10-Q 1 tpr033120form10q.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 March 31, 2020

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: 000-55760


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.)

9130 WEST POST ROAD SUITE 200, LAS VEGAS, NV 89148
 (Address of Principal Executive Offices) (Zip Code)

Registrant’s Telephone Number, including Area Code: (702) 534-5577

N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading symbols(s)
Name of each exchange on which registered
N/A
N/A
N/A

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, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [X] No [   ]


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

Large accelerated filer [   ]
Accelerated filer [   ]
Non-accelerated filer [X]
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 12b-2 of the Act).

Yes [   ] No [ X ]

As of May 13, 2020, the registrant had 7,327,697 shares of common stock outstanding.


TABLE OF CONTENTS

   
Page
     
 
     
     
 
     
 
     
 
     
 
     
 
     
     
     
     
 
     
     
     
     
     
     
     
     
 
     
 
EXHIBIT 31.1
 
     
 
EXHIBIT 31.2
 
     
 
EXHIBIT 32
 



PART I
ITEM 1. FINANCIAL STATEMENTS

THE PARKING REIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

   
As of March 31,
   
As of December 31,
 
   
2020
   
2019
 
   
(unaudited)
       
ASSETS
 
Investments in real estate
           
Land and improvements
 
$
136,607,000
   
$
136,607,000
 
Buildings and improvements
   
170,319,000
     
170,276,000
 
Construction in progress
   
1,284,000
     
714,000
 
Intangible assets
   
2,107,000
     
2,288,000
 
     
310,317,000
     
309,885,000
 
Accumulated depreciation
   
(13,181,000
)
   
(12,049,000
)
Total investments in real estate, net
   
297,136,000
     
297,836,000
 
                 
Fixed Assets, net of accumulated depreciation of $51,000 and $42,000 as of March 31, 2020 and December 31, 2019, respectively
   
90,000
     
21,000
 
Assets held for sale, net of accumulated depreciation of $212,000
   
3,288,000
     
3,288,000
 
Cash
   
5,445,000
     
7,707,000
 
Cash – restricted
   
2,945,000
     
3,937,000
 
Prepaid expenses
   
1,281,000
     
1,679,000
 
Accounts receivable
   
719,000
     
929,000
 
Investment in DST
   
2,838,000
     
2,836,000
 
Right of use leased asset
   
1,364,000
     
--
 
Other assets
   
117,000
     
111,000
 
Total assets
 
$
315,223,000
   
$
318,344,000
 
LIABILITIES AND EQUITY
 
Liabilities
               
Notes payable, net of unamortized loan issuance costs of approximately $1.6 million and $1.8 million as of March 31, 2020 and December 31, 2019, respectively
 
$
158,338,000
   
$
159,120,000
 
Accounts payable and accrued liabilities
   
9,272,000
     
10,883,000
 
Right of use lease liability
   
1,364,000
     
--
 
Deferred management internalization
   
17,800,000
     
17,800,000
 
Security deposits
   
138,000
     
138,000
 
Due to related parties
   
--
     
54,000
 
Deferred revenue
   
49,000
     
104,000
 
Total liabilities
   
186,961,000
     
188,099,000
 
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 March 31, 2020 and December 31, 2019)
   
--
     
--
 
Preferred stock Series 1, $0.0001 par value, 97,000 shares authorized, 39,811 shares issued and outstanding (stated liquidation value of $39,811,000 as of March 31, 2020 and December 31, 2019)
   
--
     
--
 
Non-voting, non-participating convertible stock, $0.0001 par value, 1,000 shares authorized, no shares issued and outstanding
   
--
     
--
 
Common stock, $0.0001 par value, 98,999,000 shares authorized, 7,330,070 and 7,332,811 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
   
--
     
--
 
Additional paid-in capital
   
193,319,000
     
194,137,000
 
Accumulated deficit
   
(67,661,000
)
   
(66,511,000
)
Total The Parking REIT, Inc. Shareholders’ Equity
   
125,658,000
     
127,626,000
 
Non-controlling interest
   
2,604,000
     
2,619,000
 
Total equity
   
128,262,000
     
130,245,000
 
Total liabilities and equity
 
$
315,223,000
   
$
318,344,000
 
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 March 31,
 
   
2020
   
2019
 
Revenues
           
Base rent income
 
$
4,991,000
   
$
5,054,000
 
Percentage rent income
   
327,000
     
301,000
 
Total revenues
   
5,318,000
     
5,355,000
 
 
               
Operating expenses
               
Property taxes
   
665,000
     
793,000
 
Property operating expense
   
386,000
     
379,000
 
Asset management expense – related party
   
--
     
854,000
 
General and administrative
   
1,653,000
     
850,000
 
Professional fees
   
316,000
     
666,000
 
Acquisition expenses
   
3,000
     
4,000
 
Depreciation and amortization
   
1,322,000
     
1,308,000
 
Total operating expenses
   
4,345,000
     
4,854,000
 
                 
Income from operations
   
973,000
     
501,000
 
                 
Other income (expense)
               
Interest expense
   
(2,329,000
)
   
(2,356,000
)
Other Income
   
151,000
     
31,000
 
Income from DST
   
50,000
     
70,000
 
Total other expense
   
(2,128,000
)
   
(2,255,000
)
                 
Net loss
   
(1,155,000
)
   
(1,754,000
)
Less net loss attributable to non-controlling interest
   
(5,000
)
   
(1,000
)
Net loss attributable to The Parking REIT, Inc.’s stockholders
 
$
(1,150,000
)
 
$
(1,753,000
)
                 
Preferred stock distributions declared - Series A
   
(54,000
)
   
(54,000
)
Preferred stock distributions declared - Series 1
   
(696,000
)
   
(696,000
)
Net loss attributable to The Parking REIT, Inc.’s common stockholders
   
(1,900,000
)
   
(2,503,000
)
                 
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
 
$
(0.26
)
 
$
(0.38
)
Distributions declared per common share
 
$
--
   
$
--
 
Weighted average common shares outstanding, basic and diluted
   
7,332,480
     
6,542,057
 

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


THE PARKING REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
(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, 2019
   
42,673
     
--
     
7,332,811
     
--
   
$
194,137,000
   
$
(66,511,000
)
 
$
2,619,000
   
$
130,245,000
 
Distributions to non-controlling interest
   
--
     
--
     
--
     
--
     
--
     
--
     
(10,000
)
   
(10,000
)
Issuance of preferred Series 1
   
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
 
Redeemed Shares
   
--
     
--
     
(2,741
)
   
--
     
(68,000
)
   
--
     
--
     
(68,000
)
Distributions - Common
   
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
 
Distributions – Series A
   
--
     
--
     
--
     
--
     
(54,000
)
   
--
     
--
     
(54,000
)
Distributions – Series 1
   
--
     
--
     
--
     
--
     
(696,000
)
   
--
     
--
     
(696,000
)
Net income (loss)
   
--
     
--
     
--
     
--
     
--
     
(1,150,000
)
   
(5,000
)
   
(1,155,000
)
Balance, March 31, 2020
   
42,673
   
$
--
     
7,330,070
   
$
--
   
$
193,319,000
   
$
(67,661,000
)
 
$
2,604,000
   
$
128,262,000
 


   
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, 2018
   
42,673
   
$
--
     
6,542,797
   
$
--
   
$
183,382,000
   
$
(23,953,000
)
 
$
2,691,000
   
$
162,120,000
 
Distributions to non-controlling interest
   
--
     
--
     
--
     
--
     
--
     
--
     
(11,000
)
   
(11,000
)
Redeemed Shares
   
--
     
--
     
(2,433
)
   
--
     
(60,000
)
   
--
     
--
     
(60,000
)
Distributions – Series A
   
--
     
--
     
-
     
--
     
(54,000
)
   
--
     
--
     
(54,000
)
Distributions – Series 1
   
--
     
--
     
--
     
--
     
(696,000
)
   
--
     
--
     
(696,000
)
Net income (loss)
   
--
     
--
     
--
     
--
     
--
     
(1,753,000
)
   
(1,000
)
   
(1,754,000
)
Balance, March 31, 2019
   
42,673
   
$
--
     
6,540,364
   
$
--
   
$
182,572,000
   
$
(25,706,000
)
 
$
2,679,000
   
$
159,545,000
 


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
THE PARKING REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
   
For The Three Months Ended March 31,
 
   
2020
   
2019
 
Cash flows from operating activities:
           
Net Loss
 
$
(1,155,000
)
 
$
(1,754,000
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization expense
   
1,322,000
     
1,308,000
 
Amortization of loan costs
   
209,000
     
222,000
 
Income from DST
   
(50,000
)
   
(70,000
)
Changes in operating assets and liabilities
               
Due to/from related parties
   
(54,000
)
   
3,000
 
Accounts payable
   
(1,611,000
)
   
(881,000
)
Right of use lease asset
   
(1,364,000
)
   
--
 
Right of use lease liability
   
1,364,000
     
--
 
Loan Fees
   
(1,000
)
   
(253,000
)
Other assets
   
(6,000
)
   
(15,000
)
Deferred revenue
   
(55,000
)
   
(38,000
)
Accounts receivable
   
210,000
     
439,000
 
Prepaid expenses
   
398,000
     
(233,000
)
Net cash used in operating activities
   
(793,000
)
   
(1,272,000
)
Cash flows from investing activities:
               
Building improvements
   
(613,000
)
   
(246,000
)
Fixed asset purchase
   
(78,000
)
   
--
 
Proceeds from Investments
   
48,000
     
52,000
 
Payment of deposit made for purchase of investment in real estate or debt
   
--
     
(97,000
)
Deposits applied to purchase of investment in real estate or debt
   
--
     
97,000
 
Net cash used in investing activities
   
(643,000
)
   
(194,000
)
Cash flows from financing activities
               
Proceeds from notes payable
   
--
     
5,500,000
 
Payments on notes payable
   
(990,000
)
   
(4,262,000
)
Distribution to non-controlling interest
   
(10,000
)
   
(11,000
)
Redeemed shares
   
(68,000
)
   
(60,000
)
Preferred dividends paid to stockholders
   
(750,000
)
   
(750,000
)
Net cash provided by (used in) financing activities
   
(1,818,000
)
   
417,000
 
Net change in cash and cash equivalents and restricted cash
   
(3,254,000
)
   
(1,049,000
)
Cash and cash equivalents and restricted cash, beginning of period
   
11,644,000
     
9,435,000
 
Cash and cash equivalents and restricted cash, end of period
 
$
8,390,000
   
$
8,386,000
 
                 
Reconciliation of Cash and Cash Equivalents and Restricted Cash:
               
Cash and cash equivalents at beginning of period
 
$
7,707,000
   
$
5,106,000
 
Restricted cash at beginning of period
   
3,937,000
     
4,329,000
 
Cash and cash equivalents and restricted cash at beginning of period
 
$
11,644,000
   
$
9,435,000
 
                 
Cash and cash equivalents at end of period
 
$
5,445,000
   
$
5,628,000
 
Restricted cash at end of period
   
2,945,000
     
2,758,000
 
Cash and cash equivalents and restricted cash at end of period
 
$
8,390,000
   
$
8,386,000
 
Supplemental disclosures of cash flow information:
               
Interest Paid
 
$
2,120,000
   
$
2,134,000
 
Non-cash investing and financing activities:
               
Dividends declared not yet paid
 
$
250,000
   
$
250,000
 

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
MARCH 31, 2020
(UNAUDITED)

Note A — Organization and Business Operations

The Parking REIT, Inc., formerly known as MVP REIT II, Inc. (the “Company,” “we,” “us” or “our”), is a Maryland corporation formed on May 4, 2015 and has elected to be taxed, and has operated in a manner that will allow the Company to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2017.

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. To a lesser extent, the Company may also invest in parking properties that contain other sources of rental income, potentially including office, retail, storage, residential, billboard or cell towers.

The Company is the sole general partner of MVP REIT II Operating Partnership, LP, a Delaware limited partnership (the “Operating Partnership”). The Company owns substantially all of its assets and conducts 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.

The Company’s former advisor is MVP Realty Advisors, LLC, dba The Parking REIT Advisors (the “former Advisor”), a Nevada limited liability company, which is owned 60% by Vestin Realty Mortgage II, Inc. (“VRM II”) and 40% by Vestin Realty Mortgage I, Inc. (“VRM I”). Prior to the Internalization (as defined below), the former Advisor was 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 among the Company, the Operating Partnership and the former Advisor (the “Amended and Restated Advisory Agreement”), which became effective upon consummation of the Merger (as such term is defined below). VRM II and VRM I are Maryland corporations that trade on the OTC pink sheets and were managed by Vestin Mortgage, LLC, an affiliate of the former Advisor, prior to being internalized in January 2018.

As part of the Company’s initial capitalization, 8,000 shares of common stock were sold for $200,000 to an affiliate of the former Advisor (as defined below).

Merger of MVP REIT with Merger Sub, LLC

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 former 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.

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, immediately following the Merger, owned approximately 59.7% of the Company's common stock. The Company was subsequently renamed “The Parking REIT, Inc.”

Capitalization

As of March 31, 2020, the Company had 7,330,070 shares of common stock issued and outstanding. On December 31, 2016, the Company ceased all selling efforts for the initial public offering of its common stock (the “Common Stock Offering”). 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 MVP Capital Partners II, LLC (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 March 31, 2020.

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 March 31, 2020.

Note B — Summary of Significant Accounting Policies

Basis of Accounting

The accompanying unaudited condensed consolidated financial statements of the Company are prepared on the accrual basis of accounting and in accordance with principles generally accepted in the United States of America (“GAAP”) for interim financial information as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), and in conjunction with rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited condensed consolidated financial statements include accounts and related adjustments, which are, in the opinion of management, of a normal recurring nature and necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim period. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. 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, 2019.

The condensed consolidated balance sheet as of December 31, 2019 contained herein has been derived from the audited financial statements as of December 31, 2019 but does not include all disclosures required by GAAP.

Liquidity Matters

The Company has incurred net losses since its inception and anticipates net losses and negative operating cash flows for the near future. For the three months ended March 31, 2020, the Company had a net loss of $1.2 million and had $8.4 million in cash, cash equivalents and restricted cash. In connection with preparing the condensed consolidated financial statements for the three months ended March 31, 2020, management evaluated the extent of the impact from the COVID-19 pandemic on the Company’s business and its future liquidity for the next twelve months through May 13, 2021.

Management has implemented the following plan to address the Company’s liquidity over the next twelve months plus a day from the filing of this Quarterly Report:

The Company has received unsolicited offers, from third parties, to purchase properties and executed a PSA for the sale of the San Jose garage on February 25, 2020 from a third-party buyer. The buyer’s earnest money deposit of $200,000 became nonrefundable on March 27, 2020. On May 5, 2020, the buyer provided an additional nonrefundable deposit of $250,000 to extend the closing date to May 25, 2020. See Note I – Assets Held for Sale of this Quarterly Report for additional information.
On March 24, 2020, the Company’s board of directors unanimously authorized the suspension of the payment of distributions on the Series A Preferred stock, however, such distributions will continue to accrue in accordance with the terms of the Series A.
On March 24, 2020, the Company’s board of directors unanimously authorized the suspension of the payment of distributions on the Series 1 Preferred Stock, however, such distributions will continue to accrue in accordance with the terms of the Series 1.
On March 24, 2020, the Board of Directors suspended all repurchases, even in the case of a shareholder’s death.
The Company is in preliminary discussions with its lenders, including Bank of America, to obtain waivers from certain liquidity requirements and defer payments due under its loans in light of the current economic conditions. However, there can be no assurance that the Company will reach any such agreement with its lenders. See Note R – Subsequent Events for additional information.

The Company expects to allow its tenants to defer their base rent payments due to the Company under its leases with its tenants, in order to assist tenants with the impact of the current COVID-19 pandemic. See Note R – Subsequent Events for additional information.
The Company applied for the Paycheck Protection Program loan, guaranteed by the Small Business Administration (“SBA”), through Key Bank National Association, Inc., on April 3, 2020. This loan program is for companies with 500 or less employees, under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) signed by President Trump on March 27, 2020. On April 23, 2020 the Company received the funding for its CARES Act loan of approximately $348,000. See Note R – Subsequent Events for additional information.

Based on the Company’s current business plan, the Company believes its existing cash, projected cash collections and cash inflows will be sufficient to meet its anticipated cash requirements for at least twelve months after the March 31, 2020 financial statements are issued.

Consolidation

The Company’s consolidated financial statements include its accounts, the accounts of the Company’s assets that were sold during 2020 and 2019 (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. The following list includes the subsidiaries that are included in the Company’s consolidated financial statements, not the number of properties owned by the Company at March 31, 2020 and 2019.

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

Under GAAP, the Company’s consolidated financial statements will also include the accounts of its consolidated subsidiaries and joint ventures in which the Company is the primary beneficiary, or in which the Company has a controlling interest. In determining whether the Company has a controlling interest in a joint venture and the requirement to consolidate the accounts of that entity, the Company’s management considers factors such as an entity’s purpose and design and the Company’s ability to direct the activities of the entity that most significantly impacts the entity’s economic performance, ownership interest, board representation, management representation, authority to make decisions and contractual and substantive participating rights of the partners/members as well as whether the entity is a variable interest entity in which it will absorb the majority of the entity’s expected losses, if they occur, or receive the majority of the expected residual returns, if they occur, or both.

Equity investments in which the Company exercises significant influence but does not control and is not the primary beneficiary are accounted for using the equity method. The Company's share of its equity method investees' earnings or losses is included in other income in the accompanying 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 fourteen and fifteen parking tenants as of March 31, 2020 and 2019. One tenant, SP Plus Corporation (Nasdaq: SP) (“SP+”), represented 59.6% of the Company’s base parking rental revenue for the three months ended March 31, 2020.

SP+ is one of the largest providers of parking management in the United States. As of March 31, 2020, SP+ managed approximately 3,100 locations in North America.

Below is a table that summarizes parking rent by tenant:

   
For The Three Months Ended March 31,
 
Parking Tenant
 
2020
   
2019
 
SP +
   
59.6
%
   
57.7
%
Premier Parking
   
15.7
%
   
16.7
%
ABM
   
4.2
%
   
4.5
%
ISOM Management
   
3.9
%
   
4.2
%
342 N Rampart
   
3.6
%
   
2.9
%
Interstate Parking
   
2.6
%
   
2.8
%
Denison
   
2.3
%
   
2.4
%
Lanier
   
2.2
%
   
2.6
%
St. Louis Parking
   
2.1
%
   
2.1
%
Best Park
   
1.3
%
   
1.0
%
TNSH, LLC
   
1.2
%
   
1.2
%
Riverside Parking
   
1.0
%
   
1.0
%
Denver School
   
0.2
%
   
0.2
%
Secure
   
0.1
%
   
0.1
%
Premium Parking
   
--
     
0.6
%

In addition, the Company had concentrations in various cities based on parking rental revenue for the three months ended March 31, 2020 and 2019, as well as concentrations in various cities based on the real estate the Company owned as March 31, 2020 and December 31, 2019. The below tables summarize this information by city.

City Concentration for Parking Rental Revenue
 
   
For the Three Months Ended March 31,
 
   
2020
   
2019
 
Detroit
   
19.6
%
   
17.8
%
Houston
   
12.2
%
   
13.1
%
Fort Worth
   
9.3
%
   
8.0
%
Cincinnati
   
8.6
%
   
9.1
%
Indianapolis
   
6.0
%
   
6.3
%
St. Louis
   
5.1
%
   
5.3
%
Cleveland
   
5.0
%
   
5.3
%
Honolulu
   
4.6
%
   
4.9
%
Minneapolis
   
3.9
%
   
4.1
%
Lubbock
   
3.9
%
   
4.2
%
Milwaukee
   
3.8
%
   
3.4
%
New Orleans
   
3.6
%
   
2.9
%
Nashville
   
3.4
%
   
3.6
%
St Paul
   
2.6
%
   
2.8
%
San Jose
   
2.2
%
   
2.3
%
Bridgeport
   
2.1
%
   
2.1
%
Memphis
   
1.3
%
   
1.6
%
Louisville
   
1.0
%
   
1.0
%
Denver
   
0.8
%
   
0.8
%
Wildwood
   
0.4
%
   
0.4
%
Clarksburg
   
0.4
%
   
0.3
%
Canton
   
0.2
%
   
0.3
%
Ft. Lauderdale
   
--
     
0.4
%



Real Estate Investment Concentration by City
 
       
   
As of March 31, 2020
   
As of December 31, 2019
 
Detroit
   
17.9
%
   
17.8
%
Houston
   
12.1
%
   
12.1
%
Fort Worth
   
8.9
%
   
8.8
%
Cincinnati
   
8.8
%
   
8.8
%
Honolulu
   
6.8
%
   
6.8
%
Indianapolis
   
5.9
%
   
5.8
%
Cleveland
   
5.8
%
   
6.2
%
St Louis
   
4.4
%
   
4.4
%
Minneapolis
   
4.3
%
   
4.3
%
Lubbock
   
4.3
%
   
4.3
%
Milwaukee
   
3.9
%
   
3.9
%
Nashville
   
3.7
%
   
3.7
%
St Paul
   
2.7
%
   
2.7
%
Bridgeport
   
2.7
%
   
2.6
%
New Orleans
   
2.6
%
   
2.6
%
Memphis
   
1.3
%
   
1.3
%
San Jose
   
1.1
%
   
1.1
%
Denver
   
1.0
%
   
1.0
%
Louisville
   
1.0
%
   
1.0
%
Wildwood
   
0.4
%
   
0.4
%
Clarksburg
   
0.2
%
   
0.2
%
Canton
   
0.2
%
   
0.2
%
Fort Lauderdale
   
--
     
--
 

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 several 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, the property is written down to fair value and 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 a significant portion of its cash deposits at KeyBank, which are held by the Company’s subsidiaries allowing the Company to maximize FDIC insurance coverage. The balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) under the same ownership category of $250,000. As of March 31, 2020, and December 31, 2019, the Company had approximately $0.9 million and $2.7 million, respectively, in excess of the federally insured limits. As of March 31, 2020, 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. If 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 are expensed as incurred. During the three months ended March 31, 2020 and 2019, 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, considering 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 several 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 former 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 former Advisor’s employees and employees of the former 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

Commencing with its taxable year ended December 31, 2017, the Company has operated in a manner to qualify as a REIT under Sections 856 to 860 of the Code. 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 income calculated according to GAAP. In addition, the Company will be subjected to corporate income tax to the extent that less than 100% of the net taxable income is distributed, including any net capital gain.

The Company uses a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolutions of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more likely than not of being realized upon ultimate settlement. The Company believes that its income tax filing positions and deductions would be sustained upon examination; thus, the Company has not recorded any uncertain tax positions as of March 31, 2020.


A full valuation allowance for deferred tax assets was provided since the Company believes that it is more likely than not that it will not realize the benefits of its deferred tax assets. A change in circumstances may cause the Company to change its judgment about whether deferred tax assets should be recorded, and further whether any such assets would more likely than not be realized. The Company would generally report any change in the valuation allowance through its income statement in the period in which such changes in circumstances occur. As long as the Company continues to qualify as a REIT, it will generally not be subject to corporate level federal income taxes on earnings distributed to its stockholders and therefore may not realize any benefit from deferred tax assets arising during 2019 or any prior period in which the Company maintained its status as a REIT. The Company intends to distribute at least 100% of its taxable income annually for every year in which the Company is a REIT. The Company has placed a full valuation allowance on all of its deferred tax assets, and thus no asset is recorded on the Company’s balance sheet. As discussed in Note R – Subsequent Events, subsequent to March 31, 2020, as a result of the COVID-19 pandemic, the Company has entered into lease amendments with some of its tenants. As a result of these amendments, it is possible that the Company will no longer qualify as a REIT in 2020 and would no longer be required to make distributions of its annual taxable income in order to maintain REIT status.  If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on the taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which qualification is denied. Failing to qualify as a REIT could materially and adversely affect the Company’s net income.   Given projected losses in 2020, as well as the potential tax benefit of net operating loss carryforwards that the Company does not anticipate utilizing as long as it maintains its status as a REIT, the Company will continue to evaluate its current and deferred income tax situation (including the appropriateness of recording a deferred tax asset for net operating losses) throughout the year as there is additional clarity about the impact of the COVID-19 pandemic to the Company’s ongoing operations, including whether the Company expects to maintain its REIT status for the 2020 year.

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 considers 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 months ended March 31, 2020 and 2019.

There is a potential for dilution from the Company’s Series A Convertible Redeemable Preferred Stock which may be converted into the Company’s common stock at any time. As of March 31, 2020, there were 2,862 shares of the Series A Convertible Redeemable Preferred Stock issued and outstanding. As of filing date, the Company has not received any requests to convert.

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. As of March 31, 2020, there were 39,811 shares of the Series 1 Convertible Redeemable Preferred Stock issued and outstanding. As of filing date, the Company has not received any requests to convert.

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 the net asset value per share of the Company’s common stock; provided that if a “Listing Event” (as defined in the applicable articles supplementary) occurs, the conversion price will be 100% 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. 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.

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.

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

Environmental Matters

Investments in real property create the potential for environmental liability on the part of the owner or operator of such real property. If hazardous substances are discovered on or emanating from a property, the owner or operator of the property may be held strictly liable for all costs and liabilities relating to such hazardous substances. The Company has obtained a Phase I environmental study (which involves inspection without soil sampling or ground water analysis) conducted by independent environmental consultants on each of the properties and, in certain instances, has conducted additional investigation, including a Phase II environmental assessment. Furthermore, the Company has adopted a policy of conducting a Phase I environmental study on each property acquired and any additional investigation as warranted.

During the Company’s predecessor’s due diligence of a property purchased on December 15, 2017 (originally purchased by predecessor on March 31, 2015) and located in Milwaukee, it was discovered that the soil and ground water at the subject property had been impacted by the site’s historical use as a printing press as well as neighboring property uses. As a result, the Company retained a local environmental engineer to seek a closure letter or similar certificate of no further action from the State of Wisconsin due to the Company’s use of the property as a parking lot. As of March 31, 2020, management has not received the closure letter, however the Company does not anticipate a material adverse effect related to this environmental matter.

The Company believes that it complies, in all material respects, with all federal, state and local ordinances and regulations regarding hazardous or toxic substances. Furthermore, as of March 31, 2020, the Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition that it believes will have a material adverse effect on the results of operations. The Company, however, cannot predict the impact of any unforeseen environmental contingencies or new or changed laws or regulations on properties in which the Company holds an interest, or on properties that may be acquired directly or indirectly in the future.


Note D – Investments in Real Estate

As of March 31, 2020, 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
   
$
5,845,000
   
SP +
 
33740 Crown Colony (1)
Cleveland, OH
5/17/2016
Lot
   
82
     
0.54
     
N/A
   
$
3,050,000
   
SP +
 
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
   
$
6,347,000
   
SP +
 
MVP St. Louis Washington
St Louis, MO
7/18/2016
Lot
   
63
     
0.39
     
N/A
   
$
2,957,000
   
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
   
$
11,673,000
   
Premier Parking
 
Cleveland Lincoln Garage
Cleveland, OH
10/19/2016
Garage
   
536
     
1.14
     
45,272
   
$
10,649,000
   
SP +
 
MVP Houston Preston Lot
Houston, TX
11/22/2016
Lot
   
46
     
0.23
     
N/A
   
$
2,820,000
   
Premier Parking
 
MVP Houston San Jacinto Lot
Houston, TX
11/22/2016
Lot
   
85
     
0.65
     
240
   
$
3,250,000
   
Premier Parking
 
MVP Detroit Center Garage
Detroit, MI
2/1/2017
Garage
   
1,275
     
1.28
     
N/A
   
$
55,476,000
   
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 (4)
Houston, TX
8/1/2017
Garage/Lot
   
528
     
0.98
     
784
   
$
21,210,000
   
Premier Parking
 
MVP Raider Park Garage
Lubbock, TX
11/21/2017
Garage
   
1,495
     
2.15
     
20,536
   
$
13,517,000
   
ISOM Management
 
MVP PF Memphis Poplar
Memphis, TN
12/15/2017
Lot
   
127
     
0.87
     
N/A
   
$
3,669,000
   
Best Park
 
MVP PF St. Louis
St Louis, MO
12/15/2017
Lot
   
183
     
1.22
     
N/A
   
$
5,041,000
   
SP +
 
Mabley Place Garage (2)
Cincinnati, OH
12/15/2017
Garage
   
775
     
0.9
     
8,400
   
$
21,185,000
   
SP +
 
MVP Denver Sherman
Denver, CO
12/15/2017
Lot
   
28
     
0.14
     
N/A
   
$
705,000
   
Denver School
 
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
   
$
10,423,000
   
Premier Parking
 
MVP Milwaukee Wells
Milwaukee, WI
12/15/2017
Lot
   
148
     
1.07
     
N/A
   
$
5,083,000
   
Symphony
 
MVP Wildwood NJ Lot 1 (3)
Wildwood, NJ
12/15/2017
Lot
   
29
     
0.26
     
N/A
   
$
545,000
   
SP +
 
MVP Wildwood NJ Lot 2 (3)
Wildwood, NJ
12/15/2017
Lot
   
45
     
0.31
     
N/A
   
$
686,000
   
SP+
 
MVP Indianapolis City Park
Indianapolis, IN
12/15/2017
Garage
   
370
     
0.47
     
N/A
   
$
10,934,000
   
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
   
195
     
1.65
     
N/A
   
$
4,013,000
     
N/A
 
Minneapolis City Parking
Minneapolis, MN
12/15/2017
Lot
   
268
     
1.98
     
N/A
   
$
9,338,000
   
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
   
311
     
0.77
     
16,205
     
21,155,000
   
SP +
 
Construction in progress
                             
$
1,284,000
         
Total Investment in real estate and fixed assets
                           
$
310,317,000
         


(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.
(4)
MVP Preferred Parking, LLC holds a Garage and a Parking Lot.

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 transactions as fair and reasonable to the Company and on terms and conditions no less favorable to the Company than those available from unaffiliated third parties.

Ownership of Company Stock

As of March 31, 2020, the Sponsor owned 9,108 shares, VRM II owned 844,960 shares and VRM I owned 456,834 shares of the Company’s outstanding common stock.

Ownership of the Former Advisor

VRM I and VRM II own 40% and 60%, respectively, of the former 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 former Advisor.

Note F — Economic Dependency

Under various agreements, the Company has engaged or will engage the former 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 securities 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 former Advisor paid the Company’s organization and offering expenses.

As a result of these relationships, the Company is dependent upon the former Advisor and its affiliates. If these companies are unable to provide the Company with the respective services, including loan guaranties, 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 months ended March 31, 2020 and 2019, no grants were made under the long-term incentive plan.

Note H – Recent Accounting Pronouncements

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 in the future however the Company was not a lessee on any lease agreements at December 31, 2018. During the first quarter 2019, the Company adopted ASU 2016-02.  See Note M - Right of Use Leased Asset and Lease Liability for discussion of the impact of ASU 2016-02 on the Company’s unaudited 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. During the first quarter 2020, the Company adopted ASU 2016-13 and such adoption did not have a material impact on the Company’s unaudited 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. During the first quarter 2019, the Company adopted ASU 2017-12 and such adoption did not have a material impact on the Company's unaudited condensed consolidated financial statements.

Note I — Assets held for sale

Effective April 17, 2019, the Company entered into a purchase sales agreement (“PSA”) with an unrelated third party to sell MVP San Jose 88 Garage, LLC, which is wholly owned by the Company and is listed as held for sale. This multi-level parking garage located in San Jose, California was originally acquired by the Company on June 15, 2016. On May 14, 2019 the unrelated third party cancelled the PSA. The Company executed a new PSA for this property with another unrelated third party on February 25, 2020.  Such third party has made a deposit of $200,000 that became nonrefundable on March 27, 2020. On May 5, 2020, the buyer provided an additional nonrefundable deposit of $250,000 to extend the closing date to May 25, 2020.

The following is summary of San Jose 88 Garage, LLC net assets held for sale as of March 31, 2020:
   
March 31, 2020
   
December 31, 2019
 
Assets:
           
Prepaid expenses
 
$
100,000
   
$
42,000
 
Property and equipment, net of accumulated depreciation
   
3,288,000
     
3,288,000
 
       Total assets
 
$
3,388,000
   
$
3,330,000
 
Liabilities:
               
Notes payable
 
$
2,500,000
   
$
2,500,000
 
Accounts payable and accrued liabilities
   
53,000
     
47,000
 
     Total liabilities
   
2,553,000
     
2,547,000
 
Net assets held for sale
 
$
835,000
   
$
783,000
 

The PSA with the buyer is an asset purchase agreement for purchase of the property and equipment. The following is a summary of the results of operations related to MVP San Jose 88 Garage for three months ended March 31, 2020 and 2019:

       
   
2020
   
2019
 
Revenue
 
$
113,000
   
$
113,000
 
Expense
   
(114,000
)
   
(134,000
)
Income/(loss) from assets held for sale, net of income taxes
 
$
(1,000
)
 
$
(21,000
)


Note J — Notes Payable

As of March 31, 2020, the principal balances on notes payable are as follows:

Property
 
Original Debt Amount
   
Monthly Payment
   
Balance as of 03/31/20
 
Lender
Term
 
Interest Rate
 
Loan Maturity
MVP San Jose 88 Garage, LLC (5)
 
$
1,645,000
   
Interest Only
   
$
2,500,000
 
Multiple
1 Year
   
7.50
%
6/30/2020
MVP Cincinnati Race Street, LLC
 
$
2,550,000
   
Interest Only
   
$
2,550,000
 
Multiple
1 Year
   
7.50
%
10/30/2020
MVP Wildwood NJ Lot, LLC
 
$
1,000,000
   
Interest Only
   
$
1,000,000
 
Tigges Construction Co.
1 Year
   
7.50
%
10/30/2020
The Parking REIT D&O Insurance
 
$
1,681,000
   
$
171,000
   
$
171,000
 
MetaBank
1 Year
   
3.60
%
4/30/2020
Minneapolis Venture
 
$
2,000,000
   
Interest Only
   
$
2,000,000
 
Multiple
1 Year
   
8.00
%
10/22/2020
MVP Raider Park Garage, LLC (4)
 
$
7,400,000
   
Interest Only
   
$
7,400,000
 
LoanCore
2 Year
 
Variable
 
12/9/2020
MVP New Orleans Rampart, LLC (4)
 
$
5,300,000
   
Interest Only
   
$
5,300,000
 
LoanCore
2 Year
 
Variable
 
12/9/2020
MVP Hawaii Marks Garage, LLC (4)
 
$
13,500,000
   
Interest Only
   
$
13,500,000
 
LoanCore
2 Year
 
Variable
 
12/9/2020
MVP Milwaukee Wells, LLC (4)
 
$
2,700,000
   
Interest Only
   
$
2,700,000
 
LoanCore
2 Year
 
Variable
 
12/9/2020
MVP Indianapolis City Park, LLC (4)
 
$
7,200,000
   
Interest Only
   
$
7,200,000
 
LoanCore
2 Year
 
Variable
 
12/9/2020
MVP Indianapolis WA Street, LLC (4)
 
$
3,400,000
   
Interest Only
   
$
3,400,000
 
LoanCore
2 Year
 
Variable
 
12/9/2020
MVP Memphis Poplar (3)
 
$
1,800,000
   
Interest Only
   
$
1,800,000
 
LoanCore
5 Year
   
5.38
%
3/6/2024
MVP St. Louis (3)
 
$
3,700,000
   
Interest Only
   
$
3,700,000
 
LoanCore
5 Year
   
5.38
%
3/6/2024
Mabley Place Garage, LLC
 
$
9,000,000
   
$
44,000
   
$
8,143,000
 
Barclays
10 year
   
4.25
%
12/6/2024
MVP Houston Saks Garage, LLC
 
$
3,650,000
   
$
20,000
   
$
3,238,000
 
Barclays Bank PLC
10 year
   
4.25
%
8/6/2025
Minneapolis City Parking, LLC
 
$
5,250,000
   
$
29,000
   
$
4,763,000
 
American National Insurance, of NY
10 year
   
4.50
%
5/1/2026
MVP Bridgeport Fairfield Garage, LLC
 
$
4,400,000
   
$
23,000
   
$
3,995,000
 
FBL Financial Group, Inc.
10 year
   
4.00
%
8/1/2026
West 9th Properties II, LLC
 
$
5,300,000
   
$
30,000
   
$
4,876,000
 
American National Insurance Co.
10 year
   
4.50
%
11/1/2026
MVP Fort Worth Taylor, LLC
 
$
13,150,000
   
$
73,000
   
$
12,126,000
 
American National Insurance, of NY
10 year
   
4.50
%
12/1/2026
MVP Detroit Center Garage, LLC
 
$
31,500,000
   
$
194,000
   
$
29,550,000
 
Bank of America
10 year
   
5.52
%
2/1/2027
MVP St. Louis Washington, LLC (1)
 
$
1,380,000
   
$
8,000
   
$
1,355,000
 
KeyBank
10 year *
   
4.90
%
5/1/2027
St. Paul Holiday Garage, LLC (1)
 
$
4,132,000
   
$
24,000
   
$
4,056,000
 
KeyBank
10 year *
   
4.90
%
5/1/2027
Cleveland Lincoln Garage, LLC (1)
 
$
3,999,000
   
$
23,000
   
$
3,926,000
 
KeyBank
10 year *
   
4.90
%
5/1/2027
MVP Denver Sherman, LLC (1)
 
$
286,000
   
$
2,000
   
$
280,000
 
KeyBank
10 year *
   
4.90
%
5/1/2027
MVP Milwaukee Arena Lot, LLC (1)
 
$
2,142,000
   
$
12,000
   
$
2,103,000
 
KeyBank
10 year *
   
4.90
%
5/1/2027
MVP Denver Sherman 1935, LLC (1)
 
$
762,000
   
$
4,000
   
$
748,000
 
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 Indianapolis Meridian Lot, LLC (2)
 
$
938,000
   
Interest Only
   
$
938,000
 
Cantor Commercial Real Estate
10 year **
   
5.03
%
5/6/2027
MVP Preferred Parking, LLC
 
$
11,330,000
   
Interest Only
   
$
11,330,000
 
Key Bank
10 year **
   
5.02
%
8/1/2027
Less unamortized loan issuance costs
                 
(1,621,000
)
                
                   
$
158,338,000
                  



(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, 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)
On February 8, 2019, subsidiaries of the Company, consisting of MVP PF St. Louis 2013, LLC (“MVP St. Louis”), and MVP PF Memphis Poplar 2013 (“MVP Memphis Poplar”), LLC entered into a loan agreement, dated as of February 8, 2019, with LoanCore Capital Credit REIT LLC (“LoanCore”). Under the terms of the Loan Agreement, LoanCore agreed to loan MVP St. Louis and MVP Memphis Poplar $5.5 million to repay and discharge the outstanding KeyBank loan agreement. The loan is secured by a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing on each of the properties owned by MVP St. Louis and MVP Memphis Poplar.
(4)
On November 30, 2018, subsidiaries of the Company, consisting of MVP Hawaii Marks Garage, LLC, MVP Indianapolis City Park Garage, LLC, MVP Indianapolis Washington Street Lot, LLC, MVP New Orleans Rampart, LLC, MVP Raider Park Garage, LLC, and MVP Milwaukee Wells LLC (the “Borrowers”) entered into a loan agreement, dated as of November 30, 2018 (the “Loan Agreement”), with LoanCore Capital Credit REIT LLC (the “LoanCore”). Under the terms of the Loan Agreement, LoanCore agreed to loan the Borrowers $39.5 million to repay and discharge the outstanding KeyBank Revolving Credit Facility. The loan is secured by a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing on each of the properties owned by the Borrowers (the “Properties”). The loan bears interest at a floating rate equal to the sum of one-month LIBOR plus 3.65%, subject to a LIBOR minimum of 1.95%. Additionally, the Borrowers were required to purchase an Interest Rate Protection Agreement which caps its maximum LIBOR at 3.50% for the duration of the loan. Payments are interest-only for the duration of the loan, with the $39.5 million principal repayment due in a balloon payment due on December 9, 2020, with an option to extend the term until December 9, 2021 subject to certain conditions and payment obligations. The Borrowers have the right to prepay all or any part of the loan, subject to payment of any applicable Spread Maintenance Premium and Exit Fee (as defined in the Loan Agreement). The loan is also subject to mandatory prepayment upon certain events of Insured Casualty or Condemnation (as defined in the Loan Agreement). The Borrowers made customary representations and warranties to LoanCore and agreed to maintain certain covenants under the Loan Agreement, including but not limited to, covenants involving their existence; property taxes and other charges; access to properties, repairs, maintenance and alterations; performance of other agreements; environmental matters; title to properties; leases; estoppel statements; management of the Properties; special purpose bankruptcy remote entity status; change in business or operation of the Properties; debt cancellation; affiliate transactions; indebtedness of the Borrowers limited to Permitted Indebtedness (as defined in the Loan Agreement); ground lease reserve relating to MVP New Orleans’ Property; property cash flow allocation; liens on the Properties; ERISA matters; approval of major contracts; payments upon a sale of a Property; and insurance, notice and reporting obligations as set forth in the loan agreement. The Loan Agreement contains customary events of default and indemnification obligations. The loan proceeds were used to repay and discharge the KeyBank Credit Agreement, dated as of December 29, 2017, as amended, per the terms outlined in the third amendment to the Credit Agreement dated September 28, 2018, as previously filed on Form 8-K on October 2, 2018 and incorporated herein by reference.
(5)
Loan in the amount of $2,500,000 was originated on June 5, 2018 of which $1,645,000 was funded.  Remaining balance available of $855,000 was funded on December 11, 2018.

 * 2 Year Interest Only
** 10 Year Interest Only

Total interest expense incurred for the three months ended March 31, 2020, was approximately $2.1 million. Total loan amortization cost for the three months ended March 31, 2020, was approximately $0.2 million.

As of March 31, 2020, future principal payments on notes payable are as follows:

2020
 
$
49,193,000
 
2021
   
2,058,000
 
2022
   
2,252,000
 
2023
   
2,498,000
 
2024
   
15,283,000
 
Thereafter
   
88,675,000
 
Less unamortized loan issuance costs
   
(1,621,000
)
Total
 
$
158,338,000
 


Note K — Fair Value

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

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

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level within which the fair value measurement is 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 L – 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 former 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 the former Advisor, 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. For the three months ended March 31, 2020 and 2019, income earned was $182,000. For the three months ended March 31, 2020 and 2019, distributions received were $50,000 and $70,000, respectively.

The Company conducted an analysis and concluded 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 former Advisor was the advisor to the Company. The Company is controlled by its independent board of directors and its shareholders. In addition, the former Advisor 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 can direct the most significant activities of the DST.

The former Advisor 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, the former 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 former Advisor. In addition, the Company does not have the power to direct or change the activities of the Trust and shares income and losses pari passu with the other owners. 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

   
March 31, 2020
   
December 31, 2019
 
   
(Unaudited)
   
(Unaudited)
 
ASSETS
 
Investments in real estate and fixed assets
 
$
11,512,000
   
$
11,512,000
 
Cash
   
26,000
     
28,000
 
Cash – restricted
   
27,000
     
24,000
 
Accounts receivable
   
2,000
     
--
 
Prepaid expenses
   
16,000
     
10,000
 
Total assets
 
$
11,583,000
   
$
11,574,000
 
LIABILITIES AND EQUITY
 
Liabilities
               
Notes payable, net of unamortized loan issuance costs of approximately $44,000 and $46,000 as of March 31, 2020 and December 31, 2019, respectively
 
$
5,956,000
   
$
5,954,000
 
Accounts payable and accrued liabilities
   
107,000
     
93,000
 
Due to related party
   
60,000
     
57,000
 
Total liabilities
   
6,123,000
     
6,104,000
 
Equity
               
Member’s equity
   
6,129,000
     
6,129,000
 
  Offering costs
   
(574,000
)
   
(574,000
)
  Accumulated earnings
   
1,040,000
     
952,000
 
  Distributions to members
   
(1,135,000
)
   
(1,037,000
)
Total equity
   
5,460,000
     
5,470,000
 
Total liabilities and equity
 
$
11,583,000
   
$
11,574,000
 

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

   
For the Three Months Ended March 31, 2020
   
For the Three Months Ended March 31, 2019
 
Revenue
 
$
182,000
   
$
182,000
 
Expenses
   
(94,000
)
   
(84,000
)
  Net income
 
$
88,000
   
$
98,000
 

Note M – Right of Use Leased Asset and Lease Liability

The Company executed a lease agreement for its office space at 9130 W. Post Rd., Suite 200, Las Vegas, NV 89135 with a commencement date of January 10, 2020. The lease has a ten-year term with an annual payment of $180,480 per annum during the lease term. The lease is accounted for as an operating lease under ASU 2016-02, Leases – (Topic 842). The Company recognized a Right of Use (“ROU”) Leased Asset and a Right of Use (“ROU”) Lease Liability on the lease commencement date. The value of both the ROU asset and ROU liability, at March 31, 2020, was approximately $1,364,000. The Company recognized approximately $42,000 of operating lease expense during the three months ended March 31, 2020. This expense is included in general and administrative expense.


As of March 31, 2020, future lease liability is as follows:

2020
 
$
82,000
 
2021
   
114,000
 
2022
   
121,000
 
2023
   
127,000
 
2024
   
134,000
 
Thereafter
   
786,000
 
Total
 
$
1,364,000
 

Note N — Legal

Federal Action

On March 12, 2019, stockholder SIPDA Revocable Trust (“SIPDA”) filed a purported class action complaint in the United States District Court for the District of Nevada, against the Company and certain of its current and former officers and directors. SIPDA filed an Amended Complaint on October 11, 2019. The Amended Complaint purports to assert class action claims on behalf of all public shareholders of the Company and MVP I between August 11, 2017 and April 1, 2019 in connection with the (i) August 2017 proxy statements filed with the SEC to obtain shareholder approval for the merger of the Company and MVP I (the “proxy statements”), and (ii) August 2018 proxy statement filed with the SEC to solicit proxies for the election of certain directors (the “2018 proxy statement”). The Amended Complaint alleges, among other things, that the 2017 proxy statements failed to disclose that two major reasons for the merger and certain charter amendments implemented in connection therewith were (i) to facilitate the execution of an amended advisory agreement that allegedly was designed to benefit Mr. Shustek financially in the event of an internalization and (ii) to give Mr. Shustek the ability to cause the Company to internalize based on terms set forth in the amended advisory agreement. The Amended Complaint further alleges, among other things, that the 2018 proxy statement failed to disclose the Company’s purported plan to internalize its management function.

The Amended Complaint alleges, among other things, (i) that all defendants violated Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, by disseminating proxy statements that allegedly contain false and misleading statements or omit to state material facts; (ii) that the director defendants violated Section 20(a) of the Exchange Act; and (iii) that the director defendants breached their fiduciary duties to the members of the class and to the Company.

The Amended Complaint seeks, among other things, unspecified damages; declaratory relief; and the payment of reasonable attorneys' fees, accountants' and experts' fees, costs and expenses.

On June 13, 2019, the court granted SIPDA’s motion for Appointment as Lead Plaintiff. The litigation is still at a preliminary stage.   On January 9, 2020, the Company and the Board of Directors moved to dismiss the Amended Complaint.  The Company and the Board of Directors have reviewed the allegations in the Amended Complaint and believe the claims asserted against them in the Amended Complaint are without merit and intend to vigorously defend this action.

Maryland Actions

On May 31, 2019, and June 27, 2019, alleged stockholders filed class action lawsuits alleging direct and derivative claims against the Company, certain of our officers and directors, MVP Realty Advisors, Vestin Realty Mortgage I, and Vestin Realty Mortgage II in the Circuit Court for Baltimore City, captioned Arthur Magowski v. The Parking REIT, Inc., et. al, No. 24-C-19003125 (filed on May 31, 2019) (the “Magowski Complaint”) and Michelle Barene v. The Parking REIT, Inc., et. al, No. 24-C-19003527 (filed on June 27, 2019) (the “Barene Complaint”).

The Magowski Complaint asserts purportedly direct claims on behalf of all stockholders (other than the defendants and persons or entities related to or affiliated with any defendant) for breach of fiduciary duty and unjust enrichment arising from the Company’s decision to internalize its advisory function. In this Complaint, Plaintiff Magowski asserts that the stockholders have allegedly been directly injured by the internalization and related transactions. The Barene Complaint asserts both direct and derivative claims for breach of fiduciary duty arising from substantially similar allegations as those contained in the Magowski Complaint. The purportedly direct claims are asserted on behalf of the same class of stockholder as the purportedly direct claims in the Magowski Complaint, and the derivative claims in the Barene Complaint are asserted on behalf of the Company.

On September 12 and 16, 2019, the defendants filed motions to dismiss the Magowski and Barene complaints, respectively. The Magowski and Barene Complaints seek, among other things, damages; declaratory relief; equitable relief to reverse and enjoin the internalization transaction; and the payment of reasonable attorneys' fees, accountants' and experts' fees, costs and expenses. The actions are at a preliminary stage. The Company and the board of directors intend to vigorously defend against these lawsuits.


The Magowski Complaint also previewed that a stockholder demand would be made on the Board to take action with respect to claims belonging to the Company for the alleged injury to the Company. On June 19, 2019, Magowski submitted a formal demand letter to the Board asserting the same alleged wrongdoing as alleged in the Magowski Complaint and demanding that the Board investigate the alleged wrongdoing and take action to remedy the alleged injury to the Company. The demand includes that claims be initiated against the same defendants as are named in the Magowski Complaint. In response to this stockholder demand letter, on July 16, 2019, the Board established a demand review committee of one independent director to investigate the allegations of wrongdoing made in the letter and to make a recommendation to the Board for a response to the letter.  On September 27, 2019, the Board replaced the demand review committee with a special litigation committee. The special litigation committee is responsible for investigating the allegations of wrongdoing made in the letter and making a final determination regarding the response for the Company to the demand. The work of the special litigation committee is on-going.

SEC Investigation

The Securities and Exchange Commission (“SEC”) is conducting an investigation relating to the Parking REIT. In June 2019, the SEC issued subpoenas to the Company and its chairman and chief executive officer Michael V. Shustek, and since then has requested more information. The Company cannot predict the outcome or the duration of the SEC investigation or any other legal proceedings or any enforcement actions or other remedies, if any, that may be imposed on Mr. Shustek, the Company or any other entity arising out of the SEC investigation.

Nasdaq Notification Regarding Company’s Common Stock

Further, Nasdaq has informed the Company that (i) the Company’s common stock will not be approved for listing currently on the Nasdaq Global Market, and (ii) it is highly unlikely that the Company’s common stock would be approved for listing while the SEC investigation is ongoing. There can be no assurance that the Company’s common stock will ever be approved for listing on the Nasdaq Global Market or any other stock exchange, even if the SEC investigation referred to above is completed and no wrongdoing is found and no action is taken in connection therewith against the Company, Mr. Shustek or any other person.

Note O — 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 occur by March 31, 2018, 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 March 31, 2020, the increased dividend rate costs 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 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 the 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 March 31, 2020, 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 March 31, 2020 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 of the date of this filing the Company had an estimated fair market value of potential warrants that was immaterial.

On March 24, 2020, the Company’s board of directors unanimously authorized the suspension of the payment of distributions on the Series A, however, such distributions will continue to accrue in accordance with the terms of the Series A.

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 March 31, 2020, the increased dividend rate costs 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 March 31, 2020, 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 March 31, 2020 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 of the date of this filing the Company had an estimated fair market value of potential warrants that was immaterial.

On March 24, 2020, the Company’s board of directors unanimously authorized the suspension of the payment of distributions on the Series 1, however, such distributions will continue to accrue in accordance with the terms of the Series 1.

Note P — Deferred Management Internalization

Management Internalization

On March 29, 2019, the Company and the former Advisor entered into definitive agreements to internalize the Company’s management function effective April 1, 2019 (the “Internalization”). Since their formation, under the supervision of the board of directors (the “Board of Directors”), the former Advisor has been responsible for managing the operations of the Company and MVP I, which merged with a wholly owned indirect subsidiary of the Company in December 2017. As part of the Internalization, among other things, the Company agreed with the former Advisor to (i) terminate the Second Amended and Restated Advisory Agreement, dated as of May 26, 2017 and, for the avoidance of doubt, the Third Amended and Restated Advisory Agreement, dated as of September 21, 2018, which by its terms would have become effective only upon a listing of the Company’s common stock on a national securities exchange (collectively, the “Management Agreements”), each entered into among the Company, the former Advisor and MVP REIT II Operating Partnership, LP (the “Operating Partnership”); (ii) extend employment to the executives and other employees of the former Advisor; (iii) arrange for the former Advisor to continue to provide certain services with respect to outstanding indebtedness of the Company and its subsidiaries; and (iv) lease the employees of the former Advisor for a limited period of time prior to the time that such employees become employed by the Company.

Contribution Agreement

On March 29, 2019, the Company entered into a Contribution Agreement (the “Contribution Agreement”) with the former Advisor, Vestin Realty Mortgage I, Inc. (“VRTA”) (solely for purposes of Section 1.01(c) thereof), Vestin Realty Mortgage II, Inc. (“VRTB”) (solely for purposes of Section 1.01(c) thereof) and Shustek (solely for purposes of Section 4.03 thereof). In exchange for the Contribution, the Company agreed to issue to the former Advisor 1,600,000 shares of Common Stock as consideration (the “Internalization Consideration”), issuable in four equal installments. The first and second installments of 400,000 shares of Common Stock per installment were issued on April 1, 2019 and December 31, 2019, respectively. The remaining installments will be issued on December 31, 2020 and December 31, 2021 (or if December 31st is not a business day, the day that is the last business day of such year). If requested by the Company in connection with any contemplated capital raise by the Company, the former Advisor has agreed not to sell, pledge or otherwise transfer or dispose of any of the Internalization Consideration for a period not to exceed the lock-up period that otherwise would apply to other stockholders of the Company in connection with such capital raise. See the Current Report on Form 8-K filed with the SEC on April 3, 2019 and Contribution Agreement in Part I, Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information regarding the Management Internalization.

The Internalization transaction closed on April 1, 2019, and the following table shows the Internalization Consideration to be paid in aggregate to the former Advisor. The first and second installment of 400,000 shares of Common Stock per installment were issued to the former Advisor on April 1, 2019 and December 31, 2019, respectively.

   
Number of shares
         
Internalization Contribution
 
 Internalization consideration in common stock at $17.50
   
1,100,000
     
(1
)
 
$
19,250,000
 
 Internalization consideration in common stock at $25.10
   
500,000
     
(2
)
   
12,550,000
 
 Total internalization consideration
   
1,600,000
           
$
31,800,000
 
                         
Internalization consideration issued April 1, 2019 at $17.50
   
(400,000
)
           
(7,000,000
)
Shares issued December 31, 2019 at $17.50
   
(400,000
)
           
(7,000,000
)
Deferred management internalization at March 31, 2020
   
800,000
           
$
17,800,000
 

1) The Company has the right to purchase 1,100,000 of these shares at $17.50 per share which potentially limits the cost to the Company.
2) $25.10 is the Company's stated NAV as of May 28, 2019.

Note Q— Employee Benefit Plan

Effective July 1, 2019, the Company began participating in a multi-employer 401(k) Safe Harbor Plan (the “Plan”), which is a defined contribution plan covering all eligible employees. Under the provisions of the Plan, participants may direct the Company to defer a portion of their compensation to the Plan, subject to Internal Revenue Code limitations. The Company provides for an employer matching contribution equal to 100% of the first 3% of eligible compensation and 50% of the next 2% of eligible compensation contributed by each employee, which is funded in cash. All contributions vest immediately.

Total expense recorded for the matching 401(k) contribution in the three months ended March 31, 2020 was approximately $3,000. There was no similar expense for the three months ended March 31, 2019.

Note R — Subsequent Events

Subsequent to March 31, 2020, the global economy has continued to be severely impacted by the COVID-19 pandemic and the Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business, including how it will impact the Company’s tenants in the near and long term. In particular, many of the Company’s properties are located near government buildings and sports centers, which depend in large part on customer traffic, and conditions that lead to a decline in customer traffic will have a material and adverse impact on those businesses. Many state and local governments are currently restricting public gatherings or requiring people to shelter in place, which has in some cases eliminated or severely reduced the demand for parking.  Such events are adversely impacting and may continue to adversely impact the Company’s tenants’ sales and/or cause the temporary closure of the Company’s tenants’ businesses, which could significantly disrupt or cause a closure of their operations and, in turn, may impact or eliminate the rental revenue the Company generates from its leases with them. While we did not incur significant disruptions from the COVID-19 pandemic during the three months ended March 31, 2020, we expect this situation will have an impact on our business and results of operations in the second quarter and in later periods of 2020 that may be material, but cannot be reasonably estimated at this time due to numerous uncertainties.


The Company’s rental revenue and the return on its investments may be materially adversely affected by restrictions requiring people to shelter in place in reaction to the COVID-19 outbreak and may continue to be materially adversely affected to the extent that economic conditions result in the elimination of jobs or the migration of jobs from the urban centers where the Company’s parking facilities are situated to other locations. In particular, a majority of the Company’s property leases call for additional percentage rent, which will be adversely impacted by a decline in the demand for parking. Subsequent to March 31, 2020, as a result of the COVID-19 pandemic, the Company has entered into lease amendments with eight tenants. The terms of such lease amendments generally provide for one of (i) a reduction in rent for a period of four to seven months, (ii) conversion of the lease to a management agreement pursuant to which the operator will receive a monthly fee; or (iii) extension of the lease. While the Company continues to review and negotiate rent relief requests with tenants and plans to continue to execute lease amendments based on its evaluation of each tenant’s circumstances, there can be no assurance the Company will reach an agreement with any tenant or if an agreement is reached, that any such tenant will be able to repay any such deferred rent in the future. The extent of the impact of COVID-19 on the Company’s financial and operational performance will depend on certain developments, including the duration and spread of the outbreak and its impact on the Company’s tenants, all of which are uncertain and cannot be predicted. The extent to which COVID-19 may impact the Company’s financial condition or results of operations cannot be determined at this time. For further information regarding the impact of COVID-19 on the Company, see Part II, Item 1A titled “Risk Factors.”

The Company applied for the Paycheck Protection Program loan, guaranteed by the SBA, through Key Bank National Association, Inc., on April 3, 2020. This loan program is for companies with 500 or less employees, under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) signed by President Trump on March 27, 2020. On April 23, 2020 the Company received funding for its CARES Act loan of approximately $348,000. The loan carries an interest rate of 1.00% and a term of two years with principal and interest payments of approximately $15,000 per month beginning the seventh month from the date of the loan.

As a result of current economic conditions, the Company’s cash flow from operations might be impacted. The Company is in preliminary discussions with its lenders, including Bank of America, to obtain waivers from certain liquidity requirements and defer payments due under its loans in light of the current economic conditions and the fact that the Company is in preliminary discussions with tenants and has granted relief to some of its tenants to defer rent payments as a result of their estimated lost revenues from the current COVID-19 pandemic; however, there can be no assurance that the Company will reach any such agreement with its lenders. In particular, some of the Company’s loan agreements require that the Company maintain certain liquidity and net worth levels. For example, the loan with Bank of America for MVP Detroit garage requires the Company to maintain $2.3 million of unencumbered cash and cash equivalents at all times. As of the time of this filing, the Company was in compliance with this lender requirement; however, unless the Company sells some of its existing assets, it does not expect that it will be able to maintain such required minimum balances beyond the third quarter of 2020, if the Company does not receive a waiver for this requirement.  The Company may be unable to sell assets and may be unable to negotiate a waiver or amendment of the liquidity and net worth requirements, in which case, the Company could experience an event of technical default under its loan agreements, which, if uncured, could result in an acceleration of such indebtedness.


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a financial review and analysis of the Company’s financial condition and results of operations for the three months ended March 31, 2020 and 2019. 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 the Company’s annual report on Form 10-K for the year ended December 31, 2019. 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 the Company refers to as the "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 the Company’s 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 the Company’s control. Although the Company believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, the 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 operations and future prospects include, but are not limited to:

the fact that the Company has a limited operating history, as property operations began in 2016;
the fact that the Company has experienced net losses since inception and may continue to experience additional losses;
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 (“REITs”);
the outcome of pending litigation or investigations;
potential damage and costs arising from natural disasters, terrorism and other extraordinary events, including extraordinary events affecting parking facilities included in the Company’s 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 the Company’s ability to make investments or attract and retain tenants;
the Company’s ability to generate sufficient cash flows to pay distributions to the Company’s stockholders;
the Company’s failure to maintain status as a REIT;
the Company’s ability to successfully integrate pending transactions and implement an operating strategy;
the Company’s ability to list shares of common stock on a national securities exchange or complete another liquidity event;
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, covenants and requirements of that debt;
changes in interest rates;
changes to generally accepted accounting principles, or GAAP;
the impact on our business and those of our tenants from epidemics, pandemics or outbreaks of an illness, disease or virus (including COVID-19); and
potential adverse impacts from 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 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, the Company undertakes 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 the Company is responsible for all of the disclosure contained in this report, in some cases the Company relies on and refers 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 are believed to be reliable.

Overview

Commencing with its taxable year ended December 31, 2017, the Company has operated in a manner to qualify as a REIT. 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. To a lesser extent, the Company may also invest in parking properties that contain other sources of rental income, potentially including office, retail, storage, residential, billboard or cell towers. As of March 31, 2020, the Company held 40 properties in various cities, all of which are parking facilities. See note C – Commitments and Contingencies in Part I, Item 1 Notes to the Condensed Consolidated Financial Statements of this Quarterly Report for additional information.

The Company was incorporated in Maryland on May 4, 2015 and is the sole member of the Operating Partnership. The Company owns substantially all of its assets and conduct its operations through the Operating Partnership.

Prior to the management Internalization effective on April 1, 2019, the Company was externally managed by MVP Realty Advisors, LLC, dba The Parking REIT Advisors (the “former Advisor”), a Nevada limited liability company. As a result of the management Internalization, the Company will no longer incur an asset management fee equal to 1.1% of the cost of all assets held by the Company, effective April 1, 2019.

The Company has elected to be taxed as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with our taxable year ended December 31, 2017.

Impact of COVID-19

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.  The COVID-19 pandemic has significantly adversely impacted global economic activity, has contributed to significant volatility and negative pressure in financial markets and resulted in unprecedented job losses causing many to fear an imminent global recession. The global impact of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified, many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel.

As a result of these measures, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including ours and the industries in which our tenants operate, with much of the impact still unknown. Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer spending as well as other unanticipated consequences remain unknown. In particular, many of the Company’s properties are located near government buildings and sports centers, which depend in large part on customer traffic, and conditions that lead to a decline in customer traffic will have a material and adverse impact on those businesses. Many state and local governments are currently restricting public gatherings or requiring people to shelter in place, which has in some cases eliminated or severely reduced the demand for parking.  Such events are adversely impacting and may continue to adversely impact the Company’s tenants’ sales and/or cause the temporary closure of the Company’s tenants’ businesses, which could significantly disrupt or cause a closure of their operations and, in turn, may impact or eliminate the rental revenue the Company generates from its leases with them. The Company’s rental revenue and the return on its investments may be materially adversely affected by restrictions requiring people to shelter in place in reaction to the COVID-19 outbreak and may continue to be materially adversely affected to the extent that economic conditions result in the elimination of jobs or the migration of jobs from the urban centers where the Company’s parking facilities are situated to other locations. In particular, a majority of the Company’s property leases call for additional percentage rent, which will be adversely impacted by a decline in the demand for parking.

The Company did not experience significant disruptions from the COVID-19 pandemic during the first quarter of 2020. While the Company is currently unable to completely estimate the impact that the COVID-19 pandemic and efforts to contain its spread will have on the Company’s business and on its tenants, as of May 13, 2020, the Company has entered into lease amendments with eight tenants. The terms of such lease amendments generally provide for one of (i) a reduction in rent for a period of four to seven months, (ii) conversion of the lease to a management agreement pursuant to which the operator will receive a monthly fee; or (iii) extension of the lease. While the Company continues to review and negotiate rent relief requests with tenants and plans to continue to execute lease amendments based on its evaluation of each tenant’s circumstances, there can be no assurance the Company will reach an agreement with any tenant or if an agreement is reached, that any such tenant will be able to repay any such deferred rent in the future. The extent of the impact of COVID-19 on the Company’s financial and operational performance will depend on certain developments, including the duration and spread of the outbreak and its impact on the Company’s tenants, all of which are uncertain and cannot be predicted. The extent to which COVID-19 may impact the Company’s financial condition or results of operations cannot be determined at this time. For further information regarding the impact of COVID-19 on the Company, see Note R — Subsequent Events in Part I, Item 1 Notes to the Condensed Consolidated Financial Statements of this Quarterly Report and Part II, Item 1A titled “Risk Factors.”

In January of 2019 we were notified by the City of Minneapolis that a portion of our property, Minneapolis City Parking, located at 1022 Hennepin Ave would be utilized for an expansion of the street and for a new transient center.  After negotiating with the City for over a year, we were able to settle on the City taking approximately 6,000 sq. ft. of frontage on Hennepin Avenue, where we would still be left with one entrance on Hennepin Avenue and multiple entrances and exits on 10th and 11th streets.  The City agreed to compensate The Parking REIT in the amount of $1.3 million, with a portion to be used to reconfigure the parking lot, to enable it to fit 266 parking spaces compared to 268 prior to the taking, and will be required to landscape the front portion of the lot once the improvements are complete.  After all attorney fees and improvement costs, we expect to collect approximately $1.0 million within the second or third quarter of this year.

Objectives

The Company’s primary objectives are to:

preserve capital;
generate current income; and
explore strategic alternatives to provide liquidity to stockholders, including sales of assets, potential liquidation of the Company, a sale of the Company or a portion thereof or a strategic business combination.

In mid-2019, the Company engaged financial and legal advisors and began to explore a broad range of potential strategic alternatives to provide liquidity to stockholders. The Company is currently exploring certain strategic alternatives, including potential sales of assets, a potential sale of the Company or a portion thereof, a potential strategic business combination or a potential liquidation. However, there can be no assurance that the Board’s exploration of potential strategic alternatives will result in any change of strategy or transaction being entered into or consummated or, if a transaction is undertaken, as to its terms, structure or timing. In addition, the value received in any potential strategic alternative would likely be less than the NAV most recently estimated by the Company’s board of directors. Our assets have been valued based upon appraisal standards and the values of our assets using these methods are not required to reflect market value under those standards and will not necessarily result in a reflection of fair value under generally accepted accounting principles. Further, different parties using different property-specific and general real estate and capital market assumptions, estimates, judgments and standards could derive a different estimated NAV per share, which could be significantly different from the estimated NAV per share determined by our board of directors. The estimated NAV per share is not a representation or indication that, among other things a stockholder would ultimately realize distributions per share equal to the estimated NAV per share upon liquidation of assets and settlement of our liabilities or upon a sale of our company or a third party would offer the estimated NAV per share in an arms-length transaction to purchase all or substantially all of our shares of common stock.

For example, we expect to incur additional costs in connection with ongoing litigation, the SEC investigation discussed in Note N - Legal in Part I, Item 1 Notes to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q and legal and consulting fees associated with pursuing any potential strategic alternatives, which in the aggregate may be material, none of which was taken in consideration when the board of directors determined the prior estimated NAV per share. Please see our Current Reports on Form 8-K filed with the SEC on May 28, 2019 for additional information regarding the NAV calculation, as well as “Item 1A. Risk Factors—Risks Related to an Investment in the Company–Stockholders should not rely on the estimated NAV per share as being an accurate measure of the current value of our shares of common stock” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Prior Investment Strategy

The Company’s investment strategy has historically focused primarily on acquiring, owning and managing parking facilities, including parking lots, parking garages and other parking structures throughout the United States and Canada.  The Company historically focused primarily on investing in income-producing parking lots and garages with air rights in central business districts. In building its current portfolio, the Company sought geographically targeted investments that present key demand drivers, that were expected to generate cash flows and provide greater predictability during periods of economic uncertainty. Such targeted investments include, but are not limited to, parking facilities near one or more of the following demand drivers:

Downtown core
Government buildings and courthouses
Sporting venues
Hospitals
Hotels

However, as a result of the current COVID-19 pandemic, among other factors, such demand drivers have been and are expected to be significantly diminished for an indeterminate period of time. Many state and local governments are currently restricting public gatherings or requiring people to shelter in place, which has in some cases eliminated or severely reduced the demand for parking. For further information regarding the impact of COVID-19 on the Company, see Part II, Item 1A titled “Risk Factors.”

Prior Investment Criteria

The Company historically focused on acquiring properties that met the following criteria:

properties that were expected to generate current cash flow;
properties that were expected to be located in populated metropolitan areas; and
properties were expected to produce income within 12 months of the Company’s acquisition.

As noted above, the Company does not currently expect to make any additional acquisitions unless and until it is able to sell some of its existing assets, and then only after ensuring that it has sufficient liquidity resources.  In the event of a future acquisition, the Company would expect the foregoing criteria to serve as guidelines, however, Management and the Company’s board of directors may vary from these guidelines to acquire properties which they believe represent value opportunities.

Management Internalization

On March 29, 2019, the Company and the former Advisor entered into definitive agreements to internalize the Company’s management function effective April 1, 2019 (the “Internalization”). Under the supervision of the board of directors (the “Board of Directors”), the former Advisor had been responsible for managing the operations of the Company and MVP I, which merged with a wholly owned indirect subsidiary of the Company in December 2017, since their respective formations. As part of the Internalization, among other things, the Company agreed with the former Advisor to (i) terminate the Second Amended and Restated Advisory Agreement, dated as of May 26, 2017 and, for the avoidance of doubt, the Third Amended and Restated Advisory Agreement, dated as of September 21, 2018, which by its terms would have become effective only upon a listing of the Company’s common stock on a national securities exchange (collectively, the “Management Agreements”), each entered into among the Company, the former Advisor and MVP REIT II Operating Partnership, LP (the “Operating Partnership”); (ii) extend employment to the executives and other employees of the former Advisor; (iii) arrange for the former Advisor to continue to provide certain services with respect to outstanding indebtedness of the Company and its subsidiaries; and (iv) lease the employees of the former Advisor for a limited period of time prior to the time that such employees become employed by the Company.

Contribution Agreement

On March 29, 2019, the Company entered into a Contribution Agreement (the “Contribution Agreement”) with the former Advisor, Vestin Realty Mortgage I, Inc. (“VRTA”) (solely for purposes of Section 1.01(c) thereof), Vestin Realty Mortgage II, Inc. (“VRTB”) (solely for purposes of Section 1.01(c) thereof) and Shustek (solely for purposes of Section 4.03 thereof). In exchange for the Contribution, the Company agreed to issue to the former Advisor 1,600,000 shares of Common Stock as consideration (the “Consideration”), issuable in four equal installments. The first and second installments of 400,000 shares of Common Stock per installment were issued on the April 1, 2019 and December 31, 2019, respectively. See Note P — Deferred Management Internalization in Part I, Item 1 Notes to the Condensed Consolidated Financial Statements of this Quarterly Report for additional information. The remaining installments will be issued on December 31, 2020 and December 31, 2021 (or if December 31st is not a business day, the day that is the last business day of such year). If requested by the Company in connection with any contemplated capital raise by the Company, the former Advisor has agreed not to sell, pledge or otherwise transfer or dispose of any of the Internalization Consideration for a period not to exceed the lock-up period that otherwise would apply to other stockholders of the Company in connection with such capital raise. See the Company’s Current Report on Form 8-K filed with the SEC on April 3, 2019 for more information regarding the Management Internalization.

Results of Operations for the three months ended March 31, 2020 compared to the three months ended March 31, 2019.

   
For the Three Months Ended March 31,
 
   
2020
   
2019
   
$ Change
   
% Change
 
Revenues
                       
Base rent income
 
$
4,991,000
   
$
5,054,000
   
$
(63,000
)
   
-1
%
Percentage rent income
   
327,000
     
301,000
     
26,000
     
9
%
Total revenues
 
$
5,318,000
   
$
5,355,000
   
$
(37,000
)
   
-1
%

Rental revenue

On January 1, 2020 the operating lease of MVP PF Memphis Poplar 2013, LLC (“MVP Memphis Poplar”) by Premium Parking was terminated.  According to the terms of the termination agreement a termination fee of $144,000 is due from Premium Parking to MVP Memphis Poplar. This fee will be paid monthly in the amount of $3,000 commencing March 1, 2020 and continuing through February 1, 2024.

Upon the termination of the operating lease MVP Memphis Poplar entered into a Modified NNN lease agreement with Best Park Tennessee, LLC (“Best Park”).  The term of the lease is 50 months.  Best Park will pay annual rent of $270,000.  In addition, the lease provides percentage rent with MVP Memphis Poplar receiving 65% of gross receipts over $370,000 per lease year.  The tenant is responsible for paying property taxes.

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

During the three months ended March 31, 2020 and 2019 the Company received percentage rent on the following properties:

   
For the Three Months Ended March 31
 
   
2020
   
2019
   
$ Change
   
% Change
 
Percentage rent income
                       
MVP Ft Worth Taylor (a)
  $
94,000
    $
8,000
    $
86,000
     
1075
%
MVP Milwaukee Arena
   
31,000
     
30,000
     
1,000
     
3
%
MVP Denver 1935 Sherman
   
--
     
9,000
     
(9,000
)
   
(100
%)
MVP Detroit Center Garage (b)
   
153,000
     
216,000
     
(63,000
)
   
(29
%)
MVP St. Louis Broadway
   
5,000
     
--
     
5,000
     
100
%
MVP New Orleans Rampart
   
44,000
     
38,000
     
6,000
     
16
%
 Total revenues
 
$
327,000
   
$
301,000
   
$
26,000
     
9
%
a)
Increased activity due to Frost Tower and additional monthlies added, caused the increase for the last quarter
b)
Lost transient business in March of 2020 as a result of restrictions intended to slow the spread of COVID-19.

   
For the Three Months Ended March 31,
 
   
2020
   
2019
   
$ Change
   
% Change
 
Operating expenses
                       
Property taxes
 
$
665,000
   
$
793,000
   
$
(128,000
)
   
(16
%)
Property operating expense
   
386,000
     
379,000
     
7,000
     
2
%
Asset management expense – related party
   
--
     
854,000
     
(854,000
)
   
(100
%)
General and administrative
   
1,653,000
     
850,000
     
803,000
     
94
%
Professional fees
   
316,000
     
666,000
     
(350,000
)
   
(53
%)
Acquisition expenses
   
3,000
     
4,000
     
(1,000
)
   
(25
%)
Depreciation and amortization expenses
   
1,322,000
     
1,308,000
     
14,000
     
1
%
Total operating expenses
   
4,345,000
     
4,854,000
     
509,000
     
10
%
Income from operations
 
$
973,000
   
$
501,000
   
$
472,000
     
94
%

The Company is continuing to monitor the potential impact of the COVID-19 pandemic and restrictions intended to prevent its spread on rental rates and rent collections. As of May 13, 2020, the Company has entered into lease amendments with eight tenants. The terms of such lease amendments generally provide for one of (i) a reduction in rent for a period of four to seven months, (ii) conversion of the lease to a management agreement pursuant to which the operator will receive a monthly fee; or (iii) extension of the lease.  Although the Company is and will continue to be actively engaged in rent collection efforts related to uncollected rent for such period, as well as working with certain tenants who have requested rent relief, the Company can provide no assurance that such efforts or its efforts in future periods will be successful, particularly in the event that the COVID-19 pandemic and restrictions intended to prevent its spread continue for a prolonged period. For further information regarding the impact of COVID-19 on the Company, see Note R — Subsequent Events in Part I, Item 1 Financial Statements and Part II, Item 1A titled “Risk Factors.”

For more information on the effect of COVID-19 on our business, see Part II, Item 1A titled “Risk Factors.” and Note R — Subsequent Events in Part I, Item 1 Financial Statements.

Property taxes

The decrease in property taxes in 2020 compared to 2019 is attributable primarily to the decrease in the number of properties remaining in the portfolio.


Asset management expense – related party

The decrease in asset management expense is due to the Internalization, as a result of which the Company no longer incurred an asset management expense beginning April 1, 2019.

See Note E — Related Party Transactions and Arrangements in Part I, Item 1 Notes to the Condensed Consolidated Financial Statements of this Quarterly Report for additional information.

General and administrative

The increase in general and administrative expenses from 2019 to 2020 was attributable to an increase in payroll expenses.  This increase is due to the Internalization, as the Company is now responsible for additional expenses previously paid by the former Advisor.

Professional fees

The decrease in professional fees was primarily due to $1.5 million of insurance proceeds received for claims made against the D&O policy.  These reimbursements were related to legal expenses incurred relating to lawsuits filed in 2019 and the SEC investigation, which was initiated in June of 2019.

See Note N – Legal in Part I, Item 1 Notes to the Condensed Consolidated Financial Statements of this Quarterly Report for additional information.

Acquisition expenses

Acquisition expenses related to purchased properties are capitalized with the investment in real estate. Acquisition expenses incurred during the three months ended March 31, 2020 and 2019 relate solely to dead deals.

Depreciation and amortization expenses

The increase in depreciation and amortization expenses was due to assets placed in service following the completion of construction projects or general improvements on properties already held.

   
For the Three Months Ended March 31
 
   
2020
   
2019
   
$ Change
   
% Change
 
Other income (expense)
                       
Interest expense
 
$
(2,329,000
)
 
$
(2,356,000
)
 
$
27,000
     
1
%
Other income
   
151,000
     
31,000
     
120,000
     
387
%
Income from DST
   
50,000
     
70,000
     
(20,000
)
   
(29
%)
Total other expense
 
$
(2,128,000
)
 
$
(2,255,000
)
 
$
127,000