10-Q 1 mvpreit_10q-06302017.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

Or

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 333-180741
MVP REIT, INC.
(Exact name of registrant as specified in its charter)
MARYLAND
 
45-4963335
(State or Other Jurisdiction of
 
(I.R.S. Employer
Incorporation or Organization)
 
Identification No.)

8880 W. SUNSET RD SUITE 340, LAS VEGAS, NV  89148
 (Address of Principal Executive Offices)  (Zip Code)
Registrant's Telephone Number: (702) 534-5577

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  [X ]    No   [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  [ X ]    No   [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [   ]
Accelerated filer [   ]
Non-accelerated filer [    ]
Emerging growth company [ X ]
Smaller reporting 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. [.X.]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   [   ]    No   [X]  

As of August 14, 2017, there were 11,024,082 shares of the Company's Common Stock outstanding.
 

TABLE OF CONTENTS

   
Page
     
 
     
     
 
     
 
     
 
     
 
     
 
     
     
     
     
53
     
     
53
     
     
54
     
54
     
54
     
     
 
     
 
Exhibit 31.1
 
     
 
Exhibit 31.2
 
     
 
Exhibit 32
 
MVP REIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
   
June 30, 2017
   
December 31, 2016
 
   
(Unaudited)
       
ASSETS
 
Investments in real estate and fixed assets:
           
Land and improvements
 
$
63,684,000
   
$
66,484,000
 
Building and improvements
   
50,432,000
     
49,973,000
 
Construction in progress
   
149,000
     
--
 
Fixed assets
   
88,000
     
88,000
 
     
114,353,000
     
116,545,000
 
Accumulated depreciation
   
(2,801,000
)
   
(2,128,000
)
Total investments in real estate and fixed assets, net
   
111,552,000
     
114,417,000
 
                 
Investment in equity method investee
   
8,915,000
     
4,123,000
 
Assets held for sale
   
6,100,000
     
6,100,000
 
Cash
   
1,838,000
     
4,112,000
 
Cash – restricted
   
1,882,000
     
1,712,000
 
Accounts receivable
   
68,000
     
117,000
 
Prepaid expenses
   
323,000
     
444,000
 
Deferred rental assets
   
104,000
     
93,000
 
Due from related party
   
--
     
462,000
 
Deposits
   
2,000
     
1,519,000
 
Other assets
   
120,000
     
121,000
 
Total assets
 
$
130,904,000
   
$
133,220,000
 
LIABILITIES AND EQUITY
 
Liabilities
               
Notes payable, net of unamortized loan issuance cost of $1,125,000 and $1,106,000 at June 30, 2017 and December 31, 2016, respectively
 
$
52,841,000
   
$
$49,417,000
 
Line of credit, net of unamortized loan issuance costs of $158,000 and $164,000 as of June 30, 2017 and December 31, 2016, respectively
   
1,849,000
     
4,646,000
 
Accounts payable and accrued liabilities
   
1,334,000
     
959,000
 
Deferred revenue
   
73,000
     
55,000
 
Due to related parties
   
2,210,000
     
--
 
Liabilities related to assets held for sale
   
1,000
     
--
 
Security deposits
   
72,000
     
248,000
 
Total liabilities
   
58,380,000
     
55,325,000
 
                 
Commitments and contingencies
               
                 
Equity
               
MVP REIT, Inc. Shareholders' Equity
               
Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding
   
--
     
--
 
Non-voting, non-participating convertible stock, $0.001 par value, 1,000 shares authorized, issued and outstanding as of June 30, 2017 and December 31, 2016
   
--
     
--
 
Common stock, $0.001 par value, 98,999,000 shares authorized, 11,023,621 and 10,952,325 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
   
11,000
     
11,000
 
Additional paid-in capital
   
87,695,000
     
90,156,000
 
Accumulated deficit
   
(18,410,000
)
   
(16,191,000
)
Total MVP REIT, Inc. Shareholders' Equity
   
69,296,000
     
73,976,000
 
Non-controlling interest - related party
   
3,228,000
     
3,919,000
 
Total equity
   
72,524,000
     
77,895,000
 
Total liabilities and equity
 
$
130,904,000
   
$
133,220,000
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

MVP REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

   
For the Three Months
Ended June 30
   
For the Six Months
Ended June 30
 
   
2017
   
2016
   
2017
   
2016
 
Revenues
                       
Rental revenue
 
$
2,187,000
   
$
2,066,000
    $
4,330,000
    $
3,959,000
 
Total revenues
   
2,187,000
     
2,066,000
     
4,330,000
     
3,959,000
 
 
                               
Operating expenses
                               
General and administrative
   
441,000
     
632,000
     
854,000
     
1,018,000
 
Merger Costs
   
969,000
     
--
     
1,107,000
     
--
 
Acquisition expenses
   
2,000
     
226,000
     
267,000
     
433,000
 
Acquisition expenses – related party
   
--
     
--
     
330,000
     
1,326,000
 
Operation and maintenance
   
527,000
     
528,000
     
1,152,000
     
1,114,000
 
Operation and maintenance-related party
   
376,000
     
297,000
     
685,000
     
532,000
 
Disposition expense
   
5,000
     
--
     
5,000
     
--
 
Depreciation and amortization expenses
   
339,000
     
326,000
     
673,000
     
608,000
 
Total operating expenses
   
2,659,000
     
2,009,000
     
5,073,000
     
5,031,000
 
                                 
Income (loss) from operations
   
(472,000
)
   
57,000
     
(743,000
)
   
(1,072,000
)
                                 
Other income (expense)
                               
Interest expense
   
(711,000
)
   
(609,000
)
   
(1,407,000
)
   
(1,061,000
)
Income from investment in equity method investee
   
180,000
     
3,000
     
208,000
     
3,000
 
Loss on acquisition of investment in real estate
   
--
     
(2,000
)
   
--
     
(2,000
)
Interest income
   
--
     
--
     
--
     
1,000
 
Total other expense
   
(531,000
)
   
(608,000
)
   
(1,199,000
)
   
(1,059,000
)
                                 
Net loss
   
(1,003,000
)
   
(551,000
)
   
(1,942,000
)
   
(2,131,000
)
Net income (loss) attributable to non-controlling interest – related party
   
17,000
     
21,000
     
30,000
     
(19,000
)
Net loss attributable to common stockholders
 
$
(1,020,000
)
 
$
(572,000
)
 
(1,972,000
)
 
(2,112,000
)
Basic and diluted loss per weighted average common share
                               
Net loss attributable to MVP REIT common stockholders - basic and diluted
 
$
(0.10
)
 
$
(0.05
)
 
(0.18
)
 
(0.19
)
Weighted average common shares outstanding, basic and diluted
 
$
11,000,440
   
$
11,042,664
   
10,984,948
   
11,041,052
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MVP REIT, INC.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2017
(Unaudited)
 
   
Convertible stock
   
Common stock
                         
   
Number of Shares
   
Par Value
   
Number of Shares
   
Par Value
   
Additional Paid-in Capital
   
Accumulated Deficit
   
Non-controlling Interest -Related Party
   
Total
 
Balance, December 31, 2016
   
1,000
   
$
--
     
10,952,325
   
$
11,000
   
$
90,156,000
   
$
(16,191,000
)
 
$
3,919,000
   
$
77,895,000
 
                                                                 
Distributions to non-controlling interest
   
--
     
--
     
--
     
--
     
--
     
--
     
(221,000
)
   
(221,000
)
Contributions from non-controlling interest
   
--
     
--
     
--
     
--
     
--
     
--
     
59,000
     
59,000
 
                                                                 
Issuance of common stock – DRIP
   
--
     
--
     
55,977
     
--
     
514,000
     
--
     
--
     
514,000
 
                                                                 
Deconsolidation of Houston Preston
   
--
     
--
     
--
     
--
     
--
     
--
     
(559,000
)
   
(559,000
)
                                                                 
Redeemed shares
   
--
     
--
     
(11,228
)
   
--
     
(103,000
)
   
--
     
--
     
(103,000
)
                                                                 
Distributions – see Note A
   
--
     
--
     
--
     
--
     
(3,119,000
)
   
--
     
--
     
(3,119,000
)
                                                                 
Stock Dividend
   
--
     
--
     
26,547
     
--
     
247,000
     
(247,000
)
   
--
     
--
 
                                                                 
Net income (loss)
   
--
     
--
     
--
     
--
     
--
     
(1,972,000
)
   
30,000
     
(1,942,000
)
 
Balance, June 30, 2017
   
1,000
   
$
--
     
11,023,621
   
$
11,000
   
$
87,695,000
   
$
(18,410,000
)
 
$
3,228,000
   
$
72,524,000
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

MVP REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
For the Six Months Ended June 30,
 
   
2017
   
2016
 
Cash flows from operating activities:
           
Net loss
 
$
(1,942,000
)
 
$
(2,131,000
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
               
Depreciation
   
673,000
     
608,000
 
Amortization of loan costs
   
155,000
     
74,000
 
Income from investment in equity method investee
   
(207,000
)
   
(3,000
)
Change in operating assets and liabilities:
               
Restricted cash
   
(170,000
)
   
629,000
 
Prepaid expenses
   
121,000
     
(83,000
)
Deferred rental assets
   
(125,000
)
   
(30,000
)
Accounts receivable
   
163,000
     
140,000
 
Other assets
   
1,000
     
20,000
 
Security deposits
   
(138,000
)
   
(44,000
)
Due to related parties
   
2,672,000
     
(189,000
)
Deferred revenue
   
18,000
     
17,000
 
Accounts payable and accrued liabilities
   
387,000
     
267,000
 
Net cash provided by (used in) operating activities
   
1,608,000
     
(725,000
)
Cash flows from investing activities:
               
Purchase of investment in real estate
   
--
     
(25,908,000
)
Purchase of asset held for sale
   
--
     
(6,100,000
)
Payments of deposits, net of deposits returned
   
--
     
(207,000
)
Proceeds for 20% ownership in Houston Preston, net of cash
   
1,016,000
         
Investment in equity method investee
   
(5,076,000
)
   
(4,277,000
)
Assets held for sale
   
1,000
     
(6,000
)
Construction in progress
   
(169,000
)
   
--
 
Building improvements
   
(459,000
)
   
(56,000
)
                 
Deposits applied to purchase of investment in real estate
   
--
     
15,990,000
 
Deposits applied to purchase of investment in equity method investee
   
1,500,000
     
--
 
Net cash used in investing activities
   
(3,187,000
)
   
(20,564,000
)
Cash flows from financing activities:
               
Proceeds from notes payable
   
5,558,000
     
16,940,000
 
Payments on notes payable
   
(685,000
)
   
(511,000
)
Payments on line of credit
   
(2,809,000
)
   
--
 
Capitalized loan fees
   
(144,000
)
   
(428,000
)
Capital contribution from non-controlling interest – related party
   
59,000
     
3,431,000
 
Redeemed shares
   
(103,000
)
   
(462,000
)
Proceeds from issuance of common stock-DRIP
   
514,000
     
826,000
 
Stockholders' distributions
   
(3,119,000
)
   
(3,328,000
)
Distribution received from investment in equity method investee
   
255,000
     
--
 
Distribution to non-controlling interest
   
(221,000
)
   
(695,000
)
Net cash provided by (used in) financing activities
   
(695,000
)
   
15,773,000
 
NET CHANGE IN CASH
   
(2,274,000
)
   
(5,516,000
)
Cash and cash equivalents, beginning of period
   
4,112,000
     
10,511,000
 
Cash and cash equivalents, end of period
 
$
1,838,000
   
$
4,995,000
 
Supplemental disclosures of cash flows information:
               
Interest paid
 
$
1,407,000
   
$
1,061,000
 
Non-cash investing and financing activities:
               
Distributions – DRIP
 
$
514,000
   
$
826,000
 
Stock Dividends
 
$
247,000
   
$
--
 
Deposits applied to purchase of investment in real estate
 
$
--
   
$
15,990,000
 
Deposits applied to purchase of investment in equity method investee
 
$
1,500,000
   
$
--
 
Capitalized loan fees related to promissory note
 
$
--
   
$
428,000
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MVP REIT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(Unaudited)

Note A — Organization, Business Operations and Capitalization

Organization and Business

MVP REIT, Inc. (the "Company," "MVP," "we," "us" or "our") was incorporated on April 3, 2012 as a Maryland corporation, and has elected to be taxed, and operates in a manner that will allow the Company to qualify as a real estate investment trust ("REIT") for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2013.

The Company operates as a real estate investment trust ("REIT").  The Company is not a mutual fund or an investment company within the meaning of the Investment Company Act of 1940, nor is the Company subject to any regulation thereunder.  As a REIT, the Company is required to have a December 31st fiscal year end.  Among other requirements, REITs are required to satisfy certain gross income and asset tests, which may affect the composition of assets the Company acquires with the proceeds from its public offering. In addition, REITs are required to distribute to stockholders at least 90% of their annual REIT taxable income (computed without regard to the dividends paid deduction and excluding net capital gain).

The Company's sponsor is MVP Capital Partners, LLC ("MVPCP" or the "Sponsor"), an entity owned and managed by Michael V. Shustek, the Company's Chairman and Chief Executive Officer.  The Company's advisor is MVP Realty Advisors, LLC (the "Advisor").  Vestin Realty Mortgage II, Inc. ("VRM II") owns 60% of the Advisor, and the remaining 40% is owned by Vestin Realty Mortgage I, Inc. ("VRM I").  Michael Shustek owns 100% of Vestin Mortgage, LLC, a Nevada limited liability company, which is the manager of VRM I and VRM II. The Advisor is responsible for managing the Company's affairs on a day-to-day basis and for identifying and making investments on the Company's behalf pursuant to an advisory agreement between the Company and the Advisor (the "Advisory Agreement").

The Company is the sole member of its operating limited liability company, MVP Real Estate Holdings, LLC, a Nevada limited liability company ("REH"). Substantially all of the Company's business is conducted through our wholly owned subsidiary REH. The operating agreement provides that REH is operated in a manner that enables the Company to (1) satisfy the requirements for being classified as a REIT for tax purposes, (2) avoid any federal income or excise tax liability, and (3) ensure that REH is not classified as a "publicly traded partnership" for purposes of Section 7704 of the Internal Revenue Code, which classification could result in REH being taxed as a corporation.

In June 2016, the Company and MVP REIT II, Inc. ("MVP REIT II") jointly announced the engagement of Ladenburg Thalmann & Co., Inc. to assist in evaluating various courses of action intended to enhance stockholder liquidity and value. In connection with the engagement, the Company decided to defer taking further action to list the Company's common shares on the NASDAQ Global Market. The Company's board had authorized taking such action in March 2016. In October 2016 the Board of Directors appointed a special committee to evaluate liquidity options. After consideration, in January 2017 the special committee of the Board of Directors decided to explore a merger with MVP REIT II. On May 26, 2017, the Company, MVP REIT II, MVP Merger Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of MVP REIT II ("Merger Sub"), and MVP Realty Advisors, LLC, the Company's and MVP REIT II's external advisor (the "Advisor"), entered into an agreement and plan of merger (the "Merger Agreement"). Subject to the terms and conditions of the Merger Agreement, the Company will merge with and into Merger Sub (the "Merger"), with Merger Sub surviving the Merger (the "Surviving Entity"), such that following the Merger, the Surviving Entity will continue as a wholly owned subsidiary of MVP REIT II.

See Note N- Merger for additional information.

Estimated Value Per Share

As previously reported on 8-K filed on April 11, 2017, the Company's board of directors determined that the Company's estimated net asset value ("NAV") was approximately $102.3 million or $9.32 per common share as of March 30, 2017.  Shares in the initial public offering were sold at $9.00 per share.  Starting April 11, 2017, the NAV of $9.32 per common share has been used for purposes of effectuating permitted redemptions of our common stock and issuing shares pursuant to our distribution reinvestment plan.  Last year, the board of directors determined that the NAV was $9.14 per common as of March 30, 2016, which value had been used since April 7, 2016 for purposes of effectuating permitted redemptions of the Company's common stock and issuing shares pursuant to the Company's distribution reinvestment plan.  In determining an estimated value per share of the Company's common stock, the Company's board of directors relied upon information provided by MVP Realty Advisors, LLC, the Company's advisor and the board's experience with, and knowledge of, the Company's real property and other assets.

The Company is providing the estimated value per share to assist broker-dealers and stockholders pursuant to certain rules of the Financial Industry Regulatory Authority, Inc., or FINRA. The objective of the board of directors in determining the estimated value per share was to arrive at a value, based on recent available data, that it believed was reasonable based on methods that it deemed appropriate after consultation with the Advisor. Accordingly, the Company's Advisor performed the valuation of the Company's common stock using as a guide Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the Investment Program Association in April 2013. The estimated value per share is based on (x) the estimated value of the Company's assets less the estimated value of the Company's liabilities divided by (y) the number of outstanding shares of the Company's common stock, all as of March 30, 2017.

Distributions

On October 3, 2012, the Company confirmed that its board of directors had approved a plan for payment of initial monthly cash distributions of $0.045 per share. On January 25, 2013, the Company issued a press release announcing that its board of directors had approved an increase in its monthly distribution rate on its common shares to an annualized distribution rate of 6.2 percent, or $0.558 per share annually or $0.0465 monthly, assuming a purchase price of $9.00 per share. The distribution, previously 6 percent, increased beginning with the January 2013 distribution, paid to stockholders of record as of January 24, 2013 on February 10, 2013.  On June 4, 2013, the Company issued a press release announcing that its board of directors has approved an increase in its monthly distribution rate on its common shares to an annualized distribution rate of 6.7 percent, assuming a purchase price of $9.00 per share or $0.05025 monthly.  The Company anticipates paying future distributions monthly in arrears, with a record date on the 24th of each month and distributions paid on the 10th day of the following month (or the next business day if the 10th is not a business day).  Starting April 11, 2017, the NAV of $9.32 per common share has been used for purposes of effectuating permitted redemptions of the Company's common stock and issuing shares pursuant to the Company's distribution reinvestment plan.  Currently the DRIP program has been suspended in connection with the merger.

From inception through June 30, 2017, the Company has paid approximately $16.8 million in distributions including approximately $3.4 million in DRIP distributions to the Company's stockholders, all of which have been paid from offering proceeds and constituted a return of capital.  The Company may continue to pay distributions from sources other than cash flow from operations, including proceeds from its initial public offering, the sale of assets, or borrowings.  The Company has no limits on the amounts it may pay from such sources. If the Company continues to pay distributions from sources other than cash flow from operations, the funds available to the Company for investments would be reduced and the share value may be diluted.

The Company also announced, in connection with the proposed Merger, that the monthly distribution for record holders as of May 24, 2017 was paid on June 10, 2017 will consist of a $0.0225 cash distribution per share (3% per annum based upon the initial $9.00 offering price), a stock dividend equal to .002414 shares of stock for each share owned (3% per annum based upon the initial $9.00 offering price), and a special one-time distribution of $0.0105 in additional cash distributions per share (0.7% per annum for the remaining two months left in the quarter based upon the initial $9.00 offering price).  Thereafter, the Company anticipates paying monthly cash distributions of $0.0225 per share and stock dividends of .0024 shares for each share of stock owned.


Capitalization
As of June 30, 2017, the Company had 11,023,621 shares of common stock issued and outstanding and 1,000 shares of non-voting, non-participating convertible stock, $0.001 par value, issued and outstanding (the "Convertible Stock").

Upon formation, the Company sold 22,222 shares of common stock to the Sponsor for $200,000.  In addition, upon the commencement of our initial public offering, we issued 1,000 shares of the Convertible Stock to our advisor. At the effective time of the Merger, all 1,000 shares of the Convertible Stock held by the Advisor will automatically be retired and will cease to exist, and no consideration will be paid, nor will any other payment or right inure or be made with respect to such shares in connection with or as a consequence of the Merger.

In the event that the Merger is not consummated, the Convertible Stock will remain outstanding and subject to conversion under its current terms as follows: After giving effect to the release of waivers and waiver agreements executed in August and September of 2014, all of which were previously disclosed in Form 8-Ks and prospectus supplements, the Convertible Stock will convert into shares of our common stock representing 3.50% of the outstanding shares of our common stock immediately preceding the conversion if and when:

(a)
the Company has made total distributions on the then outstanding common shares equal to the invested capital attributable to those shares plus a 6.00% cumulative, non-compounded, annual pre-tax return on such invested capital; or

(b) (i) the Company lists its common shares for trading on a national securities exchange and (ii) (x) the sum of the aggregate market value of the issued and outstanding common shares plus the aggregate amount of all distributions on the Company's common shares exceeds (y) the sum of the aggregate capital contributed by investors (less any capital returned in the form of distributions) plus an amount equal to a 6% cumulative, pre-tax non-compounded annual return to investors; or

(c) the advisory agreement is terminated or not renewed, but only if at the time of such termination or non-renewal, the requirements for conversion set forth in either of the immediately preceding clause (a) or (b) also shall have been satisfied.

For purposes of such calculation, the market value of the Company's outstanding common stock will be calculated based on the average market value of the shares of common stock issued and outstanding at listing over the 30 trading days beginning 180 days after the shares are first listed for trading on a national securities exchange.

In connection with the proposed Merger, the Company has suspended its distribution reinvestment plan and share repurchase plan pending the consummation of the proposed Merger.  In accordance with the distribution reinvestment plan and share repurchase plan, the suspension of the distribution reinvestment plan and share repurchase plan took effect on May 11, 2017 and June 1, 2017, or 10 days and 30 days, respectively, after the May 1, 2017 press release providing notice of suspension.

Pursuant to the DRIP, stockholders may elect to reinvest distributions by purchasing shares of common stock in lieu of receiving distributions. No dealer manager fees or selling commissions are paid with respect to shares purchased pursuant to the DRIP. Participants purchasing shares pursuant to the DRIP have the same rights and are treated in the same manner as if such shares were issued pursuant to the Company's initial public offering. The board of directors may designate that certain cash or other distributions be excluded from the DRIP. The Company has the right to amend any aspect of the DRIP or terminate the DRIP with ten days' notice to participants. Shares issued under the DRIP are recorded to equity in the accompanying balance sheets in the period distributions are declared.  An investor's participation in the DRIP will terminate automatically if the Company dishonors, or partially dishonors, any requests by such investor to redeem shares of its common stock in accordance with the Company's share repurchase program.  As of June 30, 2017, a total of 382,965 common shares have been issued under the DRIP.  Currently the DRIP program is not available.

In addition, the Company has a Share Repurchase Program ("SRP") that may provide stockholders who generally have held their shares for at least one year an opportunity to sell their shares to the Company, subject to certain restrictions and limitations.  On April 11, 2017, the Company established an estimated value per share of common stock of $9.32.  The Company will repurchase shares at 100% of the estimated value per share.

The number of shares to be repurchased during a calendar quarter is limited to the lesser of: (i) 2.0% of the number of shares of common stock outstanding on December 31st of the prior calendar year, and (ii) those repurchases that can be funded from the net proceeds of the sale of shares under the DRIP in the prior calendar year.  The board of directors may also limit the amounts available for repurchase at any time at its sole discretion. The SRP will terminate if the shares of common stock are listed on a national securities exchange.  Effective as of December 14, 2014, the Company has amended the SRP to provide that it will agree to satisfy all repurchase requests made in connection with the death or disability (as defined in the Code) of a stockholder in accordance with the terms of the SRP within 15 days following the Company's receipt of such repurchase request or as soon as practicable thereafter. Redemption requests other than those made in connection with the death or disability (as defined in the Code) of a stockholder will continue to be repurchased as of March 31st, June 30th, September 30th and December 31st of each year in accordance with the terms of the SRP.  As of the date of this filing, there are no outstanding repurchase requests due to the suspension of the share repurchase program in connection with the ongoing merger.
 
-7-

Note B — Summary of Significant Accounting Policies

Basis of Accounting

The accompanying unaudited condensed consolidated financial statements of the Company are prepared by management on the accrual basis of accounting and in accordance with principles generally accepted in the United States of America ("GAAP") for interim financial information as contained in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"), and in conjunction with rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited condensed consolidated financial statements include accounts and related adjustments, which are, in the opinion of management, of a normal recurring nature and necessary for a fair presentation of the Company's financial position, results of operations and cash flows for the interim period. Operating results for the three months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. These unaudited condensed consolidated financial statements should be read in conjunction with the condensed consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

The condensed consolidated balance sheet as of December 31, 2016 contained herein has been derived from the audited consolidated financial statements as of December 31, 2016, but do not include all disclosures required by GAAP.

Consolidation

The Company's consolidated financial statements include its accounts and the accounts of its subsidiaries, REH and all of the following subsidiaries. All intercompany profits and losses, balances and transactions are eliminated in consolidation.

MVP PF Ft. Lauderdale 2013, LLC
MVP PF Memphis Court 2013, LLC
MVP PF Memphis Poplar 2013, LLC
MVP PF St. Louis 2013, LLC
MVP PF Kansas City 2013, LLC
Mabley Place Garage, LLC
MVP Denver Sherman, LLC
MVP Fort Worth Taylor, LLC
MVP Milwaukee Old World, LLC
MVP St. Louis Convention Plaza, LLC
MVP Houston Saks Garage, LLC
MVP St. Louis Lucas, LLC
MVP Milwaukee Wells, LLC
MVP Wildwood NJ Lot, LLC
MVP Indianapolis City Park Garage, LLC
MVP KC Cherry Lot, LLC
MVP Indianapolis Washington Street Lot, LLC
Minneapolis Venture, LLC
MVP Indianapolis Meridian, LLC
MVP Milwaukee Clybourn, LLC
MVP Milwaukee Arena, LLC
MVP Clarksburg Lot, LLC
MVP Denver 1935 Sherman, LLC
MVP Bridgeport Fairfield, LLC
Minneapolis City Parking
MVP Houston Preston Lot, LLC*

*Ownership through 4/30/2017- See Note I – Investment in equity method investee
Under GAAP, the Company's consolidated financial statements will also include the accounts of its consolidated subsidiaries and joint ventures in which the Company is the primary beneficiary, or in which the Company has a controlling interest. In determining whether the Company has a controlling interest in a joint venture and the requirement to consolidate the accounts of that entity, the Company's management considers factors such as an entity's purpose and design and the Company's ability to direct the activities of the entity that most significantly impacts the entity's economic performance, ownership interest, board representation, management representation, authority to make decisions, and contractual and substantive participating rights of the partners/members as well as whether the entity is a variable interest entity in which it will absorb the majority of the entity's expected losses, if they occur, or receive the majority of the expected residual returns, if they occur, or both.
Equity investments in which the Company exercises significant influence but does not control and is not the primary beneficiary are accounted for using the equity method. The Company's share of its equity method investees' earnings or losses is included in other income in the accompanying consolidated statements of operations. Investments in which the Company is not able to exercise significant influence over the investee are accounted for under the cost method.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management makes significant estimates regarding revenue recognition, purchase price allocations to record investments in real estate, and derivative financial instruments and hedging activities, as applicable.

Concentration

The Company had eight parking tenants as of June 30, 2017 and 2016, respectively. One tenant, Standard Parking Plus ("SP+"), represented a concentration for the six months ended June 30, 2017 and 2016, in regards to parking base rental revenue.  During the six months ended June 30, 2017 and 2016, SP+ accounted for approximately 68.0% of the parking base rental revenue. Below is a table that summarizes base parking rent by tenant:

Parking Tenant
 
Percentage of Total Base Rental Revenue As of June 30,
 
   
2017
   
2016
 
SP +
   
68.0
%
   
68.1
%
ABM
   
9.8
%
   
10.3
%
iPark Services
   
9.1
%
   
7.8
%
Denison
   
5.7
%
   
6.0
%
PCAM, LLC
   
3.4
%
   
3.7
%
BEST PARK
   
3.4
%
   
3.5
%
Denver School
   
0.4
%
   
0.4
%
Secure
   
0.2
%
   
0.2
%
Grand Total
   
100.00
%
   
100.00
%

 
In addition, the Company had concentrations in various cities based on parking base rental revenue for the six months ended June 30, 2017 and 2016, as well as concentrations in various cities based on the real estate we owned as of June 30, 2017 and December 31, 2016.  The below tables summarize this information by city.
 
Real Estate Concentration by City
Based on the Company's Ownership %
 
    As of      As of  
   6/30/2017      12/31/2016  
Fort Worth
   
17.6
%
   
19.2
%
Indianapolis
   
12.9
%
   
14.1
%
Minneapolis
   
10.2
%
   
11.1
%
Cincinnati
   
9.2
%
   
10
%
Detroit
   
8.3
%
   
0
%
St. Louis
   
7.7
%
   
8.4
%
Houston
   
7.2
%
   
7.8
%
Milwaukee
   
6.8
%
   
7.4
%
Bridgeport
   
5.3
%
   
5.8
%
Cleveland
   
3.2
%
   
3.5
%
Ft. Lauderdale
   
2.6
%
   
2.8
%
Memphis
   
2.2
%
   
2.5
%
Denver
   
1.8
%
   
2
%
Nashville
   
1.7
%
   
1.9
%
Kansas City
   
1.6
%
   
1.7
%
Wildwood
   
1.2
%
   
1.3
%
Clarksburg
   
0.5
%
   
0.5
%
     
100
%
   
100
%
 
 
City Concentration for Parking Base Rent
 
For the Six Months Ended
     For the Six Months Ended  
 
  6/30/2017     6/30/2016  
Fort Worth
   
19.1
%
   
18.2
%
Cincinnati
   
17.3
%
   
16.3
%
Indianapolis
   
15.4
%
   
14.6
%
St. Louis
   
10.2
%
   
9.3
%
Minneapolis
   
9.9
%
   
9.6
%
Houston
   
7.9
%
   
9
%
Milwaukee
   
7.9
%
   
8
%
Memphis
   
3.7
%
   
3.5
%
Bridgeport
   
2.7
%
   
4.8
%
Kansas City
   
2.2
%
   
2
%
Ft. Lauderdale
   
1.5
%
   
1.4
%
Denver
   
1.6
%
   
1.8
%
Clarksburg
   
0.5
%
   
0.7
%
Wildwood
   
0.1
%
   
0.8
%
     
100
%
   
100
%

-10-
Acquisitions
The Company records the acquired tangible and intangible assets and assumed liabilities of acquisitions of all operating properties and those development and redevelopment opportunities that meet the accounting criteria to be accounted for as business combinations at fair value at the acquisition date. The Company assesses and considers fair value based on estimated cash flow projections that utilize available market information and discount and/or capitalization rates that the Company deems appropriate. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. The acquired assets and assumed liabilities for an operating property acquisition generally include but are not limited to: land, buildings and improvements, construction in progress and identified tangible and intangible assets and liabilities associated with in-place leases, including tenant improvements, leasing costs, value of above-market and below-market operating leases and ground leases, acquired in-place lease values and tenant relationships, if any.

The fair value of land is derived from comparable sales of land within the same submarket and/or region. The fair value of buildings and improvements, tenant improvements, and leasing costs are based upon current market replacement costs and other relevant market rate information.

The fair value of the above-market or below-market component of an acquired in-place operating lease is based upon the present value (calculated using a market discount rate) of the difference between (i) the contractual rents to be paid pursuant to the lease over its remaining non-cancellable lease term and (ii) management's estimate of the rents that would be paid using fair market rental rates and rent escalations at the date of acquisition measured over the remaining non-cancellable term of the lease for above-market operating leases and the initial non-cancellable term plus the term of any below-market fixed rate renewal options, if applicable, for below-market operating leases.

The fair value of acquired in-place leases is derived based on management's assessment of lost revenue and costs incurred for the period required to lease the "assumed vacant" property to the occupancy level when purchased. This fair value is based on a variety of considerations including, but not necessarily limited to: (1) the value associated with avoiding the cost of originating the acquired in-place leases; (2) the value associated with lost revenue related to tenant reimbursable operating costs estimated to be incurred during the assumed lease-up period; and (3) the value associated with lost rental revenue from existing leases during the assumed lease-up period. Factors considered by us in performing these analyses include an estimate of the carrying costs during the expected lease-up periods, current market conditions, and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses, and estimates of lost rental revenue during the expected lease-up periods based on current market demand at market rates.
 
In estimating costs to execute similar leases, the Company considers leasing commissions on parking tenants, legal and other related expenses.

The determination of the fair value of any debt assumed in connection with a property acquisition is estimated by discounting the future cash flows using interest rates available for the issuance of debt with similar terms and remaining maturities.

The determination of the fair value of the acquired tangible and intangible assets and assumed liabilities of operating property acquisitions requires us to make significant judgments and assumptions about the numerous inputs discussed above. The use of different assumptions in these fair value calculations could significantly affect the reported amounts of the allocation of our acquisition related assets and liabilities and the related amortization and depreciation expense recorded for such assets and liabilities. In addition, because the value of above and below market leases are amortized as either a reduction or increase to rental income, respectively, our judgments for these intangibles could have a significant impact on our reported rental revenues and results of operations.


Costs directly associated with all operating property acquisitions and those development and redevelopment acquisitions that meet the accounting criteria to be accounted for as business combinations are expensed as incurred. During the three months ended June 30, 2017 and 2016, the Company had no related party acquisition expenses and $2,000 and $0.2 million, respectively, of non-related party acquisition costs, for the purchase of or investment in none and one, respectively, properties. During the six months ended June 30, 2017 and 2016, the Company expensed approximately $0.3 million and $1.3 million, respectively, of related party acquisition costs and $0.3 million and $0.4 million, respectively, of non-related party acquisition costs, for the purchase of or investment in one and ten, respectively, properties. Our acquisition expenses are directly related to our acquisition activity and if our acquisition activity was to increase or decrease, so would our acquisition costs. Costs directly associated with development acquisitions accounted for as asset acquisitions are capitalized as part of the cost of the acquisition. During the three and six months ended June 30, 2017 and 2016, the Company did not capitalize any such acquisition costs.

Impairment of Long Lived Assets

When circumstances indicate the carrying value of a property may not be recoverable, the Company reviews the asset for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property's use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists, due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net income. During the three and six months ended June 30, 2017, the Company did not have any asset impairments.

Derivative Instruments

The Company may use derivative financial instruments to hedge all or a portion of the interest rate risk associated with its borrowings. Certain techniques used to hedge exposure to interest rate fluctuations may also be used to protect against declines in the market value of assets that result from general trends in debt markets. The principal objective of such agreements is to minimize the risks and/or costs associated with the Company's operating and financial structure as well as to hedge specific anticipated transactions.  As of June 30, 2017 and December 31, 2016, the Company did not have any derivative financial instruments.

The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designed and qualifies for hedge accounting treatment. If the Company elects not to apply hedge accounting treatment, any changes in the fair value of these derivative instruments is recognized immediately in gains (losses) on derivative instruments in the consolidated statement of operations. If the derivative is designated and qualifies for hedge accounting treatment, the change in the estimated fair value of the derivative is recorded in other comprehensive income (loss) to the extent that it is effective. Any ineffective portion of a derivative's change in fair value will be immediately recognized in earnings.


Cash
The Company maintains the majority of its cash at KeyBank. The balances are insured by the Federal Deposit Insurance Corporation under the same ownership category of $250,000. As of June 30, 2017 the Company had no amount in excess of the federally-insured limits.  As of December 31, 2016, the Company had approximately $1.8 million in excess of the federally-insured limits. As of June 30, 2017 the Company has not experienced any losses on cash deposits.

Restricted Cash

Restricted cash primarily consists of escrowed tenant improvement funds, real estate taxes, capital improvement funds, insurance premiums, and other amounts required to be escrowed pursuant to loan agreements.

Revenue Recognition
The Company's revenues, which are derived primarily from rental income, include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease. Since some of the Company's leases will provide for rental increases at specified intervals, straight-line basis accounting requires the Company to record a receivable, and include in revenues, unbilled rent receivables that the Company will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease.

The Company may recognize interest income from loans on an accrual basis over the expected terms of the loans using the effective interest method.  The Company may recognize fees, discounts, premiums, anticipated exit fees and direct cost over the terms of the loans as an adjustment to the yield.  The Company may recognize fees on commitments that expire unused at expiration.  The Company may recognize interest income from available-for-sale securities on an accrual basis over the life of the investment on a yield-to-maturity basis.

The Company will continually review receivables related to rent and unbilled rent receivables and determine collectability by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectability of a receivable is in doubt, the Company will record an increase in the Company's allowance for uncollectible accounts or record a direct write-off of the receivable after exhaustive efforts at collection.

Advertising Costs

Advertising costs incurred in the normal course of operations and are expensed as incurred.  During the three and six months ended June 30, 2017 and 2016, the Company had no advertising costs.

Investments in Real Estate and Fixed Assets

Investments in real estate and fixed assets are stated at cost less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which are primarily 3 to 40 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income (expense).

The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful lives of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.

Investments in Real Estate Loans

Subject to the restrictions on related-party transactions set forth in the Company's charter, the Company may, from time to time, acquire or sell investments in real estate loans from or to the advisor or other related parties without a premium.  The primary purpose is to either free up capital to provide liquidity for various reasons, such as loan diversification, or place excess capital in investments to maximize the use of our capital.  Selling or buying loans allows us to diversify our loan portfolio within these parameters.  Due to the short-term nature of the loans the Company makes and the similarity of interest rates in loans the Company normally would invest in, the fair value of a loan typically approximates its carrying value.  Accordingly, discounts or premiums typically do not apply upon sales of loans and therefore, generally no gain or loss is recorded on these transactions, regardless of whether to a related or unrelated party.

Investments in real estate loans are secured by deeds of trust or mortgages.  Generally, our real estate loans require interest only payments with a balloon payment of the principal at maturity.  The Company has both the intent and ability to hold real estate loans until maturity and therefore, real estate loans are classified and accounted for as held for investment and are carried at amortized cost.  Loans sold to or purchased from affiliates are accounted for at the principal balance and no gain or loss is recognized by us or any affiliate.  Loan-to-value ratios are initially based on appraisals obtained at the time of loan origination and are updated, when new appraisals are received or when management's assessment of the value has changed, to reflect subsequent changes in value estimates.  Such appraisals are generally dated within 12 months of the date of loan origination and may be commissioned by the borrower.

The Company considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.  The Company's impaired loans include troubled debt restructuring, and performing and non-performing loans in which full payment of principal or interest is not expected.  The Company calculates an allowance required for impaired loans based on the present value of expected future cash flows discounted at the loan's effective interest rate, or at the loan's observable market price or the fair value of its collateral.

Loans that have been modified from their original terms are evaluated to determine if the loan meets the definition of a Troubled Debt Restructuring ("TDR") as defined by ASC 310-40.  When the Company modifies the terms of an existing loan that is considered a TDR, it is considered performing as long as it is in compliance with the modified terms of the loan agreement.  If the modification calls for deferred interest, it is recorded as interest income as cash is collected.

Allowance for Loan Losses

The Company will maintain an allowance for loan losses to the extent it makes investments in real estate loans for estimated credit impairment.  The Company's estimate of losses is based on a number of factors including the types and dollar amounts of loans in the portfolio, adverse situations that may affect the borrower's ability to repay, prevailing economic conditions and the underlying collateral securing the loan.  Additions to the allowance are provided through a charge to earnings and are based on an assessment of certain factors, which may indicate estimated losses on the loans.  Actual losses on loans are recorded first as a reduction to the allowance for loan losses.  Generally, subsequent recoveries of amounts previously charged off are recognized as income.

Estimating allowances for loan losses requires significant judgment about the underlying collateral, including liquidation value, condition of the collateral, competency and cooperation of the related borrower and specific legal issues that affect loan collections or taking possession of the property.  As a commercial real estate lender willing to invest in loans to borrowers who may not meet the credit standards of other financial institutional lenders, the default rate on our loans could be higher than those generally experienced in the real estate lending industry.  The Company and the Advisor generally approve loans more quickly than other real estate lenders and, due to our expedited underwriting process; there is a risk that the credit inquiry performed will not reveal all material facts pertaining to a borrower and the security.
Additional facts and circumstances may be discovered as the Company continues efforts in the collection and foreclosure processes.  This additional information often causes management to reassess its estimates. Circumstances that may cause significant changes in our estimated allowance include, but are not limited to:
·
Declines in real estate market conditions, which can cause a decrease in expected market value;
·
Discovery of undisclosed liens for community improvement bonds, easements and delinquent property taxes;
·
Lack of progress on real estate developments after the Company advances funds.  The Company customarily utilizes disbursement agents to monitor the progress of real estate developments and approve loan advances.  After further inspection of the related property, progress on construction occasionally does not substantiate an increase in value to support the related loan advances;
·
Unanticipated legal or business issues that may arise subsequent to loan origination or upon the sale of foreclosed property; and
·
Appraisals, which are only opinions of value at the time of the appraisal, may not accurately reflect the value of the property.

Stock-Based Compensation

The Company has a stock-based incentive award plan, which is accounted for under the guidance for share based payments. The expense for such awards will be included in general and administrative expenses and is recognized over the vesting period or when the requirements for exercise of the award have been met (See Note G — Stock-Based Compensation).

Income Taxes

The Company has elected, and operates in a manner that will allow the Company, to qualify to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with the taxable year ended December 31, 2013. If the Company qualifies for taxation as a REIT, it generally will not be subject to federal corporate income tax to the extent it distributes all of its REIT taxable income to its stockholders, and so long as it distributes at least 90% of its REIT taxable income. REITs are subject to a number of other organizational and operational requirements. Even if the Company qualifies to be taxed as a REIT, it may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed income.

Per Share Data

The Company calculates basic earnings per share by dividing net income for the period by weighted-average shares of its common stock outstanding for a respective period. Diluted earnings per share takes into account the effect of dilutive instruments, such as stock options and convertible stock, but uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted-average number of shares outstanding.  The Company had no outstanding common share equivalents during the six months ended June 30, 2017 and 2016.

In September 2012, upon the commencement of our initial public offering, the Company issued 1,000 shares of convertible stock to our advisor.  If merger is successful, upon completion the 1,000 shares of convertible stock to the Advisor will be cancelled.

After giving effect to the release of waivers and waiver agreements executed in August and September of 2014, all of which were previously disclosed in Form 8-Ks and prospectus supplements, the convertible stock will convert into shares of our common stock representing 3.50% of the outstanding shares of our common stock immediately preceding the conversion if and when:

(a) the Company has made total distributions on the then outstanding common shares equal to the invested capital attributable to those shares plus a 6.00% cumulative, non-compounded, annual pre-tax return on such invested capital; or

(b) (i) the Company lists its common shares for trading on a national securities exchange and (ii) (x) the sum of the aggregate market value of the issued and outstanding common shares plus the aggregate amount of all distributions on the Company's common shares exceeds (y) the sum of the aggregate capital contributed by investors (less any capital returned in the form of distributions) plus an amount equal to a 6% cumulative, pre-tax non-compounded annual return to investors; or

(c) the advisory agreement is terminated or not renewed, but only if at the time of such termination or non-renewal, the requirements for conversion set forth in either of the immediately preceding clause (a) or (b) also shall have been satisfied.

For purposes of such calculation, the market value of the Company's outstanding common stock will be calculated based on the average market value of the shares of common stock issued and outstanding at listing over the 30 trading days beginning 180 days after the shares are first listed for trading on a national securities exchange.

Reportable Segments

The Company is currently authorized to operate two reportable segments, investments in real estate loans and investments in real property.  As of June 30, 2017, the Company only operates in the investment in real property segment.

Reclassifications

Upon re-evaluation of ASU 2014-08, the Company has determined that the amounts listed in connection with discontinued operations in the 2016 condensed consolidated financial statements need to be reclassified to conform to ASU 2014-08 and June 30, 2017 presentation.

Accounting and Auditing Standards Applicable to "Emerging Growth Companies

The Company is an "emerging growth company" under the recently enacted JOBS Act. For as long as the Company remains an "emerging growth company," which may be up to five fiscal years, the Company is not required to (1) comply with any new or revised financial accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies, (2) provide an auditor's attestation report on management's assessment of the effectiveness of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, (3) comply with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor's report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer or (4) comply with any new audit rules adopted by the PCAOB after April 5, 2012, unless the SEC determines otherwise. The Company intends to take advantage of such extended transition period including 404(b) reporting subject to further management evaluation. Since the Company will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, the Company's financial statements may not be comparable to the financial statements of companies that comply with public company effective dates. If the Company were to subsequently elect to instead comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.

Non-controlling Interests

The FASB issued authoritative guidance for non-controlling interests in December 2007, which establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance clarifies that a non-controlling interest in a subsidiary, which is sometimes referred to as an unconsolidated investment, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, the guidance requires consolidated net income to be reported at amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest.

Note C — Commitments and Contingencies

Litigation

In the ordinary course of business, the Company may become subject to litigation or claims. There are no material legal proceedings pending or known to be contemplated against the Company as of the filing date of this report.


Environmental Matters

In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters.  During the Company's due diligence of a property, purchased on June 30, 2015 and located in Milwaukee, it was discovered that the soil and ground water at the subject property had been impacted by the site's historical use as a printing press as well as neighboring property uses. As a result, the Company retained a local environmental engineer to seek a closure letter or similar certificate of no further action from the State of Wisconsin due to the Company's use of the property as a parking lot. As of June 30, 2017, management does not anticipate a material adverse effect related to this environmental matter. As of June 30, 2017, the Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition that it believes will have a material adverse effect on the results of operations. The Company, however, cannot predict the impact of any unforeseen environmental contingencies or new or changed laws or regulations on properties in which the Company holds an interest, or on properties that may be acquired directly or indirectly in the future.

Note D – Investments in Real Estate

As of June 30, 2017, the Company had the following investments in real estate entities that were consolidated on the Balance Sheet:

Property
Location
Date Acquired
Investments in Real Estate
Parking Tenant
Lease Commencement Date
Lease Term
Ft. Lauderdale
Ft. Lauderdale, FL
7/31/2013
$3,409,000
SP+
2/1/2014
5 yr. w/2 5 yr. ext.
Memphis Court
Memphis, TN
8/28/2013
$194,000
SP+
8/28/2013
5 yr. w/2 5 yr. ext.
Memphis Poplar
Memphis, TN
8/28/2013
$2,693,000
Best Park
8/28/2013
5 yr. w/2   5 yr. ext.
Kansas City
Kansas City, MO
8/28/2013
$1,550,000
SP+
8/28/2013
15 Years
St. Louis
St Louis, MO
9/4/2013
$4,137,000
SP+
12/1/2013
5 yr. w/2   5 yr. ext.
Mabley Place
Cincinnati, OH
12/9/2014
$14,995,000
SP+
10/1/2014
10 Years
Denver Sherman
Denver, CO
1/26/2015
$585,000
Denver School District
7/1/2014
10 Years w/1  5 yr. ext.
Ft. Worth
Fort Worth, TX
3/16/2015
$23,485,000
SP+
3/16/2015
10 Years
Milwaukee Old World
Milwaukee, WI
3/31/2015
$1,000,000
SP+
3/31/2015
5 yr. w/1   5 yr. ext.
St. Louis Convention
St. Louis, MO
5/31/2015
$2,575,000
SP+
5/13/2015
5 yr. w/1   5 yr. ext.
Houston Saks Garage
Houston, TX
5/28/2015
$8,380,000
iPark
5/28/2015
10 yr. w/1  5 yr. ext.
St. Louis Lucas
St. Louis, MO
6/29/2015
$3,463,000
SP+
7/1/2015
5 yr. w/1   5 yr. ext.
Milwaukee Wells
Milwaukee, WI
6/30/2015
$3,900,000
SP+
6/30/2015
10 Years
Wildwood NJ Lot I
Wildwood, NJ
7/10/2015
$994,000
SP+
6/10/2016
5 yr. w/1   5 yr. ext.
Indy City Parking Garage
Indianapolis, IN
10/5/2015
$10,671,000
SP+
10/5/2015
5 yr. w/1   5 yr. ext.
KC Cherry Lot
Kansas City, MO
10/9/2015
$515,000
SP+
10/9/2015
5 yr. w/1   5 yr. ext.
Indy WA Street
Indianapolis, IN
10/29/2015
$4,995,000
Denison
12/1/2015
10 Years
Wildwood NJ Lot II
Wildwood, NJ
12/16/2015
$615,000
SP+
6/10/2016
10 Years
Minneapolis City Parking
Minneapolis, MN
1/6/2016
$9,500,000
SP+
1/6/2016
5 yr. w/1   5 yr. ext.
Indianapolis Meridian
Indianapolis, IN
1/15/2016
$1,498,000
Denison Parking
1/15/2016
10 Years
Milwaukee Clybourn
Milwaukee, WI
1/20/2016
$205,000
Secure Parking USA
1/20/2016
5 Years
Milwaukee Arena
Milwaukee, WI
2/1/2016
$3,900,000
SP+
2/1/2016
5 yr. w/1   5 yr. ext.
Clarksburg Lot
Clarksburg, WV
2/9/2016
$628,000
ABM
2/9/2016
5 Years
Denver 1935 Sherman
Denver, CO
2/12/2016
$2,438,000
SP+
2/12/2016
10 Years
Bridgeport Fairfield
Bridgeport, CT
3/30/2016
$7,940,000
SP+
3/30/2016
10 Years
Fixed Assets
   
$88,000
     
     
$114,353,000
     

During April 2017, the company reduced their ownership interest in the MVP Houston Preston Lot from 80% to 40%, by selling a portion of their ownership to MVP REIT II for $1.12 million.  This transaction was completed at par value with no gain or loss recorded by the Company.  MVP REIT II's ownership interest increased from 20% to 60% and will now be considered the controlling party.

Note E — Related Party Transactions and Arrangements

The transactions described in this Note were approved by a majority of the Company's board of directors (including a majority of the independent directors) not otherwise interested in such transaction as fair and reasonable to the Company and on terms and conditions no less favorable to the Company than those available from unaffiliated third parties.

Ownership of Company Stock

As of June 30, 2017, the Sponsor owned 29,384 shares of the Company's outstanding common stock, VRM I owned 76,621 shares of the Company's outstanding common stock, Dan Huberty owned 9,623 shares of the Company's outstanding common stock, MVP REIT II owned 352,462 shares of the Company's outstanding common stock and the Advisor owned 1,000 shares of the Convertible Stock.  See "Capitalization" under Note A "Organization, Business Operations and Capitalization" for further information, including a description of the terms of the Convertible Stock.

Ownership of Interests of Advisor

During April 2012, VRM II contributed $1,000 for a 40% interest in the Advisor. Mr. Shustek, through a wholly owned company named MVP Capital Partners, LLC (the "Sponsor") contributed $1,500 for a 60% interest in the Advisor.  As of June 30, 2013, VRM II and the Sponsor had loaned approximately $3.6 million and approximately $1.2 million, respectively, to the Advisor for purposes of funding the Company's operations.  On June 30, 2013, the Sponsor decided to forgive the full amount of its $1.2 million loan. VRM II has not forgiven the balance due from the Advisor.  However, the decision by the Sponsor to forgive the full amount of its loans created uncertainty as to when VRM II will be repaid the amounts loaned to the Advisor. Based on this uncertainty, VRM II determined to treat as fully impaired the balance of this note receivable.

In December 2013, VRM II and the Sponsor entered into a membership interest transfer agreement, dated as of December 19, 2013, pursuant to which VRM II acquired from the Seller an additional 20% of the membership interests of the Advisor. Concurrently therewith, the Sponsor and VRM I entered into a separate membership interest transfer agreement pursuant to which VRM I acquired the remaining 40% interest in the Advisor from the Sponsor.  As a result, VRM II and VRM I now own 60% and 40%, respectively, of the aggregate membership interests of the Advisor.  As of June 30, 2017, VRM I and VRM II had notes receivable from the Advisor of approximately $4.6 million and $12.9 million, respectively, which amount has been fully impaired.  The Advisor's ability to repay the sums due VRM I and VRM II will likely depend upon the success of the Company's investments in real estate.

Pursuant to the transfer agreements entered into in December 2013, neither VRM I nor VRM II paid any up-front consideration for the acquired interests, but each will be responsible for its proportionate share of future expenses of the Advisor. In recognition of the Sponsor's substantial investment in the Advisor for which the Sponsor received no up-front consideration, the transfer agreements and the amended operating agreement of the Advisor further provide that once VRM I and VRM II have been repaid in full for any capital contributions to the Advisor or for any expenses advanced on the Advisor's behalf ("Capital Investment"), and once they have received an annualized return on their Capital Investment of 7.5%, then the Sponsor will receive one-third of the net profits of the Advisor.

Ownership by MVP REIT II

On November 5, 2016, MVP REIT II purchased 338,409 shares of the Company's common stock from an unrelated third party for $3.0 million or $8.865 per share.  During the three and six months ended June 30, 2017, the Company paid MVP REIT II, approximately $47,000 and $99,000 in stock distributions, of which $8,000 was cash, related to their ownership of our common stock.

Fees and Expenses Paid in Connection with the Offering

The Company completed its initial public offering in September 2015.  The Company appointed MVP American Securities ("MVP AS"), formerly known as Ashton Garnett Securities, LLC, an entity indirectly owned by our CEO and third-party selling agents to act as the selling agents for the offering.  Broker Dealers received 3.00% of the gross offering proceeds sold in the offering, subject to reductions based on volume and for certain categories of purchasers. No selling commissions are payable on shares sold under the distribution reinvestment plan.  Additionally, the Sponsor or its affiliates (other than MVP REIT, Inc.) paid up to an additional 5.25% of the gross offering proceeds for third party broker dealer commissions and due diligence expenses.  Since the offering has terminated, the Company does not anticipate incurring any additional fees or expenses in connection with the sale of shares offering.

Certain organizational, offering and related costs will be incurred by the Advisor on behalf of the Company. After the Company has reimbursed $100,000 of such costs, which amount has been paid to the Advisor, no additional reimbursements will be made unless the aggregate amount of such reimbursements does not exceed 0.75% of the gross offering proceeds as of the date of reimbursement. Such reimbursable costs may include legal, accounting, printing, and other offering expenses, including marketing, salaries and direct expenses of the Advisor's employees and employees of the Advisor's affiliates and others. Such reimbursable costs do not include any broker-dealer commissions paid by the Advisor in excess of the 3.00% paid by the Company, including any sponsor commissions or sponsor due diligence fees.  Any reimbursement of the Advisor will not exceed actual expenses incurred by the Advisor. On November 1, 2013, the advisor forgave the reimbursement of the full amount of offering costs incurred.

Fees and Expenses Paid in Connection With the Operations of the Company

The Company has no paid employees. The Company has retained the Advisor to manage its affairs on a day-to-day basis. Pursuant to an amendment of the advisory agreement effective November 21, 2013, the Company will reimburse, no less than monthly, the Advisor for audit, accounting and legal fees, and other fees for professional services provided by third parties relating to the operations of the Company and all such fees incurred at the request, or on behalf of, the Board or any committee of the Board; provided, however, that the Advisor shall not be entitled to reimbursement by the Company for any personnel or related employment costs incurred by the Advisor or its affiliates in performing the services, including but not limited to salary and benefits of employees and overhead, until the first anniversary of (i) the listing of the Company's shares on a national securities exchange or (ii) a merger, a sale of all or substantially all of the Company's assets or another liquidity event transaction approved by the Company's board.  As of June 30, 2017, the aggregate amount of expense reimbursements waived by the Advisor was approximately $6.9 million.
The Advisor must reimburse the Company at least quarterly for reimbursements paid to the Advisor in any four consecutive fiscal quarters to the extent that such reimbursements to the Advisor cause the Company's total operating expenses to exceed the greater of (1) 2% of our average invested assets, which generally consists of the average book value of the Company's real properties before deducting depreciation, bad debts or other non-cash reserves and the average book value of securities, or (2) 25% of the Company's net income, which is defined as the Company's total revenues less total expenses for any given period excluding reserves for depreciation, bad debts or other similar non-cash reserves, unless the independent directors have determined that such excess expenses were justified based on unusual and non-recurring factors. The Advisor does not currently owe any amounts to the Company under this provision. As the Company commences the reimbursement of the expenses to the Advisor, the Company will verify that such reimbursements do not exceed the limits identified above or, in the event of any excessive payments, will obtain reimbursements from the Advisor.
The Advisor or its affiliates will receive an acquisition fee of 3.0% of the purchase price of any real estate or loan acquired at a discount, provided, however, the Company will not pay any fees when acquiring loans from its affiliates.  During the three months ended June 30, 2017 and 2016, the Company did not incur any acquisition fees due to the Advisor. During the six months ended June 30, 2017 and 2016, the Company incurred approximately $0.3 million and approximately $1.3 million, respectively, in acquisition fees to the Advisor.
The Advisor or its affiliates is entitled to receive a monthly asset management fee at an annual rate equal to 0.85% of the fair market value of (i) all assets then held by the Company or (ii) the Company's proportionate share thereof in the case of an investment made through a joint venture or other co-ownership arrangement, excluding (only for clause (ii)) debt financing obtained by the Company or made available to the Company. The fair market value of real property shall be based on annual "AS-IS", "WHERE-IS" appraisals, and the fair market value of real estate-related secured loans shall be equal to the face value of the such loan, unless it is non-performing, in which case the fair market value shall be equal to the book value of such loan. The asset management fee will be reduced to 0.75% if the Company is listed on a national securities exchange.  Asset management fees for the three months ended June 30, 2017 and 2016 were approximately $0.3 million and $0.3 million, respectively. Asset management fees for the six months ended June 30, 2017 and 2016 were approximately $0.6 million and $0.5 million, respectively.

The Advisor or its affiliates is entitled to receive a monthly debt financing fee at an annual rate equal to 0.25% of the aggregate debt financing obtained by the Company or made available to the Company, such as mortgage debt, lines of credit, and other term indebtedness, including refinancing.  In the case of a joint venture, the Company pays this fee only on the Company's pro rata share.  Debt financing fees for the three months ended June 30, 2017 and 2016 were approximately $35,000, and $26,000, respectively.  Debt financing fees for the six months ended June 30, 2017 and 2016 were approximately $71,000, and $49,000, respectively.

Notwithstanding the foregoing, no asset management fee will be paid or payable with respect to any mortgage assets held by us at this time.  We will not pay any asset management fee on any of our mortgage assets unless we restructure our mortgage program in a manner consistent with the NASAA Mortgage Program Guidelines that would permit us to pay an asset management fee on our mortgage assets, including making available 84% of our capital contribution to invest in mortgages assets.  We have no present intention to revise our investment strategy in a manner that would permit such payment under the NASAA Mortgage Program Guidelines, but may elect to do so in the future.  If we do make such an election to restructure our mortgage program, then, subject to satisfaction of the requirements of the NASAA Mortgage Program Guidelines, we may pay our advisor or its affiliates an annual asset-based fee equal to 0.75% of the "Base Amount" (as defined in the NASAA Mortgage Program Guidelines) of the capital contributions, if any, committed to investments in mortgages and 0.5% of the capital contributions temporarily held while awaiting investments in mortgages, in addition to any other fees and compensation that is allowed under the NASAA Mortgage Program Guidelines.

The advisory agreement currently provides for payment to our advisor of a monthly market-based fee for property management services of up to 6.00% of the gross revenues generated by our properties. The Advisor has irrevocably waived its rights to receive a property management fee with respect to any real property owned that are subject to triple net leases. As a result of this waiver, no property management fee will be paid on any real property owned that are subject to triple net leases pursuant to which the tenants pay all or a majority of all real estate taxes, building insurance, and maintenance expenses.
During November 2016, the Company and MVP REIT II, closed on the purchase of a parking lot in Houston, TX ("MVP Houston Preston Lot") for approximately $2.8 million in cash plus closing costs, 80% owned by MVP and 20% owned by MVP REIT II.  At closing the Company funded the full purchase price and recorded a receivable from MVP REIT II totaling $560,000. This balance was paid in full, during January 2017. During April 2017, the company reduced their ownership interest in the MVP Houston Preston Lot from 80% to 40%, by selling a portion of their ownership to MVP REIT II for $1.12 million.  This transaction was completed at par value with no gain or loss be recorded by the Company.  MVP REIT II's ownership interest increased from 20% to 60% and will now be considered the controlling party.
 
In connection with various operations the Company owed MVP REIT II $ 1.4 million as of June 30, 2017 and MVP REIT II owed the Company $ 0.6 million as of December 31, 2016.

Disposition Fee

For substantial assistance in connection with the sale of real property, as determined by the independent directors, the Company will pay the Advisor or its affiliate the lesser of (i) 3.00% of the contract sale price of the real property sold or (ii) 50% of the customary commission which would be paid to a third-party broker for the sale of a comparable property. The amount paid, when added to the sums paid to unaffiliated parties, may not exceed either the customary commission or an amount equal to 6.00% of the contract sales price. The disposition fee will be paid concurrently with the closing of any such disposition of all or any portion of any real property. The Company will not pay a disposition fee upon the maturity, prepayment, workout, modification or extension of a loan or other debt-related investment; provided, however, that the Advisor or its affiliates may receive an exit fee or a prepayment penalty paid by the borrower. If the Company takes ownership of a property as a result of a workout or foreclosure of a loan, the Company will pay a disposition fee upon the sale of such real property equal to 3.00% of the sales price.  With respect to real property held in a joint venture, the foregoing commission will be reduced to a percentage reflecting the Company's economic interest in the joint venture. There were no disposition fees earned by the Advisor for the three and six months ended June 30, 2017 and 2016.

Fees and Expense Reimbursements Payable by Borrowers and Other Third Parties

The Company or its affiliates may be entitled to late fees, loan servicing fees, loan extension and loan modification fees and other fees and expense reimbursement payable by borrowers and other third parties.

Note F —Dependency

The Company has no employees and is dependent on the Advisor for services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company, asset acquisition and disposition decisions, as well as other administrative responsibilities for the Company including accounting services and investor relations.

In the event that these companies are unable to provide the Company with the respective services, the Company will be required to find alternative providers of these services.  In this regard, the Company notes that the Advisor has agreed to waive certain fees and expenses it otherwise would be entitled to under the Advisory Agreement as further described under "Note E – Related Party Transactions and Arrangements – Fees and Expenses Paid in Connection With the Operations of the Company" to the unaudited condensed consolidated financial statements included in this Quarterly Report. If the Company is required to find an alternative advisor, the Company may not be able to find an alternative advisor who would be willing to continue to waive such fees and expenses.  As a result, the Company may have to incur additional costs and expenses if it is required to replace the Advisor or other agents that are providing services to the Company.

Note G — Stock-Based Compensation

Equity Incentive Plan

The Company has adopted an equity incentive plan.  The equity incentive plan offers certain individuals an opportunity to participate in the Company's growth through awards in the form of, or based on, the Company's common stock.  The Company has no current intention to issue any awards under the equity incentive plan but may do so in the future in order to attract and retain qualified directors, officers, employees, and consultants.

The equity incentive plan authorizes the granting of restricted stock, stock options, stock appreciation rights, restricted or deferred stock units, performance awards, dividend equivalents, other stock-based awards and cash-based awards to directors, employees and consultants of the Company selected by the board of directors for participation in the equity incentive plan. Stock options granted under the equity incentive plan will not exceed an amount equal to 10% of the outstanding shares of the Company's common stock on the date of grant of any such stock options. Any stock options and stock appreciation rights granted under the equity incentive plan will have an exercise price or base price that is not less than the fair market value of the Company's common stock on the date of grant.

The board of directors, or the compensation committee of the board of directors, will administer the equity incentive plan, with sole authority to determine all of the terms and conditions of the awards, including whether the grant, vesting or settlement of awards may be subject to the attainment of one or more performance goals.  No awards will be granted if the grant or vesting of the awards would jeopardize the Company's status as a REIT under the Code or otherwise violate the ownership and transfer restrictions imposed under the Company's charter. Unless otherwise determined by the board of directors, no award granted under the equity incentive plan will be transferable except through the laws of descent and distribution.

The Company has authorized and reserved an aggregate maximum of 300,000 shares for issuance under the equity incentive plan. In the event of a transaction between the Company and its stockholders that causes the per-share value of common stock to change (including, without limitation, any stock dividend, stock split, spin-off, rights offering or large nonrecurring cash dividend), the share authorization limits under the equity incentive plan will be adjusted proportionately, and the board of directors must make such adjustments to the equity incentive plan and awards as it deems necessary, in its sole discretion, to prevent dilution or enlargement of rights immediately resulting from such transaction. In the event of a stock split, a stock dividend or a combination or consolidation of the outstanding shares of common stock into a lesser number of shares, the authorization limits under the equity incentive plan will automatically be adjusted proportionately and the shares then subject to each award will automatically be adjusted proportionately without any change in the aggregate purchase price.

Unless otherwise provided in an award certificate or any special plan document governing an award, in the event of a corporate transaction (as defined in the Company's equity incentive plan), if any award issued under the Company's equity incentive plan is not assumed or replaced as part of the corporate transaction, then such portion of the award shall automatically become fully vested and exercisable and be released from any repurchase or forfeiture rights (other than repurchase rights exercisable at fair market value) immediately prior to the effective date of such corporation transaction, so long as the grantee's continuous service has not terminated prior to such date. Unless otherwise provided in an award certificate or any special plan document governing an award, in the event of a change in control, each outstanding award issued automatically shall become fully vested and exercisable and be released from any repurchase or forfeiture rights (other than repurchase rights exercisable at fair market value), immediately prior to the effective date of such change in control, provided that the grantee's continuous service has not terminated prior to such date. Under the equity incentive plan, a "corporate transaction" is defined to include (i) a merger or consolidation in which the Company is not the surviving entity; (ii) the sale of all or substantially all of the Company's assets; (iii) the Company's complete liquidation or dissolution; and (iv) acquisitions by any person of beneficial ownership of securities possessing more than 50% of the total combined voting power of the Company's outstanding securities (but excluding any transactions determined by our administrator not to constitute a "corporate transaction"). Under the equity incentive plan, a "change in control" is defined generally as a change in ownership or control of the Company effected either through (i) acquisitions of securities by any person (or related group of persons) of securities possessing more than 50% of the total combined voting power of the Company's outstanding securities pursuant to a tender offer or exchange offer that the Company's directors do not recommend the Company's stockholders accept; or (ii) a change in the composition of the board over a period of 12 months or less such that a majority of the Company's board members will no longer serve as directors, by reason of one or more contested elections for board membership.

The equity incentive plan will automatically expire on the tenth anniversary of the date on which it is approved by the board of directors and stockholders, unless extended or earlier terminated by the board of directors. The board of directors may terminate the equity incentive plan at any time. The expiration or other termination of the equity incentive plan will have no adverse impact on any award previously granted under the equity incentive plan. The board of directors may amend the equity incentive plan at any time, but no amendment will adversely affect any award previously granted, and no amendment to the equity incentive plan will be effective without the approval of the Company's stockholders if such approval is required by any law, regulation or rule applicable to the equity incentive plan.

In addition, no option, warrant or any other equity award will be issued under our equity incentive plan or otherwise to our advisor, our sponsor or any of their affiliates, if the issuance of any such award would result in a violation of any applicable NASAA REIT Guidelines, including the limitations imposed under the NASAA REIT Guidelines on our total operating expenses (after giving effect to the expense associated with such equity award).  Please see "Note E — Related Party Transactions and Arrangements – Fees and Expenses Paid in Connection with the Operations of the Company" for more information regarding the NASAA REIT Guidelines' limitations on operating expenses.

Note H – Recent Accounting Pronouncements

In May 2014, Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers, an updated standard on revenue recognition. The standard creates a five-step model for revenue recognition that requires companies to exercise judgment when considering contract terms and relevant facts and circumstances. The standard requires expanded disclosure surrounding revenue recognition. Early application is not permitted. The standard was initially to be effective for fiscal periods beginning after December 15, 2016 and allows for either full retrospective or modified retrospective adoption. In July 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, Deferral of Effective Date, which delays the effective date of ASU 2014-09 by one year to fiscal periods beginning after December 15, 2017. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations and the effective date is the same as requirements in ASU 2015-14. The Company is currently evaluating whether or not the adoption of ASU 2014-09 will have a material effect on our consolidated financial statements.
 
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value with changes in fair value recognized in net income. The ASU also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The requirement to disclose the method(s) and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet has been eliminated by this ASU. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact that ASU No. 2016-01 will have on the Company's consolidated financial statements

In February 2016, the FASB issued ASU 2016-02, Leases – (Topic 842). This update will require lessees to recognize all leases with terms greater than 12 months on their balance sheet as lease liabilities with a corresponding right-of-use asset. This update maintains the dual model for lease accounting, requiring leases to be classified as either operating or finance, with lease classification determined in a manner similar to existing lease guidance. The basic principle is that leases of all types convey the right to direct the use and obtain substantially all the economic benefits of an identified asset, meaning they create an asset and liability for lessees. Lessees will classify leases as either finance leases (comparable to current capital leases) or operating leases (comparable to current operating leases). Costs for a finance lease will be split between amortization and interest expense, with a single lease expense reported for operating leases. This update also will require both qualitative and quantitative disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; however, early adoption is permitted.  We have determined that the provisions of ASU 2016-02 may result in an increase in assets to recognize the present value of the lease obligations with a corresponding increase in liabilities for leases. The Company is currently evaluating whether or not the adoption of ASU 2014-09 will have a material effect on the Companys consolidated financial statements.
 
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments in this ASU replace the current incurred loss impairment methodology 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. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact that ASU No. 2016-13 will have on the Company's consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash. The new guidance requires that the reconciliation of the beginning-of-period and end-of-period amounts shown in the statements of cash flows include restricted cash and restricted cash equivalents. If restricted cash is presented separately from cash and cash equivalents on the balance sheet, companies will be required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet. Companies will also need to disclose information about the nature of the restrictions. This update will become effective for the Company for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted.  The Company will adopt ASU 2016-18 starting first quarter 2018.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. This update is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. This update will become effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those years.  The Company will adopt ASU 2016-18 starting first quarter 2018.
In May 2017, the FASB issued Accounting Standards Update ("ASU") 2017-09, Compensation-Stock Compensation: Scope of Stock Compensation Modification Accounting.  The ASU was issued to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The update is effective for annual periods beginning after December 15, 2017, and interim periods thereafter. Early adoption is permitted, including adoption in any interim period. The Company does not expect adoption of ASU 2017-09 to have a material effect on our consolidated financial statements.

Note I – Investment in Equity Method Investee

West 9th Street Properties

On May 11, 2016, the Company through a wholly owned entity it owns, along with MVP REIT II, closed the purchase of all of the membership interests of an entity that owns a surface parking lot, for approximately $5.7 million in cash. The Company's share of the purchase was approximately $2.8 million in cash plus closing costs and the Company owns a 49% interest in the entity.  The surface parking lot is located at 1200-1240 W. 9th Street and W. 10th Street, Cleveland, Ohio (the "Cleveland West 9th"). Cleveland West 9th consists of approximately 87,052 square feet with approximately 260 parking spaces.  The parking lot is leased by SP Plus Corporation, a national parking operator, under a net lease agreement where Cleveland West 9th will be responsible for property taxes above a $120,000 threshold, and SP Plus Corporation will pay insurance and maintenance costs. SP Plus Corporation will pay annual rent of $330,000. In addition, the lease provides revenue participation with MVP receiving 70% of gross receipts over $650,000. The term of the lease will be for 5 years.

Crown Colony

On May 17, 2016, the Company through a wholly owned entity it owns, along with MVP REIT II, closed on the purchase of all of the membership interests of an entity that owns a surface parking lot, for approximately $3.0 million in cash. The Company's share of the purchase was approximately $1.5 million and the Company owns a 49% interest in the entity.  The surface parking lot is located at 1239 W. 9th Street, Cleveland, Ohio (the "Crown Colony parking lot"). The Crown Colony parking lot consists of approximately 23,000 square feet with approximately 82 parking spaces.  The Crown Colony parking lot is leased by SP Plus Corporation, a national parking operator, under a net lease agreement where MVP will be responsible for property taxes above a $40,000 threshold, and SP Plus Corporation will pay insurance and maintenance costs. SP Plus Corporation will pay annual rent of $185,000. In addition, the lease provides revenue participation with MVP receiving 70% of gross receipts over $325,000. The term of the lease will be for 5 years.

Whitefront Garage

On September 30, 2016, the Company through a wholly owned entity it owns, along with MVP REIT II, closed on the purchase of all of the membership interests of an entity that owns parking garage, for approximately $11.5 million in cash.  The Company's share of the purchase was approximately $2.3 million and the Company owns a 20% interest in the entity.  The parking garage is located at 205 2nd Avenue North, Nashville, TN (the "White Front Garage"). The White Front Garage consists of approximately 11,000 square feet with approximately 155 parking spaces.  The White Front Garage is leased by Premier Parking of Tennessee, LLC ("Premier Parking"), a parking operator with over 300 locations in nine different states, under a NNN lease agreement.  Premier Parking will pay annual rent of $700,000. In addition, the lease provides revenue participation with MVP receiving 70% of gross receipts over $850,000. The term of the lease will be for 10 years.

Detroit

As previously disclosed in a Form 8-K filed by the Company on December 7, 2016 the Company and MVP REIT II, through MVP Detroit Center Garage, LLC, an entity owned by the Company and MVP REIT II (referred to herein as the "Purchaser"), entered into a purchase and sale agreement to purchase from Center Parking Associates Limited Partnership a multi-level parking garage consisting of approximately 1,275 parking space, located in Detroit, Michigan, for a purchase price of $55.0 million, plus acquisition and financing-related transaction costs.  The Company owns 20% equity interest in the Purchaser and MVP REIT II owns an 80% equity interest.

During May 2017, MVP Detroit Center Garage, LLC amended their lease with SP+ to set the percentage rent trigger amount and periods from 80% of $5,000,000 over the first 12 months to the following:
a.
80% over $833,333 from February 2017 to March 2017
b.
80% over $1,250,000 from April 2017 to June 2017
c.
80% over $2,916,667 from July 2017 to January 2018

As a result of this amendment, MVP Detroit Center Garage, LLC earned approximately $498,000 in percentage rent from February 2017 to June 2017.

Houston Preston

During April 2017, the company reduced their ownership interest in the MVP Houston Preston Lot from 80% to 40%, by selling a portion of their ownership to MVP REIT II for $1.12 million.  This transaction was completed at par value with no gain or loss be recorded by the Company.  MVP REIT II's ownership interest increased from 20% to 60% and will now be considered the controlling party.

Summarized Combined Balance Sheets—Unconsolidated Real Estate Affiliates—Equity Method Investments

   
June 30, 2017
   
December 31, 2016
 
   
(Unaudited)
       
ASSETS
 
Investments in real estate and fixed assets:
           
Land and improvements
 
$
14,672,000
   
$
11,821,000
 
Building and improvements
   
8,380,000
     
8,380,000
 
Construction in progress
   
39,000
     
--
 
     
23,091,000
     
20,201,000
 
Accumulated depreciation
   
(162,000
)
   
(45,000
)
Total investments in real estate and fixed assets, net
   
22,929,000
     
20,156,000
 
Cash
   
166,000
     
176,000
 
Cash – restricted
   
399,000
     
100,000
 
Accounts receivable
   
3,000
     
22,000
 
Prepaid expenses
   
--
     
24,000
 
Due from related party
   
81,000
     
--
 
Total assets
 
$
23,578,000
   
$
20,478,000
 
LIABILITIES AND EQUITY
 
Liabilities
               
Notes payable, net of unamortized loan issuance cost
 
$
12,984,000
   
$
5,206,000
 
Accounts payable and accrued liabilities
   
50,000
     
72,000
 
Deferred revenue
   
58,000
     
--
 
Security deposits
   
38,000
     
--
 
Total liabilities
   
13,130,000
     
5,278,000
 
Equity
               
Shareholders' Equity
               
Additional paid-in capital
   
6,176,000
     
10,929,000
 
Accumulated deficit
   
639,000
     
263,000
 
Total Shareholders' Equity
   
6,815,000
     
11,192,000
 
Non-controlling interest
   
3,633,000
     
4,008,000
 
Total equity
   
10,448,000
     
15,200,000
 
Total liabilities and equity
 
$
23,578,000
   
$
20,478,000
 


Summarized Combined Statements of Operations—Unconsolidated Real Estate Affiliates—Equity Method Investments
 
   
For the Three Months
Ended June 30
   
For the Six Months
Ended June 30
 
   
2017
   
2016
   
2017
   
2016
 
Rental revenue
 
$
418,000
   
$
69,000
   
$
722,000
   
$
69,000
 
Expenses
   
(217,000
)
   
(63,000
)
   
(346,000
)
   
(63,000
)
Net income (loss)
 
$
201,000
   
$
6,000
   
$
376,000
   
$
6,000
 

Note J — Line of Credit

On October 5, 2016, the Company and MVP REIT II, (the "REITs"), each through a wholly owned subsidiary, MVP Real Estate Holdings, LLC and MVP REIT II Operating Partnership, LP, (the "Borrowers"), entered into a credit agreement (the "Unsecured Credit Agreement") with KeyBank, National Association ('KeyBank") as the administrative agent and KeyBanc Capital Markets ("KeyBanc Capital Markets") as the lead arranger.  Pursuant to the Unsecured Credit Agreement, the Borrowers were provided with a $30 million unsecured credit facility (the "Unsecured Credit Facility"), which may be increased up to $100 million, in minimum increments of $10 million.  The Unsecured Credit Facility has an initial term of two years, maturing on October 5, 2018, and may be extended for a one-year period if certain conditions are met and upon payment of an extension fee.  The Unsecured Credit Facility has an interest rate calculated based on LIBOR Rate plus 2.25% or Base Rate plus 1.25%, both as provided in the Unsecured Credit Agreement.  The Base Rate is calculated as the greater of (i) the KeyBank Prime rate or (ii) the Federal Funds rate plus ½ of 1%.  Payments under the Unsecured Credit Facility are interest only and are due on the first day of each quarter.  The obligations of the Borrowers of the Unsecured Credit Agreement are joint and several.  The Borrowers have entered into cross-indemnification provisions with respect to their joint and several obligations under the Unsecured Credit Agreement. As of June 30,2017 the interest rate was 3.35%.

As of June 30, 2017, the Borrowers had four properties listed on the line of credit, which provided an available draw of approximately $13.76 million, and had drawn approximately $13.62 million, of which our portion of the current draw was approximately $2 million, based on our pro-rata ownership of the properties listed on the line of credit. Based on the four properties on the line of credit as of June 30, 2017, the REITs had an additional available draw of approximately $135,000. For the three and six months ended June 30, 2017, we had accrued approximately $27,000 and $86,000, respectively, in interest expense. For the three and six months ended June 30, 2017, we had accrued approximately $8,200 and $9,600, respectively, in unused line fees associated with our draw. Total loan amortization cost for the three and six months ended June 30, 2017 were $35,200 and $95,600, respectively.

On June 26, 2017, the Borrowers entered into a credit agreement (the "Working Capital Credit Agreement") with KeyBank, National Association ('KeyBank") as the administrative agent and KeyBanc Capital Markets ("KeyBanc Capital Markets") as the lead arranger.  Pursuant to the Working Capital Credit Agreement, the Borrowers were provided with a $6.0 million credit facility (the "Total Commitment"), which may be increased up to $10 million, in minimum increments of $1 million.  The Total Commitment has an initial term of six months, maturing on December 26, 2017.  The Working Capital Credit Agreement has an interest rate calculated based on LIBOR Rate plus 4.5% or Base Rate plus 3.5%, both as provided in the Working Capital Credit Agreement.  The Base Rate is calculated as the greater of (i) the KeyBank Prime rate or (ii) the Federal Funds rate plus ½ of 1%.  Payments under the Working Capital Credit Facility require 100% of the net proceeds of all capital events and equity issuances by the REIT's within 5 business days of receipt.  The obligations of the Borrowers of the Unsecured Credit Agreement are joint and several.  The REITs have entered into cross-indemnification provisions with respect to their joint and several obligations under the Unsecured Credit Agreement.  As of June 20, 2017, the balance on the Working Capital Credit Facility was $6.0 million, which MVP REIT II drew on June 29, 2017. The borrowers anticipate using net proceeds from the private placements of shares of MVP REIT II's Series 1 Convertible Redeemable Preferred Stock to pay down the $6.0 million, which is due by September 15, 2017.  As of June 30,2017 the interest rate was 5.72%.

Note K — Fair Value

A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability in an orderly transaction. The hierarchy for inputs used in measuring fair value are as follows:

1.
Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
2.
Level 2 – Inputs include quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations whose inputs are observable.
3.
Level 3 – Model-derived valuations with unobservable inputs.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level within which the fair value measurement is based on the lowest level input that is significant to the fair value measurement.

The Company's financial instruments include cash and cash equivalents, restricted cash, accounts payable and accrued expenses. Due to their short maturities, the carrying amounts of these assets and liabilities approximate fair value.
 
Assets and liabilities measured at fair value level 3 on a non-recurring basis may include Assets Held for Sale.
 
Note L — Notes Payable

Notes are collateralized by real property which holds the promissory note.

As of June 30, 2017, the principal balances on notes payable are as follows:
 
Property
Original Debt Amount
Monthly Payment (approx.)
Loan Balance as of June 30, 2017
Lender
Term
Interest Rate
Loan Maturity
D&O Financing
 $200,000
$21,000
$21,000
 
1 Year
2.99%
8/3/2017
Ft. Lauderdale loan pool (1)
$4,300,000
$25,000
3,985,000
KeyBank
5 Year
4.94%
2/1/2019
Mabley Place
$9,000,000
$44,000
8,609,000
Barclays
10 year
4.25%
12/26/2024
Denver Sherman  (2)
$3,190,000
Interest Only
3,190,000
KeyBank
10 year *
4.90%
6/30/2027
Ft. Worth
$13,150,000
$78,000
12,982,000
American National Insurance, of NY
10 year
4.50%
11/17/2026
Houston Saks Garage
$3,650,000
$20,000
3,490,000
Wells Fargo Bank
10 year
4.25%
8/1/2025
St. Louis Lucas (3)
$3,490,000
$20,000
3,384,000
Key Bank
10 year
4.59%
2/1/2026
Indianapolis Garage (4)
$8,200,000
$46,000
7,949,000
Key Bank
10 year
4.59%
2/1/2026
Indianapolis Meridian  (5)
$940,000
Interest Only
938,000
Cantor Commercial Real Estate Lending
10 year **
5.03%
6/30/2027
Minneapolis City Parking
$5,250,000
$29,000
5,114,000
American National Insurance, of NY
10 year
4.50%
4/30/2026
Bridgeport Fairfield
$4,400,000
$23,000
4,304,000
FBL Financial Group, Inc.
10 year
4.00%
8/1/2026
Less unamortized loan issuance costs
   
(1,125,000)
       
     
$52,841,000
       


(1)
Secured by four properties facilities (MVP PF Ft. Lauderdale 2013, LLC, MVP PF Memphis Court 2013, LLC, MVP PF    Memphis Poplar 2013, LLC and MVP PF St. Louis 2013, LLC)
(2)
The Company and MVP REIT II issued a promissory note to KeyBank for $12.7 million secured by a pool of properties, including:
a.
Consolidated entities: MVP Denver Sherman, LLC, MVP Denver Sherman 1935, LLC and MVP Milwaukee Arena, LLC
b.
Nonconsolidated entities: MVP St. Louis Washington, LLC, MVP Louisville Station Broadway, LLC, and Cleveland Lincoln Garage Owners, LLC.
(3)
Secured by three properties (MVP St. Louis Convention, MVP St. Louis Lucas and MVP KC Cherry)
(4)
Secured by two properties (MVP Indy City Park and MVP Indy WA Street)
(5)
The Company and MVP REIT II issued a promissory note to Cantor Commercial Real Estate Lending, L.P. ("CCRE") for $16.25 million secured by a pool of properties, including:
a.
Consolidated entity:  MVP Indianapolis Meridian Lot, LLC
b.
Nonconsolidated entities:  MVP Louisville Station Broadway, LLC, White Front Garage Partners, LLC, MVP Houston Preston Lot, LLC, MVP Houston San Jacinto Lot, LLC, St. Louis Broadway Group, LLC, and St. Louis Seventh & Cerre, LLC
  * 2 year Interest Only
** 10 Year Interest Only

Total interest expense incurred for the three months ended June 30, 2017 and 2016 was approximately $0.6 million and $0.6 million, respectively.  Total loan amortization cost for the three months ended June 30, 2017 and 2016 was approximately $0.1 million and $56,000, respectively.  Total interest expense incurred for the six months ended June 30, 2017 and 2016 was $1.2 million and $1.0 million, respectively.  Total loan amortization cost for the six months ended June 30, 2017 and 2016 were $0.1 million and $74,000, respectively.

As of June 30, 2017, future principal payments on the notes payable are as follows:

2017
 
$
521,000
 
2018
   
1,190,000
 
2019
   
4,993,000
 
2020
   
1,246,000
 
2021
   
1,304,000
 
Thereafter
   
44,712,000
 
Total
 
$
53,966,000
 

Principal payments table amount does not reflect the unamortized loan issuance cost of $1,125,000 as of June 30, 2017.

Except as described below, the carrying value of the Company's financial instruments approximates fair value due to the short-term nature of these financial instruments.

Debt

The Company estimates the fair value of its debt by discounting the future cash flows of each instrument at estimated market rates consistent with the maturity of a debt obligation with similar credit terms and credit characteristics, which are Level 3 inputs under the fair value hierarchy.  Market rates take into consideration general market conditions and maturity.  As of June 30, 2017 and December 31, 2016, the carrying value and estimated fair value of the Company's debt were approximately $46.9 million and $76.1 million, respectively.  Both the carrying value and estimated fair value of the Company's debt (as discussed above) is net of unamortized debt issuance costs related to term loans and mortgage debt for each specific year.

Note M — Assets held for sale
As of December 31, 2016, the Company had an 87.09% ownership interest in one property that was listed as held for sale, with a carrying value of approximately $6.1 million.  This property was acquired on January 6, 2016, along with MVP REIT II, with the purchase of two parking lots located in Minneapolis, Minnesota.  This property is accounted for at the fair value based on an appraisal.  During June 2016, Minneapolis Venture entered into a PSA to sell the 10th Street lot "as is" to a third party for approximately $6.1 million.  During October 2016, the PSA was cancelled.  During February 2017, the Company entered into a letter of intent to sell a portion of the property (approximately 2.2 acres) to an unrelated third party for $3.0 million.  The remaining portion of the property will continued to be reported as held for sale.  The Company will continue look for an Operator if the entire property is not sold.

The following is a summary of the results of operations related to the assets held for sale for the three and six months ended June 30, 2017:

   
For The Three Months Ended June 30, 2017
   
For The Six Months Ended June 30, 2017
   
For The Three Months Ended June 30, 2016
   
For The Six Months Ended June 30, 2016
 
Revenue
 
$
--
   
$
--
   
$
10,000-
   
$
10,000
 
Expenses
   
(75,000
)
   
(148,000
)
   
(69,000
)
   
(129,000
)
Loss from assets held for sale, net of income taxes
 
$
(75,000
)
 
$
(148,000
)
 
$
(59,000
)
 
$
(119,000
)

Note N – Merger

On May 26, 2017, the Company, MVP REIT II, MVP Merger Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of MVP REIT II ("Merger Sub"), and the Advisor, entered into an agreement and plan of merger (the "Merger Agreement"). Subject to the terms and conditions of the Merger Agreement, the Company will merge with and into Merger Sub (the "Merger"), with Merger Sub surviving the Merger (the "Surviving Entity"), such that following the Merger, the Surviving Entity will continue as a wholly owned subsidiary of MVP REIT II. The Merger is intended to qualify as a "reorganization" under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each outstanding share of the Company's common stock, $0.001 par value per share (the "Company Common Stock"), will be automatically cancelled and retired, and converted into the right to receive 0.365 shares of common stock, $0.0001 par value per share, of MVP REIT II ("MVP REIT II Common Stock") (such ratio, as it may be adjusted pursuant to the Merger Agreement, the "Exchange Ratio"). Holders of shares of Company Common Stock will receive cash in lieu of fractional shares.

At the effective time of the Merger each share of Company Common Stock, if any, then held by any wholly owned subsidiary of the Company or by MVP REIT II or any of its wholly owned subsidiaries will no longer be outstanding and will automatically be retired and will cease to exist, and no consideration will be paid, nor will any other payment or right inure or be made with respect to such shares of Company Common Stock in connection with or as a consequence of the Merger.  In addition, each share of the Company's Non-Participating, Non-Voting Convertible Stock, $0.001 par value per share ("Company Convertible Stock"), all 1,000 of which are held by the Advisor, will automatically be retired and will cease to exist, and no consideration will be paid, nor will any other payment or right inure or be made with respect to such shares of Company Convertible Stock in connection with or as a consequence of the Merger.

The Merger Agreement contains customary covenants, including covenants prohibiting the Company and its subsidiaries and representatives from soliciting, providing information or entering into discussions concerning proposals relating to alternative business combination transactions, subject to certain limited exceptions. However, under the terms of the Merger Agreement, during the period beginning on the date of the Merger Agreement and continuing until 11:59 p.m. New York City time on July 10, 2017 (the "Go Shop Period End Time"), the Company (through the Company special committee and its representatives).  From May 30, 2017, through July 10, 2017, in connection with the ''go shop'' process provided for under the Merger Agreement, Robert A. Stanger & Co., Inc., ("Stanger") contacted approximately 78 parties, which the Company Special Committee and Stanger believed had the financial ability and potential strategic interest in reviewing the opportunity, to solicit their interest in a possible alternative transaction with the Company. Stanger and Venable negotiated with 12 parties with regard to signing a confidentiality agreement of which 8 confidentiality agreements were executed. No bids were received prior to the July 10, 2017 Go Shop Period End Time.

Pursuant to the Merger Agreement, the board of directors of MVP REIT II (the "MVP II Board") will, effective as of the effective time of the Merger, increase the number of directors comprising the MVP II Board to eight and Nicholas Nilsen, Robert J. Aalberts and Shawn Nelson will be elected to the MVP II Board.

The obligation of each party to consummate the Merger is subject to a number of conditions, including receipt of the Stockholder Approvals, receipt of regulatory approvals, delivery of certain documents and consents, the truth and correctness of the representations and warranties of the parties, subject to the materiality standards contained in the Merger Agreement, the effectiveness of the registration statement on Form S-4 filed by MVP REIT II to register the shares of MVP REIT II Common Stock to be issued as consideration in the Merger and the absence of a material adverse effect with respect to either the Company or MVP REIT II.

In connection with the Merger, the Company intends to seek the approval of its stockholders of an amendment to the Company's charter to remove certain provisions regarding roll-up transactions (such amendment, the "Charter Amendment"). Pursuant to the Merger Agreement, approval by the Company's stockholders of the Charter Amendment is a condition to completing the Merger.

Amended and Restated Advisory Agreement

Concurrently with the entry into the Merger Agreement, the Company, MVP REIT II Operating Partnership, LP and the Advisor entered into the Second Amended and Restated Advisory Agreement (the "Second Amended and Restated Advisory Agreement"), which will become effective at the effective time of the Merger.  The Second Amended and Restated Advisory Agreement will amend the Company's existing advisory agreement, dated October 5, 2015 (the "Original Agreement"), to provide for, among other amendments, (i) elimination of acquisition fees, disposition fees and subordinated performance fees and (ii) the payment of an asset management fee by the Company to the Advisor calculated and paid monthly in an amount equal to one-twelfth of 1.1% of the (a) cost of each asset then held by the Company, without deduction for depreciation, bad debts or other non-cash reserves, or (b) the Company's proportionate share thereof in the case of an investment made through a joint venture or other co-ownership arrangement excluding (only for clause (b)) debt financing on the investment.  Pursuant to the Second Amended and Restated Advisory Agreement, the asset management fee may not exceed $2,000,000 per annum (the "Asset Management Fee Cap") until the earlier of such time, if ever, that (i) the Company holds assets with an Appraised Value (as defined Second Amended and Restated Advisory Agreement) equal to or in excess of $500,000,000 or (ii) the Company reports AFFO (as defined in the Second Amended and Restated Advisory Agreement) equal to or greater than $0.3125 per share of Company Common Stock (an amount intended to reflect a 5% or greater annualized return on $25.00 per share of the Company Common Stock) (the "Per Share Amount") for two consecutive quarters, on a fully diluted basis.  All amounts of the asset management fee in excess of the Asset Management Fee Cap, plus interest thereon at a rate of 3.5% per annum, will be due and payable by the Company no later than ninety (90) days after the earlier of the date that (i) the Company holds assets with an Appraised Value equal to or in excess of $500,000,000 or (ii) the Company reports AFFO per share of Company Common Stock equal to or greater than the Per Share Amount for two consecutive quarters, on a fully diluted basis.
In the event that the Merger Agreement is terminated prior to the consummation of the Merger, the Second Amended and Restated Advisory Agreement will automatically terminate and be of no further effect and the Company, MVP REIT II Operating Partnership, LP and the Advisor will have the rights and obligations set forth in the Original Agreement.

Termination Agreement
 
Concurrently with the entry into the Merger Agreement, the Company, MVP REIT, the Advisor and MVP REIT II Operating Partnership, LP entered into a termination and fee agreement (the "Termination Agreement"). Pursuant to the Termination Agreement, at the effective time of the Merger, the Advisory Agreement, dated September 25, 2012, as amended, among MVP REIT and the Advisor will be terminated and the Company will pay the Advisor an Advisor Acquisition Payment (as such term is defined in the Termination Agreement) of approximately $3.6 million, subject to adjustment in the event that additional properties are acquired by MVP REIT prior to closing, which shall be the only fee payable to the Advisor in connection with the Merger. In the event that the Merger Agreement is terminated prior to the consummation of the Merger, the Termination Agreement will automatically terminate and be of no further effect and no Advisor Acquisition Payment will be owed and payable.

The foregoing description of the Merger Agreement, the Amended and Restated Advisory Agreement and the Termination Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to the full text of the applicable agreements, each of which is filed with as a Form 8-K exhibit with the SEC on May 31, 2017.

Note O — Subsequent Events

The following subsequent events have been evaluated through the date of this filing with the SEC.

As noted in MVP REIT II's filing of their final S-4/A on August 9, 2017 and went effective on August 11, 2017, the shareholders of the Company will hold a Special Meeting on September 27, 2017, in Las Vegas, NV, to vote on whether to approve the merger with MVP REIT II and other Charter Amendments in connection with the possible merger.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a financial review and analysis of our financial condition and results of operations for the three and six months ended June 30, 2017.  This discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto and Management's Discussion and Analysis of Financial Conditions and Results of Operations in our annual report on Form 10-K for the year ended December 31, 2016. As used herein, the terms "we," "our" and "us" refer to MVP REIT, Inc., and, as required by context, MVP Real Estate Holdings, LLC, which we refer to as our "operating limited liability company," and to their subsidiaries.

Forward-Looking Statements

Certain statements included in this quarterly report on Form 10-Q (this "Quarterly Report") that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward-looking statements. Forward-looking statements are typically identified by the use of terms such as "may," "should," "expect," "could," "intend," "plan," "anticipate," "estimate," "believe," "continue," "predict," "potential" or the negative of such terms and other comparable terminology.

The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs, which involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:

·
the fact that we have a limited operating history, as the majority of our properties were purchased within the last two years;
·
the fact that we have had a net loss for each annual period since inception;
·
the performance of properties the Company has acquired or may acquire or loans that the Company may make that are secured by real property or;
·
changes in economic conditions generally and the real estate and debt markets specifically;
·
legislative or regulatory changes (including changes to the laws governing the taxation of real estate investment trusts, or REITs);
·
potential damage and costs arising from natural disasters, terrorism and other extraordinary events, including extraordinary events affecting parking facilities included in our portfolio;
·
risks inherent in the real estate business, including ability to secure leases at favorable terms, tenant defaults, potential liability relating to environmental matters and the lack of liquidity of real estate investments;
·
competitive factors that may limit our ability to make investments or attract and retain tenants;
·
our ability to generate sufficient cash flows to pay distributions to our stockholders;
·
our failure to maintain our status as a REIT;
·
the risk that the Merger or the other transactions contemplated by the Merger Agreement may not be completed in the time frame expected by the parties or at all;
·
the ability of the Company and MVP REIT II to successfully integrate pending transactions and implement their operating strategies, including the Merger;
·
the ability of MVP REIT II to obtain the required stockholder approval to amend its charter and complete such other actions as may be necessary or desirable to list its shares of common stock on a national securities exchange after the closing of the Merger;
·
the availability of capital and debt financing generally, and any failure to obtain debt financing at favorable terms or a failure to satisfy the conditions and requirements of that debt;
·
interest rates; and
·
changes to generally accepted accounting principles, or GAAP.
Any of the assumptions underlying the forward-looking statements included herein could be inaccurate, and undue reliance should not be placed upon on any forward-looking statements included herein. All forward-looking statements are made as of the date of this Quarterly Report, and the risk that actual results will differ materially from the expectations expressed herein will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward – looking statements made after the date of this Quarterly Report, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward looking statements included in this Quarterly Report, including, without limitation, the risks described under "Risk Factors," the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Quarterly Report will be achieved.

Overview

MVP REIT, Inc. (the "Company," "we," "us," or "our") was incorporated on April 3, 2012 as a Maryland corporation, and has elected to be taxed as a real estate investment trust ("REIT") for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2013. Pursuant to its initial public offering, which closed in September 2015, the Company received net consideration of approximately $97.3 million for the issuance of its common stock. Of this amount, approximately $19.5 million of common shares were issued in consideration of the contribution of commercial properties to the Company. The Company has also registered up to $50 million for the issuance of common stock pursuant to a distribution reinvestment plan (the "DRIP") under which common stockholders may elect to have their distributions reinvested in additional shares of common stock.

The Company's investment strategy was to invest available net proceeds from its offering in direct investments in real property and real estate secured loans that meet the Company's investment objectives and strategies. In March 2014, the Company's board of directors approved a plan to increase the focus of the Company's investment strategy on parking and self- storage facilities located throughout the United States as the Company's core assets. In June 2014, the Company's board decided to further focus the Company's investments primarily on parking facilities.

During the three and six months ended June 30, 2017, the Company acquired an ownership interest in the following investments in equity method investees:
 
Property Name
MVP REIT  %
MVP REIT II %
 Total Purchase Price
Purchase Date
Property Type
Investment in equity method investee
MVP Detroit Center Garage
20%
80%
$55,000,000
1/10/2017
Garage
MVP Houston Preston Lot, LLC
40%
60%
$2,800,000
5/1/2017
Lot

Property information continued:
 
Property Name
# Spaces
Property Size (Acres)
Parking Lease is with
 Tenant Portion of Property Tax
Term in Years
 Annual Base Rent
 Revenue Sharing Starting Point $
Investment in equity method investee
MVP Detroit Center Garage
1275
8.78
SP +
$572,000
5
$3,427,500
80% > $5,000,000
MVP Houston Preston Lot, LLC
46
0.23
iPark Services
N/A
10
$228,000
65%>$300,000



As of June 30, 2017 the Company had initial investments in the following facilities:
 
Parking Felicity
Date Acquired
Type
Zoning
Height Restriction
MVP REIT I % Owned
MVP REIT II % Owned
3rd Party % Owned
Property Purchase Price
MVP PF Ft. Lauderdale 2013
7/31/2013
Lot
RAC-CC
150 Feet
100%
0%
0%
 $ 3,400,000
MVP PF Memphis Court 2013
8/28/2013
Lot
CBD
Unlimited
100%
0%
0%
 $ 190,000
MVP PF Memphis Poplar 2013
8/28/2013
Lot
CBD
Unlimited
100%
0%
0%
 $ 2,685,000
MVP PF Kansas City 2013
8/28/2013
Lot
B4-5
Unlimited
100%
0%
0%
 $ 1,550,000
MVP PF St. Louis 2013
9/4/2013
Lot
I (CBD)
200 Feet
100%
0%
0%
 $ 4,125,000
Mabley Place Garage
12/9/2014
Garage
DD-A
510 Feet
83%
0%
17%
 $ 14,580,000
MVP Denver Sherman
1/26/2015
Lot
CMX-16
200 Feet
100%
0%
0%
 $ 585,000
MVP Fort Worth Taylor
3/16/2015
Garage
CBD-H
Unlimited
100%
0%
0%
 $ 23,336,000
MVP Milwaukee Old World
3/31/2015
Lot
C9-E
40 Feet
100%
0%
0%
 $ 1,000,000
MVP St. Louis Convention Plaza
5/13/2015
Lot
I (CBD)
200 Feet
100%
0%
0%
 $ 2,575,000
MVP Houston Saks Garage
5/28/2015
Garage
N/A
Unlimited
100%
0%
0%
 $ 8,375,000
MVP St. Louis Lucas
6/29/2015
Lot
I (CBD)
200 Feet
100%
0%
0%
 $ 3,463,000
MVP Milwaukee Wells
6/30/2015
Lot
C9-E
40 Feet
100%
0%
0%
 $ 3,900,000
MVP Wildwood NJ Lot
7/10/2015
Lot
T/E
35 Feet
100%
0%
0%
 $ 970,000
MVP Wildwood NJ Lot #2
12/16/2015
Lot
T/E
35 Feet
100%
0%
0%
 $ 615,000
MVP Indianapolis City Park
10/5/2015
Garage
CBD-1 RC
Unlimited
100%
0%
0%
 $ 10,500,000
MVP KC Cherry Lot
10/9/2015
Lot
UR
Per Plan
100%
0%
0%
 $ 515,000
MVP Indianapolis WA Street Lot
10/29/2015
Lot
CBD-2
Unlimited
100%
0%
0%
 $ 4,995,000
MVP Minneapolis Venture
1/6/2016
Lot
B4C-1
Unlimited
87%
13%
0%
 $ 6,100,000
MVP Indianapolis Meridian Lot
1/15/2016
Lot
CBD-2/RC
Unlimited
100%
0%
0%
 $ 1,550,000
MVP Milwaukee Clybourn
1/20/2016
Lot
C9F(A)
30 Feet
100%
0%
0%
 $ 205,000
MVP Milwaukee Arena
2/1/2016
Lot
RED
Unlimited
100%
0%
0%
 $ 3,900,000
MVP Clarksburg Lot
2/9/2016
Lot
BPO
60 Feet
100%
0%
0%
 $ 620,000
MVP Denver Sherman 1935
2/12/2016
Lot
CMX-16
200 Feet
76%
24%
0%
 $ 2,437,500
MVP Bridgeport Fairfield Garage
3/30/2016
Garage
DVD-CORE
65 Feet
90%
10%
0%
 $ 7,800,000
Minneapolis City Parking
1/6/2016
Lot
B4C-1
Unlimited
87%
13%
0%
 $ 9,395,000
MVP Cleveland West 9th
5/11/2016
Lot
CBD-LLRB4
175 Feet
49%
51%
0%
 $ 5,675,000
33740 Crown Colony
5/17/2016
Lot
LLR-D5
250 Feet
49%
51%
0%
 $ 3,030,000
White Front Garage Partners
9/30/2016
Garage
CBD I
Unlimited
20%
80%
0%
 $ 11,496,000
MVP Houston Preston Lot
11/22/2016
Lot
NONE
Unlimited
40%
60%
0%
 $ 2,800,000
MVP Detroit Center Garage
1/10/2017
Garage
PD
Unlimited
20%
80%
0%
 $ 55,000,000

The Company may, from time to time, invest in non-core assets, including investments in companies that manage real estate or mortgage investment companies; however, the Company anticipates that its core investments going forward will be predominantly in parking facilities. In addition, the Company has agreed that no more than 25% of the gross proceeds from its initial public offering will be used to invest in real properties other than parking facilities.
The Company operates as a REIT. The Company is not a mutual fund or an investment company within the meaning of the Investment Company Act of 1940, nor is the Company subject to any regulation thereunder. As a REIT, the Company is required to have a December 31 fiscal year end. As a REIT, the Company will not be subject to federal income tax on income that is distributed to stockholders.  Among other requirements, REITs are required to satisfy certain gross income and asset tests, which may affect the composition of assets the Company acquires with the proceeds of the offering. In addition, REITs are required to distribute to stockholders at least 90% of their annual REIT taxable income (computed without regard to the dividends paid deduction and excluding net capital gain).
The Company's board of directors will at all times have ultimate oversight and policy-making authority over the Company, including responsibility for governance, financial controls, compliance and disclosure. Pursuant to our advisory agreement, however, our board has delegated to MVP Realty Advisors, LLC, our advisor, authority to manage our day-to-day business, in accordance with our investment objectives, strategy, guidelines, policies and limitations. Vestin Realty Mortgage II, Inc., ("VRM II") owns 60% of the Advisor, and the remaining 40% is owned by Vestin Realty Mortgage I, Inc. ("VRM I"); both are managed by Vestin Mortgage, LLC. The Company's sponsor is MVP Capital Partners, LLC ("MVPCP" or the "Sponsor"), an entity owned and managed by Michael V. Shustek, the Company's Chairman and Chief Executive Officer. Michael Shustek owns 100% of Vestin Mortgage, LLC, a Nevada limited liability company, which is the manager of VRM I, and VRM II.

VRM I, an OTC Pink Sheet-listed company, and VRM II, an OTC Pink Sheet -listed company, are engaged primarily in the business of investing in commercial real estate and loans secured by commercial real estate. As the owners of the Advisor, VRM I and VRM II may benefit from any fees and other compensation that the Company pays to the Advisor under the Advisor Agreement. In this regard, the Company notes that the Advisor has agreed to waive certain fees and expenses it otherwise would be entitled under the Advisory Agreement.  Please refer to Note E – Related Party Transactions and Arrangements – Fees and Expenses Paid in Connection With the Operations of the Company in Part I, Item 1 Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q. As of June 30, 2017, the aggregate amount of fees and expense reimbursements waived by the Advisor was approximately $6.9 million.  If the owners of the Advisor determine that such waivers are no longer in the best interests of their stockholders or otherwise refuse to grant future waivers of fees or expenses if requested by the Company, then the Company's operating expenses could increase significantly, which could adversely affect the Company's results of operations and the amount of distributions to stockholders.

In addition, the Company may compete against MVP REIT II, VRM I and VRM II, all of whom are managed by affiliates of our sponsor, for the acquisition of investments. The Company believes this potential conflict with respect to VRM I and VRM II, is mitigated, in part, by the Company's focus on parking facilities as its core investments, while the investment strategy of VRM I and VRM II focuses on acquiring office buildings and other commercial real estate and loans secured by commercial real estate. MVP REIT II has substantially the same investment strategy as the Company, in that MVP REIT II is also focused primarily on investments in parking facilities. For additional discussion regarding potential conflicts of interests, please see "Risk Factors—Risks Related to Conflicts of Interest" and "Item 13 – Certain Relationships and Related Transactions, and Director Independence" in our Annual Report on Form 10-K for the year ended December 31, 2016.

In June 2016, the Company and MVP REIT II jointly announced the engagement of Ladenburg Thalmann & Co., Inc. to assist in evaluating various courses of action intended to enhance stockholder liquidity and value. In connection with the engagement, the Company decided to defer taking further action to list the Company's common shares on the NASDAQ Global Market. The Company's board had authorized taking such action in March 2016. In October 2016 the Board of Directors appointed a special committee to evaluate liquidity options. After consideration, in January 2017 the special committee of the Company's board of directors decided to explore a merger with MVP REIT II.

As previously announced, on April 28, 2017, the special committee of the Company's board of directors accepted a non-binding Letter of Intent from the special committee of the MVP REIT II's board of directors, setting forth the terms and conditions upon which MVP REIT II proposed to acquire the Company and its subsidiaries.

On May 26, 2017, the Company, MVP REIT II, MVP Merger Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of MVP REIT II ("Merger Sub"), and the Advisor, entered into an agreement and plan of merger (the "Merger Agreement"). Subject to the terms and conditions of the Merger Agreement, the Company will merge with and into Merger Sub (the "Merger"), with Merger Sub surviving the Merger (the "Surviving Entity"), such that following the Merger, the Surviving Entity will continue as a wholly owned subsidiary of MVP REIT II.

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each outstanding share of the Company's common stock, $0.001 par value per share (the "Company Common Stock"), will be automatically cancelled and retired, and converted into the right to receive 0.365 shares of common stock, $0.0001 par value per share, of MVP REIT II ("MVP REIT II Common Stock") (such ratio, as it may be adjusted pursuant to the Merger Agreement, the "Exchange Ratio"). Holders of shares of Company Common Stock will receive cash in lieu of fractional shares.

In addition, at the effective time of the Merger, each share of the Company's Non-Participating, Non-Voting Convertible Stock, $0.001 par value per share ("Company Convertible Stock"), all 1,000 of which are held by the Advisor, will automatically be retired and will cease to exist, and no consideration will be paid, nor will any other payment or right inure or be made with respect to such shares of Company Convertible Stock in connection with or as a consequence of the Merger.

Pursuant to the Merger Agreement, the board of directors of MVP REIT II (the "MVP II Board") will, effective as of the effective time of the Merger, increase the number of directors comprising the MVP II Board to eight and Nicholas Nilsen, Robert J. Aalberts and Shawn Nelson will be elected to the MVP II Board.

In connection with the Merger, the Company intends to seek the approval of its stockholders of an amendment to the Company's charter to remove certain provisions regarding roll-up transactions (such amendment, the "Charter Amendment"). Pursuant to the Merger Agreement, approval by the Company's stockholders of the Charter Amendment is a condition to completing the Merger.

Amended and Restated Advisory Agreement

Concurrently with the entry into the Merger Agreement, the Company, MVP REIT II Operating Partnership, LP and the Advisor entered into the Second Amended and Restated Advisory Agreement (the "Second Amended and Restated Advisory Agreement"), which will become effective at the effective time of the Merger.  The Second Amended and Restated Advisory Agreement will amend the Company's existing advisory agreement, dated October 5, 2015 (the "Original Agreement"), to provide for, among other amendments, (i) elimination of acquisition fees, disposition fees and subordinated performance fees and (ii) the payment of an asset management fee by the Company to the Advisor calculated and paid monthly in an amount equal to one-twelfth of 1.1% of the (a) cost of each asset then held by the Company, without deduction for depreciation, bad debts or other non-cash reserves, or (b) the Company's proportionate share thereof in the case of an investment made through a joint venture or other co-ownership arrangement excluding (only for clause (b)) debt financing on the investment.  Pursuant to the Second Amended and Restated Advisory Agreement, the asset management fee may not exceed $2,000,000 per annum (the "Asset Management Fee Cap") until the earlier of such time, if ever, that (i) the Company holds assets with an Appraised Value (as defined Second Amended and Restated Advisory Agreement) equal to or in excess of $500,000,000 or (ii) the Company reports AFFO (as defined in the Second Amended and Restated Advisory Agreement) equal to or greater than $0.3125 per share of Company Common Stock (an amount intended to reflect a 5% or greater annualized return on $25.00 per share of the Company Common Stock) (the "Per Share Amount") for two consecutive quarters, on a fully diluted basis.  All amounts of the asset management fee in excess of the Asset Management Fee Cap, plus interest thereon at a rate of 3.5% per annum, will be due and payable by the Company no later than ninety (90) days after the earlier of the date that (i) the Company holds assets with an Appraised Value equal to or in excess of $500,000,000 or (ii) the Company reports AFFO per share of Company Common Stock equal to or greater than the Per Share Amount for two consecutive quarters, on a fully diluted basis.


Termination Agreement
 
Concurrently with the entry into the Merger Agreement, the Company, MVP REIT, the Advisor and MVP REIT II Operating Partnership, LP entered into a termination and fee agreement (the "Termination Agreement"). Pursuant to the Termination Agreement, at the effective time of the Merger, the Advisory Agreement, dated September 25, 2012, as amended, among MVP REIT and the Advisor will be terminated and the Company will pay the Advisor an Advisor Acquisition Payment (as such term is defined in the Termination Agreement) of approximately $3.6 million, subject to adjustment in the event that additional properties are acquired by MVP REIT prior to closing, which shall be the only fee payable to the Advisor in connection with the Merger. In the event that the Merger Agreement is terminated prior to the consummation of the Merger, the Termination Agreement will automatically terminate and be of no further effect and no Advisor Acquisition Payment will be owed and payable.

Please see Note N- Merger for additional information regarding the Merger, the Merger Agreement, the Second Amended and Restated Advisory Agreement and the Termination Agreement.

The Company also announced, in connection with the proposed merger, that the monthly distribution for record holders as of May 24, 2017 was paid on June 10, 2017 will consist of a $0.0225 cash distribution per share (3% per annum based upon the initial $9.00 offering price), a stock dividend equal to .002414 shares of stock for each share owned (3% per annum based upon the initial $9.00 offering price), and a special one-time distribution of $0.0105 in additional cash distributions per share (0.7% per annum for the remaining two months left in the quarter based upon the initial $9.00 offering price).  Thereafter, the Company anticipates paying monthly cash distributions of $0.0225 per share and stock dividends of .0024 shares for each share of stock owned.

Results of Operations

MVP has purchased the majority of the properties since January 1, 2015, and the results of operations below reflect start-up costs as well as acquisition expenses incurred in connection with purchasing properties as the Company deployed our initial public offering proceeds. We expect that income and expenses related to our portfolio will increase in future years as a result of owning the properties acquired for a full year and as a result of anticipated future acquisitions of real estate and real estate-related assets.  The results of operations described below may not be indicative of future results of operations.


Comparison of operating results for the three months ended June 30, 2017 and 2016:

Rental revenues (by property)
 
2017
   
2016
 
Ft. Lauderdale
 
$
42,000
 
 
$
42,000
 
Memphis Court
   
4,000
     
4,000
 
Memphis Poplar
   
68,000
     
68,000
 
Kansas City
   
29,000
     
29,000
 
St. Louis
   
62,000
     
63,000
 
Mabley Place
   
375,000
     
350,000
 
Denver Sherman
   
9,000
     
9,000
 
Fort Worth
   
384,000
     
374,000
 
Milwaukee Old World
   
40,000
     
40,000
 
St. Louis Convention
(a)
 
59,000
 
(b)
 
62,000
 
Houston Saks Garage
   
162,000
     
156,000
 
St. Louis Lucas
(a)
 
107,000
     
55,000
 
Milwaukee Wells
   
70,000
     
70,000
 
MVP Wildwood NJ
   
19,000
     
5,000
 
Indy Garage
   
188,000
     
187,000
 
KC Cherry Lot
   
17,000
     
18,000
 
Indy WA Street
   
94,000
     
94,000
 
Minneapolis Venture
   
--
     
10,000
 
Indianapolis Meridian
   
24,000
     
24,000
 
Milwaukee Clybourn
   
5,000
     
5,000
 
Milwaukee Arena
   
54,000
     
57,000
 
MVP Clarksburg Lot
   
14,000
     
14,000
 
Denver 1935 Sherman
   
30,000
     
30,000
 
Bridgeport Fairfield
   
112,000
     
110,000
 
Minneapolis City Parking
   
200,000
     
190,000
 
MVP Houston Preston Lot
   
19,000
     
--
 
Total revenues
 
$
2,187,000
 
 
$
2,066,000
 

(a) Includes percentage rent from properties where gross revenue was above the set threshold in 2017 as follows:
St Louis Convention - $13,000
St Louis Lucas - $52,000

(b)  Includes percentage rent from properties where gross revenue was above the set threshold in 2016 as follows:
St Louis Convention - $16,000

Total rental revenue earned from our 27 consolidated properties which have continued operations increased $121,000 or 5.9% from the three months ended June 30, 2016 to the three months ended June 30, 2017.  The majority of the 5.9% increase is related to percentage rent being accrued in 2017 for the St. Louis Lucas lot, additional retail space being leased out in 2017 at Mabley Place garage and the addition of the Houston Preston lot rental income for April 2017.

Since a majority of our property leases call for additional percentage rent, the Company monitors the gross revenue generated by each property on a monthly basis.  The higher the property's gross revenue the higher our potential percentage rent.  Below is graph showing the comparison of our monthly rental income to the gross revenue generated by the properties.

 
Comparison of operating results for the three months ended June 30, 2017 and 2016:

Operating expenses
 
2017
   
2016
 
General and administrative
 
$
441,000
   
$
632,000
 
Merger Costs
   
969,000
     
--
 
Acquisition expenses
   
2,000
     
226,000
 
Acquisition expenses – related party
   
--
     
--
 
Operation and maintenance
   
527,000
     
528,000
 
Operation and maintenance – related party
   
376,000
     
297,000
 
Disposition Expense
   
5,000
     
--
 
Depreciation
   
339,000
     
326,000
 
Total operating expenses
 
$
2,659,000
   
$
2,009,000
 

Operating expenses for the three months ended June 30, 2017, increased $650,000 or 32%, as compared to the three months ended June 30, 2016.  Merger costs of $969,000 during 2017, increased management fees from growth in our parking facility investments and additional debt financing fees were the major drivers to the 32% increase in expenses.  These increases were offset by the lack of acquisition expenses and the decrease in General and Administrative ("G&A") during the three months ended June 30, 2017.  Professional fees included G&A incurred during the three months ended 2016 were mainly related to the correction of prior period tax returns.  These expenses were not repeated during 2017, and the company does not expect to see dramatic increase in G&A in the near future.  As the Company and MVP REIT II move closer to a possible merger, whether it is successful or not, we expect to see additional increase over the next two quarters in merger expenses.  We estimated the total merger costs for the Company to be around $1.5 million or more, depending on the success of the merger with MVP REIT II.

Comparison of operating results for the three months ended June 30, 2017 and 2016:
Other income and (expense)
 
2017
   
2016
 
Interest expense
 
$
(711,000
)
 
$
(609,000
)
Income from investment in equity method investee
   
180,000
     
3,000
 
Interest Income
   
--
     
(2,000
)
Total other expense
 
$
(531,000
)
 
$
(608,000
)

Interest expense has increased from 2016 to 2017 due to the assumption of debt through acquisitions and adding new debt to acquisitions that were completed with cash previously.  To maximize the use of our cash, the Company will continue to look for opportunities to put financing in place on existing properties and future acquisitions.  The interest expense will vary based on the amount of our borrowings and current interest rates at the time of financing.  The Company will seek to secure appropriate leverage with the lowest interest rate available to us.  The terms of the loans will greatly depend on the quality of the property, the credit worthiness of the tenant and the amount of income the property is able to generate through parking revenue.  There is no assurance, however, that the Company will be able to secure additional financing on favorable terms or at all.  Interest expense recorded for the three months ended June 30, 2017 and 2016 includes loan amortization costs.  Total interest expense incurred for the three months ended June 30, 2017 and 2016 was approximately $0.6 million and $0.6 million, respectively.  Total loan amortization cost for the three months ended June 30, 2017 and 2016 was approximately $0.1 million and $56,000, respectively.

See Note J – Line of Credit and Note L – Notes Payable of the Notes to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Comparison of operating results for the six months ended June 30, 2017 and 2016:

Rental revenues (by property)
 
2017
   
2016
 
Ft. Lauderdale
 
$
84,000
 
 
$
84,000
 
Memphis Court
   
8,000
     
8,000
 
Memphis Poplar
   
137,000
     
137,000
 
Kansas City
   
59,000
     
59,000
 
St. Louis
   
125,000
     
125,000
 
Mabley Place
   
746,000
     
712,000
 
Denver Sherman
   
17,000
     
17,000
 
Fort Worth
   
765,000
     
752,000
 
Milwaukee Old World
   
80,000
     
80,000
 
St. Louis Convention
(a)
 
106,000
 
(b)
 
109,000
 
Houston Saks Garage
   
312,000
     
311,000
 
St. Louis Lucas
(a)
 
162,000
     
110,000
 
Milwaukee Wells
   
140,000
     
140,000
 
MVP Wildwood NJ
   
40,000
     
5,000
 
Indy Garage
   
375,000
     
375,000
 
KC Cherry Lot
   
33,000
     
34,000
 
Indy WA Street
   
187,000
     
191,000
 
Minneapolis Venture
   
--
     
10,000
 
Indianapolis Meridian
   
48,000
     
44,000
 
Milwaukee Clybourn
   
10,000
     
9,000
 
Milwaukee Arena
   
108,000
     
90,000
 
MVP Clarksburg Lot
   
28,000
     
22,000
 
Denver 1935 Sherman
   
60,000
     
46,000
 
Bridgeport Fairfield
   
224,000
     
110,000
 
Minneapolis City Parking
   
400,000
     
379,000
 
VP Houston Preston Lot
   
76,000
     
--
 
Total revenues
 
$
4,330,000
 
 
$
3,959,000
 

(a) Includes percentage rent from properties where gross revenue was above the set threshold in 2017 as follows:
St Louis Convention - $13,000
St Louis Lucas - $52,000

(b)  Includes percentage rent from properties where gross revenue was above the set threshold in 2016 as follows:
St Louis Convention - $16,000

Total rental revenue earned from our 27 consolidated properties which have continued operations increased $371,000 or 9.4% from the six months ended June 30, 2016 to the six months ended June 30, 2017.  The majority of the 9.4% increase is related to percentage rent being accrued in 2017 for the St. Louis Lucas lot, additional retail space being leased out in 2017 at Mabley Place garage and the addition rent from properties that were held for the full six months in 2017 that were not held for the full six months in 2016, such as Bridgeport Fairfield and Houston Preston.

Operating expenses
 
2017
   
2016
 
General and administrative
 
$
854,000
   
$
1,018,000
 
Merger Costs
   
1,107,000
     
--
 
Acquisition expenses
   
267,000
     
433,000
 
Acquisition expenses – related party
   
330,000
     
1,326,000
 
Operation and maintenance
   
1,152,000
     
1,114,000
 
Operation and maintenance – related party
   
685,000
     
532,000
 
Disposition Expense
   
5,000
     
--
 
Depreciation
   
673,000
     
608,000
 
Total operating expenses
 
$
5,073,000
   
$
5,031,000
 

Operating expenses for the six months ended June 30, 2017, increased $42,000 or 0.8%, as compared to the six months ended June 30, 2016.  The Company did see a decrease related to acquisition expense & acquisition expenses related party that totaled $597,000 in 2017 for the acquisition of an investment in one parking facility , compared to $1.8 million in 2016, related to the acquisition of nine investments in parking facilities.  Professional fees included G&A incurred during the six months ended 2016 were mainly related to the correction of prior period tax returns and other one-time legal issues.  These expenses were not repeated during 2017, and the company does not expect to see dramatic increase in G&A in the near future.  Both of these decreases were offset by merger costs of $1,107,000 for the six months ended June 30, 2017.  As the Company and MVP REIT II move closer to a possible merger, whether it is successful or not, we expect to see additional increase over the next two quarters in merger expenses.  We estimated the total merger costs for the Company to be around $1.5 million or more, depending on the success of the merger with MVP REIT II.

Other income and (expense)
 
2017
   
2016
 
Interest expense
 
$
(1,407,000
)
 
$
(1,061,000
)
Income from investment in equity method investee
   
208,000
     
3,000
 
Loss on acquisition of investment in real estate
           
(2,000
)
Interest Income
   
--
     
1,000
 
Total other expense
 
$
(1,199,000
)
 
$
(1,059,000
)

Interest expense has increased from 2016 to 2017 due to the assumption of debt through acquisitions and adding new debt to acquisitions that were completed with cash previously.  To maximize the use of our cash, the Company will continue to look for opportunities to put financing in place on existing properties and future acquisitions.  The interest expense will vary based on the amount of our borrowings and current interest rates at the time of financing.  The Company will seek to secure appropriate leverage with the lowest interest rate available to us.  The terms of the loans will greatly depend on the quality of the property, the credit worthiness of the tenant and the amount of income the property is able to generate through parking revenue.  There is no assurance, however, that the Company will be able to secure additional financing on favorable terms or at all.  Interest expense recorded for the three months ended June 30, 2017 and 2016 includes loan amortization costs.  Total interest expense incurred for the six months ended June 30, 2017 and 2016 was $1.2 million and $1.0 million, respectively.  Total loan amortization cost for the six months ended June 30, 2017 and 2016 were $0.1 million and $74,000, respectively.

See Note J – Line of Credit and Note L – Notes Payable of the Notes to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Funds from Operations and Modified Funds from Operations

The Advisor believes that historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient. Additionally, publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start-up entities may also experience significant acquisition activity during their initial years, the Company believes that non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases.

In order to provide a more complete understanding of the operating performance of a REIT, the National Association of Real Estate Investment Trusts ("NAREIT") promulgated a measure known as funds from operations ("FFO"). FFO is defined as net income or loss computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, and gains and losses from sales of depreciable operating property, adding back asset impairment write-downs, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships and joint ventures. Because FFO calculations exclude such items as depreciation and amortization of real estate assets and gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs. As a result, the Company believes that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance relative to our competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities. It should be noted, however, that other REITs may not define FFO in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently than the Company does, making comparisons less meaningful.

The Investment Program Association ("IPA") issued Practice Guideline 2010-01 (the "IPA MFFO Guideline") on November 2, 2010, which extended financial measures to include modified funds from operations ("MFFO"). In computing MFFO, FFO is adjusted for certain non-operating cash items such as acquisition fees and expenses and certain non-cash items such as straight-line rent, amortization of in-place lease valuations, amortization of discounts and premiums on debt investments, nonrecurring impairments of real estate-related investments, mark-to-market adjustments included in net income (loss), and nonrecurring gains or losses included in net income (loss) 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. Management is responsible for managing interest rate, hedge and foreign exchange risk. To achieve our objectives, the Company may borrow at fixed rates or variable rates. In order to mitigate our interest rate risk on certain financial instruments, if any, the Company may enter into interest rate cap agreements and in order to mitigate our risk to foreign currency exposure, if any, the Company may enter into foreign currency hedges. The Company views fair value adjustments of derivatives, impairment charges and gains and losses from dispositions of assets as non-recurring items or items which are unrealized and may not ultimately be realized, and which are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. Additionally, the Company believes it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations, assessments regarding general market conditions, and the specific performance of properties owned, which can change over time. No less frequently than annually, the Company evaluates events and changes in circumstances that could indicate that the carrying amounts of real estate and related intangible assets may not be recoverable. When indicators of potential impairment are present, the Company assesses whether the carrying value of the assets will be recovered through the future undiscounted operating cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) expected from the use of the assets and the eventual disposition.

Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of MFFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and the relatively limited term of our operations, it could be difficult to recover any impairment charges through operational net revenues or cash flows prior to any liquidity event.

The Company adopted the IPA MFFO Guideline as management believes that MFFO is a helpful indicator of our on-going portfolio performance and ability to sustain our current distribution level. More specifically, MFFO isolates the financial results of the REIT's operations. MFFO, however, is not considered an appropriate measure of historical earnings as it excludes certain significant costs that are otherwise included in reported earnings. Further, since the measure is based on historical financial information, MFFO for the period presented may not be indicative of future results or our future ability to pay our dividends. By providing FFO and MFFO, the Company presents information that assists investors in aligning their analysis with management's analysis of long-term operating activities. MFFO also allows for a comparison of the performance of our portfolio with other REITs that are not currently engaging in acquisitions, as well as a comparison of our performance with that of other non-traded REITs, as MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and the Company believe often used by analysts and investors for comparison purposes. As explained below, management's evaluation of our operating performance excludes items considered in the calculation of MFFO based on the following economic considerations:

·
Straight-line rent. Most of our leases provide for periodic minimum rent payment increases throughout the term of the lease. In accordance with GAAP, these periodic minimum rent payment increases during the term of a lease are recorded to rental revenue on a straight-line basis in order to reconcile the difference between accrual and cash basis accounting. As straight-line rent is a GAAP non-cash adjustment and is included in historical earnings, it is added back to FFO to arrive at MFFO as a means of determining operating results of our portfolio.
·
Amortization of in-place lease valuation. As this item is a cash flow adjustment made to net income in calculating the cash flows provided by (used in) operating activities, it is added back to FFO to arrive at MFFO as a means of determining operating results of our portfolio.
·
Acquisition-related costs. The Company was organized primarily with the purpose of acquiring or investing in income-producing real property and loans secured by real estate in order to generate operational income and cash flow that will allow us to provide regular cash distributions to our stockholders. In the process, the Company incurs non-reimbursable affiliated and non-affiliated acquisition-related costs, which in accordance with GAAP, are expensed as incurred and are included in the determination of income (loss) from operations and net income (loss). These costs have been and will continue to be funded with cash proceeds from the offering or included as a component of the amount borrowed to acquire such real estate. If the Company acquires a property after all offering proceeds from the offering have been invested, there will not be any offering proceeds to pay the corresponding acquisition-related costs. Accordingly, unless our Advisor determines to waive the payment of any then-outstanding acquisition-related costs otherwise payable to our Advisor, such costs will be paid from additional debt, operational earnings or cash flow, net proceeds from the sale of properties, or ancillary cash flows. In evaluating the performance of our portfolio over time, management employs business models and analyses that differentiate the costs to acquire investments from the investments' revenues and expenses. Acquisition-related costs may negatively affect our operating results, cash flows from operating activities and cash available to fund distributions during periods in which properties are acquired, as the proceeds to fund these costs would otherwise be invested in other real estate related assets. By excluding acquisition-related costs, MFFO may not provide an accurate indicator of our operating performance during periods in which acquisitions are made. However, it can provide an indication of our on-going ability to generate cash flow from operations and continue as a going concern after the Company ceases to acquire properties on a frequent and regular basis, which can be compared to the MFFO of other non-listed REITs that have completed their acquisition activity and have similar operating characteristics to ours. Management believes that excluding these costs from MFFO provides investors with supplemental performance information that is consistent with the performance models and analysis used by management.

For all of these reasons, the Company believes the non-GAAP measures of FFO and MFFO, in addition to income (loss) from operations, net income (loss) and cash flows from operating activities, as defined by GAAP, are helpful supplemental performance measures and useful to investors in evaluating the performance of our real estate portfolio. However, a material limitation associated with FFO and MFFO is that they are not indicative of our cash available to fund distributions since other uses of cash, such as capital expenditures at our properties and principal payments of debt, are not deducted when calculating FFO and MFFO. Additionally, MFFO has limitations as a performance measure in an offering such as ours where the price of a share of common stock is a stated value. The use of MFFO as a measure of long-term operating performance on value is also limited if the Company does not continue to operate under our current business plan as noted above. MFFO is useful in assisting management and investors in assessing our on-going ability to generate cash flow from operations and continue as a going concern in future operating periods, and in particular, after the offering and acquisition stages are complete and NAV is disclosed. However, MFFO is not a useful measure in evaluating NAV because impairments are taken into account in determining NAV but not in determining MFFO. Therefore, FFO and MFFO should not be viewed as more prominent a measure of performance than income (loss) from operations, net income (loss) or to cash flows from operating activities and each should be reviewed in connection with GAAP measurements.

Neither the SEC, NAREIT, nor any other organization body has opined on the acceptability of the adjustments contemplated to adjust FFO in order to calculate MFFO and its use as a non-GAAP performance measure. In the future, the SEC or NAREIT may decide to standardize the allowable exclusions across the REIT industry, and the Company may have to adjust the calculation and characterization of this non-GAAP measure.

Our calculation of FFO and MFFO, attributable to common shareholders is presented in the following table for the three and six months ended June 30, 2017 and 2016.

In addition to the IPA MFFO Guidelines, management believes that an adjustment to MFFO for the additional merger expenses in connection with a proposed merger of the Company with MVP REIT II is helpful to obtain a more complete understanding of the operating performance of the Company.  As such, we have added "Adjusted MFFO" to the table below.


   
For the Three Months
Ended June 30,
   
For the Six Months
Ended June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Net Loss attributable to MVP REIT, Inc. common shareholders
 
$
(1,020,000
)
 
$
(572,000
)
 
$
(1,972,000
)
 
$
(2,112,000
)
Subtract:
                               
Change in deferred rental assets
   
(4,000
)
   
(11,000
)
   
(11,000
)
   
(30,000
)
Add:
                               
Depreciation and amortization of real estate assets
   
339,000
     
326,000
     
673,000
     
608,000
 
FFO
 
$
(685,000
)
 
$
(257,000
)
 
$
(1,310,000
)
 
$
(1,534,000
)
Add:
                               
Acquisition fees and expenses to non-affiliates
   
2,000
     
226,000
     
267,000
     
433,000
 
Acquisition fees and expenses to affiliates
   
--
     
--
     
330,000
     
1,326,000
 
                                 
MFFO attributable to MVP REIT, Inc common shareholders
 
$
(683,000
)
 
$
(31,000
)
 
$
(713,000
)
 
$
225,000
 
Merger Expense
   
969,000
     
--
     
1,107,000
     
--
 
Adjusted MFFO
   
286,000
     
(31,000
)
   
394,000
     
225,000
 
                                 
Gross Distributions to common shareholders
 
$
1,467,000
   
$
1,666,000
   
$
3,120,000
   
$
3,328,000
 


Capital and Liquidity Resources

The Company commenced operations on December 11, 2012 and acquired our first property on December 14, 2012.

Our principal demand for funds will be/and is for the acquisition of real estate assets, funding of loans secured by real estate, the payment of operating expenses, capital expenditures, interest on our outstanding indebtedness and the payment of distributions to our stockholders. Over time, the Company intends to generally fund its operating expenses from its cash flow from operations. The cash required for future acquisitions and investments in real estate will be funded primarily through our funds from operations and debt financing.

Net cash provided by operating activities for the six months ended June 30, 2017 was approximately $1.6 million.  Operating cash flows were used for the payment of normal operating expenses such as management fees, accounting fees and legal bills.  Net cash used in investing activities totaled approximately $3.2 million and consisted mainly of cash used in investment in equity method investee of approximately $5.0 million and deposits of approximately $1.5 million made during 2016 which was used to fund the Detroit Center investment in equity method investee. In addition, we received a net of $1.0 million from MVP REIT II for the sale of a 20% ownership interest in the Houston Preston property.  Net cash used by financing activities totaled $0.7 million and mainly consisted of proceeds from notes payable of $4.9 million (net of payments), payments on the line of credit of approximately $2.8 million (net of proceeds), and cash distributions to stockholders of $2.6 million (net of DRIP).

Net cash used in operating activities for the six months ended June 30, 2016 was $0.7 million.  Operating cash flows were used for the payment of normal operating expenses such as management fees, accounting fees and legal bills.  Net cash used in investing activities consisted mainly of cash used in investment of real estate of approximately $20.6 million, investment in equity method investee of approximately $4.3 million and $6.1 million used in investment in real estate held for sale.  Net cash provided by financing activities consisted of proceeds from promissory notes of approximately $16.9 million, capitalized loan fees of approximately $0.4 million, payments on redeemed shares of approximately $0.5 million, payments on notes payable of approximately $0.5 million, capital contributions from noncontrolling interests of approximately $3.4 million and distributions to stockholders and non-controlling interest of approximately $2.5 million and $695,000, respectively.

As of June 30, 2017, the Company has eleven notes in the aggregate amount of approximately $52.8 million, net of loan issuance costs, secured by our real estate. Our charter precludes us from borrowing more than the NASAA REIT Guidelines limit of 300% of our net assets, unless a majority of our independent directors approve any borrowing in excess of 300% of our net assets and the justification for such excess borrowing is disclosed to our stockholders in our next quarterly report. The Company expects that it may use leverage for any senior debt or equity investments that the Company makes. The Company expects that our debt financing, if any, on such investments will not exceed 55% of the greater of the cost or fair market value of our overall investments.

On October 5, 2016, the Company, through its Operating LLC, and MVP REIT II, through a wholly owned subsidiary (the "Borrowers") entered into a credit agreement (the "Unsecured Credit Agreement") with KeyBank, National Association ('KeyBank") as the administrative agent and KeyBanc Capital Markets ("KeyBanc Capital Markets") as the lead arranger. Pursuant to the Unsecured Credit Agreement, the Borrowers were provided with a $30 million unsecured credit facility (the "Unsecured Credit Facility"), which may be increased up to $100 million, in minimum increments of $10 million. The Unsecured Credit Facility has an initial term of two years, maturing on October 5, 2018, and may be extended for a one-year period if certain conditions are met and upon payment of an extension fee. The Unsecured Credit Facility has an annual interest rate calculated based on LIBOR Rate plus 2.25% or Base Rate plus 1.25%, both as provided in the Unsecured Credit Agreement. The Base Rate is calculated as the greater of (i) the KeyBank Prime rate or (ii) the Federal Funds rate plus ½ of 1%. Payments under the Unsecured Credit Facility are interest only and are due on the first day of each quarter.  The obligations of the Borrowers of the Unsecured Credit Agreement are joint and several. The Borrowers have entered into cross-indemnification provisions with respect to their joint and several obligations under the Unsecured Credit Agreement.
In connection with our KeyBank Unsecured Credit Agreement, the Borrowers are required to maintain a minimum liquidity requirement of $2.0 million, which is defined as the sum of unencumbered cash and cash equivalents of the Borrower and its Subsidiaries.  In addition, the loan with Bank of America for the MVP Detroit Center Parking garage requires the Company and MVP REIT to maintain a combined $2.3 million liquidity, which is defined as unencumbered cash and cash equivalents.  As of August 14, 2017, the Company and MVP REIT were in compliance with both these lender requirements.

On June 26, 2017, the Company and MVP REIT II, (together, the "REITs"), each through a wholly owned subsidiary, MVP Real Estate Holdings, LLC and MVP REIT II Operating Partnership, LP, (together, the "Borrowers") entered into a credit agreement (the "Working Capital Credit Agreement") with KeyBank, National Association ("KeyBank") as the administrative agent and KeyBanc Capital Markets ("KeyBanc Capital Markets") as the lead arranger.  Pursuant to the Working Capital Credit Agreement, the Borrowers were provided with a $6.0 million credit facility (the "Total Commitment"), which may be increased up to $10 million, in minimum increments of $1 million.  The Total Commitment has an initial term of six months, maturing on December 26, 2017.  The Working Capital Credit Agreement has an interest rate calculated based on LIBOR Rate plus 4.5% or Base Rate plus 3.5%, both as provided in the Working Capital Credit Agreement.  The Base Rate is calculated as the greater of (i) the KeyBank Prime rate or (ii) the Federal Funds rate plus ½ of 1%.  Payments under the Working Capital Credit Facility require 100% of the net proceeds of all capital events and equity issuances by the REIT's within 5 business days of receipt.  The obligations of the Borrowers of the Unsecured Credit Agreement are joint and several.  The REITs have entered into cross-indemnification provisions with respect to their joint and several obligations under the Unsecured Credit Agreement.  As of June 20, 2017, the balance on the Working Capital Credit Facility was $6.0 million, which MVP REIT II drew on June 29, 2017.  The Company and MVP REIT II anticipate using net proceeds from the private placements of shares of MVP REIT II's Series 1 Convertible Redeemable Preferred Stock to pay down the $6.0 million, which is due by September 15, 2017.

The Company will experience a relative decrease in liquidity as offering proceeds are used to acquire and operate our assets and may experience a temporary, relative increase in liquidity if and when investments are sold, to the extent such sales generate proceeds that are available for additional investments. Our advisor may, but is not required to, establish working capital reserves from offering proceeds out of cash flow generated by our investments or out of proceeds from the sale of our investments. The Company also may, but is not required to, establish reserves out of cash flow generated by investments or out of net sale proceeds in non-liquidating sale transactions. Working capital reserves are typically utilized to fund tenant improvements, leasing commissions and major capital expenditures. Our lenders also may require working capital reserves.

To the extent that the working capital reserve is insufficient to satisfy our cash requirements, additional funds may be provided from cash generated from operations or through short- term borrowing. In addition, subject to the limitations previously described in our prospectus, the Company may incur indebtedness in connection with the acquisition of any real estate asset, refinance the debt thereon, arrange for the leveraging of any previously unfinanced property or reinvest the proceeds of financing or refinancing in additional properties.

In addition to making investments in accordance with our investment objectives, the Company expects to use its capital resources to make certain payments to our advisor and the selling agent(s). During the organization and offering stage, these payments included payments to the selling agent(s) for selling commissions and payments to our advisor for reimbursement of certain organization and offering expenses. During the acquisition and development stage, the Company expects to make payments to our advisor in connection with the selection or purchase of investments, the management of our assets and costs incurred by our advisor in providing services to us. For a discussion of the compen