UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from ________ to ________
Commission file number
(Exact Name of Registrant as Specified in Its Charter)
|
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☑ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
As of May 7, 2024, there were million outstanding shares of common stock of Lightstone Value Plus REIT IV, Inc.
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
INDEX
i
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS:
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data and where indicated in millions)
| March 31, 2024 |
December 31, 2023 |
|||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Investment property: | ||||||||
| Land and improvements | $ | $ | ||||||
| Building and improvements | ||||||||
| Furniture and fixtures | ||||||||
| Construction in progress | ||||||||
| Gross investment property | ||||||||
| Less accumulated depreciation | ( |
) | ( |
) | ||||
| Net investment property | ||||||||
| Investment in unconsolidated affiliated real estate entity | ||||||||
| Cash and cash equivalents | ||||||||
| Restricted cash | ||||||||
| Accounts receivable and other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Mortgage payable, net | $ | $ | ||||||
| Accounts payable, accrued expenses and other liabilities | ||||||||
| Subordinated advances - related party | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Company’s Stockholders’ Equity: | ||||||||
| Preferred stock, $ par value; million shares authorized, issued and outstanding | ||||||||
| Common stock, $ par value; million shares authorized, million shares issued and outstanding | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total Company’s Stockholders’ Equity | ||||||||
| Noncontrolling interests | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(unaudited)
| For the Three Months Ended March 31, |
||||||||
| 2024 | 2023 | |||||||
| Hotel revenues: | $ | $ | ||||||
| Expenses: | ||||||||
| Hotel operating expenses | ||||||||
| Real estate taxes | ||||||||
| General and administrative costs | ||||||||
| Pre-opening costs | ||||||||
| Depreciation and amortization | ||||||||
| Total expenses | ||||||||
| Interest income | ||||||||
| Interest expense | ( |
) | ( |
) | ||||
| Loss from investment in unconsolidated affiliated real estate entity | ( |
) | ( |
) | ||||
| Other expense, net | ( |
) | ( |
) | ||||
| Net loss | ( |
) | ( |
) | ||||
| Less: net loss attributable to noncontrolling interests | ||||||||
| Net loss attributable to Company’s common shares | $ | ( |
) | $ | ( |
) | ||
| Basic and diluted net loss per Company’s common share: | ||||||||
| Net loss per Company’s common shares, basic and diluted | $ | ) | $ | ) | ||||
| Weighted average number of common shares outstanding, basic and diluted | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED.
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in thousands)
(unaudited)
| Additional | ||||||||||||||||||||||||
| Common | Paid-In | Accumulated | Noncontrolling | Total | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||
| BALANCE, December 31, 2022 | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Net loss | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||
| Contributions of noncontrolling interests | - | |||||||||||||||||||||||
| Redemption and cancellation of common stock | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| BALANCE, March 31, 2023 | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Additional | ||||||||||||||||||||||||
| Common | Paid-In | Accumulated | Noncontrolling | Total | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||
| BALANCE, December 31, 2023 | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Net loss | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||
| Contributions of noncontrolling interests | - | |||||||||||||||||||||||
| Redemption and cancellation of common stock | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| BALANCE, March 31, 2024 | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)
| For the Three Months Ended March 31, |
||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to cash (used in)/provided by operating activities: | ||||||||
| Loss from investment in unconsolidated affiliated real estate entity | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of deferred financing costs | ||||||||
| Non-cash interest expense | ||||||||
| Changes in assets and liabilities: | ||||||||
| Decrease in accounts receivable and other assets | ||||||||
| (Decrease)/increase in accounts payable, accrued expenses and other liabilities | ( |
) | ||||||
| Increase in accrued interest on subordinated advances - related party | ||||||||
| Cash (used in)/provided by operating activities | ( |
) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of investment property | ( |
) | ( |
) | ||||
| Investment in unconsolidated affiliated real estate entity | ( |
) | ||||||
| Cash used in investing activities | ( |
) | ( |
) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from mortgage financing | ||||||||
| Payment of loan fees and expenses | ( |
) | ||||||
| Contributions of noncontrolling interests | ||||||||
| Redemption and cancellation of common stock | ( |
) | ( |
) | ||||
| Cash (used in)/provided by financing activities | ( |
) | ||||||
| Change in cash, cash equivalents and restricted cash | ( |
) | ||||||
| Cash, cash equivalents and restricted cash, beginning of year | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for income tax | $ | $ | ||||||
| Cash paid for interest | $ | $ | |
|||||
| Capital expenditures for investment property in accounts payable, accrued expenses and other liabilities | $ | $ | ||||||
| Unpaid interest accrued and capitalized as mortgage payable and investment property | $ | $ | ||||||
| Amortization of deferred financing costs included in investment property | $ | $ | ||||||
| The following is a summary of the Company’s cash, cash equivalents and restricted cash total as presented in our statements of cash flows for the periods presented: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
| 1. | Business and Structure |
Lightstone Value Plus REIT IV, Inc. (“Lightstone REIT IV’’), is a Maryland corporation, formed on
Lightstone REIT IV, together with its subsidiaries is collectively referred to as the ‘‘Company’’ and the use of ‘‘we,’’ ‘‘our,’’ ‘‘us’’ or similar pronouns refers to Lightstone REIT IV or the Company as required by the context in which any such pronoun is used.
The Company has and currently expects to continue to seek opportunities to invest in real estate and real estate-related investments. The Company’s real estate investments may include operating properties and development projects and its real estate-related investment may include mezzanine loans, mortgage loans, bridge loans and preferred equity interests, with a focus on development-related investments, including investments intended to finance development or redevelopment opportunities. The Company may also invest in debt and derivative securities related to real estate assets. A portion of the Company’s investments may be secured by or related to properties or entities advised by, or wholly or partially, directly or indirectly owned by (i) The Lightstone Group, LLC (the “Sponsor”), which served as our sponsor during our initial public offering (the “Offering”), which terminated on March 31, 2017, (ii) its affiliates and/or (iii) other real estate investment programs it sponsors. Although the Company expects that most of its investments will be of these various types, it may also make other investments. In fact, it may invest in whatever types of investments that it believes are in its best interests.
The
Company currently has one operating segment. As of March 31, 2024, the Company majority owned and consolidated the operating
results of Bedford Avenue Holdings LLC (the “Williamsburg Moxy Hotel Joint Venture”), a joint venture in which it has a
The Williamsburg Moxy Hotel Joint Venture owns a 216-room branded hotel (the “Williamsburg Moxy Hotel”) located in the Williamsburg neighborhood of Brooklyn in New York City, which it developed, constructed and opened on March 7, 2023. Lightstone Value Plus REIT III, Inc. (“Lightstone REIT III”), a REIT also sponsored by the Sponsor and a related party, owns the other
The 40 East End Ave. Joint Venture, through affiliates, developed and constructed a luxury residential 29-unit condominium project located at the corner of 81st Street and East End Avenue in the Upper East Side neighborhood of Manhattan in New York City. Through March 31, 2024, 25 of the 29 units in the condominium project have been sold and the 40 East End Ave. Joint Venture owns the remaining four unsold units which are referred to as the 40 East End Project. Various affiliated entities majority-owned and/or controlled by David Lichtenstein, who majority owns and controls the Sponsor, own the other approximate
The Company’s advisor is Lightstone Real Estate Income LLC, a Delaware Limited Liability Company (the “Advisor”). Both the Advisor and the Sponsor are majority owned by David Lichtenstein. On September 12, 2014, the Advisor contributed $
The Company has no employees. The Company is dependent on the Advisor and certain affiliates of its Sponsor for performing a full range of services that are essential to it, including asset management, property management (excluding its hospitality property, which is managed by unrelated third party property managers) and acquisition, disposition and financing activities, and other general administrative responsibilities; such as tax, accounting, legal, information technology and investor relations services. If the Advisor and certain affiliates of the Sponsor are unable to provide these services to the Company, it would be required to provide the services itself or obtain the services from other parties.
5
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
The Company’s Common Shares are not currently listed on a national securities exchange. The Company may seek to list its Common Shares for trading on a national securities exchange only if a majority of its independent directors believe listing would be in the best interest of its stockholders. The Company does not intend to list its shares at this time. The Company does not anticipate that there would be any active market for its Common Shares until they are listed for trading.
Related Parties
The Sponsor, Advisor and their affiliates are related parties of the Company as well as other public REITs also sponsored and/or advised by these entities. Pursuant to the terms of various agreements, certain of these entities are entitled to compensation and reimbursement of costs incurred for services related to the investment, development, management and disposition of the Company’s assets. The compensation is generally based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements. See Note 6 for additional information.
Noncontrolling Interests in Consolidated Subsidiaries
Noncontrolling interests in consolidated subsidiaries represents Lightstone REIT III’s 25% share of the equity in the Williamsburg Moxy Hotel Joint Venture. Income and losses attributable to the Williamsburg Moxy Hotel Joint Venture are allocated to the noncontrolling interest holder based on its ownership percentage. See Note 3 for additional information.
| 2. | Summary of Significant Accounting Policies |
The accompanying unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of the results for the periods presented. The accompanying unaudited consolidated financial statements of the Lightstone REIT IV have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X.
The consolidated financial statements have been prepared in accordance with GAAP. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of real estate and investments in other real estate entities. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
The consolidated balance sheet as of December 31, 2023 included herein has been derived from the consolidated balance sheet included in the Company’s Annual Report on Form 10-K.
The unaudited statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.
Income Taxes
The Company elected to qualify and be taxed as a REIT for U.S. federal income tax purposes commencing with the taxable year ended December 31, 2016. As a REIT, the Company generally will not be subject to U.S. federal income tax on its net taxable income that it distributes currently to its stockholders. To maintain its REIT qualification under the Internal Revenue Code of 1986, as amended, or the Code, the Company must meet a number of organizational and operational requirements, including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed at the regular corporate rate, and it may be precluded from qualifying for treatment as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders. Additionally, even if the Company continues to qualify as a REIT, it may still be subject to some U.S. federal, state and local taxes on our income and property and to U.S. federal income taxes and excise taxes on its undistributed income, if any.
6
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
To maintain its qualification as a REIT, the Company engages in certain activities through a taxable REIT subsidiary (“TRS”). As such, it is subject to U.S. federal and state income and franchise taxes from these activities.
The Company’s income tax benefits and expense are included in other expense, net on its consolidated statements of operations. During the three months ended March 31, 2024 and 2023, the Company recorded income tax expense of $
As of March 31, 2024 and December 31, 2023, the Company had
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Lightstone REIT IV and its subsidiaries (over which it exercises financial and operating control). All inter-company balances and transactions have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on applicable GAAP, and if deemed to be variable interest entities (“VIE”) in which we are the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which we have control, substantive participating rights or both under the respective ownership agreement. Investments in other real estate entities where the Company has the ability to exercise significant influence, but does not exercise financial and operating control, and is not considered to be the primary beneficiary are accounted for using the equity method.
There are judgments and estimates involved in determining if an entity in which the Company has made an investment is a VIE and, if so, whether the Company is the primary beneficiary. The entity is evaluated to determine if it is a VIE by, among other things, calculating the percentage of equity being risked compared to the total equity of the entity. Determining expected future losses involves assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each possibility and using a discount rate to determine the net present value of those future losses. A change in the judgments, assumptions, and estimates outlined above could result in consolidating an entity that should not be consolidated or accounting for an investment using the equity method that should in fact be consolidated, the effects of which could be material to our financial statements.
Revenues
The following table represents the total revenues from hotel operations on a disaggregated basis:
| For the Three Months ended March 31, 2024 |
For the Three Months ended March 31, 2023 |
|||||||
| Hotel revenues | ||||||||
| Room | $ | $ | ||||||
| Food, beverage and other | ||||||||
| Total hotel revenues | $ | $ | ||||||
Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, accounts receivable and other assets, accounts payable and accrued expenses and other liabilities approximate their fair values because of the short maturity of these instruments.
The estimated fair value our mortgage payable approximated its carrying value because of the floating interest rate.
7
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
Recently Adopted Accounting Standards
In November 2023, the FASB issued an accounting standards update which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The amendments will require entities to disclose significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within segment profit and loss, as well as the title and position of the CODM. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the guidance and the impact it may have on its consolidated financial statements.
In December 2023, the FASB issued an accounting standards update which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. This update is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the guidance and the impact it may have on its consolidated financial statements.
The Company has reviewed and determined that other recently issued accounting pronouncements will not have a material impact on its financial position, results of operations and cash flows, or do not apply to its current operations.
Reclassifications
Certain prior period amounts may have been reclassified to conform to the current year presentation.
Concentration of Risk
As of March 31, 2024 and December 31, 2023, the Company had cash deposited in certain financial institutions in excess of U.S. federally insured levels. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk with respect to its cash and cash equivalents or restricted cash.
Current Environment
The Company’s operating results and financial condition are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, its business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility and banking failures, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, inflation and recession.
The Company’s overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation, higher interest rates, certain labor and supply chain challenges and other changes in economic conditions may adversely affect the Company’s results of operations and financial performance.
| 3. | Williamsburg Moxy Hotel |
On July 17, 2019, the Company, through its then wholly owned subsidiary, Bedford Avenue Holdings LLC, acquired land parcels located at 353-361 Bedford Avenue in the Williamsburg neighborhood of the borough of Brooklyn in New York City for the development and construction of the Williamsburg Moxy Hotel. On March 7, 2023, the development and construction of the Williamsburg Moxy Hotel was substantially completed and it opened for business. Subsequently, certain of its food and beverage venues opened during the second quarter of 2023.
Williamsburg Moxy Hotel Joint Venture
On August 5, 2021, the Company formed the Williamsburg Moxy Hotel Joint Venture with Lightstone REIT III, pursuant to which Lightstone REIT III acquired
8
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
As a result, the Company and Lightstone REIT III have
The Company has determined that the Williamsburg Moxy Hotel Joint Venture is a VIE and the Company is the primary beneficiary. As the Company is the member most closely associated with the Williamsburg Moxy Hotel Joint Venture and therefore has the power to direct the activities of the Williamsburg Moxy Hotel Joint Venture that most significantly impact its performance, the Company has consolidated the operating results and financial condition of the Williamsburg Moxy Hotel Joint Venture and accounted for the ownership interest of Lightstone REIT III as noncontrolling interests commencing on August 5, 2021. Earnings, contributions and distributions are allocated in accordance with each investor’s ownership percentage.
On August 5, 2021, the Williamsburg Moxy Hotel Joint Venture entered into a development agreement (the “Development Agreement”) with an affiliate of the Advisor (the “Williamsburg Moxy Developer”) pursuant to which the Williamsburg Moxy Developer was paid a development fee equal to 3% of hard and soft costs, as defined in the Development Agreement, incurred in connection with the development and construction of the Williamsburg Moxy Hotel. Additionally on August 5, 2021, the Williamsburg Moxy Hotel Joint Venture obtained construction financing for the Williamsburg Moxy Hotel as discussed below. Furthermore, the Advisor and its affiliates are reimbursed for certain development-related costs attributable to the Williamsburg Moxy Hotel. See Note 6 for additional information.
The Williamsburg Moxy Hotel was substantially completed and opened for business on March 7, 2023. In connection with the opening of the hotel, including its food and beverage venues, the Williamsburg Moxy Hotel Joint Venture incurred pre-opening costs of $
Moxy Construction Loan
On August 5, 2021, the Williamsburg Moxy Hotel Joint Venture entered into a recourse construction loan facility with a financial institution for up to $77.0 million (the “Moxy Construction Loan”) to fund certain of the development, construction and certain pre-opening costs associated with the Williamsburg Moxy Hotel. The Moxy Construction Loan, which was scheduled to initially mature on February 5, 2024, was further extended to May 4, 2024. The Moxy Construction Loan was collateralized by the Williamsburg Moxy Hotel. The Moxy Construction Loan provided for a replacement benchmark rate in connection with the phase-out of LIBOR and effective after June 30, 2023, the Moxy Construction Loan’s interest rate converted from LIBOR plus 9.00%, with a floor of 9.50%, to SOFR plus 9.11%, with a floor of 9.61%.
As of March 31, 2024 and December 31, 2023, the outstanding principal balance of the Moxy Construction Loan was $
During 2023 (from January 1, 2023 through March 7, 2023) $
In connection with the Moxy Construction Loan, the Williamsburg Moxy Hotel Joint Venture provided certain completion and carry cost guarantees. Furthermore, in connection with the Moxy Construction Loan, the Williamsburg Moxy Hotel Joint Venture paid $
Moxy Mortgage Loans
On April 19, 2024, the Williamsburg Moxy Joint Venture entered into an $
9
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
In connection with the Moxy Mortgage Loans, the Williamsburg Moxy Hotel Joint Venture has provided certain interest and carry costs guarantees. Furthermore, in connection with the Moxy Mortgage Loans, $3.2 million of the initial proceeds advanced at closing were used to fund reserves for interest, real estate taxes and insurance. Additionally, the Williamsburg Moxy Hotel Joint Venture paid an aggregate of $
| 4. | Investment in Unconsolidated Affiliated Real Estate Entity |
40 East End Ave. Joint Venture
On March 31, 2017, the Company acquired an approximate
The Company’s ownership interest in the 40 East End Ave. Joint Venture is a non-managing interest. Because the Company exerts significant influence over but does not control the 40 East End Ave. Joint Venture, it accounts for its ownership interest in the 40 East End Ave. Joint Venture in accordance with the equity method of accounting. All contributions to and distributions of earnings from the 40 East End Ave. Joint Venture are made on a pro rata basis in proportion to each member’s equity interest percentage. Any distributions in excess of earnings from the 40 East End Ave. Joint Venture are made to the members pursuant to the terms of its operating agreement. The Company commenced recording its allocated portion of earnings and cash distributions from the 40 East End Ave. Joint Venture beginning as of March 31, 2017.
The 40 East End Ave. Joint Venture, through affiliates, developed and constructed a luxury residential 29-unit condominium project located at the corner of 81st Street and East End Avenue in the Upper East Side neighborhood of Manhattan in New York City. Through March 31, 2024, 25 of the 29 units have been sold and the 40 East End Ave. Joint Venture owns the remaining four unsold units, which are referred to as the 40 East End Project.
The 40 East End Ave. Joint Venture Financial Information
The following table represents the condensed income statements for the 40 East End Ave. Joint Venture:
| (amounts in thousands) | For the Three Months Ended March 31, 2024 |
For the Three Months Ended March 31, 2023 |
||||||
| Revenues | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Other expenses | ||||||||
| Operating loss | ( |
) | ( |
) | ||||
| Interest expense and other, net | ( |
) | ||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Company’s share of net loss (33.3%) | $ | ( |
) | $ | ( |
) | ||
10
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
The following table represents the condensed balance sheets for the 40 East End Ave. Joint Venture:
| As of | As of | |||||||
| (amounts in thousands) | March 31, 2024 |
December 31, 2023 |
||||||
| Real estate inventory | $ | $ | ||||||
| Cash and restricted cash | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Other liabilities | $ | $ | ||||||
| Members’ capital | ||||||||
| Total liabilities and members’ capital | $ | $ | ||||||
| 5. | Stockholders’ Equity |
Distributions on Common Shares
On March 25, 2020, the Board of Directors determined to suspend regular monthly distributions for months ending after March 2020.
Future distributions, if any, declared will be at the discretion of the Board of Directors based on their analysis of the Company’s performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, operating and interest expenses, the Company’s ability to refinance maturing debt, as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. The Company cannot assure that any future distributions will be made or that it will maintain any particular level of distributions that it has previously established or may establish.
SRP
The Company’s share repurchase program (the “SRP”) may provide its stockholders with limited, interim liquidity by enabling them to sell their Common Shares back to the Company, subject to restrictions.
On March 25, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of all redemptions.
Effective May 10, 2021, the Board of Directors reopened the SRP only for redemptions submitted in connection with either a stockholder’s death or hardship and set the price for all such purchases at the Company’s estimated net asset value per share, as determined by the Board of Directors and reported by the Company from time to time, as of the date of redemption. Additionally, beginning on January 1, 2022, any requests for redemptions in connection with a stockholder’s death must be submitted and received by the Company within one year of the stockholder’s date of death for consideration.
The Board of Directors has established that on an annual basis, the Company will not redeem in excess of 0.5% of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Redemption requests are expected to be processed on a quarterly basis and may be subject to pro ration if either type of redemption requests exceed the annual limitation.
For the three months ended March 31, 2024, we repurchased Common Shares at a weighted average price per share of $. For the three months ended March 31, 2023, the Company repurchased Common Shares at a weighted average price per share of $.
Net Earnings per Common Share
Net earnings per Common Share on a basic and fully diluted basis is earnings divided by the weighted average number of shares of Common Shares outstanding. The Company does not have any potentially dilutive securities.
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LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
| 6. | Related Party Transactions and Other Arrangements |
The Sponsor, Advisor and their affiliates are related parties of the Company as well as other public REITs also sponsored and/or advised by these entities. Pursuant to the terms of various agreements, certain of these entities are entitled to compensation and reimbursement of costs incurred for services related to the investment, development, management and disposition of the Company’s assets. The compensation is generally based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements.
The advisory agreement has a one-year term and is renewable for an unlimited number of successive one-year periods upon the mutual consent of the Advisor and the Company’s independent directors. Payments to the Advisor or its affiliates may include asset acquisition fees and the reimbursement of acquisition-related expenses, development fees and the reimbursement of development-related costs, financing coordination fees, asset management fees or asset management participation, and construction management fees. The Company may also reimburse the Advisor and its affiliates for actual expenses it incurs for administrative and other services provided for it. Upon the liquidation of the Company’s assets, it may pay the Advisor or its affiliates a disposition commission.
The following table represents the fees incurred associated with the payments to the Company’s Advisor for the periods indicated:
| For the Three Months Ended March 31, |
||||||||
| 2024 | 2023 | |||||||
| Development fees and cost reimbursement(1) | $ | $ | ||||||
| Asset management fees (general and administrative costs) | ||||||||
| Total | $ | $ | ||||||
| (1) |
As of March 31, 2024 and December 31, 2023, the Company owed the Advisor and its affiliated entities $
Subordinated Advances – Related Party
On March 18, 2016, the Company entered into a subordinated unsecured loan agreement (the “Subordinated Loan Agreement”) with the Sponsor pursuant to which the Sponsor made aggregate principal advances of $
In the event of a liquidation of the Company, the distribution of any available net proceeds initially will be made to holders of its Common Shares until they have received liquidation distributions equal to their respective net investments plus a cumulative, pre-tax, non-compounded annual return of
The outstanding principal advances and the related accrued interest are subordinate to all of the Company’s obligations as well as to the holders of its Common Shares in an amount equal to the shareholder’s net investment plus a cumulative, pre-tax, non-compounded annual return of
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LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited)
As a result of the termination of the Offering on March 31, 2017, the Sponsor is no longer obligated to make any additional principal advances to the Company. However, interest will continue to accrue on the outstanding principal advances and the repayment, if any, of the principal advances and related accrued interest will be made according to the terms of the Subordinated Loan Agreement as discussed above.
As of March 31, 2024 and December 31, 2023, the aggregate outstanding principal advances and related accrued interest were $
During the three months ended March 31, 2024 and 2023, the Company accrued $
| 7. | Commitments and Contingencies |
Hotel Franchise Agreement
The Williamsburg Moxy Hotel operates pursuant to a 30-year franchise agreement (the “Hotel Franchise Agreement”) with Marriott. The Hotel Franchise Agreement provides for the Williamsburg Moxy Hotel Joint Venture to pay franchise fees and marketing fund charges equal to certain prescribed percentages of gross room sales, as defined. Additionally, pursuant to the terms of the Hotel Franchise Agreement, the Williamsburg Moxy Hotel Joint Venture received $
Hotel Management Agreements
With respect to the Williamsburg Moxy Hotel, the Williamsburg Moxy Hotel Joint Venture has entered into a hotel management agreement, food and beverage operations management agreement and an asset management agreement (collectively, the “Hotel Management Agreements”) with various unrelated third party management companies pursuant to which they provide oversight and management over the operation of the Williamsburg Moxy Hotel and its food and beverage venues and receive payment of certain prescribed management fees, generally based on a percentage of revenues and certain incentives for exceeding targeted earnings thresholds. The management fees are recorded as a component of hotel operating expenses on the consolidated statements of operations. The Hotel Management Agreements have initial terms ranging from 5 to 20 years.
Legal Proceedings
From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.
As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Lightstone Value Plus REIT IV, Inc. and Subsidiaries and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Lightstone Value Plus REIT IV, Inc., a Maryland corporation, and its subsidiaries.
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include discussion and analysis of the financial condition of Lightstone Value Plus REIT IV, Inc. and our subsidiaries (which may be referred to herein as the “Company,” “we,” “us” or “our”), including our ability to make accretive real estate or real estate-related investments, rent space on favorable terms, to address our debt maturities and to fund our liquidity requirements, to sell our assets when we believe advantageous to achieve our investment objectives, our anticipated capital expenditures, the amount and timing of anticipated future cash distributions to our stockholders, the estimated net asset value per share of our common stock, and other matters. Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors described below:
| ● | market and economic challenges experienced by the United States (“U.S.”) and global economies or real estate industry as a whole and the local economic conditions in the markets in which our investments are located. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; such as inflation, recession, political upheaval or uncertainty, terrorism and acts of war, natural and man-made disasters, cybercrime, and outbreaks of contagious diseases; |
| ● | the availability of cash flow from operating activities for distributions, if required to maintain our status as a real estate investment trust (“REIT”); |
| ● | conflicts of interest arising out of our relationships with our advisor and its affiliates; |
| ● | our ability to retain our executive officers and other key individuals who provide advisory and property management services to us; |
| ● | our level of debt and the terms and limitations imposed on us by our debt agreements; |
| ● | the availability of credit generally, and any failure to obtain debt financing at favorable terms or a failure to satisfy the conditions and requirements of that debt; |
| ● | our ability to make accretive investments; |
| ● | our ability to diversify our portfolio of assets; |
| ● | changes in market factors that could impact our rental rates and operating costs; |
| ● | our ability to secure leases at favorable rental rates; |
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| ● | our ability to sell our assets at a price and on a timeline consistent with our investment objectives; |
| ● | impairment charges; |
| ● | unfavorable changes in laws or regulations impacting our business, our assets or our key relationships; and |
| ● |
factors that could affect our ability to qualify as a REIT. |
Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Quarterly Report on Form 10-Q, and may ultimately prove to be incorrect. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results, except as required by applicable law. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.
Cautionary Note
The representations, warranties, and covenants made by us in any agreement filed as an exhibit to this Quarterly Report on Form 10-Q are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties, or covenants to or with any other parties. Moreover, these representations, warranties, or covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.
Business and Structure
Lightstone REIT IV is a Maryland corporation, formed on September 9, 2014, which elected to qualify as a REIT for U.S. federal income tax purposes beginning with the taxable year ending December 31, 2016.
Lightstone REIT IV, together with its subsidiaries is collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns refers to Lightstone REIT IV or the Company as required by the context in which any such pronoun is used.
We have and currently expect to continue to seek opportunities to invest in real estate and real estate-related investments. Our real estate investments may include operating properties and development projects and our real estate-related investment may include mezzanine loans, mortgage loans, bridge loans and preferred equity interests, with a focus on development-related investments, including investments intended to finance development or redevelopment opportunities. We may also invest in debt and derivative securities related to real estate assets. A portion of our investments may be secured by or related to properties or entities advised by, or wholly or partially, directly or indirectly owned by (i) The Lightstone Group, LLC (the “Sponsor”), which served as our sponsor during our initial public offering (the “Offering”), which terminated on March 31, 2017, (ii) its affiliates and/or (iii) other real estate investment programs it sponsors. Although we expect that most of our investments will be of these various types, we may also make other investments. In fact, we may invest in whatever types of investments that we believe are in our best interests.
We currently have one operating segment. As of March 31, 2024, we majority owned and consolidated the operating results of Bedford Avenue Holdings LLC (the “Williamsburg Moxy Hotel Joint Venture”), a joint venture in which we have a 75% membership interest, and held an unconsolidated approximate 33.3% membership interest in 40 East End Ave. Pref Member LLC (the “40 East End Ave. Joint Venture”). We account for our unconsolidated membership interest in the 40 East End Ave. Joint Venture in accordance with the equity method of accounting.
The Williamsburg Moxy Hotel Joint Venture owns a 216-room branded hotel (the “Williamsburg Moxy Hotel”) located in the Williamsburg neighborhood of Brooklyn in New York City, which it developed, constructed and opened on March 7, 2023. Lightstone Value Plus REIT III, Inc. (“Lightstone REIT III”), a REIT also sponsored by the Sponsor and a related party, owns the other 25% membership interest in the Williamsburg Moxy Hotel Joint Venture, which is accounted for as noncontrolling interests in our consolidated financial statements.
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The 40 East End Ave. Joint Venture, through affiliates, developed and constructed a luxury residential 29-unit condominium project located at the corner of 81st Street and East End Avenue in the Upper East Side neighborhood of Manhattan in New York City. Through March 31, 2024, 25 of the 29 condominium units have been sold and the 40 East End Ave. Joint Venture owns the remaining four unsold units which are referred to as the 40 East End Avenue Project. Various affiliated entities majority-owned and/or controlled by David Lichtenstein, who majority owns and controls the Sponsor, own the other approximate 66.7% membership in the 40 East End Ave. Joint Venture.
Our advisor is Lightstone Real Estate Income LLC, a Delaware limited liability company (the “Advisor’’). Both the Sponsor and the Advisor are majority owned by David Lichtenstein. On September 12, 2014, the Advisor contributed $200,000 to Lightstone REIT IV in exchange for 20,000 shares of common stock (“Common Shares”) at $10.00 per share. Mr. Lichtenstein also owns 222,222 Common Shares which were issued on June 15, 2015 for $2.0 million, or $9.00 per share. Subject to the oversight of our board of directors (the “Board of Directors”) and pursuant to the terms of an advisory agreement, the Advisor has the primary responsibility for making investment decisions on our behalf and managing our day-to-day operations. Mr. Lichtenstein also acts as our Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT IV.
We have no employees. We are dependent on the Advisor and certain affiliates of our Sponsor for performing a full range of services that are essential to us, including asset management, property management (excluding our hospitality property, which is managed by unrelated third party property managers) and acquisition, disposition and financing activities, and other general administrative responsibilities; such as tax, accounting, legal, information technology and investor relations services. If the Advisor and certain affiliates of our Sponsor are unable to provide these services to us, we would be required to provide the services ourselves or obtain the services from other parties.
Our Common Shares are not currently listed on a national securities exchange. We may seek to list our Common Shares for trading on a national securities exchange only if a majority of our independent directors believe listing would be in the best interest of our stockholders. We do not intend to list our shares at this time. We do not anticipate that there would be any active market for our Common Shares until they are listed for trading.
Noncontrolling Interests in Consolidated Subsidiaries
Noncontrolling interests in consolidated subsidiaries represents Lightstone REIT III’s 25% share of the equity in the Williamsburg Moxy Hotel Joint Venture. Income and losses attributable to the Williamsburg Moxy Hotel Joint Venture are allocated to the noncontrolling interest holder based on its ownership percentage.
Related Parties
Our Sponsor, Advisor and their affiliates are related parties of ours as well as other public REITs also sponsored and/or advised by these entities. Pursuant to the terms of various agreements, certain of these entities are entitled to compensation and reimbursement of costs incurred for services related to the investment, development, management and disposition of our assets. The compensation is generally based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements.
Subordinated Advances – Related Party
On March 18, 2016, we and the Sponsor entered into a subordinated unsecured loan agreement (the “Subordinated Loan Agreement”) pursuant to which the Sponsor made aggregate principal advances of $12.6 million to us through March 31, 2017 (the termination date of the Offering). The outstanding principal advances bear interest at a rate of 1.48%, but no interest or principal is due and payable to the Sponsor until holders of our Common Shares have received liquidation distributions equal to their respective net investments (defined as $10.00 per Common Share) plus a cumulative, pre-tax, non-compounded annual return of 8.0% on their respective net investments.
In the event of our liquidation, the distribution of any available net proceeds initially will be made to holders of our Common Shares until they have received liquidation distributions equal to their respective net investments plus a cumulative, pre-tax, non-compounded annual return of 8.0% on their respective net investment. Thereafter, only if additional liquidating distributions are available, we will be obligated to repay the outstanding principal advances and related accrued interest to the Sponsor. In the event that any additional liquidation distributions are still available, 85% of the aggregate will be payable to the holders of our Common Shares and the remaining 15% to the Sponsor.
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The outstanding principal advances and the related accrued interest are subordinate to all of our obligations as well as to the holders of our Common Shares in an amount equal to the shareholder’s net investment plus a cumulative, pre-tax, non-compounded annual return of 8.0% and only potentially payable to the Sponsor in connection with our liquidation.
As a result of the termination of the Offering on March 31, 2017, the Sponsor is no longer obligated to make any additional principal advances to us. However, interest will continue to accrue on the outstanding principal advances and the repayment, if any, of the principal advances and related accrued interest will be made according to the terms of the Subordinated Loan Agreement discussed above.
As of March 31, 2024 and December 31, 2023, the aggregate outstanding principal advances and related accrued interest were $14.1 million and $14.0 million, respectively, which are classified as Subordinated advances - related party on our consolidated balance sheet.
During the three months ended March 31, 2024 and 2023, we accrued $46,483 and $46,098, respectively of interest on the principal advances.
Concentration of Credit Risk
As of March 31, 2024 and December 31, 2023, we had cash deposited in certain financial institutions in excess of U.S. federally insured levels. We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk with respect to our cash and cash equivalents or restricted cash.
Current Environment
Our operating results and financial condition are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility and banking failures, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, inflation and recession.
Our overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation, higher interest rates, certain labor and supply chain challenges and other changes in economic conditions may adversely affect our results of operations and financial performance.
We are not currently aware of any other material trends or uncertainties, favorable or unfavorable, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from our operations, other than those referred to above or throughout this Quarterly Report on Form 10-Q. The preparation of financial statements in conformity with generally accepted accounting principles in the U.S. (“GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period.
Portfolio Summary
As of March 31, 2024, we majority owned and consolidated the operating results of the Williamsburg Moxy Hotel Joint Venture, a joint venture in which we have a 75% membership interest, and held an unconsolidated approximate 33.3% membership interest in the 40 East End Ave. Joint Venture. We account for our unconsolidated membership interest in the 40 East End Ave. Joint Venture in accordance with the equity method of accounting.
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The Williamsburg Moxy Hotel Joint Venture developed and constructed the Williamsburg Moxy Hotel, which opened for business on March 7, 2023. Lightstone REIT III, a REIT also sponsored by the Sponsor and a related party, owns the other 25% membership interest in the Williamsburg Moxy Hotel Joint Venture, which is accounted for as noncontrolling interests in our consolidated financial statements.
Hospitality
| Location | Year Built | Date Opened | For the Three Months Ended March 31, 2024 |
Percentage Occupied for the Three Months Ended March 31, 2024 |
Revenue per Available Room (“RevPAR”) for the Three Months Ended March 31, 2024 |
Average Daily Rate (“ADR”) for the Three Months Ended March 31, 2024 |
|||||||||||||||
| Williamsburg Moxy Hotel | Williamsburg, New York | 2023 | 3/7/2023 | 19,656 | 78% | $ | 147.84 | $ | 189.67 | ||||||||||||
The 40 East End Ave. Joint Venture, through affiliates, developed and constructed a luxury residential 29-unit condominium project located at the corner of 81st Street and East End Avenue in the Upper East Side neighborhood of Manhattan in New York City. Through March 31, 2024, 25 of the 29 units in the 40 East End Project have been sold and the 40 East End Ave. Joint Venture owns the remaining four unsold units which are referred to as the 40 East End Project. Various affiliated entities majority-owned and/or controlled by David Lichtenstein, who also majority owns and controls the Sponsor, own the other approximate 66.7% membership interest in the 40 East End Ave. Joint Venture.
The following information generally applies to our investments in our real estate properties:
| ● | we believe our real estate properties are adequately covered by insurance and suitable for their intended purpose; |
| ● | our real estate properties are located in markets where we are subject to competition; and |
| ● | depreciation is provided on a straight-line basis over the estimated useful life of the applicable improvements. |
Critical Accounting Policies and Estimates
There were no material changes during the three months ended March 31, 2024 to our critical accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2023.
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Results of Operations
Opening of Williamsburg Moxy Hotel
On March 7, 2023, the Williamsburg Moxy Hotel Joint Venture, which we majority own and consolidate in our financial statements, substantially completed the construction and development of the Williamsburg Moxy Hotel located in the Williamsburg neighborhood of the borough of Brooklyn in New York City and it opened for business. However, certain of its food and beverage venues subsequently opened during the second quarter of 2023.
Accordingly, our consolidated hotel revenues, hotel operating expenses, real estate taxes, pre-opening costs and depreciation and amortization are all attributable to the operations of the Williamsburg Moxy Hotel. Because the Williamsburg Moxy Hotel was under development and construction prior to its opening date, it had no operating results during all periods before March 7, 2023.
Comparison of the three months ended March 31, 2024 vs. March 31, 2023
Consolidated
During the three months ended March 31, 2024, the Williamsburg Moxy Hotel was 78% occupied and had RevPAR of $147.84 and ADR of $189.67.
Hotel revenues
Our hotel revenues are comprised of room revenue and food, beverage and other revenue. On March 7, 2023, the Williamsburg Moxy Joint Venture substantially completed the development and construction of the Williamsburg Moxy Hotel and it opened for business. Additionally, certain of its food and beverage venues subsequently opened during the second quarter of 2023.
Total hotel revenues were $4.6 million and $1.0 million for the three months ended March 31, 2024 and 2023, respectively. Room revenues were $2.9 million and $0.6 million and food, beverage and other revenues were $1.7 million and $0.4 million for the three months ended March 31, 2024 and 2023, respectively.
Hotel operating expenses
Total hotel operating expenses were $4.6 million and $1.3 million for the three months ended March 31, 2024 and 2023, respectively. Room expenses were $2.7 million and $0.7 million and food and beverage costs were $1.9 million and $0.6 million for the three months ended March 31, 2024 and 2023, respectively. These increases are attributable to a full quarter of operations during 2024 for the Williamsburg Moxy Hotel, which opened on March 7, 2023.
General and administrative expenses
General and administrative expenses increased by $0.2 million to $0.5 million during the three months ended March 31, 2024 compared to $0.3 million for the same period in 2023. The increase is primarily due to an increase in asset management fees related to the Williamsburg Moxy Hotel, which opened on March 7, 2023.
Depreciation and amortization
Depreciation and amortization expense increased by $0.6 million to $0.9 million during the three months ended March 31, 2024 compared to $0.3 million for the same period in 2023. This increases was attributable to a full quarter of depreciation expense during the three months ended March 31, 2024 for the Williamsburg Moxy Hotel.
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Interest expense
Interest expense was $3.4 million and $0.9 million for the three months ended March 31, 2024 and 2023, respectively. Interest expense is attributable to the financing associated with the Williamsburg Moxy Hotel and the outstanding principal advances of $12.6 million (included in Subordinated Advances – Related Party on the Consolidated Balance Sheets). The significant increase in interest expense is directly attributable to the cessation of the capitalization of all interest expense associated with the Williamsburg Moxy Hotel when its construction was substantially completed and it opened on March 7, 2023. During 2023 (from January 1, 2023 through March 7, 2023), $2.0 million of interest attributable to the Moxy Construction Loan was capitalized to the carrying value of the Williamsburg Moxy Hotel because it was under construction.
Loss from investment in unconsolidated affiliated real estate entity
Our loss from investment in unconsolidated affiliated real estate entity is solely attributable to our ownership interest in the 40 East End Ave. Joint Venture. The losses from our investment in the 40 East End Ave. Joint Venture was $0.1 million and $0.2 million for the three months ended March 31, 2024 and 2023, respectively. We account for our investment in the 40 East End Ave. Joint Venture in accordance with the equity method of accounting.
Pre-opening costs
Pre-opening costs generally consist of non-recurring personnel, marketing and other costs. In preparation for the opening of the Williamsburg Moxy Hotel, which opened on March 7, 2023, we incurred pre-opening costs of $1.7 million during the three months ended March 31, 2023.
Noncontrolling interests
The net earnings allocated to noncontrolling interests relates to Lightstone REIT III’s 25% membership interest in the Williamsburg Moxy Hotel Joint Venture.
Financial Condition, Liquidity and Capital Resources
As of March 31, 2024, we had cash and cash equivalents of $4.1 million and restricted cash of $1.0 million. We currently believe that our available cash on hand, cash flows generated from the Williamsburg Moxy Hotel, which opened on March 7, 2023, capital contributions received from Lightstone REIT III for the Williamsburg Moxy Joint Venture, and distributions received from the 40 East End Ave. Joint Venture will be sufficient to satisfy our expected cash requirements for at least twelve months from the date of filing this report, which primarily consist of anticipated operating expenses, scheduled debt service, any necessary capital contributions to the 40 East End Ave. Joint Venture and distributions to our shareholders, if any, required to maintain our qualification as a REIT for the foreseeable future.
We intend to limit our aggregate long-term permanent borrowings to 75% of the aggregate fair market value of all properties unless any excess borrowing is approved by a majority of the independent directors and is disclosed to our stockholders. Market conditions will dictate our overall leverage limit; as such our aggregate long-term permanent borrowings may be less than 75% of aggregate fair market value of all properties. We may also incur short-term indebtedness, having a maturity of two years or less.
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Our charter provides that the aggregate amount of our borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a justification showing that a higher level is appropriate, the approval of our Board of Directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. Market conditions will dictate our overall leverage limit; as such our aggregate borrowings may be less than 300% of net assets.
Our future borrowings may consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. Such mortgages may be put in place either at the time we acquire a property or subsequent to our purchasing a property for cash. In addition, we may acquire properties that are subject to existing indebtedness where we choose to assume the existing mortgages. Generally, though not exclusively, we intend to seek to encumber our properties with non-recourse debt. This means that a lender’s rights on default will generally be limited to foreclosing on the property. However, we may, at our discretion, secure recourse financing or provide a guarantee to lenders if we believe this may result in more favorable terms. When we give a guaranty for a property owning entity, we will be responsible to the lender for the satisfaction of the indebtedness if it is not paid by the property owning entity.
In general the type of future financing executed by us to a large extent will be dictated by the nature of the investment and current market conditions. For long-term real estate investments, it is our intent to finance future acquisitions using long-term fixed rate debt. However there may be certain types of investments and market circumstances which may result in variable rate debt being the more appropriate choice of financing. To the extent floating rate debt is used to finance the purchase of real estate, management will evaluate a number of protections against significant increases in interest rates, including the purchase of interest rate cap instruments.
We may also obtain lines of credit to be used to acquire real estate and/or real estate related investments. If obtained, these lines of credit will be at prevailing market terms and will be repaid from the sale or refinancing of real estate and/or real estate related investments, working capital and/or permanent financing. The Sponsor and/or its affiliates may guarantee our lines of credit although they are not obligated to do so. We expect that such properties may be purchased by the Sponsor’s affiliates on our behalf, in our name, in order to minimize the imposition of a transfer tax upon a transfer of such properties to us.
We have agreements with the Advisor to pay certain fees, in exchange for services performed by the Advisor and/or its affiliated entities. As of March 31, 2024 and December 31, 2023, we owed the Advisor and its affiliated entities $372,306 and $463,876, respectively, which is included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets.
The advisory agreement has a one-year term and is renewable for an unlimited number of successive one-year periods upon the mutual consent of our Advisor and our independent directors. Payments to our Advisor or its affiliates may include asset acquisition fees and the reimbursement of acquisition-related expenses, development fees and the reimbursement of development-related costs, financing coordination fees, asset management fees or asset management participation, and construction management fees. We may also reimburse our Advisor and its affiliates for actual expenses it incurs for administrative and other services provided for us. Upon the liquidation of our assets, we may pay our Advisor or its affiliates a disposition commission.
The following table represents the fees incurred associated with the payments to the Advisor for the periods indicated:
| For the Three Months Ended March 31, |
||||||||
| 2024 | 2023 | |||||||
| Development fees and cost reimbursement(1) | $ | - | $ | 286,042 | ||||
| Asset management fees (general and administrative costs) | 243,154 | 60,257 | ||||||
| Total | $ | 243,154 | $ | 346,299 | ||||
| (1) | Development fees and the reimbursement of development-related costs that we pay to the Advisor and its affiliates are capitalized and are included in the carrying value of the Williamsburg Moxy Hotel. |
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Summary of Cash Flows
The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below:
| For the Three Months Ended March 31, 2024 |
For the Three Months Ended March 31, 2023 |
|||||||
| Cash flows (used in)/provided by operating activities | $ | (2,158,105 | ) | $ | 2,650,663 | |||
| Cash flows used in investing activities | (350,959 | ) | (7,824,469 | ) | ||||
| Cash flows (used in)/provided by financing activities | (122,479 | ) | 8,747,280 | |||||
| Change in cash, cash equivalents and restricted cash | (2,631,543 | ) | 3,573,474 | |||||
| Cash, cash equivalents and restricted cash, beginning of the year | 7,731,819 | 9,504,594 | ||||||
| Cash, cash equivalents and restricted cash, end of the period | $ | 5,100,276 | $ | 13,078,068 | ||||
Operating activities
The cash used in operating activities of $2.2 million during the three months ended March 31, 2024 consisted of our net loss of $4.9 million less non cash interest expense of $1.5 million, depreciation and amortization of $0.9 million, amortization of deferred financing costs of $0.2 million and our loss from our investment in unconsolidated affiliated real estate entity of $0.1 million.
Investing activities
The cash used in investing activities during the three months ended March 31, 2024 of $0.4 million consisted primarily of residual development and construction costs associated with the Williamsburg Moxy Hotel.
Financing activities
The cash used in financing activities during the three months ended March 31, 2024 of $0.1 million consisted of payment of loan fees and expense of $0.1 million and redemptions and cancellation of shares of Common Shares of $0.2 million partially offset by proceeds from the construction financing for the Williamsburg Moxy Hotel of $0.1 million and capital contributions made by Lightstone REIT III to the Williamsburg Moxy Hotel Joint Venture of $0.1 million.
Williamsburg Moxy Hotel
On July 17, 2019, we, through our then wholly owned subsidiary, Bedford Avenue Holdings LLC, acquired land parcels located at 353-361 Bedford Avenue in the Williamsburg neighborhood of the borough of Brooklyn in New York City for the development and construction of the Williamsburg Moxy Hotel. On March 7, 2023, the development and construction of the Williamsburg Moxy Hotel was substantially completed and it opened for business. Subsequently, certain of its food and beverage venues opened during the second quarter of 2023.
Williamsburg Moxy Hotel Joint Venture
On August 5, 2021, we formed the Williamsburg Moxy Hotel Joint Venture with Lightstone REIT III, pursuant to which Lightstone REIT III acquired 25% of our membership interest in Bedford Avenue Holdings LLC for aggregate consideration of $7.9 million. Subsequent to its acquisition, Lightstone REIT III has made capital contributions to the Williamsburg Moxy Hotel Joint Venture aggregating $6.4 million through March 31, 2024, including $0.1 million made during the three months ended March 31, 2024.
As a result, we and Lightstone REIT III have 75% and 25% membership interests, respectively, in the Williamsburg Moxy Hotel Joint Venture. Additionally, we are the managing member of the Williamsburg Moxy Hotel Joint Venture and Lightstone REIT III has consent rights with respect to all major decisions.
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We have determined that the Williamsburg Moxy Hotel Joint Venture is a variable interest entity, or VIE, and we are the primary beneficiary. As we are the member most closely associated with the Williamsburg Moxy Hotel Joint Venture and therefore have the power to direct the activities of the Williamsburg Moxy Hotel Joint Venture that most significantly impact its performance, we have consolidated the operating results and financial condition of the Williamsburg Moxy Hotel Joint Venture and accounted for the ownership interest of Lightstone REIT III as noncontrolling interests commencing on August 5, 2021. Earnings, contributions and distributions are allocated in accordance with each investor’s ownership percentage.
On August 5, 2021, the Williamsburg Moxy Hotel Joint Venture entered into a development agreement (the “Development Agreement”) with an affiliate of the Advisor (the “Williamsburg Moxy Developer”) pursuant to which the Williamsburg Moxy Developer was paid a development fee equal to 3% of hard and soft costs, as defined in the Development Agreement, incurred in connection with the development and construction of the Williamsburg Moxy Hotel. Additionally on August 5, 2021, the Williamsburg Moxy Hotel Joint Venture obtained construction financing for the Williamsburg Moxy Hotel as discussed below. Furthermore, the Advisor and its affiliates were reimbursed for certain development-related costs attributable to the Williamsburg Moxy Hotel. See Note 6 of the Notes to the Consolidated Financial Statements for additional information.
Moxy Construction Loan
On August 5, 2021, the Williamsburg Moxy Hotel Joint Venture entered into a recourse construction loan facility with a financial institution for up to $77.0 million (the “Moxy Construction Loan”) to fund certain of the development, construction and certain pre-opening costs associated with the Williamsburg Moxy Hotel. The Moxy Construction Loan, which was scheduled to initially mature on February 5, 2024, was further extended to May 4, 2024. The Moxy Construction Loan was collateralized by the Williamsburg Moxy Hotel. The Moxy Construction Loan provided for a replacement benchmark rate in connection with the phase-out of LIBOR and effective after June 30, 2023, the Moxy Construction Loan’s interest rate converted from LIBOR plus 9.00%, with a floor of 9.50%, to SOFR plus 9.11%, with a floor of 9.61%. The Moxy Construction Loan requires monthly interest-only payments based on a rate of 7.50% and the excess is added to the outstanding loan balance due at maturity. SOFR as of March 31, 2024 and December 31, 2023 was 5.32% and 5.35%, respectively.
As of March 31, 2024 and December 31, 2023, the outstanding principal balance of the Moxy Construction Loan was $85.4 million (including $8.4 million of interest added to principal) which is presented, net of deferred financing fees of $38,500 and $83.8 million (including $6.9 million of excess interest added to principal) which is presented, net of deferred financing fees of $148,665, respectively, on the consolidated balance sheets and is classified as mortgage payable, net. As of March 31, 2024, the Williamsburg Moxy Construction Loan’s interest rate was 14.43%.
During 2023 (from January 1, 2023 through March 7, 2023) $2.0 million of interest attributable to the Moxy Construction Loan was capitalized to the carrying value of the Williamsburg Moxy Hotel because it was under construction.
In connection with the Moxy Construction Loan, the Williamsburg Moxy Hotel Joint Venture provided certain completion and carry cost guarantees. Furthermore, in connection with the Moxy Construction Loan, the Williamsburg Moxy Hotel Joint Venture paid $3.7 million of loan fees and expenses and accrued $0.8 million of loan exit fees which are included in other liabilities on the balance sheets as of March 31, 2024 and December 31, 2023.
Moxy Mortgage Loans
On April 19, 2024, the Williamsburg Moxy Joint Venture entered into an $86.0 million senior mortgage loan facility (the “Moxy Senior Loan”) and a $9.0 million junior mortgage loan facility (the “Moxy Junior Loan” and together with the Moxy Senior Loan, the “Moxy Mortgage Loans”) with unrelated third parties.
The Moxy Mortgage Loans bear interest at SOFR plus 5.10%, subject to a 8.75% floor (10.42% as of March 31, 2024). The Moxy Mortgage Loans initially mature on April 19, 2027, but may be further extended though the exercise of two six-month extension options, subject to the satisfaction of certain conditions. The Moxy Mortgage Loans require monthly interest-only payments with their outstanding principal due in full at maturity and are collateralized by the Williamsburg Moxy Hotel, however, the Moxy Junior Loan is subordinate to the Moxy Senior Loan. The Williamsburg Moxy Hotel Joint Venture used $85.8 million of the aggregate proceeds from the Moxy Mortgage Loans in connection with the payoff of the Moxy Construction Loan consisting of the outstanding indebtedness (principal and interest) of $86.0 million and accrued exit fees of $0.8 million, net of restricted escrows of $1.0 million.
In connection with the Moxy Mortgage Loans, the Williamsburg Moxy Hotel Joint Venture has provided certain interest and carry costs guarantees. Furthermore, in connection with the Moxy Mortgage Loans, $3.2 million of the initial proceeds advanced at closing were used to fund reserves for interest, real estate taxes and insurance. Additionally, the Williamsburg Moxy Hotel Joint Venture paid an aggregate of $2.8 million of loan fees and expenses in connection with the Moxy Mortgage Loans.
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40 East End Ave. Joint Venture
On March 31, 2017, we acquired an approximate 33.3% membership interest in the 40 East End Ave. Joint Venture from SAYT Master Holdco LLC, an entity majority-owned and controlled by David Lichtenstein, who also majority owns and controls the Sponsor, a related party, for aggregate consideration of $10.3 million. The remaining approximate 66.7% of the membership interest in the 40 East End Ave. Joint Venture is owned by SAYT Master Holdco, LLC and other affiliated entities of the Sponsor.
Our ownership interest in the 40 East End Ave. Joint Venture is a non-managing interest. Because we exert significant influence over but do not control the 40 East End Ave. Joint Venture, we account for our ownership interest in the 40 East End Ave. Joint Venture in accordance with the equity method of accounting. All contributions to and distributions of earnings from the 40 East End Ave. Joint Venture are made on a pro rata basis in proportion to each member’s equity interest percentage. Any distributions in excess of earnings from the 40 East End Ave. Joint Venture are made to the members pursuant to the terms of its operating agreement. We commenced recording our allocated portion of earnings and cash distributions from the 40 East End Ave. Joint Venture beginning as of March 31, 2017.
The 40 East End Ave. Joint Venture, through affiliates, developed and constructed a luxury residential 29-unit condominium project located at the corner of 81st Street and East End Avenue in the Upper East Side neighborhood of Manhattan in New York City. Through March 31, 2024, 25 of the 29 units have been sold and the 40 East End Ave. Joint Venture owns the remaining four unsold units, which are referred to as the 40 East End Avenue Project.
Distributions on Common Shares
On March 25, 2020, the Board of Directors determined to suspend regular monthly distributions for months ending after March 2020.
Future distributions, if any, declared will be at the discretion of the Board of Directors based on their analysis of the Company’s performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, operating and interest expenses, the Company’s ability to refinance near-term debt, as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. The Company cannot assure that any future distributions will be made or that it will maintain any particular level of distributions that it has previously established or may establish.
SRP
Our share repurchase program (the “SRP”) may provide our stockholders with limited, interim liquidity by enabling them to sell their Common Shares back to us, subject to restrictions.
On March 25, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of all redemptions.
Effective May 10, 2021, our Board of Directors reopened the SRP only for redemptions submitted in connection with either ag stockholder’s death or hardship and set the price for all such purchases at our estimated net asset value per share, as determined by the Board of Directors and reported by the Company from time to time, on the date of redemption. Additionally, beginning on January 1, 2022, any requests for redemptions in connection with a stockholder’s death must be submitted and received by us within one year of the stockholder’s date of death for consideration.
Our Board of Directors has established that on an annual basis we will not redeem in excess of 0.5% of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Redemption requests are expected to be processed on a quarterly basis and may be subject to pro ration if either type of redemption requests exceed the annual limitation.
For the three months ended March 31, 2024, we repurchased 22,466 Common Shares at a weighted average price per share of $10.00. For the three months ended March 31, 2023, we repurchased 32,929 Common Shares at a weighted average price per share of $8.58.
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ITEM 4. CONTROLS AND PROCEDURES.
As of the end of the period covered by this report, management, including our chief executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of the evaluation, our chief executive officer and principal financial officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.
There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no material weaknesses identified in the evaluation, and therefore, no corrective actions were taken.
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PART II. OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS.
From time to time in the ordinary course of business, we may become subject to legal proceedings, claims or disputes.
As of the date hereof, we are not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on our results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, we have not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
During the period covered by this Form 10-Q, we did not sell any unregistered securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
|
Exhibit Number |
Description | |
| 31.1* | ||
| 31.2* | ||
| 32.1* | ||
| 32.2* | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.” | |
| 101* |
XBRL (eXtensible Business Reporting Language). The following financial information from Lightstone Value Plus REIT IV, Inc. on Form 10-Q for the quarter ended March 31, 2024, filed with the SEC on May 15, 2024, formatted in XBRL includes: (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations, (3) Consolidated Statements of Stockholders’ Equity, (4) Consolidated Statements of Cash Flows, and (5) the Notes to the Consolidated Financial Statement. |
| * | Filed herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
LIGHTSTONE VALUE PLUS REIT IV, INC. | ||
| Date: May 15, 2024 | By: | /s/ David Lichtenstein |
| David Lichtenstein | ||
|
Chairman and Chief Executive Officer (Principal Executive Officer) | ||
| Date: May 15, 2024 | By: | /s/ Seth Molod |
| Seth Molod | ||
|
Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) |
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