UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended
Commission
File Number:
(Exact Name of Registrant as Specified in Its Charter)
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate
by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the Registrant has submitted electronically, if any, 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).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | 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 ☐
As of August 8, 2022, the Registrant had approximately million shares of common stock outstanding.
LIGHTSTONE VALUE PLUS REIT V, INC.
INDEX
i
PART I
FINANCIAL INFORMATION
| Item 1. | Financial Statements. |
Lightstone Value Plus REIT V, Inc.
Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
| June 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Investment property: | ||||||||
| Land and improvements | $ | $ | ||||||
| Building and improvements | ||||||||
| Furniture, fixtures and equipment | ||||||||
| Gross investment property | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net investment property | ||||||||
| Cash and cash equivalents | ||||||||
| Marketable securities, available for sale | ||||||||
| Restricted cash | ||||||||
| Note receivable, net | ||||||||
| Prepaid expenses and other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Notes payable, net | $ | $ | ||||||
| Accounts payable, accrued expenses and other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Company’s stockholders’ equity: | ||||||||
| Preferred stock, $ par value per share; million shares authorized, issued and outstanding | ||||||||
| Convertible stock, $ par value per share; shares authorized, issued and outstanding | ||||||||
| Common stock, $ par value per share; million shares authorized, million shares issued and outstanding | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated other comprehensive (loss)/income | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See Notes to Consolidated Financial Statements.
1
Lightstone Value Plus REIT V, Inc.
Consolidated Statements of Operations and Comprehensive Income
(dollars and shares in thousands, except per share amounts)
(unaudited)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Rental revenues | $ | $ | $ | $ | ||||||||||||
| Expenses | ||||||||||||||||
| Property operating expenses | ||||||||||||||||
| Real estate taxes | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating (loss)/income | ( | ) | ( | ) | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Gain on sale of investment property | ||||||||||||||||
| Gain on disposition of unconsolidated joint venture | ||||||||||||||||
| Mark to market adjustment on derivative financial instruments | ||||||||||||||||
| Income tax benefit | ||||||||||||||||
| Other income, net | ||||||||||||||||
| Net (loss)/income | ( | ) | ( | ) | ||||||||||||
| Net income attributable to noncontrolling interests | ( | ) | ( | ) | ||||||||||||
| Net (loss)/income attributable to the Company’s shares | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
| Basic and diluted income/(loss) per share | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Comprehensive (loss)/income: | ||||||||||||||||
| Net (loss)/income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Other comprehensive loss: | ||||||||||||||||
| Holding loss on marketable securities, available for sale | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Reclassification adjustment for loss/(gain) included in net (loss)/income | ( | ) | ( | ) | ||||||||||||
| Total other comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive(loss)/income: | ( | ) | ( | ) | ||||||||||||
| Comprehensive income attributable to noncontrolling interests | ( | ) | ( | ) | ||||||||||||
| Comprehensive(loss)/income attributable to the Company’s shares | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
See Notes to Consolidated Financial Statements.
2
Lightstone Value Plus REIT V, Inc.
Consolidated Statements of Stockholders’ Equity
(dollars and shares in thousands)
(unaudited)
| Convertible Stock | Common Stock | Additional Paid-In |
Accumulated Other Comprehensive |
Accumulated | Noncontrolling | Total Stockholders’ |
||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income | Deficit | Interests | Equity | ||||||||||||||||||||||||||||
| BALANCE, March 31, 2021 | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||
| Distributions paid to noncontrolling interests | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Other comprehensive loss: | ||||||||||||||||||||||||||||||||||||
| Holding loss on marketable securities, available for sale | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Reclassification adjustment for loss on sale of marketable securities included in net income | - | - | ||||||||||||||||||||||||||||||||||
| BALANCE, June 30, 2021 | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||||
| Convertible Stock | Common Stock | Additional Paid-In |
Accumulated Other Comprehensive |
Accumulated | Noncontrolling | Total Stockholders’ |
||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income | Deficit | Interests | Equity | ||||||||||||||||||||||||||||
| BALANCE, December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||||||
| Distributions paid to noncontrolling interests | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Acquisition of noncontrolling interest in a subsidiary | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Other comprehensive loss: | ||||||||||||||||||||||||||||||||||||
| Holding loss on marketable securities, available for sale | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Reclassification adjustment for gain on sale of marketable securities included in net income | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| BALANCE, June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| Convertible Stock | Common Stock | Additional Paid-In |
Accumulated
Other Comprehensive |
Accumulated | Total Stockholders’ |
|||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||||||||
| BALANCE, March 31, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Redemption and cancellation of common stock | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Other comprehensive loss: | ||||||||||||||||||||||||||||||||
| Holding loss on marketable securities, available for sale | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Reclassification adjustment for loss on sale of marketable securities included in net loss | - | - | ||||||||||||||||||||||||||||||
| BALANCE, June 30, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Convertible Stock | Common Stock | Additional Paid-In |
Accumulated
Other Comprehensive |
Accumulated | Total
Stockholders’ |
|||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||||||||
| BALANCE, December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Redemption and cancellation of common stock | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Other comprehensive loss: | ||||||||||||||||||||||||||||||||
| Holding loss on marketable securities, available for sale | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Reclassification adjustment for gain on sale of marketable securities included in net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| BALANCE, June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
See Notes to Consolidated Financial Statements.
3
Lightstone Value Plus REIT V, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss)/income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss)/income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of deferred financing fees | ||||||||
| Gain on disposition of unconsolidated joint venture | ( | ) | ||||||
| Gain on sale of investment property | ( | ) | ||||||
| Mark to market adjustment on derivative financial instruments | ( | ) | ||||||
| Non-cash interest income | ( | ) | ( | ) | ||||
| Other non-cash adjustments | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase)/decrease in prepaid expenses and other assets | ( | ) | ||||||
| Increase/(decrease) in accounts payable, accrued expenses and other liabilities | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of investment property | ( | ) | ( | ) | ||||
| Purchases of marketable securities | ( | ) | ( | ) | ||||
| Proceeds from sale of marketable securities | ||||||||
| Proceeds from repayment of note receivable | ||||||||
| Acquisition of noncontrolling interest | ( | ) | ||||||
| Proceeds from sale of investment property, net of closing costs | ||||||||
| Proceeds from disposition of unconsolidated joint venture | ||||||||
| Net cash provided by investing activities | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from notes payable | ||||||||
| Payments on notes payable | ( | ) | ( | ) | ||||
| Payment of loan fees and expenses | ( | ) | ||||||
| Redemption and cancellation of common stock | ( | ) | ||||||
| Distributions to noncontrolling interest holders | ( | ) | ||||||
| Net cash provided by/(used in) by financing activities | ( | ) | ||||||
| Net change in cash, cash equivalents and restricted cash | ||||||||
| Cash, cash equivalents and restricted cash, beginning of year | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
| Supplemental cash flow information for the periods indicated is as follows: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Debt assumed by buyer in connection with disposition of investment property | $ | $ | ||||||
| Capital expenditures for investment property in accrued liabilities and accounts payable | $ | $ | ||||||
| Holding loss on marketable securities, available for sale | $ | $ | ||||||
| The following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in our statements of cash flows for the periods presented: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash and restricted cash | $ | $ | ||||||
See Notes to Consolidated Financial Statements.
4
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
| 1. | Business |
Lightstone Value Plus REIT V, Inc. (“Lightstone REIT V”) which was formerly known as Lightstone Value Plus Real Estate Investment Trust V, Inc. before August 31, 2021, 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.
Lightstone REIT V, together with its subsidiaries is collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns refers to Lightstone REIT V or the Company as required by the context in which any such pronoun is used.
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 June 30, 2022, the Company had eight wholly owned real estate investments (multi-family apartment complexes) 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 June 30, 2022, the Company’s wholly-owned subsidiary, BHO II, Inc., a Delaware corporation,
owned a
The Company’s business is externally managed by LSG Development Advisor LLC (the “Advisor”), an affiliate of the Lightstone Group LLC (“Lightstone”) which provides advisory services to the Company and the Company has no employees. Lightstone is majority owned by the chairman emeritus 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 shares of its common stock and shares of its convertible stock to the Company’s previous advisor on January 19, 2007. The shares of convertible stock were transferred to an affiliate of Lightstone on February 10, 2017 and remain outstanding. As of June 30, 2022, the Company had 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 and the Company’s board of directors’ assessment of the Company’s investment objectives and liquidity options for the Company’s stockholders. Currently, the Company’s board of directors has targeted June 30, 2028 for the commencement of a liquidity event. However, 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. Furthermore, the Company will seek stockholder approval prior to liquidating its entire portfolio.
5
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Noncontrolling Interests
Effective as of December 30, 2021, the Company wholly-owns all of its real estate investments and does not have any remaining noncontrolling interests. Prior to December 30, 2021, noncontrolling interests represented the noncontrolling ownership interest’s proportionate share of the equity in the Company’s consolidated real estate investments. Income and losses were allocated to noncontrolling interest holders based generally on their ownership percentage but in certain instances, if a property reached a defined return threshold, then it may have resulted in distributions to noncontrolling interests which were different from the standard pro-rata allocation percentage. Additionally, in certain instances, the joint venture agreements may have provided for liquidating distributions based on achieving certain return metrics.
Acquisitions of Noncontrolling Members’ Ownership Interests in Consolidated Real Estate Investments
On
March 17, 2021, the Company acquired the noncontrolling member’s
On
December 20, 2021, the Company acquired the noncontrolling member’s
On
December 30, 2021, the Company acquired the noncontrolling member’s
| 2. | Summary of Significant Accounting Policies |
Interim Unaudited Financial Information
The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the Securities and Exchange Commission (the “SEC”) on March 24, 2022. The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of the results for the periods presented. The accompanying unaudited consolidated financial statements of Lightstone Value Plus REIT V, Inc. have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.’
Principles of Consolidation and Basis of Presentation
Our consolidated financial statements include our accounts and the accounts of other subsidiaries over which the Company 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 or entities which we are not deemed to be the primary beneficiary, it accounts for the investment using the equity method of accounting.
The consolidated balance sheet as of December 31, 2021 included herein has been derived from the consolidated balance sheet included in the Company’s Annual Report on Form 10-K.
The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.
6
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, basic and diluted earnings per share is calculated by dividing net income/(loss) by the weighted-average number of shares of common stock outstanding during the applicable period.
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 our consolidated properties. Capital reserves are typically utilized for non-operating expenses such as tenant improvements, leasing commissions, 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.
Interest Rate Cap Contracts
The Company utilizes derivative financial instruments to reduce interest rate risk. The Company does not hold or issue derivative financial instruments for trading purposes. The Company recognizes all derivatives as either assets or liabilities in the consolidated balance sheets and measures those instruments at fair value. Changes in fair value of those instruments are recorded in the consolidated statements of operations.
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.
During
2015, the Company recorded an aggregate provision for income tax of $
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and it remains highly unpredictable and dynamic and its ultimate duration and extent continue to be dependent on various developments, such as the emergence of variants to the virus that may cause additional strains of COVID-19, and the development, administration and ultimate effectiveness of vaccines, including booster shots. Accordingly, the ongoing COVID-19 pandemic may continue to have negative effects on the U.S. and global economies for the foreseeable future.
7
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
As of June 30, 2022, the Company’s consolidated portfolio of properties consisted of eight multi-family apartment complexes, all of which are located in the U.S. Its multi-family properties have not been significantly impacted by the COVID-19 pandemic and their occupancy levels, rental rates and rental collections have remained stable since the onset of the COVID-19 pandemic. Additionally, the Company’s note receivable (the “500 West 22nd Street Mezzanine Loan”) is collateralized by a substantially completed 10-unit condominium development project located in New York City (the “Condominium Project”), which is subject to risks related to the COVID-19 pandemic. To date, both the Condominium Project and the Company’s 500 West 22nd Street Mezzanine Loan have not been significantly impacted by the COVID-19 pandemic.
The Company continues to closely monitor the overall extent as to which its business may be affected by the ongoing COVID-19 pandemic which 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 its real estate-related investments are negatively impacted by the ongoing COVID-19 pandemic in future periods for an extended period because (i) tenants are unable to pay their rent, (ii) leasing demand falls causing declines in occupancy levels and/or rental rates, and (iii) the borrower is unable to pay scheduled debt service on the 500 West 22nd Street Mezzanine Loan; the Company’s business and financial results could be materially and adversely impacted.
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 adoption of this standard will not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.
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.
| 3. | 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 the 500 West 22nd Street Mezzanine Loan, a loan promissory note, pursuant to which the Company funded $
The
500 West 22nd Street Mezzanine Loan bears interest at a rate of
The
500 West 22nd Street Mezzanine Loan Borrower has developed and constructed the Condominium Project located at 500 West 22nd Street, New
York, New York, which is substantially complete. During the six months ended June 30, 2022, the 500 West 22nd Street Mezzanine Loan Borrower
repaid $
As
of June 30, 2022, the remaining outstanding principal balance of the 500 West 22nd Street Mezzanine Loan was $
8
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
| 4. | Financial Instruments |
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 June 30, 2022 and December 31, 2021, management estimated that the carrying value of cash and cash equivalents, restricted cash, note receivable, prepaid expenses and other assets and accounts payable, accrued expenses and other liabilities 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 June 30, 2022 and December 31, 2021. Carrying amounts of our notes payable and the related estimated fair value is summarized as follows:
| As of June 30, 2022 | As of December 31, 2021 | |||||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
| Notes payable | $ | $ | $ | $ | ||||||||||||
| 5. | Real Estate Properties |
The following table presents certain information about the Company’s wholly owned and consolidated multifamily real estate properties as of June 30, 2022:
| Property Name | Location | Date Acquired | ||
| Arbors Harbor Town | ||||
| Parkside Apartments (“Parkside”) | ||||
| Flats at Fishers | ||||
| Axis at Westmont | ||||
| Valley Ranch Apartments | ||||
| Autumn Breeze Apartments | ||||
| BayVue Apartments | ||||
| Citadel Apartments |
Acquisition Activities
Acquisition of BayVue Apartments
On
July 7, 2021, the Company completed the acquisition of a 368-unit multifamily property located in Tampa, Florida (the “BayVue
Apartments”), from an unrelated third party for a contractual purchase price of $
9
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Acquisition of Citadel Apartments
On
October 6, 2021, the Company acquired a 293-unit multifamily property located in Houston, Texas (the “Citadel Apartments”),
from an unrelated third party for a contractual purchase price of $
Dispositions Activities
The following dispositions 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 their operating results are reflected in the Company’s results from continuing operations in the consolidated statements of operations for all periods presented through their respective dates of disposition:
Disposition of Lakes of Margate
On
March 17, 2021, the Company completed the disposition of the Lakes of Margate for a contractual sales price of $
Disposition of the River Club Properties
On
December 22, 2021, the Company completed the disposition of the River Club Apartments and the Townhomes at River Club, two student housing
complexes with a total of 1,134 beds (collectively, the “River Club Properties”) located in Athens, Georgia, for a contractual
sales price of $
10
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
| 6. | Marketable Securities, Derivative Financial Instruments and Fair Value Measurements |
Marketable Securities
The following is a summary of the Company’s available for sale securities as of the dates indicated:
| As of June 30, 2022 | ||||||||||||||||
| Debt securities: | Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| Corporate and Government Bonds | $ | $ | $ | ( | ) | $ | ||||||||||
| As of December 31, 2021 | ||||||||||||||||
| Debt securities: | Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| Corporate and Government Bonds | $ | $ | $ | ( | ) | $ | ||||||||||
When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s amortized cost basis. As of June 30, 2022, the Company did not recognize any impairment charges.
The following table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:
| As of June 30, 2022 | ||||
| Due in 1 year | $ | |||
| Due in 1 year through 5 years | ||||
| Due in 5 years through 10 years | ||||
| Due after 10 years | ||||
| Total | $ | |||
11
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Derivative Financial Instruments
The Company has entered into two interest rate cap contracts with unrelated financial institutions in order to reduce the effect of interest rate fluctuations or risk of certain real estate investment’s interest expense on its variable rate debt. The Company is exposed to credit risk in the event of non-performance by the counterparty to these financial instruments. Management believes the risk of loss due to non-performance to be minimal.
The Company is accounting for the interest rate cap contracts as economic hedges, marking these contracts to market, taking into account present interest rates compared to the contracted fixed rate over the life of the contract and recording the unrealized gain or loss on the interest rate cap contracts in the consolidated statements of operations.
For
the three and six months ended June 30, 2022, the Company recorded an unrealized gain of $
The
interest rate cap contracts have notional amounts of $
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 value 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. The fair value of the Company’s interest rate cap contracts are measured using other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. As of June 30, 2022, all of the Company’s debt securities and interest rate cap contracts were classified as Level 2 assets and there were no transfers between the level classifications during the six months ended June 30, 2022.
12
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
| 7. | Notes Payable |
Notes payable consists of the following:
| Property | Interest Rate | Weighted Average Interest Rate as of June 30, 2022 | Maturity Date | Amount Due at Maturity | As of June 30, 2022 | As of December 31, 2021 | |||||||||||||||
| Arbors Harbor Town | $ | $ | $ | ||||||||||||||||||
| Arbors Harbor Town Supplemental | |||||||||||||||||||||
| Parkside | |||||||||||||||||||||
| Axis at Westmont | |||||||||||||||||||||
| Valley Ranch Apartments | |||||||||||||||||||||
| Flats at Fishers | |||||||||||||||||||||
| Flats at Fishers Supplemental | |||||||||||||||||||||
| Autumn Breeze Apartments | |||||||||||||||||||||
| BayVue Apartments | LIBOR + (floor 3.10%) | ||||||||||||||||||||
| Citadel Apartments Senior | LIBOR + (floor 1.60%) | ||||||||||||||||||||
| Citadel Apartments Junior | LIBOR + (floor 8.85%) | ||||||||||||||||||||
| Total notes payable | $ | ||||||||||||||||||||
| Less: Deferred financing costs | ( | ) | ( | ) | |||||||||||||||||
| Total notes payable, net | $ | $ | |||||||||||||||||||
13
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Citadel Apartments
On
October 6, 2021, the Company entered into a non-recourse mortgage loan facility for up to $
The
Citadel Apartments Mortgages initially mature on October 11, 2024, with two one-year extension options, subject to the satisfaction of
certain conditions, and are collateralized by the Citadel Apartments, while the Citadel Apartments Junior Mortgage is subordinate to
the Citadel Apartments Senior Mortgage. In connection with the acquisition of the Citadel Apartments, an aggregate $
In
connection with the Citadel Apartment Mortgages, the Company has entered into an interest rate cap agreement with a notional amount of
$
BayVue Apartments
On
July 7, 2021, the Company entered into a non-recourse mortgage loan facility for up to $
In
connection with the BayVue Apartments Mortgage, the Company has entered into an interest rate cap agreement with a notional amount of
$
The following table provides information with respect to the contractual maturities and scheduled principal repayments of the Company’s indebtedness as of June 30, 2022.
| 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | ||||||||||||||||||||||
| Principal maturities | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Less: deferred financing costs | ( | ) | ||||||||||||||||||||||||||
| Total notes payable, net | $ | |||||||||||||||||||||||||||
14
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
| 8. | Stockholders’ Equity |
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 it, 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 the stockholders.
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.
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 was 100% of the estimated NAV per Share as of September 30, 2020. 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.
In
accordance with the Company’s SRP, the per share redemption price automatically adjusted to $
For
the six months ended June 30, 2022 the Company repurchased
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
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 six months ended June 30, 2022 and 2021.
15
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
| 9. | Related Party Transactions |
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. These agreements have a one-year term and currently extend through June 30, 2023. The Company is dependent on the Advisor and its affiliates for certain services that are essential to it, including asset acquisition and disposition decisions, property management and leasing services, financing services, and other general administrative responsibilities. In the event that these entities are unable to provide the Company with their respective services, the Company would be required to obtain such services from other sources.
The following table represents the fees incurred associated with the payments to the Company’s Advisor and its affiliates for the periods indicated:
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Property management fees (property operating expenses) | $ | $ | $ | $ | ||||||||||||
| Administrative services reimbursement (general and administrative costs) | ||||||||||||||||
| Asset management fees (general and administrative costs) | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| 10. | Commitments and Contingencies |
Legal Proceedings
From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.
As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss.
16
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and the notes thereto.
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q 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 REIT V, Inc. and our subsidiaries (which may be referred to herein as the “Company,” “we,” “us” or “our”), which was formerly known as Lightstone Value Plus Real Estate Investment Trust V, Inc. before August 31, 2021, 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 any 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 inflation, competition, 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, availability of materials, schedule delays, availability of construction financing, performance of developers, contractors and consultants and growth in rental rates and operating costs; |
17
| ● | 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; | |
| ● | the ability of our tenants to pay their rent; | |
| ● | the ability of our borrowers to make scheduled debt service; | |
| ● | 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 Quarterly Report on Form 10-Q 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 21E of the Exchange Act.
Cautionary Note
The representations, warranties, and covenants made by us in any agreement filed as an exhibit to this Quarterly Report on Form 10-Q 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.
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 June 30, 2022, our investments included eight wholly owned multi-family apartment complexes and a note receivable (the “500 West 22nd Street Mezzanine Loan”). All of our current investments are located in the U.S. 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, competition, inflation and recession.
18
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and it remains highly unpredictable and dynamic and its ultimate duration and extent continue to be dependent on various developments, such as the emergence of variants to the virus that may cause additional strains of COVID-19, and the development, administration and ultimate effectiveness of vaccines, including booster shots. Accordingly, the ongoing COVID-19 pandemic may continue to have negative effects on the U.S. and global economies for the foreseeable future.
As of June 30, 2022, our consolidated portfolio of properties consisted of eight wholly owned multi-family apartment complexes, all of which are located in the U.S. Our multi-family properties have not been significantly impacted by the COVID-19 pandemic and their occupancy levels, rental rates and rental collection have remained stable since the onset of the COVID-19 pandemic. Additionally, our 500 West 22nd Street Mezzanine Loan is collateralized by a condominium development project located in New York City (the “Condominium Project”), which is subject to risks related to the COVID-19 pandemic. To date, both the Condominium Project and our 500 West 22nd Street Mezzanine Loan have not been significantly impacted by the COVID-19 pandemic.
We continue to closely monitor the overall extent as to which our business may be affected by the ongoing COVID-19 pandemic which 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 by the ongoing COVID-19 pandemic in future periods for an extended period because (i) tenants are unable to pay their rent, (ii) leasing demand falls causing declines in occupancy levels and/or rental rates, and (iii) the borrower is unable to pay scheduled debt service on the 500 West 22nd Street Mezzanine Loan; our business and financial results could be materially and adversely impacted.
Liquidity and Capital Resources
We had cash and cash equivalents of $59.4 million, marketable securities, available for sale of $3.4 million and restricted cash of $4.7 million as of June 30, 2022. Our principal demands for funds going forward are expected to be for the payment of (a) operating expenses, including capital expenditures, and (b) scheduled debt service 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 and cash equivalents on hand along with our cash flow from operations, the release of certain funds held in restricted cash, the remaining availability on certain of our mortgage loans and the repayment of our outstanding note receivable. However, to the extent that these sources are not sufficient to cover our cash needs, we may also use proceeds from additional borrowings and/or selective asset sales to fund such needs.
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 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.
Acquisition and Disposition Activities
Disposition of the Lakes of Margate
On March 17, 2021, we completed the disposition of a 280-unit multifamily property located in Margate, Florida (the “Lakes of Margate”) for a contractual sales price of $50.8 million to an unrelated third party. In connection with the disposition of the Lakes of Margate, we recognized a gain on the sale of investment property of $27.8 million during the first quarter of 2021.
Acquisition of the BayVue Apartments
On July 7, 2021, we completed the acquisition of a 368-unit multifamily property located in Tampa, Florida (the “BayVue Apartments”) from an unrelated third party, for a contractual purchase price of $59.5 million, excluding closing and other related transaction costs.
19
Acquisition of the Citadel Apartments
On October 6, 2021, we acquired a 293-unit multifamily property located in Houston, Texas (the “Citadel Apartments”), from an unrelated third party, for a contractual purchase price of $66.0 million, excluding closing and other acquisition related costs.
Disposition of the River Club Properties
On December 22, 2021, we completed the disposition of the River Club Apartments and the Townhomes at River Club, two student housing complexes with a total of 1,134 beds (collectively, the “River Club Properties”) located in Athens, Georgia, for a contractual sales price of $77.3 million to an unrelated third party. In connection with the disposition of the River Club Properties, we recognized a gain on the sale of investment property of $55.0 million during the fourth quarter of 2021.
Results of Operations
As of June 30, 2022, we had eight wholly owned real estate investments (multi-family apartment complexes) and one real estate-related investment (mezzanine loan).
The tables below reflect occupancy and effective monthly rental rates for our operating properties owned as of the dates indicated:
| Occupancy | Effective Monthly Rent per Unit(1) | |||||||||||||||
| As
of June 30, | As
of June 30, | |||||||||||||||
| Property | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Arbors Harbor Town | 94 | % | 94 | % | $ | 1,551 | $ | 1,404 | ||||||||
| Parkside | 96 | % | 97 | % | $ | 1,338 | $ | 1,208 | ||||||||
| Flats at Fishers | 99 | % | 97 | % | $ | 1,386 | $ | 1,244 | ||||||||
| Axis at Westmont | 96 | % | 96 | % | $ | 1,363 | $ | 1,205 | ||||||||
| Valley Ranch Apartments | 95 | % | 95 | % | $ | 1,641 | $ | 1,495 | ||||||||
| Autumn Breeze Apartments | 99 | % | 94 | % | $ | 1,245 | $ | 1,123 | ||||||||
| BayVue Apartments (2) | 95 | % | N/A | $ | 1,279 | N/A | ||||||||||
| Citadel Apartments (3) | 96 | % | N/A | $ | 1,598 | N/A | ||||||||||
| (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. |
| (2) | The BayVue Apartments were acquired on July 7, 2021. |
| (3) | The Citadel Apartments were acquired on October 6, 2021. |
On July 7, 2021 we acquired the BayVue Apartments and on October 6, 2021 we acquired the Citadel Apartments (collectively, the “2021 Acquisitions”). On March 17, 2021 we disposed of the Lakes of Margate and on December 22, 2021 we disposed of the River Club Properties (collectively, the “2021 Dispositions”).
The 2021 Dispositions did not qualify to be reported as discontinued operations since they did not represent a strategic shift that had a major effect on our operations and financial results. Accordingly, the operating results of the 2021 Dispositions are reflected in our results from continuing operations for all periods presented through their dates of disposition.
20
Three months ended June 30, 2022 as compared to the three months ended June 30, 2021.
The following table provides summary information about our results of operations (dollars in thousands):
| Three
Months Ended June 30, | Increase/ | Percentage | Change due to | Change due to | Change due to | |||||||||||||||||||||||
| 2022 | 2021 | (Decrease) | Change | Acquisitions(1) | Dispositions(2) | Same Store(3) | ||||||||||||||||||||||
| Rental revenues | $ | 11,612 | $ | 9,390 | $ | 2,222 | 24.0 | % | $ | 2,943 | $ | (1,613 | ) | $ | 892 | |||||||||||||
| Property operating expenses | 4,030 | 3,062 | 968 | 32.0 | % | 1,183 | (555 | ) | 340 | |||||||||||||||||||
| Real estate taxes | 1,646 | 1,358 | 288 | 21.0 | % | 537 | (140 | ) | (109 | ) | ||||||||||||||||||
| General and administrative | 1,899 | 1,568 | 331 | 21.0 | % | 32 | (10 | ) | 309 | |||||||||||||||||||
| Depreciation and amortization | 4,953 | 2,755 | 2,198 | 80.0 | % | 2,490 | (388 | ) | 96 | |||||||||||||||||||
| Interest expense | 3,307 | 2,215 | 1,092 | 49.0 | % | 1,109 | 160 | (177 | ) | |||||||||||||||||||
Notes:
| (1) | Represents the effect on our operating results for the periods indicated resulting from the 2021 Acquisitions,. |
| (2) | Represents the effect on our operating results for the periods indicated resulting from the disposition of the River Club Properties on December 22, 2021. |
| (3) | Represents the change for the three months ended June 30, 2022 compared to the same period in 2021 for real estate and real estate-related investments owned by us during the entire periods presented (“Same Store”). Our results for Same Store properties for the three months ended June 30, 2022 and 2021 include Arbors Harbor Town, Parkside, Flats at Fishers, Axis at Westmont, the Valley Ranch Apartments and the Autumn Breeze Apartments. |
The following table reflects total rental revenues and total property operating expenses for the three months ended June 30, 2022 and 2021 for: (i) our Same Store properties, (ii) the 2021 Acquisitions and (iii) the disposition of the River Club Properties on December 22, 2021 (dollars in thousands):
| Three
Months Ended June 30, | ||||||||||||
| Description | 2022 | 2021 | Change | |||||||||
| Rental Revenues: | ||||||||||||
| Same Store | $ | 8,669 | $ | 7,777 | $ | 892 | ||||||
| 2021 Acquisitions | 2,943 | - | 2,943 | |||||||||
| Disposition - River Club Properties | - | 1,613 | (1,613 | ) | ||||||||
| Total rental revenues | $ | 11,612 | $ | 9,390 | $ | 2,222 | ||||||
| Property operating expenses: | ||||||||||||
| Same Store | $ | 2,844 | $ | 2,504 | $ | 340 | ||||||
| 2021 Acquisitions | 1,183 | - | 1,183 | |||||||||
| Disposition - River Club Properties | 3 | 558 | (555 | ) | ||||||||
| Total property expenses | $ | 4,030 | $ | 3,062 | $ | 968 | ||||||
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Revenues Rental revenues for the three months ended June 30, 2022 were $11.6 million, an increase of $2.2 million, compared to $9.4 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, our rental revenues increased by $0.9 million for our Same Store properties during the 2022 period as a result of higher occupancy and average monthly rent per unit.
Property Operating Expenses Property operating expenses for the three months ended June 30, 2022 were $4.0 million, an increase of $0.9 million, compared to $3.1 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, our property operating expenses, increased by $0.3 million for our Same Store properties, which was primarily attributable to a community association special assessment of $0.3 million for Arbors Harbor Town during the second quarter of 2022.
Real Estate Taxes Real estate taxes for the three months ended June 30, 2022 were $1.6 million, an increase of $0.2 million, compared to $1.4 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, real estate taxes decreased slightly by $0.1 million for our Same Store properties.
General and Administrative Expenses General and administrative expenses for the three months ended June 30, 2022 were $1.9 million, an increase of $0.3 million, compared to $1.6 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, our general and administrative expenses increased by $0.3 million for our Same Store properties. The increase is principally attributable to higher asset management fees during the 2022 period resulting from our acquisition and investment activities.
Depreciation and Amortization Depreciation and amortization expense for the three months ended June 30, 2022 was $5.0 million, an increase of $2.2 million, compared to $2.8 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, depreciation and amortization expenses increased slightly by $0.1 million for our Same Store properties.
Interest Expense Interest expense for the three months ended June 30, 2022 was $3.3 million, an increase of $1.1 million, compared to $2.2 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, interest expense decreased by $0.2 million for our Same Store properties.
Mark to Market Adjustment on Derivative Financial Instruments During the three months ended June 30, 2022, we recorded positive mark to market adjustments on our derivative financial instruments of $0.5 million. These mark to market adjustments represented the change in the fair value of our interest rate cap contracts during the period.
22
Six months ended June 30, 2022 as compared to the six months ended June 30, 2021.
The following table provides summary information about our results of operations (dollars in thousands):
| Six
Months Ended June 30, | Increase/ | Percentage | Change due to | Change due to | Change due to | |||||||||||||||||||||||
| 2022 | 2021 | (Decrease) | Change | Acquisitions(4) | Dispositions(5) | Same Store(6) | ||||||||||||||||||||||
| Rental revenues | $ | 22,818 | $ | 19,677 | $ | 3,141 | 16.0 | % | $ | 5,800 | $ | (4,288 | ) | $ | 1,629 | |||||||||||||
| Property operating expenses | 7,277 | 6,239 | 1,038 | 17.0 | % | 2,110 | (1,550 | ) | 478 | |||||||||||||||||||
| Real estate taxes | 3,374 | 2,829 | 545 | 19.0 | % | 1,074 | (444 | ) | (85 | ) | ||||||||||||||||||
| General and administrative | 3,717 | 3,221 | 496 | 15.0 | % | 67 | (77 | ) | 506 | |||||||||||||||||||
| Depreciation and amortization | 9,872 | 5,665 | 4,207 | 74.0 | % | 4,965 | (776 | ) | 18 | |||||||||||||||||||
| Interest expense | 6,421 | 4,668 | 1,753 | 38.0 | % | 2,042 | 72 | (361 | ) | |||||||||||||||||||
Notes:
| (4) | Represents the effect on our operating results for the periods indicated resulting from the 2021 Acquisitions. |
| (5) | Represents the effect on our operating results for the periods indicated resulting from the 2021 Dispositions. |
| (6) | Represents the change for the six months ended June 30, 2022 compared to the same period in 2021 for real estate and real estate-related investments owned by us during the entire periods presented (“Same Store”). Our results for Same Store properties for the six months ended June 30, 2022 and 2021 include Arbors Harbor Town, Parkside, Flats at Fishers, Axis at Westmont, the Valley Ranch Apartments and the Autumn Breeze Apartments. |
The following table reflects total rental revenues and total property operating expenses for the six months ended June 30, 2022 and 2021 for: (i) our Same Store properties, (ii) the 2021 Acquisitions and (iii) the 2021 Dispositions (dollars in thousands):
| Six
Months Ended June 30, | ||||||||||||
| Description | 2022 | 2021 | Change | |||||||||
| Rental Revenues: | ||||||||||||
| Same Store | $ | 17,018 | $ | 15,389 | $ | 1,629 | ||||||
| 2021 Acquisitions | 5,800 | - | 5,800 | |||||||||
| 2021 Dispositions | - | 4,288 | (4,288 | ) | ||||||||
| Total rental revenues | $ | 22,818 | $ | 19,677 | $ | 3,141 | ||||||
| Property operating expenses: | ||||||||||||
| Same Store | $ | 5,218 | $ | 4,740 | $ | 478 | ||||||
| 2021 Acquisitions | 2,110 | - | 2,110 | |||||||||
| 2021 Dispositions | (51 | ) | 1,499 | (1,550 | ) | |||||||
| Total property expenses | $ | 7,277 | $ | 6,239 | $ | 1,038 | ||||||
23
Revenues Rental revenues for the six months ended June 30, 2022 were $22.8 million, an increase of $3.1 million, compared to $19.7 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, our rental revenues increased by $1.6 million for our Same Store properties during the 2022 period as a result of higher occupancy and average monthly rent per unit.
Property Operating Expenses Property operating expenses for the six months ended June 30, 2022 were $7.3 million, an increase of $1.1 million, compared to $6.2 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, our property operating expenses increased by $0.5 million for our Same Store properties, which was attributable to a community association special assessment of $0.3 million for Arbors Harbor Town during the second quarter of 2022.
Real Estate Taxes Real estate taxes for the six months ended June 30, 2022 were $3.4 million, an increase of $0.6 million, compared to $2.8 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, real estate taxes decreased slightly by $0.1 million for our Same Store properties.
General and Administrative Expenses General and administrative expenses for the six months ended June 30, 2022 were $3.7 million, an increase of $0.5 million, compared to $3.2 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, our general and administrative expenses increased by $0.5 million for our Same Store properties. The increase is principally attributable to higher asset management fees during the 2022 period resulting from our acquisition and investment activities.
Depreciation and Amortization Depreciation and amortization expense for the six months ended June 30, 2022 was $9.9 million, an increase of $4.2 million, compared to $5.7 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, depreciation and amortization expense was relatively unchanged for our Same Store properties.
Interest Expense Interest expense for the six months ended June 30, 2022 was $6.4 million, an increase of $1.7 million, compared to $4.7 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, interest expense decreased by $0.4 million for our Same Store properties.
Mark to Market Adjustment on Derivative Financial Instruments During the six months ended June 30, 2022, we recorded positive mark to market adjustments on our derivative financial instruments of $1.1 million. These mark to market adjustments represented the change in the fair value of our interest rate cap contracts during the period.
Income Tax Benefit During 2015, we recorded an aggregate provision for income tax of $2.7 million representing estimated foreign income tax due as a result of the sale of two foreign investments, Alte Jakobstraße and Holstenplatz. During the first quarter of 2022, we recorded an income tax benefit of $0.8 million representing a partial refund of the foreign income tax paid.
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Related Party Transactions
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. These agreements have one-year terms and currently extend through June 30, 2023. We are dependent on the Advisor and its affiliates for certain services that are essential to us, including asset acquisition and disposition decisions, property management and leasing services, financing services, and other general administrative responsibilities. In the event that these entities are unable to provide us with their respective services, we would be required to obtain such services from other sources.
The following table represents the fees incurred associated with the payments to our Advisor and its affiliates for the periods indicated:
| For
the Three Months Ended June 30, | For
the Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Property management fees (property operating expenses) | $ | 124 | $ | 110 | $ | 242 | $ | 228 | ||||||||
| Administrative services reimbursement (general and administrative costs) | 346 | 332 | 693 | 665 | ||||||||||||
| Asset management fees (general and administrative costs) | 861 | 626 | 1,729 | 1,321 | ||||||||||||
| Total | $ | 1,331 | $ | 1,068 | $ | 2,664 | $ | 2,214 | ||||||||
Summary of Cash Flows
Operating activities
The net cash provided by operating activities of $4.4 million for the six months ended June 30, 2022 consisted primarily of our net loss of $4.5 million less (i) the positive mark to market adjustments on derivative financial instruments of $1.1 million, (ii) non-cash interest income of $0.3 million and (iii) the net change in operating assets and liabilities of $0.2 million plus (i) depreciation and amortization of $9.9 million and (ii) amortization of deferred financing costs of $0.7 million.
Investing activities
The net cash provided by investing activities of $4.4 million for the six months ended June 30, 2022 consisted primarily of the following:
| ● | proceeds from the repayment of note receivable of $8.8 million; and |
| ● | capital expenditures of $4.5 million. |
Financing activities
The net cash provided by financing activities of $10.1 million for the six months ended June 30, 2022 consisted primarily of the following:
| ● | proceeds from notes payable of $11.6 million; |
| ● | principal payments of notes payable of $0.9 million; and |
| ● | redemptions and cancellation of common stock of $0.6 million. |
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One of our principal short-term and long-term liquidity requirements includes the debt service payments on our outstanding notes payable. The following table provides information with respect to the contractual maturities and scheduled principal repayments of our indebtedness as of June 30, 2022 (dollars in thousands).
| Contractual Obligations | Remainder of 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | |||||||||||||||||||||
| Principal | $ | 874 | $ | 2,191 | $ | 96,431 | $ | 18,138 | $ | 147,729 | $ | 27,732 | $ | 293,095 | ||||||||||||||
| Interest Payments(1) | 6,522 | 12,569 | 11,359 | 7,617 | 2,842 | 3,243 | 44,152 | |||||||||||||||||||||
| Total Contractual Obligations | $ | 7,396 | $ | 14,760 | $ | 107,790 | $ | 25,755 | $ | 150,571 | $ | 30,975 | $ | 337,247 | ||||||||||||||
| (1) | These amounts represent future interest payments related to notes 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 June 30, 2022 was used. |
Funds from Operations and Modified Funds from Operations
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and 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 generally accepted accounting principles in the United States of America (“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.
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Because of these factors, the Investment Program Association (the “IPA”), an industry trade group, published a standardized measure of performance known as modified funds from operations (“MFFO”), which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that both before and after we have deployed all of our offering proceeds and are no longer incurring a significant amount of acquisition fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP.
We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the “Practice Guideline”) issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction-related fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and exclude acquisition and transaction-related fees and expenses (which includes costs incurred in connection with strategic alternatives), amounts relating to 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.
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.
27
Our calculations of FFO and MFFO are presented below (dollars and shares in thousands, except per share amounts):
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| Description | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Net (loss)/income | $ | (3,116 | ) | $ | 499 | $ | (4,495 | ) | $ | 27,611 | ||||||
| FFO adjustments: | ||||||||||||||||
| Depreciation and amortization of real estate assets | 4,953 | 2,755 | 9,872 | 5,665 | ||||||||||||
| Gain on disposition of unconsolidated joint venture | - | (1,457 | ) | - | (1,457 | ) | ||||||||||
| Gain on sale of investment property | - | - | - | (27,825 | ) | |||||||||||
| FFO | 1,837 | 1,797 | 5,377 | 3,994 | ||||||||||||
| MFFO adjustments: | ||||||||||||||||
| Other adjustments: | ||||||||||||||||
| Acquisition and other transaction related costs expensed(1) | - | - | - | - | ||||||||||||
| Noncash adjustments: | ||||||||||||||||
| Amortization of above or below market leases and liabilities | - | - | - | - | ||||||||||||
| Mark-to-market adjustments(2) | (492 | ) | - | (1,110 | ) | (2 | ) | |||||||||
| Non-recurring (loss)/gain from extinguishment/sale of debt, derivatives or securities holdings(3) | 2 | 1 | (2 | ) | (7 | ) | ||||||||||
| MFFO before straight-line rent | 1,347 | 1,798 | 4,265 | 3,985 | ||||||||||||
| Straight-line rent(4) | - | - | - | - | ||||||||||||
| MFFO - IPA recommended format | $ | 1,347 | $ | 1,798 | $ | 4,265 | $ | 3,985 | ||||||||
| Net (loss)/income | $ | (3,116 | ) | $ | 499 | $ | (4,495 | ) | $ | 27,611 | ||||||
| Less: income attributable to noncontrolling interests | - | (54 | ) | - | (131 | ) | ||||||||||
| Net (loss)/income applicable to Company’s common shares | $ | (3,116 | ) | $ | 445 | $ | (4,495 | ) | $ | 27,480 | ||||||
| Net (loss)/income per common share, basic and diluted | $ | (0.16 | ) | $ | 0.02 | $ | (0.22 | ) | $ | 1.36 | ||||||
| FFO | $ | 1,837 | $ | 1,797 | $ | 5,377 | $ | 3,994 | ||||||||
| Less: FFO attributable to noncontrolling interests | - | (138 | ) | - | (288 | ) | ||||||||||
| FFO attributable to Company’s common shares | $ | 1,837 | $ | 1,659 | $ | 5,377 | $ | 3,706 | ||||||||
| FFO per common share, basic and diluted | $ | 0.09 | $ | 0.08 | $ | 0.27 | $ | 0.18 | ||||||||
| MFFO - IPA recommended format | $ | 1,347 | $ | 1,798 | $ | 4,265 | $ | 3,985 | ||||||||
| Less: MFFO attributable to noncontrolling interests | - | (138 | ) | - | (288 | ) | ||||||||||
| MFFO attributable to Company’s common shares | $ | 1,347 | $ | 1,660 | $ | 4,265 | $ | 3,697 | ||||||||
| Weighted average number of common shares outstanding, basic and diluted | 20,089 | 20,193 | 20,100 | 20,193 | ||||||||||||
| 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. |
28
| 2) | 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. |
| 3) | 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. |
| 4) | 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.
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
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. 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. On a regular basis, we evaluate these estimates, including investment impairment. These estimates include such items as impairment of long-lived assets, depreciation and amortization, and allowance for doubtful accounts. Actual results could differ from those estimates.
Our critical accounting policies and estimates have not changed significantly from the discussion found in the Management Discussion and Analysis and Results of Operations in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 24, 2022.
29
| Item 4. | 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 June 30, 2022, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e) using the criteria established in Internal Control-New Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective, as of June 30, 2022, 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 have been detected.
Changes in Internal Control over Financial Reporting
There has been no change in internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II
OTHER INFORMATION
| Item 1. | Legal Proceedings. |
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 its 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 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
Recent Sales of Unregistered Securities
During the period covered by this quarterly report, we did not sell any equity securities that were not registered under the Securities Act of 1933.
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 and our board of directors’ assessment of our investment objectives and liquidity options for our stockholders. Currently, our board of directors has targeted June 30, 2028 for the commencement of a liquidity event. However, we can provide no assurances as to the actual timing of the commencement of a liquidity event for our stockholders or our ultimate liquidation. Furthermore, we will seek stockholder approval prior to liquidating our entire portfolio.
| Item 3. | Defaults Upon Senior Securities. |
None.
| Item 4. | Mine Safety Disclosures. |
None.
| Item 5. | Other Information. |
None.
| Item 6. | Exhibits. |
The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.
31
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LIGHTSTONE VALUE PLUS REIT V, INC. | ||
| Date: August 11, 2022 | By: | /s/ Mitchell C. Hochberg |
| Mitchell C. Hochberg | ||
Chief Executive Officer (Principal Executive Officer) | ||
| Date: August 11, 2022 | By: | /s/ Seth Molod |
| Seth Molod | ||
Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) |
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Index to Exhibits
|
Exhibit |
Description | |
| 10.1* | Advisory Agreement among Lightstone Value Plus REIT V, Inc., Lightstone Value Plus REIT V OP LP and LSG Development LLC effective as of July 1, 2022. | |
| 31.1* | Rule 13a-14(a)/15d-14(a) Certification | |
| 31.2* | Rule 13a-14(a)/15d-14(a) Certification | |
| 32.1* | Section 1350 Certification** | |
| 32.2* | ||
| 101* | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, filed on August 11, 2022, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Equity, (iv) Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements. |
|
* | 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. |
33
Exhibit 10.1
ADVISORY AGREEMENT
This ADVISORY AGREEMENT (this “Agreement”) is entered into on July 1, 2022, among LIGHTSTONE VALUE PLUS REIT V, INC., a Maryland corporation (the “Company”), LIGHTSTONE VALUE PLUS REIT V OP LP, a Texas limited partnership (the “Operating Partnership”), and LSG DEVELOPMENT LLC, a Delaware limited liability company (the “Advisor”).
W I T N E S E T H
WHEREAS, the Operating Partnership was organized to acquire, own, develop, construct, operate, lease and manage real estate properties and to make or invest in loans and other investment on behalf of the Company; and
WHEREAS, BHO II, Inc., a wholly owned subsidiary of the Company, is the general partner of the Operating Partnership; and
WHEREAS, the Company and the Operating Partnership desire to avail themselves of the experience, sources of information, advice, assistance and certain facilities available to the Advisor and to have the Advisor undertake the duties and responsibilities hereinafter set forth, on behalf of, and subject to the supervision of, the Board, all as provided herein;
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
The following defined terms used in this Agreement shall have the meanings specified below:
2%/25% Guidelines. Has the meaning set forth in Section 3.04 below.
Acquisition Expenses. A non-accountable acquisition expense reimbursement in the amount of: (i) 0.25% of the aggregate consideration paid in connection with the acquisition of an Asset, including any debt attributable to the Asset, plus 0.25% of the funds budgeted as incurred for development, construction or improvement in the case of an Asset or (ii) 0.25% of the gross funds advanced in respect of a Mortgage or other loan investment. Acquisition Expenses also include any investment-related expenses due to third parties in the case of a completed investment, including legal fees and expenses, travel and communications expenses, costs of appraisals, accounting fees and expenses, third-party brokerage or finder’s fees, title insurance, premium expenses and other closing costs. Acquisition Expenses also include any payments approved in advance by the Board, and made to (i) a prospective seller of an asset, (ii) an agent of a prospective seller of an asset, or (iii) a party that has the right to control the sale of an asset intended for investment by the Company that are not refundable and that are not ultimately applied against the purchase price for such asset (“Non-Refundable Payments”).
Acquisition and Advisory Fees. The fees payable to the Advisor pursuant to Section 3.01(b).
Acquisition Fees. Any and all fees and commissions, exclusive of Acquisition Expenses but including the Acquisition and Advisory Fees, paid by any Person to any other duly qualified or licensed Person (including any fees or commissions paid by or to any duly qualified or licensed Affiliate of the Company or the Advisor) in connection with making or investing in Mortgages, other loans, or other investments or the acquisition, development or construction of an Asset, including, without limitation, real estate commissions, selection fees, investment banking fees, third party seller’s fees (to the extent the Company agrees to pay any such fees as part of an acquisition), Development Fees, Construction Fees, non-recurring management fees, loan fees, points or any other fees of a similar nature. Excluded shall be Development Fees and Construction Fees paid to any Person not affiliated with the Advisor in connection with the actual development and construction of any Property.
Administrative Services. The services provided by the Advisor (either directly or through a third party) to fulfill its duties to the Company pursuant to Sections 2.02, 2.03, 2.04 and 2.05.
Administrative Services Reimbursement. The amount payable to the Advisor for providing the Administrative Services pursuant to Section 3.02(e). The Administrative Services Reimbursement is intended to reimburse for all or a portion of the costs associated with providing the Administrative Services.
Advisor. LSG Development LLC, a Delaware limited liability company, any successor advisor to the Company, or any Person to which LSG Development LLC or any successor advisor assigns or subcontracts all or substantially all of its functions.
Advisor Indemnified Party. Has the meaning set forth in Section 5.01 below.
Advisor Payments. Has the meaning set forth in Section 3.05 below.
Advisor Personnel. Any person employed by the Advisor or any Affiliate of the Advisor who performs services on behalf of the Advisor for the Company, excluding those persons who also serve as an executive officer of the Company.
AFD Personnel. Advisor Personnel who are a subset of Advisor Personnel and provide AFD Services.
AFD Services. Services provided by Advisor Personnel in connection with the acquisition, financing, or disposition of Assets. AFD Services include management of the acquisition, financing, and disposition processes, and performance of services in support of acquisition, financing, and disposition transactions, including (1) review and preparation of due diligence materials associated with the transactions, (2) supervision or performance of site visits and tenant interviews, (3) review of rent rolls, (4) verification of leases and other contracts relating to the ownership, capital structure or operations of an Asset, and (5) review of environmental and property condition reports.
Affiliate or Affiliated. As to any Person, (i) any Person directly or indirectly owning, controlling, or holding, with the power to vote, 10% or more of the outstanding voting securities of such other Person; (ii) any Person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such other Person; (iii) any Person, directly or indirectly, controlling, controlled by, or under common control with such other Person; (iv) any executive officer, director, trustee or general partner of such other Person; and (v) any legal entity for which such Person acts as an executive officer, director, trustee or general partner.
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Articles of Incorporation. The Articles of Incorporation of the Company filed with the Maryland State Department of Assessments and Taxation in accordance with the Maryland General Corporation Law, as amended or restated from time to time.
Assets. Properties, Mortgages, loans and other direct or indirect investments (excluding all other investments in all current assets in accordance with GAAP) owned by the Company, directly or indirectly through one or more of its Affiliates or Joint Ventures or through other investment interests.
Asset Management Fee. The fee payable to the Advisor for day-to-day professional management services in connection with the Company and its investments in Assets pursuant to Section 3.01(a) of this Agreement.
Average Invested Assets. For a specified period, the average of the aggregate book value of the Assets before deduction for depreciation, bad debts or other non-cash reserves, computed by taking the average of the values at the end of each month during the period.
Bankruptcy Code. Has the meaning set forth in Section 6.12 below.
Board. The Board of Directors of the Company.
Business Operations Infrastructure Costs. The costs associated with maintaining business operations infrastructure that can be shared between the Company and other investment funds sponsored by Affiliates of the Advisor to achieve operational cost efficiency, including: (i) network infrastructure, computers and information technology; (ii) business center costs; (iii) office management services; (iv) human resource services; (v) office space costs; (vi) rent for office space for shared service functions; (vii) office furniture and equipment; (viii) telephone and communications; (ix) general office supplies costs; (x) travel; and (xi) food and beverage costs.
Bylaws. The bylaws of the Company, as the same are in effect from time to time.
Change of Control. Any (i) event (including, without limitation, issue, transfer or other disposition of Shares of capital stock of the Company or equity interests in the Operating Partnership, merger, share exchange or consolidation) after which any “person” (as that term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company or the Operating Partnership representing greater than 50% of the combined voting power of the Company’s or the Operating Partnership’s then outstanding securities, respectively; provided, that, a Change of Control shall not be deemed to occur as a result of any widely distributed public offering of the Shares, or (ii) direct or indirect sale, transfer, conveyance or other disposition (other than pursuant to clause (i)), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company or the Operating Partnership, taken as a whole, to any “person” (as that term is used in Sections 13(d) and 14(d) of the Exchange Act).
Code. Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. Reference to any provision of the Code shall mean the provision as in effect from time to time, as the same may be amended, and any successor provision thereto, as interpreted by any applicable regulations as in effect from time to time.
Company. Lightstone Value Plus REIT V, Inc., a corporation organized under the laws of the State of Maryland. Unless the context clearly indicates otherwise, references to the Company shall include its direct and indirect subsidiaries, including the Operating Partnership.
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Construction Fee. A fee or other remuneration for acting as general contractor and/or construction manager to construct improvements, supervise and coordinate projects or to provide major repairs or rehabilitations on a Property pursuant to the Property Management and Leasing Agreement by and among the Company, the Operating Partnership and LSG-BH II Property Manager LLC, as amended from time to time.
Contract Purchase Price. The amount of (i) total consideration incurred in respect of the acquisition, development, construction or improvement of a Property, (ii) gross funds advanced with respect to a Mortgage or other loan, or (iii) total consideration incurred in respect to the making of other investments, in each case exclusive of Acquisition Fees and Acquisition Expenses but including any debt attributable to such acquired Assets.
Cost of Investment. For each Asset, (i) with respect to an Asset directly or indirectly wholly-owned by the Company, the Fully Loaded Cost, and (ii) in the case of an Asset owned by any Joint Venture or in some other manner in which the Company is a co-venturer or partner or otherwise a co-owner, the portion of the Fully Loaded Cost that is attributable to the Company’s investment in the Joint Venture or other interest in such Asset.
Cost Reimbursement Cap. Set at $1,505,000 for the period from the date of this Agreement through June 30, 2023 and thereafter, adjusted annually (effective July 1st) by the change in CPI during renewal periods, if any, under the Agreement.
CPI. The Consumer Price Index for all Urban Consumers for the twelve-month period ended May 31st as published by the Bureau of Labor Statistics of the U.S. Department of Labor.
Debt Financing Fee. Fee payable to the Advisor pursuant to Section 3.01(c).
Development Fee. A fee for the Development Services.
Development Services. The packaging of an Asset, including the negotiation and approval of plans, and any assistance in obtaining zoning and necessary variances and financing for a specific development Property, either initially or at a later date.
Director. A member of the Board.
Distributions. Any dividends or other distributions of money or other property by the Company to Stockholders, including distributions that may constitute a return of capital for federal income tax purposes but excluding distributions that constitute the redemption of any Shares and excluding distributions on any Shares before their redemption.
Estimated Valuation Policy. The Company’s Amended and Restated Policy for Estimation of Common Stock Value, as amended from time to time.
Excess Amount. Has the meaning set forth in Section 3.04 below.
Exchange Act. The Securities Exchange Act of 1934, as amended from time to time, or any successor statute thereto.
Fully Burdened Compensation. Direct costs associated with salaries and wages and the related employment taxes and benefits for Advisor Personnel who are generally associated within a specific department or group whose job duties and responsibilities are aligned.
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Fully Loaded Cost. The Contract Purchase Price of an Asset at the time of acquisition (exclusive of any closing costs expenses in accordance with GAAP), plus the amount incurred for the development, construction or improvement of the Asset, inclusive of expenses related thereto.
GAAP. Generally accepted accounting principles in the United States of America.
Hard Costs. The actual costs of goods, services, and materials incurred by the Advisor, including: (i) mobile phones and personal communication costs; (ii) travel and hotel expenses; (iii) meals and entertainment; (iv) conference fees and related charges; (v) employee recruiting fees; (vi) employee relocation costs; (vii) employee gifts and other; (viii) contract labor; (ix) education and training; (x) dues, subscriptions and licenses; (xi) office supplies; (xii) printing costs; (xiii) computer accessories and software and licensing costs; (xiv) postage, shipping and courier expenses.
Independent Director. A Director who is not on the date of determination, and within the last two years from the date of determination has not been, directly or indirectly associated with the Advisor by virtue of (i) ownership of an interest in the Advisor or any of their Affiliates, other than the Company, (ii) employment by the Company, the Advisor or any of their Affiliates, (iii) service as an officer or director of the Advisor or any of their Affiliates, other than as a Director of the Company, (iv) performance of services for the Company, other than as a Director of the Company, (v) service as a director or trustee of more than three real estate investment trusts advised by the Advisor or its Affiliates, or (vi) maintenance of a material business or professional relationship with the Advisor or any of their Affiliates. Notwithstanding the foregoing, and consistent with (v) above, serving as a director of or receiving director fees from or owning an interest in a REIT or other real estate program advised or managed by the Advisor or its Affiliates shall not, by itself, cause a Director to be deemed associated with the Advisor. A business or professional relationship is considered material if the aggregate annual gross revenue derived by the Director from the Advisor and their Affiliates (excluding fees for serving as a director of the Company or other REIT or real estate program organized or advised or managed by the Advisor or its Affiliates) exceeds five percent of either the Director’s annual gross income during either of the last two years or the Director’s net worth on a fair market value basis. An indirect association with the Advisor shall include circumstances in which a Director’s spouse, parent, child, sibling, mother- or father-in-law, son- or daughter-in-law, or brother- or sister-in-law is or has been associated with the Advisor, any of their Affiliates, or the Company.
Intellectual Property Rights. All rights, titles and interests, whether foreign or domestic, in and to any and all trade secrets, confidential information rights, patents, invention rights, copyrights, service marks, trademarks, know-how, or similar intellectual property rights and all applications and rights to apply for such rights, as well as any and all moral rights, rights of privacy, publicity and similar rights and license rights of any type under the laws or regulations of any governmental, regulatory, or judicial authority, foreign or domestic and all renewals and extensions thereof.
Joint Ventures. A legal organization formed to provide for the sharing of the risks and rewards in an enterprise co-owned and operated for mutual benefit by two or more business partners and established to acquire or hold Assets.
Listing or Listed. The filing of a Form 8-A to register any class of the Company’s securities on a national securities exchange and an original listing application related thereto; provided, that the Shares shall not be deemed to be Listed until trading in the Shares shall have commenced on the relevant national securities exchange.
Mortgages. In connection with mortgage financing provided, invested in or purchased by the Company, all of the notes, deeds of trust, security interests or other evidence of indebtedness or obligations, which are secured or collateralized by Real Property owned by the borrowers under such notes, deeds of trust, security interests or other evidence of indebtedness or obligations.
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Net Income. For any period, the Company’s total revenues applicable to that period, less the total expenses applicable to the period other than additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of the Assets.
Notice. Has the meaning set forth in Section 6.03 below.
Offering. Any public offering of Shares pursuant to an effective registration statement filed under the Securities Act, other than a public offering of Shares under a distribution reinvestment plan.
Operating Partnership. Lightstone Value Plus REIT V OP, LP, a Delaware limited partnership, through which the Company may own Assets or otherwise conduct its operations.
Operating Partnership Agreement. The Amended and Restated Agreement of Limited Partnership of the Operating Partnership, among the Company, BHO II, Inc., BHO Business Trust II and the limited partner(s) set forth on Exhibit A thereto from time to time, dated as of January 4, 2008, as the same may be amended from time to time.
Organization and Offering Expenses. Any and all costs and expenses incurred by and to be paid by the Company in connection with an Offering, the formation of the Company, and including the qualification and registration of the Offering and the marketing and distribution of its Shares, including, without limitation: total underwriting and brokerage discounts and commissions (including fees of the underwriters’ attorneys); expenses for printing, engraving, amending registration statements and supplementing prospectuses; mailing and distribution costs; reimbursement of bona fide due diligence expenses of broker-dealers; salaries of employees while engaged in sales activity, such as preparing supplemental sales literature; telephone and other telecommunication costs; all advertising and marketing expenses, including the costs related to investor and broker-dealer meetings; charges of transfer agents, registrars, trustees, escrow holders, depositories and experts; filing, registration and qualification fees and taxes relating to the Offering under federal and state laws; and accountants’ and attorneys’ fees.
Person. An individual, corporation, association, business trust, estate, trust, partnership, limited liability company or other legal entity.
Property or Properties. As the context requires, any, or all, respectively, of the Real Property acquired by the Company, either directly or indirectly (whether through Joint Ventures or other investment interests, regardless of whether the Company consolidates the financial results of these entities).
Proprietary Property. All modeling algorithms, tools, computer programs, know-how, methodologies, processes, technologies, ideas, concepts, skills, routines, subroutines, operating instructions and other materials and aides used in performing the duties set forth in Section 2.02 that relate to advice regarding Assets, and all modifications, enhancements and derivative works of the foregoing.
Prospectus. Prospectus has the meaning set forth in Section 2(a)(10) of the Securities Act, including a preliminary prospectus, an offering circular as described in Rule 253 of the General Rules and Regulations under the Securities Act or, in the case of an intrastate offering, any document by whatever name known, utilized for the purpose of offering and selling securities of the Company.
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Real Property or Real Estate. Land, rights in land (including leasehold interests), and any buildings, structures, improvements, furnishings, fixtures and equipment located on or used in connection with land and rights or interests in land.
REIT. A corporation, trust, association or other legal entity (other than a real estate syndication) that is engaged primarily in investing in interests in Real Estate (including fee ownership and leasehold interests) or in loans secured by Real Estate or both in accordance with Sections 856 through 860 of the Code.
Requesting Party. Has the meaning set forth in Section 3.05 below.
Sale or Sales. (i) Any transaction or series of transactions whereby: (A) the Company directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys, or relinquishes its ownership of any Property or portion thereof, including the lease of any Property consisting of a building only, and including any event with respect to any Property which gives rise to a significant amount of insurance proceeds or condemnation awards; (B) the Company directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys, or relinquishes its ownership of all or substantially all of the interest of the Company in any Joint Venture in which it is a co-venturer or partner; (C) any Joint Venture directly or indirectly (except as described in other subsections of this definition) in which the Company as a co-venturer or partner sells, grants, transfers, conveys, or relinquishes its ownership of any Property or portion thereof, including any event with respect to any Property which gives rise to insurance claims or condemnation awards; (D) the Company directly or indirectly (except as described in other subsections of this definition) sells, grants, conveys or relinquishes its interest in any Mortgage or other loan or portion thereof (including with respect to any Mortgage or other loan, all payments thereunder or in satisfaction thereof other than regularly scheduled interest payments of amounts owed pursuant to the Mortgage or other loan) and any event with respect to a Mortgage or other loan which gives rise to a significant amount of insurance proceeds or similar awards; or (E) the Company directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys, or relinquishes its ownership of any other Asset not previously described in this definition or any portion thereof, but (ii) not including any transaction or series of transactions specified in clause (i) (A) through (E) above in which the proceeds of such transaction or series of transactions are reinvested in one or more Assets within 180 days thereafter.
Securities Act. The Securities Act of 1933, as amended from time to time, or any successor statute thereto. Reference to any provision of the Securities Act shall mean the provision as in effect from time to time, as the same may be amended, and any successor provision thereto, as interpreted by any applicable regulations as in effect from time to time.
Shares. Any shares of the Company’s common stock, par value $0.0001 per share.
Stockholders. The record holders of the Company’s Shares as maintained in the books and records of the Company or its transfer agent.
Termination Date. The date of termination of this Agreement.
Total Operating Expenses. All costs and expenses paid or incurred by the Company, as determined under generally accepted accounting principles, which are in any way related to the operation of the Company or to Company business, including asset management fees paid to the Advisor or any Affiliate of the Advisor, but excluding (i) the expenses of raising capital such as Organization and Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing, registration, and other fees, printing and other expenses and tax incurred in connection with the issuance, distribution, transfer, registration and Listing of the Shares, (ii) interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation, amortization and bad debt reserves, (v) Acquisition Expenses and any acquisition fees paid to the Advisor or any Affiliate of the Advisor, (vi) real estate commissions on the Sale of Assets, and (vii) other fees and expenses connected with the acquisition, disposition, management and ownership of real estate interests, mortgage loans or other property (including the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property).
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Value of Investment. For each Asset, (i) with respect to an Asset wholly-owned by the Company or any wholly-owned subsidiary, the Asset’s value determined in connection with the Board’s establishment and publication of an estimated value per share as determined in accordance with the Estimated Valuation Policy, and (ii) in the case of an Asset owned by any Joint Venture or in some other manner in which the Company is a co-venturer or partner or otherwise a co-owner, the portion of the Asset’s value determined in connection with the Board’s establishment of an estimated value per share as determined in accordance with the Estimated Valuation Policy that is attributable to the Company’s investment in the Joint Venture or other interest in such Asset. Notwithstanding the foregoing, if the Company acquires an Asset after the Board’s most recent establishment and publication of an estimated value per share, the Asset’s value shall be the Cost of Investment.
ARTICLE II
THE ADVISOR
2.01. Appointment. The Company hereby appoints the Advisor to serve as its advisor on the terms and conditions set forth in this Agreement, and the Advisor hereby accepts such appointment.
2.02. Duties of the Advisor. The Advisor shall be deemed to be in a fiduciary relationship to the Company and its Stockholders. Subject to Section 2.08, the Advisor undertakes to use its commercially reasonable efforts to present to the Company potential investment opportunities consistent with the investment objectives and policies of the Company as determined and adopted from time to time by the Board. In performing its duties, subject to the supervision of the Board and consistent with the provisions of the Company’s most recent public filings, the Articles of Incorporation and Bylaws, the Advisor shall, either directly or by engaging a duly qualified and licensed Affiliate of the Advisor or other duly qualified and licensed Person:
(a) provide the Company with research and economic and statistical data in connection with the Assets and investment policies of the Company;
(b) manage the Company’s day-to-day operations and perform and supervise the various administrative functions reasonably necessary for the management and operations of the Company;
(c) maintain and preserve the books and records of the Company, including stock books and records reflecting a record of the Stockholders and their ownership of the Company’s Shares;
(d) investigate, select, and, on behalf of the Company, engage and conduct business with the duly qualified and, if required, licensed Persons as the Advisor deems necessary to the proper performance of its obligations hereunder, including duly qualified and licensed consultants, accountants, correspondents, lenders, technical advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow agents, depositaries, custodians, agents for collection, insurers, insurance agents, banks, builders, developers, property owners, mortgagors, property management companies, transfer agents and any and all agents for any of the foregoing, including duly qualified and licensed Affiliates of the Advisor, and duly qualified and, if required, licensed Persons acting in any other capacity deemed by the Advisor necessary or desirable for the performance of any of the foregoing services, including but not limited to entering into contracts in the name of the Company with any of the foregoing;
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(e) consult with the officers of the Company and the Board and assist the Board in the formulation and implementation of the Company’s financial policies, and, as necessary, furnish the Board with advice and recommendations with respect to the making of investments consistent with the investment objectives and policies of the Company and in connection with any borrowings proposed to be undertaken by the Company;
(f) subject to the provisions of Sections 2.02(h) and 2.03 below, (i) locate, analyze and select potential investments in Assets; (ii) structure and negotiate the terms and conditions of transactions pursuant to which investment in Assets will be made; (iii) make investments in Assets on behalf of the Company or the Operating Partnership in compliance with the investment objectives and policies of the Company; (iv) arrange for financing and refinancing and make other changes in the asset or capital structure of, and dispose of, reinvest the proceeds from the sale of, or otherwise deal with the investments in, Assets; and (v) enter into leases of Property and service contracts for Assets with duly qualified and, if required, licensed Persons and, to the extent necessary, perform all other operational functions for the maintenance and administration of the Assets, including the servicing of Mortgages, other loans and investments;
(g) provide the Board with periodic reports regarding prospective investments in Assets;
(h) obtain the prior approval of the Board (including a majority of all Independent Directors) for any and all investments in Assets;
(i) negotiate on behalf of the Company with banks or lenders for loans to be made to the Company, negotiate on behalf of the Company with investment banking firms and broker-dealers, and negotiate private sales of Shares and other securities of the Company or obtain loans for the Company, as and when appropriate, but in no event in such a way so that the Advisor shall be acting as broker-dealer or underwriter; and provided, further, that, subject to Section 3.01(c), any fees and costs payable to third parties incurred by the Advisor in connection with the foregoing shall be the responsibility of the Company;
(j) obtain reports (which may be prepared by or for the Advisor or its Affiliates), where appropriate, concerning the value of investments or contemplated investments of the Company in Assets;
(k) from time to time, or at any time reasonably requested by the Board, make reports to the Board of its performance of services to the Company under this Agreement;
(l) assist the Company in arranging for all necessary cash management services;
(m) deliver to or maintain on behalf of the Company copies of all appraisals obtained in connection with the investments in Assets;
(n) upon request of the Company, act, or obtain the services of other duly qualified and, if required, licensed Persons to act, as attorney-in-fact or agent of the Company in making, acquiring and disposing of Assets, disbursing and collecting funds on behalf of the Company, paying the debts and fulfilling the obligations of the Company and retaining counsel or other advisors to assist in handling, prosecuting and settling any claims of the Company, including foreclosing and otherwise enforcing mortgage and other liens and security interests comprising any of the Assets;
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(o) supervise the preparation and filing and distribution of returns and reports to governmental agencies and to Stockholders and other investors and act on behalf of the Company;
(p) provide office space, equipment and personnel as required for the performance of the foregoing services as Advisor;
(q) assist the Company in preparing all reports and returns required by the Securities and Exchange Commission, Internal Revenue Service and other state or federal governmental agencies; and
(r) do all things necessary to assure its ability to render the services described in this Agreement.
2.03. Authority of Advisor.
(a) Pursuant to the terms of this Agreement (including the restrictions included in this Section 2.03 and in Section 2.06 below), and subject to the continuing and exclusive authority of the Board over the management of the Company, the Board hereby delegates to the Advisor the authority to (i) locate, analyze and select investment opportunities for the Company, (ii) structure the terms and conditions of transactions pursuant to which investments will be made or acquired for the Company, (iii) acquire Properties, make and acquire Mortgages and other loans and make investments in other Assets in compliance with the investment objectives and policies of the Company, (iv) arrange for financing or refinancing of Assets, (v) enter into leases for the Properties and service contracts for the Assets with duly qualified and licensed non-affiliated and Affiliated Persons, including oversight of non-affiliated and Affiliated Persons that perform property management, acquisition, advisory, disposition or other services for the Company, (vi) oversee duly qualified and, if required, licensed property managers and other Persons who perform services for the Company, and (vii) arrange for, or provide, accounting and other record-keeping functions.
(b) Notwithstanding the foregoing, any investment in Assets by the Company (as well as any financing acquired by the Company in connection with the investment), will require the prior approval of the Board (including a majority of the Independent Directors).
(c) The prior approval of a majority of the Independent Directors and a majority of the Board not otherwise interested in the transaction will be required for each transaction with the Advisor or its Affiliates.
(d) If a transaction requires approval by the Board, the Advisor will deliver to the Directors all documents required by them to properly evaluate the proposed transaction.
The Board may, at any time upon the giving of written notice to the Advisor, modify or revoke the authority set forth in this Section 2.03. If and to the extent the Board so modifies or revokes the authority contained herein, the Advisor shall henceforth submit to the Board for prior approval the proposed transactions involving investments in Assets as thereafter require prior approval; provided, however, that the modification or revocation shall be effective upon receipt by the Advisor and shall not be applicable to investment transactions to which the Advisor has committed the Company prior to the date of receipt by the Advisor of the notification.
2.04. Bank Accounts. The Advisor may establish and maintain one or more bank accounts in its own name for the account of the Company or in the name of the Company and may collect and deposit into any account or accounts, and disburse from any account or accounts, any money on behalf of the Company, under the terms and conditions as the Board may approve; provided, however, that no funds of the Company shall be commingled with the funds of the Advisor; and the Advisor shall from time to time render accountings of the collections and payments to the Board, its Audit Committee and the independent accountants of the Company.
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2.05. Records; Access. The Advisor shall maintain records of all its activities hereunder and make the records available for inspection by the Board and by counsel, independent accounts, and authorized agents of the Company, at any time or from time to time during normal business hours. The Advisor shall at all reasonable times have access to the books and records of the Company.
2.06. Limitations on Activities. Anything else in this Agreement to the contrary notwithstanding, the Advisor shall refrain from taking any action which, in its sole judgment made in good faith, would (a) adversely affect the status of the Company as a REIT, (b) subject the Company to regulation under the Investment Company Act of 1940, as amended, or (c) violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over the Company, the Shares or any of the Company’s securities, or otherwise not be permitted by the Articles of Incorporation, the Bylaws or the Operating Partnership Agreement, except if the action shall be ordered by the Board, in which case the Advisor shall promptly notify the Board of the Advisor’s judgment of the potential impact of the action and shall refrain from taking the action until it receives further clarification or instructions from the Board. In such event the Advisor shall have no liability for acting in accordance with the specific instructions of the Board so given. The Advisor, its directors, officers, employees and stockholders, and the directors, officers, employees and stockholders of the Advisor’s Affiliates shall not be liable to the Company or to the Board or Stockholders for any act or omission by the Advisor, its directors, officers, employees or stockholders, or for any act or omission of any Affiliate of the Advisor, its directors, officers or employees or stockholders except as provided in Section 5.02 of this Agreement.
2.07. Relationship with Directors. Directors, officers and employees of the Advisor or an Affiliate of the Advisor may serve as Directors, officers or employees of the Company, except that no director, officer or employee of the Advisor or its Affiliates who also is a Director shall receive any compensation from the Company for serving as a Director other than reasonable reimbursement for travel and related expenses incurred in attending meetings of the Board.
2.08. Other Activities of the Advisor. Nothing herein contained shall prevent the Advisor or its Affiliates from engaging in other activities, including, without limitation, the rendering of advice to other Persons (including other REITs) and the management of other programs advised, sponsored or organized by the Advisor or its Affiliates; nor shall this Agreement limit or restrict the right of any director, officer, employee, or stockholder of the Advisor or its Affiliates to engage in any other business or to render services of any kind to any other Person. The Advisor may, with respect to any investment in which the Company is a participant, also render advice and service to each and every other participant therein. The Advisor shall report to the Board the existence of any condition or circumstance, existing or anticipated, of which it has knowledge, which creates or could create a conflict of interest between the Advisor’s obligations to the Company and its obligations to or its interest in any other Person. The Advisor or its Affiliates shall promptly disclose to the Board knowledge of such condition or circumstance. Provided the Company has sufficient investment funds available for investment opportunities that meet its investment objectives and policies, the Advisor shall inform the Board at least quarterly of the investment opportunities, of which the Advisor has knowledge that have been offered to other programs with similar investment objectives sponsored by the Advisor, any Director or their respective Affiliates. If the Advisor, any Director or any Affiliates of the foregoing have sponsored other investment programs with similar investment objectives which have investment funds available at the same time as the Company, it shall be the duty of the Board (including the Independent Directors) to adopt a reasonable method by which investments may be allocated to the competing investment entities and to use their best efforts to apply such method fairly to the Company.
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ARTICLE
III
COMPENSATION AND REIMBURSEMENT OF SPECIFIED COSTS
3.01. Fees.
(a) Asset Management Fee. The Company shall pay the Advisor a monthly Asset Management Fee on the 15th day of each month in an amount equal to 1/12th of 0.7% of, for each and every Asset, the Value of Investment. The Advisor, in its sole discretion, may waive, reduce or defer all or any portion of the Asset Management Fee to which it would otherwise be entitled.
(b) Acquisition and Advisory Fees. The Company shall pay the Advisor a fee in the amount of 1.5% of the Contract Purchase Price of each Asset as Acquisition and Advisory Fees. The total of all Acquisition Fees and any Acquisition Expenses shall be limited in accordance with the Articles of Incorporation. Acquisition and Advisory Fees shall be paid as follows: (i) for real property, at the time of acquisition, (ii) for any development, redevelopment or improvement projects on Properties, at the time that they are incurred, and (iii) for Mortgages, other loans and similar assets (including without limitation mezzanine loans), quarterly based on the value of loans made or acquired. The Advisor, in its sole discretion, may waive, reduce or defer all or any portion of the Acquisition and Advisory Fees to which it would otherwise be entitled.
(c) Debt Financing Fee. Debt Financing Fee. In the event of any debt financing obtained by or for the Company (including any refinancing of debt), the Company will pay to the Advisor a debt financing fee equal to 1% of the amount available under the financing. The Debt Financing Fee includes the reimbursement of the specified cost incurred by the Advisor of engaging third parties to source debt financing, and nothing herein shall prevent the Advisor from entering fee-splitting arrangements with third parties with respect to the Debt Financing Fee.
3.02. Expenses
(a) The Company shall pay directly or reimburse the Advisor or its Affiliates, as directed by the Advisor, for the following costs and expenses paid or incurred by the Advisor or its Affiliates in connection with the provision of services under this Agreement for which the Advisor or any Affiliate of the Advisor does not receive a separate fee:
(i) Acquisition Expenses;
(ii) costs associated with insurance required in connection with the business of the Company or by the Board;
(iii) third-party expenses connected with payments of Distributions in cash or otherwise made or caused to be made by the Company to the Stockholders;
(iv) expenses of any third-party transfer agent for the Shares and third-party expenses of maintaining communications with Stockholders, including the cost of preparation, printing, and mailing annual reports and other Stockholder reports, proxy statements and other reports required by governmental entities;
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(v) if the Board of Directors of the Company has preapproved the provision of AFD Services with respect to an Asset, the Company shall reimburse the Advisor for any Personnel Costs, Hard Costs and Business Operations Infrastructure Costs (as determined by the Advisor based on its review of the time sheets or other billing records and receipts of the Advisor Personnel) attributable to the Advisor Personnel while performing the preapproved AFD Services;
(vi) for the avoidance of doubt, the Company shall not reimburse the Advisor for the amount of compensation and benefits paid or accrued by the Advisor, including any payroll taxes and insurance costs, for any person who also serves as an executive officer of the Company; and
(vii) other expenses incurred by the Advisor and approved by the Board.
(b) Expenses incurred by the Advisor on behalf of the Company and payable pursuant to this Section 3.02 shall be reimbursed no less than quarterly to the Advisor within 60 days after the end of each quarter. The Advisor shall prepare a statement documenting the expenses of the Company during each quarter and shall deliver the statement to the Company within 45 days after the end of each quarter.
(c) For avoidance of doubt, the Company is and remains responsible for paying any and all expenses of the Company, including third party audit, accounting and legal fees.
(d) Notwithstanding anything to the contrary in this Section 3.02, with respect to investments the Company does not make (i) the Advisor will be responsible for paying all of the investment-related expenses that the Company or the Advisor incurs that are due to third parties other than Non-Refundable Payments approved in advance by the Board, and (ii) the Company shall be responsible for paying directly or reimbursing the Advisor for all Non-Refundable Payments approved in advance by the Board.
(e) For the period from the date of this Agreement through June 30, 2023, the Company shall pay the Advisor an Administrative Services Reimbursement in the amount equal to the lesser of (i) the Cost Reimbursement Cap and (ii) the costs of providing the Administrative Services. The costs of providing the Administrative Services include, without limitation, the Fully Burdened Compensation, Hard Costs and Business Operations Infrastructure Costs attributable to Advisor Personnel (other than AFD Personnel and Advisor Personnel providing services for which the Advisor or any Affiliate of the Advisor is paid a separate fee) performing services for the Company pursuant to this Agreement. The Administrative Services Reimbursement is payable in quarterly installments within 45 days of the end of each calendar quarter. Notwithstanding anything to the contrary, no additional fees or expense reimbursement shall be payable to the Advisor in connection with the provision of the Administrative Services (whether or not paid to a third party) without the prior consent of the Board.
(f) For the avoidance of doubt, the Company shall not reimburse the Advisor for any Fully Burdened Compensation, Hard Costs and Business Operations Infrastructure Costs attributable to Advisor Personnel providing services for which the Advisor or any Affiliate of the Advisor is paid a separate fee.
3.03. Other Services. Should the Board request that the Advisor or any director, officer or employee thereof render services for the Company other than those set forth in Section 2.02, the services shall be separately compensated at the rates and in the amounts as are agreed by the Advisor and the Independent Directors, subject to the limitations contained in the Articles of Incorporation, and shall not be deemed to be services pursuant to the terms of this Agreement.
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3.04. Reimbursement to the Advisor. The Company shall not reimburse the Advisor for Total Operating Expenses to the extent that Total Operating Expenses, in the four consecutive fiscal quarters then ended (the “Expense Year”) exceed (the “Excess Amount”) the greater of 2% of Average Invested Assets or 25% of Net Income for that period of four consecutive fiscal quarters (the “2%/25% Guidelines”). Any Excess Amount paid to the Advisor during a fiscal quarter shall be repaid to the Company. Reimbursement of all or any portion of the Total Operating Expenses that exceed the limitation set forth in the preceding sentence may, at the option of the Advisor, be deferred without interest and may be reimbursed in any subsequent Expense Year where such limitation would permit such reimbursement if the Total Operating Expense were incurred during such period. Notwithstanding the foregoing, if there is an Excess Amount in any Expense Year and the Independent Directors determine that all or a portion of such excess was justified, based on unusual and nonrecurring factors which they deem sufficient, the Excess Amount may be reimbursed to the Advisor. If the Independent Directors determine such excess was justified, then, after the end of any fiscal quarter of the Company for which there is an Excess Amount for the 12 months then ended paid to the Advisor, the Advisor, at the direction of the Independent Directors, shall cause such fact to be disclosed in the next quarterly report of the Company or in a separate writing and sent to the Stockholders within 60 days of such quarter end, together with an explanation of the factors the Independent Directors considered in determining that such Excess Amount was justified. Such determination shall be reflected in the minutes of the meetings of the Board. The Company will not reimburse the Advisor or its Affiliates for services for which the Advisor or its Affiliates are entitled to compensation in the form of a separate fee. All figures used in any computation pursuant to this Section 3.04 shall be determined in accordance with generally accepted accounting principles applied on a consistent basis.
3.05. Audit of Advisor Payments. It is the intention of the parties to conform strictly to the applicable provisions of this Agreement as to fees, reimbursements and any other amounts (the “Advisor Payments”) to be paid to the Advisor hereunder. In addition to the review of the Advisor Payments conducted as part of the Company’s annual audited financial statements, the Company shall have the right, on an annual basis and upon reasonable written notice, to engage a separate audit, on a confidential basis, of its own and the Advisor’s records, books and accounts in respect of Advisor Payments to ascertain whether the Advisor Payments were properly determined and paid for the prior fiscal year. Any requests for such a separate audit must be made within 90 days of the prior calendar year-end. Any such audit shall be conducted: (i) by an independent certified public accounting firm designated by the Company (the “Auditor”); (ii) during regular business hours; and (iii) in such a manner so as not to interfere with the Advisor’s regular business activities. The Company shall bear the costs of the audit unless the audit conclusively reveals an overpayment of Advisor Payments in an amount greater than 10% of the total amount of Advisor Payments owed for the period being inspected, in which case the Advisor shall bear the costs of the audit. If the audit conclusively reveals an overpayment or underpayment of Advisor Payments, the Company or the Advisor shall promptly pay to the other party the amount of the overpayment or underpayment, as the case may be, without interest. Any underpayment or overpayment under this Agreement shall not be a breach of this Agreement unless and until an audit performed in accordance with this Section 3.05 is completed and the party who may be obligated to make a payment hereunder as a result of such audit shall have failed to promptly make any required payment.
ARTICLE IV
TERM AND TERMINATION
4.01. Term; Renewal. Subject to Section 4.02 below, this Agreement shall continue in force through and including June 30, 2023, this Agreement may be renewed for an unlimited number of successive one-year terms upon mutual consent of the parties. It is the duty of the Board to evaluate the performance of the Advisor annually before renewing the Agreement, and each such renewal shall be for a term of no more than one year.
4.02. Termination. This Agreement will automatically terminate upon Listing. This Agreement also may be terminated at the option of either party upon 60 days’ written notice without cause or penalty (if termination is by the Company, then the termination shall be upon the approval of a majority of the Independent Directors). Notwithstanding the foregoing, the provisions of Section 4.03, Article V and Article VI shall continue in full force and effect and shall survive the termination or expiration of this Agreement.
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4.03. Payments to and Duties of Advisor upon Termination.
(a) After the Termination Date, the Advisor shall not be entitled to compensation for further services hereunder except it shall be entitled to, and shall receive from the Company within 30 days after the effective date of the termination, all unpaid fees payable to the Advisor earned or related to any period up to the time of termination of this Agreement.
(b) The Advisor shall promptly upon termination:
(i) pay over to the Company all money collected and held for the account of the Company pursuant to this Agreement, after deducting any accrued compensation to which it is then entitled under this Agreement;
(ii) deliver to the Board a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board;
(iii) deliver to the Board all assets, including the Assets, and documents of the Company then in the custody of the Advisor; and
(iv) cooperate with the Company and take all reasonable actions requested by the Company to provide an orderly management transition.
ARTICLE V
INDEMNIFICATION
5.01. Indemnification by the Company.
(a) The Advisor assumes no responsibility under this Agreement other than to render the services called for hereunder in good faith to the best of its abilities and shall not be responsible for any action or inaction of the Board or the Company in following or declining to follow any advice or recommendations of the Advisor. The Advisor and its Affiliates, and the directors, officers, employees, partners, members, stockholders, other equity holders, agents and representatives of the Advisor and its Affiliates (each, an “Advisor Indemnified Party”), will not be liable to the Company, any subsidiary of the Company, the Board, the stockholders of the Company or of any of the Company’s subsidiaries, partners or members or any other Person for any acts or omissions by any Advisor Indemnified Party performed in accordance with and pursuant to this Agreement, except by reason of any act or omission constituting bad faith, willful misconduct, gross negligence, or reckless disregard of the duties under this Agreement on the part of such Advisor Indemnified Party. The Company shall, to the full extent lawful, reimburse, indemnify and hold harmless each Advisor Indemnified Party, of and from any and all expenses, losses, damages, liabilities, taxes, demands, charges and claims of any nature whatsoever (including reasonable attorneys’ fees), in respect of or arising from (i) any acts or omissions of such Advisor Indemnified Party performed under this Agreement and not constituting bad faith, willful misconduct, gross negligence, or reckless disregard of duties on the part of such Advisor Indemnified Party under this Agreement and (ii) any matter, act or omission occurring prior to the date of this Agreement relating to, in connection with, or in respect of, the Company or any of its Affiliates or any of their respective businesses, assets or properties (including any claim or litigation asserted or instigated by a third party); provided, however, that to the extent that an Advisor Indemnified Party recovers insurance proceeds with respect to any matter for which the Advisor Indemnified Party is entitled to indemnification, then the amount payable to such Advisor Indemnified Party under this Section 5.01 in respect of such matter shall be reduced by the amount of such recovered insurance proceeds. In addition, the Company shall advance funds to an Advisor Indemnified Party for reasonable legal fees and other reasonable costs and expenses incurred as a result of any claim, suit, action or proceeding for which indemnification is being sought; provided, however, that such Advisor Indemnified Party undertakes to repay such advanced funds to the Company, together with the applicable legal rate of interest thereon, in cases in which such Advisor Indemnified Party is found pursuant to a final and non-appealable order or judgment to not be entitled to indemnification.
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(b) The indemnity provided for pursuant to this Section 5.01 shall extend, without limitation, to any claims to the extent relating to any of the events or outcomes set forth in the Prospectus or in any other filing made by the Company with the Securities and Exchange Commission as possible results, outcomes or risks associated with the business and investment objectives of the Company. Notwithstanding the provisions of this Section 5.01, the Advisor shall not be entitled to indemnification or be held harmless pursuant to this Section 5.01 for any activity with respect to which the Advisor shall be required to indemnify or hold harmless the Company pursuant to Section 5.02.
5.02. Indemnification by Advisor. The Advisor shall indemnify and hold harmless the Company from contract or other liability, claims, damages, taxes or losses and related expenses including attorneys’ fees, to the extent that the liability, claims, damages, taxes or losses and related expenses are not fully reimbursed by insurance and are incurred by reason of the Advisor’s bad faith, fraud, misfeasance, willful misconduct, gross negligence or reckless disregard of its duties under this Agreement, but the Advisor shall not be held responsible for any action or inaction of the Board of the Company in following or declining to follow any advice or recommendation given by the Advisor.
ARTICLE VI
MISCELLANEOUS
6.01. Assignment to an Affiliate. This Agreement and any rights, duties, liabilities and obligations hereunder and the fees and compensation related thereto may be assigned by the Advisor, in whole or in part, to a duly qualified and (if required to be) licensed Affiliate of the Advisor without obtaining the approval of the Board. Any other assignment shall be made only with the approval of a majority of the Board (including a majority of the Independent Directors). The Advisor may assign any rights to receive fees or other payments under this Agreement without obtaining the approval of the Board. This Agreement shall not be assigned by the Company without the consent of the Advisor, except in the case of an assignment by the Company to a corporation or other organization which is a successor to all of the assets, rights and obligations of the Company, in which case the successor organization shall be bound hereunder and by the terms of said assignment in the same manner as the Company is bound by this Agreement. This Agreement shall be binding on successors to the Company resulting from a Change of Control or sale of all or substantially all the assets of the Company or the Operating Partnership, and shall likewise be binding upon any successor to the Advisor.
6.02. Relationship of Advisor and Company. The Company and the Advisor are not partners or joint venturers with each other, and nothing in this Agreement shall be construed to make them such partners or joint venturers or impose any liability as such on either of them.
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6.03. Notices. All notices, consents, approvals, waivers or other communications (each, a “Notice”) required or permitted hereunder, except as herein otherwise specifically provided, shall be in writing and shall be: (a) delivered personally or by commercial messenger; (b) sent via a recognized overnight courier service; (c) sent by registered or certified mail, postage pre-paid and return receipt requested; or (d) sent by facsimile transmission, provided confirmation of receipt is received by sender and the original Notice is sent or delivered contemporaneously by an additional method provided in this Section 6.03; in each case so long as such Notice is addressed to the intended recipient thereof as set forth below. Any party may change its address specified above by giving each party Notice of such change in accordance with this Section 6.03. Any Notice shall be deemed given upon actual receipt (or refusal of receipt).
| To the Company and the Operating Partnership: | Lightstone
Value Plus REIT V, Inc.
| ||
| Attention: | Joseph E. Teichman, Esq. | ||
| Executive Vice President | |||
| With a copy to: | Andreas
K. Bremer
Laura
K. Sirianni | ||
| To the Advisor: | LSG
Development LLC | ||
| Attention: | Joseph E. Teichman, Esq. | ||
| General Counsel and Secretary | |||
6.04. Modification. This Agreement shall not be amended or supplemented, in whole or in part, except by an instrument in writing signed by all the parties hereto, or their respective successors or permitted assignees.
6.05. Severability. The provisions of this Agreement are independent of and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.
6.06. Choice of Law; Venue. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, and any action brought to enforce the agreements made hereunder or any action which arises out of the relationship created hereunder shall be brought exclusively in any of the federal or state courts located in the Borough of Manhattan in New York City.
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6.07. Entire Agreement. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter of this Agreement, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter of this Agreement. The express terms of this Agreement control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms of this Agreement.
6.08. Waiver. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of the right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted the waiver.
6.09. Gender; Number. Words used herein regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires.
6.10. Execution in Counterparts. This Agreement may be executed with counterpart signatures or in two or more counterparts, each of which shall be deemed an original, and it shall not be necessary in making proof of this Management Agreement to produce or account for more than one such counterpart.
6.11. Ownership of Proprietary Property. The Advisor and its Affiliates have or may have a proprietary interest in the name “Lightstone.” The Advisor hereby grants to the Company, to the extent of any proprietary interest the Advisor may have in the name “Lightstone,” a non-transferable, non-assignable, non-exclusive, royalty-free right and license to use the name “Lightstone” during the term of this Agreement. The Company agrees that the Advisor and its Affiliates will have the right to approve any use by the Company of the name “Lightstone,” such approval not to be unreasonably withheld or delayed. Accordingly, and in recognition of this right, if at any time the Company ceases to retain the Advisor or one of its Affiliates to perform advisory services for the Company, the Company will, promptly after receipt of a written request from the Advisor, cease to conduct business under or use the name “Lightstone” or any derivative thereof and the Company shall change its name and the names of any of its subsidiaries to a name that does not contain the name “Lightstone” or any other word or words that might, in the reasonable discretion of the Advisor, be susceptible of indication of some form of relationship between the Company and the Advisor or any its Affiliates. At such time, the Company also will make any changes to any trademarks, service marks or other marks necessary to remove any references to the word “Lightstone.” Consistent with the foregoing, it is specifically recognized that the Advisor or one or more of its Affiliates has in the past and may in the future organize, sponsor or otherwise permit to exist other investment vehicles (including vehicles for investment in real estate) and financial and service organizations having the name “Lightstone” as a part of their name, all without the need for any consent (and without the right to object thereto) by the Company. Neither the Advisor nor any of its Affiliates makes any representation or warranty, express or implied, with respect to the name “Lightstone” licensed hereunder or the use thereof (including, without limitation, as to whether the use of the name “Lightstone” will be free from infringement of the intellectual property rights of third parties). Notwithstanding the preceding, the Advisor represents and warrants that it is not aware of any pending claims or litigation or of any claims threatened in writing regarding the use or ownership of the name “Lightstone.”
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6.12. Non-Solicitation. During the period commencing on the effective date of this Agreement and ending one year following the termination of this Agreement, neither the Company nor the Operating Partnership shall, without the Advisor’s prior written consent, directly or indirectly, (a) solicit or encourage any person to leave the employment or other service of the Advisor or its affiliates or (b) hire, on behalf of the Company or any other person or entity, any person who has within the prior year left his or her employment with the Advisor or its affiliates. During the period commencing on the effective date of this Agreement and ending one year following the termination of this Agreement, neither the Company nor the Operating Partnership shall, whether for its own account or for the account of any other person, firm, corporation or other business organization, intentionally interfere with the relationship of the Advisor or its affiliates with, or endeavor to entice away from the Advisor or its affiliates, any person who during the term of the Agreement is, or during the preceding one-year period was, a customer of the Advisor or its affiliates. Notwithstanding the foregoing, the obligations of the Company under this Section 6.12 shall be waived and shall not apply in the following circumstances:
(a) (i) the Advisor files for a voluntary petition under Title 11 of the United States Code, 11 U.S.C. §101, et seq., as amended from time to time, or any successor statute or statutes (the “Bankruptcy Code”) Code or any other Federal or state bankruptcy, receivership or insolvency law; or (ii) an involuntary petition is filed against the Advisor under the Bankruptcy Code or any other Federal or state bankruptcy, receivership or insolvency law, and such petition or proceeding has not been dismissed or terminated within 60 days of such filing; or
(b) in the event the Advisor either (i) terminates this Agreement pursuant to Section 4.02 of this Agreement because Advisor is no longer in the business of providing real estate asset management services or (B) materially breaches its obligations to provide the services set forth in Section 2.02 of this Agreement (other than with respect to providing services with respect to acquisitions or prospective acquisitions), and such material breach continues uncured for 15 business days after the date the Company has given the Advisor written notice of such material breach pursuant to Section 6.03.
6.13. Rules of Construction. The headings herein are for convenience only, do not constitute a part of this Agreement. The recitals constitute an integral part of this Agreement and hereby are incorporated by reference in this Section 6.13. This Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. Whenever the words “include,” “includes,” “including” or “such as” are used in this Agreement, they shall be deemed to be followed by the words “but not limited to” whether or not they are in fact followed by those words or words of like import.
[The remainder of this page intentionally blank – Signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Advisory Agreement as of the date and year first above written.
| LIGHTSTONE VALUE PLUS REIT V, INC. | |||
| By: | /s/ Andreas K. Bremer | ||
| Name: | Andreas K. Bremer | ||
| Title: | Chairman of the Conflicts Committee and Authorized Signatory | ||
| LIGHTSTONE VALUE PLUS REIT V OP LP | ||
| By: | BHO II, Inc., | |
| Its General Partner | ||
| By: | /s/ Terri Warren Reynolds | ||
| Name: | Terri Warren Reynolds | ||
| Title: | Senior Vice President and Secretary | ||
| LSG DEVELOPMENT LLC | |||
| By: | /s/ Joseph E. Teichman | ||
| Name: | Joseph E. Teichman | ||
| Title: | Authorized Signatory | ||
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Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Mitchell C. Hochberg, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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(s) 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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(s) 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: August 11, 2022 |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Seth Molod, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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(s) 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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(s) 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: August 11, 2022 |
Exhibit 32.1
SECTION 1350 CERTIFICATION
This Certificate is being delivered pursuant to the requirements of Section 1350 of Chapter 63 (Mail Fraud) of Title 18 (Crimes and Criminal Procedures) of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
The undersigned, who is the Chief Executive Officer of Lightstone Value Plus Real Estate Investment Trust V, Inc. (the “Company”), hereby certifies, to his knowledge:
The Quarterly Report on Form 10-Q of the Company (the “Report”), which accompanies this Certificate, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and all 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 | |
| Date: August 11, 2022 |
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
SECTION 1350 CERTIFICATION
This Certificate is being delivered pursuant to the requirements of Section 1350 of Chapter 63 (Mail Fraud) of Title 18 (Crimes and Criminal Procedures) of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
The undersigned, who is the Chief Financial Officer of Lightstone Value Plus Real Estate Investment Trust V, Inc. (the “Company”), hereby certifies, to his knowledge:
The Quarterly Report on Form 10-Q of the Company (the “Report”), which accompanies this Certificate, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and all 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 | |
| Date: August 11, 2022 |
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or its staff upon request.
Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares shares in Thousands |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| 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 | 50,000 |
| 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 shares) | 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 | 350,000 |
| Common stock, shares issued (in shares) | 20,100 | 20,100 |
| Common stock, shares outstanding (in shares) | 20,100 | 20,100 |
Business |
6 Months Ended | |||
|---|---|---|---|---|
Jun. 30, 2022 | ||||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||
| Business |
Lightstone Value Plus REIT V, Inc. (“Lightstone REIT V”) which was formerly known as Lightstone Value Plus Real Estate Investment Trust V, Inc. before August 31, 2021, 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.
Lightstone REIT V, together with its subsidiaries is collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns refers to Lightstone REIT V or the Company as required by the context in which any such pronoun is used.
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 June 30, 2022, the Company had eight wholly owned real estate investments (multi-family apartment complexes) 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 June 30, 2022, 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 June 30, 2022, 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 externally managed by LSG Development Advisor LLC (the “Advisor”), an affiliate of the Lightstone Group LLC (“Lightstone”) which provides advisory services to the Company and the Company has no employees. Lightstone is majority owned by the chairman emeritus 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 shares of its common stock and shares of its convertible stock to the Company’s previous advisor on January 19, 2007. The shares of convertible stock were transferred to an affiliate of Lightstone on February 10, 2017 and remain outstanding. As of June 30, 2022, the Company had 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 and the Company’s board of directors’ assessment of the Company’s investment objectives and liquidity options for the Company’s stockholders. Currently, the Company’s board of directors has targeted June 30, 2028 for the commencement of a liquidity event. However, 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. Furthermore, the Company will seek stockholder approval prior to liquidating its entire portfolio.
Noncontrolling Interests
Effective as of December 30, 2021, the Company wholly-owns all of its real estate investments and does not have any remaining noncontrolling interests. Prior to December 30, 2021, noncontrolling interests represented the noncontrolling ownership interest’s proportionate share of the equity in the Company’s consolidated real estate investments. Income and losses were allocated to noncontrolling interest holders based generally on their ownership percentage but in certain instances, if a property reached a defined return threshold, then it may have resulted in distributions to noncontrolling interests which were different from the standard pro-rata allocation percentage. Additionally, in certain instances, the joint venture agreements may have provided for liquidating distributions based on achieving certain return metrics.
Acquisitions of Noncontrolling Members’ Ownership Interests in Consolidated Real Estate Investments
On March 17, 2021, the Company acquired the noncontrolling member’s 7.5% ownership interest in the Lakes of Margate for $ million and as a result, owned 100% of the Lakes of Margate, which was subsequently sold (see Note 5).
On December 20, 2021, the Company acquired the noncontrolling member’s 15.0% membership interest in the River Club Properties for $ million and as a result, owned 100% of the River Club Properties, which were subsequently sold (see Note 5).
On December 30, 2021, the Company acquired the noncontrolling member’s 10.0% ownership interest in Parkside for $3.6 million and recorded the $ million difference between the contractual purchase price and the carrying value of the noncontrolling member’s interest to additional paid in capital. As a result, the Company now owns 100% of Parkside. |
Summary of Significant Accounting Policies |
6 Months Ended | |||
|---|---|---|---|---|
Jun. 30, 2022 | ||||
| Accounting Policies [Abstract] | ||||
| Summary of Significant Accounting Policies |
Interim Unaudited Financial Information
The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the Securities and Exchange Commission (the “SEC”) on March 24, 2022. The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of the results for the periods presented. The accompanying unaudited consolidated financial statements of Lightstone Value Plus REIT V, Inc. have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.’
Principles of Consolidation and Basis of Presentation
Our consolidated financial statements include our accounts and the accounts of other subsidiaries over which the Company 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 or entities which we are not deemed to be the primary beneficiary, it accounts for the investment using the equity method of accounting.
The consolidated balance sheet as of December 31, 2021 included herein has been derived from the consolidated balance sheet included in the Company’s Annual Report on Form 10-K.
The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.
The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, basic and diluted earnings per share is calculated by dividing net income/(loss) by the weighted-average number of shares of common stock outstanding during the applicable period.
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 our consolidated properties. Capital reserves are typically utilized for non-operating expenses such as tenant improvements, leasing commissions, 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.
Interest Rate Cap Contracts
The Company utilizes derivative financial instruments to reduce interest rate risk. The Company does not hold or issue derivative financial instruments for trading purposes. The Company recognizes all derivatives as either assets or liabilities in the consolidated balance sheets and measures those instruments at fair value. Changes in fair value of those instruments are recorded in the consolidated statements of operations.
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.
During 2015, the Company recorded an aggregate provision for income tax of $2.7 million representing estimated foreign income tax due as a result of the sale of two foreign investments, Alte Jakobstraße and Holstenplatz. During the first quarter of 2022, the Company recorded an income tax benefit of $0.8 million representing a partial refund of the foreign income tax paid.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and it remains highly unpredictable and dynamic and its ultimate duration and extent continue to be dependent on various developments, such as the emergence of variants to the virus that may cause additional strains of COVID-19, and the development, administration and ultimate effectiveness of vaccines, including booster shots. Accordingly, the ongoing COVID-19 pandemic may continue to have negative effects on the U.S. and global economies for the foreseeable future.
As of June 30, 2022, the Company’s consolidated portfolio of properties consisted of eight multi-family apartment complexes, all of which are located in the U.S. Its multi-family properties have not been significantly impacted by the COVID-19 pandemic and their occupancy levels, rental rates and rental collections have remained stable since the onset of the COVID-19 pandemic. Additionally, the Company’s note receivable (the “500 West 22nd Street Mezzanine Loan”) is collateralized by a substantially completed 10-unit condominium development project located in New York City (the “Condominium Project”), which is subject to risks related to the COVID-19 pandemic. To date, both the Condominium Project and the Company’s 500 West 22nd Street Mezzanine Loan have not been significantly impacted by the COVID-19 pandemic.
The Company continues to closely monitor the overall extent as to which its business may be affected by the ongoing COVID-19 pandemic which 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 its real estate-related investments are negatively impacted by the ongoing COVID-19 pandemic in future periods for an extended period because (i) tenants are unable to pay their rent, (ii) leasing demand falls causing declines in occupancy levels and/or rental rates, and (iii) the borrower is unable to pay scheduled debt service on the 500 West 22nd Street Mezzanine Loan; the Company’s business and financial results could be materially and adversely impacted.
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 adoption of this standard will not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.
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. |
Note Receivable |
6 Months Ended | |||
|---|---|---|---|---|
Jun. 30, 2022 | ||||
| Receivables [Abstract] | ||||
| 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 the 500 West 22nd Street Mezzanine Loan, a loan promissory note, pursuant to which the Company funded $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 and subsequently, through a series of draws, the remaining $4.0 million of the 500 West 22nd Street Mezzanine Loan was fully funded by the end of the first quarter of 2020.
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 June 30, 2022) and had an initial maturity date of August 31, 2021, which has been extended to September 1, 2022 due to the exercise of two six-month extension options, and is collateralized by the ownership interests of the 500 West 22nd Street Mezzanine Loan Borrower. The 500 West 22nd Street Mezzanine Loan provides for monthly interest-only payments at a rate of 8% with the additional interest above the 8% threshold added to the outstanding principal balance and due at maturity.
The 500 West 22nd Street Mezzanine Loan Borrower has developed and constructed the Condominium Project located at 500 West 22nd Street, New York, New York, which is substantially complete. During the six months ended June 30, 2022, the 500 West 22nd Street Mezzanine Loan Borrower repaid $8.8 million (of which $7.2 million was paid in the second quarter) of the 500 West 22nd Street Mezzanine Loan with proceeds from the sale of condominium units.
As of June 30, 2022, the remaining outstanding principal balance of the 500 West 22nd Street Mezzanine Loan was $5.4 million, including $2.3 million of additional interest due at maturity. The 500 West 22nd Street Mezzanine Loan is classified as note receivable, net on the consolidated balance sheet. During the three and six months ended June 30, 2022, the Company recorded $0.3 million and $0.8 million, respectively, of interest income related to the note receivable and during the three and six months ended June 30, 2021, the Company recorded $0.5 million and $0.9 million, respectively, of interest income related to the note receivable.
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Financial Instruments |
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial Instruments |
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 June 30, 2022 and December 31, 2021, management estimated that the carrying value of cash and cash equivalents, restricted cash, note receivable, prepaid expenses and other assets and accounts payable, accrued expenses and other liabilities 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 June 30, 2022 and December 31, 2021. Carrying amounts of our notes payable and the related estimated fair value is summarized as follows:
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Real Estate Properties |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real Estate Properties | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real Estate Properties |
The following table presents certain information about the Company’s wholly owned and consolidated multifamily real estate properties as of June 30, 2022:
Acquisition Activities
Acquisition of BayVue Apartments
On July 7, 2021, the Company completed the acquisition of a 368-unit multifamily property located in Tampa, Florida (the “BayVue Apartments”), from an unrelated third party for a contractual purchase price of $59.5 million, excluding closing and other acquisition related costs. The acquisition was funded with $44.3 million of initial proceeds from a mortgage financing (see Note 7 for additional information) and $15.2 million of cash on hand, including escrowed funds released by a qualified intermediary. In connection with the acquisition, the Company paid the Advisor an aggregate of $1.0 million in acquisition fees and acquisition expense reimbursements.
Acquisition of Citadel Apartments
On October 6, 2021, the Company acquired a 293-unit multifamily property located in Houston, Texas (the “Citadel Apartments”), from an unrelated third party for a contractual purchase price of $66.0 million, excluding closing and other acquisition related costs. The acquisition was funded with $38.0 million of initial proceeds from mortgage financings (see Note 7 for additional information) and $28.0 million of cash on hand. In connection with the acquisition, the Company paid the Advisor an aggregate of $1.2 million in acquisition fees and acquisition expense reimbursements.
Dispositions Activities
The following dispositions 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 their operating results are reflected in the Company’s results from continuing operations in the consolidated statements of operations for all periods presented through their respective dates of disposition:
Disposition of Lakes of Margate
On March 17, 2021, the Company completed the disposition of the Lakes of Margate for a contractual sales price of $50.8 million to an unrelated third party (the “Lakes of Margate Buyer”). At closing, the Lakes of Margate Buyer paid $15.1 million and assumed the existing mortgage loan secured by the Lakes of Margate Loan with an outstanding principal balance of $35.7 million. Additionally, on March 17, 2021, the Company paid $1.1 million for the 7.5% membership interest held in the Lakes of Margate by the minority owner and recorded the $2.1 million difference between the contractual purchase price and the carrying value of the noncontrolling member’s interest to additional paid in capital. As a result, at the time of the completion of the sale of the Lakes at Margate it was wholly owned by the Company. In connection with the disposition of the Lakes of Margate, the Company recognized a gain on sale of investment property of $27.8 million during the first quarter of 2021.
Disposition of the River Club Properties
On December 22, 2021, the Company completed the disposition of the River Club Apartments and the Townhomes at River Club, two student housing complexes with a total of 1,134 beds (collectively, the “River Club Properties”) located in Athens, Georgia, for a contractual sales price of $77.3 million to an unrelated third party. In connection with the transaction, the Company repaid in full the existing outstanding mortgage indebtedness of $30.4 million secured by the River Club Properties. Additionally, on December 20, 2021, the Company paid $10.2 million for the 15.0% membership interest held in the River Club Properties by the minority owner and recorded the $11.7 million difference between the contractual purchase price and the carrying value of the noncontrolling member’s interest to additional paid in capital. As a result, at the time of the completion of the sale of the River Club Properties it was wholly owned by the Company. In connection with the disposition of the River Club Properties, the Company recognized a gain on the sale of investment property of $55.0 million during the fourth quarter of 2021.
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Marketable Securities, Derivative Financial Instruments and Fair Value Measurements |
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| Marketable Securities, Derivative Financial Instruments and Fair Value Measurements |
Marketable Securities
The following is a summary of the Company’s available for sale securities as of the dates indicated:
When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s amortized cost basis. As of June 30, 2022, the Company did not recognize any impairment charges.
The following table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:
Derivative Financial Instruments
The Company has entered into two interest rate cap contracts with unrelated financial institutions in order to reduce the effect of interest rate fluctuations or risk of certain real estate investment’s interest expense on its variable rate debt. The Company is exposed to credit risk in the event of non-performance by the counterparty to these financial instruments. Management believes the risk of loss due to non-performance to be minimal.
The Company is accounting for the interest rate cap contracts as economic hedges, marking these contracts to market, taking into account present interest rates compared to the contracted fixed rate over the life of the contract and recording the unrealized gain or loss on the interest rate cap contracts in the consolidated statements of operations.
For the three and six months ended June 30, 2022, the Company recorded an unrealized gain of $0.5 million and $1.1 million, respectively, in the consolidated statements of operations representing the change in the fair value of these economic hedges during such periods.
The interest rate cap contracts have notional amounts of $52.2 million and $49.0 million, respectively, mature on July 15, 2023 and October 11, 2023, respectively, and effectively cap LIBOR at 2.50% and 2.00%, respectively. The aggregate fair value of the interest rate cap contracts was $1.2 million as of June 30, 2022 and is included in prepaid expenses and other assets on the consolidated balance sheets. See Note 7 for additional information.
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 value 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. The fair value of the Company’s interest rate cap contracts are measured using other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. As of June 30, 2022, all of the Company’s debt securities and interest rate cap contracts were classified as Level 2 assets and there were no transfers between the level classifications during the six months ended June 30, 2022.
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Notes Payable |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable |
Notes payable consists of the following:
Citadel Apartments
On October 6, 2021, the Company entered into a non-recourse mortgage loan facility for up to $39.2 million (the “Citadel Apartments Senior Mortgage”). At closing, $30.4 million of proceeds were initially advanced under the Citadel Apartments Senior Mortgage. The Citadel Apartments Senior Mortgage requires monthly interest-only payments through its maturity date and bears interest at LIBOR+1.50% subject to a 1.60% floor. Simultaneously, on October 6, 2021, the Company also entered into a non-recourse mortgage loan facility for up to $9.8 million (the “Citadel Apartments Junior Mortgage” and together with the Citadel Apartments Senior Mortgage, the “Citadel Apartments Mortgages”). At closing, $7.6 million of proceeds were initially advanced under the Citadel Apartments Junior Mortgage. The Citadel Apartments Junior Mortgage requires monthly interest-only payments through its maturity date and bears interest at LIBOR+8.75%, subject to a 8.85% floor.
The Citadel Apartments Mortgages initially mature on October 11, 2024, with two one-year extension options, subject to the satisfaction of certain conditions, and are collateralized by the Citadel Apartments, while the Citadel Apartments Junior Mortgage is subordinate to the Citadel Apartments Senior Mortgage. In connection with the acquisition of the Citadel Apartments, an aggregate $38.0 million was initially funded under the Citadel Apartments Mortgages and the Company paid the balance of the purchase price of $28.0 million with cash. In connection with the Citadel Apartments Mortgages, the Company paid the Advisor an aggregate of $0.5 million in debt financing fees. All of the remaining availability of $11.0 million under the Citadel Apartment Mortgages was subsequently advanced to the Company in January 2022 and as of June 30, 2022, the aggregate outstanding principal balance under the Citadel Apartment Mortgages was $49.0 million.
In connection with the Citadel Apartment Mortgages, the Company has entered into an interest rate cap agreement with a notional amount of $49.0 million pursuant to which the LIBOR rate is capped at 2.00% through October 11, 2023.
BayVue Apartments
On July 7, 2021, the Company entered into a non-recourse mortgage loan facility for up to $52.2 million (the “BayVue Apartments Mortgage”) scheduled to initially mature on July 9, 2024, with two, one-year extension options, subject to the satisfaction of certain conditions. The BayVue Apartments Mortgage requires monthly interest-only payments through its maturity date and bears interest at LIBOR+3.10% subject to a 3.10% floor. The BayVue Apartments Mortgage is collateralized by the BayVue Apartments. In connection with the BayVue Apartments Mortgage, the Company paid the Advisor $0.3 million in debt financing fees. As of June 30, 2022, the outstanding principal balance and remaining availability under the BayVue Apartments Mortgage was $45.0 million and $7.2 million, respectively. The remaining availability may be drawn for certain capital improvements to the property pursuant to the loan agreement.
In connection with the BayVue Apartments Mortgage, the Company has entered into an interest rate cap agreement with a notional amount of $52.2 million pursuant to which the LIBOR rate is capped at 2.50% through July 15, 2023.
The following table provides information with respect to the contractual maturities and scheduled principal repayments of the Company’s indebtedness as of June 30, 2022.
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Stockholders’ Equity |
6 Months Ended | |||
|---|---|---|---|---|
Jun. 30, 2022 | ||||
| Equity [Abstract] | ||||
| Stockholders’ Equity |
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 it, 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 the stockholders.
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.
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 was 100% of the estimated NAV per Share as of September 30, 2020. 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.
In accordance with the Company’s SRP, the per share redemption price automatically adjusted to $12.91 effective November 11, 2021 as a result of the determination and approval by the Company’s board of directors of the updated estimated NAV per Share.
For the six months ended June 30, 2022 the Company repurchased 44,275 shares of common stock, pursuant to its SRP at an average price per share of $ per share.
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 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 six months ended June 30, 2022 and 2021.
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Related Party Transactions |
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions |
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. These agreements have a one-year term and currently extend through June 30, 2023. The Company is dependent on the Advisor and its affiliates for certain services that are essential to it, including asset acquisition and disposition decisions, property management and leasing services, financing services, and other general administrative responsibilities. In the event that these entities are unable to provide the Company with their respective services, the Company would be required to obtain such services from other sources.
The following table represents the fees incurred associated with the payments to the Company’s Advisor and its affiliates for the periods indicated:
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Commitments and Contingencies |
6 Months Ended | |||
|---|---|---|---|---|
Jun. 30, 2022 | ||||
| Commitments and Contingencies Disclosure [Abstract] | ||||
| Commitments and Contingencies |
Legal Proceedings
From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.
As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. |
Summary of Significant Accounting Policies (Policies) |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Accounting Policies [Abstract] | |
| Interim Unaudited Financial Information | Interim Unaudited Financial Information
The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the Securities and Exchange Commission (the “SEC”) on March 24, 2022. The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of the results for the periods presented. The accompanying unaudited consolidated financial statements of Lightstone Value Plus REIT V, Inc. have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.’
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| Principles of Consolidation and Basis of Presentation | Principles of Consolidation and Basis of Presentation
Our consolidated financial statements include our accounts and the accounts of other subsidiaries over which the Company 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 or entities which we are not deemed to be the primary beneficiary, it accounts for the investment using the equity method of accounting.
The consolidated balance sheet as of December 31, 2021 included herein has been derived from the consolidated balance sheet included in the Company’s Annual Report on Form 10-K.
The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.
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| Earnings per Share |
The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, basic and diluted earnings per share is calculated by dividing net income/(loss) by the weighted-average number of shares of common stock outstanding during the applicable period.
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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 our consolidated properties. Capital reserves are typically utilized for non-operating expenses such as tenant improvements, leasing commissions, 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.
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| Interest Rate Cap Contracts | Interest Rate Cap Contracts
The Company utilizes derivative financial instruments to reduce interest rate risk. The Company does not hold or issue derivative financial instruments for trading purposes. The Company recognizes all derivatives as either assets or liabilities in the consolidated balance sheets and measures those instruments at fair value. Changes in fair value of those instruments are recorded in the consolidated statements of operations.
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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.
During 2015, the Company recorded an aggregate provision for income tax of $2.7 million representing estimated foreign income tax due as a result of the sale of two foreign investments, Alte Jakobstraße and Holstenplatz. During the first quarter of 2022, the Company recorded an income tax benefit of $0.8 million representing a partial refund of the foreign income tax paid.
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| Reclassifications | Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation.
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| COVID-19 Pandemic | COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and it remains highly unpredictable and dynamic and its ultimate duration and extent continue to be dependent on various developments, such as the emergence of variants to the virus that may cause additional strains of COVID-19, and the development, administration and ultimate effectiveness of vaccines, including booster shots. Accordingly, the ongoing COVID-19 pandemic may continue to have negative effects on the U.S. and global economies for the foreseeable future.
As of June 30, 2022, the Company’s consolidated portfolio of properties consisted of eight multi-family apartment complexes, all of which are located in the U.S. Its multi-family properties have not been significantly impacted by the COVID-19 pandemic and their occupancy levels, rental rates and rental collections have remained stable since the onset of the COVID-19 pandemic. Additionally, the Company’s note receivable (the “500 West 22nd Street Mezzanine Loan”) is collateralized by a substantially completed 10-unit condominium development project located in New York City (the “Condominium Project”), which is subject to risks related to the COVID-19 pandemic. To date, both the Condominium Project and the Company’s 500 West 22nd Street Mezzanine Loan have not been significantly impacted by the COVID-19 pandemic.
The Company continues to closely monitor the overall extent as to which its business may be affected by the ongoing COVID-19 pandemic which 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 its real estate-related investments are negatively impacted by the ongoing COVID-19 pandemic in future periods for an extended period because (i) tenants are unable to pay their rent, (ii) leasing demand falls causing declines in occupancy levels and/or rental rates, and (iii) the borrower is unable to pay scheduled debt service on the 500 West 22nd Street Mezzanine Loan; the Company’s business and financial results could be materially and adversely impacted.
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| New Accounting Pronouncements | 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 adoption of this standard will not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.
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. |
Financial Instruments (Tables) |
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Notes payable and the related estimated fair value |
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Real Estate Properties (Tables) |
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Real Estate Properties | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Real Estate Properties |
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Marketable Securities, Derivative Financial Instruments and Fair Value Measurements (Tables) |
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| Marketable Securities Derivative Financial Instruments And Fair Value Measurements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of available-for-sale securities reconciliation |
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| Summary of the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates |
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Notes Payable (Tables) |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of information on notes payable |
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| Schedule of contractual obligations for principal payments |
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Related Party Transactions (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Related Party Transactions |
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Summary of Significant Accounting Policies (Details Narrative) $ in Thousands |
6 Months Ended |
|---|---|
|
Jun. 30, 2022
USD ($)
| |
| Accounting Policies [Abstract] | |
| Provision for income tax | $ 2,700 |
| Income tax benefit foreign income tax | $ 800 |
Financial Instruments (Details) - USD ($) $ in Thousands |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Fair Value Disclosures [Abstract] | ||
| Notes payable, Carrying Amount | $ 293,095 | $ 282,375 |
| Notes payable, Estimated Fair Value | $ 283,769 | $ 287,194 |
Real Estate Properties (Details - Consolidated Properties) |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Arbors Harbor Town [Member] | |
| Location | Memphis, Tennessee |
| Variable interest entity date acquired | Dec. 20, 2011 |
| Parkside Apartments Parkside [Member] | |
| Location | Sugar Land, Texas |
| Variable interest entity date acquired | Aug. 08, 2013 |
| Flats At Fishers [Member] | |
| Location | Fishers, Indiana |
| Variable interest entity date acquired | Nov. 30, 2017 |
| Axis At Westmont [Member] | |
| Location | Westmont, Illinois |
| Variable interest entity date acquired | Nov. 27, 2018 |
| Valley Ranch Apartments [Member] | |
| Location | Ann Arbor, Michigan |
| Variable interest entity date acquired | Feb. 14, 2019 |
| Autumn Breeze Apartments [Member] | |
| Location | Noblesville, Indiana |
| Variable interest entity date acquired | Mar. 17, 2020 |
| Bay Vue Apartments [Member] | |
| Location | Tampa, Florida |
| Variable interest entity date acquired | Jul. 07, 2021 |
| Citadel Apartments [Member] | |
| Location | Houston, Texas |
| Variable interest entity date acquired | Oct. 06, 2021 |
Marketable Securities and Fair Value Measurements (Details - Available for Sale Securities) - USD ($) $ in Thousands |
6 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2022 |
Dec. 31, 2021 |
|
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | ||
| Fair Value | $ 3,446 | $ 3,645 |
| Corporate And Government Bonds [Member] | ||
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | ||
| Adjusted Cost | 3,620 | 3,634 |
| Gross Unrealized Gains | 3 | 47 |
| Gross Unrealized Losses | (177) | (36) |
| Fair Value | $ 3,446 | $ 3,645 |
Marketable Securities and Fair Value Measurements (Details - Marketable Debt Securities) - USD ($) $ in Thousands |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Marketable Securities Derivative Financial Instruments And Fair Value Measurements | ||
| Due in 1 year | $ 621 | |
| Due in 1 year through 5 years | 2,769 | |
| Due in 5 years through 10 years | 56 | |
| Due after 10 years | (0) | |
| Total | $ 3,446 | $ 3,645 |
Marketable Securities, Derivative Financial Instruments and Fair Value Measurements (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |
|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2022 |
Dec. 31, 2021 |
|
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | |||
| Unrealized gain | $ 500 | $ 1,100 | |
| Notional amount | 52,200 | $ 52,200 | $ 49,000 |
| Debt Instrument, Maturity Date | Jul. 15, 2023 | ||
| Debt Instrument, Description of Variable Rate Basis | LIBOR at 2.50% and 2.00%, | ||
| Aggregate fair value interest rate | $ 1,200 | $ 1,200 | |
| Derivative [Member] | |||
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | |||
| Debt Instrument, Maturity Date | Oct. 11, 2023 |
Notes Payable (Details - Contractual Obligations for Principal Payments) $ in Thousands |
Jun. 30, 2022
USD ($)
|
|---|---|
| Debt Disclosure [Abstract] | |
| 2022 | $ 874 |
| 2023 | 2,191 |
| 2024 | 96,431 |
| 2025 | 18,138 |
| 2026 | 147,729 |
| Thereafter | 27,732 |
| Total principal maturities | 293,095 |
| Less: deferred financing costs | (4,098) |
| Total notes payable, net | $ 288,997 |
Stockholders’ Equity (Details Narrative) - $ / shares shares in Thousands |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Nov. 11, 2021 |
|
| Equity [Abstract] | ||
| Redemption price | $ 12.91 | |
| Repurchase of common stock | 44,275 | |
| Repurchase price per shares | $ 12.91 | |
| Percentage of real estate investment trust taxable income | 90.00% |
Related Party Transactions (Details) - Related Party [Member] - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Related Party Transaction [Line Items] | ||||
| Property management fees (property operating expenses) | $ 124 | $ 110 | $ 242 | $ 228 |
| Administrative services reimbursement (general and administrative costs) | 346 | 332 | 693 | 665 |
| Asset management fees (general and administrative costs) | 861 | 626 | 1,729 | 1,321 |
| Total | $ 1,331 | $ 1,068 | $ 2,664 | $ 2,214 |
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