with limited, interim liquidity by enabling them to sell their shares of common stock back to us, subject to restrictions. From our inception through December 31, 2017 we repurchased approximately 3.9 million shares of common stock. For the nine months ended September 30, 2018, we repurchased 835,075 shares of common stock for $9.70 per share, pursuant to our share repurchase program. We funded share repurchases for the periods noted above from the cumulative proceeds of the sale of our shares pursuant to our DRIP and from our operating funds.
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On May 10, 2018, the Board of Directors amended the share repurchase program to (i) change to the price for all purchases under our share repurchase program from $10.00 per share to 92% of the estimated net asset value per share of the Company’s common stock (previously the purchase price was $10.00 per share) and (ii) increase the number of shares repurchased during any calendar year from two (2.0%) of the weighted average number of shares outstanding during the prior calendar year to five (5.0%) of the weighted average number of shares outstanding during the previous twelve months.
On January 19, 2015, the Board of Directors suspended our DRIP effective April 15, 2015.
On October 16, 2018, the Company mailed a prospectus related to its amended and restated DRIP to its existing stockholders. The DRIP was reactivated as amended and restated effective on October 25, 2018.
Pursuant to the DRIP following its reactivation, the Company’s stockholders who elect to participate may invest all or a portion of the cash distributions that the Company pays them on shares of the Company’s common stock in additional shares of the Company’s common stock without paying any fees or commissions. The purchase price for shares under the DRIP will be equal to 95% of the Company’s current estimated per-share net asset value (the “Estimated Per-Share NAV”), as determined by the Company’s board of directors and reported by the Company from time to time, and will therefore initially be $11.11 per share, based on the Estimated Per-Share NAV of $11.69 as of September 30, 2017 which was published on December 11, 2017.
Our Board of Directors reserves the right to terminate either program for any reason without cause by providing written notice of termination of the DRIP to all participants or written notice of termination of the share repurchase program to all stockholders.
Contractual Obligations
The following is a summary of our contractual obligations outstanding over the next five years and thereafter as of September 30, 2018.
| Contractual Obligations | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | |||||||||||||||||||||
| Mortgage Payable | $ | 31,041 | $ | 1,621 | $ | 14,924 | $ | 1,328 | $ | 1,389 | $ | 68,151 | $ | 118,454 | ||||||||||||||
| Interest Payments 1,2 | 1,012 | 4,011 | 3,605 | 3,191 | 3,130 | 5,983 | 20,932 | |||||||||||||||||||||
| Total Contractual Obligations | $ | 32,053 | $ | 5,632 | $ | 18,529 | $ | 4,519 | $ | 4,519 | $ | 74,134 | $ | 139,386 | ||||||||||||||
| 1) | The non-recourse mortgage associated with the Gulf Coast Industrial Portfolio is due on demand and therefore, no future interest payments on this mortgage are included in these amounts. |
Notes Payable
Margin Loan
We have access to a margin loan (the “Margin Loan”) from a financial institution that holds custody of certain of our marketable securities. The Margin Loan, which is due on demand, bears interest at Libor plus 0.85% (3.11% as of September 30, 2018) and is collateralized by the marketable securities in our account. The amounts available to us under the Margin Loan are at the discretion of the financial institution and not limited to the amount of collateral in our account. There were no amounts outstanding under the Margin Loan as of September 30, 2018 and December 31, 2017.
Line of Credit
We have a non-revolving credit facility (the “Line of Credit”) with a financial institution which permits borrowings up to $25.0 million. The Line of Credit expires on June 19, 2019 and bears interest at Libor plus 1.35% (3.61% as of September 30, 2018). The Line of Credit is collateralized by approximately 209,000 Marco OP Units and PRO guaranteed the Line of Credit. The amount outstanding under the Line of Credit was $18.6 million as of September 30, 2018 and is included in Notes Payable on the consolidated balance sheets. We currently intend to seek to extend or replace the Line of Credit on or before its expiration. If we are unable to extend or replace the Line of Credit, we will repay the then outstanding balance in full at the expiration date using working capital, cash proceeds from the sale of assets and/or redemptions of our preferred investments in related parties.
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Funds from Operations and Modified Funds from Operations
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings, improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be less informative.
Because of these factors, the National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has published a standardized measure of performance known as funds from operations ("FFO"), which is used in the REIT industry as a supplemental performance measure. We believe FFO, which excludes certain items such as real estate-related depreciation and amortization, is an appropriate supplemental measure of a REIT's operating performance. FFO is not equivalent to our net income or loss as determined under GAAP.
We define FFO, a non-GAAP measure, consistent with the standards set forth in the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (the "White Paper"). The White Paper defines FFO as net income or loss computed in accordance with GAAP, but excluding gains or losses from sales of property and real estate related impairments, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.
We believe that the use of FFO provides a more complete understanding of our performance to investors and to management and reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.
Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT's definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.
Because of these factors, the Investment Program Association (the "IPA"), an industry trade group, published a standardized measure of performance known as modified funds from operations ("MFFO"), which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that both before and after we have deployed all of our offering proceeds and are no longer incurring a significant amount of acquisition fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP.
We define MFFO, a non-GAAP measure, consistent with the IPA's Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the "Practice Guideline") issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction-related fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and exclude acquisition and transaction-related fees and expenses (which includes costs incurred in connection with strategic alternatives), amounts relating to straight line rent receivables and amortization of market lease and other intangibles, net (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), accretion of discounts and amortization of premiums on debt investments and borrowings, mark-to-market adjustments included in net income (including gains or losses incurred on assets held for sale), gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis.
We believe that, because MFFO excludes costs that we consider more reflective of acquisition activities and other non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.
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Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO.
Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guidelines or the SEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry, and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.
The below table illustrates the items deducted in the calculation of FFO and MFFO. Items are presented net of non-controlling interest portions where applicable.
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | |||||||||||||
| Net income | $ | 4,489 | $ | 12,202 | $ | 16,607 | $ | 20,057 | ||||||||
| FFO adjustments: | ||||||||||||||||
| Depreciation and amortization: | ||||||||||||||||
| Depreciation and amortization of real estate assets | 1,639 | 2,738 | 5,217 | 8,252 | ||||||||||||
| Equity in depreciation and amortization for unconsolidated affiliated real estate entities | - | - | - | - | ||||||||||||
| Adjustments to equity in earnings from unconsolidated entities, net | - | - | - | - | ||||||||||||
| Gain on disposal of investment property | (10,483 | ) | (7,137 | ) | (10,483 | ) | ||||||||||
| Gain on satisfaction of mortgage receivable | - | - | - | (3,216 | ) | |||||||||||
| FFO | 6,128 | 4,457 | 14,687 | 14,610 | ||||||||||||
| MFFO adjustments: | ||||||||||||||||
| Other Adjustment | ||||||||||||||||
| Acquisition and other transaction related costs expensed(1) | - | - | - | - | ||||||||||||
| Amortization of above or below market leases and liabilities(2) | (35 | ) | (33 | ) | (105 | ) | (97 | ) | ||||||||
| Loss on debt extinguishment | - | - | ||||||||||||||
| Accretion of discounts and amortization of premiums on debt investments | - | - | - | - | ||||||||||||
| Mark-to-market adjustments(3) | (1,448 | ) | (26 | ) | (1,259 | ) | (83 | ) | ||||||||
| Non-recurring (losses)/gains from extinguishment/sale of debt, derivatives or securities holdings(4) | 3 | 18 | 198 | 67 | ||||||||||||
| MFFO | 4,648 | 4,416 | 13,521 | 14,497 | ||||||||||||
| Straight-line rent(5) | $ | 13 | $ | 12 | $ | 125 | $ | (44 | ) | |||||||
| MFFO - IPA recommended format(6) | $ | 4,661 | $ | 4,428 | $ | 13,646 | $ | 14,453 | ||||||||
| Net income | $ | 4,489 | $ | 12,202 | $ | 16,607 | $ | 20,057 | ||||||||
| Less: loss attributable to noncontrolling interests | (465 | ) | (392 | ) | (1,108 | ) | (915 | ) | ||||||||
| Net income applicable to Company's common shares | $ | 4,024 | $ | 11,810 | $ | 15,499 | $ | 19,142 | ||||||||
| Net income per common share, basic and diluted | $ | 0.17 | $ | 0.47 | $ | 0.63 | $ | 0.77 | ||||||||
| FFO | $ | 6,128 | $ | 4,457 | $ | 14,687 | $ | 14,610 | ||||||||
| Less: FFO attributable to noncontrolling interests | (608 | ) | (404 | ) | (1,503 | ) | (1,296 | ) | ||||||||
| FFO attributable to Company's common shares | $ | 5,520 | $ | 4,053 | $ | 13,184 | $ | 13,314 | ||||||||
| FFO per common share, basic and diluted | $ | 0.23 | $ | 0.16 | $ | 0.54 | $ | 0.53 | ||||||||
| MFFO - IPA recommended format | $ | 4,661 | $ | 4,428 | $ | 13,646 | $ | 14,453 | ||||||||
| Less: MFFO attributable to noncontrolling interests | (470 | ) | (411 | ) | (1,391 | ) | (1,289 | ) | ||||||||
| MFFO attributable to Company's common shares | $ | 4,191 | $ | 4,017 | $ | 12,255 | $ | 13,164 | ||||||||
| Weighted average number of common shares outstanding, basic and diluted | 24,299 | 24,931 | 24,575 | 24,993 | ||||||||||||
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Notes:
| (1) | The purchase of properties, and the corresponding expenses associated with that process, is a key operational feature of our business plan to generate operational income and cash flows in order to make distributions to investors. In evaluating investments in real estate, management differentiates the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for non-listed REITs that have completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition costs, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our advisor or third parties. Acquisition fees and expenses under GAAP are considered operating expenses and as expenses included in the determination of net income and income from continuing operations, both of which are performance measures under GAAP. Such fees and expenses are paid in cash, and therefore such funds will not be available to distribute to investors. Such fees and expenses negatively impact our operating performance during the period in which properties are being acquired. Therefore, MFFO may not be an accurate indicator of our operating performance, especially during periods in which properties are being acquired. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to the property. Acquisition fees and expenses will not be paid or reimbursed, as applicable, to our advisor even if there are no further proceeds from the sale of shares in our offering, and therefore such fees and expenses would need to be paid from either additional debt, operational earnings or cash flows, net proceeds from the sale of properties or from ancillary cash flows. |
| (2) | Under GAAP, certain intangibles are accounted for at cost and reviewed at least annually for impairment, and certain intangibles are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of other real estate related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, management believes that by excluding charges relating to amortization of these intangibles, MFFO provides useful supplemental information on the performance of the real estate. |
| (3) | Management believes that adjusting for mark-to-market adjustments is appropriate because they are nonrecurring items that may not be reflective of ongoing operations and reflects unrealized impacts on value based only on then current market conditions, although they may be based upon current operational issues related to an individual property or industry or general market conditions. Mark-to-market adjustments are made for items such as ineffective derivative instruments, certain marketable equity securities and any other items that GAAP requires we make a mark-to-market adjustment for. The need to reflect mark-to-market adjustments is a continuous process and is analyzed on a quarterly and/or annual basis in accordance with GAAP. |
| (4) | Management believes that adjusting for gains or losses related to extinguishment/sale of debt, derivatives or securities holdings is appropriate because they are items that may not be reflective of ongoing operations. By excluding these items, management believes that MFFO provides supplemental information related to sustainable operations that will be more comparable between other reporting periods. |
| (5) | Under GAAP, rental receipts are allocated to periods using various methodologies. This may result in income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, providing insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management’s analysis of operating performance. |
| (6) | Our MFFO results include certain unusual items as set forth in the table below. We believe it is helpful to our investors in understanding our operating results to both highlight them and present adjusted MFFO excluding their impact (as shown below). |
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | |||||||||||||
| Gulf Coast Industrial Portfolio - Default interest expense(a) | $ | (313 | ) | $ | (514 | ) | $ | (1,266 | ) | $ | (1,523 | ) | ||||
| Oakview Plaza - Default interest expenes(b) | - | (273 | ) | - | (991 | ) | ||||||||||
| Total before allocations to noncontrolling interests | (313 | ) | (787 | ) | (1,266 | ) | (2,514 | ) | ||||||||
| Allocations to noncontrolling interests | 6 | 15 | 25 | 48 | ||||||||||||
| Total after allocations to noncontrolling interests | $ | (307 | ) | $ | (772 | ) | $ | (1,241 | ) | $ | (2,466 | ) | ||||
| (a) | Represents the accrual of default interest expense on our non-recourse mortgage loan collateralized by our Gulf Coast Industrial Portfolio We accrue interest at the default rate pursuant to the terms of the respective loan agreement. |
| (b) | Represents the accrual of default interest expense on our non-recourse mortgage loan secured by Oakview Plaza. In connection with the Oakview Plaza Foreclosure which occurred on September 15, 2017, approximately $1.0 million of accrued default interest was extinguished. |
Excluding the impact of these unusual items from our MFFO, after taking into consideration allocations to noncontrolling interests, our adjusted MFFO would have been $4,498 and $4,789 for the three months ended September 30, 2018 and 2017, respectively and $13,498 and $15,630 for the nine months ended September 30, 2018 and 2017, respectively.
The table below presents our cumulative distributions paid and cumulative FFO attributable to the Company’s common shares:
| From inception through | ||||
| September 30, 2018 | ||||
| FFO attributable to Company’s common shares | $ | 206,210 | ||
| Distributions paid | $ | 211,524 | ||
On October 15, 2018, the distribution for the three-month period ending September 30, 2018 of $4.2 million was paid in cash.
The amount of distributions paid to our stockholders in the future will be determined by our Board and is dependent on a number of factors, including funds available for payment of dividends, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code.
35
New Accounting Pronouncements
See Note 2 to the Notes to Consolidated Financial Statements for further information of certain accounting standards that have been adopted during 2018, if any, and certain accounting standards that we have not yet been required to implement and may be applicable to our future operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk.
We may be exposed to the effects of interest rate changes primarily as a result of borrowings used to maintain liquidity and fund the expansion and refinancing of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk. To achieve our objectives, we may borrow at fixed rates or variable rates. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes. As of September 30, 2018, we had one interest rate swap with an insignificant intrinsic value.
As of September 30, 2018, we held various marketable securities with a fair value of approximately $120.2 million, which are available for sale for general investment return purposes. We regularly review the market prices of these investments for impairment purposes. As of September 30, 2018, a hypothetical adverse 10% movement in market values would result in a hypothetical loss in fair value of approximately $12.0 million.
The following table shows the contractually scheduled principal maturities of our mortgage debt during the next five years and thereafter as of September 30, 2018:
| 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | ||||||||||||||||||||||
| Mortgages Payable | $ | 31,041 | 1,621 | 14,924 | 1,328 | 1,389 | 68,151 | $ | 118,454 | |||||||||||||||||||
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, tenant and other accounts receivable, accounts payable, accrued expenses and other liabilities and due to related parties approximated their fair values because of the short maturity of these instruments. The estimated fair value of the notes payable (line of credit) approximated its carrying value ($18.6 million) because of its floating interest rate.
The estimated fair value of the Company’s mortgage debt is summarized as follows:
| As of September 30, 2018 | As of December 31, 2017 | |||||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
| Mortgages payable | $ | 118.5 | $ | 116.7 | $ | 159.6 | $ | 158.6 | ||||||||
The fair value of the mortgage payable was determined by discounting the future contractual interest and principal payments by estimated current market interest rates.
In addition to changes in interest rates, the value of our real estate and real estate related investments is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of lessees, which may affect our ability to refinance our debt if necessary.
We cannot predict the effect of adverse changes in interest rates on our debt and, therefore, our exposure to market risk, nor can we provide any assurance that long-term debt will be available at advantageous pricing. Consequently, future results may differ materially from the estimated adverse changes discussed above.
36
ITEM 4. CONTROLS AND PROCEDURES.
As of the end of the period covered by this report, management, including our chief executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of the evaluation, our chief executive officer and principal financial officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.
There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no significant deficiencies or material weaknesses identified in the evaluation, and therefore, no corrective actions were taken.
From time to time in the ordinary course of business, we may become subject to legal proceedings, claims or disputes.
As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.
We discuss in our Annual Report on Form 10-K various risks that may materially affect our business. We use this section to update this discussion to reflect material developments since our Form 10-K was filed. For the nine months ended September 30, 2018, there were no such material developments.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
*Filed herewith
37
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. | ||
| Date: November 14, 2018 | By: | /s/ David Lichtenstein |
| David Lichtenstein | ||
| Chairman and Chief Executive Officer (Principal Executive Officer) | ||
| Date: November 14, 2018 | By: | /s/ Seth Molod |
| Seth Molod | ||
Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial and Accounting Officer) | ||
38
EXHIBIT 31.1
Certifications
I, David Lichtenstein, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Lightstone Value Plus Real Estate Investment Trust, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ David Lichtenstein |
David Lichtenstein
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2018
EXHIBIT 31.2
Certifications
I, Seth Molod, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Lightstone Value Plus Real Estate Investment Trust, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ Seth Molod |
Seth Molod
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Date: November 14, 2018
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, David Lichtenstein, the Chief Executive Officer and Chairman of the Board of Directors of Lightstone Value Plus Real Estate Investment Trust, Inc. (the “Company”) certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2018 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C 78m); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ David Lichtenstein |
David Lichtenstein
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2018
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, Seth Molod, the Chief Financial Officer, Treasurer and Principal Accounting Officer of Lightstone Value Plus Real Estate Investment Trust, Inc. (the “Company”) certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) The Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2018 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C 78m); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Seth Molod |
Seth Molod
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Date: November 14, 2018
Document And Entity Information - shares shares in Millions |
9 Months Ended | |
|---|---|---|
Sep. 30, 2018 |
Nov. 01, 2018 |
|
| Document Information [Line Items] | ||
| Document Type | 10-Q | |
| Amendment Flag | false | |
| Document Period End Date | Sep. 30, 2018 | |
| Document Fiscal Year Focus | 2018 | |
| Document Fiscal Period Focus | Q3 | |
| Entity Registrant Name | Lightstone Value Plus Real Estate Investment Trust, Inc. | |
| Entity Central Index Key | 0001296884 | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Filer Category | Non-accelerated Filer | |
| Entity Common Stock, Shares Outstanding | 24.0 | |
| Entity Emerging Growth Company | false | |
| Entity Small Business | true |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares shares in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Preferred shares, par value | $ 0.01 | $ 0.01 |
| Preferred shares, shares authorized | 10,000 | 10,000 |
| Preferred shares, shares issued | 0 | 0 |
| Preferred shares, shares outstanding | 0 | 0 |
| Common stock, par value | $ 0.01 | $ 0.01 |
| Common stock, shares authorized | 60,000 | 60,000 |
| Common stock, shares issued | 24,012 | 24,847 |
| Common stock, shares outstanding | 24,012 | 24,847 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Net income | $ 4,489 | $ 12,202 | $ 16,607 | $ 20,057 |
| Other comprehensive income/(loss) | ||||
| Holding gain/(loss) on marketable securities, available for sale | 127 | (48) | (1,370) | (2,789) |
| Reclassification adjustment for loss included in net income | 3 | 18 | 81 | 67 |
| Other comprehensive gain/(loss) | 130 | (30) | (1,289) | (2,722) |
| Comprehensive income | 4,619 | 12,172 | 15,318 | 17,335 |
| Less: Comprehensive income attributable to noncontrolling interests | (468) | (379) | (1,083) | (576) |
| Comprehensive income attributable to Company's common shares | $ 4,151 | $ 11,793 | $ 14,235 | $ 16,759 |
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - 9 months ended Sep. 30, 2018 - USD ($) shares in Thousands, $ in Thousands |
Total |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Accumulated Other Comprehensive Income/(loss) [Member] |
Accumulated Surplus [Member] |
Noncontrolling Interests [Member] |
|---|---|---|---|---|---|---|
| BALANCE at Dec. 31, 2017 | $ 315,370 | $ 248 | $ 194,497 | $ 15,467 | $ 86,956 | $ 18,202 |
| BALANCE, (in shares) at Dec. 31, 2017 | 24,847 | |||||
| Reclassification of other accumulated comprehensive income to accumulated surplus (See Note 3) | 0 | $ 0 | 0 | (15,476) | 15,476 | 0 |
| Net income | 16,607 | 0 | 0 | 0 | 15,499 | 1,108 |
| Transfer of membership interests (See Note 7) | 0 | 0 | 1,500 | 0 | 0 | (1,500) |
| Other comprehensive loss | (1,289) | 0 | 0 | (1,264) | 0 | (25) |
| Distributions declared | (12,809) | 0 | 0 | 0 | (12,809) | 0 |
| Distributions paid to noncontrolling interests | (2,562) | 0 | 0 | 0 | 0 | (2,562) |
| Contributions received from noncontrolling interests | 6 | 0 | 0 | 0 | 0 | 6 |
| Redemption and cancellation of shares | (8,097) | $ (8) | (8,089) | 0 | 0 | 0 |
| Redemption and cancellation of shares (in shares) | (835) | |||||
| BALANCE at Sep. 30, 2018 | $ 307,226 | $ 240 | $ 187,908 | $ (1,273) | $ 105,122 | $ 15,229 |
| BALANCE, (in shares) at Sep. 30, 2018 | 24,012 |
Organization |
9 Months Ended | ||||
|---|---|---|---|---|---|
Sep. 30, 2018 | |||||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||
| Organization |
Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation (“Lightstone REIT”) was formed on June 8, 2004 (date of inception) and subsequently qualified as a real estate investment trust (“REIT”) during the year ending December 31, 2006. Lightstone REIT was formed primarily for the purpose of engaging in the business of investing in and owning commercial and residential real estate properties located throughout the United States. The Company also has and will continue to seek to originate, acquire and manage a diverse portfolio of real estate-related investments. Lightstone REIT is structured as an umbrella partnership REIT, or UPREIT, and substantially all of its current and future business is and will be conducted through Lightstone Value Plus REIT, L.P., a Delaware limited partnership formed on July 12, 2004 (the “Operating Partnership”), in which Lightstone REIT as the general partner, held a 98% interest as of September 30, 2018. The Lightstone REIT and the Operating Partnership and its subsidiaries are collectively referred to as the ‘‘Company’’ and the use of ‘‘we,’’ ‘‘our,’’ ‘‘us’’ or similar pronouns refers to the Lightstone REIT, its Operating Partnership or the Company as required by the context in which such pronoun is used. The Company is managed by Lightstone Value Plus REIT, LLC (the “Advisor”), an affiliate of the Lightstone Group, Inc., under the terms and conditions of an advisory agreement. The Lightstone Group, Inc. previously served as the Company’s sponsor (the “Sponsor”) during its initial public offering, which closed on October 10, 2008. Subject to the oversight of the Company’s board of directors (the “Board of Directors”), the Advisor has primary responsibility for making investment decisions and managing the Company’s day-to-day operations. Through his ownership and control of The Lightstone Group, David Lichtenstein is the indirect owner of the Advisor and the indirect owner and manager of Lightstone SLP, LLC, which has subordinated profits interests (“SLP units”) in the Operating Partnership. Mr. Lichtenstein also acts as the Company’s Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control the Lightstone REIT or the Operating Partnership. The Company’s stock is not currently listed on a national securities exchange. The Company may seek to list its stock for trading on a national securities exchange only if a majority of its independent directors believe listing would be in the best interest of its stockholders. The Company does not intend to list its shares at this time. The Company does not anticipate that there would be any market for its shares of common stock until they are listed for trading. As of September 30, 2018, on a collective basis, the Company wholly or majority owned and consolidated the operating results and financial condition of 2 retail properties containing a total of approximately 0.5 million square feet of retail space, 10 industrial properties containing a total of approximately 0.5 million square feet of industrial space and one multi-family residential property containing a total of 199 units. All of the Company’s properties are located within the United States. As of September 30, 2018, the retail properties, the industrial properties and the multi-family residential properties were 83%, 68% and 97% occupied based on a weighted-average basis, respectively. Noncontrolling Interests As of September 30, 2018, the noncontrolling interests consist of (i) parties of the Company that hold units in the Operating Partnership and (ii) certain interests in consolidated subsidiaries. The units include SLP units, limited partner units and common units. The noncontrolling interests in consolidated subsidiaries include ownership interests in Pro-DFJV Holdings LLC (“PRO”) held by the Company’s Sponsor and 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”) held by the Company’s Sponsor and other affiliates. PRO’s holdings principally consist of Marco OP Units and Marco II OP Units (see Note 3). The 2nd Street Joint Venture owns Gantry Park, a multi-family apartment building located in Queens, NY. |
Summary of Significant Accounting Policies |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies |
Basis of Presentation The consolidated financial statements include the accounts of the Lightstone REIT and its Operating Partnership and its subsidiaries (over which the Company exercises financial and operating control). All inter-company balances and transactions have been eliminated in consolidation. The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of the Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of the results for the periods presented. The accompanying unaudited consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust, Inc. and its Subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of real estate and real-estate related investments, marketable securities, depreciable lives, and revenue recognition. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates. The consolidated balance sheet as of December 31, 2017 included herein has been derived from the consolidated balance sheet included in the Company's Annual Report on Form 10-K. The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period. Recently Adopted Accounting Pronouncements Effective January 1, 2018, the Company adopted guidance issued by the Financial Accounting Standards Board (“FASB”) that requires amounts that are generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this standard using the retrospective transition method. As required by the Company’s lenders, restricted cash is held in escrow accounts for anticipated capital expenditures, real estate taxes, and other reserves for certain of our consolidated properties. Capital reserves are typically utilized for non-operating expenses such as tenant improvements, leasing commissions, and major capital expenditures. Alternatively, a lender may require its own formula for an escrow of capital reserves. Restricted cash may also include deposits for the purchase of real estate or certain funds temporarily placed in escrow with qualified intermediaries to facilitate potential like-kind exchange transactions in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended. The following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in our statements of cash flows for the periods presented:
Effective January 1, 2018, the Company adopted guidance issued by the FASB that that requires companies to measure investments in equity securities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income, using a modified-retrospective approach. This resulted in a $15.5 million reclassification of aggregate net unrealized gains from accumulated other comprehensive income (“AOCI”) to opening accumulated surplus see Note 3. Effective January 1, 2018, the Company adopted guidance issued by the FASB that clarifies the definition of a business and assists in the evaluation of whether a transaction will be accounted for as an acquisition of an asset or as a business combination. The guidance provides a test to determine when a set of assets and activities acquired is not a business. When substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. Additionally, assets acquired, liabilities assumed, and any noncontrolling interest will be measured at their relative fair values. The Company anticipates future acquisitions of real estate assets, if any, will likely qualify as an asset acquisition. Therefore, any future transaction costs associated with an asset acquisition will be capitalized and accounted for in accordance with this guidance. Effective January 1, 2018, the Company adopted guidance issued by the FASB that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. The new guidance requires companies to apply a five-step model in accounting for revenue arising from contracts with customers, as well as enhance disclosures regarding revenue recognition. Lease contracts are excluded from this revenue recognition criteria; however, the sale of real estate is required to follow the new model. The Company has adopted this standard for the year beginning on January 1, 2018 using the modified retrospective approach. The adoption of this pronouncement had no effect on our consolidated financial statements since, with the disposal of the DoubleTree – Danvers in September 2017, substantially all revenues now consist of rental income from leasing arrangements, which is specifically excluded from the standard. New Accounting Pronouncements In August 2018, the Securities and Exchange Commission adopted the final rule amending certain disclosure requirements that have become redundant, duplicative, overlapping, outdated, or superseded. In addition, the amendments expand the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The rule was effective on November 5, 2018 and will be effective for the quarter that begins after the effective date. Since the Company already includes a year to date consolidated statement of stockholders’ equity in our interim financial statement filings, the adoption of this guidance will result in the inclusion of a quarter to date consolidated statement of stockholders equity in our second and third quarter interim financial statement filings and the inclusion of corresponding prior periods statement of stockholders’ equity for all periods presented. In June 2016, the FASB issued an accounting standards update which replaces the incurred loss impairment methodology currently in use with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This guidance will not have a material impact on the Company’s consolidated financial statements. In February 2016, the FASB issued an accounting standards update which supersedes the existing lease accounting model, and modifies both lessee and lessor accounting. The new guidance will require lessees to recognize a liability to make lease payments and a right-of-use asset, initially measured at the present value of lease payments, for both operating and financing leases, with classification affecting the pattern of expense recognition in the statement of earnings. For leases with a term of 12 months or less, lessees will be permitted to make an accounting policy election by class of underlying asset to not recognize lease liabilities and lease assets. The standard offers several practical expedients for transition and certain expedients specific to lessees or lessors. Both lessees and lessors are permitted to make an election to apply a package of practical expedients available for implementation under the standard. The Company intends to apply the package of practical expedients and certain other transition expedients. For transition, the Company intends to recognize all effects of transition in the beginning of the adoption reporting period on January 1, 2019. We expect that the adoption of this standard will result in the recognition of right-of-use assets and related lease liability accounts on the consolidated balance sheet but is not expected to have a material effect on our consolidated financial position or our results of operations, however, the ultimate impact of adopting this standard will depend on the Company’s lease portfolio as of the adoption date. The Company has reviewed and determined that other recently issued accounting pronouncements will not have a material impact on its financial position, results of operations and cash flows, or do not apply to its current operations. Reclassifications Certain prior period amounts may have been reclassified to conform to the current year presentation. |
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Marketable Securities, Fair Value Measurements and Notes Payable |
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| Marketable Securities And Fair Value Measurements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Marketable Securities and Fair Value Measurements |
Marketable Securities: The following is a summary of the Company’s available for sale securities as of the dates indicated:
As of both September 30, 2018 and December 31, 2017, the Company held an aggregate of 209,243 Marco OP Units and Marco II OP Units, of which 89,695 were owned by PRO. The Marco OP Units and the Marco II OP Units are exchangeable for a similar number of common operating partnership units (“Simon OP Units”) of Simon Property Group, L.P., (“Simon OP”), the operating partnership of Simon Property Group, Inc. (“Simon”). Subject to the various conditions, the Company may elect to exchange the Marco OP Units and/or the Marco II OP Units to Simon OP Units which must be immediately delivered to Simon in exchange for cash or similar number of shares of Simon’s common stock (“Simon Stock”). Prior to January 1, 2018, the Company accounted for marketable equity securities at fair value with unrealized gains and losses recognized in AOCI on the consolidated balance sheet. Realized gains and losses on marketable equity securities sold or impaired were recognized on the consolidated statements of operations. On January 1, 2018, the Company adopted guidance issued by the FASB that required it to change the way it accounts for marketable equity securities. The Company’s marketable equity securities are measured at fair value and starting January 1, 2018 unrealized gains and losses are recognized on the consolidated statements of operations. Upon adoption, the Company reclassified $15.5 million of aggregate net unrealized gains from AOCI to opening accumulated surplus. The Company considers the declines in market value of certain of its investments to be temporary in nature as the unrealized losses were caused primarily by changes in market interest rates or widening credit spreads. When evaluating these investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s amortized cost basis. During the nine months ended September 30, 2018 and 2017, the Company did not recognize any impairment charges. As of September 30, 2018, the Company does not consider any of its investments to be other-than-temporarily impaired. The Company may sell certain of its investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management. At the time of purchase, the maturities of the Company’s MBS generally ranged from 27 years to 30 years. Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
Marketable securities, available for sale, measured at fair value on a recurring basis as of the dates indicated are as follows:
The fair values of the Company’s investments in Corporate Bonds and Preferred Securities and MBS are measured using readily available quoted prices for similar assets. Additionally, as noted and disclosed above, the Company’s Marco OP and Marco OP II Units are ultimately exchangeable for cash or similar number of shares of Simon Stock, therefore the Company uses the quoted market price of Simon Stock to measure the fair value of the Company’s Marco OP and Marco OP II Units. The following table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:
The Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized at fair value. Notes Payable Margin Loan The Company has access to a margin loan (the “Margin Loan”) from a financial institution that holds custody of certain of the Company’s marketable securities. The Margin Loan, which is due on demand, bears interest at Libor plus 0.85% (3.11% as of September 30, 2018) and is collateralized by the marketable securities in the Company’s account. The amounts available to the Company under the Margin Loan are at the discretion of the financial institution and not limited to the amount of collateral in its account. There were no amounts outstanding under this Margin Loan as of September 30, 2018 and December 31, 2017. Line of Credit The Company has a non-revolving credit facility (the “Line of Credit”) with a financial institution which permits borrowings up to $25.0 million. The Line of Credit expires on June 19, 2019 and bears interest at Libor plus 1.35% (3.61% as of September 30, 2018). The Line of Credit is collateralized by approximately 209,000 Marco OP Units and PRO guaranteed the Line of Credit. The amount outstanding under the Line of Credit was $18.6 million as of September 30, 2018 and December 31, 2017 and is included in Notes Payable on the consolidated balance sheets. The Company currently intends to seek to extend or replace the Line of Credit on or before its expiration. If we are unable to extend or replace the Line of Credit, we will repay the then outstanding balance in full at the expiration date using working capital, cash proceeds from the sale of assets and/or redemptions of our preferred investments in related parties. |
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Mortgages Payable, Net |
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| Loans Payable [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mortgages Payable, Net |
Mortgages payable, net consists of the following:
Libor as of September 30, 2018 and December 31, 2017 was 2.26% and 1.57 % , respectively. The Company’s loans are secured by the indicated real estate and are non-recourse to the Company, unless otherwise indicated.On May 29, 2018, the Company repaid in full its $20.4 million recourse mortgage loan secured by the St. Augustine Outlet Center located in St. Augustine, Florida, with a scheduled maturity in August 2018. Certain of the Company’s debt agreements require the maintenance of certain ratios, including debt service coverage. The Company is currently in compliance with all of its financial debt covenants other than the non-recourse mortgage indebtedness originally secured by a portfolio of industrial properties (collectively, the “Gulf Coast Industrial Portfolio”) located in New Orleans, Louisiana (seven properties), Baton Rouge, Louisiana (three properties) and San Antonio, Texas (four properties), as discussed below. Additionally, certain of our mortgages payable also contain clauses providing for prepayment penalties. As a result of not meeting certain debt service coverage ratios on the non-recourse mortgage indebtedness secured by the Gulf Coast Industrial Portfolio (the “Gulf Coast Industrial Portfolio Mortgage”), the lender elected to retain the excess cash flow from these properties beginning in July 2011. During the third quarter of 2012, the Gulf Coast Industrial Portfolio Mortgage was transferred to a special servicer, who discontinued scheduled debt service payments and notified the Company that the Gulf Coast Industrial Portfolio Mortgage was in default and although originally due in February 2017 became due on demand. On June 5, 2018, the special servicer completed a partial foreclosure of the Gulf Coast Industrial Portfolio pursuant to which it foreclosed on the four properties located in San Antonio, Texas (the “San Antonio Assets”). The San Antonio Assets were sold in a foreclosure sale by the special servicer for an aggregate amount of approximately $20.7 million. (See Note 6) Upon consummation of the foreclosure sale, the buyers assumed the significant risks and rewards of ownership and took legal title and physical possession of the San Antonio Assets for the aggregate sales price of $20.7 million. The Company simultaneously received an aggregate credit of approximately $20.7 million against the total outstanding indebtedness of the Gulf Coast Industrial Portfolio Mortgage, of which $19.6 million and $1.1 million were applied by the Company against the outstanding principal and outstanding accrued interest payable, respectively, under the Gulf Coast Industrial Portfolio Mortgage. As a result, the remaining outstanding principal of the Gulf Coast Industrial Portfolio Mortgage was approximately $30.6 million as of September 30, 2018. The Company accrues default interest expense on the Gulf Coast Industrial Portfolio Mortgage pursuant to the terms of its loan agreement. Additionally, the Company previously accrued default interest expense on a non-recourse mortgage loan (the “Oakview Plaza Mortgage”), pursuant to the terms of its loan agreement during the period from January 2017 through September 2017. The Oakview Plaza Mortgage was secured by a retail shopping center located in Omaha, Nebraska (“Oakview Plaza”). The lender foreclosed on Oakview Plaza in September 2017. Default interest expense related to the Gulf Coast Industrial Mortgage of $0.3 million and $1.3 million was accrued during the three and nine months ended September 30, 2018, respectively, and default interest expense related to both the Gulf Coast Industrial Portfolio Mortgage and the Oakview Plaza Mortgage of $0.8 million and $2.5 million was accrued during the three and nine months ended September 30, 2017, respectively. Cumulative accrued default interest expense (solely related the Gulf Coast Industrial Portfolio Mortgage) of $12.5 million and $11.2 million is included in accounts payable, accrued expenses and other liabilities on our consolidated balance sheets as of September 30, 2018 and December 31, 2017, respectively. Additionally, the Company believes the continued loss of excess cash flow from the Gulf Coast Industrial Portfolio and the special servicer’s placement of the non-recourse mortgage indebtedness in default will not have a material impact on its results of operations or financial position. Other than the Gulf Coast Industrial Portfolio Mortgage, the Company has no additional significant maturities of mortgage debt over the next 12 months. The following table shows the contractually scheduled principal maturities of the Company’s mortgage debt during the next five years and thereafter as of September 30, 2018:
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Net Earnings Per Share |
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| Earnings Per Share [Abstract] | |||||
| Net Earnings Per Share |
Basic net earnings per share is calculated by dividing net income attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the applicable period. Diluted net income per share includes the potentially dilutive effect, if any, which would occur if our outstanding options to purchase our common stock were exercised. For all periods presented, dilutive net income per share is equivalent to basic net income per share. |
Disposition |
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| Discontinued Operations and Disposal Groups [Abstract] | |||||
| Disposition |
Gulf Coast Industrial Portfolio – San Antonio Assets As previously discussed in Note 4, on June 5, 2018, the special servicer for the Gulf Coast Industrial Portfolio Mortgage completed a partial foreclosure of the Gulf Coast Industrial Portfolio pursuant to which it foreclosed on the San Antonio Assets. The San Antonio Assets were sold in a foreclosure sale by the special servicer for an aggregate amount of approximately $20.7 million. Upon consummation of the foreclosure sale, the buyers assumed the significant risks and rewards of ownership and took legal title and physical possession of the San Antonio Assets for the agreed upon sales price of $20.7 million. The Company simultaneously received an aggregate credit of approximately $20.7 million which it applied against the total outstanding indebtedness (approximately $19.6 million and $1.1 million of principal and accrued interest payable, respectively) of the Gulf Coast Industrial Portfolio Mortgage. The aggregate carrying value of the assets transferred and the liabilities extinguished in connection with the foreclosure of the San Antonio Assets were approximately $13.6 million and $20.7 million, respectively. Since the Company’s performance obligations were met at the closing of the foreclosure sales and the Company has no continuing involvement with the San Antonio Assets an aggregate gain on disposition of real estate of approximately $7.1 million was recognized during the second quarter of 2018. The disposition of San Antonio Assets did not qualify to be reported as discontinued operations since the disposition did not represent a strategic shift that had a major effect on the Company’s operations and financial results. Accordingly, the operating results of the San Antonio Assets are reflected in the Company’s results from continuing operations for all periods presented through their respective date of disposition. |
Related Party Transactions |
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| Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions |
The Company has agreements with the Advisor and Lightstone Value Plus REIT Management LLC (the “Property Manager”) to pay certain fees in exchange for services performed by these entities and other affiliated entities. The Company’s ability to secure financing and subsequent real estate operations are dependent upon its Advisor, Property Manager and their affiliates to perform such services as provided in these agreements. The Company, pursuant to the related party arrangements, has recorded the following amounts for the periods indicated:
* Generally, capitalized and amortized over the estimated useful life of the associated asset. In connection with the Company’s initial public offering, Lightstone SLP, LLC, an affiliate of the Company’s Sponsor, previously purchased an aggregate of $30.0 million of SLP units which are included in noncontrolling interests in the consolidated balance sheets. These SLP units, the purchase price of which will be repaid only after stockholders receive a stated preferred return and their net investment, entitle Lightstone SLP, LLC to a portion of any regular distributions made by the Operating Partnership. During the three and nine months ended September 30, 2018, distributions of $0.5 million and $1.5 million were declared and paid on the SLP units. On September 19, 2018, the Company’s Sponsor transferred approximately 9.14% of its ownership in PRO, valued at the estimated fair value of $1.5 million to the Operating Partnership, accounted for as an increase in equity of the Company and decrease in non-controlling interest. As of September 30, 2018 and December 31, 2017, the Sponsor, had a 10.03% and a 19.17% membership interest in PRO, respectively, which is accounted for as noncontrolling interests. Preferred Investments The Company has entered into several agreements with various related party entities that provide for it to make preferred contributions pursuant to certain instruments (the “Preferred Investments”) that entitle the Company to certain prescribed monthly preferred distributions. The Preferred Investments had an aggregate balance of $113.4 million and $158.3 million as of September 30, 2018 and December 31, 2017, respectively, and are classified as held-to-maturity securities, recorded at cost and included in investments in related parties on the consolidated balance sheets. The fair value of these investments approximated their carrying values based on market rates for similar instruments. During the nine months ended September 30, 2018, the Company made an aggregate $15.1 million of additional contributions and redeemed the entire $60.0 million outstanding on the 485 7 th Avenue Preferred Investment and as of September 30, 2018, remaining contributions of up to $4.1 million were unfunded. The Company did not enter into any new Preferred Investments during the nine months ended September 30, 2018.The Preferred Investments are summarized as follows:
Note: (1) - The dividend rate increased from 8% to 12% during March 2017 in connection with the procurement of construction financing on this project. The Joint Venture The Company has a 2.5% membership interest in a joint venture (the “Joint Venture”) with Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone II”), a related party REIT also sponsored by our Sponsor. The Joint Venture previously acquired our membership interests in a portfolio of 11 hotels in a series of transactions completed during 2015. During the third quarter of 2017, the Joint Venture sold its ownership interests in four of the hotels to an unrelated third party. On November 6, 2017, the Joint Venture acquired a 170-room select service hotel located in New Orleans, Louisiana (the “Hyatt – New Orleans”) from an unrelated third party. As a result, the Joint Venture holds ownership interests in eight hotels as of September 30, 2018. The Company accounts for its 2.5% membership interest in the Joint Venture under the cost method and as of September 30, 2018 and December 31, 2017, the carrying value of its investment was $1.4 million and $1.5 million, respectively, which is included in investment in related parties on the consolidated balance sheets. |
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Financial Instruments |
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial Instruments |
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, tenant and other accounts receivable, accounts payable, accrued expenses and other liabilities and due to related parties approximated their fair values because of the short maturity of these instruments. T he estimated fair value of the notes payable (line of credit) approximated its carrying value ($18.6 million) because of its floating interest rate. The estimated fair value (in millions) of the Company’s mortgage debt is summarized as follows:
The fair value of the mortgages payable was determined by discounting the future contractual interest and principal payments by estimated current market interest rates. |
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Segment Information |
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Information |
The Company has historically operated within four business segments which are: (i) retail real estate (the “Retail Segment”), (ii) multi-family residential real estate (the “Multi-Family Residential Segment”), (iii) industrial real estate (the “Industrial Segment”) and (iv) hospitality (the “Hospitality Segment”). However, during the third quarter of 2017, the Company sold its only remaining consolidated hospitality property and therefore, no longer has a Hospitality Segment. The Company’s Advisor and its affiliates provide leasing, property and facilities management, acquisition, development, construction and tenant-related services for its portfolio. The Company’s revenues for the three and nine months ended September 30, 2018 and 2017 were exclusively derived from activities in the United States. No revenues from foreign countries were received or reported. The Company had no long-lived assets in foreign locations as of September 30, 2018 and December 31, 2017. The accounting policies of the segments are the same as those described in Note 2: Summary of Significant Accounting Policies of the Company’s December 31, 2017 Annual Report on Form 10-K. Unallocated assets, revenues and expenses relate to corporate related accounts, including the Company’s Preferred Investments in Related Parties (see Note 7). The Company evaluates performance based upon net operating income/(loss) from the combined properties in each real estate segment. Selected results of operations for the three and nine months ended September 30, 2018 and 2017, and total assets as of September 30, 2018 and December 31, 2017 regarding the Company’s operating segments are as follows:
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Commitments and Contingencies |
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Sep. 30, 2018 | |||||
| Commitments and Contingencies Disclosure [Abstract] | |||||
| Commitments and Contingencies |
Legal Proceedings From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes. As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. |
Subsequent Events |
9 Months Ended | ||||
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Sep. 30, 2018 | |||||
| Subsequent Events [Abstract] | |||||
| Subsequent Events |
Distribution Payment On October 15, 2018, the distribution for the three-month period ending September 30, 2018 of $4.2 million was paid in cash. Distribution Declaration On November 8, 2018 the Board of Directors authorized and the Company declared a distribution for the three-month period ending December 31, 2018. The distribution will be calculated based on shareholders of record each day during this three-month period at a rate of $0.0019178 per day, and will equal a daily amount that, if paid each day for a 365-day period, would equal a 7.0% annualized rate based on a share price of $10.00. The distribution will be paid in cash on or about January 15, 2019 to shareholders of record as of December 31, 2018. |
Summary of Significant Accounting Policies (Policies) |
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation | Basis of Presentation The consolidated financial statements include the accounts of the Lightstone REIT and its Operating Partnership and its subsidiaries (over which the Company exercises financial and operating control). All inter-company balances and transactions have been eliminated in consolidation. The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of the Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of the results for the periods presented. The accompanying unaudited consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust, Inc. and its Subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of real estate and real-estate related investments, marketable securities, depreciable lives, and revenue recognition. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates. The consolidated balance sheet as of December 31, 2017 included herein has been derived from the consolidated balance sheet included in the Company's Annual Report on Form 10-K. The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period. |
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| New Accounting Pronouncements | Recently Adopted Accounting Pronouncements Effective January 1, 2018, the Company adopted guidance issued by the Financial Accounting Standards Board (“FASB”) that requires amounts that are generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this standard using the retrospective transition method. As required by the Company’s lenders, restricted cash is held in escrow accounts for anticipated capital expenditures, real estate taxes, and other reserves for certain of our consolidated properties. Capital reserves are typically utilized for non-operating expenses such as tenant improvements, leasing commissions, and major capital expenditures. Alternatively, a lender may require its own formula for an escrow of capital reserves. Restricted cash may also include deposits for the purchase of real estate or certain funds temporarily placed in escrow with qualified intermediaries to facilitate potential like-kind exchange transactions in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended. The following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in our statements of cash flows for the periods presented:
Effective January 1, 2018, the Company adopted guidance issued by the FASB that that requires companies to measure investments in equity securities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income, using a modified-retrospective approach. This resulted in a $15.5 million reclassification of aggregate net unrealized gains from accumulated other comprehensive income (“AOCI”) to opening accumulated surplus see Note 3. Effective January 1, 2018, the Company adopted guidance issued by the FASB that clarifies the definition of a business and assists in the evaluation of whether a transaction will be accounted for as an acquisition of an asset or as a business combination. The guidance provides a test to determine when a set of assets and activities acquired is not a business. When substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. Additionally, assets acquired, liabilities assumed, and any noncontrolling interest will be measured at their relative fair values. The Company anticipates future acquisitions of real estate assets, if any, will likely qualify as an asset acquisition. Therefore, any future transaction costs associated with an asset acquisition will be capitalized and accounted for in accordance with this guidance. Effective January 1, 2018, the Company adopted guidance issued by the FASB that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. The new guidance requires companies to apply a five-step model in accounting for revenue arising from contracts with customers, as well as enhance disclosures regarding revenue recognition. Lease contracts are excluded from this revenue recognition criteria; however, the sale of real estate is required to follow the new model. The Company has adopted this standard for the year beginning on January 1, 2018 using the modified retrospective approach. The adoption of this pronouncement had no effect on our consolidated financial statements since, with the disposal of the DoubleTree – Danvers in September 2017, substantially all revenues now consist of rental income from leasing arrangements, which is specifically excluded from the standard. New Accounting Pronouncements In August 2018, the Securities and Exchange Commission adopted the final rule amending certain disclosure requirements that have become redundant, duplicative, overlapping, outdated, or superseded. In addition, the amendments expand the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The rule was effective on November 5, 2018 and will be effective for the quarter that begins after the effective date. Since the Company already includes a year to date consolidated statement of stockholders’ equity in our interim financial statement filings, the adoption of this guidance will result in the inclusion of a quarter to date consolidated statement of stockholders equity in our second and third quarter interim financial statement filings and the inclusion of corresponding prior periods statement of stockholders’ equity for all periods presented. In June 2016, the FASB issued an accounting standards update which replaces the incurred loss impairment methodology currently in use with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This guidance will not have a material impact on the Company’s consolidated financial statements. In February 2016, the FASB issued an accounting standards update which supersedes the existing lease accounting model, and modifies both lessee and lessor accounting. The new guidance will require lessees to recognize a liability to make lease payments and a right-of-use asset, initially measured at the present value of lease payments, for both operating and financing leases, with classification affecting the pattern of expense recognition in the statement of earnings. For leases with a term of 12 months or less, lessees will be permitted to make an accounting policy election by class of underlying asset to not recognize lease liabilities and lease assets. The standard offers several practical expedients for transition and certain expedients specific to lessees or lessors. Both lessees and lessors are permitted to make an election to apply a package of practical expedients available for implementation under the standard. The Company intends to apply the package of practical expedients and certain other transition expedients. For transition, the Company intends to recognize all effects of transition in the beginning of the adoption reporting period on January 1, 2019. We expect that the adoption of this standard will result in the recognition of right-of-use assets and related lease liability accounts on the consolidated balance sheet but is not expected to have a material effect on our consolidated financial position or our results of operations, however, the ultimate impact of adopting this standard will depend on the Company’s lease portfolio as of the adoption date. The Company has reviewed and determined that other recently issued accounting pronouncements will not have a material impact on its financial position, results of operations and cash flows, or do not apply to its current operations. |
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| Reclassifications | Reclassifications Certain prior period amounts may have been reclassified to conform to the current year presentation. |
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Summary of Significant Accounting Policies (Tables) |
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||
| Restrictions on Cash and Cash Equivalents | The following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in our statements of cash flows for the periods presented:
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Marketable Securities, Fair Value Measurements and Notes Payable (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Marketable Securities And Fair Value Measurements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Available for Sale Securities | The following is a summary of the Company’s available for sale securities as of the dates indicated:
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| Marketable Securities, Available for Sale, and Derivative Financial Instruments Measured at Fair Value on Recurring Basis | Marketable securities, available for sale, measured at fair value on a recurring basis as of the dates indicated are as follows:
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| Available-for-sale Securities | The following table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:
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Mortgages Payable, Net (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans Payable [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Mortgages Payable, net | Mortgages payable, net consists of the following:
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| Contractually Scheduled Principal Maturities During Next Five Years | The following table shows the contractually scheduled principal maturities of the Company’s mortgage debt during the next five years and thereafter as of September 30, 2018:
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Related Party Transactions (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amount Recorded in Pursuant to Related Party Arrangment | The Company, pursuant to the related party arrangements, has recorded the following amounts for the periods indicated:
* Generally, capitalized and amortized over the estimated useful life of the associated asset. |
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| Preferred Investments | The Preferred Investments are summarized as follows:
Note: (1) - The dividend rate increased from 8% to 12% during March 2017 in connection with the procurement of construction financing on this project. |
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Financial Instruments (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Estimated Fair Value of Debt | The estimated fair value (in millions) of the Company’s mortgage debt is summarized as follows:
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Segment Information (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Results of Operations and Total Assets of Operating Segments | Selected results of operations for the three and nine months ended September 30, 2018 and 2017, and total assets as of September 30, 2018 and December 31, 2017 regarding the Company’s operating segments are as follows:
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Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
Sep. 30, 2017 |
Dec. 31, 2016 |
|---|---|---|---|---|
| Cash and cash equivalents | $ 61,829 | $ 116,434 | $ 127,381 | |
| Restricted cash | 9,157 | 2,785 | 4,362 | |
| Total cash, cash equivalents and restricted cash | $ 70,986 | $ 119,219 | $ 131,743 | $ 108,357 |
Summary of Significant Accounting Policies (Details Textual) $ in Millions |
Jan. 02, 2018
USD ($)
|
|---|---|
| Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI for Investment Transferred from Available-for-sale to Equity Method, after Tax | $ 15.5 |
Marketable Securities, Fair Value Measurements and Notes Payable (Details 2) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
| Due in 1 year | $ 18,677 | |
| Due in 1 year through 5 years | 44,716 | |
| Due in 5 years through 10 years | 16,711 | |
| Due after 10 years | 1,363 | |
| Total | $ 81,467 | $ 20,341 |
Mortgages Payable, Net (Details 1) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| 2018 | $ 31,041 | |
| 2019 | 1,621 | |
| 2020 | 14,924 | |
| 2021 | 1,328 | |
| 2022 | 1,389 | |
| Thereafter | 68,151 | |
| Total | 118,454 | $ 159,585 |
| Less: Deferred financing costs | (1,268) | (1,658) |
| Total principal maturities, net | $ 117,186 | $ 157,927 |
Disposition (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||||
|---|---|---|---|---|---|---|
Jun. 05, 2018 |
Sep. 30, 2018 |
Jun. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
| Proceeds from Sale of Foreclosed Assets | $ 20,700 | |||||
| Equity Method Investment, Realized Gain (Loss) on Disposal | $ 0 | $ 10,483 | $ 7,137 | $ 10,483 | ||
| Real Estate Owned, Transfer to Real Estate Owned | 13,600 | 20,658 | 27,028 | |||
| Real Estate Owned, Transfer from Real Estate Owned | 20,700 | $ 13,521 | $ 27,028 | |||
| Gulf Coast Industrial Portfolio [Member] | ||||||
| Proceeds from Sale of Foreclosed Assets | 20,700 | |||||
| Proceeds from (Repayments of) Secured Debt | 20,700 | |||||
| Proceeds From Repayment Of Principal Amount Of Secured Debt | 19,600 | |||||
| Proceeds From Repayment Of Interest Amount Of Secured Debt | $ 1,100 | |||||
| Equity Method Investment, Realized Gain (Loss) on Disposal | $ 7,100 | |||||
Related Party Transactions (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||||
|---|---|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|||
| Related Party Transaction [Line Items] | ||||||
| Development fees and leasing commissions | [1] | $ 62 | $ 125 | $ 182 | $ 706 | |
| Related Party [Member] | ||||||
| Related Party Transaction [Line Items] | ||||||
| Total | 574 | 880 | 1,874 | 2,966 | ||
| Related Party [Member] | Asset Management [Member] | ||||||
| Related Party Transaction [Line Items] | ||||||
| Management fees | 392 | 556 | 1,283 | 1,684 | ||
| Related Party [Member] | Management Service [Member] | ||||||
| Related Party Transaction [Line Items] | ||||||
| Management fees | $ 120 | $ 199 | $ 409 | $ 576 | ||
| ||||||
Related Party Transactions (Details Textual) - USD ($) $ in Thousands |
1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | |
|---|---|---|---|---|---|
Sep. 19, 2018 |
Mar. 31, 2017 |
Sep. 30, 2018 |
Sep. 30, 2018 |
Dec. 31, 2017 |
|
| Investments in and Advances to Affiliates [Line Items] | |||||
| Unfunded Investment Contribution Liabilities | $ 4,067 | $ 4,067 | |||
| Dividends, Cash | 12,809 | ||||
| Sale of Stock, Consideration Received on Transaction | 113,400 | $ 158,300 | |||
| Preferred Units, Preferred Partners' Capital Accounts | $ 30,000 | $ 30,000 | |||
| Lightstone Slp Llc [Member] | |||||
| Investments in and Advances to Affiliates [Line Items] | |||||
| Equity Method Investment, Ownership Percentage | 10.03% | 10.03% | 19.17% | ||
| Sponsor [Member] | |||||
| Investments in and Advances to Affiliates [Line Items] | |||||
| Sale of Stock, Consideration Received on Transaction | $ 1,500 | ||||
| Sale of Stock Percentage of Ownership Transferred | 9.14% | ||||
| SLP Units [Member] | |||||
| Investments in and Advances to Affiliates [Line Items] | |||||
| Dividends, Cash | $ 500 | $ 1,500 | |||
| Minimum [Member] | |||||
| Investments in and Advances to Affiliates [Line Items] | |||||
| Preferred Stock, Dividend Rate, Percentage | 8.00% | ||||
| Maximum [Member] | |||||
| Investments in and Advances to Affiliates [Line Items] | |||||
| Preferred Stock, Dividend Rate, Percentage | 12.00% | ||||
| Preferred Investments [Member] | |||||
| Investments in and Advances to Affiliates [Line Items] | |||||
| Unfunded Investment Contribution Liabilities | 4,100 | 4,100 | |||
| Additional Investments In And Advances To Affiliates At Fair Value Gross Additions | 15,100 | ||||
| Sale of Stock, Consideration Received on Transaction | 1,400 | $ 1,500 | |||
| Four Eighty Five Seventh Avenue Preferred Investment [Member] | |||||
| Investments in and Advances to Affiliates [Line Items] | |||||
| Unfunded Investment Contribution Liabilities | $ 0 | 0 | |||
| Additional Investments In And Advances To Affiliates At Fair Value Gross Additions | $ 60,000 | ||||
| Preferred Stock, Dividend Rate, Percentage | 12.00% | ||||
Financial Instruments (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|
| Debt Instrument [Line Items] | ||
| Carrying Amount | $ 118,454 | $ 159,585 |
| Mortgages payable [Member] | ||
| Debt Instrument [Line Items] | ||
| Carrying Amount | 118,500 | 159,600 |
| Estimated Fair Value | $ 116,700 | $ 158,600 |
Financial Instruments (Details Textual) $ in Millions |
Sep. 30, 2018
USD ($)
|
|---|---|
| Debt Instrument [Line Items] | |
| Notes Payable, Fair Value Disclosure | $ 18.6 |
Segment Information (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
| Segment Reporting Information [Line Items] | |||||
| Total revenues | $ 4,996 | $ 10,892 | $ 16,028 | $ 35,092 | |
| Property operating expenses | 1,600 | 5,652 | 5,005 | 18,513 | |
| Real estate taxes | 318 | 602 | 1,283 | 1,951 | |
| General and administrative costs | 1,084 | 2,174 | 3,291 | 4,615 | |
| Net operating income/(loss) | 1,994 | 2,464 | 6,449 | 10,013 | |
| Depreciation and amortization | 1,639 | 2,738 | 5,217 | 8,252 | |
| Operating (loss)/income | 355 | (274) | 1,232 | 1,761 | |
| Total Assets | 471,089 | 519,674 | 471,089 | 519,674 | $ 519,674 |
| Retail [Member] | |||||
| Segment Reporting Information [Line Items] | |||||
| Total revenues | 1,774 | 2,452 | 5,345 | 7,805 | |
| Property operating expenses | 727 | 905 | 2,170 | 2,782 | |
| Real estate taxes | 212 | 361 | 735 | 1,120 | |
| General and administrative costs | 5 | 39 | 1 | 129 | |
| Net operating income/(loss) | 830 | 1,147 | 2,439 | 3,774 | |
| Depreciation and amortization | 889 | 1,387 | 2,756 | 3,759 | |
| Operating (loss)/income | (59) | (240) | (317) | 15 | |
| Total Assets | 69,098 | 70,758 | 69,098 | 70,758 | |
| Multi-Family [Member] | |||||
| Segment Reporting Information [Line Items] | |||||
| Total revenues | 2,256 | 2,118 | 6,702 | 6,443 | |
| Property operating expenses | 497 | 492 | 1,485 | 1,430 | |
| Real estate taxes | 18 | 19 | 54 | 55 | |
| General and administrative costs | (4) | 3 | 1 | 33 | |
| Net operating income/(loss) | 1,745 | 1,604 | 5,162 | 4,925 | |
| Depreciation and amortization | 411 | 407 | 1,231 | 1,218 | |
| Operating (loss)/income | 1,334 | 1,197 | 3,931 | 3,707 | |
| Total Assets | 66,845 | 67,966 | 66,845 | 67,966 | |
| Industrial [Member] | |||||
| Segment Reporting Information [Line Items] | |||||
| Total revenues | 966 | 1,581 | 3,981 | 4,683 | |
| Property operating expenses | 376 | 631 | 1,350 | 1,679 | |
| Real estate taxes | 88 | 162 | 494 | 555 | |
| General and administrative costs | (1) | 6 | (8) | (10) | |
| Net operating income/(loss) | 503 | 782 | 2,145 | 2,459 | |
| Depreciation and amortization | 339 | 458 | 1,230 | 1,339 | |
| Operating (loss)/income | 164 | 324 | 915 | 1,120 | |
| Total Assets | 37,018 | 49,461 | 37,018 | 49,461 | |
| Hospitality [Member] | |||||
| Segment Reporting Information [Line Items] | |||||
| Total revenues | 0 | 4,741 | 0 | 16,161 | |
| Property operating expenses | 0 | 3,620 | 0 | 12,617 | |
| Real estate taxes | 0 | 60 | 0 | 221 | |
| General and administrative costs | 0 | 107 | 0 | 225 | |
| Net operating income/(loss) | 0 | 954 | 0 | 3,098 | |
| Depreciation and amortization | 0 | 486 | 0 | 1,936 | |
| Operating (loss)/income | 0 | 468 | 0 | 1,162 | |
| Total Assets | 0 | 61,316 | 0 | 61,316 | |
| Unallocated [Member] | |||||
| Segment Reporting Information [Line Items] | |||||
| Total revenues | 0 | 0 | 0 | 0 | |
| Property operating expenses | 0 | 4 | 0 | 5 | |
| Real estate taxes | 0 | 0 | 0 | 0 | |
| General and administrative costs | 1,084 | 2,019 | 3,297 | 4,238 | |
| Net operating income/(loss) | (1,084) | (2,023) | (3,297) | (4,243) | |
| Depreciation and amortization | 0 | 0 | 0 | 0 | |
| Operating (loss)/income | (1,084) | (2,023) | (3,297) | (4,243) | |
| Total Assets | $ 298,128 | $ 270,173 | $ 298,128 | $ 270,173 | |
Subsequent Events (Details Textual) - USD ($) |
Nov. 08, 2018 |
Oct. 15, 2018 |
|---|---|---|
| Subsequent Event [Line Items] | ||
| Distribution Rate Per Day | $ 0.0019178 | |
| Number Of Days Used To Calculate Dividend Per Day | 365 days | |
| Annualized Distribution Rate | 7.00% | |
| Dividends Declared Amount Per Share | $ 10.00 | |
| Subsequent Event [Member] | ||
| Subsequent Event [Line Items] | ||
| Payments of Dividends | $ 4,200,000 |
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