10-Q 1 tpr_10q_63018.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, 2018

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


THE PARKING REIT, 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.)

2965 S. Jones #C1-100, Las Vegas, NV 89146
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (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 [ X ]
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. [  ]

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

Yes [   ] No [ X ]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

As of August 10, 2018, the registrant had 6,549,572 shares of common stock outstanding.
 


TABLE OF CONTENTS

   
Page
     
Part I
FINANCIAL INFORMATION
 
     
     
 
     
 
     
 
     
 
     
 
     
     
     
     
Part II
OTHER INFORMATION
 
     
     
     
     
     
     
     
     
 
     
   
     
   
     
   


THE PARKING REIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

   
June 30, 2018
   
December 31, 2017
 
   
(UNAUDITED)
       
ASSETS
 
Investments in real estate and fixed assets
           
Land and improvements
 
$
143,228,000
   
$
131,169,000
 
Buildings and improvements
   
165,263,000
     
153,456,000
 
Construction in progress
   
3,469,000
     
750,000
 
Intangible Assets
   
2,237,000
     
2,427,000
 
Software
   
63,000
     
--
 
     
314,260,000
     
287,802,000
 
Accumulated depreciation and amortization
   
(4,591,000
)
   
(2,231,000
)
Total investments in real estate, net
   
309,669,000
     
285,571,000
 
                 
Assets held for sale
   
5,330,000
     
6,543,000
 
Cash
   
6,251,000
     
8,501,000
 
Cash – restricted
   
4,924,000
     
8,229,000
 
Prepaid expenses
   
655,000
     
184,000
 
Accounts receivable
   
728,000
     
409,000
 
Investment in DST
   
2,821,000
     
2,821,000
 
Deposits
   
275,000
     
--
 
Other assets
   
53,000
     
685,000
 
Total assets
 
$
330,706,000
   
$
312,943,000
 
LIABILITIES AND EQUITY
 
Liabilities
               
Notes payable, net of unamortized loan issuance costs of approximately $1.5 million and $1.9 million as of June 30, 2018 and December 31, 2017, respectively
 
$
117,502,000
   
$
123,770,000
 
Lines of credit, net of unamortized loan issuance costs of approximately $0.7 million and $0.5 million as of June 30, 2018 and December 31, 2017, respectively
   
41,859,000
     
22,302,000
 
Accounts payable and accrued liabilities
   
5,658,000
     
3,913,000
 
Security Deposit
   
139,000
     
202,000
 
Due to related parties
   
258,000
     
385,000
 
Deferred revenue
   
596,000
     
195,000
 
Total liabilities
   
166,012,000
     
150,767,000
 
Commitments and contingencies
   
--
     
--
 
Equity
               
The Parking REIT, Inc. Stockholders' Equity
               
Preferred stock Series A, $0.0001 par value, 50,000 shares authorized, 2,862 shares issued and outstanding (stated liquidation value of $2,862,000) as of June 30, 2018 and  December 31, 2017, respectively.
   
--
     
--
 
Preferred stock Series 1; $0.0001 par value, 97,000 shares authorized, 39,811 and 29,789 shares issued and outstanding (stated liquidation value of $ 39,811,000 and $29,789,000) as of June 30, 2018 and December 31, 2017, respectively.
   
--
     
--
 
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, 6,550,199 and 6,532,009 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively
   
--
     
--
 
Additional paid-in capital
   
185,032,000
     
177,598,000
 
Accumulated deficit
   
(23,070,000
)
   
(18,173,000
)
Total The Parking REIT, Inc. Shareholders' Equity
   
161,962,000
     
159,425,000
 
Non-controlling interest
   
2,732,000
     
2,751,000
 
Total equity
   
164,694,000
     
162,176,000
 
Total liabilities and equity
 
$
330,706,000
   
$
312,943,000
 

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

THE PARKING REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
   
For the Three Months Ended June 30
   
For the Six Months Ended June 30
 
 
 
2018
   
2017
   
2018
   
2017
 
Revenues
                       
Base rent income
 
$
4,803,000
   
$
2,029,000
   
$
9,519,000
   
$
3,534,000
 
Management agreement
   
--
     
--
     
--
     
518,000
 
Percentage rent income
   
391,000
     
507,000
     
766,000
     
507,000
 
Total revenues
   
5,194,000
     
2,536,000
     
10,285,000
     
4,559,000
 
                                 
Operating expenses
                               
Property taxes
   
659,000
     
115,000
     
1,295,000
     
133,000
 
Property operating expense
   
428,000
     
43,000
     
736,000
     
391,000
 
Asset management expense – related party
   
855,000
     
257,000
     
1,687,000
     
494,000
 
General and administrative
   
1,818,000
     
323,000
     
4,846,000
     
651,000
 
Merger costs
   
--
     
647,000
     
--
     
772,000
 
Acquisition expenses
   
187,000
     
277,000
     
404,000
     
2,043,000
 
Acquisition expenses – related party
   
--
     
592,000
     
--
     
1,710,000
 
Depreciation and amortization
   
1,197,000
     
471,000
     
2,391,000
     
896,000
 
Total operating expenses
   
5,144,000
     
2,725,000
     
11,359,000
     
7,090,000
 
 
                               
Income (loss) from operations
   
50,000
     
(189,000
)
   
(1,074,000
)
   
(2,531,000
)
 
                               
Other income (expense)
                               
Interest expense
   
(2,219,000
)
   
(1,053,000
)
   
(4,167,000
)
   
(1,849,000
)
Distribution income – related party
   
--
     
47,000
     
--
     
99,000
 
Gain from sale of investment in real estate
   
1,009,000
     
--
     
1,009,000
     
--
 
Other Income
   
55,000
     
--
     
55,000
     
--
 
Income from DST
   
50,000
     
--
     
102,000
     
--
 
Income from investment in equity method investee
   
--
     
3,000
     
--
     
17,000
 
Total other expense
   
(1,105,000
)
   
(1,003,000
)
   
(3,001,000
)
   
(1,733,000
)
                                 
Net loss
   
(1,055,000
)
   
(1,192,000
)
   
(4,075,000
)
   
(4,264,000
)
Net income attributable to non-controlling interest
   
3,000
     
200,000
     
5,000
     
228,000
 
Net loss attributable to The Parking REIT, Inc.'s stockholders
 
$
(1,058,000
)
 
$
(1,392,000
)
 
$
(4,080,000
)
 
$
(4,492,000
)
                                 
Preferred stock distributions declared - Series A
   
(54,000
)
   
(41,000
)
   
(97,000
)
   
(46,000
)
Preferred stock distributions declared - Series 1
   
(688,000
)
   
(14,000
)
   
(1,211,000
)
   
(14,000
)
Net loss attributable to The Parking REIT, Inc.'s common stockholders
   
(1,800,000
)
   
(1,447,000
)
   
(5,388,000
)
   
(4,552,000
)
                                 
Basic and diluted loss per weighted average common share:
                               
Net loss per share attributable to The Parking REIT, Inc.'s common stockholders - basic and diluted
 
$
(0.27
)
 
$
(0.57
)
 
$
(0.82
)
 
$
(1.83
)
Distributions declared per common share
 
$
--
   
$
0.35
   
$
0.12
   
$
0.37
 
Weighted average common shares outstanding, basic and diluted
   
6,555,688
     
2,545,100
     
6,553,221
     
2,485,492
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
THE PARKING REIT, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For The Six Months Ended June 30, 2018
(UNAUDITED)

   
Preferred stock
   
Common stock
                         
   
Number of Shares
   
Par Value
   
Number of Shares
   
Par Value
   
Additional Paid-in Capital
   
Accumulated Deficit
   
Non-controlling interest
   
Total
 
Balance, December 31, 2017
   
32,651
         
$
6,532,009
   
$
--
   
$
177,598,000
   
$
(18,173,000
)
 
$
2,751,000
   
$
162,176,000
 
                                                               
Distributions to non-controlling interest
   
--
     
--
     
--
     
--
     
--
     
--
     
(24,000
)
   
(24,000
)
Issuance of common stock – DRIP
   
--
     
--
     
11,326
     
--
     
283,000
     
--
     
--
     
283,000
 
Issuance of preferred Series 1
   
10,022
     
--
     
--
     
--
     
9,090,000
     
--
     
--
     
9,090,000
 
Redeemed Shares
                   
(25,815
)
           
(631,000
)
           
--
     
(631,000
)
Distributions - Common
   
--
     
--
     
--
     
--
     
(817,000
)
   
--
             
(817,000
)
Distributions – Series A
   
--
     
--
     
--
     
--
     
(97,000
)
   
--
     
--
     
(97,000
)
Distributions – Series 1
   
--
     
--
     
--
     
--
     
(1,211,000
)
   
--
     
--
     
(1,211,000
)
Stock dividend
   
--
     
--
     
32,679
     
--
     
817,000
     
(817,000
)
   
--
     
--
 
Net income (loss)
   
--
     
--
     
--
     
--
     
--
     
(4,080,000
)
   
5,000
     
(4,075,000
)
Balance, June 30, 2018
   
42,673
           
$
6,550,199
   
$
--
   
$
185,032,000
   
$
(23,070,000
)
 
$
2,732,000
   
$
164,694,000
 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
THE PARKING REIT, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

   
For The Six Months Ended June 30,
 
   
2018
   
2017
 
Cash flows from operating activities:
           
Net Loss
 
$
(4,075,000
)
 
$
(4,264,000
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization expense
   
2,391,000
     
896,000
 
Amortization of loan costs
   
492,000
     
210,000
 
Gain fromsale of investment in real estate
   
(1,009,000
)
   
--
 
Income from investment in equity method investee
   
--
     
(17,000
)
Distribution from MVP REIT
   
--
     
(99,000
)
Distribution from DST
   
(102,000
)
   
--
 
Changes in operating assets and liabilities
               
Due to/from related parties
   
(127,000
)
   
(480,000
)
Accounts payable
   
1,784,000
     
859,000
 
Loan Fees
   
(344,000
)
   
167,000
 
Security deposits
   
338,000
     
--
 
Other assets
   
(43,000
)
   
--
 
Assets held for sale
   
--
     
8,000
 
Deferred revenue
   
--
     
--
 
Accounts receivable
   
(319,000
)
   
(87,000
)
Prepaid expenses
   
(507,000
)
   
(128,000
)
Net cash used in operating activities
 
$
(1,521,000
)
 
$
(2,935,000
)
Cash flows from investing activities:
               
Purchase of investment in real estate
   
(28,938,000
)
   
(81,200,000
)
Investment in assets held for sale
   
--
     
(1,080,000
)
Investment in DST
   
--
     
(2,821,000
)
Building improvements
   
(3,031,000
)
   
(1,329,000
)
Fixed asset purchase
   
(63,000
)
   
--
 
Proceeds from Investments
   
102,000
     
12,000
 
Proceeds from sale of investment in real estate
   
3,773,000
     
--
 
Deposits applied to purchase of investment in real estate
   
400,000
     
4,216,000
 
Investment in cost method investee
   
--
     
(8,000
)
Investment in cost method investee – held for sale
   
--
     
(2,000
)
Investment in equity method investee
   
--
     
(50,000
)
Proceeds from non-controlling interest
   
--
     
5,075,000
 
Net cash used in investing activities
   
(27,757,000
)
   
(77,187,000
)
Cash flows from financing activities
               
Proceeds from note payable
   
5,488,000
     
66,422,000
 
Payments on note payable
   
(1,018,000
)
   
(390,000
)
Proceeds from line of credit
   
23,100,000
     
29,243,000
 
Payments made on line of credit
   
(10,440,000
)
   
(19,813,000
)
Loan fees paid
   
--
     
(937,000
)
Distribution to non-controlling interest
   
(24,000
)
   
(1,686,000
)
Distribution from investment in cost method investee
   
--
     
13,000
 
Distribution from investment in equity method investee
   
--
     
195,000
 
Proceeds from issuance of common stock
   
--
     
5,516,000
 
Proceeds from issuance of preferred stock
   
9,090,000
     
5,019,000
 
Redeemed shares
   
(631,000
)
   
--
 
Dividends paid to stockholders
   
(1,842,000
)
   
(981,000
)
Net cash provided by financing activities
   
23,723,000
     
82,601,000
 
Net change in cash and cash equivalents and restricted cash
   
(5,555,000
)
   
2,479,000
 
Cash cash and cash equivalents and restricted cash, beginning of period
   
16,730,000
     
4,985,000
 
Cash cash and cash equivalents and restricted cash, end of period
 
$
11,175,000
   
$
7,464,000
 
                 
Reconciliation of Cash and Cash Equivalents and Restricted Cash:
               
Cash and cash equivalents at beginning of period
 
$
8,501,000
   
$
4,885,000
 
Restricted cash at beginning of period
   
8,229,000
     
100,000
 
Cash and cash equivalents and restricted cash at beginning of period
 
$
16,730,000
   
$
4,985,000
 
                 
Cash and cash equivalents at end of period
 
$
6,251,000
   
$
2,692,000
 
Restricted cash at end of period
   
4,924,000
     
4,772,000
 
Cash and cash equivalents and restricted cash at end of period
 
$
11,175,000
   
$
7,464,000
 
                 
Supplemental disclosures of cash flow information:
               
Interest Paid
 
$
3,672,000
   
$
1,639,000
 
Non-cash investing and financing activities:
               
Distributions - DRIP
 
$
283,000
   
$
217,000
 
Dividend shares
 
$
817,000
   
$
921,000
 
Dividends declared not yet paid
 
$
250,000
   
$
4,216,000
 
Deposits applied to purchase of investment in real estate
 
$
2,260,000
   
$
2,000,000
 
Payments on note payable through sale of investment in real estate
 
$
(11,092,000
)
 
$
--
 
Proceeds on line of credit through sale of investment in real estate
 
$
7,103,000
   
$
--
 

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


THE PARKING REIT, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(UNAUDITED)

Note A — Organization and Business Operations

The Parking REIT, Inc., formerly known as MVP REIT II, Inc. (the "Company"), 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 for federal income tax purposes commencing with the taxable year ended December 31, 2017; however, if the Company is unable to satisfy the requirements for REIT qualification for the year ended December 31, 2017, the Company 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 (No. 333-205893) filed with the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Securities Act"). The Company accepted additional subscriptions through March 31, 2017, the last day of the Common Stock Offering. The Company raised approximately $61.3 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 $1.8 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 were 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 substantially all of 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 to qualify and maintain qualification as a REIT for federal income 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 of 1986, as amended (the "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 the Company to acquire real property in exchange for limited partnership interests in the 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 the Company in exchange for shares of the Company's common stock or cash.

As part of the Company's initial capitalization, 8,000 shares of common stock were sold for $200,000 to MVP Capital Partners II, LLC (the "Sponsor"), the Company's sponsor. The Sponsor is owned 60% by Vestin Realty Mortgage II, Inc. ("VRM II"), and 40% by Vestin Realty Mortgage I, Inc. ("VRM I"). Both VRM II and VRM I are Maryland corporations that trade on the OTC pink sheets and were managed by Vestin Mortgage, LLC, a Nevada limited liability company wholly owned by Michael Shustek ("Vestin Mortgage"), prior to being internalized in January 2018.

The Company's advisor is MVP Realty Advisors, LLC, dba The Parking REIT Advisors (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 a second amended and restated advisory agreement between the Company and the Advisor (the "Amended and Restated Advisory Agreement"), which became effective upon consummation of the Merger (as such term is defined below). As of August 10, 2018, the Company had no paid employees.

As previously disclosed, the Company's board of directors unanimously authorized a suspension of cash distributions and stock dividends to holders of common stock, effective as of March 22, 2018.  The Company is focused on preserving capital in order to maintain sufficient liquidity to continue to operate the business and maintain compliance with debt covenants, including minimum liquidity covenants and to seek to enhance value for stockholders through potential future acquisitions. The Company expects that cash retained by the suspension of cash distributions will allow the Company to continue to pursue investment opportunities while also preparing for a possible liquidity event in the future. The Company's board will continue to evaluate the Company's performance and expects to assess the Company's distribution policy quarterly.  There can be no assurance that the Company will resume payment of distributions to common stockholders at any time in the future, that any acquisitions will be completed on an attractive basis, or at all, or that any liquidity event will occur or when such event may occur.

From inception through June 30, 2018, the Company has paid approximately $3.8 million in distributions, including issuing 83,437 shares of its common stock as DRIP shares, issuing 153,827 shares of its common stock as dividend in distributions to the Company's common stockholders, all of which have been paid from offering proceeds and constituted a return of capital. If the Company resumes the payment of distributions, 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.

On May 26, 2017, the Company, MVP REIT, Inc., a Maryland corporation ("MVP I"), MVP Merger Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company ("Merger Sub"), and the Advisor entered into an agreement and plan of merger (the "Merger Agreement"), pursuant to which MVP I would merge with and into Merger Sub (the "Merger").

On December 15, 2017, the Merger was consummated. Following the Merger, the Company contributed 100% of its equity interests in Merger Sub to the Operating Partnership. The Company owns substantially all of its assets and conducts substantially all of its operations through the Operating Partnership and is advised by the Advisor.

At the effective time of the Merger, each share of MVP I common stock, par value $0.001 per share, that was issued and outstanding immediately prior to the Merger (the "MVP I Common Stock"), was converted into the right to receive 0.365 shares of Company common stock. A total of approximately 3.9 million shares of Company common stock were issued to former MVP I stockholders, and former MVP I stockholders, immeadiately following the Merger, owned approximately 59.7% of the Company's common stock. The Company was subsequently renamed "The Parking REIT, Inc." as set forth in the articles of amendment in connection with the Merger.

Capitalization

As of June 30, 2018, the Company had 6,550,199 shares of common stock issued and outstanding. On  December 31, 2016, the Company ceased all selling efforts for the Common Stock Offering of its common stock. The Company accepted additional subscriptions through March 31, 2017, the last day of 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 $2.5 million, net of offering costs, in the Series A private placement and had 2,862 Series A shares issued and outstanding as of June 30, 2018.

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, together with warrants to acquire the Company's common stock to accredited investors, and closed the offering on January 31, 2018.  The Company raised approximately $36.0 million, net of offering costs, in the Series 1 private placements and had 39,811 Series 1 shares issued and outstanding as of June 30, 2018.

To comply with the Company's amended credit agreement, the Company will redeem all of the outstanding shares of the Series A preferred stock and Series 1 preferred stock and pay the entire redemption price in the form of shares of the Company common stock, within 30 days after the completion of the listing of the Company's common stock on a national securities exchange. As further described in the section entitled "Management's Discussion And Analysis Of Financial Condition And Results Of Operations – Liquidity and Capital Resources," the Company filed a listing application on July 13, 2018 and the terms of its amended credit agreement require the Company to complete the listing by September 30, 2018, although no assurances can be given that a listing will be completed within such timeframe or at all.

If the Company resumes the payment of distributions, stockholders may elect to reinvest distributions received from the Company in common shares by participating in the Company's DRIP. Stockholders may enroll in the DRIP by completing the distribution change form. Stockholders may also withdraw at any time, without penalty, by delivering written notice to the Company. Initially 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 on May 29, 2018 (the "Valuation Date"), which was 150 days following the second anniversary of the date on which  the minimum offering requirement in the Common Stock Offering was satisfied, the purchase price for the DRIP shares will be equal to the Company's net asset value ("NAV") per common share if the DRIP is ongoing.  The Company announced an NAV of $24.61 per common share effective as of May 29, 2018. The Company will update the NAV per share at least annually following the Valuation Date, provided the Company is not listed, 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.

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.

On February 7, 2018, the Company filed a Current Report on Form 8-K stating that the board of directors has determined that the Merger and the issuance of the Company's common stock as consideration for the Merger qualifies as an involuntary exigent circumstance under the SRP. As a result, shares of common stock that, when combined with the holding period of the related MVP I Common Stock, have been held for the Two-Year Holding Period (as such term is defined in the SRP), are eligible to participate in the SRP subject to the other requirements and limitations of the SRP. In addition, the issuance date for any shares of MVP I Common Stock issued pursuant to the MVP REIT, Inc. Distribution Reinvestment Plan shall be deemed to be the same date as the issuance of the shares of MVP I Common Stock to which such shares relate.

On May 29, 2018 the Company's Board of Directors suspended its SRP, other than for repurchases in connection with a shareholder's death. In accordance with the SRP, the suspension of the SRP became effective on June 28, 2018, which is 30 days after the filing date of the Form 8-K providing notice of the suspension.  The Company plans to utilize the cash savings to further its business operations.

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. Redemption requests other than those made in connection with the death or disability (as defined in the Code) of a stockholder will continue to be repurchased as of March 31st, June 30th, September 30th and December 31st of each year in accordance with the terms of the SRP.  The SRP will terminate if the shares of common stock are listed on a national securities exchange.

For the three and six months ended June 30, 2018, 18,179 and 25,815 shares had been redeemed, repectively.

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, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. 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, 2017.

The condensed consolidated balance sheet as of December 31, 2017 contained herein has been derived from the audited financial statements as of December 31, 2017, but does not include all disclosures required by GAAP.


Consolidation

The Company's condensed consolidated financial statements include its accounts, the accounts of the Company's assets that were sold during 2017 (as applicable), 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.

MVP PF Ft. Lauderdale 2013, LLC
MVP Clarksburg Lot, LLC
MVP PF Kansas City 2013, LLC
MVP Denver Sherman 1935, LLC
MVP PF Memphis Poplar 2013, LLC
MVP Bridgeport Fairfield Garage, LLC
MVP PF Memphis Court 2013, LLC
West 9th Street Properties II, LLC
MVP PF St. Louis 2013, LLC
MVP San Jose 88 Garage, LLC
Mabley Place Garage, LLC
MCI 1372 Street, LLC
MVP Denver Sherman, LLC
MVP Cincinnati Race Street, LLC
MVP Fort Worth Taylor, LLC
MVP St. Louis Washington, LLC
MVP Milwaukee Old World, LLC
MVP St. Paul Holiday Garage, LLC
MVP St. Louis Convention Plaza, LLC
MVP Louisville Station Broadway, LLC
MVP Houston Saks Garage, LLC
White Front Garage Partners, LLC
MVP St. Louis Lucas, LLC
Cleveland Lincoln Garage, LLC
MVP Milwaukee Wells, LLC
MVP Houston Preston, LLC
MVP Wildwood NJ Lot, LLC
MVP Houston San Jacinto Lot, LLC
MVP Indianapolis City Park, LLC
MVP Detroit Center Garage, LLC
MVP KC Cherry Lot, LLC
St Louis Broadway, LLC
MVP Indianapolis WA Street Lot, LLC
St Louis Seventh & Cerre, LLC
Minneapolis City Parking, LLC
MVP Preferred Parking, LLC
MVP Minneapolis Venture, LLC
MVP Raider Park Garage, LLC
MVP Indianapolis Meridian Lot, LLC
MVP New Orleans Rampart, LLC
MVP Milwaukee Clybourn, LLC
MVP Hawaii Marks Garage, LLC
MVP Milwaukee Arena Lot, LLC
 

Under GAAP, the Company's condensed 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 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 fifteen parking tenants as of June 30, 2018 and nine parking tenants as of June 30, 2017. One tenant, SP Plus Corporation (Nasdaq: SP) ("SP+"), represented 55.7% and 55.1% of the Company's base parking rental revenue for the six months ended June 30, 2018 and 2017, respectively.

SP+ is one of the largest providers of parking management in the United States.  As of June 30, 2018, SP+ managed approximately 3,600 locations in North America.


Below is a table that summarizes parking rent by tenant:

   
For The Six Months Ended June 30,
Parking Tenant
 
2018
 
2017
SP +
 
55.7%
 
55.1%
iPark Services
 
13.5%
 
5.4%
ABM**
 
6.1%
 
3.6%
ISOM Mgmt
 
4.3%
 
--
Premier Parking
 
3.7%
 
8.7%
Interstate Parking
 
2.9%
 
6.7%
Denison
 
2.5%
 
--
342 N. Rampart
 
2.5%
 
--
Lanier**
 
2.4%
 
3.7%
St. Louis Parking
 
2.2%
 
4.2%
BEST PARK
 
1.5%
 
--
PCAM, LLC
 
1.4%
 
--
Riverside Parking
 
1.0%
 
2.5%
Denver School
 
0.2%
 
--
Secure
 
0.1%
 
--
Miller Parking*
 
--
 
10.1%

* Revenue for Miller parking represents a settlement received by MVP Detroit Center Garage, LLC of approximately $408,000 for the operations of the garage through January 2017, at which time SP+ assumed operations under a longer-term lease agreement.

** Through February 28, 2017, MVP San Jose 88 Garage, LLC was subject to a parking management agreement with ABM and received revenue of $110,000. Starting on March 1, 2017, this property was leased to Lanier Parking Solutions.

In addition, the Company had concentrations in various cities based on parking rental revenue for the six months ended June 30, 2018 and 2017, as well as concentrations in various cities based on the real estate the Company owned as of June 30, 2018 and December 31, 2017. The below tables summarize this information by city.

City Concentration for Parking Rental Revenue
   
For The Six Months Ended June 30,
   
2018
 
2017
Detroit
 
18.4%
 
46.5%
Houston
 
13.5%
 
5.4%
Fort Worth
 
8.2%
 
--
Cincinnati
 
7.7%
 
4.1%
Indianapolis
 
6.5%
 
--
St. Louis
 
6.5%
 
6.3%
Cleveland
 
5.4%
 
12.7%
Lubbock
 
4.3%
 
--
Minneapolis
 
4.3%
 
--
Nashville
 
3.8%
 
8.7%
Milwaukee
 
3.6%
 
--
St Paul
 
2.9%
 
6.7%
New Orleans
 
2.5%
 
--
San Jose
 
2.4%
 
6.5%
Bridgeport
 
2.1%
 
--
Canton
 
1.8%
 
0.6%
Memphis
 
1.6%
 
--
Louisville
 
1.0%
 
2.5%
Kansas City
 
0.9%
 
--
Ft. Lauderdale
 
0.9%
 
--
Denver
 
0.8%
 
--
Wildwood
 
0.4%
 
--
Clarksburg
 
0.3%
 
--
Honolulu
 
0.2%
 
--

 
Real Estate Investment Concentration by City
   
As of June 30, 2018
 
As of December 31, 2017
Detroit
 
17.7%
 
19.3%
Houston
 
11.8%
 
13.0%
Fort Worth
 
8.8%
 
9.7%
Cincinnati
 
8.6%
 
9.0%
Honolulu
 
6.7%
 
--
Indianapolis
 
5.8%
 
6.4%
Cleveland
 
5.2%
 
5.6%
Minneapolis
 
4.4%
 
5.8%
St Louis
 
4.4%
 
4.9%
Milwaukee
 
3.8%
 
4.2%
Nashville
 
3.7%
 
4.0%
Lubbock
 
3.5%
 
3.9%
St Paul
 
2.7%
 
2.9%
Bridgeport
 
2.6%
 
2.9%
New Orleans
 
2.6%
 
--
Memphis
 
1.6%
 
1.7%
San Jose
 
1.2%
 
1.2%
Fort Lauderdale
 
1.1%
 
1.2%
Denver
 
1.0%
 
1.1%
Louisville
 
1.0%
 
1.1%
Kansas City
 
0.9%
 
1.0%
Wildwood
 
0.5%
 
0.6%
Clarksburg
 
0.2%
 
0.3%
Canton
 
0.2%
 
0.2%

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.

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

The Company maintains the majority of its cash at KeyBank. The balances are insured by the Federal Deposit Insurance Corporation under the same ownership category of $250,000. As of June 30, 2018 and December 31, 2017, the Company had approximately $1.7 million and $5.6 million, respectively, in excess of the federally-insured limits. As of June 30, 2018, 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.  Percentage rents will be recorded when earned and certain thresholds have been met.

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, 2018 and 2017, 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 Amended and Restated 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 the Company that are directly attributable to a proposed or actual offering, including sales commissions, if any, were charged against the gross proceeds of the Common Stock Offering and recorded as an offset to additional paid-in-capital.  All indirect costs will be expensed as incurred.

Stock-Based Compensation

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

Income Taxes

The Company has been organized and conducts its operations to qualify as a REIT under Sections 856 to 860 of the Code.  The Company intends to qualify as a REIT commencing with the taxable year ending December 31, 2017. A REIT is generally not subject to federal income tax on that portion of its REIT taxable income, which is distributed to its stockholders, provided that at least 90% of such taxable income is distributed and provided that certain other requirements are met. The Company's REIT taxable income may substantially exceed or be less than the Company's 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 costs, capital gains and losses and deferred income.

A tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained on audit, including resolutions of any related appeals or litigation process, based on the technical merits. Based on the Company's evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition on the financial statements. The net income tax provision for the year ended December 31, 2017 was approximately zero.


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, 2018 and 2017.

There is a potential for dilution from the Company's Series A Convertible Redeemable Preferred Stock which may be converted upon a holder's election 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, 2018, 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 upon a holder's election 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, 2018, there were 39,811 shares 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 on or prior to December 1, 2017 (for Series 1 shares) or on or prior to the day immediately preceding the first anniversary of the issuance of such share (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.

There is also potential for dilution in the event that the Company completes the contemplated redemption ofs all of the outstanding shares of the Series A preferred stock and Series 1 preferred stock and pays entire redemption price in the form of shares of the Company's common stock, within 30 days after the completion of the listing of the Company's common stock on a national securities exchange in order to comply with the terms of its amended credit agreement, as further described in "Management's Discussion And Analysis Of Financial Condition And Results Of Operations – Liquidity and Capital Resources."

Reportable Segments

The Company currently operates one reportable segment.

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

Accounting and Auditing Standards Applicable to "Emerging Growth Companies"

The Company is an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012 (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 (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 (the "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.

On May 29, 2018, the Company announced that the Company's Board of Directors suspended the SRP, other than for repurchases in connection with a shareholder's death, as further described below.

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 the Company has 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 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. On May 29, 2018, the Company established a NAV equal to $24.61 per common share.

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, the Company 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. As further described in the section entitled "Management's Discussion And Analysis Of Financial Condition And Results Of Operations – Liquidity and Capital Resources," the Company filed an application to list its shares on national securities exchange on July 13, 2018, and intends to complete the listing by September 30, 2018, although no assurances can be given that a listing will be completed within such timeframe or at all.

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 Current Report on 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 became effective on November 26, 2016, a preferred stockholder 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, the Company 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.

For the three and six months ended June 30, 2018, 18,179 and 25,815 shares, respectively, had been redeemed. No shares have been redeemed subsequent to June 30, 2018.

On February 7, 2018, the Company filed a Current Report on Form 8-K stating that the board of directors has determined that the Merger and the issuance of the Company's common stock as consideration for the Merger qualifies as an involuntary exigent circumstance under the SRP. As a result, shares of common stock that, when combined with the holding period of the related MVP I Common Stock, have been held for the Two-Year Holding Period, are eligible to participate in the SRP subject to the other requirements and limitations of the SRP. In addition, the issuance date for any shares of MVP I Common Stock issued pursuant to the MVP REIT, Inc. Distribution Reinvestment Plan shall be deemed to be the same date as the issuance of the shares of MVP I Common Stock to which such shares relate.

On May 29, 2018, the Company filed a Current Report on Form 8-K stating that the Company's board of directors suspended its SRP, other than for repurchases in connection with a shareholder's death. In accordance with the SRP, the suspension of the SRP took effect on June 28, 2018, which is 30 days after the date of the Form 8-K providing notice of the suspension.  The Company plans to utilize the cash savings to further its business operations. If a listing of the Company's common stock does not occur, the Company's Board of Directors may in the future reinstate the SRP, although there is no assurance as to if or when this will happen.

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 Common Stock 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. The Company has issued a total of 83,437 shares of common stock under the DRIP as of June 30, 2018. The Company suspended payment of distributions on March 22, 2018 and as such there are currently no distributions to invest in the DRIP.

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

The nature of the Company's business exposes its properties, the Company and its Operating Partnership to the risk of claims and litigation in the normal course of business. Other than routine litigation arising out of the ordinary course of business, the Company is not presently subject to any material litigation nor, to its knowledge, is any material litigation threatened against the Company.


Environmental Matters

In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters.  During the Company's due diligence of a property, purchased on December 15, 2017 and located in Milwaukee, it was discovered that the soil and ground water at the subject property had been impacted by the site's historical use as a printing press as well as neighboring property uses. As a result, the Company retained a local environmental engineer to seek a closure letter or similar certificate of no further action from the State of Wisconsin due to the Company's use of the property as a parking lot. As of June 30, 2018, management does not anticipate a material adverse effect related to this environmental matter. As of June 30, 2018, the Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition that it believes will have a material adverse effect on the results of operations. The Company, however, cannot predict the impact of any unforeseen environmental contingencies or new or changed laws or regulations on properties in which the Company holds an interest, or on properties that may be acquired directly or indirectly in the future.

Note D – Investments in Real Estate and Fixed Assets

As of June 30, 2018, the Company had the following Investments in Real Estate that were consolidated on the Company's balance sheet:

Property Name
Location
Date Acquired
Property Type
# Spaces
Property Size (Acres)
Retail Sq. Ft
Investment Amount
Parking Tenant
MVP Cleveland West 9th (1)
Cleveland, OH
5/11/2016
Lot
260
2
N/A
$5,823,000
SP +
33740 Crown Colony (1)
Cleveland, OH
5/17/2016
Lot
82
0.54
N/A
$3,050,000
SP +
MVP San Jose 88 Garage
San Jose, CA
6/15/2016
Garage
328
1.33
N/A
$3,825,000
Lanier
MCI 1372 Street
Canton, OH
7/8/2016
Lot
66
0.44
N/A
$700,000
ABM
MVP Cincinnati Race Street Garage
Cincinnati, OH
7/8/2016
Garage
350
0.63
N/A
$5,558,000
SP +
MVP St. Louis Washington
St Louis, MO
7/18/2016
Lot
63
0.39
N/A
$3,000,000
SP +
MVP St. Paul Holiday Garage
St Paul, MN
8/12/2016
Garage
285
0.85
N/A
$8,396,000
Interstate Parking
MVP Louisville Station Broadway
Louisville, KY
8/23/2016
Lot
165
1.25
N/A
$3,107,000
Riverside Parking
White Front Garage Partners
Nashville, TN
9/30/2016
Garage
155
0.26
N/A
$11,672,000
Premier Parking
Cleveland Lincoln Garage Owners
Cleveland, OH
10/19/2016
Garage
536
1.14
45,272
$7,406,000
SP +
MVP Houston Preston Lot
Houston, TX
11/22/2016
Lot
46
0.23
N/A
$2,820,000
iPark Services
MVP Houston San Jacinto Lot
Houston, TX
11/22/2016
Lot
85
0.65
240
$3,250,000
iPark Services
MVP Detroit Center Garage
Detroit, MI
2/1/2017
Garage
1,275
1.28
N/A
$55,306,000
SP +
St. Louis Broadway
St Louis, MO
5/6/2017
Lot
161
0.96
N/A
$2,400,000
St. Louis Parking
St. Louis Seventh & Cerre
St Louis, MO
5/6/2017
Lot
174
1.06
N/A
$3,300,000
St. Louis Parking
MVP Preferred Parking
Houston, TX
8/1/2017
Garage
500
0.75
784
$20,500,000
iPark Services
MVP Raider Park Garage
Lubbock, TX
11/21/2017
Garage
1,495
2.15
20,536
$11,030,000
ISOM Management
MVP PF Ft. Lauderdale
Ft. Lauderdale, FL
12/15/2017
Lot
66
0.75
4,017
$3,423,000
SP +
MVP PF Memphis Court
Memphis, TN
12/15/2017
Lot
37
0.41
N/A
$1,208,000
SP +
MVP PF Memphis Poplar
Memphis, TN
12/15/2017
Lot
125
0.86
N/A
$3,735,000
Best Park
MVP PF St. Louis
St Louis, MO
12/15/2017
Lot
179
1.22
N/A
$5,145,000
SP +
Mabley Place Garage (2)
Cincinnati, OH
12/15/2017
Garage
775
0.9
8,400
$21,182,000
SP +
MVP Denver Sherman
Denver, CO
12/15/2017
Lot
28
0.14
N/A
$705,000
Denver School

(Table continued)
MVP Fort Worth Taylor
Fort Worth, TX
12/15/2017
Garage
1,013
1.18
11,828
$27,663,000
SP +
MVP Milwaukee Old World
Milwaukee, WI
12/15/2017
Lot
54
0.26
N/A
$2,044,000
SP +
MVP Houston Saks Garage
Houston, TX
12/15/2017
Garage
265
0.36
5,000
$10,391,000
iPark Services
MVP Milwaukee Wells
Milwaukee, WI
12/15/2017
Lot
100
0.95
N/A
$5,083,000
PCAM, LLC
MVP Wildwood NJ Lot 1 (3)
Wildwood, NJ
12/15/2017
Lot
29
0.26
N/A
$745,000
SP +
MVP Wildwood NJ Lot 2 (3)
Wildwood, NJ
12/15/2017
Lot
45
0.31
N/A
$886,000
SP+
MVP Indianapolis City Park
Indianapolis, IN
12/15/2017
Garage
370
0.47
N/A
$10,841,000
ABM
MVP Indianapolis WA Street
Indianapolis, IN
12/15/2017
Lot
141
1.07
N/A
$5,749,000
Denison
MVP Minneapolis Venture
Minneapolis, MN
12/15/2017
Lot
201 
2.48 
N/A
$4,012,000
SP +
Minneapolis City Parking
Minneapolis, MN
12/15/2017
Lot
270
1.98
N/A
$9,838,000
SP +
MVP Indianapolis Meridian
Indianapolis, IN
12/15/2017
Lot
36
0.24
N/A
$1,601,000
Denison
MVP Milwaukee Clybourn
Milwaukee, WI
12/15/2017
Lot
15
0.06
N/A
$262,000
Secure
MVP Milwaukee Arena Lot
Milwaukee, WI
12/15/2017
Lot
75
1.11
N/A
$4,631,000
SP +
MVP Clarksburg Lot
Clarksburg, WV
12/15/2017
Lot
94
0.81
N/A
$715,000
ABM
MVP Denver Sherman 1935
Denver, CO
12/15/2017
Lot
72
0.43
N/A
$2,533,000
SP +
MVP Bridgeport Fairfield
Bridgeport, CT
12/15/2017
Garage
878
1.01
4,349
$8,256,000
SP +
MVP New Orleans Rampart
New Orleans, LA
2/1/2018
Lot
78
0.44
N/A
$8,105,000
342 N. Rampart
MVP Hawaii Marks Garage
Honolulu, HI
6/21/2018
Garage
308
0.77
16,205
20,832,000
SP +
Construction in progress
 
 
 
 
 
$3,469,000
 
Software
           
$63,000
 
Total Investment in real estate and fixed assets
 
 
 
 
$314,260,000
 

(1)
These properties are held by West 9th St. Properties II, LLC.
(2)
The Company holds an 83.3% undivided interest in the Mabley Place Garage pursuant to a tenancy-in-common agreement and is the Managing Co-Owner of the property.
(3)
These properties are held by MVP Wildwood NJ Lot, LLC.

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 the Company's common stock from third party investors in exchange for various trust deed investments. During the six months ending June 30, 2018 and 2017, VRM II received approximately $33,000 and $8,000, respectively, in distributions in accordance with the Company's DRIP program.

During November 2017, Corporate Center Sunset Holdings, an entity owned by VRM I and VRM II, acquired 1,039,620 shares pursuant to a membership purchase agreement unrelated to the Company. As of June 30, 2018 Corporate Center Sunset Holdings had distributed all acquired shares to VRM I and VRM II.

As of June 30, 2018, the Sponsor owned 9,108 shares, VRM I owned 136,834 shares and VRM II owned 364,960 shares of the Company's outstanding common stock.

Ownership of MVP REIT

Prior to the Merger, the Company held 476,784 shares of MVP REIT common stock. Upon completion of the Merger, these shares were retired. During the three and six months ended June 30, 2017, MVP REIT paid the Company approximately $47,000 and $99,000, respectively, in stock distributions. In addition, the Company received 9,472 shares of MVP I Common Stock in accordance with its 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 agreed to 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.  Michael Shustek has waived his rights to receive the 40% net profits of the Advisor

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 six months ended June 30, 2018, the Company paid approximately $0.8 million, in selling commissions, of which $0.2 million were paid to affiliated selling agents.

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, LLC ("AMS") 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 six months ended June 30, 2018, the Company paid approximately $0.2 million to AMS as compensation.

Fees Paid in Connection with the Operations of the Company

Starting on December 15, 2017, in connection with the Merger, all of the following fees were terminated except for a 1.1% asset management fee.

Prior to the Merger, the Advisor or its affiliates received an acquisition fee of 2.25% of the purchase price of any real estate provided, however, the Company did not pay any fees when acquiring loans from affiliates. In accordance with the amended and restated advisory agreement there were zero acquisition fees for the three and six months ended June 30, 2018.

Prior to the Merger, the Advisor or its affiliates received a monthly asset management fee at an annual rate equal to 1.0% of the cost of all the assets then held by the Company. Currently, the Advisor or its affiliates receives an asset management fee at a rate equal to 1.1% of the cost of all assets 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. From and after May 29, 2018 (or the Valuation Date), the asset management fee shall be calculated based on the lower of the value of the Company's assets and their historical cost. Asset management fees for the three and six months ended June 30, 2018 were approximately $0.9 million and $1.7 million, respectively. Asset management fees for the three and six months ended June 30, 2017 were approximately $0.3 million and $0.5 million, respectively.

The Company was to reimburse the Advisor or its affiliates for costs of providing administrative services, subject to the limitation that it 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 the Company made its 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.  The Company was not to reimburse the Advisor for personnel costs in connection with services for which the Advisor received 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, the Company was not to 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, 2018, approximately $0.7 and $1.5 million, respectively, in operating expenses were incurred by the Company reimbursable to the Advisor.  During the three and six months ended June 30, 2017 no operating expenses had been reimbursed to the Advisor.


In connection with the Merger, the previous Advisory Agreement with the Advisor was amended effective upon the consummation of the Merger to eliminate all fees except a 1.1% asset management fee, which will be limited to $2.0 million per year until the combined company:

·
holds assets with an Appraised Value equal to or in excess of $500,000,000 or,
·
the Company reports AFFO per share of common stock equal to or greater than the $0.3125 per share for two consecutive quarters, on a fully diluted basis at which time all fees subordinated will be paid.


In connection with the Merger and pursuant to the Termination Agreement, at the effective time of the Merger, the previous Advisory Agreement, dated September 25, 2012, as amended, among MVP I and the Advisor was terminated and the Company paid the Advisor an Advisor Acquisition Payment (as such term is defined in the Termination Agreement) of approximately $3.6 million, which was the only fee paid to the Advisor in connection with the Merger.

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

Starting on December 15, 2017, in connection with the Merger, all of the following fees were terminated except for a 1.1% asset management fee.

For substantial assistance in connection with the sale of investments, as determined by the independent directors, the Company was to 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, was not to exceed either the customary commission or an amount equal to 6.0% of the contract sales price. The disposition fee was to 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, 2018 and 2017, no disposition fees have been earned by the Advisor.

After the Company's stockholders had received a return of their net capital invested and a 6.0% annual cumulative, non-compounded return, then the Advisor was entitled to receive 15.0% of the remaining proceeds. The Company was to pay this subordinated performance fee only upon one of the following events: (i) if the Company's shares were listed on a national securities exchange; (ii) if the Company's assets were 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, 2018 and 2017, no subordinated performance fees have been earned by the 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 issuance, as well as other administrative responsibilities for the Company, including accounting services and investor relations. In addition, the Sponsor paid selling commissions in connection with the sale of the Company's shares in the Common Stock Offering and the Advisor paid 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 may 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 the Company may 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. The Company currently anticipates that it will not issue awards under the Company's long-term incentive plan, although it may do so in the future, including possible equity grants 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 the Company's 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 the Company's 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 the Company's common stock on the date of grant.

The Company's board of directors or a committee appointed by its 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 the Company's status as a REIT under the Code or otherwise violate the ownership and transfer restrictions imposed under its charter. Unless otherwise determined by the Company's board of directors, no award granted under the long-term incentive plan will be transferable except through the laws of descent and distribution.

The Company has authorized and reserved an aggregate maximum number of 500,000 common shares for issuance under the long-term incentive plan. In the event of a transaction between the Company and its stockholders that causes the per-share value of the Company's 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.

The Company's 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 the board of directors and stockholders, unless extended or earlier terminated by the board of directors. The Company's 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. The 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 the Company's 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, 2018 and 2017, 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 adopted ASU 2014-09 using the modified retrospective transition method in the first quarter of 2018 and such adoption did not have a material impact on the Company's condensed consolidated financial statements. The adoption of this standard did not require any adjustments to the opening balance of retained earnings as of January 1, 2018.

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 adopted ASU 2016-01 in the first quarter of 2018 and such adoption did not have a material impact on the Company's condensed 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.  The Company has 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 Company's condensed 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 condensed 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. The standard permits the use of either the retrospective or cumulative effect transition method. 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 adopted ASU 2016-18 in the first quarter of 2018 and such adoption had no material impact on the Company's condensed consolidated financial statements.

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 adopted ASU 2016-18 beginning in the first quarter of 2018. The effect of ASU 2017-01 on the Company's condensed consolidated financial statements is dependant upon the value and quantitiy of acquisitions duriing the year.

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 adopted ASU 2017-09  and such adoption did not have a material impact on the Company's condensed consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The objective of ASU 2017-12 is to expand hedge accounting for both financial (interest rate) and commodity risks and create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes. ASU 2017-12 will be effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods in the year of adoption. Early adoption is permitted for any interim or annual period. The Company is currently evaluating the impact that the implementation of ASU 2017-12 will have on the Company's condensed consolidated financial statements.

Note I – Acquisitions

The following table is a summary of the acquisitions for the six months ended June 30, 2018.

Property
Location
Date Acquired
Property Type
# Spaces
Size / Acreage
Retail Sq. Ft.
Property Purchase Price
MVP New Orleans Rampart, LLC
New Orleans, LA
2/1/2018
Lot
78
0.44
N/A
$8,105,000
MVP Hawaii Marks Garage, LLC
Honolulu, HI
6/21/2018
Garage
308
0.77
16,205
$20,832,000

The following table is a summary of the allocated acquisition value of all properties acquired by the Company for the six months ended June 30, 2018.

   
Assets
 
   
Land and Improvements
   
Building and improvements
   
Total assets acquired
 
MVP New Orleans
 
$
8,105,000
   
$
--
   
$
8,105,000
*
MVP Hawaii Marks Garage
 
$
9,117,000
   
$
11,715,000
   
$
20,832,000
*

*Includes acquisition and closing costs


The following table presents the results of operations of the acquired properties for the three and six months ended June 30, 2018:

   
For The Three Months Ended
June 30, 2018
   
For The Six Months Ended
June 30, 2018
 
   
Total Revenues
   
Net Income
   
Total Revenues
   
Net Income
 
2018 acquisitions
 
$
175,000
   
$
163,000
   
$
268,000
   
$
256,000
 

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, 2018 and 2017 and assumes that the acquisitions were completed as of January 1, 2017.

   
For The Three Months Ended June 30,
   
For The Six Months Ended June 30,
 
   
2018
   
2017
   
2018
   
2017
 
Revenues from continuing operations
 
$
5,404,000
   
$
2,913,000
   
$
10,778,000
   
$
5,312,000
 
Net income (loss) from continuing operations
 
$
(866,000
)
 
$
(1,036,000
)
 
$
(3,625,000
)
 
$
(3,779,000
)
Net income (loss) from continuing operations per share – basic
 
$
(0.13
)
 
$
(0.41
)
 
$
(0.55
)
 
$
(1.52
)
Net income (loss) from continuing operations per share – diluted
 
$
(0.13
)
 
$
(0.41
)
 
$
(0.55
)
 
$
(1.52
)

Note J — Assets held for sale

As of December 31, 2016, the Company had an 87.09% ownership interest in one property that was listed as held for sale, with a carrying value of approximately $6.1 million.  This property was acquired on January 6, 2016, along with MVP REIT II, with the purchase of two parking lots located in Minneapolis, Minnesota.  This property is accounted for at the fair value based on an appraisal.  During June 2016, Minneapolis Venture entered into a PSA to sell the 10th Street lot "as is" to a third party for approximately $6.1 million.  During October 2016, the PSA was cancelled.  During February 2017, the Company entered into a letter of intent to sell a portion of the property (approximately 2.2 acres) to an unrelated third party for $3.0 million.  Carrying value of held for sale portion is approximately $2.5 million.  The remaining portion of the property will be reported as held for use.

As of June 30, 2018, the Company had an 100% ownership interest in two properties located in Kansas City, Missouri, that were listed as held for sale, with a combined carrying value of approximately $2.8 million. MVP PF Kansas City 2013, LLC (MVP Kansas City) and MVP KC Cherry Lot, LLC (MVP KC Cherry) were acquired by the Company on December 15, 2017, through the merger with MVP I.

The following is a summary of the results of operations related to the assets held for sale for the three and six months ended June 30, 2018:

   
For the Three Months Ended June 30,
   
For the Six Months Ended June 30,
 
   
2018
   
2017
   
2018
   
2017
 
Revenue
 
$
46,949
   
$
45,916
   
$
93,898
   
$
91,831
 
Expenses
   
(90,094
)
   
(77,124
)
   
(167,994
)
   
(156,565
)
Loss from assets held for sale, net of income taxes
 
$
(43,145
)
 
$
(31,209
)
 
$
(74,097
)
 
$
(64,734
)

Note K – Disposition Investments in Real Estate

On June 14, 2018 the Company, through entities wholly owned by the Company, sold two surface parking lots in St. Louis for $8.5 million to the Land Clearance For Redevelopment Authority of the City of St. Louis, a public body corporate and politic of the State of Missouri.  Additionally, the purchaser agreed to pay 50% of the premium associated with defeasance of two CMBS loans which were cross-collateralized.  The loans encumbered the following properties: MVP St. Louis Convention Plaza, MVP St. Louis Lucas, MVP KC Cherry Lot, MVP Indianapolis City Park Garage, and MVP Indianapolis Washington Street Lot.  Subsequent to the defeasance of the loan that encumbered MVP Indianapolis City Park Garage and MVP Indianapolis Washington Street Lot, the Company added the two Indianapolis properties to the KeyBank Borrowing Base revolving credit facility, drawing approximately $8.7 million, of which approximately $1.6 million was used to pay down the KeyBank Working Capital revolving credit facility.
 
   
For the Three Months Ended June 30,
   
For the Six Months Ended June 30,
 
   
2018
   
2017
   
2018
   
2017
 
Revenue
 
$
146,267
   
$
166,676
   
$
303,860
   
$
267,926
 
Expenses
   
(25,177
)
   
(25,151
)
   
(50,351
)
   
(75,069
)
Income from disposed assets, net of income taxes
 
$
121,091
   
$
141,525
   
$
253,509
   
$
192,858
 

Note L — Line of Credit

Credit Agreement

On December 29, 2017, the Operating Partnership entered into a Credit Agreement (the "Credit Agreement") with the lenders party thereto (the "Lenders"), KeyBank as administrative agent (the "Administrative Agent"), and KeyBanc Capital Markets as lead arranger. The Credit Agreement provides for a $50 million senior secured revolving credit facility (the "Revolving Credit Facility"), which consists of a borrowing base revolving credit facility (the "BB Revolving Credit Facility") and a working capital revolving credit facility (the "WC Revolving Credit Facility").  The Credit Agreement also provides the Operating Partnership with the option to increase the size of the Revolving Credit Facility and/or establish one or more new pari passu term loan facilities (each, a "Term Loan Facility") up to an aggregate commitment or principal amount of up to $350 million, subject to certain limitations. The BB Revolving Credit Facility and any Term Loan Facility mature on January 3, 2021, with two twelve-month extension options subject to certain conditions set forth in the Credit Agreement, which, if exercised by the Operating Partnership, would extend the maturity date to January 3, 2023.  The WC Revolving Credit Facility matures on January 4, 2019, unless earlier terminated by the Operating Partnership.

Borrowings under the Credit Agreement bear interest at a rate equal to the sum of a Margin (as such term is defined below) plus either a rate based on LIBOR for 1, 2 or 3 months or a base rate determined by reference to the highest of (1) the Administrative Agent's prime lending rate, (2) the federal funds effective rate plus 50 basis points and (3) the LIBOR rate that would be payable on such day for a LIBOR rate loan with a one-month interest period plus 1.00%.  For the BB Revolving Credit Facility and any Term Loan Facility, the Margin is determined by the consolidated leverage ratio until Operating Partnership achieves a senior unsecured credit rating of BBB-/Baa3 from S&P or Moody's at which time Borrower may elect to use an alternative pricing grid. The Margin for the BB Revolving Credit Facility ranges from 0.75% to 1.50% in the case of base rate loans, and 1.75% to 2.50%, in the case of LIBOR rate loans. The Margin for the Term Loan Facility ranges from 0.70% to 1.45%, in the case of base rate loans, and 1.70% to 2.450%, in the case of LIBOR rate loans. The Margin as of the date of effectiveness of the Credit Agreement is (1) in respect of BB Revolving Credit Facility, 1.50%, in the case of base rate loans, and 2.50%, in the case of LIBOR rate loans, and (2) in respect of any Term Loan Facility, 1.45%, in the case of base rate loans, and 2.45%, in the case of LIBOR rate loans.  For the WC Revolving Credit Facility, the Margin is 3.00% in the case of base rate loans, and 4.00% in the case of LIBOR rate loans.

The Operating Partnership is also required to pay an unused commitment fee to the Lenders in respect of the unutilized commitments with respect to the Revolving Credit Facility at a rate of either 0.25% or 0.20% per annum, depending on the level of usage. Upon converting to a credit rating pricing-based grid, the unused facility fee will no longer apply and the Operating Partnership will be required to pay a facility fee with respect to the Revolving Credit Facility ranging from 0.125% to 0.300% depending on the Operating Partnership's credit rating.  The Operating Partnership must also pay customary letter of credit fees.

On June 19, 2018, the Company (as "Guarantor"), the Borrowers and the Lenders entered into an amendment and waiver to the Credit Agreement.  Pursuant to the amendment and waiver, the Lenders agreed to waive the Borrowers' breach of the fixed charge coverage ratio for the period ended March 31, 2018, and the Borrowers' requirement to comply with the fixed charge coverage ratio for the period ended June 30, 2018 and September 30, 2018, and the Guarantor's breach of the financial reporting obligations under the credit agreement for the periods ended December 31, 2017 and March 31, 2018.  Pursuant to the amendment and waiver, the Lenders, the Borrowers and the Company (as Guarantor) also agreed to the following, among other changes:

·
the Fixed Charge Coverage Ratio shall not be less than (i) at any time on or prior to June 30, 2019, 1.35:1.00, and (ii) at any time thereafter, 1.60:1.00;
·
the Lenders shall advance approximately $27.4 million to fund the Borrowers' acquisition costs of pending property purchases;
·
the Borrowers shall make mandatory principal payments on the WC Revolving Credit Facility in the amounts and at the times scheduled therein;
·
the WC Revolving Credit Facility shall be reduced to $16.1 million and the Lenders' obligations to make WC Revolving Loans shall be terminated;
·
the Company filed to list and register its common stock on a recognized exchange in the United States on July 13, 2018, and intends to obtain approval of such listing application by August 31, 2018 and complete the listing by September 30, 2018;
 
·
the Company shall redeem all of its outstanding Series A and Series 1 preferred stock and pay the entire redemption price in the form of shares of the Company's common stock (as is permitted by the articles supplementary governing each series of preferred stock), within 30 days after the completion of the listing of its common stock on a national securities exchange;
·
the Company shall make no cash distributions to its preferred shareholders after the earlier of (i) 30 days after the completion of the public listing or (ii) September 30, 2018;
·
the collateral under the existing credit facility shall include certain recently purchased properties and Borrowers shall not be entitled to release any collateral prior to the retirement in full of the WC Revolving Credit Facility; and
·
prior to the retirement of the WC Revolving Credit Facility, management fees paid by the Company to the Advisor shall not exceed $200,000 per quarter.

Note M — Notes Payable

As of June 30, 2018, the principal balances on notes payable are as follows:

Property
Original Debt Amount
Monthly Payment
Balance as of 6/30/2018
Lender
Term
Interest Rate
Loan Maturity
West 9th Properties II, LLC
$5,300,000
$30,000
$5,101,000
American National Insurance Co.
10 year
4.50%
11/1/2026
MVP Detroit Center Garage, LLC
$31,500,000
$194,000
$30,661,000
Bank of America
10 year
5.52%
2/1/2027
MVP San Jose 88 Garage
$1,645,000
Interest Only
$1,645,000
Multiple (4)
1 Year
7.50%
6/3/2019
MVP Cincinnati Race St.
$2,550,000
Interest Only
$2,550,000
Multiple (5)
1 Year
7.50%
3/25/2019
MVP St Louis Washington, LLC (1)
$1,380,000
Interest Only
$1,380,000
KeyBank
10 year *
4.90%
5/1/2027
St Paul Holiday Garage, LLC (1)
$4,132,000
Interest Only
$4,132,000
KeyBank
10 year *
4.90%
5/1/2027
Cleveland Lincoln Garage, LLC (1)
$3,998,000
Interest Only
$3,999,000
KeyBank
10 year *
4.90%
5/1/2027
MVP Louisville Broadway Station, LLC (2)
$1,682,000
Interest Only
$1,682,000
Cantor Commercial Real Estate
10 year **
5.03%
5/6/2027
MVP Whitefront Garage, LLC (2)
$6,454,000
Interest Only
$6,454,000
Cantor Commercial Real Estate
10 year **
5.03%
5/6/2027
MVP Houston Preston Lot, LLC (2)
$1,627,000
Interest Only
$1,627,000
Cantor Commercial Real Estate
10 year **
5.03%
5/6/2027
MVP Houston San Jacinto Lot, LLC (2)
$1,820,000
Interest Only
$1,820,000
Cantor Commercial Real Estate
10 year **
5.03%
5/6/2027
St. Louis Broadway, LLC (2)
$1,671,000
Interest Only
$1,671,000
Cantor Commercial Real Estate
10 year **
5.03%
5/6/2027
St. Louis Seventh & Cerre, LLC (2)
$2,057,000
Interest Only
$2,057,000
Cantor Commercial Real Estate
10 year **
5.03%
5/6/2027
MVP Preferred Parking, LLC (1)
$11,330,000
Interest Only
$11,330,000
Key Bank
10 year **
5.02%
8/1/2027
Ft. Lauderdale loan pool (3)
$4,300,000
$25,000
$3,883,000
KeyBank
5 Year
4.94%
2/1/2019
Mabley Place
$9,000,000
$44,000
$8,445,000
Barclays
10 year
4.25%
12/6/2024
Denver Sherman (1)
$286,000
Interest Only
$286,000
KeyBank
10 year **
4.90%
5/1/2027
Ft. Worth
$13,150,000
$73,000
$12,683,000
American National Insurance, of NY
10 year
4.50%
12/1/2026
Houston Saks Garage
$3,650,000
$20,000
$3,402,000
Barclays Bank PLC
10 year
4.25%
8/6/2025
MVP Wildwood
$1,000,000
Interest Only
$1,000,000
Tigges Construction Co.
1 Year
7.50%
4/1/2019
Indianapolis Meridian (2)
$938,000
Interest Only
$938,000
Cantor Commercial Real Estate
10 year **
5.03%
5/6/2027
MVP Milwaukee Arena Lot, LLC (1)
$2,142,000
Interest Only
$2,142,000
KeyBank
10 year **
4.90%
5/1/2027
MVP Denver Sherman 1935, LLC (1)
$762,000
Interest Only
$762,000
KeyBank
10 year **
4.90%
5/1/2027
Minneapolis City Parking
$5,250,000
$29,000
$4,991,000
American National Insurance, of NY
10 year
4.50%
5/1/2026
Bridgeport Fairfield
$4,400,000
$23,000
$4,196,000
FBL Financial Group, Inc.
10 year
4.00%
8/1/2026
The Parking REIT D&O Insurance
$390,000
$28,000
$206,000
First Insurance Funding
1 Year
3.70%
4/3/2019
Less unamortized loan issuance costs
 
 
$(1,541,000)
 
 
 
 
     
$117,502,000
       

(1)
The Company issued a promissory note to KeyBank for $12.7 million secured by a pool of properties, including (i) MVP Denver Sherman, LLC, (ii) MVP Denver Sherman 1935, LLC, (iii) MVP Milwaukee Arena, LLC, (iv) MVP St. Louis Washington, LLC, (v) St Paul Holiday Garage, LLC and (vi) Cleveland Lincoln Garage Owners, LLC.
 
(2)
The Company issued a promissory note to Cantor Commercial Real Estate Lending, L.P. ("CCRE") for $16.25 million secured by a pool of properties, including (i) MVP Indianapolis Meridian Lot, LLC, (ii) MVP Louisville Station Broadway, LLC, (iii) MVP White Front Garage Partners, LLC, (iv) MVP Houston Preston Lot, LLC, (v) MVP Houston San Jacinto Lot, LLC, (vi) St. Louis Broadway Group, LLC, and (vii) St. Louis Seventh & Cerre, LLC.
(3)
Secured by four properties facilities, including (i) MVP PF Ft. Lauderdale 2013, LLC, (ii) MVP PF Memphis Court 2013, LLC, (iii) MVP PF Memphis Poplar 2013, LLC and (iv) MVP PF St. Louis 2013, LLC).
 
  * 2 Year Interest Only
** 10 Year Interest Only

The following table shows notes payable that had been paid in full during the six months ending June 30, 2018.

Property
Original Debt Amount
Monthly Payment
Balance as of 6/30/18
Lender
Term
Interest Rate
Loan Maturity
St. Louis Lucas (1)(3)
$3,490,000
$20,000
--
Key Bank
10 year
4.59%
2/1/2026
Indianapolis Garage (2)(3)
$8,200,000
$46,000
--
Key Bank
10 year
4.59%
2/1/2026

(1)
Secured by three properties, including (i) MVP St. Louis Convention, (ii) MVP St. Louis Lucas and (iii) MVP KC Cherry.
(2)
Secured by two properties, including (i) MVP Indy City Park and (ii) MVP Indy WA Street.
(3)
Loans were defeased through sale of St Louis Lucas and Indianapolis Garage loans.  MVP Indy City Park and MVP Indy WA Street were added to the KeyBank Borrowing Base revolving credit facility, drawing approximately $8.7 million, of which approximately $1.6 million was used to pay down the KeyBank Working Capital revolving credit facility.  MVP KC Cherry is unencumbered as of June 30, 2018.

Total interest expense incurred for the six months ended June 30, 2018, was approximately $3.7 million. Total loan amortization cost for the six months ended June 30, 2018, was approximately $0.5 million.

As of June 30, 2018, future principal payments on the notes payable are as follows:

2018
 
$
1,034,000
 
2019
   
10,804,000
 
2020
   
1,954,000
 
2021
   
2,058,000
 
2022
   
2,252,000
 
Thereafter
   
100,941,000
 
Less unamortized loan issuance costs
   
(1,541,000
)
Total
 
$
117,502,000
 

Note N — 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 O – 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 ("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 (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 ("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 (the "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 VRM II, an affiliate of the Advisor, pending the private placements of additional beneficial interest in MVP St. Louis exempt from registration under the Securities Act. VRM II and Michael V. Shustek, the Company's 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 (the "St. Louis Master Lease"), with MVP St. Louis Cardinal Lot Master Tenant, LLC, an affiliate of MVP Realty, as tenant, (the "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.  Distributions to the Company for the three and six months ended June 30, 2018 totaled approximately $50,000 and $102,000, respectively.

The Company conducted an analysis to conclude that the 51% investment in the DST should not be consolidated. As a DST, the entity is subject to the Variable Interest Entity ("VIE") Model under ASC 810-10.

As stated in ASC 810: "A controlling financial interest in the VIE model requires both of the following:

a. The power to direct the activities that most significantly impact the VIE's economic performance
b. The obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE."

As a VIE, the DST is governed in a manner similar to a limited partnership (i.e., there are trustees and there is no board) and the Company, as a beneficial owner, lacks the power though voting rights or otherwise to direct the activities of the DST that most significantly impact the entity's economic performance. Specifically, the beneficial interest owners do not have the rights set forth in ASC 810-10-15-14(b)(1)(ii) – the beneficial owners can only remove the trustees if the trustees have engaged in fraud or gross negligence with respect to the trust and the beneficial owners have no substantive participating rights over the trustees.

The Advisor is the advisor to the Company pursuant to the Amended and Restated Advisory Agreement. The Company is controlled by its independent board of directors and its shareholders.  As noted in the Amended and Restated Advisory Agreement, the agreement is effective for one year to be renewed for an unlimited number of successive one-year terms, as approved by the board of directors.  The Amended and Restated Advisory Agreement may be terminated by the board of directors at any time upon a written 60-day notice.

In addition, MVP RA is the 100% direct/indirect owner of the MVP Parking DST, LLC ("DST Sponsor"), the MVP St. Louis Cardinal Lot Signature Trustee, LLC ("Signature Trustee") and MVP St. Louis Cardinal Lot Master Tenant, LLC (the "Master Tenant"), who have no direct or indirect ownership in the Company.  The Signature Trustee and the Master Tenant have the ability to direct the most significant activities of the DST.

MVP RA controls and consolidates the Signature Trustee, the Master Tenant, and the DST Sponsor.  The Company concluded the Master Tenant/property management agreement exposes the Master Tenant to funding operating losses of the Property.  As such, that agreement should be considered a variable interest in DST (ASC 810-10-55-37 and 810-10-55-37C).  Accordingly, Advisor has a variable interest in the DST (through the master tenant/property manager) and has power over the significant activities of the DST (through the Signature Trustee and the master tenant/property manager).  Accordingly, the Company believes that the Master Tenant is the primary beneficiary of the DST, which is ultimately owned and controlled by the MVP RA. As such, the Company accounts for its investment under the equity method and does not consolidate its investment in the DST.


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

   
June 30, 2018
 
   
(Unaudited)
 
ASSETS
 
Investments in real estate and fixed assets
 
$
11,512,000
 
Cash
   
45,000
 
Cash – restricted
   
10,000
 
Prepaid expenses
   
3,000
 
Total assets
 
$
11,570,000
 
LIABILITIES AND EQUITY
 
Liabilities
       
Notes payable, net of unamortized loan issuance cost of $59,633
 
$
5,940,000
 
Accounts payable and accrued liabilities
   
60,000
 
Due to related party
   
39,000
 
Total liabilities
   
6,039,000
 
Equity
       
Member's equity
   
6,129,000
 
    Offering costs
   
(574,000
)
    Accumulated earnings
   
416,000
 
    Distributions to members
   
(440,000
)
Total equity
   
5,531,000
 
Total liabilities and equity
 
$
11,570,000
 

Summarized Statements of Operations—Unconsolidated Real Estate Affiliates—Equity Method Investments

   
For The Three Months Ended
June 30, 2018
   
For The Six Months Ended
June 30, 2018
 
Revenue
 
$
183,000
   
$
365,000
 
Expenses
   
(90,000
)
   
(174,000
)
    Net income
   
93,000
     
191,000
 

Note P —Preferred Stock and Warrants

The Company reviewed the relevant ASC's, specifically ASC 480 – Distinguishing Liabilities From Equity and ASC 815 – Derivatives and Hedging, in connection with the presentation of the Series A and Series 1 preferred stock. Below is a summary of the Company's preferred stock offerings.

Series A Preferred Stock

On November 1, 2016, the Company commenced an offering of up to $50 million in shares of the Company's Series A Convertible Redeemable Preferred Stock ("Series A"), par value $0.0001 per share, together with warrants to acquire the Company's common stock, in a Regulation D 506(c) private placement to accredited investors. In connection with the private placement, 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 closed the offering on March 24, 2017 and raised approximately $2.5 million, net of offering costs, in the Series A private placements.

The holders of the Series A Preferred Stock are entitled to receive, when and as authorized by the board of directors and declared by the Company out of funds legally available for the payment of dividends, cash dividends at the rate of 5.75% per annum of the initial stated value of $1,000 per share. Since a Listing Event, as defined in the charter, did not occurred by March 31, 2017, the cash dividend rate has been increased to 7.50%, until a Listing Event at which time, the annual dividend rate will be reduced to 5.75% of the Stated Value.  Based on the number of Series A shares outstanding at June 30, 2018, the increased dividend rate would cost the Company approximately $13,000 more per quarter in Series A dividends.

Subject to the Company's redemption rights as described below, each Series A share will be convertible into shares of the Company's common stock, at the election of the holder thereof by written notice to the Company (each, a "Series A Conversion Notice") containing the information required by the charter, 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 Series A offering (whether or not a Listing Event has occurred). Each Series A share will convert into a number of shares of the Company's common stock determined by dividing (i) the sum of (A) 100% of the Stated Value, initially $1,000, plus (B) any accrued but unpaid dividends to, but not including, the date of conversion, by (ii) the conversion price for each share of the Company's common stock (the "Series A Conversion Price") determined as follows:

·
Provided there has been a Listing Event, if a Series A Conversion Notice with respect to any Series A share is received on or prior to the day immediately preceding the first anniversary of the issuance of such share, the Series A Conversion Price will be equal to 110% of the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the delivery date of the Series A Conversion Notice.

·
Provided there has been a Listing Event, if a Series A Conversion Notice with respect to any Series A share is received after the first anniversary of the issuance of such share, the Series A Conversion Price will be equal to the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the delivery date of the Series A Conversion Notice.

·
If a Series A Conversion Notice with respect to any Series A share is received on or after the second anniversary of the final closing of the Series A offering, and at the time of receipt of such Series A Conversion Notice, a Listing Event has not occurred, the Series A Conversion Price  will be equal to 100% of the Company's net asset value per share,.

If and when the Amended Charter becomes effective, the date by which holders of Series A must provide notice of conversion will be changed from the day immediately preceding the first anniversary of the issuance of such share to December 31, 2017. This change will conform the terms of the Series A with the terms of the Series 1 with respect to conversions.

At any time, from time to time, after the 20th trading day after the date of a Listing Event, the Company (or its successor) will have the right (but not the obligation) to redeem, in whole or in part, the Series A at the redemption price equal to 100% of the Stated Value, initially $1,000 per share, plus any accrued but unpaid dividends if any, to and including the date fixed for redemption. If the Company (or its successor) chooses to redeem any Shares, the Company (or its successor) has the right, in its sole discretion, to pay the redemption price in cash or in equal value of common stock of the Company (or its successor), based on the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the redemption, in exchange for the Series A. The Company (or its successor) also will have the right (but not the obligation) to redeem all or any portion of the Series A subject to a Series A Conversion Notice for a cash payment to the holder thereof equal to the applicable redemption price, by delivering a redemption notice to the holder of such Shares on or prior to 10th trading day prior to the close of trading on the applicable Conversion Date.

Each investor in the Series A received, for every $1,000 in shares subscribed by such investor, detachable warrants to purchase 30 shares of the Company's common stock if the Company's common stock is listed on a national securities exchange.  The warrants' exercise price is equal to 110% of the volume weighted average closing stock price of the Company's common stock over a specified period as determined in accordance with the terms of the warrant; however, in no event shall the exercise price be less than $25 per share. As of June 30, 2018, there were detachable warrants that may be exercised for 84,510 shares of the Company's common stock after the 90th day following the occurrence of a listing event.  These potential warrants will expire five years from the 90th day after the occurrence of a listing event.  If all the potential warrants outstanding at June 30, 2018 became exercisable because of a listing event and were exercised at the minimum price of $25 per share, gross proceeds to the Company would be approximately $2.1 million and the Company would as a result issue an additional 84,510 shares of common stock. As the date of this filing the Company had an estimated fair market value of potential warrants that was immaterial.

Series 1 Preferred Stock

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 Regulation D 506(b) private placement of shares of Series 1, together with warrants to acquire the Company's common stock, to accredited investors. On January 31, 2018 the Company closed this offering.

The holders of the Series 1 Preferred Stock are entitled to receive, when and as authorized by the Company's board of directors and declared by us out of legally available funds, cumulative, cash dividends on each Share at an annual rate of 5.50% of the Stated Value pari passu with the dividend preference of the Series A Preferred Stock and in preference to any payment of any dividend on the Company's common stock; provided, however, that Qualified Purchasers (who purchased $1.0 million or more in a single closing) are entitled to receive, when and as authorized by the Company's board of directors and declared by us out of legally available funds, cumulative, cash dividends on each Series 1 share held by such Qualified Purchaser at an annual rate of 5.75% of the Stated Value (instead of the annual rate of 5.50% for all other holders of the Series 1 shares) until April 7, 2018, at which time, the annual dividend rate will be reduced to 5.50% of Stated Value; provided further, however, that since a Listing Event has not occurred by April 7, 2018, the annual dividend rate on all Series 1 shares (without regard to Qualified Purchaser status) has been increased to 7.00% of the Stated Value until the occurrence of a Listing Event, at which time, the annual dividend rate will be reduced to 5.50% of the Stated Value.  Based on the number of Series 1 shares outstanding at June 30, 2018, the increased dividend rate would cost the Company approximately $150,000 more per quarter in Series 1 dividends.

Subject to the Company's redemption rights as described below, each Series 1 share will be convertible into shares of the Company's common stock, at the election of the holder thereof by written notice to the Company (each, a "Series 1 Conversion Notice") containing the information required by the charter, 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). Each Series 1 share will convert into a number of shares of the Company's common stock determined by dividing (i) the sum of (A) 100% of the Stated Value, initially $1,000, plus (B) any accrued but unpaid dividends to, but not including, the date of conversion, by (ii) the conversion price for each share of the Company's common stock (the "Series 1 Conversion Price") determined as follows:

·
Provided there has been a Listing Event, if a Series 1 Conversion Notice is received prior to December 1, 2017, the Series 1 Conversion Price will be equal to 110% of the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the delivery date of the Series 1 Conversion Notice.

·
Provided there has been a Listing Event, if a Series 1 Conversion Notice is received on or after December 1, 2017, the Series 1 Conversion Price will be equal to the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the delivery date of the Series 1 Conversion Notice.

·
If a Series 1 Conversion Notice is received on or after April 7, 2019, and at the time of receipt of such Series 1 Conversion Notice, a Listing Event has not occurred, the Series 1 Conversion Price for such Share will be equal to 100% of the Company's net asset value per share, or NAV per share.

At any time, from time to time, on and after the later of (i) the 20th trading day after the date of a Listing Event, if any, or (ii) April 7, 2018, the Company (or its successor) will have the right (but not the obligation) to redeem, in whole or in part, the Series 1 Preferred Stock at the redemption price equal to 100% of the Stated Value, initially $1,000 per share, plus any accrued but unpaid dividends if any, to and including the date fixed for redemption. In case of any redemption of less than all of the shares by the Company, the shares to be redeemed will be selected either pro rata or in such other manner as the board of directors may determine.  If the Company (or its successor) chooses to redeem any shares, the Company (or its successor) has the right, in its sole discretion, to pay the redemption price in cash or in equal value of common stock of the Company (or its successor), based on the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the redemption, in exchange for the shares.  The Company (or its successor) also will have the right (but not the obligation) to redeem all or any portion of the Series 1 Preferred Stock subject to a Series 1 Conversion Notice for a cash payment to the holder thereof equal to the applicable redemption price, by delivering a Redemption Notice to the holder of such Shares on or prior to the 10th trading day prior to the close of trading on the Conversion Date for such Shares.

Each investor in the Series 1 received, for every $1,000 in shares subscribed by such investor, detachable warrants to purchase 35 shares of the Company's common stock if the Company's common stock is listed on a national securities exchange.  The warrants' exercise price is equal to 110% of the volume weighted average closing stock price of the Company's common stock over a specified period as determined in accordance with the terms of the warrant; however, in no event shall the exercise price be less than $25 per share. As of June 30, 2018, there were detachable warrants that may be exercised for 1,382,675 shares of the Company's common stock after the 90th day following the occurrence of a listing event. These potential warrants will expire five years from the 90th day after the occurrence of a listing event.  If all the potential warrants outstanding at June 30, 2018 became exercisable because of a listing event and were exercised at the minimum price of $25 per share, gross proceeds to the Company would be approximately $34.6 million and as a result the Company would issue an additional 1,382,675 shares of common stock. As the date of this filing the Company had an estimated fair market value of potential warrants that was immaterial.

Redemption of Series A and Series 1

To comply with its amended credit agreement, the Company will redeem all of its outstanding Series A and Series 1 preferred stock and pay the entire redemption price in the form of shares of the Company's common stock, within 30 days after the completion of the listing of its common stock on a national securities exchange.  The Company filed an application to list its common stock on a national securities exchange on July 13, 2018 and will seek to complete the listing by September 30, 2018.  To comply with its amended credit agreement, the Company also will make no cash distributions to the holders of the Series A Preferred Stock and Series 1 Preferred Stock after the earlier of (i) 30 days after the completion of the listing of its common stock on a national securities exchange or (ii) September 30, 2018.  There can be no assurance, however, that the Company will cause a listing to occur within such time frame or at all.


Note Q — Subsequent Events

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

On August 6, 2018, the Company's board of directors unanimously authorized the following:

·
William Wells was added to the Audit Committee as co-chair due to Mr. Well's experience.
 
·
Michael Shustek voluntarily stepped down as Co-Chairman of the Board making John Dawson the sole Chairman of the Board.
 
·
Upon listing on a national exchange, the Company plans on reinstating its distribution and DRIP program.

Updated Bio

Michael V. Shustek is been Chief Executive Officer, Secretary and has served as the Chairman of the Board of Directors of the Company and serves as the Chief Executive Officer of our Advisor. He has also served as Chief Executive Officer and a director of MVP I (prior to the Merger), Chairman of the Board of Directors, Chief Executive Officer and a director of Vestin Group since April 1999 and a director and CEO of VRM II and VRM I since January 2006. In July 2012, Mr. Shustek became a principal of AMS.  During January 2013, Mr. Shustek became the sole owner of AMS.

In 2003, Mr. Shustek became the Chief Executive Officer of Vestin Originations, Inc. In 1997, Mr. Shustek was involved in the initial founding of Nevada First Bank, with the largest initial capital base of any new state charter in Nevada's history at that time. In 1995,

Mr. Shustek has co-authored two books, entitled "Trust Deed Investments," on the topic of private mortgage lending, and "If I Can Do It, So Can You."  Mr. Shustek has been a guest lecturer at the University of Nevada, Las Vegas, where he also has taught a course in Real Estate Law and Ethics.  Mr. Shustek received a Bachelor of Science degree in Finance at the University of Nevada, Las Vegas.  As our founder and CEO, Mr. Shustek is highly knowledgeable with regard to our business operations.  In addition, his participation on our board of directors is essential to ensure efficient communication between the board and management.
 
Asset Disposition
On August 8, 2018 the Company, through entities wholly owned by the Company, sold two surface parking lots in Kansas City for cash consideration of $4.0 million  to Block 66, LLC, a third party buyer. Approximately $2.9 million of the proceeds were used to pay down the KeyBank Working Capital revolving credit facility.
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, 2018 and 2017.  This discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto and Management's Discussion and Analysis of Financial Conditions and Results of Operations in our annual report on Form 10-K for the year ended December 31, 2017. As used herein, the terms "we," "our" and "us" refer to The Parking REIT, 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 property 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;
·
our ability and the timing  to obtain third party consents required to consummate the Merger;
·
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 list our shares of common stock on a national securities exchange;
·
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;
·
changes to generally accepted accounting principles, or GAAP, and
·
potential adverse impacts from the recent changes to the U.S. tax laws.

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.

This report may include market data and forecasts with respect to the REIT industry. Although we are responsible for all of the disclosure contained in this report, in some cases we rely on and refer to market data and certain industry forecasts that were obtained from third party surveys, market research, consultant surveys, publicly available information and industry publications and surveys that we believe to be reliable.

Overview

The Parking REIT, Inc., formerly known as MVP REIT II, Inc., is a Maryland corporation formed on May 4, 2015 and intends to qualify as a 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, the Company 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 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 (No. 333-205893) filed with the SEC under the Securities Act. The Company accepted additional subscriptions through March 31, 2017, the last day of the Common Stock Offering.

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 $2.5 million, net of offering costs, in the Series A private placements and, as of June 30, 2018, the Company had 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. The Company commenced the private placement of the shares of Series 1, together with warrants to acquire the Company's common stock, to accredited investors on April 7, 2017 and closed the offering on January 31, 2018.  The Company raised approximately $36.0 million, net of offering costs, in the Series 1 private placements and, as of June 30, 2018, the Company had 39,811 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. The Company currently has no investments in Canada. To a lesser extent, the Company may also invest in properties other than parking facilities.

The Company is the sole general partner of 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 Code, which classification could result in the Operating Partnership being taxed as a corporation.

The Company utilizes an UPREIT structure to enable the Company 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 the Company in exchange for shares of the Company's common stock or cash.

As part of the Company's initial capitalization, 8,000 shares of common stock were sold for $200,000 to the Sponsor. The Sponsor is owned 60% by VRM II and 40% by VRM I, which were both managed by Vestin Mortgage prior to being internalized in January 2018.

The Company's Advisor 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 the Amended and Restated Advisory Agreement. As of August 10, 2018, the Company had no paid employees.

The following table is a summary of the acquisitions for the six months ended June 30, 2018:

Property
Location
Date Acquired
Property Type
# Spaces
Size / Acreage
Retail Sq. Ft.
Property Purchase Price
% Owned
MVP New Orleans Rampart
New Orleans, LA
2/01/2018
Lot
78
0.44
N/A
$8,105,000
100%
MVP Hawaii Marks Garage
Honolulu, HI
6/21/2018
Garage
308
0.77
16,205
20,832,000
100%

As of June 30, 2018, the Company had investments in the facilities located as shown in the map below:


The size of the location marks is scaled based on dollar amounts the Company paid for each property at the time of purchase in relation to total purchases held as of the filing date of this report.

The Company believes that it operated in a manner necessary for qualification as a REIT for the year ended December 31, 2017. The Company is neither a mutual fund nor an investment company within the meaning of the Investment Company Act nor 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 generally not be subject to federal income tax on that portion of its REIT taxable 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 Common Stock 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, the Company will continue to 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, 2017, the Company 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 Amended and Restated Advisory Agreement, however, the Company's board of directors has delegated to the Advisor the authority to manage the Company's day-to-day business, in accordance with the Company's investment objectives, strategy, guidelines, policies and limitations. VRM II owns 60% of the Advisor, and the remaining 40% is owned by VRM I; both were managed by Vestin Mortgage until such entity was internalized in January 2018. The Company's Sponsor is owned 60% by VRM II and 40% by VRM I, which were both managed by Vestin Mortgage prior to being internalized in January 2018. The Company also sold 5,000 shares of common stock directly to VRM II.


VRM I and VRM II 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 Amended and Restated Advisory 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 Amended and Restated Advisory Agreement.  Please refer to Note E – Related Party Transactions and Arrangements – Fees Paid in Connection With the Operations of the Company in Part I, Item 1 Notes to the Condensed Consolidated Financial Statements of this Quarterly Report 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 VRM I and VRM II, both of which are managed by affiliates of the Company's Sponsor, for the acquisition of investments. The Company believes this potential conflict 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.

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 I.

On May 26, 2017, the Company, MVI I, Merger Sub and the Advisor entered into the Merger Agreement. Subject to the terms and conditions of the Merger Agreement, MVP I merged with and into Merger Sub on December 15, 2017, with Merger Sub surviving the Merger such that following the Merger, Merger Sub continued 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 Code. The combined company was subsequently renamed "The Parking REIT, Inc."

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each outstanding share of MVP I Common Stock was automatically cancelled and retired, and converted into the right to receive 0.365 shares of common stock of the Company.  Holders of shares of MVP I Common Stock received cash in lieu of fractional shares.

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

Pursuant to the Merger Agreement, the Company's board of directors increased the number of directors to eight from five prior to the Merger, and Nicholas Nilsen, Robert J. Aalberts and Shawn Nelson, previous directors of MVP I, were elected to the board of directors.

Amended and Restated Advisory Agreement

Concurrently with the entry into the Merger Agreement, on May 26, 2017, the Company, the Operating Partnership and the Advisor entered into the Amended and Restated Advisory Agreement, which became effective at the effective time of the Merger.  The Amended and Restated Advisory Agreement sets forth the terms and conditions upon which we appoint the Advisor to serve as our advisor.  The Amended and Restated Advisory Agreement amended the Company's existing advisory agreement, dated October 5, 2015, 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.  From and after May 29, 2018 (or the Valuation Date), the asset management fee shall be calculated based on the lower of the value or historic cost of the Company's assets.

Pursuant to the Amended and Restated Advisory Agreement, the asset management fee may not exceed 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 Amended and Restated Advisory Agreement) equal to or in excess of $500,000,000 or (ii) the Company reports AFFO (as defined in the 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's 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 the Company's common stock equal to or greater than the Per Share Amount for two consecutive quarters, on a fully diluted basis.

In addition, the Amended and Restated Advisory Agreement contains customary indemnification provisions for the Advisor and its affiliates for all liabilities, claims, damages or losses arising in the performance of their duties under the Amended and Restated Advisory Agreement, as well as related expenses, including reasonable attorneys' fees. Further, in the event that the Amended and Restated Advisory Agreement is terminated for any reason, the Company is prohibited under the Amended and Restated Advisory Agreement from directly or indirectly soliciting or hiring the employees of the Advisor or any of its affiliates for one year after such termination, and the Company may need to pay the Advisor significant amounts to waive such prohibition.  The Company is also prohibited from intentionally interfering with, or enticing away, the relationship of the Advisor or its affiliates with any person who, during the term of the Amended and Restated Advisory Agreement or the preceding one-year period, was a tenant, co-investor, co-developer, joint venture or other customer of the Advisor or its affiliates.  The Amended and Restated Advisory Agreement have an initial term of one year from the effective date, and may be renewed for an unlimited number of successive one-year terms upon the parties' mutual consent.

Termination Agreement
 
Concurrently with the entry into the Merger Agreement, on May 26, 2017, the Company, MVP I, the Advisor and the Operating Partnership 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 I and the Advisor was terminated, and the Company paid the Advisor an Advisor Acquisition Payment (as such term is defined in the Termination Agreement) of approximately $3.6 million, which was the only fee payable to the Advisor in connection with the Merger.

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 an exhibit to the Company's Current Report on Form 8-K filed with the SEC on May 31, 2017.

Amended Charter

In connection with the Merger, at the Company's annual stockholders' meeting held on September 27, 2017, the Company's stockholders approved, among other matters, the amendment and restatement of its charter (the "Amended Charter").  As described in more detail in the final proxy statement distributed to our stockholders for the annual meeting, the Amended Charter is primarily intended to accomplish two objectives in connection with the possible listing of the Company's common stock after the closing of the Merger: (1) to remove provisions of our charter that the Company believes 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 the Company believes would be more suitable for becoming a publicly-traded REIT.

The Amended Charter will become effective upon its filing with the State Department of Assessments and Taxation of Maryland. The Company expects to file the proposed Amended Charter immediately before the Company's common stock becomes listed for trading on a national securities exchange. This means that the changes to the charter will not be effective unless and until we complete an exchange listing.

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 for the three and six months ended June 30, 2018 compared to the three and six months ended June 30, 2017.

The majority of the increase in revenues and expenses during the comparison period are attributable to the Merger of the Company and MVP I which closed on December 15, 2017, and to a lesser extent, growth in investments in parking facilities throughout 2017. The 25 consolidated parking facilities that were acquired through the Merger with MVP I accounted for the majority of the increase in both revenue and expenses for the three and six months ended June 30, 2018 compared to 2017.  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
 
 
 
2018
   
2017
   
2018
   
2017
 
Revenues
                       
Base rent income
 
$
4,803,000
   
$
2,029,000
   
$
9,519,000
   
$
3,534,000
 
Management agreement (a)
   
--
     
--
     
--
     
518,000
 
Percentage rent income (b)
   
391,000
     
507,000
     
766,000
     
507,000
 
Total revenues
   
5,194,000
     
2,536,000
     
10,285,000
     
4,559,000
 
                                 
Operating expenses
                               
Property taxes
   
659,000
     
115,000
     
1,295,000
     
133,000
 
Property operating expense
   
428,000
     
43,000
     
736,000
     
391,000
 
Asset management expense – related party
   
855,000
     
257,000
     
1,687,000
     
494,000
 
General and administrative
   
1,818,000
     
323,000
     
4,846,000
     
651,000
 
Merger costs
   
--
     
647,000
     
--
     
772,000
 
Acquisition expenses
   
187,000
     
277,000
     
404,000
     
2,043,000
 
Acquisition expenses – related party
   
--
     
592,000
     
--
     
1,710,000
 
Depreciation
   
1,197,000
     
471,000
     
2,391,000
     
896,000
 
Total operating expenses
   
5,144,000
     
2,725,000
     
11,359,000
     
7,090,000
 
Loss from operations
   
50,000
     
(189,000
)
   
(1,074,000
)
   
(2,531,000
)
 
                               
Other income (expense)
                               
Interest expense
   
(2,219,000
)
   
(1,053,000
)
   
(4,167,000
)
   
(1,849,000
)
Distribution income – related party
   
--
     
47,000
     
--
     
99,000
 
Gain from sale of investment in real estate
   
1,009,000
     
--
     
1,009,000
     
--
 
Other income
   
55,000
     
--
     
55,000
     
--
 
Income from DST
   
50,000
     
--
     
102,000
     
--
 
Income from investment in equity method investee
   
--
     
3,000
     
--
     
17,000
 
Total other expense
   
(1,105,000
)
   
(1,003,000
)
   
(3,001,000
)
   
(1,733,000
)

Rental revenue: The increase in rental revenues and the number of properties held are the result of the Company's planned and continued growth through new property acquisitions and the Merger of the Company and MVP I. The 25 consolidated parking facilities that were acquired through the Merger with MVP I accounted for a large portion of the increase, generating approximately $2.1 and $4.3 million, respectively, in rental income to the Company during the three and six months ended June 30, 2018.

For additional information see Note I - Acquisitions in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 - Notes to the Condensed Consolidated Financial Statements of this Quarterly Report.

a)
During January 2017, MVP Detroit Center Garage, LLC ("MVP Detroit") received a settlement amount from the previous operator of approximately $408,000 for the operations of the garage until SP+ assumed operations under a longer-term lease agreement. Through February 28, 2017, the San Jose 88 Garage was subject to a parking management agreement and the rental income of $110,000 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)
During the three and six months ended June 30, 2018 the following properties received percentage rent totaling approximately $391,000 and $766,000, respectively:
   
For the Three Months Ended June 30
   
For the Six Months Ended June 30
 
 
 
2018
   
2017
   
2018
   
2017
 
Percentage rent income
                       
MVP St Louis 2013
 
$
16,000
   
$
--
   
$
16,000
   
$
--
 
MVP Ft Worth Taylor
   
--
     
--
     
22,000
     
--
 
MVP St Louis Convention
   
13,000
     
--
     
60,000
     
--
 
MVP St Louis Lucas
   
51,000
     
--
     
60,000
     
--
 
MVP Milwaukee Arena
   
--
     
--
     
25,000
     
--
 
MVP Denver 1935 Sherman
   
--
     
--
     
6,000
     
--
 
MVP San Jose 88 Garage
   
--
     
--
     
24,000
     
--
 
MCI 1372 Street
   
--
     
9,000
     
--
     
9,000
 
MVP St Paul Holiday
   
36,000
     
--
     
36,000
     
--
 
MVP Detroit Center Garage
   
275,000
     
498,000
     
517,000
     
498,000
 
    Total revenues
   
391,000
     
507,000
     
766,000
     
507,000
 

Operating expenses:  In addition to the increase in acquisitions through the merger and planned growth, during 2018 the Company incurred approximately $1.2 million in G&A costs relating to the internal investigation conducted by the Audit Committee. The decrease in expenses are attributable to the adoption of ASU 2017-01 which changed the treatment of acquisition and closing costs which are subsequently included in the investment in real estate. The amounts reported as acquisition costs in 2018 are for costs incurred for proposed acquisitions that were not consummated. Additionally the change to the Advisory agreement eliminated the 2.25% acquisition fee.

Other income and expense: Increase in interest expense for the three and six months ended June 30, 2018, as compared to 2017, is related to the Company's increased use of debt to acquire properties as well as loans assumed through the merger. To maximize the use of cash, the Company will continue to look for opportunities to utilize financing on future acquisitions, including with the use of the 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.  The terms of the loans will greatly depend on the quality of the property, the credit worthiness of the tenant and the amount of income the property is able to generate through parking 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, 2018 includes loan amortization costs. Total loan amortization cost for the three months ended June 30, 2018 and 2017 was approximately $361,000 and $55,000, respectively.  Total loan amortization cost for the six months ended June 30, 2018 and 2017 was approximately $496,000 and $195,000, respectively.

During June 2018, the Company sold two surface lots in St Louis for $8.5 million, which resulted in a gain from sale of investments of real estate of approximately $1.0 million.

For additional information see Note J – Disposal of Investment in Real Estate, Note L – Line of Credit and Note M – Notes Payable in the notes to the unaudited condensed consolidated financial statements included in Part I, Item 1 - Notes to the Condensed Consolidated Financial Statements of this Quarterly Report.


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.


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, NAREIT promulgated a measure known as 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 ongoing ability to generate cash flow from operations and continue as a going concern in future operating periods, and in particular, after the Common Stock Offering and acquisition stages are complete and NAV is disclosed. However, MFFO is not a useful measure in evaluating NAV because impairments are taken into account in determining NAV but not in determining MFFO. Therefore, FFO and MFFO should not be viewed as more prominent a measure of performance than income (loss) from operations, net income (loss) or to cash flows from operating activities and each should be reviewed in connection with GAAP measurements.

None of the SEC, NAREIT or any other organization 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 common shareholders is presented in the following table for the three and six months ended June 30, 2018 and 2017:

   
For the three months ended June 30,
   
For the six months ended June 30,
 
   
2018
   
2017
   
2018
   
2017
 
Net loss attributable to The Parking REIT, Inc. common shareholders
 
$
(1,800,000
)
 
$
(1,447,000
)
 
$
(5,388,000
)
 
$
(4,552,000
)
Add (Subtract):
                               
Gain on Sale of real estate
   
(1,009,000
)
   
--
     
(1,009,000
)
   
--
 
Depreciation and Amortization of real estate assets
   
1,197,000
     
471,000
     
2,391,000
     
896,000
 
FFO
 
$
(1,612,000
)
 
$
(976,000
)
 
$
(4,006,000
)
 
$
(3,656,000
)
Add:
                               
Acquisition fees and expenses to non-affiliates
   
187,000
     
277,000
     
404,000
     
2,043,000
 
Acquisition fees and expenses to affiliates
   
--
     
592,000
     
--