10-Q 1 mvp_reit_ii_10q_6302017.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: 333-205893
MVP REIT II, INC.
(Exact name of registrant as specified in its charter)

MARYLAND
 
47-3945882
(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 (Sec. 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 [  ]
Smaller reporting company [   ]
Emerging growth company [ X ]
 

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 Act).

Yes [   ] No [X]
 
As of August 21, 2017, the registrant had 2,573,939 shares of common stock outstanding. 

 
TABLE OF CONTENTS

   
Page
     
 
     
     
 
     
 
     
 
     
 
     
 
     
     
     
     
 
     
     
     
 54
     
 54
     
54
     
     
     
 
     
 
Exhibit 31.1
 
     
 
Exhibit 31.2
 
     
 
Exhibit 32
 
MVP REIT II, Inc.
(A Maryland Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
   
June 30, 2017
   
December 31, 2016
 
   
(unaudited)
       
ASSETS
 
Investments in real estate
           
Land and improvements
 
$
60,261,000
   
$
28,854,000
 
Buildings and improvements
   
77,852,000
     
24,889,000
 
Construction in progress
   
979,000
     
--
 
     
139,092,000
     
53,743,000
 
Accumulated depreciation
   
(1,092,000
)
   
(195,000
)
Total investments in real estate, net
   
138,000,000
     
53,548,000
 
                 
Investment in equity method investee
   
464,000
     
1,150,000
 
Investments in cost method investee – held for sale
   
838,000
     
836,000
 
Investments in cost method investee
   
931,000
     
936,000
 
Assets held for sale
   
730,000
     
700,000
 
Cash
   
2,692,000
     
4,885,000
 
Cash - restricted
   
4,772,000
     
100,000
 
Prepaid expenses
   
411,000
     
283,000
 
Accounts receivable
   
295,000
     
208,000
 
Investments in MVP REIT, Inc.
   
3,121,000
     
3,034,000
 
Investment in DST
   
2,821,000
     
--
 
Other assets
   
359,000
     
4,575,000
 
Total assets
 
$
155,434,000
   
$
70,255,000
 
LIABILITIES AND EQUITY
 
Liabilities
               
Notes payable, net of unamortized loan issuance costs of approximately $0.9 million and $0.1 million as of June 30, 2017 and December 31, 2016, respectively
 
$
68,567,000
   
$
5,318,000
 
Lines of credit, net of unamortized loan issuance costs of approximately $0.2 million as of June 30, 2017 and December 31, 2016, respectively
   
17,443,000
     
7,957,000
 
Accounts payable and accrued liabilities
   
1,357,000
     
485,000
 
Security Deposit
   
148,000
     
2,000
 
Due to related parties
   
95,000
     
575,000
 
Liabilities related to assets held for sale
   
38,000
     
--
 
Deferred revenue
   
104,000
     
45,000
 
Total liabilities
   
87,752,000
     
14,382,000
 
Commitments and contingencies
   
--
     
--
 
Equity
               
MVP REIT II, Inc. Stockholders' Equity
               
Preferred stock Series A, $0.0001 par value, 50,000 shares authorized, 2,862 shares issued and outstanding
   
--
     
--
 
Preferred stock Series 1; $0.0001 par value, 97,000 shares authorized, 5,070 shares issued and outstanding
   
--
     
--
 
Non-voting, non-participating convertible stock, $0.0001 par value, no shares issued and outstanding
   
--
     
--
 
Common stock, $0.0001 par value, 98,999,000 shares authorized, 2,559,286 and 2,301,828 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
   
--
     
--
 
Additional paid-in capital
   
69,350,000
     
56,875,000
 
Accumulated deficit
   
(10,539,000
)
   
(5,126,000
)
Total MVP REIT II, Inc. Shareholders' Equity
   
58,811,000
     
51,749,000
 
Non-controlling interest – related party
   
8,871,000
     
4,124,000
 
Total equity
   
67,682,000
     
55,873,000
 
Total liabilities and equity
 
$
155,434,000
   
$
70,255,000
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MVP REIT II, Inc.
(A Maryland Corporation)
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
 
$
2,536,000
   
$
69,000
   
$
4,559,000
   
$
69,000
 
Total revenues
   
2,536,000
     
69,000
     
4,559,000
     
69,000
 
 
                               
Operating expenses
                               
General and administrative
   
323,000
     
184,000
     
651,000
     
335,000
 
Merger costs
   
647,000
     
--
     
772,000
     
--
 
Acquisition expenses
   
277,000
     
218,000
     
2,043,000
     
218,000
 
Acquisition expenses – related party
   
592,000
     
307,000
     
1,710,000
     
416,000
 
Operation and maintenance
   
158,000
     
20,000
     
524,000
     
20,000
 
Operation and maintenance – related party
   
257,000
     
15,000
     
494,000
     
15,000
 
Seminar
   
--
     
6,000
     
--
     
6,000
 
Depreciation
   
471,000
     
3,000
     
896,000
     
3,000
 
Total operating expenses
   
2,725,000
     
753,000
     
7,090,000
     
1,013,000
 
                                 
Income (loss) from operations
   
(189,000
)
   
(684,000
)
   
(2,531,000
)
   
(944,000
)
                                 
Other income (expense)
                               
Interest expense
   
(1,053,000
)
   
--
     
(1,849,000
)
   
(1,000
)
Distribution income – related party
   
47,000
     
--
     
99,000
     
--
 
Income from investment in equity method investee
   
3,000
     
5,000
     
17,000
     
4,000
 
Total other expense
   
(1,003,000
)
   
5,000
     
(1,733,000
)
   
3,000
 
                                 
Net loss
   
(1,192,000
)
   
(679,000
)
   
(4,264,000
)
   
(941,000
)
Net income attributable to non-controlling interest – related party
   
200,000
     
3,000
     
228,000
     
3,000
 
Net loss attributable to MVP REIT II, Inc.'s stockholders
 
$
(1,392,000
)
 
$
(682,000
)
 
$
(4,492,000
)
 
$
(944,000
)
                                 
Preferred stock distributions Series A
   
(41,000
)
   
--
     
(46,000
)
   
--
 
Preferred stock distributions Series 1
   
(14,000
)
   
--
     
(14,000
)
   
--
 
Net loss attributable to MVP REIT II, Inc.'s common stockholders
  $
(1,447,000
)
  $
(682,000
)
  $
(4,552,000
)
  $
(944,000
)
                                 
Basic and diluted loss per weighted average common share:
                               
Net loss per share attributable to MVP REIT II, Inc.'s common stockholders - basic and diluted
 
$
(0.57
)
 
$
(0.94
)
 
$
(1.83
)
 
$
(1.98
)
Distributions declared per common share
 
$
0.35
   
$
0.16
   
$
0.37
   
$
0.29
 
Weighted average common shares outstanding, basic and diluted
   
2,545,100
     
726,887
     
2,485,492
     
476,310
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MVP REIT II, Inc.
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
For the Six Months Ended June 30, 2017
 (Unaudited)
   
Preferred 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
   
--
   
$
--
     
2,301,828
   
$
--
   
$
56,875,000
   
$
(5,126,000
)
 
$
4,124,000
   
$
55,873,000
 
                                                                 
Distributions to non-controlling interest
   
--
     
--
     
--
     
--
     
--
     
--
     
(1,686,000
)
   
(1,686,000
)
                                                                 
Issuance of common stock
   
--
     
--
     
196,985
     
--
     
4,925,000
     
--
     
--
     
4,925,000
 
                                                                 
Issuance of common stock – DRIP
   
--
     
--
     
23,653
     
--
     
591,000
     
--
     
--
     
591,000
 
                                                                 
Issuance of preferred Series A
   
2,862
     
--
     
--
     
--
     
2,573,000
     
--
     
--
     
2,573,000
 
                                                                 
Issuance of preferred Series 1
   
5,070
     
--
     
--
     
--
     
4,446,000
     
--
     
--
     
4,446,000
 
                                                                 
Contributions
   
--
     
--
     
--
     
--
     
--
     
--
     
6,264,000
     
6,264,000
 
                                                                 
Consolidation of Houston Preston
   
--
     
--
     
--
     
--
     
--
     
--
     
(59,000
)
   
(59,000
)
                                                                 
Distributions - Common
   
--
     
--
     
--
     
--
     
(921,000
)
   
--
     
--
     
(921,000
)
                                                                 
Distributions – Series A
   
--
     
--
     
--
     
--
     
(46,000
)
   
--
     
--
     
(46,000
)
                                                                 
Distributions – Series 1
   
--
     
--
     
--
     
--
     
(14,000
)
   
--
     
--
     
(14,000
)
                                                                 
Stock dividend
   
--
     
--
     
36,820
     
--
     
921,000
     
(921,000
)
   
--
     
--
 
                                                                 
Net loss
   
--
     
--
     
--
     
--
     
--
     
(4.492,000
)
   
228,000
     
(4,264,000
)
Balance, June 30, 2017
   
7,932
   
$
--
     
2,559,286
   
$
--
   
$
69,350 ,000
   
$
(10,539,000
)
 
$
8,871,000
   
$
67,682,000
 

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

MVP REIT II, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
   
For the Six Months Ended June 30
 
   
2017
   
2016
 
Cash flows from operating activities:
           
Net Loss
 
$
(4,264,000
)
 
$
(941,000
)
Adjustments to reconcile net loss to net cash used in operating activities:
Income from investment in equity method investee
   
(17,000
)
   
(4,000
)
Distribution from MVP REIT
   
(99,000
)
   
--
 
Amortization of loan costs
   
210,000
     
--
 
Depreciation expense
   
896,000
     
3,000
 
Changes in operating assets and liabilities
               
Cash - Restricted
   
(4,672,000
)
   
--
 
Due to related parties
   
(480,000
)
   
222,000
 
Accounts payable
   
859,000
     
87,000
 
Security deposits
   
167,000
     
--
 
Deferred revenue
   
--
     
--
 
Accounts receivable
   
(87,000
)
   
(12,000
)
Prepaid expenses
   
(128,000
)
   
76,000
 
Net cash used in operating activities
   
(7,615,000
)
   
(569,000
)
                 
Cash flows from investing activities:
               
Purchase of investment in real estate
   
(81,200,000
)
   
(12,281,000
)
Security deposits
   
--
     
(1,469,000
)
Investment for 20% ownership Houston Preston, net of cash in bank account
   
(1,080,000
)
   
--
 
Investment in DST
   
(2,821,000
)
   
--
 
Building improvements
   
(1,329,000
)
   
--
 
Assets held for sale, net of liabilities
   
8,000
     
--
 
Proceeds from MVP REIT Distribution
   
12,000
         
Deposits applied to purchase of investment in real estate
   
4,216,000
     
--
 
Distribution received from investment in cost method investee
   
13,000
     
--
 
Distribution received from investment in equity method investee
   
195,000
     
--
 
Investment in cost method investee
   
(8,000
)
   
(1,346,000
)
Investment in cost method investee – held for sale
   
(2,000
)
   
(843,000
)
Investment in equity method investee
   
(50,000
)
   
(600,000
)
Proceeds from non-controlling interest
   
5,075,000
     
4,277,000
 
Net cash used in investing activities
   
(76,971,000
)
   
(12,262,000
)
                 
Cash flows from financing activities
               
Proceeds from note payable
   
66,422,000
     
--
 
Payments on note payable
   
(390,000
)
   
(91,000
)
Proceeds from of line of credit
   
29,243,000
     
--
 
Loan fees paid
   
(937,000
)
   
--
 
Payments made on line of credit
   
(19,813,000
)
   
--
 
Distribution to non-controlling interest
   
(1,686,000
)
   
--
 
Proceeds from issuance of common stock
   
5,516,000
     
22,422,000
 
Proceeds from issuance of preferred stock
   
5,019,000
     
--
 
Distribution made to common stockholders
   
(921,000
)
   
(57,000
)
Distribution made to preferred stockholders
   
(60,000
)
   
--
 
Net cash provided by financing activities
   
82,393,000
     
22,274,000
 
Net change in cash
   
(2,193,000
)
   
9,443,000
 
Cash, beginning of period
   
4,885,000
     
2,268,000
 
Cash, end of period
 
$
2,692,000
   
$
11,711,000
 
Supplemental disclosures of cash flow information:
               
Interest Paid
 
$
1,639,000
   
$
--
 
Non-cash investing and financing activities:
               
Distributions - DRIP
 
$
217,000
   
$
81,000
 
Dividend shares
 
$
921,000
   
$
137,000
 
Deposits applied to purchase of investment in real estate
 
$
4,216,000
   
$
1,469,000
 
Conversion from debt to preferred shares
 
$
2,000,000
   
$
--
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
MVP REIT II, Inc.
(A Maryland Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(Unaudited)

Note A — Organization and Business Operations

MVP REIT II, Inc. (the "Company," "we," "us," or "our") is a Maryland corporation formed on May 4, 2015 and intends to qualify as a real estate investment trust ("REIT") for U.S. federal income tax purposes upon the filing of the federal tax return for the year ended December 31, 2017. The Company believes that it has been organized and has operated in a manner that has enabled it to qualify as a REIT commencing with the taxable year ending December 31, 2017; however, if the company is unable to meet the REIT qualification for 2017 we will continue to operate as a C corporation for U.S. federal income tax purposes. As of December 31, 2016, the Company ceased all selling efforts for the initial public offering (the "Common Stock Offering") of its common stock, $0.0001 par value per share, at $25.00 per share, pursuant to a registration statement on Form S-11 filed with the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended.  The Company accepted additional subscriptions through March 31, 2017, the last day of the Common Stock Offering.  As of June 30, 2017, the Company raised approximately $67.7 million in the Common Stock Offering before payment of deferred offering costs of approximately $1.1 million, contribution from the Sponsor of approximately $1.1 million and cash distributions of approximately $0.6 million. The Company has also registered $50 million in shares of common stock for issuance 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 at the current price of $25.00 per share.

The Company was formed to focus primarily on investments in parking facilities, including parking lots, parking garages and other parking structures throughout the United States and Canada. No more than 10% of the proceeds of the Common Stock Offering will be used for investment in Canadian properties.  To a lesser extent, the Company may also invest in properties other than parking facilities.

The Company is the sole general partner of MVP REIT II Operating Partnership, LP, a Delaware limited partnership (the "Operating Partnership"). The Company intends to own substantially all of its assets and conduct its operations through the Operating Partnership. The Company's wholly owned subsidiary, MVP REIT II Holdings, LLC, is the sole limited partner of the Operating Partnership. The operating agreement provides that the Operating Partnership 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 the Operating Partnership is not classified as a "publicly traded partnership" for purposes of Section 7704 of the Internal Revenue Code, which classification could result in the Operating Partnership being taxed as a corporation.

We utilize an Umbrella Partnership Real Estate Investment Trust ("UPREIT") structure to enable us to acquire real property in exchange for limited partnership interests in the Company's Operating Partnership from owners who desire to defer taxable gain that would otherwise normally be recognized by them upon the disposition of their real property or transfer of their real property to us in exchange for shares of the Company's common stock or cash.

As part of the Company's initial capitalization, we sold 8,000 shares of common stock for $200,000 to MVP Capital Partners II, LLC (the "Sponsor"), the sponsor of the Company. The Sponsor is owned 60% by Vestin Realty Mortgage II, Inc., a Maryland corporation and OTC pink sheet company ("VRM II"), and 40% by Vestin Realty Mortgage I, Inc., a Maryland corporation and OTC pink sheet company ("VRM I"), both which are managed by Vestin Mortgage, LLC, a Nevada limited liability company wholly owned by Michael Shustek.  The Company also sold 5,000 shares of common stock to VRM II in the Common Stock Offering.

The Company's advisor is MVP Realty Advisors, LLC (the "Advisor"), a Nevada limited liability company, which is owned 60% by VRM II and 40% by VRM I.  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 has no paid employees.

From inception through June 30, 2017, the Company has paid approximately $1.7 million in distributions, including issuing 42,147 shares of its common stock as DRIP, issuing 66,232 shares of its common stock as dividend in distributions to the Company's common stockholders and approximately $61,000 in distributions for preferred 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 the Common Stock Offering and other stock sales, 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.

In June 2016, the Company and MVP REIT, Inc. ("MVP REIT") 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 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. On May 26, 2017, the Company, MVP REIT, MVP Merger Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company ("Merger Sub"), and MVP Realty Advisors, LLC, the Company's and MVP REIT'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, MVP REIT 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 the Company. 

See Note P- Merger for additional information.

Capitalization

As of June 30, 2017, the Company had 2,559,286 shares of common stock issued and outstanding. During the six months ended June 30, 2017, the Company had received consideration of approximately $4.9 million for the issuance of its common stock in connection with the Common Stock Offering.  In connection with its formation, the Company sold 8,000 shares of common stock to the Sponsor for $200,000.

 On October 27, 2016, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 50,000 shares of Series A Convertible Redeemable Preferred Stock, par value $0.0001 per share (the "Series A") The Company commenced a private placement of the shares of Series A, together with warrants to acquire the Company's common stock, to accredited investors on November 1, 2016 and closed the offering on March 24, 2017.  The Company raised approximately $2.6 million, net of offering costs, in the Series A private placements and has 2,862 Series A shares issued and outstanding.

On March 29, 2017, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 97,000 shares of its authorized capital stock as shares of Series 1 Convertible Redeemable Preferred Stock par value $0.0001 per share (the "Series 1"). On April 7, 2017 the Company commenced a private placement of shares of Series 1, which is currently open, together with warrants to acquire the Company's common stock to accredited investors.  As of June 30, 2017, the Company had raised approximately $4.5 million, net of offering costs, in the Series 1 private placements and had 5,070  Series 1 shares issued and outstanding.

Stockholders may elect to reinvest distributions received from the Company in common shares by participating in the Company's DRIP. The stockholder may enroll in the DRIP by completing the distribution change form. The stockholder may also withdraw at any time, without penalty, by delivering written notice to the Company.  Participants will acquire DRIP shares at a fixed price of $25.00 per share until (i) all such shares registered in the Common Stock Offering are issued, (ii) the Common Stock Offering terminates and the Company elects to deregister any unsold shares under the DRIP, or (iii) the Company's board decides to change the purchase price for DRIP shares or terminate the DRIP for any reason. Commencing no later than May 29, 2018 (the "Valuation Date"), which is 150 days following the second anniversary of the date to satisfy the minimum offering requirement in the Offering, if the DRIP is ongoing, the Company will adjust the price of shares offered in the DRIP to equal the net asset value ("NAV") per share. The Company will update the NAV per share at least annually following the Valuation Date and further adjust the per share price in the Company's DRIP accordingly. The Company has registered $50,000,000 in shares for issuance under the DRIP.

The Company may amend, suspend or terminate the DRIP for any reason, except that the Company may not amend the DRIP to eliminate a participant's ability to withdraw from the DRIP, without first providing 10 days prior written notice to participants. The Company has suspended the DRIP in connection with the pending Merger. In addition, the Company has a Share Repurchase Program ("SRP") that may provide stockholders who generally have held their shares for at least two years an opportunity to sell their shares to the Company, subject to certain restrictions and limitations.  Prior to the date that the Company establishes an estimated value per share of common stock, the purchase price will be 95.0% of the purchase price paid for the shares if redeemed at any time between the second and third anniversaries of the purchase date, and 97.0% of the purchase price paid if redeemed after the third anniversary.  After the Company establishes an estimated NAV per share of common stock, the purchase price will be 95.0% of the NAV per share for the shares if redeemed at any time between the second and third anniversaries of the purchase date, 97.0% of the NAV per share if redeemed at any time between the third and fifth anniversaries, and 100.0% of the NAV per share if redeemed after the fifth anniversary.

The number of shares to be repurchased during a calendar quarter is limited to the lesser of: (i) 5.0% of the weighted average number of shares of common stock outstanding during 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 plus such additional funds as may be reserved for that purpose by the Company's board of directors; provided however, that the above volume limitations shall not apply to repurchases requested in connection with the death or qualifying disability of a stockholder.  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.  Redemption requests other than those made in connection with the death or disability (as defined in the Internal Revenue Code of 1986, as amended (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 June 30, 2017, no shares are eligible for redemption (other than in connection with a death or disability of a stockholder).

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 and six 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 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 financial statements as of December 31, 2016, but does not include all disclosures required by GAAP.

Consolidation

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

West 9th Street Properties II, LLC
MVP San Jose 88 Garage, LLC
MCI 1372 Street, LLC
Cincinnati Race Street, LLC
St. Louis Washington, LLC
St. Paul Holiday Garage, LLC
Louisville Station Broadway, LLC
White Front Garage Partners, LLC
Cleveland Lincoln Garage, LLC
MVP Houston Jefferson Lot, LLC
MVP Houston Preston Lot, LLC *
MVP Houston San Jacinto Lot, LLC
MVP Detroit Center Garage, LLC
St Louis Broadway, LLC
St Louis Seventh & Cerre, LLC
MVP Preferred Parking, LLC

* Entity is consolidated with the Company starting May 1, 2017.  See Note E Related Party Transactions for additional information.

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 unaudited condensed 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 seven parking tenants as of June 30, 2017 and one parking tenant as of June 30, 2016. One tenant, Standard Parking + ("SP+"), represented a 62.31% concentration for the six months ended June 30, 2017, in regards to parking base rental revenue.  Below is a table that summarizes base parking rent by tenant:

   
For the Six Months Ended
 
Parking Tenant
 
June 30, 2017
   
June 30, 2016
 
SP +
   
62.31
%
   
100.00
%
Premier Parking
   
9.10
%
   
0.00
%
ABM
   
8.60
%
   
0.00
%
Interstate Parking
   
6.95
%
   
0.00
%
iPark Services
   
6.05
%
   
0.00
%
St. Louis Parking
   
4.39
%
   
0.00
%
Riverside Parking
   
2.60
%
   
0.00
%
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.

City Concentration for Parking Base Rent
 
   
For the Six Months Ended
 
   
June 30, 2017
   
June 30, 2016
 
Detroit
   
46.1
%
   
0.0
%
Cleveland
   
13.2
%
   
100.0
%
Nashville
   
9.1
%
   
0.0
%
St Paul
   
6.9
%
   
0.0
%
St Louis
   
6.5
%
   
0.0
%
Houston
   
6.1
%
   
0.0
%
San Jose
   
4.3
%
   
0.0
%
Cincinnati
   
4.3
%
   
0.0
%
Louisville
   
2.6
%
   
0.0
%
Canton
   
0.9
%
   
0.0
%
Grand Total
   
100.0
%
   
100.0
%

Real Estate Concentration by City
 
Based on the Company's Ownership %
 
   
As of
 
   
June 30, 2017
   
June 30, 2016
 
Detroit
   
34.1
%
   
0.0
%
Houston
   
20.2
%
   
10.5
%
St. Louis
   
11.2
%
   
5.7
%
Cleveland
   
9.1
%
   
22.2
%
Nashville
   
7.1
%
   
17.4
%
St Paul
   
6.4
%
   
15.5
%
Cincinnati
   
3.5
%
   
8.5
%
San Jose
   
2.8
%
   
6.8
%
Louisville
   
2.4
%
   
5.8
%
Minneapolis
   
1.6
%
   
3.8
%
Bridgeport
   
0.6
%
   
1.4
%
Canton
   
0.5
%
   
1.3
%
Denver
   
0.5
%
   
1.1
%
Grand Total
   
100.0
%
   
100.0
%
 
-9-

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. 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 within operating expenses in the consolidated statement of operations. During the three months and six months ended June 30, 2017, the Company expensed approximately $0.6 million and $1.7 million in related party acquisition costs, respectively. The Company also had $0.3 million and $2.0 million of non-related party acquisition costs, respectively, for the purchase of an interest in three properties.  During the three and six months ended June 30, 2016, the Company expensed approximately $0.3 million and $0.4 million, respectively, in related party acquisition costs. The Company also expensed and $0.2 million and $0.2 million in non-related party acquisition costs for the three and six months ended June 30, 2016.  The Company's acquisition expenses are directly related to the Company's acquisition activity and if the Company's acquisition activity was to increase or decrease, so would the Company's 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.

Cash

Cash includes cash in bank accounts. The Company deposits cash with high quality financial institutions with the majority of its cash at KeyBank. These deposits are guaranteed by the Federal Deposit Insurance Company up to an insurance limit up of $250,000.  As of June 30, 2017 and December 31, 2016, the Company had approximately $1.4 million and $3.4 million, respectively, 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 many 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 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.

Purchase Price Allocation

The Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values. Tangible assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. The Company utilizes various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Amounts allocated to land, land improvements, buildings and fixtures are based on cost segregation studies performed by independent third parties or on the Company's analysis of comparable properties in the Company's portfolio. Identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates, the value of in-place leases, and the value of customer relationships, as applicable.  The aggregate value of intangible assets related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant. Factors considered by the Company in its analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, the Company will include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period. Estimates of costs to execute similar leases including leasing commissions, legal and other related expenses are also utilized.

Above-market and below-market in-place lease values for owned properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management's estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease intangibles are amortized as a decrease to rental income over the remaining term of the lease.

The capitalized below-market lease values will be amortized as an increase to rental income over the remaining term and any fixed rate renewal periods provided within the respective leases. In determining the amortization period for below-market lease intangibles, the Company initially will consider, and periodically evaluate on a quarterly basis, the likelihood that a lessee will execute the renewal option. The likelihood that a lessee will execute the renewal option is determined 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.

The aggregate value of intangible assets related to customer relationship, as applicable, is measured based on the Company's evaluation of the specific characteristics of each tenant's lease and the Company's overall relationship with the tenant. Characteristics considered by the Company in determining these values include the nature and extent of its existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant's credit quality and expectations of lease renewals, among other factors.

The value of in-place leases is amortized to expense over the initial term of the respective leases. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building. If a tenant terminates its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.

In making estimates of fair values for purposes of allocating purchase price, the Company will utilize a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company will also consider information obtained about each property as a result of the Company's pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.

Organization, Offering and Related Costs

Certain organization and offering costs will be incurred by the Advisor.  Pursuant to the terms of the Advisory Agreement, the Company will not reimburse the Advisor for these out of pocket costs and future organization and offering costs it may incur. Such costs shall include legal, accounting, printing and other offering expenses, including marketing, and direct expenses of the Advisor's employees and employees of the Advisor's affiliates and others.

All direct offering costs incurred and or paid by us that are directly attributable to a proposed or actual offering, including sales commissions, if any, were charged against the gross proceeds of the Offering and recorded as an offset to additional paid-in-capital.  All indirect costs will be expensed as incurred.

Offering costs were reclassified from deferred costs to stockholders' equity when the Company commenced its Offering, and included all expenses incurred by the Company in connection with its Offering as of such date.

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 is organized and conducts operations to qualify as a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended (the "Code") and to comply with the provisions of the Internal Revenue Code with respect thereto.  A REIT is generally not subject to federal income tax on that portion of its REIT taxable income ("Taxable Income"), which is distributed to its stockholders, provided that at least 90% of Taxable Income is distributed and provided that certain other requirements are met.  Our Taxable Income may substantially exceed or be less than our net income as determined based on GAAP, because, differences in GAAP and taxable net income consist primarily of allowances for loan losses or doubtful account, write-downs on real estate held for sale, amortization of deferred financing cost, capital gains and losses, and deferred income.

If the Company does not qualify as a REIT for the tax year ended December 31,2017, we will file as a C corporation and deferred tax assets and liabilities will be established for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance for the deferred tax assets is provided if we believe that it is more likely than not that we will not realize the tax benefit of deferred tax assets based on the available evidence at the time the determination is made. For the tax year ended December 31, 2016, the Company believes that it is more likely than not that it will not realize the benefits of its deferred tax assets, a valuation allowance should be recorded against our net deferred tax assets.

Per Share Data

The Company calculates basic income (loss) per share by dividing net income (loss) for the period by weighted-average shares of its common stock outstanding for the respective period. Diluted income 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 three and six months ended June 30, 2017 and 2016.

There is a potential for dilution from the Company's Series A Convertible Redeemable Preferred Stock which may be converted into the Company's common stock at any time beginning upon the earlier of (i) 90 days after the occurrence of a listing event or (ii) the second anniversary of the final closing of the offering (whether or not a listing event has occurred).  As of June 30, 2017, there were 2,862 shares of the Series A Convertible Redeemable Preferred Stock issued and outstanding.

There is a potential for dilution from the Company's Series 1 Convertible Redeemable Preferred Stock which may be converted into the Company's common stock at any time beginning upon the earlier of (i) 45 days after the occurrence of a listing event or (ii) April 7, 2019 (whether or not a listing event has occurred). As of June 30, 2017, there were 5,070 share of the Series 1 Convertible Redeemable Preferred Stock issued and outstanding.

Each share of Series A preferred stock and Series 1 preferred stock will convert into the number of shares of the Company's common stock determined by dividing (i) the stated value per Series A share or Series 1 share of $1,000 (as may be adjusted pursuant to the applicable articles supplementary) plus any accrued but unpaid dividends to, but not including, the conversion date by (ii) the conversion price.  The conversion price is equal to 100% or, if the conversion notice is received before December 1, 2017 (for Series 1 shares) or December 31, 2017 (for Series A shares), 110% of the volume weighted average price per share of the Company's common stock for the 20 trading days prior to the delivery date of the conversion notice; provided that if the Company's common stock is not then traded on a national securities exchange, the conversion price will be equal to the net asset value per share of the Company's common stock. The Company will have the right (but not the obligation) to redeem any Series A or Series 1 shares that are subject to a conversion notice on the terms set forth in the applicable articles supplementary.

Reportable Segments

We currently operate one reportable 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 Jumpstart Our Business Startups Act (the "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. 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.

Share Repurchase Program

The Company has a Share Repurchase Program ("SRP") that enables stockholders to sell their shares to the Company. Under the SRP, stockholders may request that the Company redeem all or any portion, subject to certain minimum conditions described below, if such repurchase does not impair the Company's capital or operations.

Prior to the time that the Company's shares are listed on a national securities exchange, the repurchase price per share will depend on the length of time investors have held such shares as follows: no repurchases for the first two years unless shares are being repurchased in connection with a stockholder's death or disability (as defined in the Code).  Repurchase requests made in connection with the death or disability of a stockholder will be repurchased at a price per share equal to 100% of the amount the stockholder paid for each share, or once we have established an estimated NAV per share, 100% of such amount as determined by the Company's board of directors, subject to any special distributions previously made to the Company's stockholders. With respect to all other repurchases, prior to the date that we establish an estimated value per share of common stock, the purchase price will be 95.0% of the purchase price paid for the shares, if redeemed at any time between the second and third anniversaries of the purchase date, and 97.0% of the purchase price paid if redeemed after the third anniversary.  After we establish an estimated NAV per share of common stock, the purchase price will be 95.0% of the NAV per share for the shares, if redeemed at any time between the second and third anniversaries of the purchase date, 97.0% of the NAV per share if redeemed at any time between the third and fifth anniversaries, and 100.0% of the NAV per share if redeemed after the fifth anniversary. In the event that the Company does not have sufficient funds available to repurchase all of the shares for which repurchase requests have been submitted in any quarter, we will repurchase the shares on a pro rata basis on the repurchase date. The SRP will be terminated if the Company's shares become listed for trading on a national securities exchange or if the Company's board of directors determines that it is in the Company's best interest to terminate the SRP.

The Company is not obligated to repurchase shares of common stock under the share repurchase program. The number of shares to be repurchased during the calendar quarter is limited to the lesser of: (i) 5% of the weighted average number of shares outstanding during the prior calendar year, and (ii) those repurchases that could be funded from the net proceeds of the sale of shares under the DRIP in the prior calendar year plus such additional funds as may be reserved for that purpose by the Company's board of directors; provided, however, that the above volume limitations shall not apply to repurchases requested in connection with the death or qualifying disability of a stockholder. Because of these limitations, the Company cannot guarantee that the Company will be able to accommodate all repurchase requests.

The Company will repurchase shares as of March 31st, June 30th, September 30th, and December 31st of each year.  Each stockholder whose repurchase request is approved will receive the repurchase payment approximately 30 days following the end of the applicable quarter, effective as of the last day of such quarter.  The Company refers to the last day of such quarter as the repurchase date.  If funds available for the Company's share repurchase program are not sufficient to accommodate all requests, shares will be repurchased as follows: (i) first, repurchases due to the death of a stockholder, on the basis of the date of the request for repurchase; (ii) next, in the discretion of the Company's board of directors, repurchases because of other involuntary exigent circumstances, such as bankruptcy; (iii) next, repurchases of shares held by stockholders subject to a mandatory distribution requirement under the stockholder's IRA; and (iv) finally, all other repurchase requests based upon the postmark of receipt. If the Stockholder's repurchase request is not honored during a repurchase period, the Stockholder will be required to resubmit the request to have it considered in a subsequent repurchase period.

On October 27, 2016, the Company filed a Form 8-K announcing, among other things, an amendment to the SRP providing for participation in the SRP by any holder of the Company's Series A Convertible Redeemable Preferred Stock, or any future board-authorized series or class of preferred stock that is convertible into common stock of the Company.  Under the amendment, which becomes effective on November 26, 2016, a preferred stock holder may participate in the SRP by converting its preferred stock into common stock of the Company, and submitting such common shares for repurchase. The time period, for purposes of determining how long such stockholder has held the common shares submitted for repurchase, begins as of the date such preferred stockholder acquired the underlying preferred shares that were converted into common shares and submitted for repurchase.

The board of directors may, in its sole discretion, terminate, suspend or further amend the share repurchase program upon 30 days' written notice without stockholder approval if it determines that the funds available to fund the share repurchase program are needed for other business or operational purposes or that amendment, suspension or termination of the share repurchase program is in the best interest of the stockholders.  Among other things, we may amend the plan to repurchase shares at prices different from those described above for the purpose of ensuring the Company's dividends are not "preferential" for incomes tax purposes.  Any notice of a termination, suspension or amendment of the share repurchase program will be made via a report on Form 8-K filed with the SEC at least 30 days prior to the effective date of such termination, suspension or amendment.  The board of directors may also limit the amounts available for repurchase at any time in its sole discretion.  Notwithstanding the foregoing, the share repurchase program will terminate if the shares of common stock are listed on a national securities exchange.  As of June 30, 2017, no shares are eligible for redemption (other than in connection with a death or disability of a stockholder).

Distribution Reinvestment Plan

Pursuant to the DRIP stockholders may elect to reinvest distributions by purchasing shares of common stock in lieu of receiving cash. 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 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. We have issued a total of 42,147 shares of common stock under the DRIP as of June 30, 2017. The DRIP program is currently suspended in connection with the merger.

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.

Environmental Matters

As an owner of real estate, we are subject to various environmental laws of federal, state and local governments. We do not believe that compliance with existing laws will have a material adverse effect on the Company's financial condition or results of operations. However, we cannot predict the impact of any unforeseen environmental contingencies or new or changed laws or regulations on properties in which we hold 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 that were consolidated on our balance sheet:

Property
Location
Date Acquired
Investment
Amount
Parking Tenant
Lease Commencement Date
MVP San Jose 88 Garage, LLC
San Jose, CA
6/15/2016
$3,824,000
Lanier Parking
3/01/2017
MCI 1372 Street, LLC
Canton, OH
7/8/2016
$700,000
ABM
7/8/2016
MVP Cincinnati Race Street Garage, LLC
Cincinnati, OH
7/8/2016
$5,212,000
SP +
9/1/2016
MVP St. Louis Washington, LLC
St Louis, MO
7/18/2016
$3,000,000
SP +
7/21/2016
MVP St. Paul Holiday Garage, LLC
St Paul, MN
8/12/2016
$8,200,000
Interstate Parking
8/12/2016
MVP Louisville Station Broadway, LLC
Louisville, KY
8/23/2016
$3,107,000
Riverside Parking
8/23/2016
Cleveland Lincoln Garage Owners, LLC
Cleveland, OH
10/19/2016
$7,430,000
SP +
10/25/2016
MVP Houston San Jacinto Lot, LLC
Houston, TX
11/22/2016
$3,250,000
iPark Services
12/1/2016
MVP Houston Preston Lot, LLC
Houston, TX
11/22/2016*
 $2,820,000
iPark Services
12/1/2016
White Front Garage Partners, LLC
Nashville, TN
9/30/2016
$11,496,000
Premier Parking
10/1/2016
West 9th Street Properties II, LLC**
Cleveland, OH
5/11/2016
$5,725,000
SP +
5/11/2016
33740 Crown Colony, LLC**
Cleveland, OH
5/17/2016
$3,049,000
SP +
5/17/2016
MVP Detroit Center Garage, LLC
Detroit, MI
01/10/2017
$55,079,000
SP +
2/1/2017
St Louis Broadway, LLC
St Louis, MO
02/01/2017
$2,400,000
St Louis Parking Co
2/1/2017
St Louis Seventh & Cerre, LLC
St Louis, MO
02/01/2017
$3,300,000
St Louis Parking Co
2/1/2017
MVP Preferred Parking, LLC
Houston, TX
6/29/2017
$20,500,000
iPark Services
8/01/2017
     
$139,092,000
   

* During April 2017, MVP REIT reduced its ownership interest in MVP Houston Preston Lot from 80% to 40%, by selling a portion of its ownership to the Company for $1.12 million. This transaction was completed at par value with no gain or loss recorded by MVP REIT or the Company. Our ownership interest in MVP Houston Preston Lot increased from 20% to 60% and we will be considered the controlling party starting May 1, 2017.

** In November 2016, these properties merged into one holding company called West 9th Street Properties II, LLC, for the purposes of debt financing.


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

During May 2017, VRM II acquired approximately 35,000 shares of our stock from third party investors in exchange for various trust deed investments. During the six months ended June 30, 2017, VRM II received approximately $4,200 in distributions in accordance to the Company's DRIP program..

As of June 30, 2017, the Company's Sponsor owned 8,729 shares and VRM II owned 40,922 shares of the Company's outstanding common stock.

Ownership of MVP REIT

On November 5, 2016, the Company purchased 338,409 shares of MVP REIT 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, MVP REIT paid us, approximately $47,000 and $99,000, respectively, in stock distributions related to the Company's ownership of their common stock and issued 172 shares in accordance to their DRIP program.

Ownership of the Advisor

VRM I and VRM II own 40% and 60%, respectively, of the Advisor. Neither VRM I nor VRM II paid any up-front consideration for these ownership interests, but each will be responsible for its proportionate share of future expenses of the Advisor. The operating agreement of the Advisor provides 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, or capital investment, and once they have received an annualized return on their capital investment of 7.5%, then Michael Shustek will receive 40% of the net profits of the Advisor.

Note Payable to the Advisor

On June 29, 2017, the Advisor loaned the Company $2.1 million for 1 year with an interest rate of 5%.
 
Fees Paid in Connection with the Offering – Common Stock

Various affiliates of the Company are involved in the Common Stock offering and the Company's operations including MVP American Securities, LLC, or ("MVP American Securities"), which is a broker-dealer and member of the Financial Industry Regulatory Authority, Inc., or FINRA.  MVP American Securities is owned by MS MVP Holdings, LLC which is owned and managed by Mr. Shustek. Additionally, the Company's board of directors, including a majority of the Company's independent directors, may engage an affiliate of the Advisor to perform certain property management services for us.

The Company's Sponsor or its affiliates paid selling commissions of up to 6.5% of gross offering proceeds from the sale of shares in the Common Stock Offering without any right to seek reimbursement from the Company.

The Company's sponsor or its affiliates also paid non-affiliated selling agents a one-time fee separately negotiated with each selling agent for due diligence expenses, subject to the total underwriting compensation limitation set forth below. We expect such due diligence expenses to average up to 1% of total offering proceeds at the maximum offering amount. Such commissions and fees were paid by the Company's sponsor or its affiliates (other than the Company) without any right to seek reimbursement from the Company's company.

Fees Paid in Connection with the Offering – Preferred Stock

In connection with the private placement of the Series A and Series 1 preferred stock, the Company may pay selling commissions of up to 6.0% of gross offering proceeds from the sale of shares in the private placements, including sales by affiliated and non-affiliated selling agents.  During the three and six months ended June 30, 2017, the Company paid approximately $0.4 million and $0.6 million, respectively, in selling commissions.

The Company may pay non-affiliated selling agents a one-time fee separately negotiated with each selling agent for due diligence expenses of up to 2.0% of gross offering proceeds. The Company may also pay a dealer manager fee to MVP American Securities of up to 2.0% of gross offering proceeds from the sale of the shares in the private placements as compensation for acting as dealer manager.  During the three and six months, the Company paid approximately $0.1 million and $0.2 million, respectively, to MVP American Securities for compensation

Fees Paid in Connection with the Operations of the Company

The Advisor or its affiliates will receive an acquisition fee of 2.25% of the purchase price of any real estate provided, however, the Company will not pay any fees when acquiring loans from affiliates.  During the three and six months ended June 30, 2017, approximately $0.6 million and approximately $1.7 million in acquisition fees had been earned by the Advisor. During the three and six months ended June 30, 2016, approximately $0.3 million and $0.4 million, respectively, in acquisition fees had been earned by the Advisor.  The balance as of the date of this filing is approximately $1.2 million and remains payable to the Advisor.

The Advisor or its affiliates will be reimbursed for actual expenses paid or incurred in the investment.  During the three and six months ended June 30, 2017 and 2016, no acquisition expenses had been reimbursed to the Advisor.

The Advisor or its affiliates will receive a monthly asset management fee at an annual rate equal to 1.0% of the cost of all assets then held by the Company, or the Company's proportionate share thereof in the case of an investment made through a joint venture or other co-ownership arrangement. The Company will determine the Company's NAV, on a date not later than the Valuation Date.  Following the Valuation Date, the asset management fee will be based on the value of the Company's assets rather than their historical cost. Asset management fees for the three and six months ended June 30, 2017 were approximately $0.3 million and $0.2 million, respectively. Asset management fees for the three and six months ended June 30, 2016 were approximately $12,500 and $14,700, respectively.

The Company will reimburse the Advisor or its affiliates for costs of providing administrative services, subject to the limitation that we will not reimburse the Advisor for any amount by which the Company's operating expenses, at the end of the four preceding fiscal quarters (commencing after the quarter in which we make the Company's first investment), exceed the greater of (a) 2.0% of average invested assets and (b) 25.0% of net income connection with the selection or acquisition of an investment, whether or not the Company ultimately acquires, unless the excess amount is approved by a majority of the Company's independent directors.  We will not reimburse the Advisor for personnel costs in connection with services for which the Advisor receives a separate fee, such as an acquisition fee, disposition fee or debt financing fee, or for the salaries and benefits paid to the Company's executive officers. In addition, we will not reimburse the Advisor for rent or depreciation, utilities, capital equipment or other costs of its own administrative items.  During the three and six months ended June 30, 2017 and 2016, no operating expenses have been incurred by the Advisor.

Fees Paid in Connection with the Liquidation or Listing of the Company's Real Estate Assets

For substantial assistance in connection with the sale of investments, as determined by the independent directors, we will pay the Advisor or its affiliate the lesser of (i) 3.0% of the contract sale price of each real estate-related secured loan or other real estate investment 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 6.0% 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 asset.  During the three and six months ended June 30, 2017 and 2016, no disposition fees have been earned by the Advisor.

After the Company's stockholders have received a return of their net capital invested and a 6.0% annual cumulative, non-compounded return, then the Company's Advisor will be entitled to receive 15.0% of the remaining proceeds. We will pay this subordinated performance fee only upon one of the following events: (i) if the Company's shares are listed on a national securities exchange; (ii) if the Company's assets are sold or liquidated; (iii) upon a merger, share exchange, reorganization or other transaction pursuant to which the Company's investors receive cash or publicly-traded securities in exchange for their shares; or (iv) upon termination of the Company's advisory agreement. During the three and six months ended June 30, 2017 and 2016, no subordinated performance fees have been earned by the Company's Advisor.

Note F — Economic Dependency

Under various agreements, the Company has engaged or will engage the Advisor and its affiliates to provide certain 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 services, the sale of shares of the Company's common stock available for issue, as well as other administrative responsibilities for the Company including accounting services and investor relations. In addition, the Sponsor pays selling commissions in connection with the sale of the Company's shares in the Offering and the Advisor pays the Company's organization and offering expenses.

As a result of these relationships, the Company is dependent upon the Advisor and its affiliates. 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.

Note G — Stock-Based Compensation

Long-Term Incentive Plan

The Company's board of directors has adopted a long-term incentive plan which we will use to attract and retain qualified directors, officers, employees, and consultants. The Company's long-term incentive plan will offer these individuals an opportunity to participate in the Company's growth through awards in the form of, or based on, the Company's common stock. We currently anticipate that we will not issue awards under the Company's long-term incentive plan, although we may do so in the future, including to the Company's independent directors as a form of compensation.

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

Our board of directors or a committee appointed by our board of directors will administer the long-term 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 under the long-term incentive plan if the grant or vesting of the awards would jeopardize our status as a REIT under the Code or otherwise violate the ownership and transfer restrictions imposed under our charter. Unless otherwise determined by our board of directors, no award granted under the long-term incentive plan will be transferable except through the laws of descent and distribution.

We have authorized and reserved an aggregate maximum number of 500,000 shares for issuance under the long-term incentive plan. In the event of a transaction between our company and our stockholders that causes the per-share value of our 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 long-term incentive plan will be adjusted proportionately and the board of directors will make such adjustments to the long-term 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 long-term 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.


Our board of directors may in its sole discretion at any time determine that all or a portion of a participant's awards will become fully vested. The board may discriminate among participants or among awards in exercising such discretion. The long-term incentive plan will automatically expire on the tenth anniversary of the date on which it is approved by our board of directors and stockholders, unless extended or earlier terminated by our board of directors. Our board of directors may terminate the long-term incentive plan at any time. The expiration or other termination of the long-term incentive plan will not, without the participant's consent, have an adverse impact on any award that is outstanding at the time the long-term incentive plan expires or is terminated. Our board of directors may amend the long-term incentive plan at any time, but no amendment will adversely affect any award without the participant's consent and no amendment to the long-term incentive plan will be effective without the approval of our stockholders if such approval is required by any law, regulation or rule applicable to the long-term incentive plan. During the three and six months ended June 30, 2017 and 2016, no grants have been made under the long-term incentive plan.

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 – Acquisitions

The following table is a summary of the acquisitions for the six months ended June 30, 2017.

Property
Location
Date Acquired
Property Type
# Spaces
Size / Acreage
Retail /Office Square Ft.
Cash Consideration
Ownership %
MVP Detroit Center Garage*
Detroit, MI
01/10/2017
Garage
1,275
8.78
N/A
$55,000,000
80.00%
St Louis Broadway, LLC
St Louis, MO
02/01/2017
Lot
161
0.96
N/A
$2,400,000
100.00%
St Louis Seventh & Cerre, LLC
St Louis, MO
02/01/2017
Lot
174
1.20
N/A
$3,300,000
100.00%
MVP Preferred Parking, LLC
Houston, TX
06/29/2017
Garage & Lot
521
1.0
784
$20,500,000
100%

   
Assets
 
   
Land and Improvements
   
Building and improvements
   
Total assets acquired
 
MVP Detroit Center Garage
 
$
7,000,000
   
$
48,000,000
   
$
55,000,000
 
St Louis Broadway, LLC
   
2,400,000
     
--
     
2,400,000
 
St Louis Seventh & Cerre, LLC
   
3,300,000
     
--
     
3,300,000
 
MVP Preferred Parking, LLC
   
15,800,000
     
4,700,000
     
20,500,000
 
   
$
28,500,000
   
$
52,700,000
   
$
81,200,000
 


The following table of results of operations of the acquired properties for the three and six months ended June 30, 2017:

   
Three Month Ended June 30, 2017
   
Six Month Ended June 30, 2017
 
   
Total revenues
   
Net income
   
Total revenues
   
Net income
 
2017 acquisitions
 
$
1,458,000
   
$
554,000
   
$
2,470,000
   
$
402,000
 
Pro forma results of the Company

The following table of pro forma consolidated results of operations of the Company for the three and six months ended June 30, 2017 and 2016, and assumes that the acquisitions were completed as of January 1, 2016.

   
Three Month Ended June 30
   
Six Month Ended June 30
 
   
2017
   
2016
   
2017
   
2016
 
Revenues from continuing operations
 
$
2,904,000
   
$
1,395,000
   
$
5,471,000
   
$
2,720,000
 
Net income (loss) available to common stockholders
 
$
(639,000
)
 
$
(603,000
)
 
$
(3,211,000
)
 
$
1,623,000
 
Net income (loss) available to common stockholders per share – basic
 
$
(0.25
)
 
$
(0.83
)
 
$
(1.29
)
 
$
3.41
 
Net income (loss) available to common stockholders per share – diluted
 
$
(0.25
)
 
$
(0.83
)
 
$
(1.29
)
 
$
3.41
 

Note J — Line of Credit

On October 5, 2016, the Company, through its Operating Partnership, and MVP REIT, (the "REITs") 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 KeyBank Capital Markets ("KeyBank 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 REITs 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 $11.62 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 $47,000 and $186,000, respectively, in interest expense. For the three and six months ended June 30, 2017, we had accrued approximately $8,000 and $9,400, respectively, in unused line fees associated with our draw. Total loan amortization cost for the three and six months ended June 30, 2017 were $55,000 and $195,400, respectively.

On June 26, 2017, the Company and MVP REIT (together, the "REITs"), each through a wholly owned subsidiary, MVP REIT II Operating Partnership, LP and MVP Real Estate Holdings, LLC (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 REITs 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 30, 2017, the balance on the Working Capital Credit Facility was $6.0 million, which the Company drew on June 29, 2017.  The Company anticipates using net proceeds from the private placement of the Series 1 Convertible Redeemable Preferred Stock to paydown the $6.0 million, which is due by September 15, 2017. As of June 30,2017 the interest rate was 5.72%.

Note K — Notes Payable

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

Property
Original Debt Amount
Monthly Payment
Balance as of 6/30/2017
Lender
Term
Interest Rate
Loan Maturity
D&O Financing
$140,000
$14,000
$28,000
 
1 Year
3.81%
8/3/2017
JNL Parking
$300,000
--
$300,000
JNL Parking
3 Months (I/O)
1.0%
9/30/2017
iPark
$500,000
--
$500,000
iPark Services, LLC
3 Months (I/O)
5.75%
9/30/2017
MVP Realty Advisors
$2,100,000
--
$2,100,000
MVP Realty Advisors
1 Year (I/O)
5.0%
6/30/2018
West 9th Properties II, LLC
$5,300,000
$30,000
$5,222,000
American National Insurance Co.
10 year
4.50%
2/1/2019
MVP Detroit Center Garage, LLC
$31,500,000
$194,000
$31,253,000
Bank of America
10 year
5.52%
12/26/2024
MVP San Jose 88 Garage, LLC
$2,200,000
Interest Only
$2,200,000
Owens Realty Mortgage, Inc.
2 year (I/O)
7.75%
6/30/2027
MVP Cincinnati Race Street Garage, LLC
$3,000,000
Interest Only
$3,000,000
Moonshell, LLC
3 Months (I/O)
9.00%
10/10/2017
MVP St Louis Washington, LLC
$1,380,000
Interest Only
$1,380,000
KeyBank
10 year ( 2 year I/O)
4.90%
5/1/2027
St Paul Holiday Garage, LLC
$4,132,000
Interest Only
$4,132,000
KeyBank
10 year ( 2 year I/O)
4.90%
5/1/2027
Cleveland Lincoln Garage, LLC
$3,999,000
Interest Only
$3,999,000
KeyBank
10 year ( 2 year I/O)
4.90%
5/1/2027
Louisville Broadway Station, LLC
$1,682,000
Interest Only
$1,682,000
Cantor Commercial Real Estate (CCRE)
10 year (I/O)
5.03%
5/6/2027
Whitefront Garage, LLC
$6,454,000
Interest Only
$6,454,000
Cantor Commercial Real Estate (CCRE)
10 year (I/O)
5.03%
5/6/2027
MVP Houston Preston Lot, LLC
$1,627,000
Interest Only
$1,627,000
Cantor Commercial Real Estate (CCRE)
10 year (I/O)
5.03%
5/6/2027
MVP Houston San Jacinto Lot, LLC
$1,820,000
Interest Only
$1,820,000
Cantor Commercial Real Estate (CCRE)
10 year (I/O)
5.03%
5/6/2027
St. Louis Broadway, LLC
$1,671,000
Interest Only
$1,671,000
Cantor Commercial Real Estate (CCRE)
10 year (I/O)
5.03%
5/6/2027
St. Louis Seventh & Cerre, LLC
$2,058,000
Interest Only
$2,058,000
Cantor Commercial Real Estate (CCRE)
10 year (I/O)
5.03%
5/6/2027
Less unamortized loan issuance costs
   
($859,000) 
       
     
$68,567,000
       


Total interest expense incurred for the three and six months ended June 30, 2017 was approximately $1.0 million and $1.8 million, respectively. Total interest expense incurred for the six months ended June 30, 2016 was approximately $1,000.  The Company did not have any notes payable during the six months ended June 30, 2016.

Total loan amortization cost for the three and six months ended June 30, 2017 was approximately $0.1 and $0.2 million, respectively. The Company did not have any notes payable during the three and six months ended June 30, 2016.

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

2017
 
$
4,172,000
 
2018
   
5,032,000
 
2019
   
882,000
 
2020
   
1,008,000
 
2021
   
1,069,000
 
Thereafter
   
57,263,000
 
Total
 
$
69,426,000
 

Principal payments table amount does not reflect the unamortized loan issuance cost of approximately $0.9 million as of June 30, 2017.

Note L — 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 categorized 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 M — Assets held for sale

As of June 30, 2017, we had a 100% ownership interest in one property listed as held for sale, with a carrying value of approximately $700,000.  The Company acquired the property on November 22, 2016 and recorded at the fair value based on an appraisal.  During March 2017, Houston Jefferson entered into a purchase and sale agreement to sell the property "as is" to a third party for approximately $2.0 million.  During May 2017, this purchase and sale agreement had been cancelled.  During May and June, another unsolicited third party expressed interest in purchasing the property for $2.0 million and during July 2017, the Company entered into a purchase and sale agreement with this third party.  There can be no assurance that we will be successful in completing this transaction or whether we will continue to classify this property as held for sale if this transaction is not successful.

The following is a summary of the results of operations related to the assets held for sale for three and six months ended June 30, 2017:
 
 
For the three months ended June 30, 2017
   
For the six months ended June 30, 2017
 
 
         
Revenue
 
$
22,000
   
$
44,000
 
Expenses
   
(12,000
)
   
(28,000
)
Net income
 
$
10,000
   
$
16,000
 

Note N – Investment In DST

On May 31, 2017, the Company, through a wholly-owned subsidiary of its operating partnership, purchased a 51.0% beneficial interest in MVP St. Louis Cardinal Lot, DST, a Delaware statutory trust, or MVP St Louis, for approximately $2.8 million.  MVP St. Louis is the owner of a 2.56-acre, 376-vehicle, commercial parking lot located at 500 South Broadway, St. Louis, Missouri 63103, known as the Cardinal Lot, or the Property, which is adjacent to Busch Stadium, the home of the St. Louis Cardinals major league baseball team.  The Property was purchased by MVP St. Louis from an unaffiliated seller for a purchase price of $11,350,000, plus payment of closing costs, financing costs, and related transactional costs.

Concurrently with the acquisition of the Property, MVP St. Louis obtained a first mortgage loan from Cantor Commercial Real Estate Lending, L.P, or St. Louis Lender, in the principal amount of $6,000,000, with a 10 year, interest-only term at a fixed interest rate of 5.25%, resulting in an annual debt service payment of $315,000, or St. Louis Loan.  MVP St. Louis used the Company's investment to fund a portion of the purchase price for the Property.  The remaining equity portion was funded through short-term investments by Vestin Realty Mortgage I, Inc. and Vestin Realty Mortgage II, Inc., both of which are affiliates of MVP Realty Advisors, LLC, the external advisor to the Company, or MVP Realty, pending the private placements of additional beneficial interest in MVP St. Louis exempt from registration under the Securities Act of 1933, as amended.   Each of Vestin Realty Mortgage I, Inc., Vestin Realty Mortgage II, Inc. and Michael V. Shustek, our Chairman and Chief Executive Officer, provided non-recourse carveout guaranties of the loan and environmental indemnities of St. Louis Lender.

Also concurrently with the acquisition of the Property, MVP St. Louis, as landlord, entered into a 10 year master lease, or St. Louis Master Lease, with MVP St. Louis Cardinal Lot Master Tenant, LLC, an affiliate of MVP Realty, as tenant, or St. Louis Master Tenant.   St. Louis Master Tenant, in turn, concurrently entered into a 10 year sublease with Premier Parking of Missouri, LLC.  The St. Louis Master Lease provides for annual rent payable monthly to MVP St. Louis, consisting of base rent in an amount to pay debt service on the St. Louis Loan, stated rent of $414,000 and potential bonus rent equal to a share of the revenues payable under the sublease in excess of a threshold.  The Company will be entitled to its proportionate share of the rent payments based on its ownership interest.  Under the St. Louis Master Lease, MVP St. Louis is responsible for capital expenditures and the St. Louis Master Tenant is responsible for taxes, insurance and operating expenses.


Note O – Investment in Equity Method Investee

Denver 1935 Sherman

On February 12, 2016, the Company along with MVP REIT, through MVP Denver 1935 Sherman, LLC ("MVP Denver"), a Nevada limited liability company owned 24.49% by the Company and 75.51% by MVP REIT, closed on the purchase of a parking lot for approximately $2.4 million in cash, of which the Company's share was approximately $0.6 million.  The parking lot is located at 1935 Sherman Avenue, Denver, Colorado (the "Denver parking lot").  The Denver parking lot consists of approximately 18,765 square feet and has approximately 72 parking spaces.  The Denver parking lot is leased by SP Plus Corporation, a national parking operator, under a net lease agreement where MVP Denver is responsible for property taxes and SP Plus Corporation pays for all insurance and maintenance costs.  SP Plus Corporation pays annual rent of $120,000.  In addition, the lease provides revenue participation with MVP Denver receiving 70% of gross receipts over $160,000. The term of the lease is for 10 years.

Houston Preston Lot

On November 22, 2016, the Company and MVP REIT, through MVP Houston Preston Lot, LLC, a Delaware limited liability company ("MVP Preston"), an entity wholly owned by the Company, closed on the purchase of a parking lot consisting of approximately 46 parking spaces, located in Houston, Texas, for a purchase price of $2.8 million in cash plus closing costs, of which our portion was $560,000.  We hold a 20% ownership interest in Houston Preston, while MVP REIT holds an 80% ownership interest in Houston Preston.  The parking lot is under a 10 year lease with iPark Services LLC ("iPark"), a regional parking operator, under a modified net lease agreement where MVP Preston is responsible for property taxes above a $38,238 threshold, and iPark pays for insurance and maintenance costs.  iPark pays annual rent of $228,000.  In addition, the lease provides revenue participation with MVP Preston receiving 65% of gross receipts over $300,000. The term of the lease is for 10 years.

During April 2017, the company increased their ownership interest in the MVP Houston Preston Lot from 20% to 60%, by purchasing $1.12 million of MVP REIT ownership and will now be considered the controlling party.

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

   
June 30, 2017
   
December 31, 2016
 
   
(Unaudited)
       
ASSETS
 
Investments in real estate and fixed assets
 
$
2,438,000
   
$
2,438,000
 
Cash
   
178,000
     
51,000
 
Due from related party
   
61,000
     
--
 
Total assets
 
$
2,677,000
   
$
2,489,000
 
LIABILITIES AND EQUITY
 
Liabilities
               
Notes payable, net of unamortized loan issuance cost
 
$
739,000
   
$
--
 
Accounts payable and accrued liabilities
   
107,000
     
36,000
 
Total liabilities
   
846,000
     
36,000
 
Equity
               
Shareholders' Equity
               
Additional paid-in capital
   
1,294,000
     
1,802,000
 
Retained Earnings
   
95,000
     
64,000
 
Total Shareholders' Equity
   
1,389,000
     
1,866,000
 
Non-controlling interest
   
442,000
     
587,000
 
Total equity
   
1,831,000
     
2,453,000
 
Total liabilities and equity
 
$
2,677,000
   
$
2,489,000
 


Summarized 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
 
$
30,000
   
$
30,000
   
$
60,000
   
$
46,000
 
Expenses
   
(21,000
)
   
(9,000
)
   
(30,000
)
   
(23,000
)
Net income
 
$
9,000
   
$
21,000
   
$
30,000
   
$
23,000
 

Note P – Merger

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

On May 26, 2017, the Company, MVP REIT, MVP Merger Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company ("Merger Sub"), and MVP Realty Advisors, LLC, the Company's and MVP REIT'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, MVP REIT 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 the Company. 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 MVP REIT's common stock, $0.001 par value per share (the "MVP REIT 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 the Company (the "Company Common Stock") (such ratio, as it may be adjusted pursuant to the Merger Agreement, the "Exchange Ratio").  Holders of shares of MVP REIT Common Stock will receive cash in lieu of fractional shares.

At the effective time of the Merger each share of MVP REIT Common Stock, if any, then held by any wholly owned subsidiary of MVP REIT or by the Company 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 MVP REIT Common Stock in connection with or as a consequence of the Merger.  In addition, each share of MVP REIT's Non-Participating, Non-Voting Convertible Stock, $0.001 par value per share ("MVP REIT 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 MVP REIT Convertible Stock in connection with or as a consequence of the Merger.

The Merger Agreement contains customary covenants, including covenants prohibiting MVP REIT 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"), MVP REIT (through the MVP REIT 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 MVP I 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 MVP REIT. 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 the Company (the "Company Board") will, effective as of the effective time of the Merger, increase the number of directors comprising the Company Board to eight and Nicholas Nilsen, Robert J. Aalberts and Shawn Newson, previous Directors of MVP REIT, will be elected to the Company Board.

If the Merger Agreement is terminated in connection with MVP REIT's acceptance of a Superior Proposal, approval of an Acquisition Proposal or making an Adverse Recommendation Change at any time beginning on the sixth business day after the Go Shop Period End Time, then MVP REIT must pay to the Company a termination fee of $1,500,000 plus an expense reimbursement fee of up to $500,000. If the Merger Agreement is terminated in connection with MVP REIT's acceptance of a Superior Proposal within five business days of the Go Shop Period End Time, then MVP REIT must pay to the Company a termination fee of $750,000 plus an expense reimbursement fee of up to $500,000.

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 to be filed by the Company to register the shares of the Company 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.

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.

Amended Charter

At the Company annual stockholders' meeting, the Company anticipates seeking stockholder approval of  among other matters, the amendment and restatement of its charter (the "Amended Charter").  The Amended Charter is primarily intended to accomplish two objectives in connection with the possible listing of our common stock after the closing of the merger: (1) to remove provisions of our charter that we believe may unnecessarily restrict our ability to take advantage of further opportunities for liquidity events or are redundant with or otherwise addressed or permitted to be addressed under Maryland law and (2) to amend certain provisions in a manner that we believe would be more suitable for becoming a publicly-traded REIT. The amendments that we are proposing to accomplish these objectives will be described in more detail in the final proxy statement for our annual stockholders' meeting.

Note Q — Income Taxes and Critical Accounting Policy

The Company will be electing to be treated as a REIT for the tax year beginning January 1, 2017 and ending December 31, 2017, and believes that it has been organized and has operated during 2017 in such a manner to meet the qualifications to be treated as a REIT for federal and state income tax purposes.  During 2016, the Company was subject to U.S. federal and state income taxes as it will file income tax returns as a C corporation.  As such, we account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.  Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company uses a two-step approach to recognize and measure uncertain tax positions.  The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolutions of related appeals or litigation processes, if any.  The second step is to measure the tax benefit as the largest amount that is more likely than not of being realized upon ultimate settlement.  The Company believes that its income tax filing positions and deductions would be sustained upon examination; thus, the Company has not recorded any uncertain tax positions as of June 30, 2017.

A full valuation allowance for deferred tax assets was provided since the Company believes that it is more likely than not that it will not realize the benefits of its deferred tax assets. A change in circumstances may cause the Company to change its judgment about whether deferred tax assets will more likely than not be realized. The Company would generally report any change in the valuation allowance through its income statement in the period in which such changes in circumstances occur.

As a REIT, the Company will generally not be subject to corporate level federal income taxes on earnings distributed to our stockholders, and therefore may not realize deferred tax assets arising during the Company's pre-2017 periods before the Company became a REIT.  The Company intends to distribut at least 100% of its taxable income annually and intends to do so for the tax year ending December 31, 2017 and future periods.  Accordingly, the Company has not included any provisions for federal income taxes in the accompanying consolidated financial statements for the three and six months ended June 30, 2017.  The Company owns and rents real estate in various states and municipalities within the United States, and, as a result, the Company or one or more of its subsidiaries may have income or other tax return filing requirements, and may be subject to income or franchise taxes, in state and municipal jurisdictions.

The Company has a net deferred tax asset of $1.6 million which is subject to a full valuation allowance and thus is not recorded on the Company's consolidated balance sheet. The deferred tax asset is primarily made up of net operating losses and capitalized acquisition costs which are deducted for books but capitalized for tax and amortized over 39 years. If the Company makes a REIT election, generally the net operating losses will not be available to offset future income.  Due to the valuation allowance, the Company's effective rate is approximately 0%.
 
Note R — Subsequent Events

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

On July 19, 2017, MVP REIT II filed, with the SEC, a preliminary proxy statement with various proposals to be considered and voted upon ranging from amendments to corporate documents to accommodate the possible merger to approving the board of directors and ratifying the appointment of RSM US LLP as the Company's independent registered public accounting firm for the year ended December 31, 2017.  This proxy statement went effective on August 11, 2017, and the annual meeting of stockholders is scheduled to be held on September 27, 2017, in Las Vegas, NV.

On July 28, 2017, the Company's subsidiary, MVP Preferred Parking, LLC, issued a promissory note to KeyBank for $11.33 million secured by their garage and parking lot located in Houston Texas.  This note had a 10 year term, an interest rate of 5.02% per annum and required monthly interest only payment for the first five years and then principal and interest payments over the last 5 year with a balloon payment at maturity.  This loan matures in July 2027.  This property had been previously financed on the KeyBank line of credit and all loan proceeds were used to paydown the line.

As noted in the Company's filing of the final S-4/A on August 9, 2017, the shareholders of MVP REIT will hold a Special Meeting on September 27, 2017, in Las Vegas, to vote on whether to approve the merger with the Company 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 and 2016.  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 II, Inc., and, as required by context, MVP REIT II Operating Partnership, LP, which we refer to as our "operating limited partnership," 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 our operations began in 2016;
·
the fact that we have experienced net losses since inception and may continue to experience additional losses;
·
our ability to effectively raise and deploy the proceeds raised in our offerings;
·
the performance of properties the Company has acquired or may acquire or loans the Company has made or may make that are secured by real property;
·
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 or parking management contracts 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;
·
our ability to successfully integrate pending transactions and implement our operating strategy, including the Merger;
·
our ability to obtain the required stockholder approval to amend our charter and complete such other actions as may be necessary or desirable to list our shares of common stock on a national securities exchangeafter 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, 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 II, Inc. (the "Company," "we," "us," or "our") is a Maryland corporation formed on May 4, 2015 and intends to qualify as a real estate investment trust ("REIT") for U.S. federal income tax purposes upon the filing of the federal tax return for the year ended December 31, 2017. The Company believes that it has been organized and has operated in a manner that has enabled it to qualify as a REIT commencing with the taxable year ending December 31, 2017; however, if the company is unable to meet the REIT qualification for 2017 we will continue to operate as a C corporation for U.S. federal income tax purposes. As of December 31, 2016, the Company ceased all selling efforts for the initial public offering (the "Common Stock Offering") of its common stock, $0.0001 par value per share, at $25.00 per share, pursuant to a registration statement on Form S-11 filed with the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended.  The Company accepted additional subscriptions through March 31, 2017, the last day of the Common Stock Offering.  As of June 30, 2017, the Company raised approximately $67.7 million in the Common Stock Offering before payment of deferred offering costs of approximately $1.1 million, contribution from the Sponsor of approximately $1.1 million and cash distributions of approximately $0.6 million. The Company has also registered $50 million in shares of common stock for issuance 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 at the current price of $25.00 per share.

On October 27, 2016, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 50,000 shares of Series A Convertible Redeemable Preferred Stock. The Company commenced the private placement of the shares of Series A, together with warrants to acquire the Company's common stock, to accredited investors on November 1, 2016 and closed the offering on March 24, 2017.  The Company raised approximately $2.6 million, net of offering costs, in the Series A private placements and has 2,862 shares of Series A issued and outstanding.

On March 29, 2017, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 97,000 shares of its authorized capital stock as shares of Series 1 Convertible Redeemable Preferred Stock ("Series 1"), par value $0.0001 per share.  On April 7, 2017, the Company commenced the private placement of shares of Series 1, together with warrants to acquire the Company's common stock, to accredited investors.  As of June 30, 2017, the Company had raised approximately $4.5 million, net of offering costs, in the Series 1 private placements and had 5,070 shares of Series 1 issued and outstanding.

The Company was formed to focus primarily on investments in parking facilities, including parking lots, parking garages and other parking structures throughout the United States and Canada. No more than 10% of the proceeds of the Common Stock Offering will be used for investment in Canadian properties.  To a lesser extent, the Company may also invest in properties other than parking facilities.

The Company is the sole general partner of MVP REIT II Operating Partnership, LP, a Delaware limited partnership (the "Operating Partnership"). The Company plans to own substantially all of its assets and conduct its operations through the Operating Partnership. The Company's wholly owned subsidiary, MVP REIT II Holdings, LLC, is the sole limited partner of the Operating Partnership. The operating agreement provides that the Operating Partnership 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 the Operating Partnership is not classified as a "publicly traded partnership" for purposes of Section 7704 of the Internal Revenue Code, which classification could result in the Operating Partnership being taxed as a corporation.


The Company utilizes an Umbrella Partnership Real Estate Investment Trust ("UPREIT") structure to enable us to acquire real property in exchange for limited partnership interests in the Company's Operating Partnership from owners who desire to defer taxable gain that would otherwise normally be recognized by them upon the disposition of their real property or transfer of their real property to us in exchange for shares of the Company's common stock or cash.

As part of the Company's initial capitalization, the Company sold 8,000 shares of common stock for $200,000 to MVP Capital Partners II, LLC (the "Sponsor"), the sponsor of the Company. The Sponsor is owned 60% by Vestin Realty Mortgage II, Inc., a Maryland corporation and OTC pink sheet listed company ("VRM II"), and 40% by Vestin Realty Mortgage I, Inc., a Maryland corporation and OTC pink sheet listed company ("VRM I"), both which are managed by Vestin Mortgage, LLC, a Nevada limited liability company in which Michael Shustek wholly owns.  The Company also sold 5,000 shares of common stock directly to VRM II.

The Company's advisor is MVP Realty Advisors, LLC (the "Advisor"), a Nevada limited liability company, which is owned sixty percent (60%) by VRM II and forty percent (40%) by VRM I.  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 has no paid employees.  The Advisor also advises MVP REIT, Inc. ("MVP REIT"), a real estate investment trust registered with the SEC with substantially the same investment strategy as the Company in that MVP REIT also invests primarily in parking facilities.

From inception through June 30, 2017, the Company has paid approximately $1.7 million in distributions, including issuing 42,147 shares of its common stock as DRIP, issuing 66,232 shares of its common stock as dividend in distributions to the Company's common stockholders and $61,000 in distributions for preferred stockholders, all of which have been paid from offering proceeds and constituted a return of capital.  All of the cash distributions have been paid from offering proceeds and constituted a return of capital.  The Company may pay distributions from sources other than cash flow from operations, including proceeds from the 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 following table is a summary of the acquisitions for the six months ended June 30, 2017.

Property
Location
Date Acquired
Property Type
# Spaces
Size / Acreage
Retail /Office Square Ft.
Investment Amount
Ownership %
MVP Detroit Center Garage
Detroit, MI
01/10/2017
Garage
1,275
8.78
N/A
$55,000,000
80.00%
St Louis Broadway, LLC
St Louis, MO
02/01/2017
Lot
161
0.96
N/A
$2,400,000
100.00%
St Louis Seventh & Cerre, LLC
St Louis, MO
02/01/2017
Lot
174
1.20
N/A
$3,300,000
100.00%
MVP Preferred Parking, LLC
Houston, TX
06/29/2017
Garage & Lot
521
1.0
784
$20,500,000
100%

During April 2017, MVP REIT reduced its ownership interest in MVP Houston Preston Lot from 80% to 40%, by
selling a portion of its ownership to the Company for $1.12 million. This transaction was completed at par value with no gain or loss recorded by MVP REIT or the Company. Our ownership interest in MVP Houston Preston Lot increased from 20% to 60% and we will be considered the controlling party starting May 1, 2017.


As of June 30, 2017 the Company had investments in the following facilities:

Parking Facility
Date Acquired
Type
Zoning
Height Restriction
MVP REIT I % Owned
MVP REIT II % Owned
3rd Party % Owned
Property Purchase Price
MVP Minneapolis Venture
1/6/2016
Lot
B4C-1
Unlimited
87%
13%
0%
$6,100,000
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 LLR-B4
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
MVP San Jose 88 Garage
6/15/2016
Garage
DC
N/A
0%
100%
0%
$3,575,500
MCI 1372 Street
7/8/2016
Lot
B-5
375 Feet
0%
100%
0%
$700,000
MVP Cincinnati Race Street Garage
7/8/2016
Garage
DD-A
500 Feet
0%
100%
0%
$4,500,000
MVP St. Louis Washington
7/18/2016
Lot
CBD I
100 Feet
0%
100%
0%
$3,000,000
MVP St. Paul Holiday Garage
8/12/2016
Garage
B-5
Unlimited
0%
100%
0%
$8,200,000
MVP Louisville Station Broadway
8/23/2016
Lot
CBD I
Unlimited
0%
100%
0%
$3,050,000
White Front Garage Partners
9/30/2016
Garage
CBD I
Unlimted
20%
80%
0%
$11,496,000
Cleveland Lincoln Garage Owners
10/19/2016
Garage
SI / GR-E5
250 Feet
0%
100%
0%
$7,316,950
MVP Houston Jefferson Lot
11/22/2016
Lot
NONE
Unlimited
0%
100%
0%
$700,000
MVP Houston Preston Lot
11/22/2016
Lot
NONE
Unilimted
40%
60%
0%
$2,800,000
MVP Houston San Jacinto Lot
11/22/2016
Lot
NONE
Unlimited
0%
100%
0%
$3,200,000
MVP Detroit Center Garage
1/10/2017
Garage
PD
Unlimited
20%
80%
0%
$55,000,000
St. Louis Broadway Group
2/1/2017
Lot
CBD I
200 Feet
0%
100%
0%
$2,400,000
St. Louis Seventh & Cerre
2/1/2017
Lot
CBD I
200 Feet
0%
100%
0%
$3,300,000
MVP St. Louis Cardinal Lot, DST *
5/31/2017
Lot
--
--
0%
51%
49%
$11,350,000
MVP Preferred Parking (Preston)
6/29/2017
Garage
NONE
Unlimited
0%
100%
0%
$16,500,000
MVP Preferred Parking (Congress)
6/29/2017
Lot
NONE
Unlimited
0%
100%
0%
$4,000,000

* MVP II acquired a 51.0% beneficial interest in MVP St. Louis Cardinal Lot, DST, a Delaware statutory trust, or MVP St Louis, for approximately $2.8 million. MVP St. Louis purchased the St. Louis parking lot from an unaffiliated seller for a purchase price of $11,350,000, plus payment of closing costs, financing costs, and related transactional costs. MVP St. Louis used MVP II's investment to fund a portion of the purchase price for the property. The remaining equity portion was funded through short-term investments by the Advisor pending the private placements of additional beneficial interest in MVP St. Louis exempt from registration under the Securities Act.

The Company intends to operate as a REIT for the year ended December 31, 2017. 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).

If the Company does not qualify as a REIT for the tax year ended December 31,2017, we will file as a C corporation and deferred tax assets and liabilities will be established for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities at the enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance for the deferred tax assets is provided if we believe that it is more likely than not that we will not realize the tax benefit of deferred tax assets based on the available evidence at the time the determination is made. For the tax year ended December 31, 2016, we concluded that due to our cumulative book losses, a valuation allowance should be recorded against our net deferred tax assets.

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 the Company's advisory agreement, however, the Company's board has delegated to MVP Realty Advisors, LLC, the Company's advisor, authority to manage the Company's day-to-day business, in accordance with the Company's 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 II, LLC (" the "Sponsor").  The Sponsor is owned 60% by Vestin Realty Mortgage II, Inc., a Maryland corporation and OTC pink sheet listed company ("VRM II"), and 40% by Vestin Realty Mortgage I, Inc., a Maryland corporation and OTC pink sheet listed company ("VRM I"), both which are managed by Vestin Mortgage, LLC, a Nevada limited liability company in which Michael Shustek wholly owns.  The Company also sold 5,000 shares of common stock directly to 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 Financial Statements of this Quarterly Report on Form 10-Q for more information.  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, VRM I and VRM II, all of whom are managed by affiliates of the Company's 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 has substantially the same investment strategy as the Company, in that MVP REIT 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 the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

In June 2016, the Company and MVP REIT, Inc. ("MVP REIT") 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 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.

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

On May 26, 2017, the Company, MVP REIT, MVP Merger Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company ("Merger Sub"), and MVP Realty Advisors, LLC, the Company's and MVP REIT'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, MVP REIT 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 the Company.

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

In addition, each share of MVP REIT's Non-Participating, Non-Voting Convertible Stock, $0.001 par value per share ("MVP REIT 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 MVP REIT Convertible Stock in connection with or as a consequence of the Merger.

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

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.

Amended Charter

At the Company annual stockholders' meeting, the Company anticipates seeking stockholder approval of among other matters, the amendment and restatement of its charter in connection with the possible listing of our common stock after the closing of the merger. If approved by stockholders, the Amended Charter will (1) remove provisions of our charter that we believe may unnecessarily restrict our ability to take advantage of further opportunities for liquidity events or are redundant with or otherwise addressed or permitted to be addressed under Maryland law and (2) amend certain provisions in a manner that we believe would be more suitable for becoming a publicly-traded REIT. The amendments that we are proposing to accomplish these objectives will be described in more detail in the final proxy statement for the annual stockholders' meeting.

Please see Note P- Merger for additional information regarding the Merger, the Merger Agreement, the Second Amended and Restated Advisory Agreement, the Termination Agreement and the Amended Charter.
 
Review of the Company's Policies

The Company's board of directors, including the independent directors, have reviewed the policies described in this Quarterly Report and determined that they are in the best interest of the Company's stockholders because: (1) they increase the likelihood that the Company will be able to acquire a diversified portfolio of income producing properties, thereby reducing risk in its portfolio; (2) the Company's executive officers, directors and affiliates of the advisor have expertise with the type of real estate investments the Company seeks; and (3) borrowings should enable the Company to purchase assets and earn rental income more quickly, thereby increasing the likelihood of generating income for the Company's stockholders and preserving stockholder capital.

Results of Operations

Results of Operations for the three and six months ended June 30, 2017 compared to the three and six months ended June 30, 2016.

The Company began purchasing properties in May 2016 and the results of operations below reflect start-up costs as well as acquisition expenses incurred in connection with purchasing properties as the Company seeks to deploy the Company's offering proceeds.  The Company expects that income and expenses related to the Company's 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.

 
 
 
   
For the three months
ended June 30,
     
For the six months
ended June 30,
 
Rental revenues (by property)
   
2017
   
2016
     
2017
   
2016
 
MVP Cleveland West 9th, LLC
 (b)  
$
83,000
     
46,000
     
$
165,000
   
$
46,000
 
33740 Crown Colony, LLC
 (b)    
47,000
     
23,000
       
93,000
     
23,000
 
MVP San Jose 88 Garage, LLC
     
109,000
     
--
   (a)    
260,000
     
--
 
MCI 1372 Street, LLC
     
22,000
     
--
       
34,000
     
--
 
MVP Cincinnati Race Street Garage, LLC
     
82,000
     
--
       
165,000
     
--
 
MVP St. Louis Washington, LLC
     
40,000
     
--
       
81,000
     
--
 
MVP St. Paul Holiday Garage, LLC
     
133,000
     
--
       
267,000
     
--
 
MVP Louisville Station Broadway, LLC
     
50,000
     
--
       
100,000
     
--
 
White Front Garage Partners, LLC
     
175,000
     
--
       
350,000
     
--
 
Cleveland Lincoln Garage Owners, LLC
     
130,000
     
--
       
276,000
     
--
 
MVP Houston Jefferson Lot, LLC
     
22,000
     
--
       
44,000
     
--
 
MVP Houston Preston Lot, LLC
     
114,000
     
--
       
114,000
     
--
 
MVP Houston San JacintoLot, LLC
     
70,000
     
--
       
140,000
     
--
 
MVP Detroit Center Garage, LLC
     
1,355,000
     
--
   (c)    
2,299,000
     
--
 
St Louis Broadway, LLC
     
45,000
     
--
       
75,000
     
--
 
St Louis Seventh and Cerre, LLC
     
57,000
     
--
       
94,000
     
--
 
MVP Preferred Parking, LLC (includes Garage & Lot)
     
2,000
     
--
       
2,000
     
--
 
Total revenues
   
$
2,536,000
     
69,000
     
$
4,559,000
   
$
69,000
 

 
a)
Through February 28, 2017, the San Jose 88 Garage was under a Parking management agreement and the rental income represents the gross revenues generated by the property. Operating expenses for this property are included in Operations and Maintenance.  Starting on March 1, 2017, this property was leased to a national parking operator, with an annual base rent of $450,000 per year.
b)
In November 2016, these properties merged into one holding company called West 9th Street Properties II, LLC, for the purposes of debt financing.
c)
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:
·
80% over $833,333 from February 2017 to March 2017
·
80% over $1,250,000 from April 2017 to June 2017
·
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.

Total rental revenue earned from our 18 consolidated parking facilities (held by 16 different subsidiaries), which have continued operations, totaled $4.6 million the six months ended June 30, 2017, compared to total revenues of $69,000 from two of our consolidated properties for the six months ended June 30, 2016.  One of our properties was acquired in late June 2016 and was not a significate source of revenue for the six months ended June 30, 2016.  The increase in rental revenues and the number of properties held is a result of the Company's planned and continued growth through acquisitions of new properties.  As the Company continues to acquire new properties, by means of the equity raises, debt financing and a possible merger with MVP REIT, we expect to see our rental revenue to grow at a similar pace.  In addition, as noted above, the next percentage rent trigger is not expected to hit until January 2017.

Since a majority of the Company's 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 the Company's potential percentage rent. The graph below shows the comparison of the Company's monthly rental income to the gross revenue generated by the properties.
 
 

   
For the Three Months Ended June 30
   
For the Six Months Ended June 30
 
   
2017
   
2016
   
2017
   
2016
 
Operating expenses
                       
General and administrative
 
$
323,000
   
$
184,000
   
$
651,000
   
$
335,000
 
Merger costs
   
647,000
     
--
     
772,000
     
--
 
Acquisition expenses
   
277,000
     
218,000
     
2,043,000
     
218,000
 
Acquisition expenses – related party
   
592,000
     
307,000
     
1,710,000
     
416,000
 
Operation and maintenance
   
158,000
     
20,000
     
524,000
     
20,000
 
Operation and maintenance – related party
   
257,000
     
15,000
     
494,000
     
15,000
 
Seminar
   
--
     
6,000
     
--
     
6,000
 
Depreciation
   
471,000
     
3,000
     
896,000
     
3,000
 
Total operating expenses
 
$
2,725,000
   
$
753,000
   
$
7,090,000
   
$
1,013,000
 

Operating expenses for the six months ended June 30, 2017, increased $5.8 million, as compared to the six months ended June 30, 2016.  The major factor related to the increased expense, other than Merger Costs, was the Company's growth in investments in parking facilities.  As of June 30, 2016, the Company only had three investments in parking facilities, that were consolidated into our financials, totaling approximately $12.3 million; two of which were purchased in May 2016 (where MVP REIT has a 49% ownership interest), and one wholly own parking facility that was purchased in mid-June 2016.  In contrast, at June 30, 2017, the Company held an investment in 18 parking (via 16 subsidiaries), totaling approximately $139.1 million.  As the Company and MVP REIT 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 approximately $4.5 million or more, depending on the success of the merger with MVP REIT.  As the Company continues to acquire new properties, by means of the equity raises, debt financing and a possible merger with MVP REIT, we expect to see our acquisition expenses, operations and maintenance and depreciation to grow at a similar pace.

   
For the Three Months Ended June 30
   
For the Six Months Ended June 30
 
   
2017
   
2016
   
2017
   
2016
 
Other income (expense)
                       
Interest expense
 
$
(1,053,000
)
 
$
--
   
$
(1,849,000
)
 
$
(1,000
)
Distribution income – related party
   
47,000
     
--
     
99,000
     
--
 
Income (loss) from investment in equity method investee
   
3,000
     
5,000
     
17,000
     
4,000
 
Total other expense
 
$
(1,003,000
)
 
$
5,000
   
$
(1,733,000
)
 
$
3,000
 

The increase in interest expense for the three and six months ended June 30, 2017, as compared to the same period in 2016, is related to the Company's focus on utilizing debt to acquire properties.  To maximize the use of our cash, the Company will continue to look for opportunities to put financing in place on future acquisitions with the use of our line of credit with KeyBank or permanent debt at the time of 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 our parking leases.  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 loan amortization cost for the three and six months ended June 30, 2017 $0.1 million and $0.2 million, respectively.

See Note J – Line of Credit and Note K – 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 the Company's performance relative to the Company's 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 the Company's objectives, the Company may borrow at fixed rates or variable rates. In order to mitigate the Company's interest rate risk on certain financial instruments, if any, the Company may enter into interest rate cap agreements and in order to mitigate the Company's 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 the Company's 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 the Company's on-going portfolio performance. 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 the Company's future ability to pay the Company's 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 the Company's portfolio with other REITs that are not currently engaging in acquisitions, as well as a comparison of the Company's 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 the Company's operating performance excludes items considered in the calculation of MFFO based on the following economic considerations:

·
Straight-line rent. Most of the Company's 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 the Company's 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 the Company's portfolio.
·
Acquisition-related costs. The Company was organized primarily with the purpose of acquiring or investing in income-producing real property in order to generate operational income and cash flow that will allow us to provide regular cash distributions to the Company's 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 the Advisor determines to waive the payment of any then-outstanding acquisition-related costs otherwise payable to the 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 the Company's 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 the Company's 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 the Company's operating performance during periods in which acquisitions are made. However, it can provide an indication of the Company's 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 the Company. 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 the Company's real estate portfolio. However, a material limitation associated with FFO and MFFO is that they are not indicative of the Company's cash available to fund distributions since other uses of cash, such as capital expenditures at the Company's 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 the Company's 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 the Company's current business plan as noted above. MFFO is useful in assisting management and investors in assessing the Company's 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 net asset value ("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.

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

   
For the Three Months
Ended June 30,
   
For the Six Months
Ended June 30,
 
   
2017
   
2016
   
2017
   
2016
 
Net loss attributable to MVP REIT II, Inc. common shareholders
 
$
(1,447,000
)
 
$
(682,000
)
 
$
(4,552,000
)
 
$
(944,000
)
Add (Subtract):
                               
Depreciation of real estate assets
   
471,000
     
3,000
     
896,000
     
3,000
 
Discontinued operations income
   
--
     
--
     
--
     
--
 
FFO
 
$
(976,000
)
 
$
(679,000
)
 
$
(3,656,000
)
 
$
(941,000
)
Add:
                               
Acquisition fees and expenses to non-affiliates
   
277,000
     
218,000
     
2,043,000
     
218,000
 
Acquisition fees and expenses to affiliates
   
592,000
     
307,000
     
1,710,000
     
416,000
 
Acquisition / Merger costs
   
647,000
     
--
     
772,000
     
--
 
                                 
MFFO attributable to MVP REIT II, Inc. shareholders
 
$
540,000
   
$
(154,000
)
 
$
869,000
   
$
(307,000
)
                                 
Distributions to Common Shareholders
 
$
474,000
   
$
113,000
   
$
921,000
   
$
137,000
 

Capital and Liquidity Resources

The Company commenced operations on December 30, 2015.

The Company's principal demand for funds will be/and is for the acquisition of real estate assets, the payment of operating expenses, capital expenditures,  interest on the Company's outstanding indebtedness and the payment of distributions to the Company's stockholders. Over time, the Company intends to generally fund its operating expenses from its cash flow from operations. The cash required for acquisitions and investments in real estate will be funded primarily from the sale of shares of the Company's common stock, including those offered for sale through the Company's distribution reinvestment plan, dispositions of properties in the Company's portfolio and through third party financing and the assumption of debt on acquired properties.

In addition, the Company anticipates raising additional funds though private placements of its preferred stock as well as through additional debt financing.  As of June 30, 2017, the Company had raised approximately $2.6 million in funds from the private placements of Series A Convertible Redeemable Preferred Stock and approximately $5.1 million in funds from the private placements of Series 1 Convertible Redeemable Preferred Stock.

Net cash used in operating activities for the six months ended June 30, 2017 totaled approximately $7.6 million.  Operating cash flows were used for the payment of normal operating expenses such as management fees, insurance, accounting fees and legal bills.  Net cash used in investing activities totaled approximately $77.0 million and mainly consisted of purchase of investments in real estate totaling $81.2 million (which proceeds from non-controlling interest totaling $5.1 million and used of deposits from prior periods totaling $4.2 million) and the purchase of an investment in a DST for $2.8 million.  Net cash provided by financing activities totaled approximately $83.3 million and mainly consisted of proceeds from notes payable of approximately $64.4 million, proceeds from the Company's KeyBank line of credit of approximately $29.2 million, payments on the KeyBank line of credit of approximately $19.8 million.  In addition, financing activities consisted of proceeds from issuance of common stock of approximately $5.5 million and issuance of preferred stock of approximately $7.0 million.

Net cash used in operating activities for the six months ended June 30, 2016 was approximately $569,000.  Operating cash flows were used for the payment of normal operating expenses.  Net cash used in investing activities is approximately $12.3 million and consisted of investments in real estate of approximately $12.3 million, investment in equity method investee of approximately $0.6 million, investments in cost method investees of approximately $2.2 million and security deposits on future acquisitions of approximately $1.5 million. Net cash provided by investing activities consisted of proceeds from noncontrolling interest of $4.3 million.  Net cash provided by financing activities is approximately $22.3 million and consisted of proceeds from issuance of common stock of approximately $22.4 million, distributions of approximately $57,000 and payments on notes payable of approximately $91,000.

On October 5, 2016, the Company, through its Operating Partnership, and MVP REIT, 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 KeyBank Capital Markets ("KeyBank 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 REITs have entered into cross-indemnification provisions with respect to their joint and several obligations under the Unsecured Credit Agreement.

On June 26, 2017, the Company and MVP REIT (together, the "REITs"), each through a wholly owned subsidiary, MVP REIT II Operating Partnership, LP and MVP Real Estate Holdings, LLC (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 REITs 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 the Company drew on June 29, 2017.  The Company anticipates using net proceeds from the private placement of the Series 1 Convertible Redeemable Preferred Stock to paydown the $6.0 million, which is due by September 15, 2017.

Since the initial draw of $6.0 million from the Working Capital Line of Credit on June 29, 2017, the Company has made approximately $3.4 million in total payment, based on the net equity raised since the initial draw.  As of August 21, 2017, the balance on the Working Capital Line of Credit was approximately $2.6 million.

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 RETI to maintain a combined $2.3 million liquidity, which is defined as unencumbered cash and cash equivalents.  As of Augsut 21, 2017, the Company and MVP REIT were in compliance with both these lender requirements.

The Company will experience a relative decrease in liquidity as offering proceeds are used to acquire and operate 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. The Advisor may, but is not required to, establish working capital reserves from offering proceeds of cash flow generated by the Company's investments or out of proceeds from the sale of investments. The Company does not anticipate establishing a general working capital reserve; however, the Company may establish capital reserves with respect to particular 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. The Company's lenders also may require working capital reserves.

To the extent that the working capital reserve is insufficient to satisfy the Company's 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 the Company's 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.

The Company's management is not aware of any material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting the Company's targeted portfolio, the U.S. parking facility industry, which may reasonably be expected to have a material impact on either capital resources or the revenues or incomes to be derived from the operation of the Company's assets.

In addition to making investments in accordance with the Company's investment objectives, the Company expects to use its capital resources to make certain payments to the Company's advisor and the selling agent(s). During the acquisition and development stage, the Company expects to make payments to the Company's advisor in connection with the selection or purchase of investments, the management of the Company's assets and costs incurred by the Company's advisor in providing services to us. For a discussion of the compensation to be paid to the Company's advisor, see "Fees and Expenses Paid in Connection with the Operations of the Company", included in Note E — Related Party Transactions and Arrangements Part I, Item 1 Financial Statements of this Quarterly Report on Form 10-Q for more information. The advisory agreement has a one-year term but may be renewed for an unlimited number of successive one-year periods upon the mutual consent of the Company's advisor and the Company's board of directors.

Management Compensation Summary

The following table summarizes all compensation and fees incurred by us and paid or payable to the Company's Advisor and its affiliates in connection with the Company's organization operations for the three and six months ended June 30, 2017 and, 2016.

   
For the three months
ended June 30,
   
For the six months
ended June 30,