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 November 7, 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)
| September 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 September 30, |
For
the Nine Months Ended September 30, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Rental revenues | $ | $ | $ | $ | ||||||||||||
| Expenses | ||||||||||||||||
| Property operating expenses | ||||||||||||||||
| Real estate taxes | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total expenses | ||||||||||||||||
| Interest expense, net | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| 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 net (loss)/income per share | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||
| Comprehensive (loss)/income: | ||||||||||||||||
| Net (loss)/income | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||
| Other comprehensive (loss)/income: | ||||||||||||||||
| Holding loss on marketable securities, available for sale | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Reclassification adjustment for loss included in net (loss)/income | ||||||||||||||||
| Total other comprehensive (loss)/income | ( |
) | ( |
) | ||||||||||||
| 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, June 30, 2021 | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Distributions paid to noncontrolling interests | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| 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, September 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 | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| 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 income | - | - | ||||||||||||||||||||||||||||||||||
| BALANCE, September 30, 2021 | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||||
| Convertible Stock | Common Stock | Additional Paid-In |
Accumulated Other Comprehensive | Accumulated | Total Stockholders’ |
|||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital |
Loss | Deficit | Equity |
|||||||||||||||||||||||||
| BALANCE, June 30, 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, September 30, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Convertible Stock | Common Stock | Additional Paid-In |
Accumulated Other Comprehensive | Accumulated | Total Stockholders’ |
|||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital |
Loss | 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 | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| BALANCE, September 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 Nine Months Ended September 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 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/(used in) 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 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 September 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 September 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 September 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 September 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 nine months ended September 30, 2022, the 500 West 22nd Street Mezzanine
Loan Borrower repaid $
As
of September 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 September 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 September 30, 2022 and December 31, 2021. Carrying amounts of our notes payable and the related estimated fair value is summarized as follows:
| As
of September 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 September 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 September 30, 2022 | ||||||||||||||||
| Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| Debt securities: | ||||||||||||||||
| Corporate and Government Bonds | $ | $ | $ | ( |
) | $ | ||||||||||
| As of December 31, 2021 | ||||||||||||||||
| Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| Debt securities: | ||||||||||||||||
| 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 September 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 September 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 nine months ended September 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 September 30, 2022 and December 31, 2021, 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 nine months ended September 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 September 30, 2022 |
Maturity Date |
Amount Due at Maturity |
As
of September 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
+ |
% | ||||||||||||||||||
| Citadel Apartments Senior | LIBOR
+ |
% | ||||||||||||||||||
| Citadel Apartments Junior | LIBOR
+ |
% | ||||||||||||||||||
| Total notes payable | % | $ | ||||||||||||||||||
| Less: Deferred financing costs | ( |
) | ( |
) | ||||||||||||||||
| Total notes payable, net | $ | $ | ||||||||||||||||||
LIBOR
as of September 30, 2022 and December 31, 2021 was
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 September 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 nine months ended September 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 nine months ended September 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 September 30, |
For
the Nine Months Ended September 30, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Acquisition fees and acquisition expense reimbursement (1) | $ | $ | $ | $ | ||||||||||||
| Debt financing fees (2) | ||||||||||||||||
| Property management fees (property operating expenses) | ||||||||||||||||
| Administrative services reimbursement (general and administrative costs) | ||||||||||||||||
| Asset management fees (general and administrative costs) | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| (1) |
| (2) |
| 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, supply disruptions, labor shortages, 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 September 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 September 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 $59.1 million, marketable securities, available for sale of $3.5 million and restricted cash of $5.0 million as of September 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.
19
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.
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 September 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 September 30, |
As
of September 30, |
|||||||||||||||
| Property | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Arbors Harbor Town | 92 | % | 96 | % | $ | 1,680 | $ | 1,461 | ||||||||
| Parkside | 95 | % | 98 | % | $ | 1,376 | $ | 1,256 | ||||||||
| Flats at Fishers | 94 | % | 97 | % | $ | 1,519 | $ | 1,336 | ||||||||
| Axis at Westmont | 93 | % | 95 | % | $ | 1,438 | $ | 1,268 | ||||||||
| Valley Ranch Apartments | 94 | % | 93 | % | $ | 1,763 | $ | 1,582 | ||||||||
| Autumn Breeze Apartments | 90 | % | 91 | % | $ | 1,377 | $ | 1,193 | ||||||||
| BayVue Apartments (2) | 91 | % | 96 | % | $ | 1,411 | $ | 1,123 | ||||||||
| Citadel Apartments (3) | 95 | % | N/A | $ | 1,660 | 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 September 30, 2022 as compared to the three months ended September 30, 2021.
The following table provides summary information about our results of operations (dollars in thousands):
| Three
Months Ended September 30, |
Increase/ | Percentage | Change |
Change due to |
Change due to Same |
|||||||||||||||||||||||
| 2022 | 2021 | (Decrease) | Change | Acquisitions(1) | Dispositions(2) | Store(3) | ||||||||||||||||||||||
| Rental revenues | $ | 12,006 | $ | 11,187 | $ | 819 | 7.0 | % | $ | 1,593 | $ | (1,665 | ) | $ | 891 | |||||||||||||
| Property operating expenses | 3,861 | 4,097 | (236 | ) | (6.0 | %) | 462 | (895 | ) | 197 | ||||||||||||||||||
| Real estate taxes | 1,705 | 1,399 | 306 | 22.0 | % | 390 | (168 | ) | 84 | |||||||||||||||||||
| General and administrative | 1,998 | 1,825 | 173 | 9.0 | % | 36 | (12 | ) | 149 | |||||||||||||||||||
| Depreciation and amortization | 4,248 | 3,925 | 323 | 8.0 | % | 612 | (389 | ) | 100 | |||||||||||||||||||
| Interest expense, net | 3,628 | 2,735 | 893 | 33.0 | % | 958 | (162 | ) | 97 | |||||||||||||||||||
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 September 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 September 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 September 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 September 30, |
||||||||||||
| Description | 2022 | 2021 | Change | |||||||||
| Rental Revenues: | ||||||||||||
| Same Store | $ | 8,967 | $ | 8,076 | $ | 891 | ||||||
| 2021 Acquisitions | 3,039 | 1,446 | 1,593 | |||||||||
| Disposition - River Club Properties | - | 1,665 | (1,665 | ) | ||||||||
| Total rental revenues | $ | 12,006 | $ | 11,187 | $ | 819 | ||||||
| Property operating expenses: | ||||||||||||
| Same Store | $ | 2,754 | $ | 2,557 | $ | 197 | ||||||
| 2021 Acquisitions | 1,120 | 658 | 462 | |||||||||
| Disposition - River Club Properties | (13 | ) | 882 | (895 | ) | |||||||
| Total property expenses | $ | 3,861 | $ | 4,097 | $ | (236 | ) | |||||
21
Revenues Rental revenues for the three months ended September 30, 2022 were $12.0 million, an increase of $0.8 million, compared to $11.2 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 average monthly rent per unit partially offset by lower occupancy.
Property Operating Expenses Property operating expenses for the three months ended September 30, 2022 were $3.9 million, an decrease of $0.2 million, compared to $4.1 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, our property operating expenses, increased by $0.2 million for our Same Store properties.
Real Estate Taxes Real estate taxes for the three months ended September 30, 2022 were $1.7 million, an increase of $0.3 million, compared to $1.4 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, real estate taxes increased slightly by $0.1 million for our Same Store properties.
General and Administrative Expenses General and administrative expenses for the three months ended September 30, 2022 were $2.0 million, an increase of $0.2 million, compared to $1.8 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, our general and administrative expenses increased slightly by $0.1 million for our Same Store properties.
Depreciation and Amortization Depreciation and amortization expense for the three months ended September 30, 2022 was $4.2 million, an increase of $0.3 million, compared to $3.9 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, Net Interest expense, net for the three months ended September 30, 2022 was $3.6 million, an increase of $0.9 million, compared to $2.7 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, interest expense, net increased slightly by $0.1 million for our Same Store properties.
Mark to Market Adjustment on Derivative Financial Instruments During the three months ended September 30, 2022, we recorded positive mark to market adjustments on our derivative financial instruments of $0.8 million. These mark to market adjustments represented the change in the fair value of our interest rate cap contracts during the period.
22
Nine Months ended September 30, 2022 as compared to the Nine Months ended September 30, 2021.
The following table provides summary information about our results of operations (dollars in thousands):
| Nine
Months Ended September 30, |
Increase/ | Percentage | Change due to |
Change due to |
Change due to Same |
|||||||||||||||||||||||
| 2022 | 2021 | (Decrease) | Change | Acquisitions(1) | Dispositions(2) | Store(3) | ||||||||||||||||||||||
| Rental revenues | $ | 34,824 | $ | 30,864 | $ | 3,960 | 13.0 | % | $ | 7,393 | $ | (5,954 | ) | $ | 2,521 | |||||||||||||
| Property operating expenses | 11,138 | 10,336 | 802 | 8.0 | % | 2,572 | (2,449 | ) | 679 | |||||||||||||||||||
| Real estate taxes | 5,079 | 4,228 | 851 | 20.0 | % | 1,464 | (613 | ) | - | |||||||||||||||||||
| General and administrative | 5,715 | 5,046 | 669 | 13.0 | % | 103 | (87 | ) | 653 | |||||||||||||||||||
| Depreciation and amortization | 14,120 | 9,590 | 4,530 | 47.0 | % | 5,577 | (1,166 | ) | 119 | |||||||||||||||||||
| Interest expense, net | 10,049 | 7,403 | 2,646 | 36.0 | % | 3,000 | (730 | ) | 376 | |||||||||||||||||||
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 2021 Dispositions. |
| (3) | Represents the change for the nine months ended September 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 nine months ended September 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 nine months ended September 30, 2022 and 2021 for: (i) our Same Store properties, (ii) the 2021 Acquisitions and (iii) the 2021 Dispositions (dollars in thousands):
| Nine
Months Ended September 30, |
||||||||||||
| Description | 2022 | 2021 | Change | |||||||||
| Rental Revenues: | ||||||||||||
| Same Store | $ | 25,985 | $ | 23,464 | $ | 2,521 | ||||||
| 2021 Acquisitions | 8,839 | 1,446 | 7,393 | |||||||||
| 2021 Dispositions | - | 5,954 | (5,954 | ) | ||||||||
| Total rental revenues | $ | 34,824 | $ | 30,864 | $ | 3,960 | ||||||
| Property operating expenses: | ||||||||||||
| Same Store | $ | 7,962 | $ | 7,283 | $ | 679 | ||||||
| 2021 Acquisitions | 3,230 | 658 | 2,572 | |||||||||
| 2021 Dispositions | (54 | ) | 2,395 | (2,449 | ) | |||||||
| Total property expenses | $ | 11,138 | $ | 10,336 | $ | 802 | ||||||
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Revenues Rental revenues for the nine months ended September 30, 2022 were $34.8 million, an increase of $3.9 million, compared to $30.9 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, our rental revenues increased by $2.5 million for our Same Store properties during the 2022 period as a result of higher average monthly rent per unit.
Property Operating Expenses Property operating expenses for the nine months ended September 30, 2022 were $11.1 million, an increase of $0.8 million, compared to $10.3 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, our property operating expenses increased by $0.7 million for our Same Store properties. The increase is principally attributable to a community association special assessment of $0.3 million for Arbors Harbor Town during the second quarter of 2022 and an increase in insurance expense of $0.2 million.
Real Estate Taxes Real estate taxes for the nine months ended September 30, 2022 were $5.1 million, an increase of $0.9 million, compared to $4.2 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, real estate taxes were unchanged for our Same Store properties.
General and Administrative Expenses General and administrative expenses for the nine months ended September 30, 2022 were $5.7 million, an increase of $0.7 million, compared to $5.0 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, our general and administrative expenses increased by $0.7 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 nine months ended September 30, 2022 was $14.1 million, an increase of $4.5 million, compared to $9.6 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, depreciation and amortization expense increased slightly by $0.1 million for our Same Store properties.
Interest Expense, Net Interest expense, net for the nine months ended September 30, 2022 was $10.0 million, an increase of $2.6 million, compared to $7.4 million for the same period in 2021. Excluding the effect of our acquisition and disposition activities, interest expense, net increased by $0.4 million for our Same Store properties.
Gain on Sale of Investment Property. During the first quarter of 2021, we recognized a gain on the sale of Lakes of Margate of $27.8 million.
Gain on Disposition of Unconsolidated Joint Venture. During the second quarter of 2021, we recognized a gain of $1.5 million for the settlement of our prior participation in the residual interests of Prospect Park.
Mark to Market Adjustment on Derivative Financial Instruments During the nine months ended September 30, 2022, we recorded positive mark to market adjustments on our derivative financial instruments of $1.9 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 September 30, |
For
the Nine Months Ended September 30, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Acquisition fees and acquisition expense reimbursement (1) | $ | - | $ | 1,041 | $ | - | $ | 1,041 | ||||||||
| Debt financing fees (2) | - | 448 | - | 448 | ||||||||||||
| Property management fees (property operating expenses) | 127 | 109 | 369 | 337 | ||||||||||||
| Administrative services reimbursement (general and administrative costs) | 376 | 347 | 1,069 | 1,012 | ||||||||||||
| Asset management fees (general and administrative costs) | 853 | 723 | 2,582 | 2,044 | ||||||||||||
| Total | $ | 1,356 | $ | 2,668 | $ | 4,020 | $ | 4,882 | ||||||||
| (1) | Capitalized to the corresponding asset and amortized over its estimated useful life. |
| (2) | Capitalized upon the execution of the loan, presented in the consolidated balance sheets as a direct deduction from the carrying value of the corresponding loan and amortized over the initial term of the corresponding loan. |
Summary of Cash Flows
Operating activities
The net cash provided by operating activities of $7.1 million for the nine months ended September 30, 2022 consisted primarily of our net loss of $6.6 million less (i) the positive mark to market adjustments on derivative financial instruments of $1.9 million and non-cash interest income of $0.4 million plus (i) the net change in operating assets and liabilities of $0.8 million (ii) depreciation and amortization of $14.1 million and (iii) amortization of deferred financing costs of $1.1 million.
Investing activities
The net cash provided by investing activities of $1.4 million for the nine months ended September 30, 2022 consisted primarily of the following:
| ● | proceeds from the repayment of note receivable of $8.8 million; and |
| ● | capital expenditures of $7.3 million. |
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Financing activities
The net cash provided by financing activities of $10.3 million for the nine months ended September 30, 2022 consisted primarily of the following:
| ● | proceeds from notes payable of $12.6 million; |
| ● | principal payments of notes payable of $1.3 million; and |
| ● | redemptions and cancellation of common stock of $0.9 million. |
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 September 30, 2022 (dollars in thousands).
| Contractual Obligations | Remainder
of 2022 |
2023 | 2024 | 2025 | 2026 | Thereafter | Total | |||||||||||||||||||||
| Principal | $ | 445 | $ | 2,191 | $ | 97,401 | $ | 18,138 | $ | 147,729 | $ | 27,732 | $ | 293,636 | ||||||||||||||
| Interest Payments(1) | 3,344 | 13,462 | 12,053 | 7,617 | 2,842 | 3,245 | 42,563 | |||||||||||||||||||||
| Total Contractual Obligations | $ | 3,789 | $ | 15,653 | $ | 109,454 | $ | 25,755 | $ | 150,571 | $ | 30,977 | $ | 336,199 | ||||||||||||||
| (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 September 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.
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Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT’s definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.
Because of these factors, the Investment Program Association (the “IPA”), an industry trade group, published a standardized measure of performance known as modified funds from operations (“MFFO”), which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that both before and after we have deployed all of our offering proceeds and are no longer incurring a significant amount of acquisition fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP.
We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the “Practice Guideline”) issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction-related fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and exclude acquisition and transaction-related fees and expenses (which includes costs incurred in connection with strategic alternatives), amounts relating to 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 September 30, |
For
the Nine Months Ended September 30, |
|||||||||||||||
| Description | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Net (loss)/income | $ | (2,110 | ) | $ | (2,089 | ) | $ | (6,605 | ) | $ | 25,522 | |||||
| FFO adjustments: | ||||||||||||||||
| Depreciation and amortization of real estate assets | 4,248 | 3,925 | 14,120 | 9,590 | ||||||||||||
| Gain on disposition of unconsolidated joint venture | - | - | - | (1,457 | ) | |||||||||||
| Gain on sale of investment property | - | - | - | (27,821 | ) | |||||||||||
| FFO | 2,138 | 1,836 | 7,515 | 5,834 | ||||||||||||
| MFFO adjustments: | ||||||||||||||||
| Other adjustments: | ||||||||||||||||
| Acquisition and other transaction related costs expensed(1) | - | - | - | - | ||||||||||||
| Noncash adjustments: | ||||||||||||||||
| Gain on on forgiveness of debt(3) | - | (128 | ) | - | (128 | ) | ||||||||||
| Amortization of above or below market leases and liabilities | - | - | - | - | ||||||||||||
| Mark-to-market adjustments(2) | (751 | ) | (7 | ) | (1,861 | ) | (9 | ) | ||||||||
| Loss on sale of marketable securities(3) | 2 | 159 | - | 152 | ||||||||||||
| MFFO before straight-line rent | 1,389 | 1,860 | 5,654 | 5,849 | ||||||||||||
| Straight-line rent(4) | - | - | - | |||||||||||||
| MFFO - IPA recommended format | $ | 1,389 | $ | 1,860 | $ | 5,654 | $ | 5,849 | ||||||||
| Net (loss)/income | $ | (2,110 | ) | $ | (2,089 | ) | $ | (6,605 | ) | $ | 25,522 | |||||
| Less: (income)/loss attributable to noncontrolling interests | - | (14 | ) | - | (145 | ) | ||||||||||
| Net (loss)/income applicable to Company’s common shares | $ | (2,110 | ) | $ | (2,103 | ) | $ | (6,605 | ) | $ | 25,377 | |||||
| Net (loss)/income per common share, basic and diluted | $ | (0.11 | ) | $ | (0.10 | ) | $ | (0.33 | ) | $ | 1.26 | |||||
| FFO | $ | 2,138 | $ | 1,836 | $ | 7,515 | $ | 5,834 | ||||||||
| Less: FFO attributable to noncontrolling interests | - | (97 | ) | - | (385 | ) | ||||||||||
| FFO attributable to Company’s common shares | $ | 2,138 | $ | 1,739 | $ | 7,515 | $ | 5,449 | ||||||||
| FFO per common share, basic and diluted | $ | 0.11 | $ | 0.09 | $ | 0.37 | $ | 0.27 | ||||||||
| MFFO - IPA recommended format | $ | 1,389 | $ | 1,860 | $ | 5,654 | $ | 5,849 | ||||||||
| Less: MFFO attributable to noncontrolling interests | - | (97 | ) | - | (385 | ) | ||||||||||
| MFFO attributable to Company’s common shares | $ | 1,389 | $ | 1,763 | $ | 5,654 | $ | 5,464 | ||||||||
| Weighted average number of common shares outstanding, basic and diluted | 20,064 | 20,157 | 20,080 | 20,181 | ||||||||||||
| 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 September 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 September 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.
30
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: November 14, 2022 | By: | /s/ Mitchell C. Hochberg |
| Mitchell C. Hochberg | ||
Chief Executive Officer (Principal Executive Officer) | ||
| Date: November 14, 2022 | By: | /s/ Seth Molod |
| Seth Molod | ||
Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) | ||
32
Index to Exhibits
Exhibit Number |
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. (incorporated by reference to Exhibit 10.1 to Form 10-Q filed on August 11, 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 September 30, 2022, filed on November 14, 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 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: November 14, 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: November 14, 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: November 14, 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: November 14, 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 |
Sep. 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) | 50,000,000.0 | 50,000,000.0 |
| 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) | 350,000,000.0 | 350,000,000.0 |
| Common stock, shares issued (in shares) | 20,100,000 | 20,100,000 |
| Common stock, shares outstanding (in shares) | 20,100,000 | 20,100,000 |
Business |
9 Months Ended | |||
|---|---|---|---|---|
Sep. 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 September 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 September 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 September 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 September 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 |
9 Months Ended | |||
|---|---|---|---|---|
Sep. 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 September 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 |
9 Months Ended | |||
|---|---|---|---|---|
Sep. 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 September 30, 2022) and had an initial maturity date of August 31, 2021, which has been extended to March 1, 2023, 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 nine months ended September 30, 2022, the 500 West 22nd Street Mezzanine Loan Borrower repaid $8.8 million of the 500 West 22nd Street Mezzanine Loan with proceeds from the sale of condominium units.
As of September 30, 2022, the remaining outstanding principal balance of the 500 West 22nd Street Mezzanine Loan was $5.5 million, including $2.4 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 nine months ended September 30, 2022, the Company recorded $0.2 million and $1.0 million, respectively, of interest income related to the note receivable and during the three and nine months ended September 30, 2021, the Company recorded $0.5 million and $1.3 million, respectively, of interest income related to the note receivable.
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Financial Instruments |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 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 September 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 September 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 |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 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 September 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 September 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 nine months ended September 30, 2022, the Company recorded an unrealized gain of $0.8 million and $1.9 million, respectively, in the consolidated statements of operations representing the change in the fair value of these economic hedges during such periods. The Company did not have any derivative financial instruments during the 2021 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 $1.9 million as of September 30, 2022 and is included in prepaid expenses and other assets on the consolidated balance sheets. During both the three and nine months ended September 30, 2022, the Company earned $54 from the interest rate cap contracts which are recorded in interest expense, net on the consolidated statements of operations. 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 September 30, 2022 and December 31, 2021, 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 nine months ended September 30, 2022.
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Notes Payable |
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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable |
Notes payable consists of the following:
LIBOR as of September 30, 2022 and December 31, 2021 was 2.76% and 0.10%, respectively. The Company’s loans are secured by the indicated real estate and are non-recourse to the Company, unless otherwise indicated.
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 September 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 September 30, 2022, the outstanding principal balance and remaining availability under the BayVue Apartments Mortgage was $45.9 million and $6.3 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 September 30, 2022.
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Stockholders’ Equity |
9 Months Ended | |||
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Sep. 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 nine months ended September 30, 2022 the Company repurchased 71,010 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 nine months ended September 30, 2022 and 2021.
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Related Party Transactions |
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| 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 |
9 Months Ended | |||
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Sep. 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) |
9 Months Ended |
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Sep. 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 September 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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| 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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Sep. 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) |
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Sep. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Related Party Transactions |
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Summary of Significant Accounting Policies (Details Narrative) $ in Thousands |
9 Months Ended |
|---|---|
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Sep. 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 |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Fair Value Disclosures [Abstract] | ||
| Notes payable, Carrying Amount | $ 293,636 | $ 282,375 |
| Notes payable, Estimated Fair Value | $ 291,362 | $ 287,194 |
Real Estate Properties (Details) |
9 Months Ended |
|---|---|
Sep. 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, Derivative Financial Instruments and Fair Value Measurements (Details) - USD ($) $ in Thousands |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2022 |
Dec. 31, 2021 |
|
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | ||
| Fair Value | $ 3,464 | $ 3,645 |
| Corporate And Government Bonds [Member] | ||
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | ||
| Adjusted Cost | 3,713 | 3,634 |
| Gross Unrealized Gains | 47 | |
| Gross Unrealized Losses | (249) | (36) |
| Fair Value | $ 3,464 | $ 3,645 |
Marketable Securities, Derivative Financial Instruments and Fair Value Measurements (Details 1) - USD ($) $ in Thousands |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Marketable Securities Derivative Financial Instruments And Fair Value Measurements | ||
| Due in 1 year | $ 586 | |
| Due in 1 year through 5 years | 2,805 | |
| Due in 5 years through 10 years | 73 | |
| Due after 10 years | ||
| Total | $ 3,464 | $ 3,645 |
Marketable Securities, Derivative Financial Instruments and Fair Value Measurements (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |
|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2022 |
Dec. 31, 2021 |
|
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | |||
| Unrealized gain | $ 800 | $ 1,900 | |
| 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 | 1,900 | $ 1,900 | |
| Interest expense, net | $ 54,000 | $ 54,000 | |
| Derivative [Member] | |||
| Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items] | |||
| Debt Instrument, Maturity Date | Oct. 11, 2023 |
Notes Payable (Details 1) $ in Thousands |
Sep. 30, 2022
USD ($)
|
|---|---|
| Debt Disclosure [Abstract] | |
| 2022 | $ 445 |
| 2023 | 2,191 |
| 2024 | 97,401 |
| 2025 | 18,138 |
| 2026 | 147,729 |
| Thereafter | 27,732 |
| Total principal maturities | 293,636 |
| Less: deferred financing costs | (3,752) |
| Total notes payable, net | $ 289,884 |
Stockholders’ Equity (Details Narrative) - $ / shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2022 |
Nov. 11, 2021 |
|
| Equity [Abstract] | ||
| Redemption price | $ 12.91 | |
| Repurchase of common stock | 71,010 | |
| Repurchase price per shares | $ 12.91 | |
| Percentage of real estate investment trust taxable income | 90.00% |
Related Party Transactions (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|||||
| Related Party Transactions [Abstract] | ||||||||
| Acquisition fees and acquisition expense reimbursement | [1] | $ 1,041 | $ 1,041 | |||||
| Debt financing fees | [2] | 448 | 448 | |||||
| Property management fees (property operating expenses) | 127 | 109 | 369 | 337 | ||||
| Administrative services reimbursement (general and administrative costs) | 376 | 347 | 1,069 | 1,012 | ||||
| Asset management fees (general and administrative costs) | 853 | 723 | 2,582 | 2,044 | ||||
| Total | $ 1,356 | $ 2,668 | $ 4,020 | $ 4,882 | ||||
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