UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2020
Commission File Number: 000-53650
Lightstone Value Plus Real Estate Investment Trust V, Inc.
(Exact name of registrant as specified in its charter)
|
Maryland |
20-8198863 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
|
1985 Cedar Bridge Avenue, Suite 1, Lakewood, New Jersey
|
08701 | |
| (Address of principal executive offices) | (Zip Code) |
(888) 808-7348
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.0001 par value per share
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act). Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ 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 and post such files). Yes ☒ 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 definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer ☐ |
Accelerated filer ☐ |
| Non-accelerated filer ☒ | Smaller reporting company ☒ |
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 ☒
There is no established market for the Registrant’s common stock. The Registrant has adopted a Policy for Estimation of Common Stock Value (the “Estimated Valuation Policy”) pursuant to which it has estimated the net asset value per share of its common stock (“NAV per Share”). As of September 30, 2020, the estimated NAV per Share was $9.42. For a full description of the methodologies used to estimate the NAV per Share of the Registrant’s common stock, see Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Market Information” included in this Annual Report on Form 10-K. There were 20.2 million shares of common stock outstanding as of June 30, 2020, the last business day of the Registrant’s most recently completed second fiscal quarter. As of March 15, 2021, the registrant had 20.2 million shares of common stock outstanding.
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST V, INC.
FORM 10-K
Year Ended December 31, 2020
i
Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include discussion and analysis of the financial condition of Lightstone Value Plus Real Estate Investment Trust V, Inc. and our subsidiaries (which may be referred to herein as the “Company,” “we,” “us” or “our”), including our ability to make accretive real estate or real estate-related investments, rent space on favorable terms, to address our debt maturities and to fund our liquidity requirements, to sell our assets when we believe advantageous to achieve our investment objectives, our anticipated capital expenditures, the amount and timing of anticipated future cash distributions to our stockholders, the estimated net asset value per share of our common stock (“NAV per Share”), and other matters. Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors described below:
| ● | market and economic challenges experienced by the U.S. and global economies or real estate industry as a whole and the local economic conditions in the markets in which our investments are located. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; such as recession, political upheaval or uncertainty, terrorism and acts of war, natural and man-made disasters, cybercrime, and outbreaks of contagious diseases; |
| ● | uncertainties regarding the impact of the current COVID-19 pandemic, and restrictions and other measures intended to prevent its spread on our business and the economy generally; |
| ● | the availability of cash flow from operating activities for distributions, if any; |
| ● | conflicts of interest arising out of our relationships with our advisor and its affiliates; |
| ● | our ability to retain our executive officers and other key individuals who provide advisory and property management services to us; |
| ● | our level of debt and the terms and limitations imposed on us by our debt agreements; |
| ● | the availability of credit generally, and any failure to obtain debt financing at favorable terms or a failure to satisfy the conditions and requirements of that debt; |
| ● | our ability to make accretive investments in a diversified portfolio of assets; |
| ● | future changes in market factors that could affect the ultimate performance of any development or redevelopment projects, including but not limited to construction costs, plan or design changes, schedule delays, availability of construction financing, performance of developers, contractors and consultants and growth in rental rates and operating costs; |
| ● | our ability to secure leases at favorable rental rates; |
| ● | our ability to sell our assets at a price and on a timeline consistent with our investment objectives; |
| ● | impairment charges; |
| ● | unfavorable changes in laws or regulations impacting our business, our assets or our key relationships; and |
| ● | factors that could affect our ability to qualify as a real estate investment trust. |
Forward-looking statements in this Annual Report on Form 10-K reflect our management’s view only as of the date of this Report, and may ultimately prove to be incorrect. 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, except as required by applicable law. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.
Cautionary Note
The representations, warranties, and covenants made by us in any agreement filed as an exhibit to this Annual Report on Form 10-K are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties, or covenants to or with any other parties. Moreover, these representations, warranties, or covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.
ii
Organization
Lightstone Value Plus Real Estate Investment Trust V, Inc., which was formerly known as Behringer Harvard Opportunity REIT II, Inc. prior to July 20, 2017, (which may be referred to as the “Company,” “we,” “us,” or “our”) was organized as a Maryland corporation on January 9, 2007 and has elected to be taxed, and currently qualifies, as a real estate investment trust (“REIT”) for federal income tax purposes.
We were formed primarily to acquire and operate commercial real estate and real estate-related assets on an opportunistic and value-add basis. In particular, we have and expect to continue to focus generally on acquiring commercial properties with significant possibilities for capital appreciation, such as those requiring development, redevelopment, or repositioning, those located in markets and submarkets with high growth potential, and those available from sellers who are distressed or face time-sensitive deadlines. We have and expect to continue to acquire a wide variety of commercial properties, including office, industrial, retail, hospitality, and multifamily. We have and expect to continue to purchase existing, income-producing properties, and newly-constructed properties. Additionally, we have and may continue to invest in other real estate related investments, such as mortgage and mezzanine loans. We currently intend to hold our various real properties until such time as our board of directors determines that a sale or other disposition appears to be advantageous to achieve our investment objectives or until it appears that the objectives will not be met. We currently have one operating segment. As of December 31, 2020, we had eight real estate investments (five wholly owned properties and three properties consolidated through investments in joint ventures) and one real estate-related investment (mezzanine loan).
Substantially all of our business is conducted through Lightstone REIT V OP LP, a limited partnership organized in Delaware (the “Operating Partnership”). As of December 31, 2020, our wholly-owned subsidiary, BHO II, Inc., a Delaware corporation, owned a 0.1% partnership interest in the Operating Partnership as its sole general partner. As of December 31, 2020, our wholly-owned subsidiary, BHO Business Trust II, a Maryland business trust, was the sole limited partner of the Operating Partnership and owned the remaining 99.9% interest in the Operating Partnership.
Our business is managed by an external advisor since the commencement of our initial public offering and we have no employees. Effective February 10, 2017, we engaged affiliates of The Lightstone Group, LLC (“Lightstone”), LSG-BH II Advisor LLC and LSG Development Advisor LLC (collectively, the “Advisor”), to provide advisory services to us. Lightstone is majority owned by the chairman of our board of directors, David Lichtenstein. Pursuant to the terms of an advisory agreement and subject to the oversight of our board of directors, the Advisor is responsible for managing our day-to-day affairs and for services related to our acquisition, financing and disposition activities.
Our office is located at 1985 Cedar Bridge Avenue, Suite 1, Lakewood, New Jersey 08701 and our toll-free telephone number is (888) 808-7348.
In connection with our initial capitalization, we issued 22,500 shares of our common stock and 1,000 shares of our convertible stock to our previous advisor on January 19, 2007. The 1,000 shares of convertible stock were transferred to an affiliate of Lightstone on February 10, 2017 and remain outstanding. As of December 31, 2020, we had 20.2 million shares of common stock outstanding.
Our common stock is not currently listed on a national securities exchange. The timing of a liquidity event for our stockholders will depend upon then prevailing market conditions. Our board of directors previously targeted June 30, 2023 as the commencement of a liquidity event, however, on January 9, 2020, our board of directors elected to extend the targeted timeline until June 30, 2028 based on their assessment of our investment objectives and liquidity options for our stockholders. We can provide no assurances as to the actual timing of the commencement of a liquidity event for our stockholders or our ultimate liquidation. We will seek stockholder approval prior to liquidating our entire portfolio.
1
2020 Highlights
During 2020, we completed the following key transactions:
| ● | On January 15, 2020, we and the noncontrolling member completed the disposition of the Gardens Medical Pavilion for a contractual sales price of $24.3 million. In connection with the disposition of the Gardens Medical Pavilion, we recognized a gain on the sale of investment property of approximately $5.5 million during the year ended December 31, 2020. Approximately $12.6 million of the proceeds were used towards the repayment in full of a mortgage loan (the “Gardens Medical Mortgage”) secured by the Gardens Medical Pavilion. Additionally, approximately $1.8 million of the remaining proceeds were distributed to the noncontrolling member. |
| ● | On March 17, 2020, we acquired a 280-unit multifamily property located in Noblesville, Indiana (the “Autumn Breeze Apartments”) from an unrelated third party for a contractual purchase price of $43.0 million. In connection with the acquisition, we subsequently entered into a 10-year $29.9 million non-recourse mortgage loan (the “Autumn Breeze Apartments Loan”) scheduled to mature on April 1, 2030. The Autumn Breeze Apartments Loan bears interest at 3.39% and requires monthly interest-only payments through June 30, 2023 and monthly principal and interest payments of approximately $0.1 million thereafter, through its stated maturity. The Autumn Breeze Apartments Loan is collateralized by the Autumn Breeze Apartments. |
| ● | On June 26, 2020, we and the noncontrolling member entered into a 10-year, $35.7 million non-recourse mortgage loan (the "Lakes of Margate Loan") scheduled to mature on July 1, 2030. The Lakes of Margate Loan bears interest at LIBOR + 2.98% and requires monthly interest-only payments through the first four years of the term and thereafter, monthly payments of principal and interest based upon a 30-year amortization schedule. The Lakes of Margate Loan is collateralized by the Lakes of Margate. Additionally, approximately $1.4 million of the financing proceeds were distributed to the noncontrolling member. |
For further information regarding our consolidated real estate properties, see Item 2. Additionally, see Note 9 of the Notes to Consolidated Financial Statements for further information related to subsequent events during the period from January 1, 2021 through the date of this filing.
Investment Objectives
Our primary investment objectives are:
| ● | to realize growth in the value of our investments; and |
| ● | generate income without subjecting our investors’ capital contribution to undue risk. |
Investment Policies
We have and expect to continue to invest in commercial properties, such as office, industrial, retail, hospitality, multifamily, and student housing, and other real estate-related investments such as mortgage loans and mezzanine loans. Our investments may be in existing income-producing properties and newly-constructed properties that are initially identified as opportunistic and value-add investments with significant possibilities for capital appreciation due to their property-specific characteristics or their market characteristics.
We have and expect to continue to generally make our real estate investments in fee title or a long-term leasehold estate through the Operating Partnership or indirectly through special purpose limited liability companies or through investments in joint ventures, partnerships, co-tenancies, or other co-ownership arrangements with the developers of the properties or other persons.
Borrowing Policies
There is no limitation on the amount we may invest in or borrow related to any single property or other investment. Under our charter, the maximum amount of our indebtedness cannot exceed 300% of our “net assets” (as defined by the Statement of Policy Regarding Real Estate Investment Trusts adopted by the North American Securities Administrators Association on May 7, 2007) as of the date of any borrowing; however, we may exceed that limit if approved by a majority of our independent directors. In addition to our charter limitation, our board of directors has adopted a policy to generally limit our aggregate borrowings to approximately 75% of the aggregate value of our assets unless substantial justification exists that borrowing a greater amount is in our best interests. Our board of directors must review our aggregate borrowings at least quarterly. As of December 31, 2020, we had an aggregate debt leverage ratio of approximately 62.4% of the aggregate value of our assets.
2
Disposition Policies
As each of our investments reaches what we believe to be the asset’s optimum value during the expected life of the program, we will consider disposing of the investment and may do so for the purpose of reinvesting the net sales proceeds into real estate and real estate-related investments, distributing the net sale proceeds to our stockholders or satisfying our obligations. A property may be sold before or after the expected holding period if, in the judgment of our Advisor and our independent board, the sale of the property is determined to be in our best interest and the best interests of our stockholders.
Distribution Policy
We made an election to qualify as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2008. U.S. federal tax law requires a REIT to distribute at least 90% of its annual REIT taxable income (which does not equal net income, as calculated in accordance with generally accepted accounting principles, or GAAP) determined without regard to the deduction for dividends paid and excluding any net capital gain. In order to continue to qualify for REIT status, we may be required to make distributions in excess of cash available. Distributions, if any, are authorized at the discretion of our board of directors based on their analysis of our performance over the previous periods and expectations of performance for future periods. Such analyses may include actual and anticipated operating cash flow, capital expenditure needs, general financial and market conditions, proceeds from asset sales and other factors that our board of directors deems relevant. Our board of directors’ decisions will be substantially influenced by their obligation to ensure that we maintain our federal tax status as a REIT. We cannot provide assurance that we will pay distributions at any particular level, or at all.
Prior to 2012, our board of directors declared distributions on a quarterly basis based on daily record dates, portions of which were paid on a monthly basis. During the first quarter of 2012, our board of directors determined to cease regular, monthly distributions in favor of payment of periodic special distributions.
During 2014 and 2015, our board of directors declared a total of $77.1 million, or $3.00 per share of common stock, in special cash distributions, all of which were paid to stockholders during 2014, 2015, and 2016. These special cash distributions were paid with a portion of proceeds from asset sales. No special cash distributions have been declared or paid since 2016.
Competition
We are subject to significant competition in seeking tenants for the leasing of our properties and buyers for the potential sale of our properties. The competition for creditworthy tenants is intense, and we have been required to provide rent concessions, incur charges for tenant improvements, and provide other inducements in order to lease vacant space at our properties. Without these inducements, we may not be able to continue to lease vacant space timely, or at all, which would adversely impact our results of operations. We also compete with sellers of similar properties when we sell properties, which may result in our receiving lower proceeds from the sale of our properties or not being able to sell our properties at prices that will achieve our original return objectives. We compete for buyers and tenants with many third parties engaged in real estate investment activities, including other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, hedge funds, governmental bodies, and other entities. Many of our competitors, including larger REITs, have greater financial resources than we have and generally may be able to accept more risk. They also may enjoy competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies.
Regulations
Our investments are subject to various federal, state and local laws, ordinances, and regulations, including, among other things, zoning regulations, land use controls, environmental controls relating to air and water quality, noise pollution, and indirect environmental impacts such as increased motor vehicle activity. We believe that we have all permits and approvals necessary under current law to operate our investments.
3
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic leading many countries, including the United States, particularly at the individual state level, to subsequently impose various degrees of restrictions and other measures, including, but not limited to, mandatory temporary closures, quarantine guidelines, limitations on travel, and “shelter in place” rules in an effort to reduce its duration and the severity of its spread. Although the COVID-19 pandemic has continued to evolve, most of these previously imposed restrictions and other measures have now been reduced and/or lifted. However, the COVID-19 pandemic remains highly unpredictable and dynamic and its duration and extent is likely dependent on numerous developments such as the regulatory approval, mass production, administration and ultimate effectiveness of vaccines, as well as the timeline to achieve a level of sufficient herd immunity amongst the general population. Accordingly, the COVID-19 pandemic may continue to have negative effects on the overall health of the U.S. economy for the foreseeable future.
Our consolidated portfolio of properties currently consists of seven multi-family apartment complexes and one student housing complex. Despite past and current restrictions and mitigation strategies, our multi-family properties still have not yet seen any significant impact from the COVID-19 pandemic. Our student housing complex, which consists of the River Club Apartments and the Townhomes at River Club, are located in Athens, Georgia and principally serve as “off-campus” lodging for students attending the University of Georgia (“UGA”). Leases for the River Club Apartments and Townhomes at River Club generally have a term of one year running from August through July. UGA previously transitioned to online instruction during its Spring 2020 semester and for its other course offerings throughout the summer. However, UGA returned to “on-campus” classes beginning with its Fall 2020 semester and has continued “on-campus” classes into the current Spring 2021 semester. Our student housing complex is located “off-campus” and therefore, our tenants are not required to vacate even if UGA does not conduct “on-campus” classes. However, if UGA decides to return to online instruction for its students in lieu of “on-campus” classes in future semesters, it could adversely impact leasing demand, occupancy levels and the operating results of our student housing complex in future periods. Additionally, our note receivable relates to a condominium development project located in New Yok City (the “Condominium Project”), which is subject to similar restrictions and risks. To date, our note receivable has not been significantly impacted by the COVID-19 pandemic.
While our business has not yet seen any material impact from the ongoing COVID-19 pandemic, the extent to which we may be affected in future periods will largely depend on both current and future developments, all of which are highly uncertain and cannot be reasonably predicted.
If our properties and real estate-related investments are negatively impacted in future periods for an extended period because (i) tenants are unable to pay their rent, (ii) demand for its student housing complex declines, and (iii) our borrower is unable to pay scheduled debt service on the outstanding note receivable; our business and financial results could be materially and adversely impacted.
Environmental
As an owner of real estate, we are subject to various environmental laws of federal, state, and local governments. Compliance with existing laws has not had a material adverse effect on our financial condition or results of operations, and management does not believe it will have such an impact in the future. However, we cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on properties in which we hold an interest.
Employees
We have no employees. Our Advisor and its affiliates perform a full range of real estate services for us, including asset management, accounting, legal, and property management, as well as investor relations services.
We are dependent on the Advisor and its affiliates for services that are essential to us, including asset management and acquisition, disposition and financing activities, and other general administrative responsibilities. If these companies were unable to provide these services to us, we would be required to provide the services ourselves or obtain the services from other sources.
4
Available Information
We electronically submit various filings to the United States Securities and Exchange Commission (the “SEC”) including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports. Copies of our filings with the SEC may be obtained from our website at www.lightstonecapitalmarkets.com or at the SEC’s website at www.sec.gov. Access to these filings is free of charge. We are not incorporating our website or any information from the website into this Annual Report on Form 10-K.
General
The following table presents certain additional information about our consolidated investments in real estate as of December 31, 2020:
| Property Name | Location | Date Acquired | Number
of Units or Beds | Description | Encumbrances (dollars in thousands) | Ownership Interest | Occupancy as of the end of 2020 | Occupancy as of the end of 2019 | Effective Monthly Rent per Unit/Bed for 2020 (1) | Effective Monthly Rent per Unit/Bed for 2019 (1) | ||||||||||||||||||||||
| River Club and the Townhomes at River Club(2) | Athens,
Georgia | April 25,
2011 | 1,134
beds | Student housing | $ | 30,359 | 85.0 | % | 95 | % | 96 | % | $ | 489.79 | $ | 462.39 | ||||||||||||||||
| Lakes of Margate | Margate,
Florida | October 19, 2011 | 280
units | Multifamily | $ | 35,700 | 92.5 | % | 95 | % | 95 | % | $ | 1,393.29 | $ | 1,429.69 | ||||||||||||||||
| Arbors Harbor Town | Memphis,
Tennessee | December 20, 2011 | 345
units | Multifamily | $ | 29,000 | 100.0 | % | 96 | % | 92 | % | $ | 1,348.42 | $ | 1,300.62 | ||||||||||||||||
| Parkside Apartments (“Parkside”) | Sugar Land,
Texas | August 8, 2013 | 240
units | Multifamily | $ | 17,289 | 90.0 | % | 95 | % | 93 | % | $ | 1,169.59 | $ | 1,185.07 | ||||||||||||||||
| Flats at Fishers | Fishers,
Indiana | November 30, 2017 | 306
units | Multifamily | $ | 28,800 | 100.0 | % | 96 | % | 92 | % | $ | 1,182.01 | $ | 1,125.48 | ||||||||||||||||
| Axis at Westmont | Westmont,
Illinois | November 27, 2018 | 400
units | Multifamily | $ | 37,600 | 100.0 | % | 93 | % | 94 | % | $ | 1,177.56 | $ | 1,171.72 | ||||||||||||||||
| Valley Ranch Apartments (3) | Ann
Arbor, Michigan | February 14,
2019 | 384
units | Multifamily | $ | 43,414 | 100.0 | % | 94 | % | 93 | % | $ | 1,449.30 | $ | 1,415.84 | ||||||||||||||||
| Autumn Breeze Apartments (4) | Noblesville,
Indiana | March
17, 2020 | 280
units | Multifamily | $ | 29,920 | 100.0 | % | 95 | % | N/A | $ | 1,057.28 | N/A | ||||||||||||||||||
| (1) | Effective monthly rent is calculated using leases in place as of December 31 of the indicated year and takes into account any rent concessions. |
| (2) | River Club and the Townhomes at River Club consist of two student housing complexes with a total of 1,134 beds. |
| (3) | The Valley Ranch Apartments were acquired on February 14, 2019. |
| (4) | The Autumn Breeze Apartments were acquired on March 17, 2020. |
The following information generally applies to our consolidated investments in our real estate properties:
| ● | we believe our real estate property is adequately covered by insurance and suitable for its intended purpose; |
| ● | our properties are located in markets where we are subject to competition in attracting new tenants and retaining current tenants; and |
| ● | depreciation is provided on a straight-line basis over the estimated useful life of the applicable improvements. |
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, we are 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 our results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, we have not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.
Item 4. Mine Safety Disclosure.
None
5
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
There currently is no established public trading market for our shares of common stock. Therefore, there is a risk that a stockholder may not be able to sell their shares of common stock at a time or price acceptable to them. Unless and until our shares of common stock are listed on a national securities exchange, it is not expected that a public market for them will develop.
Estimated Net Asset Value (“NAV”) and NAV per Share of Common Stock (“NAV per Share”)
On November 12, 2020, pursuant to the Policy for Estimation of Common Stock Value (the “Estimated Valuation Policy”), the board of directors of Lightstone Value Plus Real Estate Investment Trust V, Inc. (the “Company,” “we,” “us,” or “our”) determined and approved our estimated NAV of approximately $190.2 million and resulting estimated NAV per Share of $9.42 both as of September 30, 2020. Our estimated NAV and resulting NAV per Share are based upon the estimated fair values of our assets and liabilities as of September 30, 2020 and are effective as of November 12, 2020.
The estimated NAV of our shares was calculated as of a particular point in time. The estimated NAV of our shares will fluctuate over time in response to developments related to individual assets in the portfolio and the management of those assets and in response to the real estate and finance markets. There is no assurance of the extent to which the current estimated valuation should be relied upon for any purpose after its effective date regardless that it may be published on any statement issued by us or otherwise.
Process and Methodology
Our business is managed by LSG-BH II Advisor LLC and LSG Development Advisor LLC (collectively, the “Advisor”), which are affiliates of The Lightstone Group LLC (“Lightstone”) and we have no employees. Our Advisor, along with any necessary material assistance or confirmation of a third-party valuation expert or service, is responsible for calculating our estimated NAV and resulting NAV per Share, which we currently expect will be done on at least an annual basis unless and until our shares of common stock are approved for listing on a national securities exchange. Our board of directors will review and approve each estimate of NAV and resulting NAV per Share.
Our estimated NAV and resulting NAV per Share as of September 30, 2020 were calculated with both the assistance of our Advisor and Capright Property Advisors, LLC (“Capright”), an independent third-party valuation firm engaged to assist with the valuation of our assets and liabilities. Our Advisor recommended and our board of directors established the estimated NAV per Share based upon the analyses and reports provided by our Advisor and Capright. The process of estimating the value of our assets and liabilities is performed in accordance with our Estimated Valuation Policy and the provisions of the Investment Program Association Practice Guideline 2013-01, “Valuation of Publicly Registered Non-Listed REITs.” We believe our valuations were developed in a manner reasonably designed to ensure their reliability.
In arriving at an estimated NAV and resulting NAV per Share, our board of directors reviewed and considered the valuation analyses prepared by our Advisor and Capright. Our Advisor presented a report to the board of directors with an estimated NAV and resulting NAV per Share. Capright provided our board of directors an opinion that the resulting “as-is” market value for the Company’s properties, as calculated by our Advisor, and the other assets and liabilities as valued by our Advisor, along with the corresponding NAV valuation methodologies and assumptions used by our Advisor to arrive at a recommended NAV per Share of $9.42 as of September 30, 2020 were appropriate and reasonable. Our board of directors conferred with our Advisor and a representative from Capright regarding the methodologies and assumptions used to reach their respective conclusions. Our board of directors, which is responsible for determining our estimated per share value, considered all information provided in light of its own familiarity with our assets and liabilities and unanimously approved a NAV per Share of $9.42 as of September 30, 2020.
6
The engagement of Capright with respect to our estimated NAV and resulting NAV per Share as of September 30, 2020 was approved by our board of directors, including all of our independent directors. Capright has extensive experience in conducting asset valuations, including valuations of commercial real estate, debt, properties and real estate-related investments.
Capright’s opinion was subject to various limitations. In forming its opinion, Capright relied on certain information provided by our Advisor and third parties without independent verification. Our Advisor provided Capright with certain information regarding lease terms and the physical condition and capital expenditure requirements of each property. Capright did not perform engineering or structural studies or environmental studies of any of the properties, nor did they perform an independent appraisal of the other assets and liabilities included in our estimated NAV and resulting NAV per Share.
In forming their conclusion as to the “as-is” value of the real estate investments held by us as of September 30, 2020, Capright’s opinion was subject to various limitations. In connection with their engagement, Capright completed appraisals of seven of our eight consolidated properties. An appraisal was not deemed necessary for Autumn Breeze Apartments as it was recently acquired and its value was determined by our Advisor based on its contractual purchase price. With respect to the seven appraisals performed by Capright, the scope of their work included:
| ● | Review of all property level information provided by our Advisor; |
| ● | Review of the historical performance of our real estate investments and business plans related to operations of the investments; |
| ● | Review of the data models prepared by the Advisor supporting the valuation for each investment; and |
| ● | Review of the applicable markets by means of publications and other resources to measure current market conditions, supply and demand factors, and growth patterns. |
In addition to their appraisals of seven of our eight consolidated properties, Capright also evaluated the following information to arrive at their opinion of our other assets and liabilities:
| ● | Review of key market assumptions for our notes payable, which consist of mortgage loans on our properties, including but not limited to interest rates and collateral; |
| ● | Review of our Advisor’s valuation of our note receivable, net; |
| ● | Review of our Advisor calculations related to allocations of value to our noncontrolling interests based on applicable contractual terms and market assessments; and |
| ● | Review of valuation methodology used by our Advisor for all our other assets and liabilities. |
Capright has acted as a valuation advisor to us in connection with this assignment. The compensation paid to Capright in connection with this assignment was not contingent upon the successful completion of any transaction or conclusion reached by Capright. Capright may be engaged to provide financial advisory services to us, our Advisor, or other Lightstone-sponsored investment programs or their affiliates in the future.
The following is a summary of the valuation methodologies used for each type of asset:
Investments in real estate. We have generally focused on acquiring commercial real estate properties in various asset classes. Accordingly, Capright and our Advisor utilized a variety of valuation methodologies, each deemed appropriate for the asset type under consideration to assign an estimated value to each asset.
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The value of our investments in real estate were estimated utilizing multiple valuation methods, as appropriate for each asset, including an income approach using discounted cash flow analysis and a sales comparable analysis. The key assumptions used in the discounted cash flow approach were specific to each property type, market location, and quality of each property and were based on similar investors’ return expectations and market assessments. The key assumptions are reflected in the table included under “Allocation of Estimated NAV per Share” below. In calculating values for our assets, both balance sheet and estimates of cash flow as of September 30, 2020 were used.
In forming its opinion, Capright prepared appraisals on seven of our eight consolidated investment properties in connection with the valuation. An appraisal was not deemed necessary for one of our investment properties, Autumn Breeze Apartments, as it was recently acquired and its value was determined by our Advisor based on its contractual purchase price. The appraisals estimated values by using discounted cash flow, comparable sales, or a weighting of these approaches in determining each property’s value. The appraisals employed a range of terminal capitalization rates, discount rates, growth rates, and other variables that fell within ranges that Capright and our Advisor believed would be used by similar investors to value the properties we own. The assumptions used in developing these estimates were specific to each property (including holding periods) and were determined based upon a number of factors including the market in which the property is located, the specific location of the property within the market, property and market vacancy, tenant demand for space, and investor demand and return requirements.
While we and our Advisor believe that the approaches used by appraisers in valuing our real estate assets, including an income approach using discounted cash flow analysis and sales comparable analysis, is standard in the real estate industry, the estimated values for our investments in real estate may or may not represent current market values or fair values determined in accordance with generally accepted accounting principles in the United States (“GAAP”). Real estate is currently carried at its amortized cost basis in our financial statements, subject to any adjustments applicable under GAAP.
Cash and cash equivalents. The estimated value of our cash and cash equivalents approximate their carrying value due to their short term maturities.
Marketable securities, available for sale. The estimated values of our marketable securities are based on Level 2 inputs. Level 2 inputs are inputs 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. All of our marketable securities measured using Level 2 inputs were valued based on a market approach using readily available quoted market prices for similar assets.
Restricted cash. The estimated value of our restricted cash approximate their carrying value due to their short term maturities.
Note receivable, net. The estimated value of our note receivable, net approximates its carrying value as of September 30, 2020 based on current market rates for similar instruments.
Notes payable. We have notes payable, which consist of mortgage loans, that bear interest at both variable and fixed rates. The estimated values of our variable-rate mortgage loans were deemed to approximate their carrying values because their interest rates move in conjunction with changes to market interest rates. The estimated values of our fixed-rate notes payable were estimated by the Advisor and reviewed by Capright using a discounted cash flow analysis, which used inputs based on the remaining loan terms and estimated current market interest rates for mortgage loans with similar characteristics, including remaining loan term and loan-to-value ratios. The current market interest rates for our fixed-rate notes payable were generally determined based on market rates for available comparable debt. The estimated current market interest rates for our fixed-rate mortgage loans ranged from 3.7% to 4.2%.
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Other assets and liabilities, net. Our other assets and liabilities, net consist of prepaid expenses and other assets, accounts payable and accrued and other liabilities, payables to related parties, and accrued property tax. For a majority of our other assets and liabilities, the carrying values as of September 30, 2020 were considered equal to fair value by our Advisor due to their cost-based characteristics or short maturities. Certain other items, primarily straight-line rent receivable, intangibles and deferred costs, have been eliminated for the purpose of the valuation because those items are already considered in our valuation of the respective investments in real estate operating properties or financial instruments (i.e., notes payable).
Noncontrolling interests. In those situations where our consolidated operating properties are held in joint venture structures in which other equity holders have an ownership interest, our Advisor has valued those noncontrolling interests based on the terms of the respective joint venture agreement applied assuming a liquidation of the joint venture as of the date of valuation. The resulting allocation of value to noncontrolling interests is a deduction to the estimated NAV.
Common stock outstanding. In deriving an estimated NAV per Share, the total estimated NAV was divided by 20.2 million, the total number of common shares outstanding as of September 30, 2020, on a fully diluted basis, which includes financial instruments that can be converted into a known or determinable number of common shares. As of the valuation date, none of our financial instruments that could be converted into common shares are currently convertible into a known or determinable number of common shares. The determination of the number of common shares outstanding used in the estimated NAV per Share is the same as used in GAAP computations for per share amounts.
Our estimated NAV per Share was calculated by aggregating the value of our assets, subtracting the value of both our liabilities and noncontrolling interests, and dividing the net amount by the fully-diluted shares of common stock outstanding, all as of September 30, 2020.
Allocation of Estimated NAV per Share
The table below sets forth the calculation of our estimated NAV per Share as of September 30, 2020, as well as the calculation of our prior estimated NAV per Share as of September 30, 2019. The estimated NAV per Share of $9.42 as of September 30, 2020, reflects an increase of $0.32, or 3.5%, from the estimated NAV per Share of $9.10 as of September 30, 2019.
| Estimated NAV per Share | ||||||||
| As of | As of | |||||||
| September 30, 2020 | September 30, 2019 | |||||||
| Investments in real estate(1) | $ | 19.99 | $ | 16.75 | ||||
| Cash and cash equivalents | 1.38 | 1.50 | ||||||
| Restricted cash | 0.36 | 0.19 | ||||||
| Marketable securities | 0.18 | 0.24 | ||||||
| Note receivable | 0.61 | 0.39 | ||||||
| Notes payable | (12.45 | ) | (9.34 | ) | ||||
| Other assets and liabilities, net | (0.23 | ) | (0.23 | ) | ||||
| Noncontrolling interests | (0.42 | ) | (0.40 | ) | ||||
| Estimated NAV per Share(2) | $ | 9.42 | $ | 9.10 | ||||
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Notes:
| (1) | The following are the key assumptions (shown on a weighted average basis) used in the discounted cash flow models to estimate the value of the seven of the eight consolidated properties we currently own. |
| Multifamily | Student Housing | |||||||
| (six properties) | (one property) | |||||||
| Exit capitalization rate | 6.20 | % | 6.25 | % | ||||
| Discount rate | 7.25 | % | 7.25 | % | ||||
| Annual market rent growth | 2.85 | % | 2.90 | % | ||||
| Average holding period (in years) | 10.0 | 10.0 | ||||||
The following are ranges of the key assumptions used in the discounted cash flow models to estimate the value of our seven multifamily properties. The discounted cash flow analysis for our student housing asset is for only one property, and therefore, a range of values is not applicable.
| Multifamily | ||
| (six properties) | ||
| Exit capitalization rate | 5.50% - 6.75% | |
| Discount rate | 6.50% - 7.50% |
| (2) | As of September 30, 2020, we had 20,192,656 shares of common stock outstanding. The potential dilutive effect of our common stock equivalents does not affect our estimated NAV per Share as there were no potentially dilutive securities outstanding as of the valuation date. |
The estimated values of our investments in real estate as of September 30, 2020 reflect an aggregate increase of 26.4% compared to their original contractual purchase price or an aggregate increase of 18.8% compared to their original contractual purchase price plus capital expenditures after acquisition.
While we believe that our assumptions utilized are reasonable, a change in these assumptions would affect the calculation of the value of our real estate assets. The table below presents the estimated increase or decrease to our estimated NAV per Share resulting from a 25 basis point increase and decrease in the discount rates and capitalization rates for seven of the eight consolidated properties we currently own. The table is presented to provide a hypothetical illustration of possible results if only one change in assumptions was made, with all other factors remaining constant. Further, each of these assumptions could change by more or less than 25 basis points or not at all.
| Change in NAV per Share | ||||||||
| Increase of | Decrease of | |||||||
| 25 basis points | 25 basis points | |||||||
| Capitalization rate | $ | (0.81 | ) | $ | 0.89 | |||
| Discount rate | $ | (0.33 | ) | $ | 0.34 | |||
Historical Estimated NAV per Share
The historical reported estimated NAV per Share of our common stock as approved by our board of directors for the preceding year is set forth below:
| $9.10 | September 30, 2019 | Current Report on Form 8-K filed November 7, 2019 |
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Limitations and Risks
As with any valuation methodology, the methodology used to determine our estimated NAV and resulting NAV per Share is based upon a number of estimates and assumptions that may prove later not to be accurate or complete. Further, different participants with different property-specific and general real estate and capital market assumptions, estimates, judgments and standards could derive a different estimated NAV per Share, which could be significantly different from the estimated NAV per Share approved by our board of directors. The estimated NAV per Share approved by our board of directors does not represents the fair value of our assets and liabilities in accordance with GAAP, and such estimated NAV per Share is not a representation, warranty or guarantee that:
| ● | A stockholder would be able to resell his or her shares at the estimated NAV per Share; |
| ● | A stockholder would ultimately realize distributions per share of common stock equal to the estimated NAV per Share upon liquidation of our assets and settlement of our liabilities or a sale of the Company; |
| ● | Our shares of common stock would trade at the estimated NAV per Share on a national securities exchange, |
| ● | An independent third-party appraiser or other third-party valuation firm would agree with the estimated NAV per Share; or |
| ● | The methodology used to estimate our NAV per Share would be acceptable to FINRA or under the Employee Retirement Income Security Act with respect to their respective requirements. |
The Internal Revenue Service and the Department of Labor do not provide any guidance on the methodology an issuer must use to determine its estimated NAV per share. FINRA guidance provides that NAV valuations be derived from a methodology that conforms to standard industry practice.
As with any valuation methodology, our methodology is based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive different estimated NAVs and resulting NAVs per share, and these differences could be significant. The estimated NAV per Share is not audited and does not represent the fair value of our assets less our liabilities in accordance GAAP, nor do they represent an actual liquidation value of our assets and liabilities or the amount shares of our common stock would trade at on a national securities exchange. Our estimated NAV per Share is based on the estimated value of our assets less the estimated value of our liabilities and other non-controlling interests divided by the number of our diluted shares of common stock outstanding, all as of the date indicated. Our estimated NAV per Share does not reflect a discount for the fact we are externally managed, nor does it reflect a real estate portfolio premium/discount versus the sum of the individual property values. Our estimated NAV per Share does not take into account estimated disposition costs or fees or penalties, if any, that may apply upon the prepayment of certain of our debt obligations or the impact of restrictions on the assumption of certain debt. Our estimated NAV per Share will fluctuate over time as a result of, among other things, future acquisitions or dispositions of assets, developments related to individual assets and the management of those assets and changes in the real estate and capital markets. Different parties using different assumptions and estimates could derive different NAVs and resulting estimated NAVs per share, and these differences could be significant. Markets for real estate and real estate-related investments can fluctuate and values are expected to change in the future. Our Estimated Valuation Policy requires us to update our estimated NAV per Share value on an annual basis. Our board of directors will review and approve each estimate of NAV and resulting estimated NAV per Share.
The following factors may cause a stockholder not to ultimately realize distributions per share of common stock equal to the estimated NAV per Share upon liquidation:
| ● | The methodology used to determine estimated NAV per Share includes a number of estimates and assumptions that may not prove to be accurate or complete as compared to the actual amounts received in the liquidation. |
| ● | In a liquidation, certain assets may not be liquidated at their estimated values because of transfer fees and disposition fees, which are not reflected in the estimated NAV calculation. |
| ● | In a liquidation debt obligations may have to be prepaid and the costs of any prepayment penalties may reduce the liquidation amounts. Prepayment penalties are not included in determining the estimated value of liabilities in determining estimated NAV. |
| ● | In a liquidation, the real estate assets may derive a portfolio premium which premium is not considered in determining estimated NAV. |
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| ● | In a liquidation, the potential buyers of the assets may use different estimates and assumptions than those used in determining estimated NAV. |
| ● | If the liquidation occurs through a listing of the common stock on a national securities exchange, the capital markets may value the Company’s net assets at a different amount than the estimated NAV. Such valuation would likely be based upon customary REIT valuation methodology including funds from operation (‘‘FFO’’) multiples of other comparable REITs, FFO coverage of dividends and adjusted FFO payout of the Company’s anticipated dividend. |
| ● | If the liquidation occurs through a merger of the Company with another REIT, the amount realized for the common stock may not equal the estimated NAV per Share because of many factors including the aggregate consideration received, the make-up of the consideration (e.g., cash, stock or both), the performance of any stock received as part of the consideration during the merger process and thereafter, the reception of the merger in the market and whether the market believes the pricing of the merger was fair to both parties. |
Holders
As of March 15, 2021, we had 20.2 million shares of common stock outstanding held by 9,962 stockholders.
Distributions
We made an election to qualify as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2008. U.S. federal tax law requires a REIT distribute at least 90% of its annual REIT taxable income (which does not equal net income, as calculated in accordance with generally accepted accounting principles, or GAAP) determined without regard to the deduction for dividends paid and excluding any net capital gain. In order to continue to qualify for REIT status, we may be required to make distributions in excess of cash available. Distributions are authorized at the discretion of our board of directors based on their analysis of our performance over the previous periods and expectations of performance for future periods. Such analyses may include actual and anticipated operating cash flow, capital expenditure needs, general financial and market conditions, proceeds from asset sales and other factors that our board of directors deem relevant. Our board of directors’ decisions will be substantially influenced by their obligation to ensure that we maintain our federal tax status as a REIT. We cannot provide assurance that we will pay distributions at any particular level, or at all.
Prior to 2012, our board of directors declared distributions on a quarterly basis based on daily record dates, portions of which were paid on a monthly basis. During the first quarter of 2012, our board of directors determined to cease regular, monthly distributions in favor of payment of periodic special distributions.
During 2014 and 2015, our board of directors declared a total of $77.1 million, or $3.00 per share of common stock, in special cash distributions, all of which were paid to stockholders during 2014, 2015, and 2016. These special cash distributions were paid with a portion of proceeds from asset sales. No special cash distributions have been declared or paid since 2016.
Recent Sales of Unregistered Securities
During the year ended December 31, 2020, we did not sell any equity securities that were not registered under the Securities Act of 1933.
Securities Authorized for Issuance under Equity Compensation Plans
None.
Tender Offers
2020 Tender Offer
We commenced a tender offer on June 16, 2020, pursuant to which we offered to acquire up to 300,000 shares of our common stock at a purchase price of $2.25 per share, or approximately $0.7 million in the aggregate (the “2020 Tender Offer”).
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The 2020 Tender Offer terminated on July 24, 2020, and a total of 26,637 shares were validly tendered and not withdrawn pursuant to the 2020 Tender Offer as of such date. In accordance with the terms of the 2020 Tender Offer, we subsequently repurchased all of the tendered shares for approximately $0.1 million in August 2020.
2019 Tender Offer
We commenced a tender offer on December 17, 2019, pursuant to which we offered to acquire up to 2.0 million shares of our common stock at a purchase price of $7.75 per share, or $15.5 million in the aggregate (the “2019 Tender Offer”).
The 2019 Tender Offer terminated on February 28, 2020, and a total of 2,183,888 shares were validly tendered and not withdrawn pursuant to the 2019 Tender Offer as of such date, an amount that exceeded the maximum number of shares we offered to purchase pursuant to the 2019 Tender Offer. In accordance with the terms of the 2019 Tender Offer, we subsequently repurchased a total of approximately 2.0 million shares for approximately $15.6 million in April 2020.
Because the amount of repurchase requests exceeded the maximum number of shares we had offered to repurchase, we repurchased shares on a pro-rata basis, subject to “odd lot” priority as described in the 2019 Tender Offer. Excluding the stockholders eligible for “odd lot” priority that were not be subject to proration, approximately 91.58% of the number of shares tendered by each remaining stockholder who participated in the 2019 Tender Offer were repurchased by us.
Share Redemption Program and Redemption Price
Our board of directors has adopted a share redemption program (the “SRP”) that permits stockholders to sell their shares back to us, subject to the significant conditions and limitations of the SRP. Our board of directors can amend the provisions of our SRP at any time without the approval of our stockholders.
On August 9, 2017, our board of directors adopted a Fourth Amended and Restated Share Redemption Program (the “Fourth Amended SRP”) which became effective July 1, 2018. The material changes made to the SRP were as follows. We no longer process redemptions upon death, “qualifying disability,” or confinement to a long-term care facility on terms different than those on which we process all other redemptions. The price at which we redeem shares submitted for redemption will be a percentage of the estimated NAV per Share as of the Effective Date (as defined in the Fourth Amended SRP), as follows:
For Redemptions with an Effective Date Between |
|
| July 1, 2018 and June 30, 2019: | 92.5% of the estimated NAV per Share |
| July 1, 2019 and June 30, 2020: | 95.0% of the estimated NAV per Share |
| July 1, 2020 and June 30, 2021: | 97.5% of the estimated NAV per Share |
| Thereafter: | 100% of the estimated NAV per Share |
Pursuant to the terms of the Fourth Amended SRP, any shares approved for redemption are redeemed on a periodic basis as determined from time to time by our board of directors, and no less frequently than annually. We will not redeem, during any twelve-month period, more than 5% of the weighted average number of shares outstanding during the twelve-month period immediately prior to the date of redemption. In addition, the cash available for redemptions is limited to no more than $10.0 million in any twelve-month period. Any redemption requests are honored pro rata among all requests received based on funds available and are not honored on a first come, first served basis.
On December 28, 2018, our board of directors adopted a Fifth Amended and Restated Share Redemption Program (the “Fifth Amended SRP”) which became effective on January 31, 2019. The only material change to the SRP was to change the measurement period for the limitations on the number and dollar amount of shares that may be accepted for redemption from a rolling 12 month-period to a calendar year.
In accordance with our Fifth Amended SRP, the per share redemption price automatically adjusted to $9.18 effective November 12, 2020 as a result of the determination and approval by our board of directors of the updated estimated NAV per Share.
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On December 13, 2019, our board of directors approved the suspension of the SRP. Pursuant to the terms of the SRP, while the SRP is suspended, we will not accept any requests for redemption and any such requests and all pending requests will not be honored or retained, but will be returned to the requestor.
Our board of directors will continue to consider the liquidity available to stockholders going forward, balanced with our other long-term interests and other long-term interests of the stockholders. It is possible that in the future additional liquidity will be made available by through the SRP, issuer tender offers or other methods, though we can make no assurances as to whether that will happen, or the timing or terms of any such liquidity.
During the year ended December 31, 2019, we redeemed 1.2 million shares of our common stock at an average price per share of $7.94.
Effective March 25, 2021, the Company’s Board of Directors reopened the SRP solely for redemptions submitted in connection with a stockholder’s death and set the price for all such purchases to $9.42, which is 100% of the NAV per Share. Deaths that occurred subsequent to January 1, 2020 are eligible for consideration. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by us within one year of the stockholder’s date of death for consideration.
On an annual basis, we will not redeem in excess of 0.5% of the number of shares outstanding as of the end of the preceding year. Death redemption requests are expected to be processed on a quarterly basis and may be subject to pro ration if death redemption requests exceed the annual limitation.
Our board of directors will continue to consider the liquidity available to stockholders going forward, balanced with other long-term interests of the stockholders and us. It is possible that in the future additional liquidity will be made available by us through the SRP, issuer tender offers or other methods, though we can make no assurances as to whether that will happen, or the timing or terms of any such liquidity.
Item 7. 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 and the notes thereto.
Executive Overview
We were formed primarily to acquire and operate commercial real estate and real estate-related assets on an opportunistic and value-add basis. In particular, we have focused generally on acquiring commercial properties with significant possibilities for capital appreciation, such as those requiring development, redevelopment or repositioning, those located in markets and submarkets with high growth potential, and those available from sellers who were distressed or faced time-sensitive deadlines. In addition, our opportunistic and value-add investment strategy has included investments in real estate-related assets that present opportunities for higher current income. Since inception, we have acquired a wide variety of commercial properties, including office, industrial, retail, hospitality, and multifamily. We have purchased existing, income-producing properties and newly constructed properties. We have also invested in mortgage and mezzanine loans. We have made our investments in or in respect of real estate assets located in the United States and other countries based on our view of existing market conditions. As of December 31, 2020, our investments included multifamily and student housing communities and a note receivable. All of our current investments are located in the United States. We currently intend to hold our various real properties until such time as our board of directors determines that a sale or other disposition appears to be advantageous to achieve our investment objectives or until it appears that the objectives will not be met.
Current Environment
Our operating results are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, and recession.
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COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic leading many countries, including the United States, particularly at the individual state level, to subsequently impose various degrees of restrictions and other measures, including, but not limited to, mandatory temporary closures, quarantine guidelines, limitations on travel, and “shelter in place” rules in an effort to reduce its duration and the severity of its spread. Although the COVID-19 pandemic has continued to evolve, most of these previously imposed restrictions and other measures have now been reduced and/or lifted. However, the COVID-19 pandemic remains highly unpredictable and dynamic and its duration and extent is likely dependent on numerous developments such as the regulatory approval, mass production, administration and ultimate effectiveness of vaccines, as well as the timeline to achieve a level of sufficient herd immunity amongst the general population. Accordingly, the COVID-19 pandemic may continue to have negative effects on the overall health of the U.S. economy for the foreseeable future.
Our consolidated portfolio of properties currently consists of seven multi-family apartment complexes and one student housing complex. Despite past and current restrictions and mitigation strategies, our multi-family properties still have not yet seen any significant impact from the COVID-19 pandemic. Our student housing complex, which consists of the River Club Apartments and the Townhomes at River Club, are located in Athens, Georgia and principally serve as “off-campus” lodging for students attending the University of Georgia (“UGA”). Leases for the River Club Apartments and Townhomes at River Club generally have a term of one year running from August through July. UGA previously transitioned to online instruction during its Spring 2020 semester and for its other course offerings throughout the summer. However, UGA returned to “on-campus” classes beginning with its Fall 2020 semester and has continued “on-campus” classes into the current Spring 2021 semester. Our student housing complex is located “off-campus” and therefore, its tenants are not required to vacate even if UGA does not conduct “on-campus” classes. However, if UGA decides to return to online instruction for its students in lieu of “on-campus” classes in future semesters, it could adversely impact leasing demand, occupancy levels and the operating results of our student housing complex in future periods. Additionally, our note receivable relates to a condominium development project located in New Yok City (the “Condominium Project”), which is subject to similar restrictions and risks. To date, our note receivable has not been significantly impacted by the COVID-19 pandemic.
While our business has not yet seen any material impact from the ongoing COVID-19 pandemic, the extent to which we may be affected in future periods will largely depend on both current and future developments, all of which are highly uncertain and cannot be reasonably predicted.
If our properties and real estate-related investments are negatively impacted in future periods for an extended period because (i) tenants are unable to pay their rent, (ii) demand for its student housing complex declines, and (iii) its borrower is unable to pay scheduled debt service on the outstanding note receivable; our business and financial results could be materially and adversely impacted.
Liquidity and Capital Resources
We had cash and cash equivalents of $27.1 million and marketable securities, available for sale of $3.7 million as of December 31, 2020. Our principal demands for funds going forward will be for the payment of (a) operating expenses and (b) scheduled interest and principal payments on our outstanding indebtedness. We also may, at our discretion use funds for (a) tender offers and/or redemptions of shares of our common stock, (b) distributions, if any, to our shareholders, and (c) selective acquisitions and/or real estate-related investments. Generally, we expect to meet our cash needs with our cash on hand and cash flow from operations. However, to the extent that our cash on hand and cash flow from operations are not sufficient to cover our cash needs, we may use proceeds from additional borrowings and/or selective asset sales to fund such needs.
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We have borrowed money to acquire properties and make other investments. Under our charter, the maximum amount of our indebtedness is limited to 300% of our “net assets” (as defined by our charter) as of the date of any borrowing; however, we may exceed that limit if approved by a majority of our independent directors. In addition to our charter limitation, our board of directors has adopted a policy to generally limit our aggregate borrowings to approximately 75% of the aggregate value of our assets unless substantial justification exists that borrowing a greater amount is in our best interests. Our policy limitation, however, does not apply to individual real estate assets.
Acquisitions and Investments Activity
Autumn Breeze Apartments
On March 17, 2020, we acquired a 280-unit multifamily property located in Noblesville, Indiana (the “Autumn Breeze Apartments”) from an unrelated third party for a contractual purchase price of $43.0 million. In connection with the acquisition, we subsequently entered into a 10-year $29.9 million non-recourse mortgage loan (the “Autumn Breeze Apartments Loan”) scheduled to mature on April 1, 2030. The Autumn Breeze Apartments Loan bears interest at 3.39% and requires monthly interest-only payments through June 30, 2023 and monthly principal and interest payments of approximately $0.1 million thereafter, through its stated maturity. The Autumn Breeze Apartments Loan is collateralized by the Autumn Breeze Apartments.
Valley Ranch Apartments
On February 14, 2019, we completed the acquisition of a 384-unit multifamily property located in Ann Arbor, Michigan (the “Valley Ranch Apartments”) from an unrelated third party, for an aggregate purchase price of approximately $70.3 million, excluding closing and other related transaction costs.
In connection with the acquisition of the Valley Ranch Apartments, we simultaneously entered into a seven-year $43.4 million non-recourse mortgage loan (the “Valley Ranch Mortgage”) scheduled to mature on March 1, 2026. The Valley Ranch Mortgage bears interest at 4.16% and requires monthly interest-only payments through its stated maturity. The Valley Ranch Mortgage is collateralized by the Valley Ranch Apartments.
500 West 22nd Street Mezzanine Loan
On February 28, 2019, we, as the lender, and an unrelated third party (the “500 West 22nd Street Mezzanine Loan Borrower), as the borrower, entered into a promissory note (the “500 West 22nd Street Mezzanine Loan”) pursuant to which we would fund up to $12.0 million of mezzanine financing. The 500 West 22nd Street Mezzanine Loan is classified in Note Receivable on our consolidated balance sheet as of December 31, 2020 and 2019. See Note 7 – “Note Receivable” of the Notes to Consolidated Financial Statements for additional information.
Disposition Activity and Properties Held for Sale
Gardens Medical Pavilion
On January 15, 2020, we and the noncontrolling member completed the disposition of the Gardens Medical Pavilion for an aggregate contractual sales price of $24.3 million. In connection with the disposition of the Gardens Medical Pavilion, we recognized a gain on the sale of investment property of approximately $5.5 million during the year ended December 31, 2020. Approximately $12.6 million of the proceeds were used towards the repayment in full of a mortgage loan (the “Gardens Medical Mortgage”) secured by the Gardens Medical Pavilion . Additionally, approximately $1.8 million of the remaining proceeds were distributed to the noncontrolling member. As of December 31, 2019, the Gardens Medical Pavilion met the criteria to be classified as held for sale and therefore, its associated assets and liabilities are classified as held for sale in the consolidated balance sheet as of December 31, 2019.
Lakes of Margate
Beginning with the fourth quarter of 2019, Lakes of Margate met the criteria to be classified as held for sale and therefore, its associated assets and liabilities, which were expected to be sold within 12 months, were previously classified as held for sale in the consolidated balance sheets as of both March 31, 2020 and December 31, 2019.
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However, because of the COVID-19 pandemic we subsequently decided during the second quarter of 2020 to discontinue our marketing efforts and to retain the property for the foreseeable future. Additionally, on June 26, 2020 we obtained a new 10-year mortgage financing (the “Lakes of Margate Loan”) on the property, which previously was unencumbered. As a result, we determined the property should no longer be classified as held for sale effective as of June 30, 2020 because a sale was no longer considered probable within the next 12 months. Since the fair value of the property was in excess of our carrying value, we recorded catch-up depreciation for the period the property was previously classified as held for sale. In addition, we no longer have classified the long-lived asset as held for sale on the consolidated balance sheet as of December 31, 2019.
Despite us discontinuing marketing efforts and deciding to retain the property for the foreseeable future, we were approached by an unrelated third-party during the third quarter of 2020 and ultimately entered into a purchase and sale agreement (the “Lakes of Margate Agreement”) with Lakes at Margate Apartments FL LLC (the “Lakes of Margate Buyer”). Pursuant to the terms of the Lakes of Margate Agreement, the Lakes at Margate would be sold to the Lakes of Margate Buyer for aggregate consideration of $51.0 million, including the assumption of the existing Lakes of Margate Loan, which was subject to the Lakes of Margate Buyer obtaining the lender’s consent. Because the proposed transaction was contingent on the Lakes of Margate Buyer obtaining lender approval for the assumption of the existing Lakes of Margate Loan, which was outside of our control, a sale of the property within the next 12 months was not deemed probable as of September 30, 2020 and we continued to classify Lakes of Margate as held for use on our consolidated balance sheet as of that date.
During the fourth quarter of 2020, the Lakes of Margate Buyer successfully obtained the lender’s approval to assume the existing Lakes of Margate Loan in connection with the proposed transaction and, as a result, the Lakes of Margate now met the criteria to be classified as held for sale and therefore, its associated assets and liabilities are classified as held for sale in the consolidated balance sheet as of December 31, 2020.
On March 17, 2021, the disposition of the Lakes of Margate was completed pursuant to the terms of the Lakes of Margate Agreement. At closing, the Buyer paid $15.3 million and assumed the existing Lakes of Margate Loan with an outstanding principal balance of $35.7 million.
Additionally, see Note 9 of the Notes to Consolidated Financial Statements for further information related to subsequent events during the period from January 1, 2021 through the date of this filing.
Debt Financings
From time to time, we have obtained mortgage, bridge, or mezzanine loans for acquisitions and investments, as well as property development. In the future, we may obtain financing for property development or to refinance our existing real estate assets, depending on multiple factors.
Excluding the Lakes of Margate Loan (which was included in liabilities held for sale on the consolidated balance sheet as of December 31, 2020 and subsequently assumed by the Buyer of Lakes of Margate on March 17, 2021), our aggregate notes payable balance was $213.0 million, net of deferred financing fees of $3.4 million, and had a weighted average interest rate of 3.71% as of December 31, 2020. Excluding the Gardens Medical Mortgage Loan (which was included in liabilities held for sale on the consolidated balance sheet and subsequently paid off in full in connection with the sale of the Gardens Medical Pavilion on January 15, 2020), our aggregate notes payable balance was $183.8 million, net of deferred financing fees of $3.0 million, and had a weighted average interest rate of 4.14% as of December 31, 2019.
Debt Transactions
On February 14, 2019, we entered into the Valley Ranch Mortgage scheduled to mature on March 1, 2026. The Valley Ranch Mortgage bears interest at 4.16% and requires monthly interest-only payments through its stated maturity. The Valley Ranch Mortgage is collateralized by the Valley Ranch Apartments.
On June 13, 2019, we entered into a seven-year $28.8 million non-recourse mortgage loan (the "Flats at Fishers Mortgage") scheduled to mature on July 1, 2026. The Flats at Fishers Mortgage bears interest at 3.78% and requires monthly interest-only payments through the first two years of the term and thereafter, monthly payments of principal and interest based upon a 30-year amortization. The Flats at Fishers Mortgage is collateralized by the Flats at Fishers.
On December 31, 2019, we repaid in full a $13.4 million non-recourse mortgage loan (the “Lakes of Margate Mortgage”) which was collateralized by the Lakes of Margate.
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On March 17, 2020, we entered into the Autumn Breeze Apartments Loan scheduled to mature on April 1, 2030. The Autumn Breeze Apartments Loan bears interest at 3.39% and requires monthly interest-only payments through June 30, 2023 and monthly principal and interest payments of approximately $0.1 million thereafter, through its stated maturity. The Autumn Breeze Apartments Loan is collateralized by the Autumn Breeze Apartments.
On June 26, 2020, we and the noncontrolling member entered into a 10-year, $35.7 million non-recourse mortgage loan (the "Lakes of Margate Loan") scheduled to mature on July 1, 2030. The Lakes of Margate Loan bears interest at LIBOR + 2.98% and requires monthly interest-only payments through the first four years of the term and thereafter, monthly payments of principal and interest based upon a 30-year amortization. The Lakes of Margate Loan is collateralized by the Lakes of Margate. In connection with the Lakes of Margate Loan, we paid the Advisor an aggregate of approximately $0.4 million in financing fees. Additionally, approximately $1.4 million of the financing proceeds were distributed to the noncontrolling member. On March 15, 2021, the Lakes of Margate Loan was assumed by the Lakes of Margate Buyer in connection with the disposition of the property (see Note 9 of the Notes to Consolidated Financial Statements).
Contractual Obligations
One of our principal short-term and long-term liquidity requirements includes the repayment of maturing debt. The following table provides information with respect to the contractual maturities and scheduled principal repayments of our indebtedness as of December 31, 2020, excluding the Lakes of Margate Loan, which was included in liabilities held for sale on the consolidated balance sheet as of that date and subsequently assumed by the Lakes of Margate Buyer on March 15, 2021 (dollars in thousands):
| Contractual Obligations | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | |||||||||||||||||||||
| Mortgage Payable | $ | 1,023 | $ | 1,468 | $ | 2,498 | $ | 3,181 | $ | 46,590 | $ | 161,622 | $ | 216,382 | ||||||||||||||
| Interest Payments(1) | 8,325 | 8,268 | 8,198 | 8,118 | 7,311 | 5,545 | 45,765 | |||||||||||||||||||||
| Total Contractual Obligations | $ | 9,348 | $ | 9,736 | $ | 10,696 | $ | 11,299 | $ | 53,901 | $ | 167,167 | $ | 262,147 | ||||||||||||||
| (1) | These amounts represent future interest payments related to mortgage payable obligations based on the fixed and variable interest rates specified in the associated debt agreement. All variable rate debt agreements are based on the one-month LIBOR rate. For purposes of calculating future interest amounts on variable interest rate debt the one-month LIBOR rate as of December 31, 2020 was used. |
Results of Operations
As of December 31, 2020, we had eight real estate investments, (five wholly owned properties and three properties consolidated through investments in joint ventures) and one real estate-related investment (mezzanine loan).
On March 17, 2020, we acquired the Autumn Breeze Apartments (the “2020 Acquisition”) and on February 14, 2019, we acquired the Valley Ranch Apartments (the “2019 Acquisition” and collectively, the “Acquisitions”).
On February 28, 2019, we entered into a mezzanine loan (500 West 22nd Street Mezzanine Loan) and in January 2019, we received proceeds of approximately $10.9 million related to our equity method investment in Prospect Park representing the minimum amount payable for our participation in the residual interests of our equity method investment in Prospect Park. Any additional amounts received will be recognized upon receipt.
On January 15, 2020, we disposed of the Gardens Medical Pavilion (the “Disposition”) and the disposition of this property did not qualify to be reported as discontinued operations since it did not represent a strategic shift that had a major effect on our operations and financial results. Accordingly, the operating results of this property are reflected in our results from continuing operations for all periods presented through its date of disposition.
Year ended December 31, 2020 as compared to the year ended December 31, 2019
Our results of operations for the year ended December 31, 2020 compared to the same period in 2019 reflect our acquisition and disposition activities during such periods. Properties which were owned by us during the entire periods presented are referred to as our “Same Store” properties.
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The following table provides summary information about our results of operations for the years ended December 31, 2020 and 2019 (dollars in thousands):
| Year Ended December 31, | Increase/ | Percentage | Change
due to | Change due to | Change due to | |||||||||||||||||||||||
| 2020 | 2019 | (Decrease) | Change | Acquisitions(1) | Dispositions(2) | Same Store(3) | ||||||||||||||||||||||
| Rental revenues | $ | 39,978 | $ | 37,173 | $ | 2,805 | 8.0 | % | $ | 3,791 | $ | (2,203 | ) | $ | 1,217 | |||||||||||||
| Property operating expenses | 13,049 | 12,721 | 328 | 3.0 | % | 1,273 | (689 | ) | (256 | ) | ||||||||||||||||||
| Real estate taxes | 5,454 | 5,181 | 273 | 5.0 | % | 738 | (307 | ) | (158 | ) | ||||||||||||||||||
| General and administrative | 6,493 | 6,283 | 210 | 3.0 | % | 47 | (42 | ) | 205 | |||||||||||||||||||
| Depreciation and amortization | 12,227 | 13,196 | (969 | ) | (7.0 | )% | 755 | (1,093 | ) | (631 | ) | |||||||||||||||||
| Interest expense, net | 9,644 | 9,221 | 423 | 5.0 | % | 1,056 | (703 | ) | 70 | |||||||||||||||||||
| Gain on sale of investment property | 5,474 | - | 5,474 | - | - | 5,474 | - | |||||||||||||||||||||
| (1) | Represents the effect on our operating results for the periods indicated resulting from our 2019 acquisition of the Valley Ranch Apartments and our 2020 acquisition of the Autumn Breeze Apartments. |
| (2) | Represents the effect on our results for the periods indicated resulting from our 2020 disposition of the Gardens Medical Pavilion. |
| (3) | Represents the change for the year ended December 31, 2020 compared to the same period in 2019 for real estate and real estate-related investments owned by us during the entire periods presented (“Same Store”). Same Store properties for the periods ended December 31, 2020 and 2019 include River Club and the Townhomes at River Club, Lakes of Margate, Arbors Harbor Town, Parkside, Axis at Westmont and Flats at Fishers. |
The following table reflects total rental revenues and total property operating expenses for the years ended December 31, 2020 and 2019 for our (i) Same Store properties, (ii) acquisitions and (iii) dispositions (dollars in thousands):
| Year Ended December 31, | ||||||||||||
| Description | 2020 | 2019 | Change | |||||||||
| Rental Revenues: | ||||||||||||
| Same Store | $ | 30,525 | $ | 29,308 | $ | 1,217 | ||||||
| Acquisitions | 9,350 | 5,559 | 3,791 | |||||||||
| Disposition | 103 | 2,306 | (2,203 | ) | ||||||||
| Total rental revenues | $ | 39,978 | $ | 37,173 | $ | 2,805 | ||||||
| Property operating expenses: | ||||||||||||
| Same Store | $ | 10,350 | $ | 10,606 | $ | (256 | ) | |||||
| Acquisitions | 2,684 | 1,411 | 1,273 | |||||||||
| Disposition | 15 | 704 | (689 | ) | ||||||||
| Total property operating expenses | $ | 13,049 | $ | 12,721 | $ | 328 | ||||||
The tables below reflect occupancy and effective monthly rental rates for our Same Store properties:
| Occupancy | Effective Monthly Rent per Unit/Bed(1) | |||||||||||||||||
| As of December 31, | Year Ended December 31, | |||||||||||||||||
| Property | 2020 | 2019 | 2020 | 2019 | ||||||||||||||
| River Club and the Townhomes at River Club | 95 | % | 96 | % | $ | 489.79 | $ | 462.39 | per bed | |||||||||
| Lakes of Margate | 95 | % | 95 | % | $ | 1,393.29 | $ | 1,429.69 | per unit | |||||||||
| Arbors Harbor Town | 96 | % | 92 | % | $ | 1,348.42 | $ | 1,300.62 | per unit | |||||||||
| Parkside | 95 | % | 93 | % | $ | 1,169.59 | $ | 1,185.07 | per unit | |||||||||
| Flats at Fishers | 96 | % | 92 | % | $ | 1,182.01 | $ | 1,125.48 | per unit | |||||||||
| Axis at Westmont | 93 | % | 94 | % | $ | 1,177.56 | $ | 1,171.72 | per unit | |||||||||
| (1) | Effective monthly rent is calculated as in-place contracted monthly rental revenue, including any premiums due for short-term or month-to-month leases, less any concessions or discounts. |
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Revenues. Rental revenues for the year ended December 31, 2020 were $40.0 million, an increase of $2.8 million, compared to $37.2 million for the same period 2019. Excluding the effect of our acquisition and disposition activities, our rental revenues increased by $1.2 million for our Same Store properties primarily as a result of higher occupancy and/or rental rates at most of our Same Store properties during the 2020 period.
Property Operating Expenses. Property operating expenses for the year ended December 31, 2020 were $13.0 million, an increase of $0.3 million, compared to $12.7 million for the same period in 2019. Excluding the effect of our acquisition and disposition activities, our property operating expenses decreased by $0.3 million for our Same Store properties.
Real Estate Taxes. Real estate taxes for the year ended December 31, 2020 were $5.5 million, an increase of $0.3 million, compared to $5.2 million for the same period in 2019. Excluding the effect of our acquisition and disposition activities, our real estate taxes decreased by $0.2 million for our Same Store properties.
General and Administrative Expenses. General and administrative expenses for the years ended December 31, 2020 and 2019 were $6.5 million and $6.3 million, respectively. The increase is principally attributable to higher asset management fees during the 2020 period resulting from our acquisition and investment activities. General and administrative expenses primarily consist of audit fees, legal fees, board of directors’ fees, and other administrative expenses, including certain costs paid to our advisor.
Depreciation and Amortization. Depreciation and amortization for the years ended December 31, 2020 and 2019 were $12.2 million and $13.2 million, respectively. Excluding the effect of our acquisition and disposition activities, depreciation and amortization decreased by $0.6 million for our Same Store Properties primarily as a result of decreased amortization expense resulting from in-place lease intangibles becoming fully amortized during the first quarter of 2020.
Interest Expense, Net. Interest expense, net for the year ended December 31, 2020 was $9.6 million, an increase of $0.4 million, compared to $9.2 million for the same period in 2019. Excluding the effect of our acquisition and disposition activities, interest expense increased slightly by $0.1 million for our Same Store properties.
Interest income. Interest income for the year ended December 31, 2020 was $1.9 million, an increase of $0.2 million, compared to $1.7 million for the same period in 2019. The increase was principally attributable to the increase in the interest earned on our note receivable which was entered into on February 28, 2019.
Gain on Sale of Investment Property. During the first quarter of 2020, we recognized a gain on the sale of the Gardens Medical Pavilion of approximately $5.5 million.
Summary of Cash Flows
Operating activities
The net cash provided by operating activities of $5.3 million for the year ended December 31, 2020 consisted primarily of our net income of $1.2 million plus depreciation and amortization and amortization of deferred financing costs aggregating $12.8 million partially offset by a gain on the sale of investment property related to the sale of the Gardens Medical Pavilion of $5.5 million, non-cash interest income of $1.7 million and the net change in operating assets and liabilities of $1.4 million.
Investing activities
The net cash used in investing activities of $25.3 million for the year ended December 31, 2020 consists primarily of the following:
| ● | the acquisition of the Autumn Breeze Apartments for $43.8 million; | |
| ● | capital expenditures of $6.4 million; | |
| ● | funding of note receivable of $0.6 million; | |
| ● | proceeds from the sale of the Gardens Medical Pavilion of $23.7 million; and | |
| ● | net proceeds of $1.9 million from the sale and purchase of marketable securities; |
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Financing activities
The net cash provided by financing activities of $31.4 million for the year ended December 31, 2020 consists primarily of the following:
| ● | net proceeds from notes payable of $64.0 million; |
| ● | aggregate payments of $15.7 million to repurchase approximately 2.0 million shares of common stock through tender offers; |
| ● | aggregate advances from advisor of $25.0 million fully offset by aggregate repayments of advances from advisor of $25.0 million; |
| ● | debt principal payments of $12.9 million (including $12.6 million for the repayment in full of the Gardens Medical Mortgage in connection with the sale of the property on January 15, 2020); and |
| ● | distributions paid to noncontrolling interests of $4.0 million. |
Funds from Operations and Modified Funds from Operations
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings, improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be less informative.
Because of these factors, the National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has published a standardized measure of performance known as funds from operations ("FFO"), which is used in the REIT industry as a supplemental performance measure. We believe FFO, which excludes certain items such as real estate-related depreciation and amortization, is an appropriate supplemental measure of a REIT's operating performance. FFO is not equivalent to our net income or loss as determined under GAAP.
We calculate FFO, a non-GAAP measure, consistent with the standards established over time by the Board of Governors of NAREIT, as restated in a White Paper approved by the Board of Governors of NAREIT effective in December 2018 (the "White Paper"). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Our FFO calculation complies with NAREIT's definition.
We believe that the use of FFO provides a more complete understanding of our performance to investors and to management, and reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.
Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT's definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.
Because of these factors, the Investment Program Association (the "IPA"), an industry trade group, published a standardized measure of performance known as modified funds from operations ("MFFO"), which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that both before and after we have deployed all of our offering proceeds and are no longer incurring a significant amount of acquisition fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP.
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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 deferred rent receivables and amortization of market lease and other intangibles, net (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), accretion of discounts and amortization of premiums on debt investments and borrowings, mark-to-market adjustments included in net income (including gains or losses incurred on assets held for sale), gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. Certain of the above adjustments are also made to reconcile net income (loss) to net cash provided by (used in) operating activities, such as for the amortization of a premium and accretion of a discount on debt and securities investments, amortization of fees, any unrealized gains (losses) on derivatives, securities or other investments, as well as other adjustments.
MFFO excludes non-recurring impairment of real estate-related investments. We assess the credit quality of our investments and adequacy of reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. We consider the estimated net recoverable value of a loan as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive situation of the region where the borrower does business.
We believe that, because MFFO excludes costs that we consider more reflective of acquisition activities and other non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.
Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO.
Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guidelines or the SEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry, and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.
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Our calculations of FFO and MFFO are presented below (dollars and shares in thousands, except per share amounts):
| For the Year Ended December 31, | ||||||||
| Description | 2020 | 2019 | ||||||
| Net income/(loss) | $ | 1,183 | $ | (7,201 | ) | |||
| FFO adjustments: | ||||||||
| Depreciation and amortization of real estate assets | 12,227 | 13,196 | ||||||
| Gain on sale of investment property | (5,474 | ) | - | |||||
| FFO | 7,936 | 5,995 | ||||||
| MFFO adjustments: | ||||||||
| Other adjustments: | ||||||||
| Acquisition and other transaction related costs expensed(1) | - | 10 | ||||||
| Noncash adjustments: | ||||||||
| Amortization of above or below market leases and liabilities(2) | - | (79 | ) | |||||
| Mark-to-market adjustments(3) | 2 | - | ||||||
| Non-recurring (loss)/gain from extinguishment/sale of debt, derivatives or securities holdings(4) | (63 | ) | 49 | |||||
| MFFO before straight-line rent | 7,875 | 5,975 | ||||||
| Straight-line rent(5) | (32 | ) | (9 | ) | ||||
| MFFO - IPA recommended format | $ | 7,843 | $ | 5,966 | ||||
| Net income/(loss) | $ | 1,183 | $ | (7,201 | ) | |||
| Less: (income)/loss attributable to noncontrolling interests | (1,298 | ) | 92 | |||||
| Net loss applicable to Company's common shares | $ | (115 | ) | $ | (7,109 | ) | ||
| Net loss per common share, basic and diluted | $ | (0.01 | ) | $ | (0.31 | ) | ||
| FFO | $ | 7,936 | $ | 5,995 | ||||
| Less: FFO attributable to noncontrolling interests | (526 | ) | (531 | ) | ||||
| FFO attributable to Company's common shares | $ | 7,410 | $ | 5,464 | ||||
| FFO per common share, basic and diluted | $ | 0.36 | $ | 0.24 | ||||
| MFFO - IPA recommended format | $ | 7,843 | $ | 5,966 | ||||
| Less: MFFO attributable to noncontrolling interests | (520 | ) | (515 | ) | ||||
| MFFO attributable to Company's common shares | $ | 7,323 | $ | 5,451 | ||||
| Weighted average number of common shares outstanding, basic and diluted | 20,741 | 22,887 | ||||||
| (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. |
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| (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. |
Distributions
We made an election to qualify as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2008. U.S. federal tax law requires a REIT to distribute at least 90% of its annual REIT taxable income (which does not equal net income, as calculated in accordance with generally accepted accounting principles, or GAAP) determined without regard to the deduction for dividends paid and excluding any net capital gain. In order to continue to qualify for REIT status, we may be required to make distributions in excess of cash available. Distributions, if any, are authorized at the discretion of our board of directors based on their analysis of our performance over the previous periods and expectations of performance for future periods. Such analyses may include actual and anticipated operating cash flow, capital expenditure needs, general financial and market conditions, proceeds from asset sales and other factors that our board of directors deems relevant. Our board of directors’ decisions will be substantially influenced by their obligation to ensure that we maintain our federal tax status as a REIT. We cannot provide assurance that we will pay distributions at any particular level, or at all.
Prior to 2012, our board of directors declared distributions on a quarterly basis based on daily record dates, portions of which were paid on a monthly basis. During the first quarter of 2012, our board of directors determined to cease regular, monthly distributions in favor of payment of periodic special distributions.
During 2014 and 2015, our board of directors declared a total of $77.1 million, or $3.00 per share of common stock, in special cash distributions, all of which were paid to stockholders during 2014, 2015, and 2016. These special cash distributions were paid with a portion of proceeds from asset sales. No special cash distributions have been declared or paid since 2016.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates include such items as purchase price allocation for real estate acquisitions, impairment of long-lived assets, depreciation and amortization, and allowance for doubtful accounts. Actual results could differ from those estimates.
Below is a discussion of the accounting policies that we consider to be critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain.
Principles of Consolidation and Basis of Presentation
Our consolidated financial statements include our accounts and the accounts of other subsidiaries over which we have control. All inter-company transactions, balances, and profits have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on applicable GAAP, and deemed to be variable interest entities (“VIE”) in which we are the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which we have control, substantive participating rights or both under the respective ownership agreement. For entities in which we have less than a controlling interest or entities which we are not deemed to be the primary beneficiary, we account for the investment using the equity method of accounting.
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There are judgments and estimates involved in determining if an entity in which we have made an investment is a VIE and, if so, whether we are the primary beneficiary. The entity is evaluated to determine if it is a VIE by, among other things, calculating the percentage of equity being risked compared to the total equity of the entity. Determining expected future losses involves assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each possibility and using a discount rate to determine the net present value of those future losses. A change in the judgments, assumptions, and estimates outlined above could result in consolidating an entity that should not be consolidated or accounting for an investment using the equity method that should in fact be consolidated, the effects of which could be material to our financial statements.
Accounting for Acquisitions of Investment Property
The cost of the real estate assets acquired in an asset acquisition is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases for acquired in-place leases and the value of tenant relationships, based in each case on their relative fair values. Fees incurred related to asset acquisitions are capitalized as part of the cost of the investment.
Upon the acquisition of real estate properties that qualify as a business, we recognize the assets acquired, the liabilities assumed, and any noncontrolling interest as of the acquisition date, measured at their fair values. The acquisition date is the date on which we obtain control of the real estate property. The assets acquired and liabilities assumed may consist of land, inclusive of associated rights, buildings, assumed debt, identified intangible assets and liabilities, and asset retirement obligations. Identified intangible assets generally consist of above-market leases, in-place leases, in-place tenant improvements, in-place leasing commissions, and tenant relationships. Identified intangible liabilities generally consist of below-market leases. Goodwill is recognized as of the acquisition date and measured as the aggregate fair value of consideration transferred and any noncontrolling interests in the acquiree over the fair value of the identifiable net assets acquired. Likewise, a bargain purchase gain is recognized in current earnings when the aggregate fair value of consideration transferred and any noncontrolling interests in the acquiree is less than the fair value of the identifiable net assets acquired. Acquisition-related costs are expensed in the period incurred. Initial valuations are subject to change until our information is finalized, which is no later than twelve months from the acquisition date.
The fair value of the tangible assets acquired, consisting of land and buildings, is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and buildings. Land values are derived from appraisals, and building values are calculated as replacement cost less depreciation or management’s estimates of the fair value of these assets using discounted cash flow analyses or similar methods believed to be used by market participants. The value of hotels and all other buildings is depreciated over the estimated useful lives of 39 years and 25 years, respectively, using the straight-line method.
We determine the fair value of assumed debt by calculating the net present value of the scheduled mortgage payments using interest rates for debt with similar terms and remaining maturities that management believes we could obtain at the date of the debt assumption. Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining life of the loan using the effective interest method.
We record assets and groups of assets and liabilities which comprise disposal groups as “held for sale” when all of the following criteria are met: a decision has been made to sell, the assets are available for sale immediately, the assets are being actively marketed at a reasonable price in relation to the current fair value, a sale has been or is expected to be concluded within twelve months of the balance sheet date, and significant changes to the plan to sell are not expected. The assets and disposal groups held for sale are valued at the lower of book value or fair value less disposal costs. For sales of real estate or assets classified as held for sale, we evaluate whether a disposal transaction meets the criteria of a strategic shift and will have a major effect on our operations and financial results to determine if the results of operations and gains on sale of real estate will be presented as part of our continuing operations or as discontinued operations in our consolidated statements of operations. If the disposal represents a strategic shift, it will be classified as discontinued operations for all periods presented; if not, it will be presented in continuing operations.
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Investment Impairment
For all of our real estate and real estate-related investments, we monitor events and changes in circumstances indicating that the carrying amounts of the real estate assets may not be recoverable. Examples of the types of events and circumstances that would cause management to assess our assets for potential impairment include, but are not limited to: a significant decrease in the market price of an asset; a significant adverse change in the manner in which the asset is being used; an accumulation of costs in excess of the acquisition basis plus construction of the property; major vacancies and the resulting loss of revenues; natural disasters; a change in the projected holding period; legitimate purchase offers; and changes in the global and local markets or economic conditions. To the extent that our portfolio is concentrated in limited geographic locations, downturns specifically related to such regions may result in tenants defaulting on their lease obligations at those properties within a short time period, which may result in asset impairments. When such events or changes in circumstances are present, we assess potential impairment by comparing estimated future undiscounted operating cash flows expected to be generated over the life of the asset and from its eventual disposition to the carrying amount of the asset. These projected cash flows are prepared internally by the Advisor and reflect in-place and projected leasing activity, market revenue and expense growth rates, market capitalization rates, discount rates, and changes in economic and other relevant conditions. Our management reviews these projected cash flows to assure that the valuation is prepared using reasonable inputs and assumptions that are consistent with market data or with assumptions that would be used by a third-party market participant and assume the highest and best use of the investment. We consider trends, strategic decisions regarding future development plans, and other factors in our assessment of whether impairment conditions exist. In the event that the carrying amount exceeds the estimated future undiscounted operating cash flows, we recognize an impairment loss to adjust the carrying amount of the asset to estimated fair value. While we believe our estimates of future cash flows are reasonable, different assumptions regarding factors such as market rents, economic conditions, and occupancy rates could significantly affect these estimates.
In evaluating our investments for impairment, management may use appraisals and make estimates and assumptions, including, but not limited to, the projected date of disposition of the properties, the estimated future cash flows of the properties during our ownership, and the projected sales price of each of the properties. A future change in these estimates and assumptions could result in understating or overstating the carrying value of our investments, which could be material to our financial statements. In addition, we may incur impairment charges on assets classified as held for sale in the future if the carrying amount of the asset upon classification as held for sale exceeds the estimated fair value, less costs to sell.
New Accounting Pronouncements
See Note 3 of the Notes to Consolidated Financial Statements for further information.
Subsequent Events
See Note 9 of the Notes to Consolidated Financial Statements for further information related to subsequent events during the period from January 1, 2021 through the date of this filing.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item 8 is included in our Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
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Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our principal executive officer and principal financial officer, evaluated, As of December 31, 2020, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective, as of December 31, 2020, to provide reasonable assurance that information required to be disclosed by us in this report is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a Company has been detected.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Our management, including our principal executive officer and principal financial officer, evaluated, As of December 31, 2020, the effectiveness of our internal control over financial reporting using the criteria established in Internal Control—New Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our principal executive officer and principal financial officer concluded that our internal controls over financial reporting, as of December 31, 2020, were effective.
Changes in Internal Control over Financial Reporting
There has been no change in internal control over financial reporting that occurred during the quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None.
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Item 10. Directors, Executive Officers and Corporate Governance.
Directors
Because our directors take a critical role in guiding our strategic direction and overseeing our management, they must demonstrate broad-based business and professional skills and experiences, concern for the long-term interests of our stockholders, and personal integrity and judgment. In addition, our directors must have time available to devote to board activities and to enhance their knowledge of our industry. As described further below, we believe our directors have the appropriate mix of experiences, qualifications, attributes, and skills required of our board members in the context of the current needs of our company.
Andreas K. Bremer, 64, has served as one of our independent directors since November 2007 and as Lead Director since June 2017 Mr. Bremer currently serves as President and Chief Executive Officer of International Capital, LLC, a position he has held since 2018. Mr. Bremer joined International Capital as its Chief Financial Officer in October 2002 and became its Executive Vice President in 2005. International Capital specializes in acquisition, disposition, management and administration of commercial investment properties, and Mr. Bremer is responsible for all financial aspects of the company’s operations. Before joining International Capital, Mr. Bremer was the Chief Financial Officer of ATLASwerks®, a leading communication software company in Dallas. He acted as a corporate finance consultant for two years at McKinsey & Co. in both the Dallas and New York offices and served as Vice President of Finance and Treasurer at Paging Network, Inc. Mr. Bremer started his career at COMMERZBANK AG in Germany and spent seven of his 13-year tenure at the company’s New York and Atlanta offices. Mr. Bremer has over 25 years of financial and general management experience with extensive knowledge of corporate finance and commercial lending both in the United States and other countries, particularly Germany and holds a degree as CCIM. Mr. Bremer has served as Chairman of the German International School in Dallas since 2009. He was the Director of the Texas Warburg Chapter of the American Council on Germany in Dallas and, as Knight of Justice, is a member of the Order of St. John. . In 2018, Mr. Bremer was appointed Honorary Counsel of the Federal Republic of Germany in Dallas 2018 and continues to serve in that capacity. Mr. Bremer received a law degree from the Johannes-Gutenberg University in Mainz, Germany.
Our board of directors has concluded that Mr. Bremer is qualified to serve as one of our directors for reasons including his more than 25 years of financial and general management experience, including international corporate finance and commercial lending. Mr. Bremer has served in various financial management positions and has significant experience in acquisition, disposition, management, and administration of commercial real estate investments. In addition, Mr. Bremer’s international background brings a unique perspective to our board.
Diane S. Detering-Paddison, 61, has served as one of our independent directors since June 2009. Ms. Detering-Paddison serves as President of 4word, www.4wordwomen.org, a not-for-profit organization she founded that connects, leads and supports professional Christian women and enables them to reach their potential. From February 2010 until June 2014, Ms. Detering-Paddison served as Chief Strategy Officer of Cassidy Turley, one of the nation’s largest commercial real estate service providers. Prior to joining Cassidy Turley, Ms. Detering-Paddison served as the Chief Operating Officer of ProLogis, an owner, manager, and developer of distribution facilities, from June 2008 until January 2009. Prior to that, Ms. Detering-Paddison was with CB Richard Ellis and Trammell Crow Company for over 20 years. During her time there, she served as Senior Vice President, Corporate and Investor Client Accounts from April 2001 until December 2004, Chief Operating Officer, Global Services from January 2005 until December 2006, and President, Global Corporate Services - Client Accounts from December 2006 until May 2008. Ms. Detering-Paddison was part of a ten member executive team that managed the merger between Trammell Crow Company and CB Richard Ellis in December 2006. Ms. Detering-Paddison serves on the Salvation Army’s National Advisory Board. Ms. Detering-Paddison is the author of “Work, Love, Pray.” Ms. Detering-Paddison holds a Master of Business Administration degree from the Harvard Graduate School of Business and a Bachelor of Science degree from Oregon State University where she graduated as Valedictorian.
Our board of directors has concluded that Ms. Detering-Paddison is qualified to serve as one of our directors for reasons including her more than 30 years of management experience with large commercial real estate companies, including Trammell Crow Company, CB Richard Ellis, ProLogis, and Cassidy Turley. With her background, Ms. Detering-Paddison brings substantial insight and experience with respect to the commercial real estate industry.
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Jeffrey F. Joseph, 79, has served as one of our independent directors since September 2017. Mr. Joseph served as President, Chief Executive Officer and director of Presidential Realty Corporation, a publicly held company focused on the development and ownership of multifamily residential properties, from 1991 until his retirement in 2011. From 1979 to 1991, Mr. Joseph served as a principal of Ivy Properties Ltd. and as General Counsel of Presidential Realty Corporation from 1973 to 1979. Mr. Joseph is Chairman of the Board of Takoda Service Dogs Inc., a charitable organization that provides service dogs to Veterans suffering from PTSD. Mr. Joseph began his career 1967 as an associate with Hughes Hubbard Blair & Reed. Mr. Joseph holds a Bachelor of Arts degree from Cornell University with a major in Economics and a Juris Doctorate degree from Cornell Law School, where he graduated Summa Cum Laude.
Our board of directors has concluded that Mr. Joseph is qualified to serve as one of our directors for reasons including his more than 40 years of real estate industry experience.
David Lichtenstein, 59, has served as one of our directors and Chairman of the Board of Directors since September 2017. Mr. Lichtenstein is Chairman and Chief Executive Officer of our Advisor. Mr. Lichtenstein founded both American Shelter Corporation and Lightstone. From 1988 to the present, Mr. Lichtenstein has served as Chairman of the Board of Directors and Chief Executive Officer of Lightstone, directing all aspects of the acquisition, financing and management of a diverse portfolio of multifamily, lodging, retail and industrial properties located in 20 states and Puerto Rico. From June 2004 to the present, Mr. Lichtenstein has served as the Chairman of the Board of Directors and Chief Executive Officer of Lightstone Value Plus Real Estate Investment Trust, Inc. (“Lightstone I”) and Chief Executive Officer of Lightstone Value Plus REIT LLC, its advisor. From April 2008 to the present, Mr. Lichtenstein has served as the Chairman of the Board of Directors and Chief Executive Offer of Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone II”) and Lightstone Value Plus REIT II LLC, its advisor. From September 2014 to the present, Mr. Lichtenstein has served as Chairman of the Board of Directors and Chief Executive Officer of Lightstone Value Plus Real Estate Investment Trust III, Inc. (“Lightstone III”), and as Chief Executive Officer of Lightstone Value Plus REIT III LLC, its advisor. From September 2014 to the present, Mr. Lichtenstein has served as Chairman of the Board of Directors and Chief Executive Officer of Lightstone Real Estate Income Trust Inc., (“Lightstone IV”), and as Chief Executive Officer of Lightstone Real Estate Income LLC, its advisor. From October 2014 to the present, Mr. Lichtenstein has served as Chairman of the Board of Directors and Chief Executive Officer of Lightstone Enterprises Limited (“Lightstone Enterprises”). From July 2015 to the present, Mr. Lichtenstein has served as a member of the Board of Directors of the New York City Economic Development Corporation, New York City’s primary economic development vehicle. Mr. Lichtenstein is on the Board of Governors of the Real Estate Board of New York, a Trustee of the Citizens Budget Commission, and is a Member of The Economic Club of New York and the Real Estate Roundtable, and Co-Chair of the Real Estate Capital Policy Advisory Committee. He is also a member of the Brookings Institution’s Economic Studies Council and a trustee of The Touro College and University System and sits on the Board Supervisory Committee for The New York Medical College. Mr. Lichtenstein is a founder of the Friendship House, an organization that provides housing for families of sick children and adults in the Greater New York City area. Mr. Lichtenstein is also a member of the International Council of Shopping Centers and the National Association of Real Estate Investment Trusts, Inc., or NAREIT, an industry trade group, as well as a member of the Board of Directors of Touro College and New York Medical College.
Our board of directors has concluded that Mr. Lichtenstein is qualified to serve as one of our directors for reasons including his more than 25 years of financial and general management experience, including significant experience in acquisition, disposition, management, and administration of commercial real estate investments.
Jeffrey P. Mayer, 64, has served as one of our independent directors since November 2007 and is chairman of our audit committee. Mr. Mayer previously served as a consultant serving the real estate industry and is the owner of Mayer Financial Consulting, LLC and is the firm’s sole employee. This firm was started in 2011 to provide consulting services to individuals and businesses primarily dealing with financial investments and real estate. From 2000 until 2007, Mr. Mayer was the Chief Financial Officer of ClubCorp, Inc., a holding company that owns and operates premier golf and business clubs and destination golf resorts. He previously served as Chief Financial Officer of Bristol Hotels & Resorts in Dallas, a position he held from 1996 until the company’s acquisition by Bass PLC in early 2000. Prior to joining Bristol, he was Corporate Controller at Host Marriott Corporation (formerly Marriott Corporation) and, prior to that, held various senior financial positions at Marriott Corporation. He also serves as treasurer and board member of the Georgia Chapter of The American Foundation for Suicide Prevention. In addition, he serves or has previously served as the Audit Committee chairman for three other organizations including both profit and not-for-profit entities. He was a board member of the Dallas Children’s Advocacy Center and chairman of its audit committee. A graduate of the College of William & Mary, he began his career as an accountant with Arthur Andersen LLP.
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Our board of directors has concluded that Mr. Mayer is qualified to serve as one of our directors and as Chairman of our Audit Committee for reasons including his more than 30 years of accounting and finance experience in the commercial real estate industry. In particular, Mr. Mayer has served as Chief Financial Officer for two commercial real estate companies and has significant management experience relating to preparing and reviewing financial statements and coordinating with external auditors. Mr. Mayer continues to provide consulting services to the commercial real estate industry and is in tune with current industry trends and issues.
Cynthia Pharr Lee, 72, has served as one of our independent directors since November 2007. Ms. Lee serves as Chairman of Dala Communications and she was CEO of its predecessor firm, C. Pharr & Company, which provides strategic brand, marketing and public relations services to many real estate, construction, design and other B2B clients. Ms. Pharr Lee also serves as an independent board member of AAA Auto Club of Southern California. From 2016 through 2020, Ms. Pharr Lee served as a member of the board of directors of Darling Ingredients Inc. (DAR-NYSE) and its audit and compensation committees. From 1994 through February 2014, Ms. Pharr Lee served as a member of the board of directors of CEC Entertainment, Inc. (CEC-NYSE) and its audit and compensation committees. A co-founder of Texas Women Ventures Fund, Ms. Pharr Lee serves on the Fund’s Investment Advisory Committee. Ms. Pharr Lee is a former president of Executive Women of Dallas and former national chairman of the Counselor’s Academy of the Public Relations Society of America. From May 1989 through February 1993, Ms. Lee was President and Chief Executive Officer of Tracy Locke/Pharr Public Relations, a division of Omnicom (NYSE). Ms. Lee has earned designation as a Board Leadership Fellow of the National Association of Corporate Directors (NACD) and has also earned the CERT Certificate in Cybersecurity Oversight through a program sponsored by NACD and Carnegie Mellon University. She received her Bachelor of Science degree in English (summa cum laude) and her Master of Arts degree in English from Mississippi State University.
Our board of directors has concluded that Ms. Lee is qualified to serve as one of our directors for reasons including her more than 30 years of management experience in the public relations and marketing communications industry, with significant experience working with commercial real estate and construction firms. Ms. Lee has also served on the boards of directors and audit committees of New York Stock Exchange listed companies, which allows her to provide valuable knowledge and insight into management issues. In addition, Ms. Lee’s background complements that of our other board members and brings a unique perspective to our board.
Steven Spinola, 72, has served as one of our independent directors since September 2017. Mr. Spinola served as President of the Real Estate Board of New York (“REBNY”) from 1986 and since July 2015 as its President Emeritus. Mr. Spinola is a recipient of the Harry B. Helmsley Distinguished New Yorker Award for a lifetime of achievement in the profession. Before becoming REBNY’s President, Mr. Spinola served as President of the New York City Public Development Corporation (now known as the New York City Economic Development Corporation) from 1983 to 1986. Mr. Spinola currently serves as an independent director on the Board of Directors of Lightstone IV. Mr. Spinola holds a Bachelor of Arts degree from the City College of New York with a concentration in political science and government. He attended the Harvard Business School/Kennedy School of Government Summer Program for Senior Managers in Government.
Our board of directors has concluded that Mr. Spinola is qualified to serve as one of our directors for reasons including his extensive experience in the real estate industry.
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Executive Officers
In addition, the following individuals serve as our executive officers:
Mitchell Hochberg, 68, was appointed our Chief Executive Officer on September 28, 2017. Mr. Hochberg also serves as President and Chief Operating Officer of Lightstone I, Lightstone II, Lightstone III and Lightstone IV and their respective advisors. From October 2014 to the present, Mr. Hochberg has served as President of Lightstone Enterprises. Mr. Hochberg was appointed Chief Executive Officer of Behringer Harvard Opportunity REIT I, Inc. (“BH OPP I”) effective as of September 28, 2017. Prior to joining The Lightstone Group in August 2012, Mr. Hochberg served as principal of Madden Real Estate Ventures from 2007 to August 2012 when it combined with our sponsor. Mr. Hochberg held the position of President and Chief Operating Officer of Ian Schrager Company, a developer and manager of innovative luxury hotels and residential projects in the United States from early 2006 to early 2007 and prior to that Mr. Hochberg founded Spectrum Communities, a developer of luxury neighborhoods in the northeast of the United States, in 1985 where for 20 years he served as its President and Chief Executive Officer. Mr. Hochberg served on the board of directors of Belmond Ltd from 2009 to April 2019. Additionally, through October 2014 Mr. Hochberg served on the board of directors and as Chairman of the board of directors of Orleans Homebuilders, Inc Mr. Hochberg received his law degree as a Harlan Fiske Stone Scholar from Columbia University School of Law and graduated magna cum laude from New York University College of Business and Public Administration with a Bachelor of Science degree in accounting and finance.
Seth Molod, 57, was appointed our Chief Financial Officer and Treasurer August 27, 2018. Mr. Molod also serves as Chief Financial Officer and Treasurer of Lightstone I, Lightstone II, Lightstone III and Lightstone IV. Mr. Molod also serves as the Executive Vice President and Chief Financial Officer of our Sponsor and as the Chief Financial Officer of our Advisor and the advisors of Lightstone I, Lightstone II, Lightstone III and Lightstone IV. Prior to joining The Lightstone Group in August of 2018, Mr. Molod served as an Audit Partner, Chair of Real Estate Services and on the Executive Committee of Berdon LLP, a full service accounting, tax, financial and management advisory firm (“Berdon”). Mr. Molod joined Berdon in 1989. He has extensive experience advising some of the nation’s most prominent real estate owners, developers, managers, and investors in both commercial and residential projects. Mr. Molod has worked with many privately held real estate companies as well as institutional investors, REITs, and other public companies. Mr. Molod is a licensed certified public accountant in New Jersey and New York and a member of the American Institute of Certified Public Accountants. Mr. Molod holds a Bachelor of Business Administration degree in Accounting from Muhlenberg College.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires each director, officer, and individual beneficially owning more than 10% of a registered security of the Company to file with the SEC, within specified time frames, initial statements of beneficial ownership (Form 3) and statements of changes in beneficial ownership (Forms 4 and 5) of common stock of the Company. These specified time frames require the reporting of changes in ownership within two business days of the transaction giving rise to the reporting obligation. Reporting persons are required to furnish us with copies of all Section 16(a) forms filed with the SEC. Based solely on a review of the copies of such forms furnished to the Company during and with respect to the fiscal year ended December 31, 2019 or written representations that no additional forms were required, to the best of our knowledge, all required Section 16(a) filings were timely and correctly made by reporting persons during 2018.
Code of Ethics
Our board of directors has adopted a Code of Business Conduct Policy that is applicable to all members of our board of directors, our executive officers and employees of our Advisor and its affiliates. We have posted the policy on the website maintained for us at www.lightstonecapitalmarkets.com. If, in the future, we amend, modify or waive a provision in the Code of Business Conduct Policy, we may, rather than filing a Current Report on Form 8-K, satisfy the disclosure requirement by promptly posting such information on the website maintained for us as necessary.
Audit Committee Financial Expert
The Audit Committee consists of independent directors Jeffrey P. Mayer, the chairman, Andreas K. Bremer, Diane S. Detering-Paddison, Jeffrey F. Joseph, Steven Spinola and Cynthia Pharr Lee. Our board of directors has determined that Mr. Mayer is an “audit committee financial expert,” as defined by the rules of the SEC. The biography of Mr. Mayer, including his relevant qualifications, is previously described in this Item 10.
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Item 11. Executive Compensation.
Executive Compensation
We do not directly compensate our named executive officers, nor do we reimburse the Advisor for compensation paid to our named executive officers, for services rendered to us. We pay certain management fees to the Advisor to compensate the Advisor for the services it provides in our day-to-day management. In addition, we reimburse certain expenses of the Advisor, including reimbursement for the costs of salaries and benefits of certain of their employees.
Reimbursement for the costs of salaries and benefits of the Advisor’s employees relate to compensation paid to the Advisor’s employees that provide services to us such as accounting, administrative or legal, for which the Advisor or its affiliates are not entitled to compensation in the form of a separate fee. A description of the fees that we pay to the Advisor and other affiliates is found in Item 13 below. Therefore, we do not have, nor has our board of directors or compensation committee considered, a compensation policy or program for our executive officers, and thus we have not included a Compensation Discussion and Analysis in this Annual Report on Form 10-K.
Directors’ Compensation
We pay each of our directors who are Independent Directors as defined in our charter an annual retainer of $60,000. In addition, we pay the chairperson of the audit committee and our lead independent director an annual retainer of $10,000 and the chairpersons of our nominating and compensation committees annual retainers of $5,000 each. These retainers are payable quarterly in arrears. In addition, we pay each of our directors who are Independent Directors as defined in our charter (a) $1,500 for each board of directors or permanent committee meeting attended in person or by telephone, (c) $1,000 for each special committee meeting attended by phone or in person, and (c) $500 for each written consent considered by the director.
All directors receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. If a director is also an affiliate director, we do not pay compensation for services rendered as a director.
Director Compensation Table
The following table sets forth certain information with respect to our director compensation during the fiscal year ended December 31, 2020:
Name | Fees Earned(1) | |||
| David Lichtenstein | $ | - | ||
| Andreas K. Bremer | $ | 100,250 | ||
| Diane S. Detering-Paddison | $ | 81,000 | ||
| Jeffrey F. Joseph | $ | 81,000 | ||
| Steven Spinola | $ | 81,000 | ||
| Jeffrey P. Mayer | $ | 91,000 | ||
| Cynthia Pharr Lee | $ | 86,000 | ||
| (1) | Includes fees earned for services rendered in 2020, regardless of when paid. |
Compensation Committee Interlocks and Insider Participation
No member of our compensation committee served as an officer or employee of the Company or any of our subsidiaries during the fiscal year ended December 31, 2020 or formerly served as an officer of the Company or any of our subsidiaries. In addition, during the fiscal year ended December 31, 2020, none of our executive officers served as a director or member of a compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of any entity that has one or more executive officers or directors serving as a member of our board of directors or compensation committee.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Security Ownership of Certain Beneficial Owners
The following table sets forth information as of March 15, 2021 regarding the beneficial ownership of our common stock by each person known by us to own 5% or more of the outstanding shares of common stock, each of our directors, each of our executive officers, and our directors and executive officers as a group:
Name of Beneficial Owner(2) | Amount and Nature of Beneficial Ownership(1) | Percentage of Class | ||||||
| David Lichtenstein | — | — | ||||||
| Andreas K. Bremer | — | — | ||||||
| Diane S. Detering-Paddison | — | — | ||||||
| Jeffrey P. Mayer | — | — | ||||||
| Cynthia Pharr Lee | — | — | ||||||
| Steven Spinola | — | — | ||||||
| Jeffrey F. Joseph | — | — | ||||||
| Mitchell Hochberg | — | — | ||||||
| Seth Molod | — | — | ||||||
| All directors and executive officers as a group (nine persons) | — | — |
| (1) | Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities and shares issuable pursuant to options, warrants and similar rights held by the respective person or group that may be exercised within 60 days following March 15, 2021. Except as otherwise indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. |
| (2) | The address of our directors and officers is c/o Lightstone Value Plus Real Estate Investment Trust V, Inc., 1985 Cedar Bridge Avenue, Suite 1, Lakewood, New Jersey 08701. |
Item 13. Certain Relationships and Related Transactions and Director Independence.
Policies and Procedures for Transactions with Related Persons
We do not currently have written formal policies and procedures for the review, approval or ratification of transactions with related persons, as defined by Item 404 of Regulation S-K of the Exchange Act. Under that definition, transactions with related persons are transactions in which we were or are a participant and the amount involved exceeds $120,000 and in which any related person had or will have a direct or indirect material interest. Related parties include any executive officers, directors, director nominees, beneficial owners of more than 5% of our voting securities, immediate family members of any of the foregoing persons, and any firm, corporation or other entity in which any of the foregoing persons is employed and in which such person has 10% or greater beneficial ownership interest.
However, in order to reduce or eliminate certain potential conflicts of interest, our charter contains a number of restrictions relating to (1) transactions we enter into with our Advisor and its affiliates, (2) certain future offerings, and (3) allocation of investment opportunities among affiliated entities. As a general rule, any related party transactions must be approved by a majority of the directors (including a majority of independent directors) not otherwise interested in the transaction. In determining whether to approve or authorize a particular related party transaction, these persons will consider whether the transaction between us and the related party is fair and reasonable to us.
Related Party Transactions
Advisor and Property Manager
Effective February 10, 2017, we engaged affiliates of The Lightstone Group, LLC (“Lightstone”), LSG-BH II Advisor LLC and LSG Development Advisor LLC (collectively, the “Advisor”), to provide advisory services to us. Lightstone is majority owned by the chairman of our board of directors, David Lichtenstein. Pursuant to the terms of an advisory agreement and subject to the oversight of our board of directors, the Advisor is responsible for managing our day-to-day affairs and for services related to our acquisition, financing and disposition activities.
We have agreements with the Advisor and its affiliates to pay certain fees in exchange for services performed by these entities and other related parties. Our ability to secure financing and subsequent real estate operations are dependent upon the Advisor and the Advisor’s affiliates to perform such services as provided in these agreements. Additionally, we engaged an affiliate of Lightstone pursuant to a property management and leasing agreement. The following discussion describes the fees and expenses payable to the Advisor and affiliated property manager and their respective affiliates under various agreements.
33
| Fees | Amount | |
| Acquisition - |
We pay the Advisor acquisition and advisory fees of 1.5% of the amount paid in respect of the purchase, development, construction, or improvement of each asset we acquire, including any debt attributable to those assets.
In addition, we pay acquisition and advisory fees of 1.5% of the funds advanced in respect of a loan investment.
We pay the Advisor an acquisition expense reimbursement in the amount of (i) 0.25% of the funds paid for purchasing an asset, including any debt attributable to the asset, plus 0.25% of the funds budgeted for development, construction, or improvement in the case of assets that we acquire and intend to develop, construct, or improve or (ii) 0.25% of the funds advanced in respect of a loan investment.
We pay third parties, or reimburses the Advisor or its affiliates, for any investment-related expenses due to third parties in the case of a completed investment, including, but not limited to, legal fees and expenses, travel and communication expenses, costs of appraisals, accounting fees and expenses, third-party brokerage or finder’s fees, title insurance, premium expenses, and other closing costs.
The Advisor and its affiliates are also responsible for paying all of the investment-related expenses that we pay or the Advisor or its affiliates incur that are due to third parties or related to the additional services provided by the Advisor as described above with respect to investments we do not make, other than certain non-refundable payments made in connection with any acquisition. | |
Debt Financing -
|
We pay the Advisor a debt financing fee of 1.0% of the amount available under any loan or line of credit made available to us and pay directly all third-party costs associated with obtaining the debt financing. Generally, these fees are capitalized as a direct reduction to the applicable financing and amortized over its term. | |
Property Management -
|
We pay our property manager and affiliate of the Advisor, fees for the management, leasing, and construction supervision of our properties which is 4.0% of gross revenues of the properties managed by our property manager. We pay our property manager an oversight fee equal to 0.5% of the gross revenues of the property managed for any property for which we contract directly with a third-party property manager. In no event will our property manager or its affiliates receive both a property management fee and an oversight fee with respect to any particular property. In the event we own a property through a joint venture that does not pay our property manager directly for its services, we will pay our property manager a management fee or oversight fee, as applicable, based only on our economic interest in the property. | |
| Construction Management - | We pay our property manager a construction management fee in an amount not to exceed 5% of all hard construction costs incurred in connection with, but not limited to capital repairs and improvements, major building reconstruction and tenant improvements, if such affiliate supervises construction performed by or on behalf of us or our affiliates. We incurred no construction management fees for the years ended December 31, 2020 and 2019. |
34
| Asset Management - | We pay the Advisor a monthly asset management fee of one-twelfth of 0.7% of the value of each asset. The value of our assets will be the value as determined in connection with the establishment and publication of an estimated net asset value (“NAV”) per share unless the asset was acquired after our publication of a NAV per share (in which case the value of the asset will be the contractual purchase price of the asset). | |
| Administrative Services Reimbursement | The Advisor is responsible for paying all of the expenses it incurs associated with persons employed by the Advisor to the extent that they provide services to us for which the Advisor receives an acquisition, asset management, or debt financing fee, including wages and benefits of the applicable personnel. Instead of reimbursing the Advisor for specific expenses paid or incurred in connection with providing services to us, we pay the Advisor an administrative services fee, which is an allocation of a portion of the actual costs that the Advisor paid or incurred providing these services to us (the “Administrative Services Reimbursement”). The Administrative Services Reimbursement is intended to reimburse the Advisor for all its costs associated with providing services to us.
For the period January 1, 2019 through June 10, 2019, the Administrative Services Reimbursement was up to $1.29 million annually, pro-rated for the period. On June 10, 2019, the advisory management agreements were extended an additional year through June 10, 2020. For the period June 11, 2019 through June 10, 2020, the Administrative Services Reimbursement was up to $1.312 million. On June 10, 2020, the advisory management agreements were extended an additional year through June 10, 2021. For the period June 11, 2020 through June 10, 2021, the Administrative Services Reimbursement is limited to the lesser of the actual costs incurred or $1.33 million. The Administrative Services Reimbursement is payable in four equal quarterly installments within 45 days of the end of each calendar quarter. In addition, under the various advisory management agreements, the Company is to reimburse the Advisor for certain due diligence services provided in connection with asset acquisitions and dispositions and debt financings separately from the Administrative Services Reimbursement.
Notwithstanding the fees and cost reimbursements payable to the Advisor pursuant to our advisory management agreement, under our charter we may not reimburse the Advisor for any amount by which our operating expenses (including the asset management fee) at the end of the four preceding fiscal quarters exceeds the greater of: (i) 2% of our average invested assets, or (ii) 25% of our net income determined without reduction for any additions to reserves for depreciation, bad debts, or other similar non-cash reserves and excluding any gain from the sale of our assets for that period unless a majority of our independent directors determines that such excess expenses are justified based on unusual and non-recurring factors. For the four fiscal quarters ended December 31, 2020 and December 31, 2019, our total operating expenses (including the asset management fee) exceeded the limit on total operating expenses; however, our independent directors determined the excess expenses were justified. |
35
The following table represents the fees incurred associated with the payments to our Advisor for the periods indicated (amounts in thousands):
| For the Years Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Acquisition fees and acquisition expense reimbursement (1) | $ | 764 | $ | 1,428 | ||||
| Debt financing fees (2) | 656 | 722 | ||||||
| Property management fees (property operating expenses) | 468 | 467 | ||||||
| Administrative services reimbursement (general and administrative costs) | 1,321 | 1,300 | ||||||
| Asset management fees (general and administrative costs) | 2,721 | 2,446 | ||||||
| Total | $ | 5,930 | $ | 6,363 | ||||
| (1) | Capitalized to the corresponding asset and amortized over its estimated useful life. |
| (2) | Capitalized upon the execution of the loan, presented in the consolidated balance sheets as a direct deduction from the carrying value of the corresponding loan and amortized over the initial term of the corresponding loan. |
As of December 31, 2020, we had no amounts payable to the Advisor and its affiliates. As of December 31, 2019, we had a payable to the Advisor and its affiliates of approximately $6,000.
We are dependent on the Advisor and our property manager for certain services that are essential to us, including asset disposition decisions, property management and leasing services, and other general administrative responsibilities. In the event that these companies were unable to provide us with their respective services, we would be required to obtain such services from other sources.
Advance from Advisor
On March 16, 2020, the Advisor provided an advance of $25.0 million to us that bore interest at a fixed-rate of 5.00%. On March 31, 2020, we repaid $15.0 million of the advance and on June 29, 2020, we repaid the remaining $10.0 million of the advance and aggregate accrued interest of $0.2 million. Approximately $0.2 million of interest expense was incurred on the advance during the year ended December 31. 2020.
Independence
Although our shares are not listed for trading on any national securities exchange and therefore our board of directors is not subject to the independence requirements of the NYSE or any other national securities exchange, our board has evaluated whether our directors are “independent” as defined by the NYSE. The NYSE standards provide that to qualify as an independent director, in addition to satisfying certain bright-line criteria, the board of directors must affirmatively determine that a director has no material relationship with us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us).
Consistent with these considerations, after review of all relevant transactions or relationships between each director, or any of his or her family members, and the Company, our senior management and our independent registered public accounting firm, the board has determined that the majority of the members of our board, and each member of our audit committee, compensation committee and nominating committee, is “independent” as defined by the NYSE.
Item 14. Principal Accounting Fees and Services.
Independent Registered Public Accounting Firm
EisnerAmper LLP has served as our independent registered public accounting firm since April 2017. Our management believes that they are knowledgeable about our operations and accounting practices and well qualified to act as our independent registered public accounting firm.
36
Audit and Non-Audit Fees
The following table presents the aggregate fees billed to the Company for the years indicated by the Company’s principal accounting firm (amounts in thousands):
| For the Year Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Audit Fees (a) | $ | 354 | $ | 358 | ||||
| Tax Fees (b) | 57 | 66 | ||||||
| Total Fees | $ | 411 | $ | 424 | ||||
| a) | Fees for audit services consisted of the audit of the Company’s annual consolidated financial statements, interim reviews of the Company’s quarterly consolidated financial statements and services normally provided in connection with statutory and regulatory filings. |
| b) | Fees for tax services. |
Our audit committee considers the provision of these services to be compatible with maintaining the independence of our independent registered accounting firms.
Audit Committee’s Pre-Approval Policies and Procedures
Our audit committee must approve any fee for services to be performed by the Company’s independent registered public accounting firm in advance of the service being performed. For proposed projects using the services of the Company’s independent registered public accounting firm that are expected to cost under $100,000, our audit committee will be provided information to review and must approve each project prior to commencement of any work. For proposed projects using the services of the Company’s independent registered public accounting firm that are expected to cost $100,000 and over, our audit committee will be provided with a detailed explanation of what is being included, and asked to approve a maximum amount for specifically identified services in each of the following categories: (1) audit fees; (2) audit-related fees; (3) tax fees; and (4) all other fees for any services allowed to be performed by the independent registered public accounting firm. If additional amounts are needed, our audit committee must approve the increased amounts prior to the previously approved maximum being reached and before the work may continue. Approval by our audit committee may be made at its regularly scheduled meetings or otherwise, including by telephonic or other electronic communications. The Company will report the status of the various types of approved services and fees, and cumulative amounts paid and owed, to our audit committee on a regular basis. Our audit committee has considered the independent registered public accounting firm’s non-audit services provided to the Company and has determined that such services are compatible with maintaining its independence.
Our audit committee approved all of the services provided by, and fees paid to, EisnerAmper LLP during the years ended December 31, 2020 and 2019.
37
Item 15. Exhibits, Financial Statement Schedules.
| (a) | List of Documents Filed. |
| 1. | Financial Statements |
The list of the financial statements filed as part of this Annual Report on Form 10-K is set forth on page F-1 herein.
| 2. | Financial Statement Schedules |
None.
| 3. | Exhibits |
The list of exhibits filed as part of this Annual Report on Form 10-K is submitted in the Exhibit Index following the financial statements in response to Item 601 of Regulation S-K.
| (b) | Exhibits. |
The exhibits filed in response to Item 601 of Regulation S-K are listed in the Exhibit Index attached hereto.
| (c) | Financial Statement Schedules. |
All financial statement schedules have been omitted because the required information of such schedules is not present, is not present in amounts sufficient to require a schedule, is not required or is included in the financial statements and related notes.
None.
38
Pursuant to the requirements of Section 13 or 15(d) 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 V, Inc. | ||
| Dated: March 25, 2021 | By: | /s/ MITCHELL HOCHBERG |
Mitchell Hochberg President Principal Executive Officer | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
March 25, 2021 |
/s/ MITCHELL HOCHBERG |
Mitchell Hochberg President Principal Executive Officer | |
| March 25, 2021 | /s/ DAVID LICHTENSTEIN |
David Lichtenstein Chairman of the Board of Directors | |
| March 25, 2021 | /s/ SETH MOLOD |
Seth Molod Chief Financial Officer Principal Financial Officer | |
| March 25, 2021 | /s/ JEFFREY F. JOSEPH |
Jeffrey F. Joseph Director | |
| March 25, 2021 | /s/ ANDREAS K. BREMER |
Andreas K. Bremer Director | |
| March 25, 2021 | /s/ STEVEN SPINOLA |
Steven Spinola Director | |
| March 25, 2021 | /s/ JEFFREY P. MAYER |
| Jeffrey
P. Mayer
Director | |
| March 25, 2021 | /s/ CYNTHIA PHARR LEE |
Cynthia Pharr Lee Director | |
| March 25, 2021 | /s/ DIANE S. DETERING-PADDISON |
Diane S. Detering-Paddison Director |
39
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Lightstone Value Plus Real Estate Investment Trust V, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Lightstone Value Plus Real Estate Investment Trust V, Inc. (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020 and 2019, and the consolidated results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
F-2
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Investment Property – Indicators of Impairment
As of December 31, 2020, the Company had investment property, net of accumulated depreciation, of approximately $267.7 million. As more fully described in Note 2 to the financial statements, the Company monitors events and changes in circumstances representing triggering events that could indicate that the carrying amounts of the investment property may not be recoverable. Examples of the types of events and circumstances that would cause management to assess the Company’s investment property for potential impairment include, but are not limited to: a significant decrease in the market price of an asset; a significant adverse change in the manner in which the asset is being used; an accumulation of costs in excess of the acquisition basis plus construction of the property; major vacancies and the resulting loss of revenues; natural disasters; a change in the projected holding period; legitimate purchase offers; and changes in the global and local markets or economic conditions. When such events or changes in circumstances are present, the Company assesses potential impairment by comparing estimated future undiscounted operating cash flows expected to be generated over the life of the asset and from its eventual disposition to the carrying amount of the asset. These projected cash flows reflect in-place and projected leasing activity, market revenue and expense growth rates, market capitalization rates, discount rates, and changes in economic and other relevant conditions. In evaluating the Company’s investment property for impairment, management may use appraisals and make estimates and assumptions, including, but not limited to: the projected date of disposition of the properties, the estimated future cash flows of the properties during the Company’s ownership, and the projected sales price of each of the properties.
We identified the evaluation of indicators of impairment as a critical audit matter due to significant judgment by management in identifying indicators of impairment. This in turn led to a high degree of auditor judgment, subjectivity, and audit effort in performing procedures to evaluate the reasonableness of management's significant estimates and assumptions related to impairment evaluation including identifying events and circumstances that exist that would indicate the carrying amount of investment property may not be recoverable.
Addressing the matter involved performing procedures and evaluating audit evidence, in connection with forming our overall opinion on the financial statements. We obtained an understanding and evaluated the design of controls over the Company’s impairment evaluation. Our procedures included, among others, assessing the methodologies applied and identifying the existence of any triggering events, including comparing budget to actual operating income, comparing actual operating income to projected future operating income, and comparing actual, budgeted and projected occupancy percentages, and considering if the determination was reasonable considering the past and current performance of the property and if consistent with evidence obtained in other areas of the audit. We tested the completeness and accuracy of the underlying data used by management in its evaluation. We held discussions with management about the current status of certain properties to understand how management’s significant estimates and assumptions are developed considering potential future market conditions.
/s/ EisnerAmper LLP
We have served as the Company’s auditor since 2017.
EISNERAMPER LLP
Iselin, New Jersey
March 25, 2021
F-3
Lightstone Value Plus Real Estate Investment Trust V, Inc.
Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
| December 31, 2020 | December 31, 2019 | |||||||
| Assets | ||||||||
| Investment property: | ||||||||
| Land and improvements | $ | 63,873 | $ | 65,767 | ||||
| Building and improvements | 248,079 | 227,938 | ||||||
| Furniture, fixtures and equipment | 6,552 | 7,231 | ||||||
| Gross investment property | 318,504 | 300,936 | ||||||
| Less accumulated depreciation | (50,823 | ) | (49,693 | ) | ||||
| Net investment property | 267,681 | 251,243 | ||||||
| Cash and cash equivalents | 27,078 | 15,802 | ||||||
| Marketable securities, available for sale | 3,654 | 5,496 | ||||||
| Restricted cash | 4,373 | 4,148 | ||||||
| Note receivable, net | 12,794 | 10,423 | ||||||
| Prepaid expenses and other assets | 1,604 | 1,318 | ||||||
| Assets held for sale | 24,140 | 18,192 | ||||||
| Total Assets | $ | 341,324 | $ | 306,622 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Notes payable, net | $ | 212,989 | $ | 183,788 | ||||
| Accounts payable and accrued and other liabilities | 6,530 | 6,043 | ||||||
| Payables to related parties | - | 6 | ||||||
| Liabilities held for sale | 37,165 | 13,686 | ||||||
| Total liabilities | 256,684 | 203,523 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Company’s stockholders’ equity: | ||||||||
| Preferred stock, $.0001 par value per share; 50.0 million shares authorized, none issued and outstanding | - | - | ||||||
| Convertible stock, $.0001 par value per share; 1,000 shares authorized, issued and outstanding | - | - | ||||||
| Common stock, $.0001 par value per share; 350.0 million shares authorized, 20.2 million and 22.2 million shares issued and outstanding, respectively | 2 | 2 | ||||||
| Additional paid-in-capital | 189,216 | 204,912 | ||||||
| Accumulated other comprehensive income | 140 | 111 | ||||||
| Accumulated deficit | (102,519 | ) | (102,404 | ) | ||||
| Total Company’s stockholders’ equity | 86,839 | 102,621 | ||||||
| Noncontrolling interests | (2,199 | ) | 478 | |||||
| Total Stockholders’ Equity | 84,640 | 103,099 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 341,324 | $ | 306,622 | ||||
See Notes to Consolidated Financial Statements.
F-4
Lightstone Value Plus Real Estate Investment Trust V, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(dollars and shares in thousands, except per share amounts)
| For the Years Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Rental revenues | $ | 39,978 | $ | 37,173 | ||||
| Expenses | ||||||||
| Property operating expenses | 13,049 | 12,721 | ||||||
| Real estate taxes | 5,454 | 5,181 | ||||||
| General and administrative | 6,493 | 6,283 | ||||||
| Depreciation and amortization | 12,227 | 13,196 | ||||||
| Total operating expenses | 37,223 | 37,381 | ||||||
| Operating income/(loss) | 2,755 | (208 | ) | |||||
| Interest expense, net | (9,644 | ) | (9,221 | ) | ||||
| Interest income | 1,877 | 1,682 | ||||||
| Gain on sale of investment property | 5,474 | - | ||||||
| Other income, net | 721 | 546 | ||||||
| Net income/(loss) | 1,183 | (7,201 | ) | |||||
| Net (income)/loss attributable to noncontrolling interests | (1,298 | ) | 92 | |||||
| Net loss attributable to the Company’s shares | $ | (115 | ) | $ | (7,109 | ) | ||
| Weighted average shares outstanding: | ||||||||
| Basic and diluted | 20,741 | 22,887 | ||||||
| Basic and diluted loss per share | $ | (0.01 | ) | $ | (0.31 | ) | ||
| Comprehensive loss: | ||||||||
| Net income/(loss) | $ | 1,183 | $ | (7,201 | ) | |||
| Other comprehensive income: | ||||||||
| Holding gain on marketable securities, available for sale | 92 | 251 | ||||||
| Reclassification adjustment for (gain)/loss on sale of marketable securities included in net income/(loss) | (63 | ) | 49 | |||||
| Foreign currency translation gain | - | 28 | ||||||
| Total other comprehensive income | 29 | 328 | ||||||
| Comprehensive income/(loss) | 1,212 | (6,873 | ) | |||||
| Comprehensive (income)/loss attributable to noncontrolling interest | (1,298 | ) | 92 | |||||
| Comprehensive loss attributable to the Company’s shares | $ | (86 | ) | $ | (6,781 | ) | ||
See Notes to Consolidated Financial Statements.
F-5
Lightstone Value Plus Real Estate Investment Trust V, Inc.
Consolidated Statements of Stockholders’ Equity
For the Years Ended December 31, 2020 and 2019
(dollars and shares in thousands)
| Additional | Accumulated Other | |||||||||||||||||||||||||||||||||||
| Convertible Stock | Common Stock | Paid-In | Accumulated | Comprehensive | Noncontrolling | Total | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Income | Interests | Equity | ||||||||||||||||||||||||||||
| BALANCE, December 31, 2018 | 1 | $ | - | 23,432 | $ | 2 | $ | 214,537 | $ | (95,295 | ) | $ | (217 | ) | $ | 794 | $ | 119,821 | ||||||||||||||||||
| Net loss | - | - | - | - | - | (7,109 | ) | - | (92 | ) | (7,201 | ) | ||||||||||||||||||||||||
| Distributions paid to noncontrolling interests | - | - | - | - | - | - | - | (254 | ) | (254 | ) | |||||||||||||||||||||||||
| Redemption, cancellation and tender of shares | - | - | (1,209 | ) | - | (9,625 | ) | - | - | - | (9,625 | ) | ||||||||||||||||||||||||
| Contributions received from noncontrolling interests | - | - | - | - | - | - | - | 30 | 30 | |||||||||||||||||||||||||||
| Other comprehensive income: | ||||||||||||||||||||||||||||||||||||
| Holding gain on marketable securities, available for sale | - | - | - | - | - | - | 251 | - | 251 | |||||||||||||||||||||||||||
| Foreign currency translation gain | - | - | - | - | - | - | 28 | - | 28 | |||||||||||||||||||||||||||
| Reclassification adjustment for loss on sale of marketable securities included in net loss | - | - | - | - | - | - | 49 | - | 49 | |||||||||||||||||||||||||||
| BALANCE, December 31, 2019 | 1 | $ | - | 22,223 | $ | 2 | $ | 204,912 | $ | (102,404 | ) | $ | 111 | $ | 478 | $ | 103,099 | |||||||||||||||||||
| Net income | - | - | - | - | - | (115 | ) | - | 1,298 | 1,183 | ||||||||||||||||||||||||||
| Distributions paid to noncontrolling interests | - | - | - | - | - | - | - | (3,975 | ) | (3,975 | ) | |||||||||||||||||||||||||
| Tender of common stock | - | - | (2,030 | ) | - | (15,696 | ) | - | - | - | (15,696 | ) | ||||||||||||||||||||||||
| Other comprehensive income: | ||||||||||||||||||||||||||||||||||||
| Holding gain on marketable securities, available for sale | - | - | - | - | - | - | 92 | - | 92 | |||||||||||||||||||||||||||
| Reclassification adjustment for gain on sale of marketable securities included in net income | - | - | - | - | - | - | (63 | ) | - | (63 | ) | |||||||||||||||||||||||||
| BALANCE, December 31, 2020 | 1 | $ | - | 20,193 | $ | 2 | $ | 189,216 | $ | (102,519 | ) | $ | 140 | $ | (2,199 | ) | $ | 84,640 | ||||||||||||||||||
See Notes to Consolidated Financial Statements.
F-6
Lightstone Value Plus Real Estate Investment Trust V, Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2020 and 2019
(dollars in thousands)
| For the Year Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income/(loss) | $ | 1,183 | $ | (7,201 | ) | |||
| Adjustments to reconcile net income/(loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 12,227 | 13,196 | ||||||
| Amortization of deferred financing costs | 600 | 643 | ||||||
| (Gain)/loss on sale of marketable securities | (63 | ) | 49 | |||||
| Gain on sale of investment property | (5,474 | ) | - | |||||
| Non-cash interest income | (1,746 | ) | (1,092 | ) | ||||
| Other non-cash adjustments, net | - | 12 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease (increase) in prepaid expenses and other assets | (2,795 | ) | 2,635 | |||||
| Increase in accounts payable and accrued and other liabilities | 1,407 | 1,945 | ||||||
| Decrease in payables to related parties | (6 | ) | (310 | ) | ||||
| Net cash provided by operating activities | 5,333 | 9,877 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of investment property | (50,240 | ) | (80,084 | ) | ||||
| Purchase of marketable securities | (1,456 | ) | (2,985 | ) | ||||
| Proceeds from sale of marketable securities | 3,390 | 12,127 | ||||||
| Funding of note receivable, net | (625 | ) | (9,132 | ) | ||||
| Acquisition fee paid on note receivable | - | (199 | ) | |||||
| Proceeds from sale of investment property, net of closing costs | 23,673 | - | ||||||
| Proceeds from disposition of investment in unconsolidated joint venture | - | 10,944 | ||||||
| Net cash used in investing activities | (25,258 | ) | (69,329 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from notes payable | 65,620 | 72,214 | ||||||
| Payments on notes payable | (12,939 | ) | (14,215 | ) | ||||
| Proceeds from advance from advisor | 25,000 | - | ||||||
| Payments on advance from advisor | (25,000 | ) | - | |||||
| Payment of loan fees and expenses | (1,584 | ) | (1,428 | ) | ||||
| Tender of common stock | (15,696 | ) | - | |||||
| Redemption and cancellation of common stock | - | (9,625 | ) | |||||
| Contributions received from noncontrolling interests | - | 30 | ||||||
| Distributions paid to noncontrolling interests | (3,975 | ) | (254 | ) | ||||
| Net cash provided by financing activities | 31,426 | 46,722 | ||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | - | 28 | ||||||
| Net change in cash, cash equivalents and restricted cash | 11,501 | (12,702 | ) | |||||
| Cash, cash equivalents and restricted cash, beginning of year | 19,950 | 32,652 | ||||||
| Cash, cash equivalents and restricted cash, end of year | $ | 31,451 | $ | 19,950 | ||||
| Supplemental cash flow information for the years indicated is as follows: | ||||||||
| Cash paid for interest, net of amounts capitalized | $ | 8,997 | $ | 8,347 | ||||
| Holding loss/gain on marketable securities, available for sale | $ | 29 | $ | 300 | ||||
| Capital expenditures for real estate in accrued liabilities and accounts payable | $ | 42 | $ | 201 | ||||
See Notes to Consolidated Financial Statements.
F-7
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
1. Business and Organization
Business
Lightstone Value Plus Real Estate Investment Trust V, Inc. which was previously named Behringer Harvard Opportunity REIT II, Inc., prior to July 20, 2017 (which may be referred to as the “Company,” “we,” “us,” or “our”), was organized as a Maryland corporation on January 9, 2007 and has elected to be taxed, and currently qualifies, as a real estate investment trust (“REIT”) for federal income tax purposes.
The Company was formed primarily to acquire and operate commercial real estate and real estate-related assets on an opportunistic and value-add basis. In particular, the Company has focused generally on acquiring commercial properties with significant possibilities for capital appreciation, such as those requiring development, redevelopment, or repositioning, those located in markets and submarkets with high growth potential, and those available from sellers who are distressed or face time-sensitive deadlines. The Company has acquired a wide variety of commercial properties, including office, industrial, retail, hospitality, and multifamily. The Company has purchased existing, income-producing properties, and newly-constructed properties. The Company has also invested in other real estate-related investments such as mortgage and mezzanine loans. The Company intends to hold the various real properties in which it has invested until such time as its board of directors determines that a sale or other disposition appears to be advantageous to achieve the Company’s investment objectives or until it appears that the objectives will not be met. The Company currently has one operating segment. As of December 31, 2020, the Company had eight real estate investments (five wholly owned properties and three properties consolidated through investments in joint ventures) and one real estate-related investment (mezzanine loan).
Substantially all of the Company’s business is conducted through Lightstone REIT V OP LP, a limited partnership organized in Delaware (the “Operating Partnership”). As of December 31, 2020, the Company’s wholly-owned subsidiary, BHO II, Inc., a Delaware corporation, owned a 0.1% partnership interest in the Operating Partnership as its sole general partner. As of December 31, 2020, the Company’s wholly-owned subsidiary, BHO Business Trust II, a Maryland business trust, was the sole limited partner of the Operating Partnership and owned the remaining 99.9% interest in the Operating Partnership.
The Company’s business is managed by an external advisor and the Company has no employees. Effective February 10, 2017, the Company engaged affiliates of The Lightstone Group (“Lightstone”), LSG-BH II Advisor LLC and LSG Development Advisor LLC (collectively, the “Advisor”), to provide advisory services to the Company. Lightstone is majority owned by the chairman of the Company’s board of directors, David Lichtenstein. Pursuant to the terms of an advisory agreement and subject to the oversight of the Company’s board of directors, the Advisor is responsible for managing the Company’s day-to-day affairs and for services related to the management of the Company’s assets.
Organization
In connection with the Company’s initial capitalization, the Company issued 22,500 shares of its common stock and 1,000 shares of its convertible stock to the Company’s previous advisor on January 19, 2007. The 1,000 shares of convertible stock were transferred to an affiliate of Lightstone on February 10, 2017 and remain outstanding. As of December 31, 2020, the Company had 20.2 million shares of common stock outstanding.
The Company’s common stock is not currently listed on a national securities exchange. The timing of a liquidity event for the Company’s stockholders will depend upon then prevailing market conditions. The Company’s board of directors previously targeted June 30, 2023 as the commencement of a liquidity event, however, on January 9, 2020, the Company’s board of directors elected to extend the targeted timeline until June 30, 2028 based on their assessment of the Company’s investment objectives and liquidity options for the Company’s stockholders. The Company can provide no assurances as to the actual timing of the commencement of a liquidity event for its stockholders or the ultimate liquidation of the Company. The Company will seek stockholder approval prior to liquidating its entire portfolio.
F-8
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
2. Summary of Significant Accounting Policies
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles in the U.S. (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions and estimates relate to the valuation of real estate including impairment and depreciable lives. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
Principles of Consolidation and Basis of Presentation
The Company’s consolidated financial statements include the Company’s accounts and the accounts of other subsidiaries over which it has control. All inter-company transactions, balances, and profits have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on applicable GAAP, and entities deemed to be variable interest entities (“VIE”) in which the Company is the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which the Company has control, substantive participating rights or both under the respective ownership agreement. For entities in which the Company has less than a controlling interest but have significant influence, it accounts for the investment using the equity method of accounting.
There are judgments and estimates involved in determining if an entity in which the Company has made an investment is a VIE and, if so, whether it is the primary beneficiary. The entity is evaluated to determine if it is a VIE by, among other things, calculating the percentage of equity being risked compared to the total equity of the entity. Determining expected future losses involves assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each possibility, and using a discount rate to determine the net present value of those future losses. A change in the judgments, assumptions, and estimates outlined above could result in consolidating an entity that should not be consolidated or accounting for an investment using the equity method that should in fact be consolidated, the effects of which could be material to the Company’s consolidated financial statements.
Accounting for Acquisitions of Investment Property
The cost of the real estate assets acquired in an asset acquisition is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases for acquired in-place leases and the value of tenant relationships, based in each case on their relative fair values. Fees incurred related to asset acquisitions are capitalized as part of the cost of the investment.
Upon the acquisition of real estate property that meets the definition of a business, the Company recognizes the assets acquired, the liabilities assumed and any noncontrolling interest as of the acquisition date, measured at their fair values. The acquisition date is the date on which the Company obtains control of the real estate property. The assets acquired and liabilities assumed may consist of land, inclusive of associated rights, buildings, assumed debt, identified intangible assets and liabilities, and asset retirement obligations. Identified intangible assets generally consist of above-market leases, in-place leases, in-place tenant improvements, in-place leasing commissions, and tenant relationships. Identified intangible liabilities generally consist of below-market leases. Goodwill is recognized as of the acquisition date and measured as the aggregate fair value of the consideration transferred and any noncontrolling interests in the acquiree over the fair value of the identifiable net assets acquired. Likewise, a bargain purchase gain is recognized in current earnings when the aggregate fair value of the consideration transferred and any noncontrolling interests in the acquiree is less than the fair value of the identifiable net assets acquired. Acquisition-related costs are expensed in the period incurred. Initial valuations are subject to change until the Company’s information is finalized, which is no later than 12 months from the acquisition date.
The fair value of the tangible assets acquired, consisting of land and buildings, is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and buildings. Land values are derived from appraisals, and building values are calculated as replacement cost less depreciation or management’s estimates of the fair value of these assets using discounted cash flow analyses or similar methods believed to be used by market participants. The value of hotels and all other buildings is depreciated over the estimated useful lives of 39 years and 25 years, respectively, using the straight-line method.
F-9
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The Company determines the fair value of assumed debt by calculating the net present value of the scheduled mortgage payments using interest rates for debt with similar terms and remaining maturities that management believes the Company could obtain at the date of the debt assumption. Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining life of the loan using the effective interest method.
Cash and Cash Equivalents
The Company considers investments in highly liquid money market funds or investments with original maturities of three months or less to be cash equivalents. The carrying amount of cash and cash equivalents reported on the consolidated balance sheet approximates fair value.
Restricted Cash
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 the Company’s 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 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.
The following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in its consolidated statements of cash flows:
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| Cash and cash equivalents | $ | 27,078 | $ | 15,802 | ||||
| Restricted cash | 4,373 | 4,148 | ||||||
| Total cash, cash equivalents and restricted cash | $ | 31,451 | $ | 19,950 | ||||
Marketable Securities
Marketable securities currently consist of debt securities that are designated as available-for-sale and are recorded at fair value. Unrealized holding gains or losses for debt securities are reported as a component of accumulated other comprehensive income/(loss). Realized gains or losses resulting from the sale of these securities are determined based on the specific identification of the securities sold.
An impairment charge is recognized when the decline in the fair value of a security below the amortized cost basis is determined to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the duration and severity of any decline in fair value below the Company’s amortized cost basis, any adverse changes in the financial condition of the issuers’ and its intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. As of December 31, 2020 and 2019, the Company did not recognize any impairment charges.
F-10
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Investment Impairment
For all of the Company’s real estate and real estate related investments, the Company monitors events and changes in circumstances indicating that the carrying amounts of the real estate assets may not be recoverable. Examples of the types of events and circumstances that would cause management to assess the Company’s assets for potential impairment include, but are not limited to: a significant decrease in the market price of an asset; a significant adverse change in the manner in which the asset is being used; an accumulation of costs in excess of the acquisition basis plus construction of the property; major vacancies and the resulting loss of revenues; natural disasters; a change in the projected holding period; legitimate purchase offers; and changes in the global and local markets or economic conditions. To the extent that the Company’s portfolio is concentrated in limited geographic locations, downturns specifically related to such regions may result in tenants defaulting on their lease obligations at those properties within a short time period, which may result in asset impairments. When such events or changes in circumstances are present, the Company assesses potential impairment by comparing estimated future undiscounted operating cash flows expected to be generated over the life of the asset and from its eventual disposition to the carrying amount of the asset. These projected cash flows are prepared internally by the Advisor and reflect in-place and projected leasing activity, market revenue and expense growth rates, market capitalization rates, discount rates, and changes in economic and other relevant conditions. The Company’s management reviews these projected cash flows to assure that the valuation is prepared using reasonable inputs and assumptions that are consistent with market data or with assumptions that would be used by a third-party market participant and assume the highest and best use of the investment. The Company considers trends, strategic decisions regarding future development plans, and other factors in its assessment of whether impairment conditions exist. In the event that the carrying amount exceeds the estimated future undiscounted operating cash flows, the Company recognizes an impairment loss to adjust the carrying amount of the asset to estimated fair value. While the Company believes its estimates of future cash flows are reasonable, different assumptions regarding factors such as market rents, economic conditions, and occupancy rates could significantly affect these estimates.
In evaluating the Company’s investments for impairment, management may use appraisals and make estimates and assumptions, including, but not limited to, the projected date of disposition of the properties, the estimated future cash flows of the properties during the Company’s ownership, and the projected sales price of each of the properties. A future change in these estimates and assumptions could result in understating or overstating the carrying value of the Company’s investments, which could be material to its financial statements. In addition, the Company may incur impairment charges on assets classified as held for sale in the future if the carrying amount of the asset upon classification as held for sale exceeds the estimated fair value, less costs to sell.
During the years ended December 31, 2020 and 2019, the Company did not record any impairment charges.
Investment in Unconsolidated Joint Venture
The Company has and may continue to provide funding to third-party developers for the acquisition, development, and construction of real estate (“ADC Arrangement”). Under an ADC Arrangement, the Company may participate in the residual profits of the project through the sale or refinancing of the property. The Company evaluates such arrangements to determine if they have characteristics similar to a loan or if the characteristics are more similar to a joint venture or partnership such as participating in the risks and rewards of the project as an owner or an investment partner. When the Company determines that the characteristics are more similar to a jointly-owned investment or partnership, it accounts for the arrangement as an investment in an unconsolidated joint venture under the equity method of accounting or a direct investment (consolidated basis of accounting) instead of applying loan accounting. ADC Arrangements are reassessed at each reporting period. See Note 8 of the Notes to the Consolidated Financial Statements for additional information.
Revenue Recognition
The Company recognizes rental income generated from leases of its operating properties on a straight-line basis over the terms of the respective leases, including the effect of rent holidays, if any. Leases associated with the Company’s multifamily and student housing are generally short-term in nature, and thus have no straight-line rent.
Other Assets
Other assets primarily consist of deposits, receivables and intangible assets related to the Company’s consolidated properties.
F-11
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Deferred Financing Costs
Deferred financing costs are recorded at cost and consist of loan fees and other costs incurred in issuing debt. Amortization of deferred financing costs is computed using a method that approximates the effective interest method over the term of the related debt and is included in interest expense in the consolidated statements of operations. Unamortized deferred financing costs are included as a direct deduction from the related debt in the consolidated balance sheets.
Income Taxes
The Company has elected to be taxed as a REIT commencing with the taxable year ended December 31, 2008. If the Company qualifies as a REIT, it generally will not be subject to U.S. federal income tax on its taxable income or capital gain that it distributes to its stockholders. To maintain its REIT qualification, the Company must meet a number of organizational and operational requirements, including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed at the regular corporate rate, and it may be precluded from qualifying for treatment as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders.
To maintain its qualification as a REIT, the Company engages in certain activities through wholly-owned taxable REIT subsidiaries (“TRSs”). As such, the Company is subject to U.S. federal and state income and franchise taxes from these activities.
As of December 31, 2020 and 2019, the Company had no material uncertain income tax positions. Additionally, even if the Company continues to qualify as a REIT, it may still be subject to some U.S. federal, state and local taxes on our income and property and to U.S. federal income taxes and excise taxes on its undistributed income.
Concentration of Credit Risk
At December 31, 2020 and 2019, the Company had cash and cash equivalents deposited in certain financial institutions in excess of federally insured levels. The Company has diversified its cash and cash equivalents among several banking institutions in an attempt to minimize exposure to any one of these entities. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk in cash and cash equivalents or restricted cash.
Noncontrolling Interest
Noncontrolling interest represents the noncontrolling member’s share of the equity in certain of the Company’s consolidated real estate investments. Income and losses are allocated to noncontrolling interest holders based generally on their ownership percentage. In certain instances, the Company’s joint venture agreements provide for liquidating distributions based on achieving certain return metrics (“promoted interest”) and if a property reaches a defined return threshold, then it will result in distributions to the noncontrolling member which differs from the standard pro-rata allocation percentage.
Earnings per Share
The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, net (loss) income per share is calculated by dividing net (loss) income by the weighted-average number of shares of common stock outstanding during the applicable period.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic leading many countries, including the United States, particularly at the individual state level, to subsequently impose various degrees of restrictions and other measures, including, but not limited to, mandatory temporary closures, quarantine guidelines, limitations on travel, and “shelter in place” rules in an effort to reduce its duration and the severity of its spread. Although the COVID-19 pandemic has continued to evolve, most of these previously imposed restrictions and other measures have now been reduced and/or lifted. However, the COVID-19 pandemic remains highly unpredictable and dynamic and its duration and extent is likely dependent on numerous developments such as the regulatory approval, mass production, administration and ultimate effectiveness of vaccines, as well as the timeline to achieve a level of sufficient herd immunity amongst the general population. Accordingly, the COVID-19 pandemic may continue to have negative effects on the overall health of the U.S. economy for the foreseeable future.
F-12
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The Company’s consolidated portfolio of properties currently consists of seven multi-family apartment complexes and one student housing complex. Despite past and current restrictions and mitigation strategies, the Company’s multi-family properties still have not yet seen any significant impact from the COVID-19 pandemic. The Company’s student housing complex, which consists of the River Club Apartments and the Townhomes at River Club, are located in Athens, Georgia and principally serve as “off-campus” lodging for students attending the University of Georgia (“UGA”). Leases for the River Club Apartments and Townhomes at River Club generally have a term of one year running from August through July. UGA previously transitioned to online instruction during its Spring 2020 semester and for its other course offerings throughout the summer. However, UGA returned to “on-campus” classes beginning with its Fall 2020 semester and has continued “on-campus” classes into the current Spring 2021 semester. The Company’s student housing complex is located “off-campus” and therefore, its tenants are not required to vacate even if UGA does not conduct “on-campus” classes. However, if UGA decides to return to online instruction for its students in lieu of “on-campus” classes in future semesters, it could adversely impact leasing demand, occupancy levels and the operating results of the Company’s student housing complex in future periods. Additionally, the Company’s note receivable relates to a condominium development project located in New Yok City (the “Condominium Project”), which is subject to similar restrictions and risks. To date, the Company’s note receivable has not been significantly impacted by the COVID-19 pandemic.
While the Company’s business has not yet seen any material impact from the ongoing COVID-19 pandemic, the extent to which it may be affected in future periods will largely depend on current and future developments, all of which are highly uncertain and cannot be reasonably predicted.
If the Company’s properties and real estate-related investments are negatively impacted in future periods for an extended period because (i) tenants are unable to pay their rent, (ii) demand for its student housing complex declines, and (iii) its borrower is unable to pay scheduled debt service on the outstanding note receivable; the Company’s business and financial results could be materially and adversely impacted.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year Presentation.
3. New Accounting Pronouncements
In June 2016, the FASB issued new guidance 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, 2022, including interim periods within those fiscal years. The Company is currently in the process of evaluating the impact the adoption of this standard will have on the Company’s consolidated financial statements.
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.
F-13
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
4. Marketable Securities and Fair Value Measurements
Marketable Securities
The following is a summary of the Company’s available for sale securities:
| As of December 31, 2020 | ||||||||||||||||
| Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| Debt securities: | ||||||||||||||||
| Corporate and Government Bonds | $ | 3,515 | $ | 140 | $ | (1 | ) | $ | 3,654 | |||||||
| As of December 31, 2019 | ||||||||||||||||
| Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| Debt securities: | ||||||||||||||||
| Corporate and Government Bonds | $ | 5,385 | $ | 113 | $ | (2 | ) | $ | 5,496 | |||||||
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. |
The fair values of the Company’s investments in debt securities are measured using quoted prices for these investments; however, the markets for these assets are not active. As of December 31, 2020 and 2019, all of the Company’s debt securities were classified as Level 2 assets and there were no transfers between the level classifications during the year ended December 31, 2020.
The following table summarizes the estimated fair value of the Company’s 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 December 31, 2020 | ||||
| Due in 1 year | $ | 519 | ||
| Due in 1 year through 5 years | 3,135 | |||
| Due in 5 years through 10 years | - | |||
| Due after 10 years | - | |||
| Total | $ | 3,654 | ||
F-14
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
5. Financial Instruments not Reported at Fair Value
The Company determined the following disclosure of estimated fair values using available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data and develop the related estimates of fair value. The use of different market assumptions or only estimation methodologies may have a material effect on the estimated fair value amounts.
As of December 31, 2020 and 2019, management estimated that the carrying value of cash and cash equivalents, restricted cash, note receivable, prepaid expenses and other assets, accounts payable and accrued and other liabilities, and accrued property tax were at amounts that reasonably approximated their fair value based on their highly-liquid nature and/or short-term maturities.
The fair value of the notes payable is categorized as a Level 2 in the fair value hierarchy. The fair value was estimated using a discounted cash flow analysis valuation on the estimated borrowing rates currently available for loans with similar terms and maturities. The fair value of the notes payable was determined by discounting the future contractual interest and principal payments by a market rate. Disclosure about fair value of financial instruments is based on pertinent information available to management as of December 31, 2020 and 2019.
Carrying amounts of the Company’s notes payable and the related estimated fair value as follows:
| As of December 31, 2020 | As of December 31, 2019 | |||||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
| Notes payable | $ | 216,382 | $ | 219,625 | $ | 186,761 | $ | 187,304 | ||||||||
6. Real Estate and Real Estate-Related Investments
The following table presents certain information about the Company’s consolidated investments as of December 31, 2020:
| Property Name | Description | Location | Date Acquired | Ownership Interest | ||||||
| River Club and the Townhomes at River Club | Student housing | Athens, Georgia | April 25, 2011 | 85 | % | |||||
| Lakes of Margate(1) | Multifamily | Margate, Florida | October 19, 2011 | 92.5 | % | |||||
| Arbors Harbor Town | Multifamily | Memphis, Tennessee | December 20, 2011 | 100 | % | |||||
| Parkside Apartments (“Parkside”) | Multifamily | Sugar Land, Texas | August 8, 2013 | 90 | % | |||||
| Flats at Fishers Fishers | Multifamily | Fishers, Indiana | November 30, 2017 | 100 | % | |||||
| Axis at Westmont Fishers | Multifamily | Westmont, Illinois | November 27, 2018 | 100 | % | |||||
| Valley Ranch Apartments | Multifamily | Ann Arbor, Michigan | February 14, 2019 | 100 | % | |||||
| Autumn Breeze Apartments | Multifamily | Noblesville, Indiana | March 17, 2020 | 100 | % | |||||
Note:
| (1) | On March 17, 2021, the disposition of the Lakes of Margate was completed pursuant to the terms of the Lakes of Margate Agreement. See Note 9 for additional information. |
Real Estate Asset Acquisitions
Autumn Breeze Apartments
On March 17, 2020, the Company completed the acquisition of a 280-unit multifamily property located in Noblesville, Indiana (the “Autumn Breeze Apartments”) from an unrelated third party, for an aggregate purchase price of approximately $43.0 million, excluding closing and other related transaction costs. In connection with the acquisition, the Company paid the Advisor an aggregate of approximately $0.8 million in acquisition fees and acquisition expense reimbursements.
F-15
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The Company determined this acquisition was an asset acquisition and allocated the total purchase price, including acquisition fees and expenses, to the assets acquired based on their relative fair value. Approximately $7.2 million was allocated to land and improvements, $36.0 million was allocated to building and improvements, and $0.6 million was allocated to in-place lease intangibles.
The capitalization rate for the acquisition of the Autumn Breeze Apartments was approximately 4.86%. The Company calculates the capitalization rate for a real property by dividing the net operating income (“NOI”) of the property by the purchase price of the property, excluding costs. For purposes of this calculation, NOI was based upon the twelve months ended February 29, 2020. Additionally, NOI is all gross revenues from the property less all operating expenses, including property taxes and management fees but excluding depreciation.
Valley Ranch Apartments
On February 14, 2019, the Company completed the acquisition of a 384-unit multifamily property located in Ann Arbor, Michigan (the “Valley Ranch Apartments”) from an unrelated third party, for an aggregate purchase price of approximately $70.3 million, excluding closing and other related transaction costs. In connection with the acquisition, the Advisor received an aggregate of approximately $1.2 million in acquisition fees and acquisition expense reimbursements.
In connection with the acquisition of the Valley Ranch Apartments, the Company simultaneously entered into a seven-year $43.4 million non-recourse mortgage loan (the “Valley Ranch Mortgage”) scheduled to mature on March 1, 2026. The Valley Ranch Mortgage bears interest at 4.16% and requires monthly interest-only payments through its stated maturity. The Valley Ranch Mortgage is collateralized by the Valley Ranch Apartments. See Note 11 for additional information.
The Company determined this acquisition was an asset acquisition and allocated the total purchase price, including acquisition fees and expenses of $1.2 million, to the assets acquired based on their relative fair value. Approximately $24.1 million was allocated to land and improvements, $46.3 million was allocated to building and improvements, and $1.1 million was allocated to in-place lease intangibles.
Real Estate Asset Dispositions - Continuing Operations
The following disposition did not represent a strategic shift that had a major effect on the Company’s operations and financial results and therefore did not qualify to be reported as discontinued operations and its operating results are reflected in the Company’s results from continuing operations in the consolidated statements of operations for all periods presented through the date of disposition:
Gardens Medical Pavilion
On December 23, 2019, the Company and CPI/AHP Garden Medical Pavilion Mob Owner, L.L.C. (the “Gardens Medical Pavilion Buyer”), an unaffiliated third party, entered into a purchase and sale agreement (the “Gardens Medical Pavilion Agreement”) pursuant to which the Company would dispose of the Gardens Medical Pavilion to the Gardens Medical Pavilion Buyer for an aggregate contractual sales price of $24.3 million.
As of December 31, 2019, the Gardens Medical Pavilion met the criteria to be classified as held for sale and therefore, its associated assets and liabilities are classified as held for sale in the consolidated balance sheet as of December 31, 2019.
On January 15, 2020, the Company completed the disposition of the Gardens Medical Pavilion to the Gardens Medical Pavilion Buyer for an aggregate contractual sales price of $24.3 million. In connection with the disposition of the Gardens Medical Pavilion, the Company recognized a gain on the sale of investment property of approximately $5.5 million during the first quarter of 2020. Approximately $12.6 million of the proceeds were used towards the repayment the Gardens Medical Mortgage. Additionally, approximately $1.8 million of the remaining proceeds were distributed to the noncontrolling member. See Notes 9 and 10 for additional information.
F-16
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
7. Note Receivable
500 West 22nd Street Mezzanine Loan
On February 28, 2019, the Company, as the lender, and an unrelated third party (the “500 West 22nd Street Mezzanine Loan Borrower”), as the borrower, entered into a loan promissory note (the “500 West 22nd Street Mezzanine Loan”) pursuant to which the Company would fund up to $12.0 million of mezzanine financing. On the same date, the Company initially funded $8.0 million of the 500 West 22nd Street Mezzanine Loan. Subsequently, through the first quarter of 2020, the Company funded an additional $4.0 million and as a result, the 500 West 22nd Street Mezzanine Loan has been fully funded.
The 500 West 22nd Street Mezzanine Loan is recorded in note receivable, net on the consolidated balance sheet. In connection with the fundings made for the 500 West 22nd Street Mezzanine Loan, the Advisor has received an aggregate of approximately $0.2 million in acquisition fees from the Company. The acquisition fees are accounted for as an addition to the carrying value of the 500 West 22nd Street Mezzanine Loan and are being amortized as a reduction to interest income over the initial term of the 500 West 22nd Street Mezzanine Loan using a straight-line method that approximates the effective interest method.
The 500 West 22nd Street Mezzanine Loan is due August 31, 2021 and is collateralized by the ownership interests of the 500 West 22nd Street Mezzanine Loan Borrower. The 500 West 22nd Street Mezzanine Loan Borrower owns a parcel of land located at 500 West 22nd Street, New York, New York on which it is developing and constructing the Condominium Project. Although New York City previously restricted certain non-essential construction activities because of the COVD-19 pandemic, which led to a temporarily suspension of construction of the Condominium Project, construction activities for the Condominium Project resumed in early May 2020 and its anticipated construction timeline has not been significantly impacted to date.
The 500 West 22nd Street Mezzanine Loan bears interest at a rate of LIBOR + 11.0% per annum with a floor of 13.493% (13.493% as of December 31, 2020). The Company received an origination fee of 1.0% of the loan balance, or approximately $0.1 million, which is presented in the consolidated balance sheets as a direct deduction from the carrying value of the 500 West 22nd Street Mezzanine Loan and is being amortized to interest income, using a straight-line method that approximates the effective interest method, over the initial term of the 500 West 22nd Street Mezzanine Loan. The 500 West 22nd Street Mezzanine Loan may be extended two additional six-month periods by the 500 West 22nd Street Mezzanine Loan Borrower provided certain conditions are met, including the establishment of an additional reserve for interest and the payment of an extension fee equal to 0.25% of the outstanding loan balance.
In connection with the initial funding under the 500 West 22nd Street Mezzanine Loan, the Company retained approximately $2.1 million of the proceeds to establish a reserve for interest and other items, which is presented in the consolidated balance sheets as a direct deduction from the carrying value of the 500 West 22nd Street Mezzanine Loan and are being applied against the first 8.0% of monthly interest due during the initial term of the 500 West 22nd Street Mezzanine Loan. Through December 31, 2020, approximately $1.7 million of the reserve has been recognized as interest income and the remaining balance of the reserve was approximately $0.4 million as of December 31, 2020. The additional monthly interest due above the 8.0% threshold is added to the balance of the 500 West 22nd Street Mezzanine Loan and payable at maturity. As of December 31, 2020, approximately $1.2 million of additional interest due is included in the balance of the 500 West 22nd Street Mezzanine Loan.
During the years ended December 31, 2020 and 2019, the Company recorded approximately $1.7 million and $1.1 million, respectively, of interest income related to the note receivable. As of December 31, 2020, the outstanding principal balance of the 500 West 22nd Street Mezzanine Loan was approximately $12.8 million.
F-17
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
8. Investment in Unconsolidated Joint Venture
The Company provided mezzanine financing totaling $15.3 million to an unaffiliated third-party entity (the “Borrower”) that owned an apartment complex in Denver, Colorado (the “Prospect Park”). The Borrower also had a senior construction loan with a third-party construction lender (the “Senior Lender”) in an aggregate original principal amount of $40.0 million. The senior construction loan was guaranteed by the owners of the developer. The Company also had a personal guaranty from the owners of the developer guaranteeing completion of Prospect Park and payment of any cost overruns. The Company’s mezzanine loan was secured by all of the membership interests of the Borrower and was subordinate to the senior construction loan. The Company’s advances of $15.3 million initially had annual stated interest rates ranging from 10% to 18%.
Pursuant to the terms of the mezzanine loan, the Company participated in the residual interests of Prospect Park attributable to a sale or refinancing even though it had no actual ownership interest. The Company previously evaluated this arrangement and determined that its characteristics were similar to a jointly-owned investment or partnership. Accordingly, the Company’s investment, which was a variable interest entity (“VIE”) was accounted for as an unconsolidated joint venture under the equity method of accounting instead of loan accounting.
On December 15, 2017, the Borrower sold Prospect Park to an unrelated third-party for a contractual sales price of approximately $100.5 million. In connection with the sale, the Borrower repaid the Senior Construction Loan in full and the Company received aggregate proceeds of approximately $21.6 million representing the repayment in full of the outstanding principal and accrued interest due on the Company’s mezzanine loan. Additionally, the Borrower placed approximately $15.1 million of the net proceeds from the sale into an escrow account to be used for settlement of the amount due to the Company for its participation in the residual interests of Prospect Park. The carrying value of the Company’s unconsolidated investment in Prospect Park, which represented the minimum amount payable to the Company for its participation in the residual interests of Prospect Park, was $10.9 million as of December 31, 2018.
On January 4, 2019, the Company and the Borrower received payments of $10.9 million and $1.9 million, respectively, from the escrow account, which has a remaining balance of $2.3 million. As a result, the carrying value of the Company’s unconsolidated investment in Prospect Park has been reduced to zero. Additional amounts, if any, received by the Company from the remaining escrow account will be recognized upon receipt.
9. Held for Sale
Lakes of Margate
Beginning with the fourth quarter of 2019, Lakes of Margate met the criteria to be classified as held for sale and therefore, its associated assets and liabilities, which were expected to be sold within 12 months, were previously classified as held for sale in the consolidated balance sheets as of both March 31, 2020 and December 31, 2019.
However, because of the COVID-19 pandemic the Company subsequently decided during the second quarter of 2020 to discontinue its marketing efforts and to retain the property for the foreseeable future. Additionally, on June 26, 2020 the Company obtained a new 10-year mortgage financing (the “Lakes of Margate Loan”) on the property, which previously was unencumbered (see Note 10 for additional information). As a result, the Company determined the property should no longer be classified as held for sale effective as of June 30, 2020 because a sale was no longer considered probable within the next 12 months. Since the fair value of the property was in excess of the Company’s carrying value, it recorded catch-up depreciation for the period the property was previously classified as held for sale. In addition, the Company no longer has classified the long-lived asset as held for sale on the consolidated balance sheet as of December 31, 2019.
Despite the Company discontinuing marketing efforts and deciding to retain the property for the foreseeable future, it was approached by an unrelated third-party during the third quarter of 2020 and ultimately entered into a purchase and sale agreement (the “Lakes of Margate Agreement”) with Lakes at Margate Apartments FL LLC (the “Lakes of Margate Buyer”). Pursuant to the terms of the Lakes of Margate Agreement, the Lakes at Margate would be sold to the Lakes of Margate Buyer for aggregate consideration of $51.0 million, including the assumption of the existing Lakes of Margate Loan, which was subject to the Lakes of Margate Buyer obtaining the lender’s consent. Because the proposed transaction was contingent on the Lakes of Margate Buyer obtaining lender approval for the assumption of the existing Lakes of Margate Loan, which was outside of the Company’s control, a sale of the property within the next 12 months was not deemed probable as of September 30, 2020 and the Company continued to classify Lakes of Margate as held for use on its consolidated balance sheet as of that date.
F-18
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
During the fourth quarter of 2020, the Lakes of Margate Buyer successfully obtained the lender’s approval to assume the existing Lakes of Margate Loan in connection with the proposed transaction and, as a result, the Lakes of Margate now met the criteria to be classified as held for sale and therefore, its associated assets and liabilities are classified as held for sale in the consolidated balance sheet as of December 31, 2020.
On March 17, 2021, the disposition of the Lakes of Margate was completed pursuant to the terms of the Lakes of Margate Agreement. At closing, the Lakes of Margate Buyer paid $15.3 million and assumed the existing Lakes of Margate Loan with an outstanding principal balance of $35.7 million.
The following summary presents the major components of the Lakes of Margate’s assets and liabilities held for sale, of as December 31, 2020.
| As of | ||||
| December 31, 2020 | ||||
| Net investment property | $ | 21,308 | ||
| Other assets | 2,832 | |||
| Total assets held for sale | $ | 24,140 | ||
| Note payable, net | $ | 35,136 | ||
| Accounts payable and accrued expenses | 2,029 | |||
| Total liabilities held for sale | $ | 37,165 | ||
Gardens Medical Pavilion
On December 23, 2019, the Company and the Gardens Medical Pavilion Buyer entered into the Gardens Medical Pavilion Agreement pursuant to which the Company would dispose of the Gardens Medical Pavilion to the Gardens Medical Pavilion Buyer for an aggregate contractual sales price of $24.3 million.
As of December 31, 2019, the Gardens Medical Pavilion met the criteria to be classified as held for sale and therefore, its associated assets and liabilities are classified as held for sale in the consolidated balance sheet as of December 31, 2019.
The following summary presents the major components of the Gardens Medical Pavilion’s assets and liabilities held for sale as of December 31, 2019:
| As of | ||||
| December 31, 2019 | ||||
| Net investment property | $ | 17,448 | ||
| Other assets | 744 | |||
| Total assets held for sale | $ | 18,192 | ||
| Note payable, net | $ | 12,441 | ||
| Accounts payable and accrued expenses | 1,245 | |||
| Total liabilities held for sale | $ | 13,686 | ||
On January 15, 2020, the Company completed the disposition of the Gardens Medical Pavilion to the Gardens Medical Pavilion Buyer for an aggregate contractual sales price of $24.3 million. In connection with the disposition of the Gardens Medical Pavilion, the Company recognized a gain on the sale of investment property of approximately $5.5 million during the first quarter of 2020. Approximately $12.6 million of the proceeds were used towards the repayment the Gardens Medical Mortgage. Additionally, approximately $1.8 million of the remaining proceeds were distributed to the noncontrolling member. See Notes 6 and 10 for additional information.
F-19
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
10. Notes Payable
The following table sets forth information as of the date indicated for the Company’s notes payable, excluding certain mortgage debt associated with properties that were classified as held for sale (see below and Note 9 for additional information):
| Property | Interest Rate | Weighted Average Interest Rate as of December 31, 2020 | Maturity Date | Amount Due at Maturity | As of December 31, 2020 | As of December 31, 2019 | ||||||||||||||||
| River Club and the Townhomes at River Club | LIBOR + 1.78% | 1.92 | % | May 1, 2025 | $ | 28,419 | $ | 30,359 | $ | 30,359 | ||||||||||||
| Arbors Harbor Town | 4.53% | 4.53 | % | December 28, 2025 | 29,000 | 29,000 | 29,000 | |||||||||||||||
| Parkside | 4.45% | 4.45 | % | June 1, 2025 | 15,782 | 17,289 | 17,588 | |||||||||||||||
| Axis at Westmont | 4.39% | 4.39 | % | February 1, 2026 | 34,343 | 37,600 | 37,600 | |||||||||||||||
| Valley Ranch Apartments | 4.16% | 4.16 | % | March 1, 2026 | 43,414 | 43,414 | 43,414 | |||||||||||||||
| Flats at Fishers | 3.78% | 3.78 | % | July 1, 2026 | 26,090 | 28,800 | 28,800 | |||||||||||||||
| Autumn Breeze Apartments | 3.39% | 3.39 | % | April 1, 2030 | 25,518 | 29,920 | - | |||||||||||||||
| Total notes payable | 3.71 | % | $ | 202,566 | 216,382 | 186,761 | ||||||||||||||||
| Less: Deferred financing costs | (3,393 | ) | (2,973 | ) | ||||||||||||||||||
| Total notes payable, net | $ | 212,989 | $ | 183,788 | ||||||||||||||||||
On March 31, 2020, the Company entered into a 10-year $29.9 million non-recourse mortgage loan (the “Autumn Breeze Apartments Loan”) scheduled to mature on April 1, 2030. The Autumn Breeze Apartments Loan bears interest at 3.39% and requires monthly interest-only payments through June 30, 2023 and monthly principal and interest payments of approximately $0.1 million thereafter, through its stated maturity. The Autumn Breeze Apartments Loan is collateralized by the Autumn Breeze Apartments. In connection with the Autumn Breeze Apartments Loan, the Company paid the Advisor an aggregate of approximately $0.3 million in financing fees.
On February 14, 2019, the Company entered into the Valley Ranch Mortgage scheduled to mature on March 1, 2026. The Valley Ranch Mortgage bears interest at 4.16% and requires monthly interest-only payments through its stated maturity. The Valley Ranch Mortgage is collateralized by the Valley Ranch Apartments.
On June 13, 2019, the Company entered into a seven-year $28.8 million non-recourse mortgage loan (the “Flats at Fishers Mortgage”) scheduled to mature on July 1, 2026. The Flats at Fishers Mortgage bears interest at 3.78% and requires monthly interest-only payments through the first two years of the term and thereafter, monthly payments of principal and interest based upon a 30-year amortization. The Flats at Fishers Mortgage is collateralized by the Flats at Fishers.
On December 31, 2019, the Company repaid in full its Lakes of Margate Mortgage collateralized by the Lakes of Margate.
On May 1, 2018, the Company entered into a seven-year non-recourse mortgage loan (the “River Club Mortgage”) in the amount of $30.4 million. The River Club Mortgage bears interest at Libor plus 1.78% and requires monthly interest-only payments during the first five years and interest and principal payments pursuant to a 30-year amortization schedule for the remaining two years through its stated maturity with the entire unpaid balance due upon maturity. The River Club Mortgage is cross-collateralized by the River Club and the Townhomes at River Club. At closing, approximately $23.4 million of the proceeds from the River Club Mortgage were used to repay in full the existing non-recourse mortgage loan.
F-20
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
On June 1, 2018, the Company entered into a seven-year non-recourse mortgage loan (the “Parkside Mortgage”) in the amount of $18.0 million. The Parkside Mortgage bears interest at 4.45% and requires monthly interest and principal payments pursuant to a 30-year amortization schedule through its stated maturity with the entire unpaid balance due upon maturity. The Parkside Mortgage is collateralized by Parkside. At closing, approximately $9.6 million of the proceeds from the Parkside Mortgage were used to repay in full the existing non-recourse mortgage loan.
On November 27, 2018, the Company assumed an existing non-recourse mortgage loan (the “Axis at Westmont Mortgage”) in the amount of $37.6 million. The Axis at Westmont Mortgage is collateralized by the Axis at Westmont, bears interest at a fixed annual rate of 4.39% and requires monthly interest only payments until March 1, 2021, at which time monthly principal and interest payments of $0.2 million are required. Any unpaid principal and interest is due on the maturity date, February 1, 2026. The Company has the right to prepay the entire outstanding amount of the loan provided that if prepayment is made prior to November 1, 2025, a prepayment premium is required.
On December 28, 2018, the Company entered into a seven-year non-recourse mortgage loan (the “Arbors Harbor Town Mortgage”) in the amount of $29.0 million. The Arbors Harbor Town Mortgage bears interest at 4.53% and requires monthly interest payments through its stated maturity with the entire unpaid balance due upon maturity. The Arbors Harbor Town Mortgage is collateralized by the Arbors Harbor Town. At closing, approximately $23.7 million of the proceeds from the Arbors Harbor Town Mortgage were used to repay in full the existing non-recourse mortgage loan and an additional $1.9 million of the proceeds were used to acquire the 6.0% membership interest in the property held by a minority owner, and as a result, the Company now owns 100.0% of this property.
The following table provides information with respect to the contractual maturities and scheduled principal repayments of the Company’s indebtedness as of December 31, 2020.
| 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | ||||||||||||||||||||||
| Principal maturities (1) | $ | 1,023 | $ | 1,468 | $ | 2,498 | $ | 3,181 | $ | 46,590 | $ | 161,622 | $ | 216,382 | ||||||||||||||
| Less: deferred financing costs | (3,393 | ) | ||||||||||||||||||||||||||
| Total notes payable, net | $ | 212,989 | ||||||||||||||||||||||||||
Note:
| (1) | – Excludes the Lakes of Margate Mortgage which is included in liabilities held for sale as of December 31, 2020. The Lakes of Margate Mortgage was assumed by the Lakes of Margate Buyer in connection with the disposition of the Lakes of Margate on March 17, 2021. See below and Note 9 for additional information. |
Notes Payable included in Liabilities Held for Sale
Lakes of Margate Loan
On June 26, 2020, the Company and its noncontrolling member entered into a 10-year, $35.7 million non-recourse mortgage loan (the “Lakes of Margate Loan”) scheduled to mature on July 1, 2030. The Lakes of Margate Loan bears interest at LIBOR + 2.98% and requires monthly interest-only payments through the first four years of the term and thereafter, monthly payments of principal and interest based upon a 30-year amortization schedule. The Lakes of Margate Loan is collateralized by the Lakes of Margate. In connection with the Lakes of Margate Loan, the Company paid the Advisor an aggregate of approximately $0.4 million in financing fees. Additionally, approximately $1.4 million of the financing proceeds were distributed to the noncontrolling member.
As of December 31, 2020, the Lakes of Margate met the criteria to be classified as held for sale and therefore, its associated assets and liabilities, which include the Lakes of Margate Loan, are classified as held for sale in the consolidated balance sheet as of December 31, 2020.
On March 17, 2021, the disposition of the Lakes of Margate was completed pursuant to the terms of the Lakes of Margate Agreement. At closing, the Lakes of Margate Buyer paid $15.3 million and assumed the existing Lakes of Margate Loan with an outstanding principal balance of $35.7 million. See Note 9.
F-21
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Gardens Medical Mortgage
On June 28, 2018, the Company entered into a three-year non-recourse mortgage loan (the “Gardens Medical Mortgage”) in the amount of $13.0 million. The Gardens Medical Mortgage bore interest at Libor plus 1.90% and required monthly interest and principal payments through its stated maturity with the entire unpaid balance due upon maturity. The Gardens Medical Mortgage was collateralized by the Gardens Medical Pavilion.
As of December 31, 2019, the Garden Medical Pavilion met the criteria to be classified as held for sale and therefore, its associated assets and liabilities, which include the Garden Medical Mortgage, are classified as held for sale in the consolidated balance sheet as of December 31, 2019.
On January 15, 2020, the Company completed the disposition of the Gardens Medical Pavilion for an aggregate contractual sales price of $24.3 million. Approximately $12.6 million of the proceeds were used towards the repayment in full of the Gardens Medical Mortgage. See Notes 6 and 9.
11. 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. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.
12. Stockholders’ Equity
Capitalization
As of December 31, 2020, the Company’s authorized capital was 350,000,000 shares of common stock, 50,000,000 shares of preferred stock, and 1,000 shares of convertible stock. All shares of such stock have a par value of $.0001 per share.
As of December 31, 2020, the Company had issued 20.2 million shares of its common stock, including 2.2 million shares previously issued through its distribution reinvestment plan, which was terminated on April 3, 2012. From the Company’s inception through December 31, 2020, it redeemed an aggregate 4.5 million shares of its common stock. As of December 31, 2020, the Company had 1,000 shares of convertible stock held by an affiliate of Lightstone.
The shares of convertible stock will be converted into shares of common stock automatically if (1) the Company has made total distributions on then outstanding shares of its common stock equal to the issue price of those shares plus a 10% cumulative, non-compounded, annual return on the issue price of those outstanding shares, or (2) the Company lists its common stock for trading on a national securities exchange if the sum of the prior distributions on then outstanding shares of the common stock plus the aggregate market value of the common stock (based on the 30-day average closing price) meets the same 10% performance threshold. In general, the convertible stock will convert into shares of common stock with a value equal to the lesser of (A) 20% of the excess of the Company’s enterprise value plus the aggregate value of distributions paid to date on then outstanding shares of its common stock over the aggregate issue price of those outstanding shares plus a 10% cumulative, non-compounded, annual return on the issue price of those outstanding shares, or (B) 15% of the excess of the Company’s enterprise value plus the aggregate value of distributions paid to date on then outstanding shares of the common stock over the aggregate issue price of those outstanding shares plus a 6% cumulative, non-compounded, annual return on the issue price of those outstanding shares. At the date of issuance of the shares of convertible stock, management determined the fair value under GAAP was less than the nominal value paid for the shares; therefore, the difference is not material.
F-22
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The timing of the conversion of any or all of the convertible stock may be deferred by the Company’s board of directors if it determines that full conversion may jeopardize its qualification as a REIT. Any such deferral will in no event otherwise alter the terms of the convertible stock, and such stock shall be converted at the earliest date after the Company’s board of directors determines that such conversion will not jeopardize its qualification as a REIT. The Company’s board of directors is authorized to amend the Company’s charter, without the approval of the stockholders, to increase the aggregate number of authorized shares of capital stock or the number of shares of any class or series that the Company has the authority to issue.
Tender Offers
2020 Tender Offer
The Company commenced a tender offer on June 16, 2020, pursuant to which it offered to acquire up to 300,000 shares of the Company’s common stock at a purchase price of $2.25 per share, or approximately $0.7 million in the aggregate (the “2020 Tender Offer”).
The 2020 Tender Offer terminated on July 24, 2020, and a total of 26,637 shares were validly tendered and not withdrawn pursuant to the 2020 Tender Offer as of such date. In accordance with the terms of the 2020 Tender Offer, the Company subsequently repurchased all of the tendered shares for approximately $0.1 million in August 2020.
2019 Tender Offer
The Company commenced a tender offer on December 17, 2019, pursuant to which it offered to acquire up to 2.0 million shares of the Company’s common stock at a purchase price of $7.75 per share, or $15.5 million in the aggregate (the “2019 Tender Offer”).
The 2019 Tender Offer terminated on February 28, 2020, and a total of 2,183,888 shares were validly tendered and not withdrawn pursuant to the 2019 Tender Offer as of such date, an amount that exceeded the maximum number of shares the Company offered to purchase pursuant to the 2019 Tender Offer. In accordance with the terms of the 2019 Tender Offer, the Company subsequently repurchased a total of approximately 2.0 million shares for approximately $15.6 million in April 2020.
Because the amount of repurchase requests exceeded the maximum number of shares the Company had offered to repurchase, the Company repurchased shares on a pro-rata basis, subject to “odd lot” priority as described in the 2019 Tender Offer. Excluding the stockholders eligible for “odd lot” priority that were not be subject to proration, approximately 91.58% of the number of shares tendered by each remaining stockholder who participated in the 2019 Tender Offer were repurchased by the Company.
Share Redemption Program and Redemption Price
The Company’s board of directors has adopted a share redemption program (the “SRP”) that permits stockholders to sell their shares back to the Company, subject to the significant conditions and limitations of the program. The Company’s board of directors can amend the provisions of the SRP at any time without the approval of its stockholders.
During the year ended December 31, 2019, the Company redeemed 1.2 million shares of its common stock at average prices per share of $7.94.
On August 9, 2017, the Company’s board of directors adopted a Fourth Amended and Restated Share Redemption Program (the “Fourth Amended SRP”) which became effective July 1, 2018. The material changes made to the program were as follows. The Company no longer process redemptions upon death, “qualifying disability,” or confinement to a long-term care facility on terms different than those on which it processes all other redemptions. The price at which the Company redeems shares submitted for redemption will be a percentage of the estimated NAV per Share as of the Effective Date (as defined in the Fourth Amended SRP), as follows:
| For Redemptions with an Effective Date Between | |
| July 1, 2018 and June 30, 2019: | 92.5% of the estimated NAV per Share |
| July 1, 2019 and June 30, 2020: | 95.0% of the estimated NAV per Share |
| July 1, 2020 and June 30, 2021: | 97.5% of the estimated NAV per Share |
| Thereafter: | 100% of the estimated NAV per Share |
F-23
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Pursuant to the terms of the Fourth Amended SRP, any shares approved for redemption are redeemed on a periodic basis as determined from time to time by the Company’s board of directors, and no less frequently than annually. The Company will not redeem, during any twelve-month period, more than 5% of the weighted average number of shares outstanding during the twelve-month period immediately prior to the date of redemption. In addition, the cash available for redemptions is limited to no more than $10.0 million in any twelve-month period. Any redemption requests are honored pro rata among all requests received based on funds available and are not honored on a first come, first served basis.
On December 28, 2018, the Company’s board of directors adopted a Fifth Amended and Restated Share Redemption Program (the “Fifth Amended SRP”) which became effective on January 31, 2019. The only material change to the program was to change the measurement period for the limitations on the number and dollar amount of shares that may be accepted for redemption from a rolling 12 month-period to a calendar year.
In accordance with the Fifth Amended SRP, the per share redemption price automatically adjusted to $9.18 effective November 12, 2020 as a result of the determination and approval by the Company’s board of directors of the updated estimated NAV per Share.
On December 13, 2019, the Company’s board of directors approved the suspension of the SRP. Pursuant to the terms of the SRP, while the SRP is suspended, the Company will not accept any requests for redemption and any such requests and all pending requests will not be honored or retained, but will be returned to the requestor.
Effective March 25, 2021, the Company’s Board of Directors reopened the SRP solely for redemptions submitted in connection with a stockholder’s death and set the price for all such purchases to $9.42, which is 100% of the NAV per Share. Deaths that occurred subsequent to January 1, 2020 are eligible for consideration. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by the Company within one year of the stockholder’s date of death for consideration.
On an annual basis, the Company will not redeem in excess of 0.5% of the number of shares outstanding as of the end of the preceding year. Death redemption requests are expected to be processed on a quarterly basis and may be subject to pro ration if death redemption requests exceed the annual limitation.
The Company’s board of directors will continue to consider the liquidity available to stockholders going forward, balanced with other long-term interests of the stockholders and the Company. It is possible that in the future additional liquidity will be made available by the Company through the SRP, issuer tender offers or other methods, though it can make no assurances as to whether that will happen, or the timing or terms of any such liquidity.
Distributions
The Company made an election to qualify as a REIT for federal income tax purposes commencing with its taxable year ended December 31, 2008. U.S. federal tax law requires a REIT distribute at least 90% of its annual REIT taxable income (which does not equal net income, as calculated in accordance with generally accepted accounting principles, or GAAP) determined without regard to the deduction for dividends paid and excluding any net capital gain. In order to continue to qualify for REIT status, the Company may be required to make distributions in excess of cash available. Distributions are authorized at the discretion of the Company’s board of directors based on their analysis of the Company’s performance over the previous periods and expectations of performance for future periods. Such analyses may include actual and anticipated operating cash flow, changes in market capitalization rates for investments suitable for the Company’s portfolio, capital expenditure needs, general financial and market conditions, proceeds from asset sales, and other factors that the Company’s board of directors deems relevant. The Company’s board of directors’ decision will be substantially influenced by their obligation to ensure that the Company maintains its federal tax status as a REIT. The Company cannot provide assurance that it will pay distributions at any particular level, or at all.
The Company did not make any distributions to its stockholders during the years ended December 31, 2020 and 2019.
F-24
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
13. Related Party Transactions
Advisor and Property Manager
The Company has agreements with the Advisor and its affiliates to pay certain fees in exchange for services performed by these entities and other related parties. The Company’s ability to secure financing and subsequent real estate operations are dependent upon the Advisor and the Advisor’s affiliates to perform such services as provided in these agreements. Additionally, the Company engaged an affiliate of Lightstone pursuant to a property management and leasing agreement. The following discussion describes the fees and expenses payable to the Advisor and affiliated property manager and their respective affiliates under various agreements.
| Fees | Amount | |
|
Acquisition -
|
The Company pays the Advisor acquisition and advisory fees of 1.5% of the amount paid in respect of the purchase, development, construction, or improvement of each asset the Company acquires, including any debt attributable to those assets.
In addition, the Company pays acquisition and advisory fees of 1.5% of the funds advanced in respect of a loan investment.
The Company pays the Advisor an acquisition expense reimbursement in the amount of (i) 0.25% of the funds paid for purchasing an asset, including any debt attributable to the asset, plus 0.25% of the funds budgeted for development, construction, or improvement in the case of assets that the Company acquires and intends to develop, construct, or improve or (ii) 0.25% of the funds advanced in respect of a loan investment.
The Company pays third parties, or reimburses the Advisor or its affiliates, for any investment-related expenses due to third parties in the case of a completed investment, including, but not limited to, legal fees and expenses, travel and communication expenses, costs of appraisals, accounting fees and expenses, third-party brokerage or finder’s fees, title insurance, premium expenses, and other closing costs.
The Advisor and its affiliates are also responsible for paying all of the investment-related expenses that the Company pays or the Advisor or its affiliates incur that are due to third parties or related to the additional services provided by the Advisor as described above with respect to investments the Company pays does not make, other than certain non-refundable payments made in connection with any acquisition. | |
Debt Financing - |
The Company pays the Advisor a debt financing fee of 1.0% of the amount available under any loan or line of credit made available to us and pay directly all third-party costs associated with obtaining the debt financing. Generally, these fees are capitalized as a direct reduction to the applicable financing and amortized over its term. |
F-25
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
|
Property Management - |
The Company pays its property manager, an affiliate of the Advisor, fees for the management, leasing, and construction supervision of the Company’s properties which is 4.0% of gross revenues of the properties managed by the Company’s property manager. The Company pays its property manager an oversight fee equal to 0.5% of the gross revenues of the property managed for any property for which the Company contracts directly with a third-party property manager. In no event will the Company’s property manager or its affiliates receive both a property management fee and an oversight fee with respect to any particular property. In the event the Company owns a property through a joint venture that does not pay the Company’s property manager directly for its services, the Company will pay its property manager a management fee or oversight fee, as applicable, based only on the Company’s economic interest in the property. | |
| Construction Management - |
The Company pays its property manager a construction management fee in an amount not to exceed 5% of all hard construction costs incurred in connection with, but not limited to capital repairs and improvements, major building reconstruction and tenant improvements, if such affiliate supervises construction performed by or on behalf of the Company or its affiliates. The Company incurred no construction management fees for the years ended December 31, 2020 and 2019. | |
| Asset Management - |
The Company pays the Advisor a monthly asset management fee of one-twelfth of 0.7% of the value of each asset. The value of the Company’s assets will be the value as determined in connection with the establishment and publication of an estimated net asset value (“NAV”) per share unless the asset was acquired after the Company’s publication of a NAV per share (in which case the value of the asset will be the contractual purchase price of the asset). | |
| Administrative Services Reimbursement - |
The Advisor is responsible for paying all of the expenses it incurs associated with persons employed by the Advisor to the extent that they provide services to the Company for which the Advisor receives an acquisition, asset management, or debt financing fee, including wages and benefits of the applicable personnel. Instead of reimbursing the Advisor for specific expenses paid or incurred in connection with providing services to the Company, the Company pays the Advisor an administrative services fee, which is an allocation of a portion of the actual costs that the Advisor paid or incurred providing these services to the Company (the “Administrative Services Reimbursement”). The Administrative Services Reimbursement is intended to reimburse the Advisor for all its costs associated with providing services to the Company.
For the period January 1, 2019 through June 10, 2019, the Administrative Services Reimbursement was up to $1.29 million annually, pro-rated for the period. On June 10, 2019, the advisory management agreements were extended an additional year through June 10, 2020. For the period June 11, 2019 through June 10, 2020, the Administrative Services Reimbursement was up to $1.312 million. On June 10, 2020, the advisory management agreements were extended an additional year through June 10, 2021. For the period June 11, 2020 through June 10, 2021, the Administrative Services Reimbursement is limited to the lesser of the actual costs incurred or $1.33 million. The Administrative Services Reimbursement is payable in four equal quarterly installments within 45 days of the end of each calendar quarter. In addition, under the various advisory management agreements, the Company is to reimburse the Advisor for certain due diligence services provided in connection with asset acquisitions and dispositions and debt financings separately from the Administrative Services Reimbursement.
Notwithstanding the fees and cost reimbursements payable to the Advisor pursuant to the Company’s advisory management agreement, under the Company’s charter the Company may not reimburse the Advisor for any amount by which the Company’s operating expenses (including the asset management fee) at the end of the four preceding fiscal quarters exceeds the greater of: (i) 2% of the Company’s average invested assets, or (ii) 25% of the Company’s net income determined without reduction for any additions to reserves for depreciation, bad debts, or other similar non-cash reserves and excluding any gain from the sale of the Company’s assets for that period unless a majority of the Company’s independent directors determines that such excess expenses are justified based on unusual and non-recurring factors. For the four fiscal quarters ended December 31, 2020 and 2019, the Company’s total operating expenses (including the asset management fee) exceeded the limit on total operating expenses; however, the Company’s independent directors determined the excess expenses were justified. |
F-26
Lightstone Real Estate Investment Trust V, Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The following table represents the fees incurred associated with the payments to the Advisor for the periods indicated:
| For the Years Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Acquisition fees and acquisition expense reimbursement (1) | $ | 764 | $ | 1,428 | ||||
| Debt financing fees (2) | 656 | 722 | ||||||
| Property management fees (property operating expenses) | 468 | 467 | ||||||
| Administrative services reimbursement (general and administrative costs) | 1,321 | 1,300 | ||||||
| Asset management fees (general and administrative costs) | 2,721 | 2,446 | ||||||
| Total | $ | 5,930 | $ | 6,363 | ||||
| (1) | Capitalized to the corresponding asset and amortized over its estimated useful life. |
| (2) | Capitalized upon the execution of the loan, presented in the consolidated balance sheets as a direct deduction from the carrying value of the corresponding loan and amortized over the initial term of the corresponding loan. |
As of December 31, 2020, the Company had no amounts payable to the Advisor and its affiliates. As of December 31, 2019, the Company had a payable to the Advisor and its affiliates of approximately $6.
The Company is dependent on the Advisor and property manager for certain services that are essential to it, including asset disposition decisions, property management and leasing services, and other general administrative responsibilities. In the event that these companies were unable to provide the Company with their respective services, the Company would be required to obtain such services from other sources.
Advance from Advisor
On March 16, 2020, the Advisor provided an advance of $25.0 million to the Company that bore interest at a fixed-rate of 5.00%. On March 31, 2020, the Company repaid $15.0 million of the advance and on June 29, 2020, the Company repaid the remaining $10.0 million of the advance and aggregate accrued interest of $0.2 million. Approximately $0.2 million of interest expense was incurred on the advance during the year ended December 31. 2020.
****
F-27
EXHIBIT INDEX
| * | Filed or furnished herewith. |
| ** | In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. |
40
Exhibit 4.2
DESCRIPTION OF SHARES
The following description of our shares is not complete but is a summary and is qualified in its entirety by reference to the Maryland General Corporation Law, our charter and our bylaws.
Under our charter, we have authority to issue a total of 400,001,000 shares of capital stock. Of the total shares authorized, 350,000,000 shares are designated as common stock with a par value of $0.0001 per share, 1,000 shares are designated as convertible stock with a par value of $0.0001 per share, and 50,000,000 shares are designated as preferred stock with a par value of $0.0001 per share. Our charter authorizes our board of directors to classify and reclassify any unissued shares of our common stock and preferred stock into other classes or series of stock without stockholder approval. Prior to issuance of shares of each class or series, the board is required by Maryland law and by our charter to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications, and terms or conditions of redemption for each class or series. Thus, the board could authorize the issuance of shares of common stock or preferred stock with terms and conditions that could delay, defer or prevent a transaction or a change in control that might involve a premium price for our common stockholders or otherwise be in their best interest. In addition, our board of directors is authorized to amend our charter, without the approval of our stockholders, to increase the aggregate number of our authorized shares of capital stock or the number of shares of any class or series that we have authority to issue.
Common Stock
The holders of our common stock are entitled to one vote per share on all matters voted on by our stockholders, including election of our directors. Our charter does not provide for cumulative voting in the election of directors. Therefore, the holders of a majority of our outstanding common shares can elect our entire board of directors. Subject to any preferential rights of any outstanding series of preferred stock that may be designated, the holders of our common stock are entitled to such distributions as may be authorized from time to time by our board of directors out of legally available funds and, subject to the rights of any outstanding preferred shares, upon liquidation, are entitled to receive all assets available for distribution to our stockholders. All of our common stock issued will be fully paid and non-assessable. The holders of shares of our common stock will not have preemptive rights, which means that you will not have an automatic option to purchase any new shares that we issue, nor will such holders have any preference, conversion, exchange, sinking fund, redemption or appraisal rights.
Our board of directors has authorized the issuance of shares without certificates. We expect that, until our common stock is listed for trading on a national securities exchange, we will not issue shares of common stock in certificated form. DST Systems, Inc. acts as our registrar and as the transfer agent for our shares. Permitted transfers can be effected simply by mailing to our transfer agent a transfer and assignment form, which we will provide to our stockholders at no charge. Investors who wish to transfer shares of our common stock will be required to pay us a transfer fee of $50, or such other amount as may be deemed reasonable by our board of directors, to cover costs associated with the transfer.
Convertible Stock
Our authorized capital stock includes 1,000 shares of convertible stock, par value $0.0001 per share. No additional consideration is due upon the conversion of the convertible stock. There will be no distributions paid on shares of convertible stock. Except for certain limited circumstances, we may not redeem all or any portion of the outstanding shares of convertible stock. The conversion of the convertible stock into common shares will result in dilution of the stockholders’ interests.
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With certain limited exceptions, shares of convertible stock shall not be entitled to vote on any matter, or to receive notice of, or to participate in, any meeting of stockholders of the company at which they are not entitled to vote. However, the affirmative vote of the holders of more than two-thirds of the outstanding shares of convertible stock is required for the adoption of any amendment, alteration or repeal of a provision of the charter that adversely changes the preferences, limitations or relative rights of the shares of convertible stock.
Upon the occurrence of (A) our making total distributions on the then outstanding shares of our common stock equal to the issue price of those shares (that is, the price paid for those shares) plus a 10% cumulative, non-compounded, annual return on the issue price of those outstanding shares; or (B) the listing of the shares of common stock for trading on a national securities exchange, each outstanding share of our convertible stock will convert into the number of shares of our common stock described below. Before we will be able to pay distributions to our stockholders equal to the aggregate issue price of our then outstanding shares plus a 10% cumulative, non-compounded, annual return on the issue price of those outstanding shares, we will need to sell a portion of our assets. Thus, the sale of one or more assets will be a practical prerequisite for conversion under clause (A) above.
Upon the occurrence of either such event, each share of convertible stock shall, unless our advisory management agreement has been terminated or not renewed on account of a material breach by our advisor, generally be converted into a number of shares of common stock equal to 1/1000 of the quotient of (A) the lesser of (i) 20% of the amount, if any, by which (1) the value of the company (determined in accordance with the provisions of the charter and summarized in the following paragraph) as of the date of the event triggering the conversion plus the total distributions paid to our stockholders through such date on the then outstanding shares of our common stock exceeds (2) the sum of the aggregate issue price of those outstanding shares plus a 10% cumulative, non-compounded, annual return on the issue price of those outstanding shares as of the date of the event triggering the conversion, or (ii) 15% of the amount, if any, by which (I) the value of the company as of the date of the event triggering the conversion plus the total distributions paid to our stockholders through such date on the then outstanding shares of our common stock exceeds (II) the sum of the aggregate issue price of those outstanding shares plus a 6% cumulative, non-compounded, annual return on the issue price of those outstanding shares as of the date of the event triggering the conversion, divided by (B) the value of the company divided by the number of outstanding shares of common stock, in each case, as of the date of the event triggering the conversion. In the case of conversion upon the listing of our shares, the conversion of the convertible stock will not occur until the 31st trading day after the date of such listing. However, if our advisory management agreement expires without renewal or is terminated (other than because of a material breach by our advisor) prior to each such triggering event described in the foregoing paragraph (an “advisory management agreement termination”), then upon either such triggering event the holder of the convertible stock will be entitled to a prorated portion of the number of shares of common stock determined by the foregoing calculation, where such proration is based on the percentage of time we were advised by our advisor.
As used above and in our charter, “value of the company” as of a specific date means our actual value as a going concern on the applicable date based on the difference between (A) the actual value of all of our assets as determined in good faith by our board, including a majority of the independent directors, and (B) all of our liabilities as set forth on our balance sheet for the period ended immediately prior to the determination date, provided that (1) if such value is being determined in connection with a change of control that establishes our net worth, then the value shall be the net worth established thereby and (2) if such value is being determined in connection with the listing of our common stock for trading on a national securities exchange, then the value shall be the number of outstanding shares of common stock multiplied by the closing price of a single share of common stock, averaged over a period of 30 trading days after the date of listing. If the holder of shares of convertible stock disagrees with the value determined by the board, then each of the holder of the convertible stock and us shall name one appraiser and the two named appraisers shall promptly agree in good faith to the appointment of one other appraiser whose determination of the value of the company shall be final and binding on the parties. The cost of such appraisal shall be shared evenly between us and our advisor.
Our charter provides that if we:
| ● | reclassify or otherwise recapitalize our outstanding common stock (except to change the par value, or to change from no par value to par value, or to subdivide or otherwise split or combine shares); or |
2
| ● | consolidate or merge with another entity in a transaction in which we are either (1) not the surviving entity or (2) the surviving entity but that results in a reclassification or recapitalization of our common stock (except to change the par value, or to change from no par value to par value, or to subdivide or otherwise split or combine shares), |
then we or the successor or purchasing business entity must provide that the holder of each share of our convertible stock outstanding at the time one of the above events occurs will continue to have the right to convert the convertible stock upon an event triggering conversion. After one of the above transactions occurs, the convertible stock will be convertible into the kind and amount of stock and other securities and property received by the holders of common stock in the transaction that occurred, such that upon conversion, the holders of convertible stock will realize as nearly as possible the same economic rights and effects as described above in the description of the conversion of our convertible stock. This right will apply to successive reclassifications, recapitalizations, consolidations, and mergers until the convertible stock is converted.
Our board of directors will oversee the conversion of the convertible stock to ensure that any shares of common stock issuable in connection with the conversion is calculated in accordance with the terms of our charter and to evaluate the impact of the conversion on our REIT status. If, in the good faith judgment of our board, full conversion of the convertible stock would jeopardize our status as a REIT, then only such number of shares of convertible stock (or fraction of a share thereof) shall be converted into a number of shares of common stock such that our REIT status would not be jeopardized. The conversion of the remaining shares of convertible stock will be deferred until the earliest date after our board of directors determines that such conversion will not jeopardize our qualification as a REIT. Any such deferral will not otherwise alter the terms of the convertible stock.
Preferred Stock
Our board of directors has no present plans to issue preferred stock, but may do so at any time in the future without stockholder approval. If our board of directors does determine to issue preferred stock, we expect that such issuances will be approved by at least a majority of our independent directors who do not have an interest in the transaction and who have access to our legal counsel, or independent legal counsel, at our expense.
Meetings and Special Voting Requirements
An annual meeting of the stockholders will be held each year, at least 30 days after delivery of our annual report to our stockholders. Special meetings of stockholders may be called only upon the request of a majority of our directors, a majority of the independent directors, the chief executive officer, or by an officer of the company upon the written request of stockholders holding at least 10% of our outstanding common shares entitled to vote at the meeting. Upon receipt of a written request of stockholders holding at least 10% of our outstanding shares entitled to vote at the meeting stating the purpose of the special meeting, the secretary will provide all of our stockholders entitled to vote at the meeting written notice of the meeting, and the purpose of such meeting, to be held not less than 15 nor more than 60 days after the distribution of the notice of meeting. The presence of holders of a majority of the outstanding shares entitled to vote at the meeting, either in person or by proxy, will constitute a quorum. Unless otherwise provided by Maryland General Corporation Law or our charter, the affirmative vote of a majority of votes cast at a meeting at which a quorum is present is necessary to take stockholder action.
Under our charter, which sets forth the stockholder voting rights required to be set forth therein under the NASAA REIT Guidelines, and under the Maryland General Corporation Law, our holders of shares of our common stock are entitled to vote at a duly held meeting at which a quorum is present on:
| ● | the election or removal of directors; |
| ● | any amendment of our charter, except that our board of directors may amend our charter without stockholder approval to: |
3
| ● | change our name; |
| ● | increase or decrease the aggregate number of our shares; |
| ● | increase or decrease the number of our shares of any class or series that we have the authority to issue; |
| ● | classify or reclassify any unissued shares by setting or changing the preferences, conversion or other rights, restrictions, limitations as to distributions, qualifications or terms and conditions of redemption of such shares; |
| ● | effect reverse stock splits; and |
| ● | after the listing of our shares of common stock on a national securities exchange, opting into any of the provisions of Subtitle 8 of Title 3 of the Maryland General Corporation Law. |
| ● | a reorganization as provided in our charter; |
| ● | our liquidation or dissolution; and |
| ● | our being a party to any merger, consolidation or sale or other disposition of substantially all of our assets (notwithstanding that Maryland law may not require stockholder approval). |
Our charter provides that our stockholders are not entitled to exercise any rights of an objecting stockholder provided for under Maryland law unless the board, upon the affirmative vote of a majority of the entire board, determines that such rights will apply, with respect to all or any classes or series of stock, to a particular transaction or all transactions occurring after the date of such approval in connection with which our stockholders would otherwise be entitled to exercise such rights.
Our advisor is selected and approved annually by our directors. While our stockholders do not have the ability to vote to replace or to select a new advisor, stockholders do have the ability, by the affirmative vote of holders of a majority of the shares entitled to vote on such matter, to elect to remove a director from our board with or without cause.
Holders of shares of our common stock are entitled to receive a copy of our stockholder list upon request in connection with the exercise of their voting rights or for other proper and legitimate purposes. Such list may not be used to solicit the acquisition of our shares or for another commercial purpose other than in the interest of the stockholders relative to our affairs. The list provided by us will include each common stockholder’s name, address and telephone number, and the number of shares owned by each common stockholder, and will be sent within ten days of the receipt by us of the request. A stockholder requesting a list will be required to pay reasonable costs of postage and duplication. Holders of shares of our common stock and their representatives shall also be given access to our corporate records at reasonable times. We have the right to ask that a requesting stockholder represent to us that the list and records will not be used to pursue commercial interests.
In addition to the foregoing, stockholders have rights under Rule 14a-7 under the Exchange Act which provides that, upon the request of stockholders and the payment of the expenses of the distribution, we are required to distribute specific materials to stockholders in the context of the solicitation of proxies for voting on matters presented to stockholders or, at our option, provide requesting stockholders with a copy of the list of stockholders so that the requesting stockholders may make the distribution of proxies themselves.
Restriction on Ownership of Shares
In order for us to qualify as a REIT, not more than 50% in value of our outstanding shares may be owned by any five or fewer individuals, including certain entities treated as individuals under the Internal Revenue Code. In addition, our outstanding shares must be owned by 100 or more persons independent of us and each other during at least 335 days of a 12-month taxable year or during a proportionate part of a shorter taxable year. Each of the requirements specified in the two preceding sentences shall not apply until after 2008, the first taxable year for which we made an election to be taxed as a REIT. We may prohibit acquisitions and transfers of shares so as to ensure our continued qualification as a REIT under the Internal Revenue Code. However, we cannot assure you that this prohibition will be effective.
4
In order to assist us in preserving our status as a REIT, our charter contains restrictions on the number of shares of our common stock and preferred stock that a person may own. No person may acquire or hold, directly or indirectly, in excess of 9.8% (in value or in number of shares, whichever is more restrictive) of our outstanding shares of common or preferred stock. This limitation does not apply to the holder(s) of our convertible stock or the common stock issued upon conversion of our convertible stock. However, our board of directors may defer the timing of the conversion of all or a portion of our convertible stock if it determines that full conversion could jeopardize our qualification as a REIT under then applicable federal income tax laws and regulation. Any such deferral will not otherwise alter the terms of the convertible stock, and such stock will convert at the earliest date after our board of directors determines that such conversion will not jeopardize our qualification as a REIT.
Our charter further prohibits (a) any person from owning shares of our stock that would result in our being “closely held” under Section 856(h) of the Internal Revenue Code or otherwise cause us to fail to qualify as a REIT and (b) any person from transferring shares of our stock if the transfer would result in our stock being owned by fewer than 100 persons. Any person who acquires or intends to acquire shares of our stock that may violate any of these restrictions, or who is the intended transferee of shares of our stock that are transferred to the trust, as discussed below, is required to give us immediate notice and provide us with such information as we may request in order to determine the effect of the transfer on our status as a REIT. The above restrictions will not apply if our board determines that it is no longer in our best interests to continue to qualify as a REIT.
Our board, in its sole discretion, may exempt a person from these limits. However, the board may not exempt any person whose ownership of our outstanding stock would result in our being “closely held” within the meaning of Section 856(h) of the Internal Revenue Code or otherwise would result in our failing to qualify as a REIT. In order to be considered by the board for exemption, a person also must not own, directly or indirectly, an interest in a tenant of ours (or a tenant of any entity that we own or control) that would cause us to own, directly or indirectly, more than a 9.9% interest in the tenant. The person seeking an exemption must represent to the satisfaction of the board that it will not violate these two restrictions. The person also must agree that any violation or attempted violation of these restrictions will result in the automatic transfer of the shares of stock causing the violation to the trust, as discussed below. The board of directors may require a ruling from the Internal Revenue Service or an opinion of counsel in order to determine or ensure our status as a REIT.
Any attempted transfer of our stock which, if effective, would result in our stock being beneficially owned by fewer than 100 persons within the meaning of Section 856(a)(5) of the Internal Revenue Code will be null and void. Any attempted transfer of our stock which, if effective, would result in violation of the ownership limits discussed above or in our being “closely held” under Section 856(h) of the Internal Revenue Code or in our otherwise failing to qualify as a REIT, will cause the number of shares causing the violation (rounded to the nearest whole share) to be automatically transferred to a trust for the exclusive benefit of one or more charitable beneficiaries, and the proposed transferee will not acquire any rights in the shares. The automatic transfer will be deemed to be effective as of the close of business on the business day prior to the date of the transfer. Shares of our stock held in the trust will be issued and outstanding shares. The proposed transferee will not benefit economically from ownership of any shares of stock held in the trust, will have no rights to distributions and no rights to vote or other rights attributable to the shares of stock held in the trust. The trustee of the trust will have all voting rights and rights to distributions or other distributions with respect to shares held in the trust. These rights will be exercised for the exclusive benefit of the charitable beneficiary. Any distribution paid prior to our discovery that shares of stock have been transferred to the trust will be paid by the recipient to the trustee upon demand. Any distribution authorized but unpaid will be paid when due to the trustee. Any distribution paid to the trustee will be held in trust for the charitable beneficiary. Subject to Maryland law, the trustee will have the authority (1) to rescind as void any vote cast by the proposed transferee prior to our discovery that the shares have been transferred to the trust and (2) to recast the vote in accordance with the desires of the trustee acting for the benefit of the charitable beneficiary. However, if we have already taken irreversible corporate action, then the trustee will not have the authority to rescind and recast the vote.
Within 20 days of receiving notice from us that shares of our stock have been transferred to the trust, the trustee will sell the shares to a person designated by the trustee, whose ownership of the shares will not violate the above ownership limitations. Upon the sale, the interest of the charitable beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds of the sale to the proposed transferee and to the charitable beneficiary as follows. The proposed transferee will receive the lesser of (1) the price paid by the proposed transferee for the shares or, if the proposed transferee did not give value for the shares in connection with the event causing the shares to be held in the trust (e.g., a gift, devise or other similar transaction), the market price of the shares on the day of the event causing the shares to be held in the trust and (2) the price received by the trustee from the sale or other disposition of the shares. Any net sale proceeds in excess of the amount payable to the proposed transferee will be paid immediately to the charitable beneficiary. If, prior to our discovery that shares of our stock have been transferred to the trust, the shares are sold by the proposed transferee, then (1) the shares shall be deemed to have been sold on behalf of the trust and (2) to the extent that the proposed transferee received an amount for the shares that exceeds the amount he or she was entitled to receive, the excess shall be paid to the trustee upon demand. The notice given to stockholders upon issuance or transfer of shares of our stock will refer to the restrictions described above.
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In addition, shares of our stock held in the trust will be deemed to have been offered for sale to us, or our designee, at a price per share equal to the lesser of (1) the price per share in the transaction that resulted in the transfer to the trust (or, in the case of a devise or gift, the market price at the time of the devise or gift) and (2) the fair market value on the date we, or our designee, accept the offer. We will have the right to accept the offer until the trustee has sold the shares. Upon a sale to us, the interest of the charitable beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds of the sale to the proposed transferee.
Every owner of more than 5% (or such lower percentage as required by the Internal Revenue Code or the regulations promulgated thereunder) of our stock, within 30 days after the end of each taxable year, is required to give us written notice, stating his name and address, the number of shares of each class and series of our stock that he or she beneficially owns and a description of the manner in which the shares are held. Each such owner will provide us with such additional information as we may request in order to determine the effect, if any, of his beneficial ownership on our status as a REIT and to ensure compliance with the ownership limits. In addition, each stockholder will upon demand be required to provide us with such information as we may request in good faith in order to determine our status as a REIT and to comply with the requirements of any taxing authority or governmental authority or to determine such compliance.
The foregoing ownership limits could delay, defer or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of the stockholders.
Distributions
We expect to declare distributions on a quarterly basis and to pay distributions to our stockholders on a monthly basis. We intend to calculate these monthly distributions based on daily record dates so our investors will become eligible for distributions immediately upon purchasing shares. Distributions will be paid to stockholders as of the record dates selected by the directors.
From time to time, our advisor and its affiliates may agree to waive or defer all, or a portion, of the acquisition, asset management or other fees or incentives due to them, pay general administrative expenses or otherwise supplement investor returns in order to increase the amount of cash available to pay distributions to our stockholders. In addition, to the extent we invest in development or redevelopment projects or in properties that have significant capital requirements, these properties may not immediately generate cash flow from operations. Thus, our ability to make distributions may be negatively impacted, especially during our early periods of operation.
We are required to make distributions sufficient to satisfy the requirements for qualification as a REIT for tax purposes. Generally, distributed income will not be taxable to us under the Internal Revenue Code if we distribute at least 90% of our REIT taxable income.
Distributions are authorized at the discretion of our board of directors based on its analysis of our performance over the previous period, expectations of performance for future periods, including actual and anticipated operating cash flow, changes in market capitalization rates for investments suitable for our portfolio, capital expenditure needs, general financial condition, and other factors that our board deems relevant. The board’s decision will be influenced, in substantial part, by its obligation to ensure that we maintain our status as a REIT. Because we may receive income from interest or rents at various times during our fiscal year, distributions may not reflect our income earned in that particular distribution period but may be paid in anticipation of cash flow that we expect to receive during a later period in an attempt to make distributions relatively uniform.
6
Many of the factors that can affect the availability and timing of cash distributions to stockholders are beyond our control, and a change in any one factor could adversely affect our ability to pay future distributions. There can be no assurance that future cash flow will support distributions at the rate that such distributions are paid in any particular distribution period.
We are not prohibited from distributing our own securities in lieu of making cash distributions to stockholders. We may issue securities as stock dividends in the future.
Restrictions on Roll-Up Transactions
A Roll-up Transaction is a transaction involving the acquisition, merger, conversion or consolidation, directly or indirectly, of us and the issuance of securities of an entity (a Roll-up Entity) that is created or would survive after the successful completion of a Roll-up Transaction. This term does not include:
| ● | a transaction involving our securities that have been for at least 12 months listed for trading on a national securities exchange; or |
| ● | a transaction involving only our conversion into a trust or association if, as a consequence of the transaction, there will be no significant adverse change in common stockholder voting rights, the term of our existence, compensation to our advisor or our investment objectives. |
In connection with any proposed Roll-up Transaction involving the issuance of securities of a Roll-up Entity, an appraisal of all of our assets shall be obtained from a competent independent appraiser. If the appraisal will be included in a prospectus used to offer the securities of a Roll-up Entity, the appraisal shall be filed with the SEC and the states as an exhibit to the registration statement for the offering. The assets shall be appraised on a consistent basis, and the appraisal will be based on the evaluation of all relevant information and will indicate the value of our assets as of a date immediately prior to the announcement of the proposed Roll-up Transaction. The appraisal shall assume an orderly liquidation of assets over a 12-month period. The terms of the engagement of the independent appraiser shall clearly state that the engagement is for our benefit and the benefit of our stockholders. A summary of the appraisal, indicating all material assumptions underlying the appraisal, shall be included in a report to stockholders in connection with any proposed Roll-up Transaction.
In connection with a proposed Roll-up Transaction, the sponsor of the Roll-up Transaction must offer to our common stockholders who vote “no” on the proposal the choice of:
(1) accepting the securities of the Roll-up Entity offered in the proposed Roll-up Transaction; or
(2) one of the following:
(a) remaining as holders of our common stock and preserving their interests in us on the same terms and conditions as existed previously; or
(b) receiving cash in an amount equal to the stockholder’s pro rata share of the appraised value of our net assets.
We are prohibited from participating in any proposed Roll-up Transaction:
| ● | that would result in our common stockholders having democracy rights in a Roll-up Entity that are less than those provided in our charter and bylaws with respect to the voting rights of our stockholders, annual reports and annual and special meetings of stockholders or that would permit our shares to be assessable; |
7
| ● | that includes provisions that would materially impede or frustrate the accumulation of shares by any purchaser of the securities of the Roll-up Entity, except to the minimum extent necessary to preserve the tax status of the Roll-up Entity, or that would limit the ability of an investor to exercise the voting rights of its securities of the Roll-up Entity on the basis of the number of shares held by that investor; |
| ● | in which our investors’ rights of access to the records of the Roll-up Entity will be less than those provided in our charter and described under “—Meetings and Special Voting Requirements”; or |
| ● | in which any of the costs of the Roll-up Transaction would be borne by us if the Roll-up Transaction is not approved by our stockholders. |
Provisions of Maryland Law and of Our Charter and Bylaws
Business Combinations
Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:
| ● | any person who beneficially owns 10% or more of the voting power of the corporation’s shares; or |
| ● | an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation. |
A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.
After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:
| ● | 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and |
| ● | two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder. |
These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for his or her shares. Maryland law also permits various exemptions from these provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder. The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.
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Control Share Acquisitions
Maryland law provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquirer, by officers or by directors who are employees of the corporation are excluded from the vote on whether to accord voting rights to the control shares. Control shares are voting shares of stock which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of voting power:
| ● | one-tenth or more but less than one-third; |
| ● | one-third or more but less than a majority; or |
| ● | a majority or more of all voting power. |
Control shares do not include shares the acquiring person is entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition means the acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition may compel the board of directors of the corporation to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the meeting. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may redeem for fair value any or all of the control shares, except those for which voting rights have previously been approved. The right of the corporation to redeem control shares is subject to certain conditions and limitations. Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquirer or of any meeting of stockholders at which the voting rights of the shares are considered and not approved. If voting rights for control shares are approved at a stockholders’ meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition.
The control share acquisition statute does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction, or (b) to acquisitions approved or exempted by our charter or bylaws.
Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of shares of our stock. We can offer no assurance that this provision will not be amended or eliminated at any time in the future.
Tender Offers by Stockholders
Our charter provides that any tender offer made by a stockholder, including any “mini-tender” offer, must comply with most of the provisions of Regulation 14D of the Exchange Act, including the notice and disclosure requirements. The offering stockholder must provide our company notice of such tender offer at least ten business days before initiating the tender offer. If the offering stockholder does not comply with the provisions set forth above, our company will have the right to redeem that stockholder’s shares and any shares acquired in such tender offer. In addition, the non-complying stockholder shall be responsible for all of our company’s expenses in connection with that stockholder’s noncompliance.
9
Subtitle 8
Subtitle 8 of Title 3 of the Maryland General Corporation Law permits a Maryland real estate investment trust with a class of equity securities registered under the Securities Exchange Act of 1934 and at least three independent directors to elect to be subject, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in the charter or bylaws, to any or all of five provisions:
| ● | a classified board; |
| ● | two-thirds vote requirement for removing a director; |
| ● | a requirement that the number of directors be fixed only by vote of the directors; |
| ● | a requirement that a vacancy on the board be filled only by the remaining directors and for the remainder of the full term of the directorship in which the vacancy occurred; and |
| ● | a majority requirement for the calling of a special meeting of stockholders. |
We have added provisions to our charter that prohibit us, until such time that our shares of common stock are listed on a national securities exchange, from electing to be subject to the provisions under Subtitle 8. Through provisions in our charter and bylaws unrelated to Subtitle 8, we already vest in our board of directors the exclusive power to fix the number of directorships.
Advance Notice of Director Nominations and New Business
Our bylaws provide that with respect to an annual meeting of stockholders, nominations of persons for election to the board of directors and the proposal of business to be considered by stockholders may be made only (1) pursuant to our notice of the meeting, (2) by the board of directors or (3) by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice procedures of the bylaws. With respect to special meetings of stockholders, only the business specified in our notice of the meeting may be brought before the meeting. Nominations of persons for election to the board of directors at a special meeting may be made only (1) pursuant to our notice of the meeting, (2) by the board of directors, or (3) provided that the board of directors has determined that directors will be elected at the meeting, by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice provisions of the bylaws. The advance notice provisions of our bylaws could delay, defer or prevent a transaction or a change in control of us that might involve a premium price for holders of our common stock or otherwise be in their best interest.
10
Exhibit 21.1
LIST OF SUBSIDIARIES
| Entity(1) | Jurisdiction of Incorporation | |
| BHO II, Inc. | Delaware | |
| BHO Business Trust II | Maryland | |
| Lightstone REIT V OP LP (2) | Texas |
| (1) | Does not include subsidiaries of Lightstone REIT V OP LP, which holds our investment assets. |
| (2) | As of January 1, 2009, BHO II, Inc. was the sole general partner and owner of less than 0.1% in Lightstone REIT V OP LP, our operating partnership. As of January 1, 2009, BHO Business Trust II was the sole limited partner and owner of the remaining interest in Lightstone REIT V OP LP. |
EXHIBIT 31.1
Certifications
I, Mitchell C. Hochberg, certify that:
| 1. | I have reviewed this annual report on Form 10-K of Lightstone Value Plus Real Estate Investment Trust V, 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/ Mitchell C. Hochberg
Mitchell C. Hochberg
Chief Executive Officer
(Principal Executive Officer)
Date: March 25, 2021
EXHIBIT 31.2
Certifications
I, Seth Molod, certify that:
| 1. | I have reviewed this annual report on Form 10-K of Lightstone Value Plus Real Estate Investment Trust V, 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
(Principal Financial Officer)
Date:
March 25, 2021
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, Mitchell C. Hochberg, the Chief Executive Officer and Chairman of the Board of Directors of Lightstone Value Plus Real Estate Investment Trust V, Inc.; (the “Company”) certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) The Annual Report on Form 10-K of the Company for the year ended December 31, 2020 (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/ Mitchell C. Hochberg
Mitchell C. Hochberg
Chief Executive Officer
(Principal Executive Officer)
Date: March 25, 2021
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 V, Inc.; (the “Company”) certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) The Annual Report on Form 10-K of the Company for the year ended December 31, 2020 (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
(Principal Financial Officer)
Date: March 25, 2021
Document and Entity Information - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Dec. 31, 2020 |
Mar. 15, 2021 |
Jun. 30, 2020 |
|
| Cover [Abstract] | |||
| Document Type | 10-K | ||
| Document Period End Date | Dec. 31, 2020 | ||
| Entity Registrant Name | Lightstone Value Plus Real Estate Investment Trust V, Inc. | ||
| Entity Well-known Seasoned Issuer | No | ||
| Entity Voluntary Filers | No | ||
| Entity Current Reporting Status | Yes | ||
| Entity Interactive Data Current | Yes | ||
| Entity Incorporation, State or Country Code | MD | ||
| Entity File Number | 000-53650 | ||
| Entity Filer Category | Non-accelerated Filer | ||
| Entity Small Business | true | ||
| Entity Emerging Growth Company | false | ||
| Entity Shell Company | false | ||
| Entity Public Float | $ 0 | ||
| Entity Common Stock, Shares Outstanding | 20,200,000 | ||
| Entity Central Index Key | 0001387061 | ||
| Current Fiscal Year End Date | --12-31 | ||
| Document Fiscal Year Focus | 2020 | ||
| Document Fiscal Period Focus | FY | ||
| Amendment Flag | false |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Dec. 31, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
| Preferred stock, shares authorized (in shares) | 50,000,000 | 50,000,000 |
| Preferred stock, shares issued (in shares) | 0 | 0 |
| Preferred stock, shares outstanding (in shares) | 0 | 0 |
| Convertible stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
| Convertible stock, shares authorized (in shares) | 1,000 | 1,000 |
| Convertible Stock Shares Issued (in share) | 1,000 | 1,000 |
| Convertible stock, shares outstanding (in shares) | 1,000 | 1,000 |
| Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
| Common stock, shares authorized (in shares) | 350,000,000 | 350,000,000 |
| Common stock, shares issued (in shares) | 20,200,000 | 22,200,000 |
| Common stock, shares outstanding (in shares) | 20,200,000 | 22,200,000 |
Business and Organization |
12 Months Ended |
|---|---|
Dec. 31, 2020 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Business and Organization | 1. Business and Organization
Business
Lightstone Value Plus Real Estate Investment Trust V, Inc. which was previously named Behringer Harvard Opportunity REIT II, Inc., prior to July 20, 2017 (which may be referred to as the “Company,” “we,” “us,” or “our”), was organized as a Maryland corporation on January 9, 2007 and has elected to be taxed, and currently qualifies, as a real estate investment trust (“REIT”) for federal income tax purposes.
The Company was formed primarily to acquire and operate commercial real estate and real estate-related assets on an opportunistic and value-add basis. In particular, the Company has focused generally on acquiring commercial properties with significant possibilities for capital appreciation, such as those requiring development, redevelopment, or repositioning, those located in markets and submarkets with high growth potential, and those available from sellers who are distressed or face time-sensitive deadlines. The Company has acquired a wide variety of commercial properties, including office, industrial, retail, hospitality, and multifamily. The Company has purchased existing, income-producing properties, and newly-constructed properties. The Company has also invested in other real estate-related investments such as mortgage and mezzanine loans. The Company intends to hold the various real properties in which it has invested until such time as its board of directors determines that a sale or other disposition appears to be advantageous to achieve the Company’s investment objectives or until it appears that the objectives will not be met. The Company currently has one operating segment. As of December 31, 2020, the Company had eight real estate investments (five wholly owned properties and three properties consolidated through investments in joint ventures) and one real estate-related investment (mezzanine loan).
Substantially all of the Company’s business is conducted through Lightstone REIT V OP LP, a limited partnership organized in Delaware (the “Operating Partnership”). As of December 31, 2020, the Company’s wholly-owned subsidiary, BHO II, Inc., a Delaware corporation, owned a 0.1% partnership interest in the Operating Partnership as its sole general partner. As of December 31, 2020, the Company’s wholly-owned subsidiary, BHO Business Trust II, a Maryland business trust, was the sole limited partner of the Operating Partnership and owned the remaining 99.9% interest in the Operating Partnership.
The Company’s business is managed by an external advisor and the Company has no employees. Effective February 10, 2017, the Company engaged affiliates of The Lightstone Group (“Lightstone”), LSG-BH II Advisor LLC and LSG Development Advisor LLC (collectively, the “Advisor”), to provide advisory services to the Company. Lightstone is majority owned by the chairman of the Company’s board of directors, David Lichtenstein. Pursuant to the terms of an advisory agreement and subject to the oversight of the Company’s board of directors, the Advisor is responsible for managing the Company’s day-to-day affairs and for services related to the management of the Company’s assets.
Organization
In connection with the Company’s initial capitalization, the Company issued 22,500 shares of its common stock and 1,000 shares of its convertible stock to the Company’s previous advisor on January 19, 2007. The 1,000 shares of convertible stock were transferred to an affiliate of Lightstone on February 10, 2017 and remain outstanding. As of December 31, 2020, the Company had 20.2 million shares of common stock outstanding.
The Company’s common stock is not currently listed on a national securities exchange. The timing of a liquidity event for the Company’s stockholders will depend upon then prevailing market conditions. The Company’s board of directors previously targeted June 30, 2023 as the commencement of a liquidity event, however, on January 9, 2020, the Company’s board of directors elected to extend the targeted timeline until June 30, 2028 based on their assessment of the Company’s investment objectives and liquidity options for the Company’s stockholders. The Company can provide no assurances as to the actual timing of the commencement of a liquidity event for its stockholders or the ultimate liquidation of the Company. The Company will seek stockholder approval prior to liquidating its entire portfolio. |
Summary of Significant Accounting Policies |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles in the U.S. (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions and estimates relate to the valuation of real estate including impairment and depreciable lives. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
Principles of Consolidation and Basis of Presentation
The Company’s consolidated financial statements include the Company’s accounts and the accounts of other subsidiaries over which it has control. All inter-company transactions, balances, and profits have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on applicable GAAP, and entities deemed to be variable interest entities (“VIE”) in which the Company is the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which the Company has control, substantive participating rights or both under the respective ownership agreement. For entities in which the Company has less than a controlling interest but have significant influence, it accounts for the investment using the equity method of accounting.
There are judgments and estimates involved in determining if an entity in which the Company has made an investment is a VIE and, if so, whether it is the primary beneficiary. The entity is evaluated to determine if it is a VIE by, among other things, calculating the percentage of equity being risked compared to the total equity of the entity. Determining expected future losses involves assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each possibility, and using a discount rate to determine the net present value of those future losses. A change in the judgments, assumptions, and estimates outlined above could result in consolidating an entity that should not be consolidated or accounting for an investment using the equity method that should in fact be consolidated, the effects of which could be material to the Company’s consolidated financial statements.
Accounting for Acquisitions of Investment Property
The cost of the real estate assets acquired in an asset acquisition is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases for acquired in-place leases and the value of tenant relationships, based in each case on their relative fair values. Fees incurred related to asset acquisitions are capitalized as part of the cost of the investment.
Upon the acquisition of real estate property that meets the definition of a business, the Company recognizes the assets acquired, the liabilities assumed and any noncontrolling interest as of the acquisition date, measured at their fair values. The acquisition date is the date on which the Company obtains control of the real estate property. The assets acquired and liabilities assumed may consist of land, inclusive of associated rights, buildings, assumed debt, identified intangible assets and liabilities, and asset retirement obligations. Identified intangible assets generally consist of above-market leases, in-place leases, in-place tenant improvements, in-place leasing commissions, and tenant relationships. Identified intangible liabilities generally consist of below-market leases. Goodwill is recognized as of the acquisition date and measured as the aggregate fair value of the consideration transferred and any noncontrolling interests in the acquiree over the fair value of the identifiable net assets acquired. Likewise, a bargain purchase gain is recognized in current earnings when the aggregate fair value of the consideration transferred and any noncontrolling interests in the acquiree is less than the fair value of the identifiable net assets acquired. Acquisition-related costs are expensed in the period incurred. Initial valuations are subject to change until the Company’s information is finalized, which is no later than 12 months from the acquisition date.
The fair value of the tangible assets acquired, consisting of land and buildings, is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and buildings. Land values are derived from appraisals, and building values are calculated as replacement cost less depreciation or management’s estimates of the fair value of these assets using discounted cash flow analyses or similar methods believed to be used by market participants. The value of hotels and all other buildings is depreciated over the estimated useful lives of 39 years and 25 years, respectively, using the straight-line method.
The Company determines the fair value of assumed debt by calculating the net present value of the scheduled mortgage payments using interest rates for debt with similar terms and remaining maturities that management believes the Company could obtain at the date of the debt assumption. Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining life of the loan using the effective interest method.
Cash and Cash Equivalents
The Company considers investments in highly liquid money market funds or investments with original maturities of three months or less to be cash equivalents. The carrying amount of cash and cash equivalents reported on the consolidated balance sheet approximates fair value.
Restricted Cash
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 the Company’s 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 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.
The following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in its consolidated statements of cash flows:
Marketable Securities
Marketable securities currently consist of debt securities that are designated as available-for-sale and are recorded at fair value. Unrealized holding gains or losses for debt securities are reported as a component of accumulated other comprehensive income/(loss). Realized gains or losses resulting from the sale of these securities are determined based on the specific identification of the securities sold.
An impairment charge is recognized when the decline in the fair value of a security below the amortized cost basis is determined to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the duration and severity of any decline in fair value below the Company’s amortized cost basis, any adverse changes in the financial condition of the issuers’ and its intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. As of December 31, 2020 and 2019, the Company did not recognize any impairment charges.
Investment Impairment
For all of the Company’s real estate and real estate related investments, the Company monitors events and changes in circumstances indicating that the carrying amounts of the real estate assets may not be recoverable. Examples of the types of events and circumstances that would cause management to assess the Company’s assets for potential impairment include, but are not limited to: a significant decrease in the market price of an asset; a significant adverse change in the manner in which the asset is being used; an accumulation of costs in excess of the acquisition basis plus construction of the property; major vacancies and the resulting loss of revenues; natural disasters; a change in the projected holding period; legitimate purchase offers; and changes in the global and local markets or economic conditions. To the extent that the Company’s portfolio is concentrated in limited geographic locations, downturns specifically related to such regions may result in tenants defaulting on their lease obligations at those properties within a short time period, which may result in asset impairments. When such events or changes in circumstances are present, the Company assesses potential impairment by comparing estimated future undiscounted operating cash flows expected to be generated over the life of the asset and from its eventual disposition to the carrying amount of the asset. These projected cash flows are prepared internally by the Advisor and reflect in-place and projected leasing activity, market revenue and expense growth rates, market capitalization rates, discount rates, and changes in economic and other relevant conditions. The Company’s management reviews these projected cash flows to assure that the valuation is prepared using reasonable inputs and assumptions that are consistent with market data or with assumptions that would be used by a third-party market participant and assume the highest and best use of the investment. The Company considers trends, strategic decisions regarding future development plans, and other factors in its assessment of whether impairment conditions exist. In the event that the carrying amount exceeds the estimated future undiscounted operating cash flows, the Company recognizes an impairment loss to adjust the carrying amount of the asset to estimated fair value. While the Company believes its estimates of future cash flows are reasonable, different assumptions regarding factors such as market rents, economic conditions, and occupancy rates could significantly affect these estimates.
In evaluating the Company’s investments for impairment, management may use appraisals and make estimates and assumptions, including, but not limited to, the projected date of disposition of the properties, the estimated future cash flows of the properties during the Company’s ownership, and the projected sales price of each of the properties. A future change in these estimates and assumptions could result in understating or overstating the carrying value of the Company’s investments, which could be material to its financial statements. In addition, the Company may incur impairment charges on assets classified as held for sale in the future if the carrying amount of the asset upon classification as held for sale exceeds the estimated fair value, less costs to sell.
During the years ended December 31, 2020 and 2019, the Company did not record any impairment charges.
Investment in Unconsolidated Joint Venture
The Company has and may continue to provide funding to third-party developers for the acquisition, development, and construction of real estate (“ADC Arrangement”). Under an ADC Arrangement, the Company may participate in the residual profits of the project through the sale or refinancing of the property. The Company evaluates such arrangements to determine if they have characteristics similar to a loan or if the characteristics are more similar to a joint venture or partnership such as participating in the risks and rewards of the project as an owner or an investment partner. When the Company determines that the characteristics are more similar to a jointly-owned investment or partnership, it accounts for the arrangement as an investment in an unconsolidated joint venture under the equity method of accounting or a direct investment (consolidated basis of accounting) instead of applying loan accounting. ADC Arrangements are reassessed at each reporting period. See Note 8 of the Notes to the Consolidated Financial Statements for additional information.
Revenue Recognition
The Company recognizes rental income generated from leases of its operating properties on a straight-line basis over the terms of the respective leases, including the effect of rent holidays, if any. Leases associated with the Company’s multifamily and student housing are generally short-term in nature, and thus have no straight-line rent.
Other Assets
Other assets primarily consist of deposits, receivables and intangible assets related to the Company’s consolidated properties.
Deferred Financing Costs
Deferred financing costs are recorded at cost and consist of loan fees and other costs incurred in issuing debt. Amortization of deferred financing costs is computed using a method that approximates the effective interest method over the term of the related debt and is included in interest expense in the consolidated statements of operations. Unamortized deferred financing costs are included as a direct deduction from the related debt in the consolidated balance sheets.
Income Taxes
The Company has elected to be taxed as a REIT commencing with the taxable year ended December 31, 2008. If the Company qualifies as a REIT, it generally will not be subject to U.S. federal income tax on its taxable income or capital gain that it distributes to its stockholders. To maintain its REIT qualification, the Company must meet a number of organizational and operational requirements, including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed at the regular corporate rate, and it may be precluded from qualifying for treatment as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders.
To maintain its qualification as a REIT, the Company engages in certain activities through wholly-owned taxable REIT subsidiaries (“TRSs”). As such, the Company is subject to U.S. federal and state income and franchise taxes from these activities.
As of December 31, 2020 and 2019, the Company had no material uncertain income tax positions. Additionally, even if the Company continues to qualify as a REIT, it may still be subject to some U.S. federal, state and local taxes on our income and property and to U.S. federal income taxes and excise taxes on its undistributed income.
Concentration of Credit Risk
At December 31, 2020 and 2019, the Company had cash and cash equivalents deposited in certain financial institutions in excess of federally insured levels. The Company has diversified its cash and cash equivalents among several banking institutions in an attempt to minimize exposure to any one of these entities. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk in cash and cash equivalents or restricted cash.
Noncontrolling Interest
Noncontrolling interest represents the noncontrolling member’s share of the equity in certain of the Company’s consolidated real estate investments. Income and losses are allocated to noncontrolling interest holders based generally on their ownership percentage. In certain instances, the Company’s joint venture agreements provide for liquidating distributions based on achieving certain return metrics (“promoted interest”) and if a property reaches a defined return threshold, then it will result in distributions to the noncontrolling member which differs from the standard pro-rata allocation percentage.
Earnings per Share
The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, net (loss) income per share is calculated by dividing net (loss) income by the weighted-average number of shares of common stock outstanding during the applicable period.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic leading many countries, including the United States, particularly at the individual state level, to subsequently impose various degrees of restrictions and other measures, including, but not limited to, mandatory temporary closures, quarantine guidelines, limitations on travel, and “shelter in place” rules in an effort to reduce its duration and the severity of its spread. Although the COVID-19 pandemic has continued to evolve, most of these previously imposed restrictions and other measures have now been reduced and/or lifted. However, the COVID-19 pandemic remains highly unpredictable and dynamic and its duration and extent is likely dependent on numerous developments such as the regulatory approval, mass production, administration and ultimate effectiveness of vaccines, as well as the timeline to achieve a level of sufficient herd immunity amongst the general population. Accordingly, the COVID-19 pandemic may continue to have negative effects on the overall health of the U.S. economy for the foreseeable future.
The Company’s consolidated portfolio of properties currently consists of seven multi-family apartment complexes and one student housing complex. Despite past and current restrictions and mitigation strategies, the Company’s multi-family properties still have not yet seen any significant impact from the COVID-19 pandemic. The Company’s student housing complex, which consists of the River Club Apartments and the Townhomes at River Club, are located in Athens, Georgia and principally serve as “off-campus” lodging for students attending the University of Georgia (“UGA”). Leases for the River Club Apartments and Townhomes at River Club generally have a term of one year running from August through July. UGA previously transitioned to online instruction during its Spring 2020 semester and for its other course offerings throughout the summer. However, UGA returned to “on-campus” classes beginning with its Fall 2020 semester and has continued “on-campus” classes into the current Spring 2021 semester. The Company’s student housing complex is located “off-campus” and therefore, its tenants are not required to vacate even if UGA does not conduct “on-campus” classes. However, if UGA decides to return to online instruction for its students in lieu of “on-campus” classes in future semesters, it could adversely impact leasing demand, occupancy levels and the operating results of the Company’s student housing complex in future periods. Additionally, the Company’s note receivable relates to a condominium development project located in New Yok City (the “Condominium Project”), which is subject to similar restrictions and risks. To date, the Company’s note receivable has not been significantly impacted by the COVID-19 pandemic.
While the Company’s business has not yet seen any material impact from the ongoing COVID-19 pandemic, the extent to which it may be affected in future periods will largely depend on current and future developments, all of which are highly uncertain and cannot be reasonably predicted.
If the Company’s properties and real estate-related investments are negatively impacted in future periods for an extended period because (i) tenants are unable to pay their rent, (ii) demand for its student housing complex declines, and (iii) its borrower is unable to pay scheduled debt service on the outstanding note receivable; the Company’s business and financial results could be materially and adversely impacted.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year Presentation. |
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New Accounting Pronouncements |
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Dec. 31, 2020 | |
| Accounting Standards Update and Change in Accounting Principle [Abstract] | |
| New Accounting Pronouncements | 3. New Accounting Pronouncements
In June 2016, the FASB issued new guidance 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, 2022, including interim periods within those fiscal years. The Company is currently in the process of evaluating the impact the adoption of this standard will have on the Company’s consolidated financial statements.
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. |
Marketable Securities and Fair Value Measurements |
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| Marketable Securities and Fair Value Measurements | 4. Marketable Securities and Fair Value Measurements
Marketable Securities
The following is a summary of the Company’s available for sale securities:
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:
The fair values of the Company’s investments in debt securities are measured using quoted prices for these investments; however, the markets for these assets are not active. As of December 31, 2020 and 2019, all of the Company’s debt securities were classified as Level 2 assets and there were no transfers between the level classifications during the year ended December 31, 2020.
The following table summarizes the estimated fair value of the Company’s 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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Financial Instruments not Reported at Fair Value |
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| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial Instruments not Reported at Fair Value | 5. Financial Instruments not Reported at Fair Value
The Company determined the following disclosure of estimated fair values using available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data and develop the related estimates of fair value. The use of different market assumptions or only estimation methodologies may have a material effect on the estimated fair value amounts.
As of December 31, 2020 and 2019, management estimated that the carrying value of cash and cash equivalents, restricted cash, note receivable, prepaid expenses and other assets, accounts payable and accrued and other liabilities, and accrued property tax were at amounts that reasonably approximated their fair value based on their highly-liquid nature and/or short-term maturities.
The fair value of the notes payable is categorized as a Level 2 in the fair value hierarchy. The fair value was estimated using a discounted cash flow analysis valuation on the estimated borrowing rates currently available for loans with similar terms and maturities. The fair value of the notes payable was determined by discounting the future contractual interest and principal payments by a market rate. Disclosure about fair value of financial instruments is based on pertinent information available to management as of December 31, 2020 and 2019.
Carrying amounts of the Company’s notes payable and the related estimated fair value as follows:
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Real Estate and Real Estate-Related Investments |
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| Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real Estate and Real Estate-Related Investments | 6. Real Estate and Real Estate-Related Investments
The following table presents certain information about the Company’s consolidated investments as of December 31, 2020:
Note:
Real Estate Asset Acquisitions
Autumn Breeze Apartments
On March 17, 2020, the Company completed the acquisition of a 280-unit multifamily property located in Noblesville, Indiana (the “Autumn Breeze Apartments”) from an unrelated third party, for an aggregate purchase price of approximately $43.0 million, excluding closing and other related transaction costs. In connection with the acquisition, the Company paid the Advisor an aggregate of approximately $0.8 million in acquisition fees and acquisition expense reimbursements.
The Company determined this acquisition was an asset acquisition and allocated the total purchase price, including acquisition fees and expenses, to the assets acquired based on their relative fair value. Approximately $7.2 million was allocated to land and improvements, $36.0 million was allocated to building and improvements, and $0.6 million was allocated to in-place lease intangibles.
The capitalization rate for the acquisition of the Autumn Breeze Apartments was approximately 4.86%. The Company calculates the capitalization rate for a real property by dividing the net operating income (“NOI”) of the property by the purchase price of the property, excluding costs. For purposes of this calculation, NOI was based upon the twelve months ended February 29, 2020. Additionally, NOI is all gross revenues from the property less all operating expenses, including property taxes and management fees but excluding depreciation.
Valley Ranch Apartments
On February 14, 2019, the Company completed the acquisition of a 384-unit multifamily property located in Ann Arbor, Michigan (the “Valley Ranch Apartments”) from an unrelated third party, for an aggregate purchase price of approximately $70.3 million, excluding closing and other related transaction costs. In connection with the acquisition, the Advisor received an aggregate of approximately $1.2 million in acquisition fees and acquisition expense reimbursements.
In connection with the acquisition of the Valley Ranch Apartments, the Company simultaneously entered into a seven-year $43.4 million non-recourse mortgage loan (the “Valley Ranch Mortgage”) scheduled to mature on March 1, 2026. The Valley Ranch Mortgage bears interest at 4.16% and requires monthly interest-only payments through its stated maturity. The Valley Ranch Mortgage is collateralized by the Valley Ranch Apartments. See Note 11 for additional information.
The Company determined this acquisition was an asset acquisition and allocated the total purchase price, including acquisition fees and expenses of $1.2 million, to the assets acquired based on their relative fair value. Approximately $24.1 million was allocated to land and improvements, $46.3 million was allocated to building and improvements, and $1.1 million was allocated to in-place lease intangibles.
Real Estate Asset Dispositions - Continuing Operations
The following disposition did not represent a strategic shift that had a major effect on the Company’s operations and financial results and therefore did not qualify to be reported as discontinued operations and its operating results are reflected in the Company’s results from continuing operations in the consolidated statements of operations for all periods presented through the date of disposition:
Gardens Medical Pavilion
On December 23, 2019, the Company and CPI/AHP Garden Medical Pavilion Mob Owner, L.L.C. (the “Gardens Medical Pavilion Buyer”), an unaffiliated third party, entered into a purchase and sale agreement (the “Gardens Medical Pavilion Agreement”) pursuant to which the Company would dispose of the Gardens Medical Pavilion to the Gardens Medical Pavilion Buyer for an aggregate contractual sales price of $24.3 million.
As of December 31, 2019, the Gardens Medical Pavilion met the criteria to be classified as held for sale and therefore, its associated assets and liabilities are classified as held for sale in the consolidated balance sheet as of December 31, 2019.
On January 15, 2020, the Company completed the disposition of the Gardens Medical Pavilion to the Gardens Medical Pavilion Buyer for an aggregate contractual sales price of $24.3 million. In connection with the disposition of the Gardens Medical Pavilion, the Company recognized a gain on the sale of investment property of approximately $5.5 million during the first quarter of 2020. Approximately $12.6 million of the proceeds were used towards the repayment the Gardens Medical Mortgage. Additionally, approximately $1.8 million of the remaining proceeds were distributed to the noncontrolling member. See Notes 9 and 10 for additional information. |
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Note Receivable |
12 Months Ended |
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Dec. 31, 2020 | |
| Receivables [Abstract] | |
| Note Receivable | 7. Note Receivable
500 West 22nd Street Mezzanine Loan
On February 28, 2019, the Company, as the lender, and an unrelated third party (the “500 West 22nd Street Mezzanine Loan Borrower”), as the borrower, entered into a loan promissory note (the “500 West 22nd Street Mezzanine Loan”) pursuant to which the Company would fund up to $12.0 million of mezzanine financing. On the same date, the Company initially funded $8.0 million of the 500 West 22nd Street Mezzanine Loan. Subsequently, through the first quarter of 2020, the Company funded an additional $4.0 million and as a result, the 500 West 22nd Street Mezzanine Loan has been fully funded.
The 500 West 22nd Street Mezzanine Loan is recorded in note receivable, net on the consolidated balance sheet. In connection with the fundings made for the 500 West 22nd Street Mezzanine Loan, the Advisor has received an aggregate of approximately $0.2 million in acquisition fees from the Company. The acquisition fees are accounted for as an addition to the carrying value of the 500 West 22nd Street Mezzanine Loan and are being amortized as a reduction to interest income over the initial term of the 500 West 22nd Street Mezzanine Loan using a straight-line method that approximates the effective interest method.
The 500 West 22nd Street Mezzanine Loan is due August 31, 2021 and is collateralized by the ownership interests of the 500 West 22nd Street Mezzanine Loan Borrower. The 500 West 22nd Street Mezzanine Loan Borrower owns a parcel of land located at 500 West 22nd Street, New York, New York on which it is developing and constructing the Condominium Project. Although New York City previously restricted certain non-essential construction activities because of the COVD-19 pandemic, which led to a temporarily suspension of construction of the Condominium Project, construction activities for the Condominium Project resumed in early May 2020 and its anticipated construction timeline has not been significantly impacted to date.
The 500 West 22nd Street Mezzanine Loan bears interest at a rate of LIBOR + 11.0% per annum with a floor of 13.493% (13.493% as of December 31, 2020). The Company received an origination fee of 1.0% of the loan balance, or approximately $0.1 million, which is presented in the consolidated balance sheets as a direct deduction from the carrying value of the 500 West 22nd Street Mezzanine Loan and is being amortized to interest income, using a straight-line method that approximates the effective interest method, over the initial term of the 500 West 22nd Street Mezzanine Loan. The 500 West 22nd Street Mezzanine Loan may be extended two additional six-month periods by the 500 West 22nd Street Mezzanine Loan Borrower provided certain conditions are met, including the establishment of an additional reserve for interest and the payment of an extension fee equal to 0.25% of the outstanding loan balance.
In connection with the initial funding under the 500 West 22nd Street Mezzanine Loan, the Company retained approximately $2.1 million of the proceeds to establish a reserve for interest and other items, which is presented in the consolidated balance sheets as a direct deduction from the carrying value of the 500 West 22nd Street Mezzanine Loan and are being applied against the first 8.0% of monthly interest due during the initial term of the 500 West 22nd Street Mezzanine Loan. Through December 31, 2020, approximately $1.7 million of the reserve has been recognized as interest income and the remaining balance of the reserve was approximately $0.4 million as of December 31, 2020. The additional monthly interest due above the 8.0% threshold is added to the balance of the 500 West 22nd Street Mezzanine Loan and payable at maturity. As of December 31, 2020, approximately $1.2 million of additional interest due is included in the balance of the 500 West 22nd Street Mezzanine Loan.
During the years ended December 31, 2020 and 2019, the Company recorded approximately $1.7 million and $1.1 million, respectively, of interest income related to the note receivable. As of December 31, 2020, the outstanding principal balance of the 500 West 22nd Street Mezzanine Loan was approximately $12.8 million. |
Investment in Unconsolidated Joint Venture |
12 Months Ended |
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Dec. 31, 2020 | |
| Equity Method Investments and Joint Ventures [Abstract] | |
| Investment in Unconsolidated Joint Venture | 8. Investment in Unconsolidated Joint Venture
The Company provided mezzanine financing totaling $15.3 million to an unaffiliated third-party entity (the “Borrower”) that owned an apartment complex in Denver, Colorado (the “Prospect Park”). The Borrower also had a senior construction loan with a third-party construction lender (the “Senior Lender”) in an aggregate original principal amount of $40.0 million. The senior construction loan was guaranteed by the owners of the developer. The Company also had a personal guaranty from the owners of the developer guaranteeing completion of Prospect Park and payment of any cost overruns. The Company’s mezzanine loan was secured by all of the membership interests of the Borrower and was subordinate to the senior construction loan. The Company’s advances of $15.3 million initially had annual stated interest rates ranging from 10% to 18%.
Pursuant to the terms of the mezzanine loan, the Company participated in the residual interests of Prospect Park attributable to a sale or refinancing even though it had no actual ownership interest. The Company previously evaluated this arrangement and determined that its characteristics were similar to a jointly-owned investment or partnership. Accordingly, the Company’s investment, which was a variable interest entity (“VIE”) was accounted for as an unconsolidated joint venture under the equity method of accounting instead of loan accounting.
On December 15, 2017, the Borrower sold Prospect Park to an unrelated third-party for a contractual sales price of approximately $100.5 million. In connection with the sale, the Borrower repaid the Senior Construction Loan in full and the Company received aggregate proceeds of approximately $21.6 million representing the repayment in full of the outstanding principal and accrued interest due on the Company’s mezzanine loan. Additionally, the Borrower placed approximately $15.1 million of the net proceeds from the sale into an escrow account to be used for settlement of the amount due to the Company for its participation in the residual interests of Prospect Park. The carrying value of the Company’s unconsolidated investment in Prospect Park, which represented the minimum amount payable to the Company for its participation in the residual interests of Prospect Park, was $10.9 million as of December 31, 2018.
On January 4, 2019, the Company and the Borrower received payments of $10.9 million and $1.9 million, respectively, from the escrow account, which has a remaining balance of $2.3 million. As a result, the carrying value of the Company’s unconsolidated investment in Prospect Park has been reduced to zero. Additional amounts, if any, received by the Company from the remaining escrow account will be recognized upon receipt. |
Held for Sale |
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| Held for Sale | 9. Held for Sale
Lakes of Margate
Beginning with the fourth quarter of 2019, Lakes of Margate met the criteria to be classified as held for sale and therefore, its associated assets and liabilities, which were expected to be sold within 12 months, were previously classified as held for sale in the consolidated balance sheets as of both March 31, 2020 and December 31, 2019.
However, because of the COVID-19 pandemic the Company subsequently decided during the second quarter of 2020 to discontinue its marketing efforts and to retain the property for the foreseeable future. Additionally, on June 26, 2020 the Company obtained a new 10-year mortgage financing (the “Lakes of Margate Loan”) on the property, which previously was unencumbered (see Note 10 for additional information). As a result, the Company determined the property should no longer be classified as held for sale effective as of June 30, 2020 because a sale was no longer considered probable within the next 12 months. Since the fair value of the property was in excess of the Company’s carrying value, it recorded catch-up depreciation for the period the property was previously classified as held for sale. In addition, the Company no longer has classified the long-lived asset as held for sale on the consolidated balance sheet as of December 31, 2019.
Despite the Company discontinuing marketing efforts and deciding to retain the property for the foreseeable future, it was approached by an unrelated third-party during the third quarter of 2020 and ultimately entered into a purchase and sale agreement (the “Lakes of Margate Agreement”) with Lakes at Margate Apartments FL LLC (the “Lakes of Margate Buyer”). Pursuant to the terms of the Lakes of Margate Agreement, the Lakes at Margate would be sold to the Lakes of Margate Buyer for aggregate consideration of $51.0 million, including the assumption of the existing Lakes of Margate Loan, which was subject to the Lakes of Margate Buyer obtaining the lender’s consent. Because the proposed transaction was contingent on the Lakes of Margate Buyer obtaining lender approval for the assumption of the existing Lakes of Margate Loan, which was outside of the Company’s control, a sale of the property within the next 12 months was not deemed probable as of September 30, 2020 and the Company continued to classify Lakes of Margate as held for use on its consolidated balance sheet as of that date.
During the fourth quarter of 2020, the Lakes of Margate Buyer successfully obtained the lender’s approval to assume the existing Lakes of Margate Loan in connection with the proposed transaction and, as a result, the Lakes of Margate now met the criteria to be classified as held for sale and therefore, its associated assets and liabilities are classified as held for sale in the consolidated balance sheet as of December 31, 2020.
On March 17, 2021, the disposition of the Lakes of Margate was completed pursuant to the terms of the Lakes of Margate Agreement. At closing, the Lakes of Margate Buyer paid $15.3 million and assumed the existing Lakes of Margate Loan with an outstanding principal balance of $35.7 million.
The following summary presents the major components of the Lakes of Margate’s assets and liabilities held for sale, of as December 31, 2020.
Gardens Medical Pavilion
On December 23, 2019, the Company and the Gardens Medical Pavilion Buyer entered into the Gardens Medical Pavilion Agreement pursuant to which the Company would dispose of the Gardens Medical Pavilion to the Gardens Medical Pavilion Buyer for an aggregate contractual sales price of $24.3 million.
As of December 31, 2019, the Gardens Medical Pavilion met the criteria to be classified as held for sale and therefore, its associated assets and liabilities are classified as held for sale in the consolidated balance sheet as of December 31, 2019.
The following summary presents the major components of the Gardens Medical Pavilion’s assets and liabilities held for sale as of December 31, 2019:
On January 15, 2020, the Company completed the disposition of the Gardens Medical Pavilion to the Gardens Medical Pavilion Buyer for an aggregate contractual sales price of $24.3 million. In connection with the disposition of the Gardens Medical Pavilion, the Company recognized a gain on the sale of investment property of approximately $5.5 million during the first quarter of 2020. Approximately $12.6 million of the proceeds were used towards the repayment the Gardens Medical Mortgage. Additionally, approximately $1.8 million of the remaining proceeds were distributed to the noncontrolling member. See Notes 6 and 10 for additional information. |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable | 10. Notes Payable
The following table sets forth information as of the date indicated for the Company’s notes payable, excluding certain mortgage debt associated with properties that were classified as held for sale (see below and Note 9 for additional information):
On March 31, 2020, the Company entered into a 10-year $29.9 million non-recourse mortgage loan (the “Autumn Breeze Apartments Loan”) scheduled to mature on April 1, 2030. The Autumn Breeze Apartments Loan bears interest at 3.39% and requires monthly interest-only payments through June 30, 2023 and monthly principal and interest payments of approximately $0.1 million thereafter, through its stated maturity. The Autumn Breeze Apartments Loan is collateralized by the Autumn Breeze Apartments. In connection with the Autumn Breeze Apartments Loan, the Company paid the Advisor an aggregate of approximately $0.3 million in financing fees.
On February 14, 2019, the Company entered into the Valley Ranch Mortgage scheduled to mature on March 1, 2026. The Valley Ranch Mortgage bears interest at 4.16% and requires monthly interest-only payments through its stated maturity. The Valley Ranch Mortgage is collateralized by the Valley Ranch Apartments.
On June 13, 2019, the Company entered into a seven-year $28.8 million non-recourse mortgage loan (the “Flats at Fishers Mortgage”) scheduled to mature on July 1, 2026. The Flats at Fishers Mortgage bears interest at 3.78% and requires monthly interest-only payments through the first two years of the term and thereafter, monthly payments of principal and interest based upon a 30-year amortization. The Flats at Fishers Mortgage is collateralized by the Flats at Fishers.
On December 31, 2019, the Company repaid in full its Lakes of Margate Mortgage collateralized by the Lakes of Margate.
On May 1, 2018, the Company entered into a seven-year non-recourse mortgage loan (the “River Club Mortgage”) in the amount of $30.4 million. The River Club Mortgage bears interest at Libor plus 1.78% and requires monthly interest-only payments during the first five years and interest and principal payments pursuant to a 30-year amortization schedule for the remaining two years through its stated maturity with the entire unpaid balance due upon maturity. The River Club Mortgage is cross-collateralized by the River Club and the Townhomes at River Club. At closing, approximately $23.4 million of the proceeds from the River Club Mortgage were used to repay in full the existing non-recourse mortgage loan.
On June 1, 2018, the Company entered into a seven-year non-recourse mortgage loan (the “Parkside Mortgage”) in the amount of $18.0 million. The Parkside Mortgage bears interest at 4.45% and requires monthly interest and principal payments pursuant to a 30-year amortization schedule through its stated maturity with the entire unpaid balance due upon maturity. The Parkside Mortgage is collateralized by Parkside. At closing, approximately $9.6 million of the proceeds from the Parkside Mortgage were used to repay in full the existing non-recourse mortgage loan.
On November 27, 2018, the Company assumed an existing non-recourse mortgage loan (the “Axis at Westmont Mortgage”) in the amount of $37.6 million. The Axis at Westmont Mortgage is collateralized by the Axis at Westmont, bears interest at a fixed annual rate of 4.39% and requires monthly interest only payments until March 1, 2021, at which time monthly principal and interest payments of $0.2 million are required. Any unpaid principal and interest is due on the maturity date, February 1, 2026. The Company has the right to prepay the entire outstanding amount of the loan provided that if prepayment is made prior to November 1, 2025, a prepayment premium is required.
On December 28, 2018, the Company entered into a seven-year non-recourse mortgage loan (the “Arbors Harbor Town Mortgage”) in the amount of $29.0 million. The Arbors Harbor Town Mortgage bears interest at 4.53% and requires monthly interest payments through its stated maturity with the entire unpaid balance due upon maturity. The Arbors Harbor Town Mortgage is collateralized by the Arbors Harbor Town. At closing, approximately $23.7 million of the proceeds from the Arbors Harbor Town Mortgage were used to repay in full the existing non-recourse mortgage loan and an additional $1.9 million of the proceeds were used to acquire the 6.0% membership interest in the property held by a minority owner, and as a result, the Company now owns 100.0% of this property.
The following table provides information with respect to the contractual maturities and scheduled principal repayments of the Company’s indebtedness as of December 31, 2020.
Note:
Notes Payable included in Liabilities Held for Sale
Lakes of Margate Loan
On June 26, 2020, the Company and its noncontrolling member entered into a 10-year, $35.7 million non-recourse mortgage loan (the “Lakes of Margate Loan”) scheduled to mature on July 1, 2030. The Lakes of Margate Loan bears interest at LIBOR + 2.98% and requires monthly interest-only payments through the first four years of the term and thereafter, monthly payments of principal and interest based upon a 30-year amortization schedule. The Lakes of Margate Loan is collateralized by the Lakes of Margate. In connection with the Lakes of Margate Loan, the Company paid the Advisor an aggregate of approximately $0.4 million in financing fees. Additionally, approximately $1.4 million of the financing proceeds were distributed to the noncontrolling member.
As of December 31, 2020, the Lakes of Margate met the criteria to be classified as held for sale and therefore, its associated assets and liabilities, which include the Lakes of Margate Loan, are classified as held for sale in the consolidated balance sheet as of December 31, 2020.
On March 17, 2021, the disposition of the Lakes of Margate was completed pursuant to the terms of the Lakes of Margate Agreement. At closing, the Lakes of Margate Buyer paid $15.3 million and assumed the existing Lakes of Margate Loan with an outstanding principal balance of $35.7 million. See Note 9.
Gardens Medical Mortgage
On June 28, 2018, the Company entered into a three-year non-recourse mortgage loan (the “Gardens Medical Mortgage”) in the amount of $13.0 million. The Gardens Medical Mortgage bore interest at Libor plus 1.90% and required monthly interest and principal payments through its stated maturity with the entire unpaid balance due upon maturity. The Gardens Medical Mortgage was collateralized by the Gardens Medical Pavilion.
As of December 31, 2019, the Garden Medical Pavilion met the criteria to be classified as held for sale and therefore, its associated assets and liabilities, which include the Garden Medical Mortgage, are classified as held for sale in the consolidated balance sheet as of December 31, 2019.
On January 15, 2020, the Company completed the disposition of the Gardens Medical Pavilion for an aggregate contractual sales price of $24.3 million. Approximately $12.6 million of the proceeds were used towards the repayment in full of the Gardens Medical Mortgage. See Notes 6 and 9. |
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Commitments and Contingencies |
12 Months Ended |
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| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies | 11. 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. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote. |
Stockholders' Equity |
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| Equity [Abstract] | |||||||||||
| Stockholders' Equity | 12. Stockholders’ Equity
Capitalization
As of December 31, 2020, the Company’s authorized capital was 350,000,000 shares of common stock, 50,000,000 shares of preferred stock, and 1,000 shares of convertible stock. All shares of such stock have a par value of $.0001 per share.
As of December 31, 2020, the Company had issued 20.2 million shares of its common stock, including 2.2 million shares previously issued through its distribution reinvestment plan, which was terminated on April 3, 2012. From the Company’s inception through December 31, 2020, it redeemed an aggregate 4.5 million shares of its common stock. As of December 31, 2020, the Company had 1,000 shares of convertible stock held by an affiliate of Lightstone.
The shares of convertible stock will be converted into shares of common stock automatically if (1) the Company has made total distributions on then outstanding shares of its common stock equal to the issue price of those shares plus a 10% cumulative, non-compounded, annual return on the issue price of those outstanding shares, or (2) the Company lists its common stock for trading on a national securities exchange if the sum of the prior distributions on then outstanding shares of the common stock plus the aggregate market value of the common stock (based on the 30-day average closing price) meets the same 10% performance threshold. In general, the convertible stock will convert into shares of common stock with a value equal to the lesser of (A) 20% of the excess of the Company’s enterprise value plus the aggregate value of distributions paid to date on then outstanding shares of its common stock over the aggregate issue price of those outstanding shares plus a 10% cumulative, non-compounded, annual return on the issue price of those outstanding shares, or (B) 15% of the excess of the Company’s enterprise value plus the aggregate value of distributions paid to date on then outstanding shares of the common stock over the aggregate issue price of those outstanding shares plus a 6% cumulative, non-compounded, annual return on the issue price of those outstanding shares. At the date of issuance of the shares of convertible stock, management determined the fair value under GAAP was less than the nominal value paid for the shares; therefore, the difference is not material.
The timing of the conversion of any or all of the convertible stock may be deferred by the Company’s board of directors if it determines that full conversion may jeopardize its qualification as a REIT. Any such deferral will in no event otherwise alter the terms of the convertible stock, and such stock shall be converted at the earliest date after the Company’s board of directors determines that such conversion will not jeopardize its qualification as a REIT. The Company’s board of directors is authorized to amend the Company’s charter, without the approval of the stockholders, to increase the aggregate number of authorized shares of capital stock or the number of shares of any class or series that the Company has the authority to issue.
Tender Offers
2020 Tender Offer
The Company commenced a tender offer on June 16, 2020, pursuant to which it offered to acquire up to 300,000 shares of the Company’s common stock at a purchase price of $2.25 per share, or approximately $0.7 million in the aggregate (the “2020 Tender Offer”).
The 2020 Tender Offer terminated on July 24, 2020, and a total of 26,637 shares were validly tendered and not withdrawn pursuant to the 2020 Tender Offer as of such date. In accordance with the terms of the 2020 Tender Offer, the Company subsequently repurchased all of the tendered shares for approximately $0.1 million in August 2020.
2019 Tender Offer
The Company commenced a tender offer on December 17, 2019, pursuant to which it offered to acquire up to 2.0 million shares of the Company’s common stock at a purchase price of $7.75 per share, or $15.5 million in the aggregate (the “2019 Tender Offer”).
The 2019 Tender Offer terminated on February 28, 2020, and a total of 2,183,888 shares were validly tendered and not withdrawn pursuant to the 2019 Tender Offer as of such date, an amount that exceeded the maximum number of shares the Company offered to purchase pursuant to the 2019 Tender Offer. In accordance with the terms of the 2019 Tender Offer, the Company subsequently repurchased a total of approximately 2.0 million shares for approximately $15.6 million in April 2020.
Because the amount of repurchase requests exceeded the maximum number of shares the Company had offered to repurchase, the Company repurchased shares on a pro-rata basis, subject to “odd lot” priority as described in the 2019 Tender Offer. Excluding the stockholders eligible for “odd lot” priority that were not be subject to proration, approximately 91.58% of the number of shares tendered by each remaining stockholder who participated in the 2019 Tender Offer were repurchased by the Company.
Share Redemption Program and Redemption Price
The Company’s board of directors has adopted a share redemption program (the “SRP”) that permits stockholders to sell their shares back to the Company, subject to the significant conditions and limitations of the program. The Company’s board of directors can amend the provisions of the SRP at any time without the approval of its stockholders.
During the year ended December 31, 2019, the Company redeemed 1.2 million shares of its common stock at average prices per share of $7.94.
On August 9, 2017, the Company’s board of directors adopted a Fourth Amended and Restated Share Redemption Program (the “Fourth Amended SRP”) which became effective July 1, 2018. The material changes made to the program were as follows. The Company no longer process redemptions upon death, “qualifying disability,” or confinement to a long-term care facility on terms different than those on which it processes all other redemptions. The price at which the Company redeems shares submitted for redemption will be a percentage of the estimated NAV per Share as of the Effective Date (as defined in the Fourth Amended SRP), as follows:
Pursuant to the terms of the Fourth Amended SRP, any shares approved for redemption are redeemed on a periodic basis as determined from time to time by the Company’s board of directors, and no less frequently than annually. The Company will not redeem, during any twelve-month period, more than 5% of the weighted average number of shares outstanding during the twelve-month period immediately prior to the date of redemption. In addition, the cash available for redemptions is limited to no more than $10.0 million in any twelve-month period. Any redemption requests are honored pro rata among all requests received based on funds available and are not honored on a first come, first served basis.
On December 28, 2018, the Company’s board of directors adopted a Fifth Amended and Restated Share Redemption Program (the “Fifth Amended SRP”) which became effective on January 31, 2019. The only material change to the program was to change the measurement period for the limitations on the number and dollar amount of shares that may be accepted for redemption from a rolling 12 month-period to a calendar year.
In accordance with the Fifth Amended SRP, the per share redemption price automatically adjusted to $9.18 effective November 12, 2020 as a result of the determination and approval by the Company’s board of directors of the updated estimated NAV per Share.
On December 13, 2019, the Company’s board of directors approved the suspension of the SRP. Pursuant to the terms of the SRP, while the SRP is suspended, the Company will not accept any requests for redemption and any such requests and all pending requests will not be honored or retained, but will be returned to the requestor.
Effective March 25, 2021, the Company’s Board of Directors reopened the SRP solely for redemptions submitted in connection with a stockholder’s death and set the price for all such purchases to $9.42, which is 100% of the NAV per Share. Deaths that occurred subsequent to January 1, 2020 are eligible for consideration. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by the Company within one year of the stockholder’s date of death for consideration.
On an annual basis, the Company will not redeem in excess of 0.5% of the number of shares outstanding as of the end of the preceding year. Death redemption requests are expected to be processed on a quarterly basis and may be subject to pro ration if death redemption requests exceed the annual limitation.
The Company’s board of directors will continue to consider the liquidity available to stockholders going forward, balanced with other long-term interests of the stockholders and the Company. It is possible that in the future additional liquidity will be made available by the Company through the SRP, issuer tender offers or other methods, though it can make no assurances as to whether that will happen, or the timing or terms of any such liquidity.
Distributions
The Company made an election to qualify as a REIT for federal income tax purposes commencing with its taxable year ended December 31, 2008. U.S. federal tax law requires a REIT distribute at least 90% of its annual REIT taxable income (which does not equal net income, as calculated in accordance with generally accepted accounting principles, or GAAP) determined without regard to the deduction for dividends paid and excluding any net capital gain. In order to continue to qualify for REIT status, the Company may be required to make distributions in excess of cash available. Distributions are authorized at the discretion of the Company’s board of directors based on their analysis of the Company’s performance over the previous periods and expectations of performance for future periods. Such analyses may include actual and anticipated operating cash flow, changes in market capitalization rates for investments suitable for the Company’s portfolio, capital expenditure needs, general financial and market conditions, proceeds from asset sales, and other factors that the Company’s board of directors deems relevant. The Company’s board of directors’ decision will be substantially influenced by their obligation to ensure that the Company maintains its federal tax status as a REIT. The Company cannot provide assurance that it will pay distributions at any particular level, or at all.
The Company did not make any distributions to its stockholders during the years ended December 31, 2020 and 2019. |
Related Party Transactions |
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| Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions | 13. Related Party Transactions
Advisor and Property Manager
The Company has agreements with the Advisor and its affiliates to pay certain fees in exchange for services performed by these entities and other related parties. The Company’s ability to secure financing and subsequent real estate operations are dependent upon the Advisor and the Advisor’s affiliates to perform such services as provided in these agreements. Additionally, the Company engaged an affiliate of Lightstone pursuant to a property management and leasing agreement. The following discussion describes the fees and expenses payable to the Advisor and affiliated property manager and their respective affiliates under various agreements.
The following table represents the fees incurred associated with the payments to the Advisor for the periods indicated:
As of December 31, 2020, the Company had no amounts payable to the Advisor and its affiliates. As of December 31, 2019, the Company had a payable to the Advisor and its affiliates of approximately $6.
The Company is dependent on the Advisor and property manager for certain services that are essential to it, including asset disposition decisions, property management and leasing services, and other general administrative responsibilities. In the event that these companies were unable to provide the Company with their respective services, the Company would be required to obtain such services from other sources.
Advance from Advisor
On March 16, 2020, the Advisor provided an advance of $25.0 million to the Company that bore interest at a fixed-rate of 5.00%. On March 31, 2020, the Company repaid $15.0 million of the advance and on June 29, 2020, the Company repaid the remaining $10.0 million of the advance and aggregate accrued interest of $0.2 million. Approximately $0.2 million of interest expense was incurred on the advance during the year ended December 31. 2020. |
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Summary of Significant Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Use of Estimates in the Preparation of Financial Statements | Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles in the U.S. (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions and estimates relate to the valuation of real estate including impairment and depreciable lives. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates. |
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| Principles of Consolidation and Basis of Presentation | Principles of Consolidation and Basis of Presentation
The Company’s consolidated financial statements include the Company’s accounts and the accounts of other subsidiaries over which it has control. All inter-company transactions, balances, and profits have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on applicable GAAP, and entities deemed to be variable interest entities (“VIE”) in which the Company is the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which the Company has control, substantive participating rights or both under the respective ownership agreement. For entities in which the Company has less than a controlling interest but have significant influence, it accounts for the investment using the equity method of accounting.
There are judgments and estimates involved in determining if an entity in which the Company has made an investment is a VIE and, if so, whether it is the primary beneficiary. The entity is evaluated to determine if it is a VIE by, among other things, calculating the percentage of equity being risked compared to the total equity of the entity. Determining expected future losses involves assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each possibility, and using a discount rate to determine the net present value of those future losses. A change in the judgments, assumptions, and estimates outlined above could result in consolidating an entity that should not be consolidated or accounting for an investment using the equity method that should in fact be consolidated, the effects of which could be material to the Company’s consolidated financial statements. |
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| Accounting for Acquisitions of Investment Property | Accounting for Acquisitions of Investment Property
The cost of the real estate assets acquired in an asset acquisition is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases for acquired in-place leases and the value of tenant relationships, based in each case on their relative fair values. Fees incurred related to asset acquisitions are capitalized as part of the cost of the investment.
Upon the acquisition of real estate property that meets the definition of a business, the Company recognizes the assets acquired, the liabilities assumed and any noncontrolling interest as of the acquisition date, measured at their fair values. The acquisition date is the date on which the Company obtains control of the real estate property. The assets acquired and liabilities assumed may consist of land, inclusive of associated rights, buildings, assumed debt, identified intangible assets and liabilities, and asset retirement obligations. Identified intangible assets generally consist of above-market leases, in-place leases, in-place tenant improvements, in-place leasing commissions, and tenant relationships. Identified intangible liabilities generally consist of below-market leases. Goodwill is recognized as of the acquisition date and measured as the aggregate fair value of the consideration transferred and any noncontrolling interests in the acquiree over the fair value of the identifiable net assets acquired. Likewise, a bargain purchase gain is recognized in current earnings when the aggregate fair value of the consideration transferred and any noncontrolling interests in the acquiree is less than the fair value of the identifiable net assets acquired. Acquisition-related costs are expensed in the period incurred. Initial valuations are subject to change until the Company’s information is finalized, which is no later than 12 months from the acquisition date.
The fair value of the tangible assets acquired, consisting of land and buildings, is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land and buildings. Land values are derived from appraisals, and building values are calculated as replacement cost less depreciation or management’s estimates of the fair value of these assets using discounted cash flow analyses or similar methods believed to be used by market participants. The value of hotels and all other buildings is depreciated over the estimated useful lives of 39 years and 25 years, respectively, using the straight-line method.
The Company determines the fair value of assumed debt by calculating the net present value of the scheduled mortgage payments using interest rates for debt with similar terms and remaining maturities that management believes the Company could obtain at the date of the debt assumption. Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining life of the loan using the effective interest method. |
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| Cash and Cash Equivalents | Cash and Cash Equivalents
The Company considers investments in highly liquid money market funds or investments with original maturities of three months or less to be cash equivalents. The carrying amount of cash and cash equivalents reported on the consolidated balance sheet approximates fair value. |
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| Restricted Cash | Restricted Cash
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 the Company’s 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 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.
The following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in its consolidated statements of cash flows:
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| Marketable Securities | Marketable Securities
Marketable securities currently consist of debt securities that are designated as available-for-sale and are recorded at fair value. Unrealized holding gains or losses for debt securities are reported as a component of accumulated other comprehensive income/(loss). Realized gains or losses resulting from the sale of these securities are determined based on the specific identification of the securities sold.
An impairment charge is recognized when the decline in the fair value of a security below the amortized cost basis is determined to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the duration and severity of any decline in fair value below the Company’s amortized cost basis, any adverse changes in the financial condition of the issuers’ and its intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. As of December 31, 2020 and 2019, the Company did not recognize any impairment charges. |
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| Investment Impairment | Investment Impairment
For all of the Company’s real estate and real estate related investments, the Company monitors events and changes in circumstances indicating that the carrying amounts of the real estate assets may not be recoverable. Examples of the types of events and circumstances that would cause management to assess the Company’s assets for potential impairment include, but are not limited to: a significant decrease in the market price of an asset; a significant adverse change in the manner in which the asset is being used; an accumulation of costs in excess of the acquisition basis plus construction of the property; major vacancies and the resulting loss of revenues; natural disasters; a change in the projected holding period; legitimate purchase offers; and changes in the global and local markets or economic conditions. To the extent that the Company’s portfolio is concentrated in limited geographic locations, downturns specifically related to such regions may result in tenants defaulting on their lease obligations at those properties within a short time period, which may result in asset impairments. When such events or changes in circumstances are present, the Company assesses potential impairment by comparing estimated future undiscounted operating cash flows expected to be generated over the life of the asset and from its eventual disposition to the carrying amount of the asset. These projected cash flows are prepared internally by the Advisor and reflect in-place and projected leasing activity, market revenue and expense growth rates, market capitalization rates, discount rates, and changes in economic and other relevant conditions. The Company’s management reviews these projected cash flows to assure that the valuation is prepared using reasonable inputs and assumptions that are consistent with market data or with assumptions that would be used by a third-party market participant and assume the highest and best use of the investment. The Company considers trends, strategic decisions regarding future development plans, and other factors in its assessment of whether impairment conditions exist. In the event that the carrying amount exceeds the estimated future undiscounted operating cash flows, the Company recognizes an impairment loss to adjust the carrying amount of the asset to estimated fair value. While the Company believes its estimates of future cash flows are reasonable, different assumptions regarding factors such as market rents, economic conditions, and occupancy rates could significantly affect these estimates.
In evaluating the Company’s investments for impairment, management may use appraisals and make estimates and assumptions, including, but not limited to, the projected date of disposition of the properties, the estimated future cash flows of the properties during the Company’s ownership, and the projected sales price of each of the properties. A future change in these estimates and assumptions could result in understating or overstating the carrying value of the Company’s investments, which could be material to its financial statements. In addition, the Company may incur impairment charges on assets classified as held for sale in the future if the carrying amount of the asset upon classification as held for sale exceeds the estimated fair value, less costs to sell.
During the years ended December 31, 2020 and 2019, the Company did not record any impairment charges. |
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| Investment in Unconsolidated Joint Venture | Investment in Unconsolidated Joint Venture
The Company has and may continue to provide funding to third-party developers for the acquisition, development, and construction of real estate (“ADC Arrangement”). Under an ADC Arrangement, the Company may participate in the residual profits of the project through the sale or refinancing of the property. The Company evaluates such arrangements to determine if they have characteristics similar to a loan or if the characteristics are more similar to a joint venture or partnership such as participating in the risks and rewards of the project as an owner or an investment partner. When the Company determines that the characteristics are more similar to a jointly-owned investment or partnership, it accounts for the arrangement as an investment in an unconsolidated joint venture under the equity method of accounting or a direct investment (consolidated basis of accounting) instead of applying loan accounting. ADC Arrangements are reassessed at each reporting period. See Note 8 of the Notes to the Consolidated Financial Statements for additional information. |
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| Revenue Recognition | Revenue Recognition
The Company recognizes rental income generated from leases of its operating properties on a straight-line basis over the terms of the respective leases, including the effect of rent holidays, if any. Leases associated with the Company’s multifamily and student housing are generally short-term in nature, and thus have no straight-line rent. |
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| Other Assets | Other Assets
Other assets primarily consist of deposits, receivables and intangible assets related to the Company’s consolidated properties. |
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| Deferred Financing Fees | Deferred Financing Costs
Deferred financing costs are recorded at cost and consist of loan fees and other costs incurred in issuing debt. Amortization of deferred financing costs is computed using a method that approximates the effective interest method over the term of the related debt and is included in interest expense in the consolidated statements of operations. Unamortized deferred financing costs are included as a direct deduction from the related debt in the consolidated balance sheets. |
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| Income Taxes | Income Taxes
The Company has elected to be taxed as a REIT commencing with the taxable year ended December 31, 2008. If the Company qualifies as a REIT, it generally will not be subject to U.S. federal income tax on its taxable income or capital gain that it distributes to its stockholders. To maintain its REIT qualification, the Company must meet a number of organizational and operational requirements, including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed at the regular corporate rate, and it may be precluded from qualifying for treatment as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders.
To maintain its qualification as a REIT, the Company engages in certain activities through wholly-owned taxable REIT subsidiaries (“TRSs”). As such, the Company is subject to U.S. federal and state income and franchise taxes from these activities.
As of December 31, 2020 and 2019, the Company had no material uncertain income tax positions. Additionally, even if the Company continues to qualify as a REIT, it may still be subject to some U.S. federal, state and local taxes on our income and property and to U.S. federal income taxes and excise taxes on its undistributed income. |
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| Concentration of Credit Risk | Concentration of Credit Risk
At December 31, 2020 and 2019, the Company had cash and cash equivalents deposited in certain financial institutions in excess of federally insured levels. The Company has diversified its cash and cash equivalents among several banking institutions in an attempt to minimize exposure to any one of these entities. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk in cash and cash equivalents or restricted cash. |
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| Noncontrolling Interest | Noncontrolling Interest
Noncontrolling interest represents the noncontrolling member’s share of the equity in certain of the Company’s consolidated real estate investments. Income and losses are allocated to noncontrolling interest holders based generally on their ownership percentage. In certain instances, the Company’s joint venture agreements provide for liquidating distributions based on achieving certain return metrics (“promoted interest”) and if a property reaches a defined return threshold, then it will result in distributions to the noncontrolling member which differs from the standard pro-rata allocation percentage. |
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| Earnings per Share | Earnings per Share
The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, net (loss) income per share is calculated by dividing net (loss) income by the weighted-average number of shares of common stock outstanding during the applicable period. |
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| COVID-19 Pandemic | COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic leading many countries, including the United States, particularly at the individual state level, to subsequently impose various degrees of restrictions and other measures, including, but not limited to, mandatory temporary closures, quarantine guidelines, limitations on travel, and “shelter in place” rules in an effort to reduce its duration and the severity of its spread. Although the COVID-19 pandemic has continued to evolve, most of these previously imposed restrictions and other measures have now been reduced and/or lifted. However, the COVID-19 pandemic remains highly unpredictable and dynamic and its duration and extent is likely dependent on numerous developments such as the regulatory approval, mass production, administration and ultimate effectiveness of vaccines, as well as the timeline to achieve a level of sufficient herd immunity amongst the general population. Accordingly, the COVID-19 pandemic may continue to have negative effects on the overall health of the U.S. economy for the foreseeable future.
The Company’s consolidated portfolio of properties currently consists of seven multi-family apartment complexes and one student housing complex. Despite past and current restrictions and mitigation strategies, the Company’s multi-family properties still have not yet seen any significant impact from the COVID-19 pandemic. The Company’s student housing complex, which consists of the River Club Apartments and the Townhomes at River Club, are located in Athens, Georgia and principally serve as “off-campus” lodging for students attending the University of Georgia (“UGA”). Leases for the River Club Apartments and Townhomes at River Club generally have a term of one year running from August through July. UGA previously transitioned to online instruction during its Spring 2020 semester and for its other course offerings throughout the summer. However, UGA returned to “on-campus” classes beginning with its Fall 2020 semester and has continued “on-campus” classes into the current Spring 2021 semester. The Company’s student housing complex is located “off-campus” and therefore, its tenants are not required to vacate even if UGA does not conduct “on-campus” classes. However, if UGA decides to return to online instruction for its students in lieu of “on-campus” classes in future semesters, it could adversely impact leasing demand, occupancy levels and the operating results of the Company’s student housing complex in future periods. Additionally, the Company’s note receivable relates to a condominium development project located in New Yok City (the “Condominium Project”), which is subject to similar restrictions and risks. To date, the Company’s note receivable has not been significantly impacted by the COVID-19 pandemic.
While the Company’s business has not yet seen any material impact from the ongoing COVID-19 pandemic, the extent to which it may be affected in future periods will largely depend on current and future developments, all of which are highly uncertain and cannot be reasonably predicted.
If the Company’s properties and real estate-related investments are negatively impacted in future periods for an extended period because (i) tenants are unable to pay their rent, (ii) demand for its student housing complex declines, and (iii) its borrower is unable to pay scheduled debt service on the outstanding note receivable; the Company’s business and financial results could be materially and adversely impacted. |
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| Reclassifications | Reclassifications
Certain prior period amounts have been reclassified to conform to the current year Presentation. |
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Summary of Significant Accounting Policies (Tables) |
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Dec. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of cash, cash equivalents and restricted cash | The following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in its consolidated statements of cash flows:
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Marketable Securities and Fair Value Measurements (Tables) |
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| Schedule of available-for-sale securities reconciliation | The following is a summary of the Company’s available for sale securities:
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| Summary of the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates | The following table summarizes the estimated fair value of the Company’s 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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Financial Instruments not Reported at Fair Value (Tables) |
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| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Notes payable and the related estimated fair value | Carrying amounts of the Company’s notes payable and the related estimated fair value as follows:
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Real Estate and Real Estate-Related Investments (Tables) |
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| Real Estate [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of information pertaining to consolidated investments | The following table presents certain information about the Company’s consolidated investments as of December 31, 2020:
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Held for Sale (Tables) |
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Dec. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||
| Lakes of Margate [Member] | |||||||||||||||||||||||||||||||||||||||||
| Schedule of assets and liabilities held for sale | The following summary presents the major components of the Lakes of Margate’s assets and liabilities held for sale, of as December 31, 2020.
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| Gardens Medical Pavilion [Member] | |||||||||||||||||||||||||||||||||||||||||
| Schedule of assets and liabilities held for sale | The following summary presents the major components of the Gardens Medical Pavilion’s assets and liabilities held for sale as of December 31, 2019:
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Notes Payable (Tables) |
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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of information on notes payable | The following table sets forth information as of the date indicated for the Company’s notes payable, excluding certain mortgage debt associated with properties that were classified as held for sale (see below and Note 9 for additional information):
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| Schedule of contractual obligations for principal payments | The following table provides information with respect to the contractual maturities and scheduled principal repayments of the Company’s indebtedness as of December 31, 2020.
Note:
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Stockholders' Equity (Tables) |
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| Equity [Abstract] | |||||||||||
| Schedule of Redemption Program | The price at which the Company redeems shares submitted for redemption will be a percentage of the estimated NAV per Share as of the Effective Date (as defined in the Fourth Amended SRP), as follows:
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Related Part Transactions (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of fees to related parties | The following table represents the fees incurred associated with the payments to the Advisor for the periods indicated:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business and Organization (Details Narrative) - shares |
12 Months Ended | |||
|---|---|---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
Feb. 10, 2007 |
Jan. 19, 2007 |
|
| Nature of Business [Line Items] | ||||
| Common stock, shares outstanding (in shares) | 20,200,000 | 22,200,000 | ||
| Common stock, shares issued (in shares) | 20,200,000 | 22,200,000 | ||
| Convertible stock issued (in shares) | 1,000 | 1,000 | ||
| Initial Capitalization [Member] | Affiliated Entity [Member] | ||||
| Nature of Business [Line Items] | ||||
| Common stock, shares issued (in shares) | 22,500 | |||
| Convertible stock issued (in shares) | 1,000 | |||
| Initial Offering [Member] | Lightstone Group [Member] | ||||
| Nature of Business [Line Items] | ||||
| Convertible stock issued (in shares) | 1,000 | |||
| Behringer Harvard Opportunity Op II Lp [Member] | ||||
| Nature of Business [Line Items] | ||||
| Percentage of ownership interest by BHO II, Inc | 0.10% | |||
| Marylands [Member] | ||||
| Nature of Business [Line Items] | ||||
| Percentage of remaining ownership interest held by BHO Business Trust II | 99.90% |
Summary of Significant Accounting Policies (Details - Restricted Cash) - USD ($) $ in Thousands |
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 31, 2018 |
|---|---|---|---|
| Accounting Policies [Abstract] | |||
| Cash and cash equivalents | $ 27,078 | $ 15,802 | |
| Restricted cash | 4,373 | 4,148 | |
| Total cash, cash equivalents and restricted cash | $ 31,451 | $ 19,950 | $ 32,652 |
Summary of Significant Accounting Policies (Details Narrative) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
| Impairment of marketable securities | $ 0 | $ 0 |
| Impairment charge | $ 0 | 0 |
| Required minimum percentage distribution of of ordinary taxable income to stockholders to qualify as a REIT | 90.00% | |
| Uncertain income tax positions | $ 0 | $ 0 |
| Hotel [Member] | ||
| Tangible assets, estimated useful lives | 39 years | |
| Other Building [Member] | ||
| Tangible assets, estimated useful lives | 25 years | |
Marketable Securities and Fair Value Measurements (Details - Available for Sale Securities) - USD ($) $ in Thousands |
12 Months Ended | |
|---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
| Fair Value | $ 3,654 | $ 5,496 |
| Corporate And Government Bonds [Member] | ||
| Adjusted Cost | 3,515 | 5,385 |
| Gross Unrealized Gains | 140 | 113 |
| Gross Unrealized Losses | (1) | (2) |
| Fair Value | $ 3,654 | $ 5,496 |
Marketable Securities and Fair Value Measurements (Details - Marketable Debt Securities) - USD ($) $ in Thousands |
Dec. 31, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Marketable Securities and Fair Value Measurements | ||
| Due in 1 year | $ 519 | |
| Due in 1 year through 5 years | 3,135 | |
| Due in 5 years through 10 years | 0 | |
| Due after 10 years | 0 | |
| Total | $ 3,654 | $ 5,496 |
Financial Instruments not Reported at Fair Value (Details) - USD ($) $ in Thousands |
Dec. 31, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Fair Value Disclosures [Abstract] | ||
| Notes payable, Carrying Amount | $ 216,382 | $ 186,761 |
| Notes payable, Estimated Fair Value | $ 219,625 | $ 187,304 |
Real Estate and Real Estate-Related Investments (Details Narrative) - USD ($) $ in Thousands |
1 Months Ended | 3 Months Ended | |||
|---|---|---|---|---|---|
Jan. 15, 2020 |
Mar. 17, 2020 |
Dec. 23, 2019 |
Feb. 14, 2019 |
Mar. 31, 2020 |
|
| Valley Ranch Apartments [Member] | |||||
| Real Estate Properties [Line Items] | |||||
| Business Combination, Consideration Transferred | $ 70,300 | ||||
| Business Combination, Acquisition Related Costs | 1,200 | ||||
| Business Combination, intangibles assets | 1,100 | ||||
| Acquisition Fee and Expense | 1,200 | ||||
| Transfer Mortgage Payable | $ 43,400 | ||||
| Debt Instrument, Interest Rate, Stated Percentage | 4.16% | ||||
| Gardens Medical Pavilion South Florida [Member] | |||||
| Real Estate Properties [Line Items] | |||||
| Sales Contract Price | $ 24,300 | $ 24,300 | |||
| Repayments of Debt | 12,600 | ||||
| Gain (Loss) on Disposition of Real Estate, Discontinued Operations | $ 5,500 | ||||
| Payments to Acquire Additional Interest in Subsidiaries | $ 1,800 | ||||
| Land and Improvements [Member] | Valley Ranch Apartments [Member] | |||||
| Real Estate Properties [Line Items] | |||||
| Business Combination, property, plant and equipment | $ 24,100 | ||||
| Building and Improvements [Member] | Valley Ranch Apartments [Member] | |||||
| Real Estate Properties [Line Items] | |||||
| Business Combination, property, plant and equipment | $ 46,300 | ||||
| Autumn Breeze Apartments [Member] | |||||
| Real Estate Properties [Line Items] | |||||
| Business Combination, Consideration Transferred | $ 43,000 | ||||
| Business Combination, Acquisition Related Costs | 800 | ||||
| Business Combination, intangibles assets | $ 600 | ||||
| Capitalization Rate | 4.86% | ||||
| Autumn Breeze Apartments [Member] | Land and Improvements [Member] | |||||
| Real Estate Properties [Line Items] | |||||
| Business Combination, property, plant and equipment | $ 7,200 | ||||
| Autumn Breeze Apartments [Member] | Building and Improvements [Member] | |||||
| Real Estate Properties [Line Items] | |||||
| Business Combination, property, plant and equipment | $ 36,000 | ||||
Note Receivable (Details Narrative) - USD ($) $ in Thousands |
1 Months Ended | 3 Months Ended | 12 Months Ended | |
|---|---|---|---|---|
Feb. 28, 2019 |
Mar. 31, 2020 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|
| Payments to Acquire Notes Receivable | $ 625 | $ 9,132 | ||
| Note receivable | $ 12,794 | 10,423 | ||
| Mezzanine Loan Promissory Note [Member] | ||||
| Debt Instrument, Face Amount | $ 12,000 | |||
| Payments to Acquire Notes Receivable | 8,000 | $ 4,000 | ||
| Payments for Merger Related Costs | $ 200 | |||
| Debt Instrument, Description of Variable Rate Basis | LIBOR + 11.0% | |||
| Debt Instrument, Basis Spread on Variable Rate | 13.493% | 13.493% | ||
| Debt Instrument Origination Fees Description | The Company received an origination fee of 1.0% of the loan balance, or approximately $0.1 million | |||
| Debt Instrument Origination Fees, Percentage | 0.25% | |||
| Debt Instrument, Maturity Date | Aug. 31, 2021 | |||
| Interest Reserve On Notes Receivable | $ 2,100 | $ 400 | ||
| Utilization Of Interest Reserve Percentage On Interest Due | 8.00% | 8.00% | ||
| Amount of additional interest included in the principal balance | $ 1,200 | |||
| Investment Income, Interest | 1,700 | |||
| Interest income | 1,700 | $ 1,100 | ||
| Note receivable | $ 12,800 | |||
Investment in Unconsolidated Joint Venture (Details Narrative) - USD ($) $ in Thousands |
12 Months Ended | |||
|---|---|---|---|---|
Jan. 04, 2019 |
Dec. 15, 2017 |
Dec. 31, 2020 |
Dec. 31, 2018 |
|
| Schedule of Equity Method Investments [Line Items] | ||||
| Mezzanine financing to unaffiliated third party Entity | $ 15,300 | |||
| Amount of senior construction loan taken by unconsolidated joint venture | 40,000 | |||
| Outstanding principal balance under mezzanine Loan | 15,300 | |||
| Proceeds from escrow deposit | $ 10,900 | |||
| Prospect Park [Member] | ||||
| Schedule of Equity Method Investments [Line Items] | ||||
| Real Estate Property Contractual Sales Price | $ 100,500 | |||
| Proceeds from Sale of Real Estate | 21,600 | |||
| Escrow Deposits Related to Property Sales | $ 15,100 | $ 2,300 | ||
| Equity Method Investments | $ 10,900 | |||
| Proceeds from escrow deposit | $ 1,900 | |||
| Minimum [Member] | ||||
| Schedule of Equity Method Investments [Line Items] | ||||
| Annual interest rate for mezzanine loan | 10.00% | |||
| Maximum [Member] | ||||
| Schedule of Equity Method Investments [Line Items] | ||||
| Annual interest rate for mezzanine loan | 18.00% |
Held for Sale (Details) - USD ($) $ in Thousands |
Dec. 31, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Total assets held for sale | $ 24,140 | $ 18,192 |
| Total liabilities held for sale | 37,165 | $ 13,686 |
| Lakes of Margate [Member] | ||
| Net investment property | 21,308 | |
| Other assets | 2,832 | |
| Total assets held for sale | 24,140 | |
| Note payable, net | 35,136 | |
| Accounts payable and accrued expenses | 2,029 | |
| Total liabilities held for sale | 37,165 | |
| Gardens Medical Pavilion South Florida [Member] | ||
| Net investment property | 17,448 | |
| Other assets | 744 | |
| Total assets held for sale | 18,192 | |
| Note payable, net | 12,441 | |
| Accounts payable and accrued expenses | 1,245 | |
| Total liabilities held for sale | $ 13,686 |
Held for Sale (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | |||||
|---|---|---|---|---|---|---|
Jan. 15, 2020 |
Mar. 17, 2021 |
Mar. 31, 2020 |
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 23, 2019 |
|
| Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||||
| Note receivable | $ 12,794 | $ 10,423 | ||||
| Lakes of Margate [Member] | ||||||
| Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||||
| Proceeds from disposal of property | $ 51,000 | |||||
| Lakes of Margate [Member] | Subsequent Event [Member] | ||||||
| Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||||
| Proceeds from disposal of property | $ 15,300 | |||||
| Note receivable | $ 35,700 | |||||
| Gardens Medical Pavilion [Member] | ||||||
| Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||||||
| Proceeds from disposal of property | $ 12,600 | |||||
| Contractual sale price | 24,300 | $ 24,300 | ||||
| Gain (Loss) on Disposition of Real Estate, Discontinued Operations | $ 5,500 | |||||
| Payments to Acquire Additional Interest in Subsidiaries | 1,800 | |||||
| Repayment of mortgage gardens medical mortgage | $ 12,600 | |||||
Notes Payable (Details - Information on Notes Payable) - USD ($) $ in Thousands |
12 Months Ended | ||
|---|---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
Feb. 14, 2019 |
|
| Debt Instrument [Line Items] | |||
| Amount Due at Maturity | $ 212,989 | ||
| Less: deferred financing costs | $ (3,393) | ||
| Notes Payable To Banks [Member] | |||
| Debt Instrument [Line Items] | |||
| Weighted Average Interest Rate | 3.71% | ||
| Amount Due at Maturity | $ 202,566 | ||
| Total notes payable | 216,382 | $ 186,761 | |
| Less: deferred financing costs | (3,393) | (2,973) | |
| Total notes payable, net | $ 212,989 | 183,788 | |
| River Club And Townhomes At River Club Athens [Member] | Notes Payable To Banks [Member] | |||
| Debt Instrument [Line Items] | |||
| Debt Instrument, Interest Rate | LIBOR + 1.78% | ||
| Weighted Average Interest Rate | 1.92% | ||
| Debt Instrument, Maturity Date | May 01, 2025 | ||
| Amount Due at Maturity | $ 28,419 | ||
| Total notes payable | $ 30,359 | 30,359 | |
| Arbors Harbor Town Memphis [Member] | Notes Payable To Banks [Member] | |||
| Debt Instrument [Line Items] | |||
| Interest rate (as a percent) | 4.53% | ||
| Weighted Average Interest Rate | 4.53% | ||
| Debt Instrument, Maturity Date | Dec. 28, 2025 | ||
| Amount Due at Maturity | $ 29,000 | ||
| Total notes payable | $ 29,000 | 29,000 | |
| Parkside Apartments Sugarland Texas [Member] | Notes Payable To Banks [Member] | |||
| Debt Instrument [Line Items] | |||
| Interest rate (as a percent) | 4.45% | ||
| Weighted Average Interest Rate | 4.45% | ||
| Debt Instrument, Maturity Date | Jun. 01, 2025 | ||
| Amount Due at Maturity | $ 15,782 | ||
| Total notes payable | $ 17,289 | 17,588 | |
| Axis At Westmont [Member] | Notes Payable To Banks [Member] | |||
| Debt Instrument [Line Items] | |||
| Interest rate (as a percent) | 4.39% | ||
| Weighted Average Interest Rate | 4.39% | ||
| Debt Instrument, Maturity Date | Feb. 01, 2026 | ||
| Amount Due at Maturity | $ 34,343 | ||
| Total notes payable | $ 37,600 | 37,600 | |
| Valley Ranch Apartments [Member] | |||
| Debt Instrument [Line Items] | |||
| Interest rate (as a percent) | 4.16% | ||
| Valley Ranch Apartments [Member] | Notes Payable To Banks [Member] | |||
| Debt Instrument [Line Items] | |||
| Interest rate (as a percent) | 4.16% | ||
| Weighted Average Interest Rate | 4.16% | ||
| Debt Instrument, Maturity Date | Mar. 01, 2026 | ||
| Amount Due at Maturity | $ 43,414 | ||
| Total notes payable | $ 43,414 | 43,414 | |
| Flats At Fishers [Member] | Notes Payable To Banks [Member] | |||
| Debt Instrument [Line Items] | |||
| Interest rate (as a percent) | 3.78% | ||
| Weighted Average Interest Rate | 3.78% | ||
| Debt Instrument, Maturity Date | Jul. 01, 2026 | ||
| Amount Due at Maturity | $ 26,090 | ||
| Total notes payable | $ 28,800 | 28,800 | |
| Autumn Breeze Apartments [Member] | Notes Payable To Banks [Member] | |||
| Debt Instrument [Line Items] | |||
| Interest rate (as a percent) | 3.39% | ||
| Weighted Average Interest Rate | 3.39% | ||
| Debt Instrument, Maturity Date | Apr. 01, 2030 | ||
| Amount Due at Maturity | $ 25,518 | ||
| Total notes payable | $ 29,920 | $ 0 |
Notes Payable (Details - Contractual Obligations for Principal Payments) $ in Thousands |
Dec. 31, 2020
USD ($)
|
|||
|---|---|---|---|---|
| Debt Disclosure [Abstract] | ||||
| 2021 | $ 1,023 | [1] | ||
| 2022 | 1,468 | [1] | ||
| 2023 | 2,498 | [1] | ||
| 2024 | 3,181 | [1] | ||
| 2025 | 46,590 | [1] | ||
| Thereafter | 161,622 | [1] | ||
| Total principal maturities | 216,382 | [1] | ||
| Less: deferred financing costs | (3,393) | |||
| Total notes payable, net | $ 212,989 | |||
| ||||
Notes Payable (Details Narrative) - USD ($) $ in Thousands |
1 Months Ended | 3 Months Ended | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jan. 15, 2020 |
Jun. 13, 2019 |
Jun. 01, 2018 |
May 02, 2018 |
Jun. 26, 2020 |
Mar. 31, 2020 |
Feb. 14, 2019 |
Dec. 28, 2018 |
Nov. 27, 2018 |
Jun. 28, 2018 |
Mar. 17, 2021 |
Mar. 31, 2020 |
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 23, 2019 |
|
| Debt Instrument [Line Items] | |||||||||||||||
| Note receivable | $ 12,794 | $ 10,423 | |||||||||||||
| Lakes of Margate [Member] | |||||||||||||||
| Debt Instrument [Line Items] | |||||||||||||||
| Proceeds from disposal of property | $ 51,000 | ||||||||||||||
| Gardens Medical Pavilion [Member] | |||||||||||||||
| Debt Instrument [Line Items] | |||||||||||||||
| Payments to Acquire Additional Interest in Subsidiaries | $ 1,800 | ||||||||||||||
| Contractual sale price | 24,300 | $ 24,300 | |||||||||||||
| Repayment of mortgage gardens medical mortgage | 12,600 | ||||||||||||||
| Proceeds from disposal of property | $ 12,600 | ||||||||||||||
| Subsequent Event [Member] | Lakes of Margate [Member] | |||||||||||||||
| Debt Instrument [Line Items] | |||||||||||||||
| Proceeds from disposal of property | $ 15,300 | ||||||||||||||
| Note receivable | $ 35,700 | ||||||||||||||
| Axis At Westmont [Member] | |||||||||||||||
| Debt Instrument [Line Items] | |||||||||||||||
| Principal amount | $ 37,600 | ||||||||||||||
| Debt Instrument, Maturity Date | Feb. 01, 2026 | ||||||||||||||
| Periodic payment, interest | $ 200 | ||||||||||||||
| Periodic payment, principal | $ 200 | ||||||||||||||
| Frequency of periodic payment | Monthly | ||||||||||||||
| Debt Instrument, Basis Spread on Variable Rate | 4.39% | ||||||||||||||
| Arbors Harbor Town Memphis [Member] | |||||||||||||||
| Debt Instrument [Line Items] | |||||||||||||||
| Principal amount | $ 29,000 | ||||||||||||||
| Debt Instrument, Maturity Date | Dec. 28, 2018 | ||||||||||||||
| Debt Instrument, Basis Spread on Variable Rate | 4.53% | ||||||||||||||
| Repayments of Debt and Capital Lease Obligations | $ 23,700 | ||||||||||||||
| Payments to Acquire Additional Interest in Subsidiaries | $ 1,900 | ||||||||||||||
| Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners | 6.00% | ||||||||||||||
| Subsidiary or Equity Method Investee, Cumulative Percentage Ownership after All Transactions | 100.00% | ||||||||||||||
| Lakes of Margate [Member] | |||||||||||||||
| Debt Instrument [Line Items] | |||||||||||||||
| Principal amount | $ 35,700 | ||||||||||||||
| Debt Instrument, Maturity Date | Jul. 01, 2030 | ||||||||||||||
| Debt term | 10 years | ||||||||||||||
| Repayments of Debt and Capital Lease Obligations | $ 400 | ||||||||||||||
| Payments to Acquire Additional Interest in Subsidiaries | $ 1,400 | ||||||||||||||
| Debt Instrument, Description of Variable Rate Basis | LIBOR + 2.98% | ||||||||||||||
| Parkside [Member] | |||||||||||||||
| Debt Instrument [Line Items] | |||||||||||||||
| Principal amount | $ 18,000 | ||||||||||||||
| Debt Instrument, Basis Spread on Variable Rate | 4.45% | ||||||||||||||
| Repayments of Secured Debt | $ 9,600 | ||||||||||||||
| Valley Ranch Apartments [Member] | |||||||||||||||
| Debt Instrument [Line Items] | |||||||||||||||
| Debt Instrument, Maturity Date | Mar. 01, 2026 | ||||||||||||||
| Debt Instrument, Basis Spread on Variable Rate | 4.16% | ||||||||||||||
| Flats At Fishers Loan [Member] | |||||||||||||||
| Debt Instrument [Line Items] | |||||||||||||||
| Principal amount | $ 28,800 | ||||||||||||||
| Debt Instrument, Maturity Date | Jul. 01, 2026 | ||||||||||||||
| Debt Instrument, Basis Spread on Variable Rate | 3.78% | ||||||||||||||
| River Club And Townhomes At River Club Athens [Member] | |||||||||||||||
| Debt Instrument [Line Items] | |||||||||||||||
| Principal amount | $ 30,400 | ||||||||||||||
| Repayments of Secured Debt | $ 23,400 | ||||||||||||||
| Debt Instrument, Description of Variable Rate Basis | Libor plus 1.78% | ||||||||||||||
| Gardens Medical Pavilion [Member] | |||||||||||||||
| Debt Instrument [Line Items] | |||||||||||||||
| Principal amount | $ 13,000 | ||||||||||||||
| Debt Instrument, Description of Variable Rate Basis | Libor plus 1.90% | ||||||||||||||
| Autumn Breeze Apartments Loan [Member] | |||||||||||||||
| Debt Instrument [Line Items] | |||||||||||||||
| Principal amount | $ 29,900 | $ 29,900 | |||||||||||||
| Debt Instrument, Maturity Date | Apr. 01, 2030 | ||||||||||||||
| Periodic payment, interest | $ 100 | ||||||||||||||
| Periodic payment, principal | $ 100 | ||||||||||||||
| Frequency of periodic payment | Monthly | ||||||||||||||
| Debt term | 10 years | ||||||||||||||
| Debt Instrument, Basis Spread on Variable Rate | 3.39% | ||||||||||||||
Stockholders' Equity (Details - Summary of Estimated Net Asset Value Per Share as of Effective Date) |
Dec. 31, 2020 |
|---|---|
| July 1, 2018 and June 30, 2019 [Member] | |
| Share Redemption Program, Redemption Price, Percentage of Share Price | 92.50% |
| July 1, 2019 and June 30, 2020 [Member] | |
| Share Redemption Program, Redemption Price, Percentage of Share Price | 95.00% |
| July 1, 2020 and June 30, 2021 [Member] | |
| Share Redemption Program, Redemption Price, Percentage of Share Price | 97.50% |
| Thereafter [Member] | |
| Share Redemption Program, Redemption Price, Percentage of Share Price | 100.00% |
Stockholders' Equity (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands |
1 Months Ended | 3 Months Ended | 12 Months Ended | |||||
|---|---|---|---|---|---|---|---|---|
Apr. 30, 2020 |
Dec. 17, 2019 |
Dec. 28, 2018 |
Mar. 25, 2021 |
Dec. 31, 2020 |
Dec. 31, 2019 |
Aug. 31, 2020 |
Jun. 16, 2020 |
|
| Class of Stock [Line Items] | ||||||||
| Common stock, shares authorized (in shares) | 350,000,000 | 350,000,000 | ||||||
| Preferred stock, shares authorized (in shares) | 50,000,000 | 50,000,000 | ||||||
| Convertible stock, shares authorized (in shares) | 1,000 | 1,000 | ||||||
| Common stock, shares issued (in shares) | 20,200,000 | 22,200,000 | ||||||
| Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 | ||||||
| Common stock, shares outstanding (in shares) | 20,200,000 | 22,200,000 | ||||||
| Common stock redeemed (in shares) | 4,500,000 | 1,200,000 | ||||||
| Convertible stock, shares outstanding (in shares) | 1,000 | 1,000 | ||||||
| Share redemption program, annual limitation, percentage of weighted average shares outstanding | 5.00% | |||||||
| Percentage of real estate investment trust taxable income | 90.00% | |||||||
| Treasury Stock Acquired, Average Cost Per Share | $ 9.18 | $ 7.94 | ||||||
| Subsequent Event [Member] | ||||||||
| Class of Stock [Line Items] | ||||||||
| Treasury Stock Acquired, Average Cost Per Share | $ 9.42 | |||||||
| 2020 Tender Offer [Member] | ||||||||
| Class of Stock [Line Items] | ||||||||
| Number of shares offered in a tender | 300,000 | |||||||
| Common stock, par value (in dollars per share) | $ 2.25 | |||||||
| Aggregate value | $ 100 | $ 700 | ||||||
| Number of shares validly tendered in the offer | 26,637 | |||||||
| 2019 Tender Offer [Member] | ||||||||
| Class of Stock [Line Items] | ||||||||
| Number of shares offered in a tender | 2,000,000 | |||||||
| Common stock, par value (in dollars per share) | $ 7.75 | |||||||
| Aggregate value | $ 15,600 | $ 15,500 | ||||||
| Number of shares validly tendered in the offer | 2,183,888 | |||||||
| Common stock redeemed (in shares) | 2,000,000 | |||||||
| Percentage of shares repurchased | 91.58% | |||||||
| Convertible Preferred Stock [Member] | ||||||||
| Class of Stock [Line Items] | ||||||||
| Cumulative, non-compounded, annual return for shares for automatic conversion of convertible stock | 10.00% | |||||||
| Average period considered for determination of aggregate market value of common stock | 30 days | |||||||
| Percentage of excess of enterprise value plus the aggregate value of distributions paid to date on outstanding shares of common stock over aggregate issue price of outstanding shares for determination of conversion price | 20.00% | |||||||
| Cumulative, non-compounded, annual return on issue price added to issue price for determination of conversion price | 10.00% | |||||||
| Percentage of excess of enterprise value plus the aggregate value of distributions paid to date on outstanding shares of common stock over aggregate issue price of outstanding shares for determination of conversion price | 15.00% | |||||||
| Cumulative, non-compounded, annual return on issue price for determination of conversion price | 6.00% | |||||||
Related Party Transactions (Details - Fees to Related Parties) - Related Party [Member] - USD ($) $ in Thousands |
12 Months Ended | |||||
|---|---|---|---|---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|||||
| Related Party Transaction [Line Items] | ||||||
| Acquisition fees and acquisition expense reimbursement (1) | [1] | $ 764 | $ 1,428 | |||
| Debt financing fees (2) | [2] | 656 | 722 | |||
| Property management fees (property operating expenses) | 468 | 467 | ||||
| Administrative services reimbursement (general and administrative costs) | 1,321 | 1,300 | ||||
| Asset management fees (general and administrative costs) | 2,721 | 2,446 | ||||
| Total | $ 5,930 | $ 6,363 | ||||
| ||||||
Related Party Transactions (Details Narrative) - Behringer Harvard Opportunity II Advisors [Member] - USD ($) $ in Thousands |
1 Months Ended | 5 Months Ended | 12 Months Ended | |||||
|---|---|---|---|---|---|---|---|---|
Jun. 29, 2020 |
Mar. 31, 2020 |
Mar. 16, 2020 |
Jun. 10, 2019 |
Jun. 10, 2021 |
Dec. 31, 2020 |
Jun. 10, 2020 |
Dec. 31, 2019 |
|
| Related Party Transaction [Line Items] | ||||||||
| Acquisition and advisory fees as percentage of purchase, development, construction, or improvement of each asset acquired | 1.50% | |||||||
| Acquisition and advisory fees as percentage of funds advanced in respect of loan investment | 1.50% | |||||||
| Percentage of debt financing fee payable under loan or line of credit | 1.00% | |||||||
| Monthly asset management fee | 0.70% | |||||||
| Administrative Services Costs Reimbursement Real Estate Management | $ 1,290 | $ 1,312 | ||||||
| Property management fees as percentage of gross revenues of properties | 4.00% | |||||||
| Percentage of Property management fees or oversight fees incurred | 0.50% | |||||||
| Construction management fees, percentage | 5.00% | |||||||
| Payable To External Advisor And Affiliates | $ 0 | $ 6 | ||||||
| Proceeds from related party debt | $ 25,000 | |||||||
| Interest rate | 5.00% | |||||||
| Repayment of related party debt | $ 10,000 | $ 15,000 | ||||||
| Interest expenses | $ 200 | |||||||
| Minimum [Member] | ||||||||
| Related Party Transaction [Line Items] | ||||||||
| Operating expenses in excess of average invested assets | 2.00% | |||||||
| Operating expenses in excess of net income | 25.00% | |||||||
| Subsequent Event [Member] | ||||||||
| Related Party Transaction [Line Items] | ||||||||
| Administrative Services Costs Reimbursement Real Estate Management | $ 1,330 | |||||||
| Asset Purchases [Member] | ||||||||
| Related Party Transaction [Line Items] | ||||||||
| Percentage of reimbursement of acquisition expense | 0.25% | |||||||
| Development Constructionor Improvement of Assets [Member] | ||||||||
| Related Party Transaction [Line Items] | ||||||||
| Percentage of reimbursement of acquisition expense | 0.25% | |||||||
| Funds Advanced For Loan Investment [Member] | ||||||||
| Related Party Transaction [Line Items] | ||||||||
| Percentage of reimbursement of acquisition expense | 0.25% | |||||||
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