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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended June 30, 2024

 

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 000-54047

 

LIGHTSTONE VALUE PLUS REIT II, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Maryland   83-0511223

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

1985 Cedar Bridge Avenue, Suite 1
Lakewood, New Jersey		   08701
(Address of Principal Executive Offices)   (Zip Code)

 

(732) 367-0129

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

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

Yes ☑   No ☐

 

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

Yes ☑   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 ☑ Smaller reporting company ☑
    Emerging growth company ☐

 

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

Yes ☐   No ☑

 

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. ☐

 

As of August 7, 2024, there were approximately 16.1 million outstanding shares of common stock of Lightstone Value Plus REIT II, Inc., including shares issued pursuant to the distribution reinvestment plan.

 

 

 

 

 

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

 

INDEX

 

        Page
PART I   FINANCIAL INFORMATION    
         
Item 1.   Financial Statements (unaudited)   1
         
    Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023   1
         
    Consolidated Statements of Operations for the Three and Six Months ended June 30, 2024 and 2023   2
         
    Consolidated Statements of Comprehensive Income for the Three and Six Months ended June 30, 2024 and 2023   3
         
    Consolidated Statements of Stockholders’ Equity for the Three and Six Months ended June 30, 2024 and 2023   4
         
    Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023   5
         
    Notes to Consolidated Financial Statements   6
         
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   21
         
Item 4.   Controls and Procedures   40
         
PART II   OTHER INFORMATION    
         
Item 1.   Legal Proceedings   41
         
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   41
         
Item 3.   Defaults Upon Senior Securities   41
         
Item 4.   Mine Safety Disclosures   41
         
Item 5.   Other Information   41
         
Item 6.   Exhibits   42

 

i

 

 

PART I. FINANCIAL INFORMATION:

 

ITEM 1. FINANCIAL STATEMENTS:

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except per share data and where indicated in millions)

 

                 
    June 30,
2024		     December 31,
2023		  
    (unaudited)        
Assets                
                 
Investment property:                
Land and improvements   $ 26,155     $ 26,152  
Building and improvements     146,348       146,129  
Furniture and fixtures     28,997       28,883  
Construction in progress     169       128  
Gross investment property     201,669       201,292  
Less accumulated depreciation     (61,449 )     (58,490 )
Net investment property     140,220       142,802  
                 
Investments in unconsolidated affiliated entities     12,363       13,415  
Cash and cash equivalents     29,783       36,192  
Marketable securities, available for sale     9,582       9,287  
Restricted cash     4,736       4,549  
Accounts receivable and other assets     4,436       3,194  
Total Assets   $ 201,120     $ 209,439  
                 
Liabilities and Stockholders’ Equity                
                 
Accounts payable and other accrued expenses   $ 8,299     $ 6,871  
Mortgages payable, net     101,001       100,820  
Distributions payable     1,212       1,275  
Due to related party     371       360  
Total liabilities     110,883       109,326  
                 
Commitments and contingencies                
                 
Stockholders’ Equity:                
Company’s stockholders’ equity:                
Preferred shares, $0.01 par value, 10.0 million shares authorized, none issued and outstanding     -       -  
Common stock, $0.01 par value, 100.0 million shares authorized, 16.2 million and 17.0 million shares issued and outstanding, respectively     161       169  
Additional paid-in-capital     137,940       143,219  
Accumulated deficit     (58,868 )     (54,284 )
Total Company stockholders’ equity     79,233       89,104  
                 
Noncontrolling interests     11,004       11,009  
Total Stockholders’ Equity     90,237       100,113  
Total Liabilities and Stockholders’ Equity   $ 201,120     $ 209,439  

 

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

 

1

 

 

PART I. FINANCIAL INFORMATION, CONTINUED:

 

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(unaudited)

 

                                 
    For the
Three Months Ended
June 30,		     For the
Six Months Ended
June 30,		  
    2024     2023     2024     2023  
Revenues   $ 13,935     $ 15,345     $ 24,583     $ 29,328  
                                 
Expenses:                                
Property operating expenses     8,790       10,559       16,838       20,513  
Real estate taxes     561       672       1,217       1,136  
General and administrative costs     1,082       1,246       2,084       2,438  
Depreciation and amortization     1,479       1,809       2,969       3,669  
Impairment charge     -       5,000       -       5,000  
Total expenses     11,912       19,286       23,108       32,756  
                                 
Interest expense     (2,355 )     (2,544 )     (4,713 )     (4,918 )
(Loss)/gain on sale of investment property     -       (3 )     -       339  
Earnings from investments in unconsolidated affiliated entities     58       (30 )     (234 )     (294 )
Other income/(expense), net     733       (723 )     1,330       (796 )
                                 
Net income/(loss)     459       (7,241 )     (2,142 )     (9,097 )
                                 
Less: net (income)/loss attributable to noncontrolling interests     (41 )     118       6       159  
                                 
Net income/(loss) applicable to Company’s common shares   $ 418     $ (7,123 )   $ (2,136 )   $ (8,938 )
                                 
Net income /(loss) per Company’s common share, basic and diluted   $ 0.03     $ (0.42 )   $ (0.13 )   $ (0.52 )
                                 
Weighted average number of common shares outstanding, basic and diluted     16,428       17,112       16,586       17,135  

 

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

 

2

 

 

PART I. FINANCIAL INFORMATION, CONTINUED:

 

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(unaudited)

 

                                 
    For the
Three Months Ended
June 30,		     For the
Six Months Ended
June 30,		  
    2024     2023     2024     2023  
Net income/(loss)   $ 459     $ (7,241 )   $ (2,142 )   $ (9,097 )
                                 
Other comprehensive loss:                                
Holding loss on marketable securities, available for sale     -       -        -       (7 )
Comprehensive income/(loss)     459       (7,241 )     (2,142 )     (9,104 )
                                 
Less: Comprehensive (income)/loss attributable to noncontrolling interests     (41 )     118       6       159  
                                 
Comprehensive income/(loss) attributable to the Company’s common shares   $ 418     $ (7,123 )   $ (2,136 )   $ (8,945 )

 

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

 

3

 

 

PART I. FINANCIAL INFORMATION, CONTINUED:

 

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Amounts in thousands)

(unaudited)

 

                                                         
    Common Stock     Additional
Paid-In		     Accumulated
Other
Comprehensive		     Accumulated     Noncontrolling     Total
Stockholders’		  
    Shares     Amount     Capital     Income     Deficit     Interests     Equity  
BALANCE, March 31, 2023     17,154     $ 171     $ 144,798     $ -     $ (40,763 )   $ 11,300     $ 115,506  
                                                         
Net loss     -       -       -       -       (7,123 )     (118 )     (7,241 )
Distributions declared(a)     -       -       -       -       (1,281 )     -       (1,281 )
Redemption and cancellation of shares     (58 )     (1 )     (588 )     -       -       -       (589 )
                                                         
BALANCE, June 30, 2023     17,096     $ 170     $ 144,210     $ -     $ (49,167 )   $ 11,182     $ 106,395  

 

 
(a) Distributions per share were $0.075.

 

                                                         
    Common Stock     Additional
Paid-In		     Accumulated
Other
Comprehensive		     Accumulated     Noncontrolling     Total
Stockholders’		  
    Shares     Amount     Capital     Income     Deficit     Interests     Equity  
BALANCE, December 31, 2022     17,172     $ 171     $ 144,971     $ 7     $ (37,663 )   $ 11,337     $ 118,823  
                                                         
Net loss     -       -       -       -       (8,938 )     (159 )     (9,097 )
Other comprehensive loss     -       -       -       (7 )     -       -       (7 )
Distributions declared(a)     -       -       -       -       (2,566 )     -       (2,566 )
Contributions of noncontrolling interests     -       -       -       -       -       4       4  
Redemption and cancellation of shares     (76 )     (1 )     (761 )     -       -       -       (762 )
                                                         
BALANCE, June 30, 2023     17,096     $ 170     $ 144,210     $ -     $ (49,167 )   $ 11,182     $ 106,395  

 

 
(a) Distributions per share were $0.150.

 

                                                 
    Common Stock     Additional
Paid-In		     Accumulated     Noncontrolling     Total
Stockholders’		  
    Shares     Amount     Capital     Deficit     Interests     Equity  
BALANCE, March 31, 2024     16,482     $ 164     $ 140,099     $ (58,074 )   $ 10,966     $ 93,155  
                                                 
Net income     -       -       -       418       41       459  
Distributions declared(a)     -       -       -       (1,212 )     -       (1,212 )
Contributions of noncontrolling interests     -       -       -       -       5       5  
Distributions from noncontrolling interests     -       -       -       -       (8 )     (8 )
Tender, redemption and cancellation of shares     (318 )     (3 )     (2,159 )     -       -       (2,162 )
                                                 
BALANCE, June 30, 2024     16,164     $ 161     $ 137,940     $ (58,868 )   $ 11,004     $ 90,237  

 

 
(a) Distributions per share were $0.075.

 

    Common Stock     Additional
Paid-In		     Accumulated     Noncontrolling     Total
Stockholders’		  
    Shares     Amount     Capital     Deficit     Interests     Equity  
BALANCE, December 31, 2023     17,002     $ 169     $ 143,219     $ (54,284 )   $ 11,009     $ 100,113  
                                                 
Net loss     -       -       -       (2,136 )     (6 )     (2,142 )
Distributions declared(a)     -       -       -       (2,448 )     -       (2,448 )
Contributions of noncontrolling interests     -       -       -       -       9       9  
Distributions from noncontrolling interests     -       -       -       -       (8 )     (8 )
Tender, redemption and cancellation of shares     (838 )     (8 )     (5,279 )     -       -       (5,287 )
                                                 
BALANCE, June 30, 2024     16,164     $ 161     $ 137,940     $ (58,868 )   $ 11,004     $ 90,237  

 

 
(a) Distributions per share were $0.150.

 

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

 

4

 

 

PART I. FINANCIAL INFORMATION, CONTINUED:

 

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(unaudited)

 

                 
    For the
Six Months Ended
June 30,		  
    2024     2023  
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (2,142 )   $ (9,097 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     2,969       3,669  
Impairment charge     -        5,000  
Amortization of deferred financing costs     181       203  
Loss from investments in unconsolidated affiliated entities     234       294  
Other non-cash adjustments     (148 )     (21 )
Changes in assets and liabilities:                
Increase in accounts receivable and other assets     (1,296 )     (572 )
Decrease in accounts payable and other accrued expenses     (144 )     (61 )
Increase/(decrease) in due to related party     11       (6 )
Net cash used in operating activities     (335 )     (591 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchase of investment property     (377 )     (646 )
Proceeds from the sale of marketable securities     1,000       2,957  
Purchases of marketable securities     (1,116 )     (7,878 )
Contributions to unconsolidated affiliated entities     (74 )     (445 )
Distributions from unconsolidated affiliated entities     892       219  
Net cash provided by/(used in) investing activities     325       (5,793 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Payment of loan fees and expenses     -       (140 )
Tender, redemption and cancellation of common shares     (3,702 )     (762 )
Contributions of noncontrolling interests     9       4  
Distributions paid to common stockholders     (2,511 )     (1,285 )
Distributions paid to noncontrolling interests     (8 )     -  
Net cash used in financing activities     (6,212 )     (2,183 )
                 
Change in cash, cash equivalents and restricted cash     (6,222 )     (8,567 )
Cash, cash equivalents and restricted cash, beginning of year     40,741       42,566  
Cash, cash equivalents and restricted cash, end of period   $ 34,519     $ 33,999  
                 
Supplemental cash flow information for the periods indicated is as follows:                
Cash paid for interest   $ 4,557     $ 4,615  
Cash paid for taxes   $ 184     $ 1,395  
Distributions declared but not paid   $ 1,212     $ 1,281  
Tender of common shares included in accounts payable and other liabilities   $ 1,585     $ -  
Holding loss on marketable securities, available for sale   $ -     $ 7  
                 
The following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in our statements of cash flows for the periods presented:                
Cash and cash equivalents   $ 29,783     $ 33,585  
Restricted cash     4,736       414  
Total cash, cash equivalents and restricted cash   $ 34,519     $ 33,999  

 

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

 

5

 

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

(Unaudited)

 

1.

Business and Structure

 

Lightstone Value Plus REIT II, Inc. (“Lightstone REIT II”), is a Maryland corporation formed on April 28, 2008, which elected to qualify as a real estate investment trust (“REIT”) for United States (the “U.S.”) federal income tax purposes beginning with the taxable year ended December 31, 2009.

 

Lightstone REIT II is structured as an umbrella partnership REIT, or UPREIT, and substantially all of its current and future business will be conducted through Lightstone Value Plus REIT II LP, a Delaware limited partnership (the “Operating Partnership”). As of June 30, 2024, Lightstone REIT II held an approximately 99% general partnership interest in the Operating Partnership’s common units.

 

Lightstone REIT II and the Operating Partnership and its subsidiaries are collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns in these consolidated financial statements refers to Lightstone REIT II, its Operating Partnership or the Company as required by the context in which such pronoun is used.

 

Through the Operating Partnership, the Company owns and operates commercial properties and makes real estate-related investments. Since its inception, the Company has primarily acquired and operated commercial hospitality properties, principally consisting of limited service-hotels all located in the U.S. Although the Company has historically acquired hotels, it has and may continue to purchase other types of real estate. Assets other than hotels may include, without limitation, office buildings, shopping centers, business and industrial parks, manufacturing facilities, single-tenant properties, multifamily properties, student housing properties, warehouses and distribution facilities and medical/life sciences office buildings. The Company’s real estate investments are held by it alone or jointly with other parties. In addition, the Company may invest up to 20% of its net assets in collateralized debt obligations, commercial mortgage-backed securities (“CMBS”) and mortgage and mezzanine loans secured, directly or indirectly, by the same types of properties which it may acquire directly. Although most of its investments are these types, the Company may invest in whatever types of real estate or real estate-related investments that it believes are in its best interests. The Company evaluates all of its real estate investments as one operating segment. The Company currently intends to hold its investments until such time as it determines that a sale or other disposition appears to be advantageous to achieve its investment objectives or until it appears that the objectives will not be met.

 

As of June 30, 2024, the Company (i) majority owned and consolidated the operating results and financial condition of 10 limited service hotels containing a total of 1,352 rooms, (ii) held an unconsolidated 48.6% membership interest in Brownmill, LLC (the “Brownmill Joint Venture”), an affiliated entity that owns two retail properties, and (iii) held an unconsolidated 50% membership interest in LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”), an affiliated real estate entity that owns one hotel. The Company accounts for its membership interests in the Brownmill Joint Venture and the Hilton Garden Inn Joint Venture under the equity method of accounting.

 

The Brownmill Joint Venture owns Browntown Shopping Center, located in Old Bridge, New Jersey, and Millburn Mall, located in Vauxhaull, New Jersey. The Hilton Garden Inn Joint Venture owns a 183-room, limited service hotel (the “Hilton Garden Inn – Long Island City) located in the Long Island City neighborhood in the Queens borough of New York City. Both the Brownmill Joint Venture and the Hilton Garden Inn Joint Venture are between the Company and related parties.

 

6

 

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

(Unaudited)

 

As of June 30, 2024, five of the Company’s consolidated limited service hotels are held in LVP Holdco JV LLC (the “Hotel Joint Venture”), a joint venture formed between the Company and Lightstone Value Plus REIT I, Inc. (“Lightstone REIT I”), a related party REIT also sponsored by The Lightstone Group, LLC (the “Sponsor”). The Company and Lightstone REIT I have 97.5% and 2.5% membership interests in the Hotel Joint Venture, respectively. Additionally, as of June 30, 2024, one of the Company’s consolidated hotels also has ownership interests held by unrelated minority owners. The membership interests of Lightstone REIT I and the unrelated minority owners are accounted for as noncontrolling interests.

 

The Company’s advisor is Lightstone Value Plus REIT II LLC (the “Advisor”), which is majority owned by David Lichtenstein. On May 20, 2008, the Advisor contributed $2 to the Operating Partnership in exchange for 200 limited partner common units in the Operating Partnership. The Advisor also owns 20,000 shares of the Company’s common stock (“Common Shares”) which were issued on May 20, 2008 for $200, or $10.00 per share. Mr. Lichtenstein also is a majority owner of the equity interests of the Sponsor, which served as the Company’s sponsor during its initial public offering and follow-on offering (collectively, “the Offerings”), which terminated on August 15, 2012 and September 27, 2014, respectively. The Advisor, pursuant to the terms of an advisory agreement, together with the Company’s board of directors (the “Board of Directors”), is primarily responsible for making investment decisions on behalf of the Company and managing its day-to-day operations.

 

Through his ownership and control of the Sponsor, Mr. Lichtenstein is the indirect owner and manager of Lightstone SLP II LLC, a Delaware limited liability company (the “Associate General Partner”), which owns 177 subordinated profits interests (“Subordinated Profits Interests”) in the Operating Partnership, which were acquired, at a cost of $100,000 per unit, or aggregate consideration of $17.7 million in connection with the Company’s Offerings. Mr. Lichtenstein also acts as the Company’s Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT II or the Operating Partnership.

 

The Company has no employees. The Company is dependent on the Advisor and certain affiliates of the Sponsor for performing a full range of services that are essential to it, including asset management, property management (excluding our hospitality properties, which are each managed by an unrelated third party property manager) and acquisition, disposition and financing activities, and other general administrative responsibilities, such as tax, accounting, legal, information technology and investor relations services. If the Advisor and certain affiliates of the Sponsor are unable to provide these services to the Company, it would be required to provide the services itself or obtain the services from other parties.

 

The Company’s Common Shares are not currently listed on a national securities exchange. The Company may seek to list its Common Shares for trading on a national securities exchange only if a majority of its independent directors believe listing would be in the best interest of its stockholders. The Company does not intend to list its shares at this time. The Company does not anticipate that there would be any active market for its Common Shares until they are listed for trading.

 

Noncontrolling Interests –

 

Partners of the Operating Partnership

 

Limited Partner

 

On May 20, 2008, the Advisor contributed $2 to the Operating Partnership in exchange for 200 limited partner common units in the Operating Partnership. The Advisor has the right to convert its limited partner common units into cash or, at the Company’s option, an equal number of Common Shares.

 

7

 

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

(Unaudited)

 

Associate General Partner

 

In connection with the Company’s Offerings, the Sponsor and its wholly owned subsidiary, Lightstone Holdings LLC (“LGH”), contributed (i) cash of $12.9 million and (ii) equity interests totaling 48.6% in the Brownmill Joint Venture, which were valued at $4.8 million, to the Operating Partnership in exchange for it issuing 177 Subordinated Profits Interests in the Operating Partnership to the Associate General Partner at a cost of $100,000 per unit, with an aggregate value of $17.7 million.

 

As the indirect majority owner of the Associate General Partner, Mr. Lichtenstein is the beneficial owner of a 99% interest in such Subordinated Profits Interests and thus receives an indirect benefit from any distributions made in respect thereof.

 

These Subordinated Profits Interests may entitle the Associate General Partner to a portion of any regular distributions that the Company makes to its stockholders, but only after its stockholders have received a stated preferred return. However, there have been no distributions declared on the Subordinated Profits Interests for any periods after December 31, 2019. Since the Company’s inception through June 30, 2024, the cumulative distributions declared and paid on the Subordinated Profits Interests were $7.9 million. Any future distributions on the Subordinated Profits Interests will always be subordinated until stockholders receive a stated preferred return.

 

The Subordinated Profits Interests may also entitle the Associate General Partner to a portion of any liquidating distributions made by the Operating Partnership. The value of such distributions will depend upon the net proceeds available for distribution upon the liquidation of the Company and, therefore, cannot be determined at the present time. Liquidating distributions to the Associate General Partner will always be subordinated until stockholders receive a distribution equal to their initial investment plus a stated preferred return.

 

Other Noncontrolling Interests in Consolidated Subsidiaries

 

Other noncontrolling interests consist of the (i) membership interest in the Joint Venture held by Lightstone REIT I and (ii) membership interests held by minority owners in one of the Company’s hotels.

 

Related Parties

 

The Company’s Sponsor, Advisor and their affiliates, including the Associate General Partner and LGH, are related parties of the Company as well as the other public REITs also sponsored and/or advised by these entities. Pursuant to the terms of various agreements, certain of these entities are entitled to compensation and reimbursement for services and costs incurred related to the investment, development, management and disposition of the Company’s assets. The compensation is generally based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements.

 

2. Summary of Significant Accounting Policies

 

Principles of Consolidation and Basis of Presentation

 

The consolidated financial statements include the accounts of Lightstone REIT II and its Operating Partnership and its subsidiaries, over which the Company exercises financial and operating control. As of June 30, 2024, Lightstone REIT II had a 99% general partnership interest in the common units of the Operating Partnership. All inter-company balances and transactions have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on accounting principles generally accepted in the U.S. (“GAAP”), and entities deemed to be variable interest entities (“VIE”) in which the Company is the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which the Company has control, substantive participating rights or both under the respective ownership agreement. For entities in which the Company has less than a controlling interest or entities which it is not deemed to be the primary beneficiary, it accounts for the investment using the equity method of accounting.

 

8

 

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

(Unaudited)

 

The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of the Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Form 10-K”). The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair statement of the results for the periods presented. The accompanying unaudited consolidated financial statements of the Lightstone Value Plus REIT II, Inc. and Subsidiaries have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

 

GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of investment properties and investments in other unconsolidated real estate entities and depreciable lives of long-lived assets. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.

 

The consolidated balance sheet as of December 31, 2023 included herein has been derived from the consolidated balance sheet included in the Company’s 2023 Form 10-K for the fiscal year ended December 31, 2023.

 

The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.

 

Tax Status and Income Taxes

 

The Company elected to be taxed and qualify as a REIT commencing with the taxable year ended December 31, 2009. As a REIT, the Company generally will not be subject to U.S. federal income tax on its net taxable income that it distributes currently to its stockholders. To maintain its REIT qualification under the Internal Revenue Code of 1986, as amended, or the Code, the Company must meet a number of organizational and operational requirements, including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed at regular corporate rates, and it may be precluded from qualifying for treatment as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders. Additionally, even if the Company continues to qualify as a REIT for U.S. federal income tax purposes, it may still be subject to some U.S. federal, state and local taxes on its income and property and to U.S. federal income taxes and excise taxes on its undistributed income, if any.

 

To maintain its qualification as a REIT, the Company engages in certain activities through a taxable REIT subsidiary (“TRS”), including when it acquires a hotel it usually establishes a new TRS and enters into an operating lease agreement for the hotel. As such, the Company is subject to U.S. federal and state income taxes and franchise taxes from these activities.

 

The Company’s income tax benefit and expense are included in other income/(expense), net on its consolidated statements of operations. During the three and six months ended June 30, 2024, the Company recorded an income tax benefit of $0.2 million and $0.1 million, respectively. During the three and six months ended June 30, 2023, the Company recorded income tax expense of $1.2 million and $1.4 million, respectively.

 

As of June 30, 2024 and December 31, 2023, the Company had no material uncertain income tax positions.

 

9

 

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

(Unaudited)

 

Revenues

 

The following table represents the total revenues from hotel operations on a disaggregated basis:

 

Schedule of total revenues from hotel operations on a disaggregated basis                                
    For the
Three Months Ended
June 30,		    

For the
Six Months Ended

June 30,

  
Revenues   2024     2023     2024     2023  
Room   $ 13,123     $ 14,548     $ 23,070     $ 27,873  
Food, beverage and other     812       797       1,513       1,455  
Total revenues   $ 13,935     $ 15,345     $ 24,583     $ 29,328  

 

New Accounting Pronouncements

 

In November 2023, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The amendments will require entities to disclose significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within segment profit and loss, as well as the title and position of the CODM. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is evaluating the guidance and the impact it may have on its consolidated financial statements.

 

In December 2023, the FASB issued an accounting standards update which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. This update is effective for annual periods beginning after December 15, 2024. The Company is evaluating the guidance and the impact it may have on its consolidated financial statements.

 

The Company has reviewed and determined that other recently issued accounting pronouncements will not have a material impact on its financial position, results of operations and cash flows, or do not apply to its current operations.

 

Concentration of Risk

 

As of June 30, 2024 and December 31, 2023, the Company had cash deposited in certain financial institutions in excess of U.S. federally insured levels. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk with respect to its cash and cash equivalents or restricted cash.

 

Current Environment

 

The Company’s operating results and financial condition are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, its business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility and banking failures, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, inflation and recession.

 

The Company’s overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation, higher interest rates, labor and supply chain challenges and other changes in economic conditions could adversely affect the Company’s future results of operations and financial condition.

 

10

 

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

(Unaudited)

 

3. Disposition Activities

 

Impairment Charge and Disposition of Florida Hotels

 

On May 8, 2023, the Hotel Joint Venture, which the Company majority owns and consolidates, through its subsidiaries (collectively, the “Sellers”), and Vista Acquisitions Inc. (the “Florida Hotels Buyer”), an unaffiliated third party, entered into a purchase and sale agreement, as amended, (the “Florida Hotels Agreement”) pursuant to which the Sellers would dispose of (i) a 126-room limited service hotel located in Miami, Florida (the “Hampton Inn - Miami”), and (ii) a 104-room limited service hotel located in Fort Lauderdale, Florida (the “Hampton Inn & Suites - Fort Lauderdale” and collectively, the “Florida Hotels”) to the Florida Hotels Buyer for an aggregate contractual sales price of $28.0 million.

 

The Company recognized a non-cash impairment charge of $5.0 million during the second quarter of 2023 to reduce the carrying value of the Florida Hotels to their fair value less estimated costs to sell of $27.1 million.

 

On July 18, 2023 and July 21, 2023, the Sellers completed the disposition of the Florida Hotels to the Florida Hotels Buyer pursuant to the terms of the Florida Hotels Agreement. In connection with these transactions, the Sellers used an aggregate of $16.7 million of the net proceeds to make required principal paydowns on a nonrecourse revolving loan (the “Revolving Loan”) in order for the Florida Hotels to be released from its pledged collateral pool. The Hotel Joint Venture’s net proceeds from the disposition of the Florida Hotels were $10.3 million (of which the Company’s share was $10.0 million and Lightstone REIT I’s share was $0.3 million) after the aforementioned principal paydowns, pro rations, and closing and other related transaction costs. In connection with the disposition of the Florida Hotels, the Company recognized a gain on the sale of investment property of $0.1 million during the third quarter of 2023.

 

The Company also recognized a gain on the sale of investment property of $0.3 million during the first quarter of 2023 related to one of its hotels which was previously sold in 2017.

 

4.

Investments in Unconsolidated Affiliated Entities

 

The entities listed below are partially owned by the Company. The Company accounts for these investments under the equity method of accounting as the Company exercises significant influence, but does not exercise financial and operating control over these entities. A summary of the Company’s investments in the unconsolidated affiliated entities is as follows:

 

 Summary of investments in unconsolidated entities               As of  
Entity   Date of Ownership     Ownership %     June 30,
2024		     December 31,
2023		  
Brownmill Joint Venture   Various     48.6%     $ 3,855     $ 4,025  
Hilton Garden Inn Joint Venture   March 27, 2018     50.0%       8,508       9,390  
Total investments in unconsolidated affiliated real estate entities               $ 12,363     $ 13,415  

 

11

 

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

(Unaudited)

 

Brownmill Joint Venture

 

During 2010 through 2012, the Company entered into various contribution agreements with LGH, a wholly owned subsidiary of the Sponsor and a related party, pursuant to which LGH contributed to the Operating Partnership an aggregate 48.6% membership interest in the Brownmill Joint Venture in exchange for it issuing an aggregate of 48 units of Subordinated Profits Interests to the Associate General Partner at $100,000 per unit, with an aggregate total value of $4.8 million.

 

The Company’s 48.6% membership interest in the Brownmill Joint Venture is a non-managing interest. LGH is the majority owner and manager of the Brownmill Joint Venture. Profit and cash distributions are allocated in accordance with each investor’s ownership percentage. The Company accounts for its investment in the Brownmill Joint Venture in accordance with the equity method of accounting.

 

During the six months ended June 30, 2024 and 2023, the Company received distributions from the Brownmill Joint Venture of $0.3 million and $0.2 million, respectively.

 

Brownmill Joint Venture Financial Information

 

The Company’s carrying value of its interest in the Brownmill Joint Venture differs from its share of member’s equity reported in the condensed balance sheets of the Brownmill Joint Venture because the basis of the Company’s investment is in excess of the historical net book value of the Brownmill Joint Venture. The Company’s additional basis, which has been allocated to depreciable assets, is being recognized on a straight-line basis over the estimated useful lives of the appropriate assets.

 

The following table represents the condensed statements of operations for the Brownmill Joint Venture for the periods indicated:

 

 Schedule of condensed income statements                                
    For the
Three Months Ended
June 30,		     For the
Six Months Ended
June 30,		  
    2024     2023     2024     2023  
Revenue   $ 786     $ 972     $ 1,837     $ 1,941  
                                 
Property operating expenses     461       439       886       677  
Depreciation and amortization     186       188       373       374  
Operating income     139       345       578       890  
                                 
Interest expense and other, net     (147 )     (38 )     (297 )     (322 )
Net (loss)/income   $ (8 )   $ 307     $ 281     $ 568  
                                 
Company’s share of net (loss)/income   $ (4 )   $ 149     $ 136     $ 276  
Additional depreciation and amortization expense(1)     (20 )     (20 )     (41 )     (41 )
Company’s earnings from investment   $ (24 )   $ 129     $ 95     $ 235  

 

 
(1) Additional depreciation and amortization relates to the amortization of the difference between the cost of the interest in the Brownmill Joint Venture and the amount of the underlying equity in net assets of the Brownmill Joint Venture.

 

12

 

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

(Unaudited)

 

The following table represents the condensed balance sheets for the Brownmill Joint Venture as of the dates indicated:

 

Schedule of condensed balance sheets                
    As of     As of  
    June 30,
2024		     December 31,
2023		  
Investment property, net   $ 12,073     $ 12,423  
Cash and restricted cash     1,480       1,598  
Other assets     1,102       1,153  
Total assets   $ 14,655     $ 15,174  
                 
Mortgage payable   $ 12,938     $ 13,075  
Other liabilities     619       736  
Members’ capital     1,098       1,363  
Total liabilities and members’ capital   $ 14,655     $ 15,174  

 

Hilton Garden Inn Joint Venture

 

On March 27, 2018, the Company and Lightstone Value Plus REIT III, Inc. (“Lightstone REIT III”), a related party REIT also sponsored by the Company’s Sponsor, acquired, through the newly formed Hilton Garden Inn Joint Venture, the Hilton Garden Inn - Long Island City from an unrelated third party, for aggregate consideration of $60.0 million, which consisted of $25.0 million of cash and $35.0 million of proceeds from a non-recourse loan from a financial institution (the “Hilton Garden Inn Mortgage”), excluding closing and other related transaction costs. The Company paid $12.9 million for a 50% membership interest in the Hilton Garden Inn Joint Venture.

 

On May 31, 2023, the Hilton Garden Inn Mortgage was amended to provide for (i) an extension of the maturity date for an additional five years, (ii) the interest rate to be adjusted to SOFR plus 3.25%, subject to a 6.41% floor, (iii) interest-only payments for the first two years of its extended term with principal and interest payments pursuant to a 300-month amortization schedule thereafter and the remaining unpaid balance due in full at its maturity date of May 31, 2028, (iv) the ability to draw up to an additional $3.0 million of principal, subject to the satisfaction of certain conditions, and (v) certain changes to its financial covenants. Additionally, the Hilton Garden Inn Joint Venture is required to fund an aggregate of $1.3 million, through monthly payments of $37 from May 31, 2023 through June 1, 2026, into a cash collateral reserve account which may be drawn upon for specified capital expenditures.

 

The Company and Lightstone REIT III each have a 50% co-managing membership interest in the Hilton Garden Inn Joint Venture. The Company accounts for its membership interest in the Hilton Garden Inn Joint Venture in accordance with the equity method of accounting because it exerts significant influence over but does not control the Hilton Garden Inn Joint Venture. All capital contributions and distributions of earnings from the Hilton Garden Inn Joint Venture are made on a pro rata basis in proportion to each member’s equity interest percentage. Any distributions in excess of earnings from the Hilton Garden Inn Joint Venture are made to the members pursuant to the terms of the Hilton Garden Inn Joint Venture’s operating agreement.

 

During the six months ended June 30, 2024, the Company received distributions from the Hilton Garden Joint Venture of $0.6 million and made contributions of $0.1 million to the Hilton Garden Joint Venture. During the six months ended June 30, 2023, the Company made contributions of $0.4 million to the Hilton Garden Inn Joint Venture.

 

As of June 30, 2024, the Hilton Garden Inn Joint Venture was in compliance with all of its financial debt covenants.

 

13

 

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

(Unaudited)

 

Hilton Garden Inn Joint Venture Financial Information

 

The following table represents the condensed statements of operations for the Hilton Garden Inn Joint Venture for the periods indicated:

 

 Schedule of condensed income statements                                
    For the
Three Months Ended
June 30,
2024		     For the
Three Months Ended
June 30,
2023		     For the
Six Months Ended
June 30,
2024		     For the
Six Months Ended
June 30,
2023		  
Revenues   $ 3,473     $ 3,115     $ 5,775     $ 5,144  
                                 
Property operating expenses     1,992       1,907       3,803       3,414  
General and administrative costs     13       106       35       132  
Depreciation and amortization     598       596       1,206       1,205  
Operating income     870       506       731       393  
Interest expense     (705 )     (825 )     (1,389 )     (1,451 )
Net income/(loss)   $ 165     $ (319 )   $ (658 )   $ (1,058 )
Company’s share of earnings (50.00%)   $ 83     $ (159 )   $ (329 )   $ (529 )

 

The following table represents the condensed balance sheets for the Hilton Garden Inn Joint Venture as of the dates indicated:

 

Schedule of condensed balance sheets                
    As of
June 30,
2024		     As of
December 31,
2023		  
Investment property, net   $ 46,893     $ 48,001  
Cash     820       1,741  
Other assets     2,024       1,816  
Total assets   $ 49,737     $ 51,558  
                 
Mortgage payable, net   $ 32,280     $ 32,273  
Other liabilities     1,011       1,075  
Members’ capital     16,446       18,210  
Total liabilities and members’ capital   $ 49,737     $ 51,558  

 

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LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

(Unaudited)

 

5. Marketable Securities, Fair Value Measurements and Margin Loan

 

Marketable Securities

 

The following is a summary of the Company’s available for sale securities as of the dates indicated:

 

 Summary of available for sale securities                                
    As of June 30, 2024  
    Adjusted Cost    

Gross

Unrealized Gains

     Gross
Unrealized Losses		     Fair Value  
Marketable Securities:                                
                                 
Equity Securities   $ 8,554     $ 87     $ (175 )   $ 8,466  
Mutual Funds     1,116       -       -       1,116  
Total   $ 9,670     $ 87     $ (175 )   $ 9,582  

 

    As of December 31, 2023  
    Adjusted Cost     Gross
Unrealized Gains		     Gross
Unrealized Losses		     Fair Value  
Marketable Securities:                                
                                 
Equity Securities   $ 9,582     $ 37     $ (332 )   $ 9,287  

 

Fair Value Measurements

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

 

The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

 

  ● Level 1 – Quoted prices in active markets for identical assets or liabilities.
     
  ● Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
     
  ● Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

15

 

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

(Unaudited)

 

As of June 30, 2024 and December 31, 2023, the Company’s mutual funds were classified as Level 1 assets and its equity securities were classified as Level 2 assets. The fair values of the Company’s investments in mutual funds are measured using quoted prices in active markets for identical assets and its investments in equity securities are measured using readily available quoted prices for these securities; however, the markets for the equity securities are not active. There were no transfers between the level classifications during the three and six months ended June 30, 2024.

 

The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and other assets, accounts payable and other accrued expenses, distribution payable and due to related party approximated their fair values as of June 30, 2024 and December 31, 2023 because of the short maturity of these instruments.

 

As of June 30, 2024 and December 31, 2023, the estimated fair value our mortgages payable approximated their carrying values because they bear interest at a floating rate.

 

Margin loan

 

The Company has access to a margin loan from a financial institution that holds custody of certain of the Company’s marketable securities. The margin loan is collateralized by the marketable securities in the Company’s account. The amounts available to the Company under the margin loan are at the discretion of the financial institution and not limited to the amount of collateral in its account. No amounts were outstanding under this margin loan as of June 30, 2024 and December 31, 2023. Any borrowing under the margin loan bear interest at SOFR plus 0.85% (6.19% as of June 30, 2024).

 

6. Mortgage payable, net

 

Mortgage payable, net consisted of the following:

 

 Schedule of mortgages payable                                    
Description   Interest
Rate		   Weighted
Average
Interest Rate
as of
June 30,
2024		   Maturity
Date		   Amount Due
at Maturity		     As of
June 30,
2024		     As of
December 31,
2023		  
Revolving Credit Facility   SOFR + 3.45%
(floor of 6.45%)		   8.92%   September 2026   $ 101,818     $ 101,818     $ 101,818  
                                     
Total mortgage payable       8.92%       $ 101,818       101,818       101,818  
                                     
Less: Deferred financing costs                         (817 )     (998 )
                                     
Total mortgage payable, net                       $ 101,001     $ 100,820  

 

SOFR as of June 30, 2024 and December 31, 2023 was 5.34% and 5.35%, respectively.

 

16

 

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

(Unaudited)

 

Revolving Credit Facility

 

On October 23, 2023, the Company entered into a loan agreement with a financial institution providing for a non-recourse revolving credit facility (the “Revolving Credit Facility”) of up to $106.0 million. The Company received an initial advance of $101.8 million under the Revolving Credit Facility and designated 10 hotel properties as collateral. The Revolving Credit Facility bears interest at SOFR plus 3.45%, subject to a 6.45% floor, with an initial scheduled maturity of September 15, 2026, subject to two, one-year extension options at the sole discretion of the lender, and provides for monthly interest-only payments with the unpaid principal balance due at maturity. The Revolving Credit Facility provides for borrowings up to 65% of the loan-to-value ratio of properties designated as collateral and also requires the maintenance of certain covenants, including prescribed minimum debt service coverage and debt yield ratios which if not met may also be achieved through principal paydowns on the outstanding balance. In connection with entering into the Revolving Credit Facility, the Company deposited $4.0 million into a cash collateral reserve account.

 

If a principal paydown is deemed necessary to achieve compliance with respect to the financial debt covenants for any quarterly period, the lender may, if it so chooses, apply the necessary amount of the funds held in the cash collateral reserve account towards the required principal paydown. Additionally, if there are not sufficient funds held in the cash collateral reserve account to make the necessary principal paydown, the lender may, if it so chooses, require the Company to fund the shortfall.

 

As of June 30, 2024, the Company was in compliance with all of its financial debt covenants.

 

As of June 30, 2024, the outstanding principal balance of the Revolving Credit Facility was $101.8 million and its interest rate was 8.79%. Additionally, all 10 of the Company’s majority owned and consolidated hotel properties were pledged as collateral and no additional borrowings were available under the Revolving Credit Facility as of June 30, 2024.

 

Pursuant to the Company’s loan agreements, total escrows in the amount of $4.7 million and $4.5 million were held in restricted cash accounts as of June 30, 2024 and December 31, 2023, respectively. Such escrows, which include the $4.0 million held in the cash collateral reserve account, will be released in accordance with the applicable loan agreements for payments of real estate taxes, debt service payments, insurance and capital improvement transactions, as required.

 

7. Company’s Stockholder’s Equity

 

Distributions on Common Shares

 

On November 13, 2023, the Board of Directors authorized and the Company declared a Common Share distribution of $0.075 per share for the quarterly period ending December 31, 2023. The distribution is the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. The distribution of $1.3 million was paid on January 15, 2024 to stockholders of record at the close of business on December 31, 2023.

 

On March 18, 2024, the Board of Directors authorized and the Company declared a Common Share distribution of $0.075 per share for the quarterly period ending March 31, 2024. The distribution is the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. The distribution of $1.2 million was paid on April 15, 2024 to stockholders of record at the close of business on March 31, 2024.

 

On May 9, 2024, the Board of Directors authorized and the Company declared a Common Share distribution of $0.075 per share for the quarterly period ending June 30, 2024. The distribution is the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. The distribution of $1.2 million was paid on July 15, 2024 to stockholders of record at the close of business on June 30, 2024.

 

17

 

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

(Unaudited)

 

On August 9, 2024, the Board of Directors authorized and the Company declared a Common Share distribution of $0.075 per share for the quarterly period ending September 30, 2024. The distribution is the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. The distribution will be paid on or about the 15th day of the month following the quarter-end to stockholders of record at the close of business on the last day of the quarter end.

 

Future distributions declared, if any, will be at the discretion of the Board of Directors based on their analysis of the Company’s performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, revenues and other sources of income, operating and interest expenses and the Company’s ability to refinance near-term debt as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. The Company cannot assure that any future distributions will be made or that it will maintain any particular level of distributions that it has previously established or may establish.

 

Tender Offers

 

2024 Tender Offer

 

The Company commenced a tender offer on April 24, 2024, pursuant to which it offered to acquire up to 700,000 of its Common Shares at a purchase price of $6.00 per share, or $4.2 million in the aggregate (the “2024 Tender Offer”). Pursuant to the terms of the Tender Offer, which expired on June 14, 2024, the Company’s stock transfer agent initially funded on behalf of the Company the repurchase of 264,233 Common Shares for an aggregate cost of $1.6 million on June 28, 2024 and the Company subsequently reimbursed the stock transfer agent on July 1, 2024. Because the Company did not reimburse its stock transfer agent until July 1, 2024, the $1.6 million cost related to the 2024 Tender Offer is included in accounts payable and other accrued expenses on the Company’s consolidated balance sheet as of June 30, 2024.

 

2023 Tender Offer

 

The Company commenced a tender offer on November 28, 2023, pursuant to which it offered to acquire up to 860,000 of its Common Shares at a purchase price of $6.00 per share, or $5.2 million in the aggregate (the “2023 Tender Offer”). Pursuant to the terms of the Tender Offer, which expired on February 5, 2024, the Company repurchased 520,141 Common Shares for an aggregate cost of $3.1 million on February 16, 2024.

 

SRP

 

The Company’s share repurchase program (the “SRP”) may provide eligible stockholders with limited, interim liquidity by enabling them to sell their Common Shares back to the Company, subject to restrictions and applicable law.

 

On March 19, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of all redemptions.

 

Effective May 10, 2021, the Board of Directors reopened the SRP to allow, subject to various conditions as set forth below, for redemptions submitted in connection with a stockholder’s death or hardship and set the price for all such purchases to the Company’s current estimated net asset value per share of common stock, as determined by the Board of Directors and reported by the Company from time to time.

 

Deaths that occurred subsequent to January 1, 2020 were eligible for consideration, subject to certain conditions. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by the Company within one year of the stockholder’s date of death for consideration.

 

18

 

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

(Unaudited)

 

On the above noted date, the Board of Directors established that on an annual basis, the Company would not redeem in excess of 0.5% of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Additionally, redemption requests generally would be processed on a quarterly basis and would be subject to pro ration if either type of redemption requests exceeded the annual limitation.

 

In connection with the approval of the 2023 Tender Offer, on November 13, 2023, the Board of Directors approved the suspension of the SRP effective November 20, 2023. As a result of the termination of the 2023 Tender Offer on February 5, 2024, on March 18, 2024, the Board of Directors reinstated the SRP.

 

In connection with the approval of the 2024 Tender Offer, on April 17, 2024, the Board of Directors approved the suspension of the SRP effective April 17, 2024. As a result of the termination of the 2024 Tender Offer on June 14, 2024, on August 9, 2024, the Board of Directors reinstated the SRP.

 

For the six months ended June 30, 2024, the Company repurchased 53,805 Common Shares at a weighted average price per share of $9.84. For the six months ended June 30, 2023, the Company repurchased 76,461 Common Shares at a weighted average price per share of $9.96.

 

Earnings per Share

 

The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, earnings per share is calculated by dividing net income/loss attributable to common shareholders by the weighted-average number of Common Shares outstanding during the applicable period.

 

8. Related Parties

 

The Company’s Sponsor, Advisor and their affiliates, including the Associate General Partner and LGH, are related parties of the Company as well as other public REITs also sponsored and/or advised by these entities. Pursuant to the terms of various agreements, certain of these entities are entitled to compensation and reimbursement of costs incurred for services related to the investment, development, management and disposition of our assets. The compensation is generally based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements.

 

The following table represents the fees incurred associated with the payments to the Company’s Advisor for the periods indicated:

 

Schedule of fees to related parties                            
    For the
Three Months Ended
June 30,		     For the
Six Months Ended
June 30,		  
    2024     2023     2024     2023  
Asset management fees (general and administrative costs)   $ 564     $ 657     $ 1,127     $ 1,316  

 

The advisory agreement has a one year term and is renewable for an unlimited number of successive one year periods upon the mutual consent of the Advisor and the Company’s independent directors.

 

19

 

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

(Unaudited)

 

Subordinated Profits Interests

 

In connection with the Company’s Offerings, the Sponsor and its wholly owned subsidiary, LGH, contributed (i) cash of $12.9 million and (ii) equity interests totaling 48.6% in the Brownmill Joint Venture, which were valued at $4.8 million, to the Operating Partnership in exchange for it issuing 177 Subordinated Profits Interests in the Operating Partnership to the Associate General Partner at a cost of $100,000 per unit, with an aggregate value of $17.7 million.

 

These Subordinated Profits Interests may entitle the Associate General Partner to a portion of any regular distributions that the Company makes to its stockholders, but only after its stockholders have received a stated preferred return. However, there have been no distributions declared on the Subordinated Profits Interests for any periods after December 31, 2019. Since the Company’s inception through June 30, 2024, the cumulative distributions declared and paid on the Subordinated Profits Interests were $7.9 million. Any future distributions on the Subordinated Profits Interests will always be subordinated until stockholders receive a stated preferred return.

 

The Subordinated Profits Interests may also entitle the Associate General Partner to a portion of any liquidating distributions made by the Operating Partnership. The value of such distributions will depend upon the net proceeds available for distribution upon the liquidation of the Company and, therefore, cannot be determined at the present time. Liquidating distributions to the Associate General Partner will always be subordinated until stockholders receive a distribution equal to their initial investment plus a stated preferred return.

 

9. Commitments and Contingencies

 

Management Agreements

 

The Company’s hotels operate pursuant to management agreements (the “Management Agreements”) with various third-party property management companies. The property management companies perform management functions including, but not limited to, hiring and supervising employees, establishing room prices, establishing administrative policies and procedures, managing expenditures and arranging and supervising public relations and advertising. The Management Agreements are for terms up to 10 years however, the agreements can be cancelled for any reason by the Company after giving 60 days’ notice after the one-year anniversary of the commencement of the respective agreement.

 

The Management Agreements provide for the payment of a base management fee equal to 3% to 3.5% of gross revenues, as defined, and an incentive management fee based on the operating results of the hotel, as defined. The base management fee and incentive management fee, if any, are recorded as a component of property operating expenses in the consolidated statements of operations.

 

Franchise Agreements

 

As of June 30, 2024, the Company’s hotels operated pursuant to various franchise agreements. Under the franchise agreements, the Company generally pays a fee equal to 5% of gross room sales, as defined, and a marketing fund charge ranging from 1.5% to 3.5% of gross room sales. The franchise fees and marketing fund charges are recorded as a component of property operating expenses in the consolidated statements of operations.

 

The franchise agreements are generally for initial terms ranging from 15 years to 20 years, expiring between 2025 and 2037.

 

Legal Proceedings

 

From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.

 

As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

 

20

 

 

PART I. FINANCIAL INFORMATION, CONTINUED:

 

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

 

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Lightstone Value Plus REIT II, Inc. and Subsidiaries and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Lightstone Value Plus REIT II, Inc., a Maryland corporation, and, as required by context, Lightstone Value Plus REIT II LP and its wholly owned subsidiaries, which we collectively refer to as the “Operating Partnership”. Dollar amounts are presented in thousands, except per share data, revenue per available room (“RevPAR”), average daily rate (“ADR”), annualized revenue per square foot and where indicated in millions.

 

Forward-Looking Statements

 

Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include discussion and analysis of the financial condition of Lightstone Value Plus REIT II, Inc. and our subsidiaries (which may be referred to herein as the “Company,” “we,” “us” or “our”), including our ability to make accretive real estate or real estate-related investments, to rent space on favorable terms, to address our debt maturities and to fund our liquidity requirements, to sell our assets when we believe advantageous to achieve our investment objectives, to fund our anticipated capital expenditures, to meet the amount and timing of anticipated future cash distributions to our stockholders, to grow the estimated net asset value per share of our common stock (“NAV per Share”), and other matters. Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements.

 

These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors described below:

 

  ● market and economic challenges experienced by the United States (“U.S.”) and global economies or real estate industry as a whole and the local economic conditions in the markets in which our investments are located. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; such as inflation, recession, political upheaval or uncertainty, terrorism and acts of war, natural and man-made disasters, cybercrime, and outbreaks of contagious diseases;
     
  ● the availability of cash flow from operating activities for distributions, if required to maintain our status as a real estate investment trust (“REIT”);
     
  ● conflicts of interest arising out of our relationships with our advisor and its affiliates;
     
  ● our ability to retain our executive officers and other key individuals who provide advisory and property management services to us;
     
  ● our level of debt and the terms and limitations imposed on us by our debt agreements;
     
  ● the availability of credit generally, and any failure to obtain debt financing at favorable terms or a failure to satisfy the conditions and requirements of that debt;
     
  ● our ability to make accretive investments;

 

  ● our ability to diversify our portfolio of assets;

 

21

 

 

  ● changes in market factors that could impact our rental rates and operating costs;
     
  ● our ability to secure leases at favorable rental rates;
     
  ● our ability to sell our assets at a price and on a timeline consistent with our investment objectives;
     
  ● impairment charges;
     
  ● unfavorable changes in laws or regulations impacting our business, our assets or our key relationships; and
     
  ●

factors that could affect our ability to qualify as a real estate investment trust.

 

Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Quarterly Report on Form 10-Q, and may ultimately prove to be incorrect. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results, except as required by applicable law. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.

 

Cautionary Note

 

The representations, warranties, and covenants made by us in any agreement filed as an exhibit to this Quarterly Report on Form 10-Q are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties, or covenants to or with any other parties. Moreover, these representations, warranties, or covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.

 

Business and Structure

 

Lightstone Value Plus REIT II, Inc. (“Lightstone REIT II”), is a Maryland corporation formed on April 28, 2008, which elected to qualify as a REIT for U.S. federal income tax purposes beginning with the taxable year ending December 31, 2009.

 

Lightstone REIT II is structured as an umbrella partnership REIT (“UPREIT”), and substantially all of its current and future business is and will be conducted through Lightstone Value Plus REIT II LP (the “Operating Partnership”), a Delaware limited partnership formed on April 30, 2008. As of June 30, 2024, we held a 99% general partnership interest in our Operating Partnership’s common units.

 

Lightstone REIT II and the Operating Partnership and its subsidiaries are collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns in this Quarterly Report on Form 10-Q refers to Lightstone REIT II, its Operating Partnership or the Company as required by the context in which such pronoun is used.

 

Through the Operating Partnership, we own and operate commercial properties and make real estate-related investments. Since our inception, we have primarily acquired and operated commercial hospitality properties, principally consisting of limited service hotels all located in the U.S. However, our commercial holdings may also consist of full-service hotels, and to a lesser extent, retail (primarily multi-tenanted shopping centers), industrial and office properties. Our real estate investments are held by us alone or jointly with other parties. In addition, we may invest up to 20% of our net assets in collateralized debt obligations, commercial mortgage-backed securities (“CMBS”) and mortgage and mezzanine loans secured, directly or indirectly, by the same types of properties which we may acquire directly. Although most of our investments are these types, we may invest in whatever types of real estate or real estate-related investments that we believe are in our best interests. We evaluate all of our real estate investments as one operating segment. We currently intend to hold our investments until such time as we determine that a sale or other disposition appears to be advantageous to achieve our investment objectives or until it appears that the objectives will not be met.

 

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As of June 30, 2024, we (i) majority owned and consolidated the operating results and financial condition of 10 limited service hotels containing a total of 1,352 rooms, (ii) held an unconsolidated 48.6% membership interest in Brownmill, LLC (the “Brownmill Joint Venture”), an affiliated entity that owns two retail properties, and (iii) held an unconsolidated 50% membership interest in LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”), an affiliated real estate entity that owns and operates one hotel. We account for our membership interests in the Brownmill Joint Venture and the Hilton Garden Inn Joint Venture under the equity method of accounting.

 

The Brownmill Joint Venture owns Browntown Shopping Center, located in Old Bridge, New Jersey, and Millburn Mall, located in Vauxhaull, New Jersey. The Hilton Garden Inn Joint Venture owns a 183-room, limited service hotel (the “Hilton Garden Inn – Long Island City) located in the Long Island City neighborhood in the Queens borough of New York City. Both the Brownmill Joint Venture and the Hilton Garden Inn Joint Venture are between us and related parties.

 

As of June 30, 2024, five of our consolidated limited service hotels are held in LVP Holdco JV LLC (the “Hotel Joint Venture”), a joint venture formed between us and Lightstone Value Plus REIT I, Inc. (“Lightstone REIT I”), a related party REIT which is sponsored by The Lightstone Group, LLC (the “Sponsor”). We and Lightstone REIT I have 97.5% and 2.5% membership interests in the Hotel Joint Venture, respectively. Additionally, as of June 30, 2024, one of our consolidated hotels also has ownership interests held by unrelated minority owners. The membership interests of Lightstone REIT I and the unrelated minority owners are accounted for as noncontrolling interests.

 

Our advisor is Lightstone Value Plus REIT II LLC (the “Advisor”), which is majority owned by David Lichtenstein. On May 20, 2008, the Advisor contributed $2 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. Our Advisor also owns 20,000 shares of common stock (“Common Shares”) which were issued on May 20, 2008 for $200, or $10.00 per share. Mr. Lichtenstein also is the majority owner of the equity interests of the Sponsor, which also served as our sponsor during our initial public offering and follow-on offering (collectively, the “Offerings”), which terminated on August 15, 2012 and September 27, 2014, respectively. Our Advisor, pursuant to the terms of an advisory agreement, together with our board of directors (the “Board of Directors”), is primarily responsible for making investment decisions on our behalf and managing our day-to-day operations. Through his ownership and control of the Sponsor, Mr. Lichtenstein is the indirect owner and manager of Lightstone SLP II LLC, a Delaware limited liability company (the “Associate General Partner”), which owns 177 subordinated profits interests (“Subordinated Profits Interests”) in the Operating Partnership, which were acquired at a cost of $100,000 per unit, or aggregate consideration of $17.7 million in connection with our Offerings. Mr. Lichtenstein also acts as our Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT II or the Operating Partnership.

 

We have no employees. We are dependent on the Advisor and certain affiliates of our Sponsor for performing a full range of services that are essential to us, including asset management, property management (excluding our hospitality properties, each of which are managed by an unrelated third party property manager) and acquisition, disposition and financing activities, and other general administrative responsibilities; such as tax, accounting, legal, information technology and investor relations services. If the Advisor and certain affiliates of our Sponsor are unable to provide these services to us, we would be required to provide the services ourselves or obtain the services from other parties.

 

Our Common Shares are not currently listed on a national securities exchange. We may seek to list our Common Shares for trading on a national securities exchange only if a majority of our independent directors believe listing would be in the best interest of our stockholders. We do not intend to list our Common Shares at this time. We do not anticipate that there would be any active market for our Common Shares until they are listed for trading.

 

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Noncontrolling Interests – Partners of the Operating Partnership

 

Limited Partner

 

On May 20, 2008, our Advisor contributed $2 to the Operating Partnership in exchange for 200 limited partner common units in the Operating Partnership. The Advisor has the right to convert its limited partner common units into cash or, at our option, an equal number of our Common Shares.

 

Associate General Partner

 

In connection with our Offerings, the Sponsor and its wholly owned subsidiary, Lightstone Holdings LLC (“LGH”), contributed (i) cash of $12.9 million and (ii) equity interests totaling 48.6% in the Brownmill Joint Venture, which were valued at $4.8 million, to the Operating Partnership in exchange for it issuing 177 Subordinated Profits Interests in the Operating Partnership to the Associate General Partner at a cost of $100,000 per unit, with an aggregate value of $17.7 million.

 

As the indirect majority owner of the Associate General Partner, Mr. Lichtenstein is the beneficial owner of a 99% interest in such Subordinated Profits Interests and thus receives an indirect benefit from any distributions made in respect thereof.

 

These Subordinated Profits Interests may entitle the Associate General Partner to a portion of any regular distributions that we make to our stockholders, but only after our stockholders have received a stated preferred return. However, there have been no distributions declared on the Subordinated Profits Interests for any periods after December 31, 2019. Since our inception through June 30, 2024, the cumulative distributions declared and paid on the Subordinated Profits Interests were $7.9 million. Any future distributions on the Subordinated Profits Interests will always be subordinated until stockholders receive a stated preferred return.

 

The Subordinated Profits Interests may also entitle the Associate General Partner to a portion of any liquidating distributions made by the Operating Partnership. The value of such distributions will depend upon the net proceeds available for distribution upon our liquidation and, therefore, cannot be determined at the present time. Liquidating distributions to the Associate General Partner will always be subordinated until stockholders receive a distribution equal to their initial investment plus a stated preferred return.

 

Other Noncontrolling Interests in Consolidated Subsidiaries

 

Other noncontrolling interests consist of the (i) membership interest in the Hotel Joint Venture held by Lightstone REIT I and (ii) membership interests held by minority owners in one of our hotels.

 

Related Parties

 

Our Sponsor, Advisor and their affiliates, including the Associate General Partner and LGH, are related parties of ours as well as other public REITs also sponsored and/or advised by these entities. Pursuant to the terms of various agreements, certain of these entities are entitled to compensation and reimbursement of costs incurred for services related to the investment, development, management and disposition of our assets. The compensation is generally based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements.

 

Concentration of Credit Risk

 

As of June 30, 2024 and December 31, 2023, we had cash deposited in certain financial institutions in excess of U.S. federally insured levels. We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk with respect to our cash and cash equivalents or restricted cash.

 

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Current Environment

 

Our operating results and financial condition are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility and banking failures, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, inflation and recession.

 

Our overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation, higher interest rates, labor and supply chain challenges and other changes in economic conditions could adversely affect our future results of operations and financial condition.

 

We are not currently aware of any other material trends or uncertainties, favorable or unfavorable, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from our operations, other than those referred to above or throughout this Quarterly Report on Form 10-Q. The preparation of financial statements in conformity with generally accepted accounting principles in the U.S. (“GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period.

 

Portfolio Summary –

 

    Location   Year Built     Leasable
Square Feet		     Percentage Occupied
as of
June 30,
2024		     Annualized Revenues based on rents as of
June 30,
2024		     Annualized Revenues per square foot as of
June 30,
2024		  
Unconsolidated Affiliated Entities:                                        
                                         
Retail                                        
                                         
Brownmill LLC (2 retail properties)   Old Bridge and Vauxhall, New Jersey   1962       155,975     89%     $ 3.0 million      $ 19.20  

 

Hospitality  
 		 Location  
 		 Year Built  
 		  
 		 Year to Date
Available Rooms		    
 		 Percentage Occupied
for the
Six Months Ended
June 30,
2024		  
 		  
 		 RevPAR
for the
Six Months Ended
June 30,
2024		  
 		  
 		 ADR
for the
Six Months Ended
June 30,
2024		  
 
Hilton Garden Inn - Long Island City   Long Island City, New York   2014       33,306     86%     $ 162.70     $ 190.27  

 

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Consolidated Properties:

 

Hospitality  
 		 Location  
 		 Year Built  
 		  
 		 Year to Date
Available Rooms		  
 		  
 		 Percentage Occupied
for the
Six Months Ended
June 30,
2024		  
 		  
 		 RevPAR
for the
Six Months Ended
June 30,
2024		  
 		  
 		 ADR
for the
Six Months Ended
June 30,
2024		  
 
Fairfield Inn - East Rutherford   East Rutherford, New Jersey   1990       25,662       72 %   $ 101.07     $ 140.56  
                                           
Aloft - Tucson   Tucson, Arizona   1971       28,028       72 %   $ 116.97     $ 161.89  
                                           
Aloft - Philadelphia   Philadelphia, Pennsylvania   2008       24,752       69 %   $ 80.64     $ 117.06  
                                           
Four Points by Sheraton - Philadelphia   Philadelphia, Pennsylvania   1985       32,214       55 %   $ 61.26     $ 112.36  
                                           
Courtyard - Willoughby   Willoughby, Ohio   1999       16,380       66 %   $ 93.21     $ 140.27  
                                           
Fairfield Inn - Des Moines   West Des Moines, Iowa   1997       18,564       65 %   $ 71.44     $ 109.90  
                                           
SpringHill Suites - Des Moines   West Des Moines, Iowa   1999       17,654       76 %   $ 80.70     $ 106.39  
                                           
Courtyard - Parsippany   Parsippany, New Jersey   2001       27,482       57 %   $ 79.84     $ 139.56  
                                           
Hyatt Place - New Orleans   New Orleans, Louisiana   1996       31,304       60 %   $ 110.16     $ 183.94  
                                           
Residence Inn - Needham   Needham, Massachusetts   2013       24,024       80 %   $ 137.73     $ 171.32  
                                           
        Hospitality Total       246,064       66 %   $ 93.76     $ 141.15  

 

Annualized base rent is defined as the minimum monthly base rent due as of June 30, 2024 annualized, excluding periodic contractual fixed increases and rents calculated based on a percentage of tenants’ sales. The annualized base rent disclosed in the table above includes all concessions, abatements and reimbursements of rent to tenants.

 

The following information generally applies to our investments in our real estate properties:

 

  ● we believe our real estate properties are adequately covered by insurance and suitable for their intended purpose;
     
  ● our real estate properties are located in markets where we are subject to competition; and
     
  ● depreciation is provided on a straight-line basis over the estimated useful life of the applicable improvements.

 

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Critical Accounting Policies and Estimates

 

There were no material changes during the six months ended June 30, 2024 to our critical accounting policies as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

 

Results of Operations

 

Disposition Activities

 

Florida Hotels

 

On July 18, 2023 and July 21, 2023, we, through majority owned and consolidated subsidiaries (collectively, the “Sellers”), completed the sales of (i) a 126-room limited service hotel located in Miami, Florida (the “Hampton Inn - Miami”) and (ii) a 104-room limited service hotel located in Fort Lauderdale, Florida (the “Hampton Inn & Suites - Fort Lauderdale” and collectively, the “Florida Hotels”) to unaffiliated third parties for an aggregate contractual sales prices of $28.0 million. In connection with the sale of the Florida Hotels, we recognized a gain on the sale of investment property of $0.1 million during the third quarter of 2023. Previously, we recorded a non-cash impairment charge of $5.0 million during the second quarter of 2023 on the consolidated statements of operations to reduce the carrying value of the Florida Hotels to their fair value less the estimated costs to sell.

 

The dispositions of the Florida Hotels (the “Dispositions”) did not qualify to be reported as discontinued operations since they did not represent a strategic shift that had a major effect on our operations and financial results. Accordingly, the operating results of the Dispositions are reflected in our results from continuing operations for all periods presented through their respective dates of disposition.

 

Properties owned by us during the entire periods presented are referred to as our “Same Store” properties.

 

Comparison of the three months ended June 30, 2024 vs. June 30, 2023

 

Consolidated

 

Our consolidated revenues, property operating expenses, real estate taxes, and depreciation and amortization for the three months ended June 30, 2024 and 2023 are attributable to our consolidated hospitality properties, including the Dispositions through their respective dates of disposition. 

 

During the three months ended June 30, 2024 compared to same period in 2023, our consolidated hospitality portfolio experienced increases in RevPAR to $106.67 from $101.05 and ADR to $145.96 from $138.21 while the percentage of rooms occupied was unchanged at 73% during both periods. 

 

Revenues

 

Revenues decreased by $1.4 million to $13.9 million during the three months ended June 30, 2024 compared to $15.3 million for the same period in 2023. The decrease primarily reflects a reduction in revenues of $2.4 million attributable to the Dispositions partially offset by an increase of $1.0 million attributable to Same Store properties as a result of increases in RevPAR and ADR during the 2024 period.

 

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Property operating expenses

 

Property operating expenses decreased by $1.8 million to $8.8 million during the three months ended June 30, 2024 compared to $10.6 million for the same period in 2023. The decrease primarily reflects a reduction in property operating expenses of $1.9 million attributable to the Dispositions partially offset by a slight increase of $0.1 million attributable to Same Store properties.

 

Real estate taxes

 

Real estate taxes decreased slightly by $0.1 million to $0.6 million during the three months ended June 30, 2024 compared to $0.7 million for the same period in 2023.

 

General and administrative costs

 

General and administrative costs decreased slightly by $0.1 million to $1.1 million during the three months ended June 30, 2024 compared to $1.2 million for the same period in 2023. The decrease was principally attributable to a decrease in asset management fees as a result of the Dispositions.

 

Depreciation and amortization

 

Depreciation and amortization decreased by $0.3 million to $1.5 million during the three months ended June 30, 2024 compared to $1.8 million for the same period in 2023. The decrease reflects a reduction in depreciation and amortization of $0.3 million and $0.1 million attributable to the Dispositions and Same Store properties, respectively.

 

Impairment charge

 

We recognized an impairment charge of $5.0 million during the second quarter of 2023 to reduce the carrying value of the Florida Hotel Portfolio to its fair value less estimated costs to sell as of June 30, 2023.

 

Interest expense

 

Interest expense decreased slightly by $0.1 million to $2.4 million during the three months ended June 30, 2024 compared to $2.5 million for the same period in 2023. Interest expense is primarily attributable to the mortgage financings associated with our hotels and reflects market interest rates on our variable rate indebtedness and the weighted average principal outstanding during each of the periods.

 

Earnings from investments in unconsolidated affiliated real estate entities

 

Our income from investments in unconsolidated affiliated real estate entities was $58 during the three months ended June 30, 2024 compared to a loss of $30 for the same period in 2023. Our earnings from investments in unconsolidated affiliated real estate entities is attributable to our ownership interests in the Hilton Garden Inn Joint Venture and the Brownmill Joint Venture. We account for our membership interests in the Hilton Garden Inn Joint Venture and the Brownmill Joint Venture under the equity method of accounting.

 

Noncontrolling interests

 

The income or loss allocated to noncontrolling interests relates to the interest in our Operating Partnership held by our Advisor, the membership interest held by Lightstone REIT I in the Hotel Joint Venture, and the ownership interests held by unrelated minority owners in one of our hotels.

 

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Comparison of the six months ended June 30, 2024 vs. June 30, 2023

 

Consolidated

 

Our consolidated revenues, property operating expenses, real estate taxes, and depreciation and amortization for the six months ended June 30, 2024 and 2023 are attributable to our consolidated hospitality properties, including the Dispositions through their respective dates of disposition.

 

During the six months ended June 30, 2024 compared to same period in 2023, our consolidated hospitality portfolio experienced decreases in the percentage of rooms occupied to 66% from 69%, RevPAR to $93.76 from $97.34 and increases in ADR to $141.15 from $135.86.

 

Revenues

 

Revenues decreased by $4.7 million to $24.6 million during the six months ended June 30, 2024 compared to $29.3 million for the same period in 2023. The decrease primarily reflects a reduction in revenues of $5.7 million attributable to the Dispositions partially offset by an increase of $1.0 million attributable to Same Store in the 2024 period.

 

Property operating expenses

 

Property operating expenses decreased by $3.7 million to $16.8 million during the six months ended June 30, 2024 compared to $20.5 million for the same period in 2023. The decrease primarily reflects a reduction in property operating expenses of $4.0 million attributable to the Dispositions partially offset by an increase of $0.3 million attributable to Same Store properties.

 

Real estate taxes

 

Real estate taxes increased slightly by $0.1 million to $1.2 million during the six months ended June 30, 2024 compared to $1.1 million for the same period in 2023.

 

General and administrative costs

 

General and administrative costs decreased by $0.3 million to $2.1 million during the six months ended June 30, 2024 compared to $2.4 million for the same period in 2023. The decrease was principally attributable to a decrease in asset management fees as a result of the Dispositions.

 

Depreciation and amortization

 

Depreciation and amortization decreased by $0.7 million to $3.0 million during the six months ended June 30, 2024 compared to $3.7 million for the same period in 2023. The decrease reflects a reduction in depreciation and amortization of $0.7 million attributable to the Dispositions.

 

Impairment charge

 

We recognized an impairment charge of $5.0 million during the second quarter of 2023 to reduce the carrying value of the Florida Hotel Portfolio to its fair value less estimated costs to sell as of June 30, 2023.

 

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Interest expense

 

Interest expense decreased by $0.2 million to $4.7 million during the six months ended June 30, 2024 compared to $4.9 million for the same period in 2023. Interest expense is primarily attributable to the mortgage financings associated with our hotels and reflects market interest rates on our variable rate indebtedness and the weighted average principal outstanding during each of the periods.

 

Gain on sale of investment property

 

We recognized a gain on the sale of investment property of $0.3 million during the first quarter of 2023 related to one of our hotels which was previously sold in 2017.

 

Loss from investments in unconsolidated affiliated real estate entities

 

Our loss from investments in unconsolidated affiliated real estate entities was $0.2 million during the six months ended June 30, 2024 compared to $0.3 million for the same period in 2023 Our earnings from investments in unconsolidated affiliated real estate entities is attributable to our ownership interests in the Hilton Garden Inn Joint Venture and the Brownmill Joint Venture. We account for our membership interests in the Hilton Garden Inn Joint Venture and the Brownmill Joint Venture under the equity method of accounting.

 

Noncontrolling interests

 

The income or loss allocated to noncontrolling interests relates to the interest in our Operating Partnership held by our Advisor, the membership interest held by Lightstone REIT I in the Hotel Joint Venture, and the ownership interests held by unrelated minority owners in one of our hotels.

 

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Financial Condition, Liquidity and Capital Resources

 

Overview:

 

As of June 30, 2024, we had $29.8 million of cash on hand, $4.7 million of restricted cash and $9.6 million of marketable securities. We currently believe that these items, along with revenues generated from our properties, interest and dividend income earned on our marketable securities, proceeds from the potential sale of marketable securities, and potential distributions received from our investments in unconsolidated affiliated entities will be sufficient to satisfy our expected cash requirements for at least twelve months from the date of filing this Quarterly Report on Form 10-Q. Our expected cash requirements primarily consist of our anticipated operating expenses, scheduled debt service (excluding balloon payments due at maturity), capital expenditures (excluding non-recurring capital expenditures), contributions to our investments in unconsolidated affiliated entities, redemptions and cancellations of Common Shares, if approved, tender offers for our Common Shares and distributions, if any, required to maintain our status as a REIT for the foreseeable future. However, we may also obtain additional funds, if necessary, through additional selective asset dispositions, joint venture arrangements, new borrowings and refinancing of existing borrowings.

 

As of June 30, 2024, we had mortgage indebtedness totaling $101.8 million. We have and intend to continue to limit our aggregate long-term permanent borrowings to 75% of the aggregate fair market value of all properties unless any excess borrowing is approved by a majority of our independent directors and is disclosed to our stockholders. Market conditions will dictate the overall leverage limit; as such our aggregate long-term permanent borrowings may be less than 75% of aggregate fair market value of all properties. We may also incur short-term indebtedness, having a maturity of two years or less.

 

Our charter provides that the aggregate amount of our borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a justification showing that a higher level is appropriate, the approval of our Board of Directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. Market conditions will dictate our overall leverage limit; as such our aggregate borrowings may be less than 300% of net assets. As of June 30, 2024, our total borrowings aggregated $101.8 million which represented 67% of our net assets.

 

Additionally, in order to leverage our investments in marketable securities and seek a higher rate of return, we have access to borrowings under a margin loan. This margin loan is due on demand and any outstanding balance must be paid upon the liquidation of our securities.

 

Any future properties that we may acquire may be funded through a combination of borrowings and the proceeds received from the selective disposition of certain of our real estate assets. These borrowings may consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. Such mortgages may be put in place either at the time we acquire a property or subsequent to our purchasing a property for cash. In addition, we may acquire properties that are subject to existing indebtedness where we choose to assume the existing mortgages. Generally, though not exclusively, we intend to seek to encumber our properties with debt, which will be on a non-recourse basis. This means that a lender’s rights on default will generally be limited to foreclosing on the property. However, we may, at our discretion, secure recourse financing or provide a guarantee to lenders if we believe this may result in more favorable terms. When we give a guaranty for a property owning entity, we will be responsible to the lender for the satisfaction of the indebtedness if it is not paid by the property owning entity.

 

We may also obtain lines of credit to be used to acquire properties. If obtained, these lines of credit will be at prevailing market terms and will be repaid from proceeds from the sale or refinancing of properties, working capital and/or permanent financing. Our Sponsor and/or its affiliates may guarantee our lines of credit although they are not obligated to do so. We expect that such properties may be purchased by our Sponsor’s affiliates on our behalf, in our name, in order to minimize the imposition of a transfer tax upon a transfer of such properties to us.

 

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We have an advisory agreement with the Advisor and various agreements with certain affiliates of our Sponsor which provide for us to pay certain fees in exchange for services performed by them on our behalf. Additionally, our ability to secure financing and our real estate operations are dependent upon our Advisor and certain affiliates of our Sponsor to perform such services as specified in these agreements.

 

In addition to meeting working capital needs and distributions, if any, made to maintain our status as a REIT, our capital resources are used to make various payments to our Advisor and certain affiliates of our Sponsor, such as payments of fees related to asset acquisitions, asset management, and property management (excluding our hospitality properties, each of which are managed by an unrelated third party property manager) as well the reimbursement of acquisition-related expenses and actual expenses incurred for administrative and other services provided to us.

 

The advisory agreement has a one year term and is renewable for an unlimited number of successive one year periods upon the mutual consent of the Advisor and our independent directors.

 

The following table represents the fees incurred associated with the payments to our Advisor for the periods indicated:

 

   For the
Three Months Ended
June 30,		   For the
Six Months Ended
June 30,		 
   2024   2023   2024   2023 
Asset management fees (general and administrative costs)  $564   $657   $1,127   $1,316 

 

Summary of Cash Flows

 

The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below:

 

   For the
Six Months Ended
June 30,		 
   2024   2023 
Net cash used in operating activities  $(335)  $(591)
Net cash provided by/(used in) investing activities   325    (5,793)
Net cash used in financing activities   (6,212)   (2,183)
Change in cash, cash equivalents and restricted cash   (6,222)   (8,567)
Cash, cash equivalents and restricted cash, beginning of year   40,741    42,566 
Cash, cash equivalents and restricted cash, end of the period  $34,519   $33,999 

 

Operating activities

 

The cash used in operating activities of $0.3 million for the six months ended June 30, 2024 consisted of our net loss of $2.1 million, net changes in operating assets and liabilities of $1.4 million and other non-cash items aggregating $0.2 million partially offset by depreciation and amortization, amortization of deferred financing costs and loss from investments in unconsolidated affiliated entities aggregating $3.4 million.

 

32

 

 

Investing activities

 

The cash provided by investing activities of $0.3 million for the six months ended June 30, 2024 consists primarily of the following:

 

● capital expenditures of $0.4 million;

 

● net purchases of marketable securities of $0.1 million;

 

● contributions of $0.1 million made to the Hilton Garden Inn Joint Venture; and

 

● aggregate distributions of $0.9 million received from the Brownmill Joint Venture and the Hilton Garden Inn Joint Venture.

 

Financing activities

 

The cash used in financing activities of $6.2 million for the six months ended June 30, 2024 consists primarily of the following:

 

● tender, redemption and cancellations of shares of $3.7 million; and

 

● distributions paid to common stockholders of $2.5 million.

 

Distributions on Common Shares

 

On November 13, 2023, the Board of Directors authorized and we declared a Common Share distribution of $0.075 per share for the quarterly period ending December 31, 2023. The distribution was the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. The distribution of $1.3 million was paid on January 15, 2024 to stockholders of record at the close of business on December 31, 2023.

 

On March 18, 2024, the Board of Directors authorized and we declared a Common Share distribution of $0.075 per share for the quarterly period ending March 31, 2024. The distribution was the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. The distribution of $1.2 million was paid on April 15, 2024 to stockholders of record at the close of business on March 31, 2024.

 

On May 9, 2024, the Board of Directors authorized and we declared a Common Share distribution of $0.075 per share for the quarterly period ending June 30, 2024. The distribution is the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. The distribution of $1.2 million was paid on July 15, 2024 to stockholders of record at the close of business on June 30, 2024.

 

On August 9, 2024, the Board of Directors authorized and we declared a Common Share distribution of $0.075 per share for the quarterly period ending September 30, 2024. The distribution is the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. The distribution will be paid on or about the 15th day of the month following the quarter-end to stockholders of record at the close of business on the last day of the quarter end.

 

Future distributions declared, if any, will be at the discretion of the Board of Directors based on their analysis of our performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, revenues and other sources of income, operating and interest expenses and our ability to refinance near-term debt as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. We cannot assure that any future distributions will be made or that we will maintain any particular level of distributions that we have previously established or may establish.

 

33

 

 

Tender Offers

 

2024 Tender Offer

 

We commenced a tender offer on April 24, 2024, pursuant to which we offered to acquire up to 700,000 of our Common Shares at a purchase price of $6.00 per share, or $4.2 million in the aggregate (the “2024 Tender Offer”). Pursuant to the terms of the Tender Offer, which expired on June 14, 2024, the Company’s stock transfer agent initially funded on behalf of the Company the repurchase 264,233 Common Shares for an aggregate cost of $1.6 million on June 28, 2024 and the Company subsequently reimbursed the stock transfer agent on July 1, 2024. Because we did not reimburse our stock transfer agent until July 1, 2024, the $1.6 million cost related to the 2024 Tender Offer is included in accounts payable and other accrued expenses on our consolidated balance sheet as of June 30, 2024.

 

2023 Tender Offer

 

We commenced a tender offer on November 28, 2023, pursuant to which we offered to acquire up to 860,000 of our Common Shares at a purchase price of $6.00 per share, or $5.2 million in the aggregate (the “2023 Tender Offer”). Pursuant to the terms of the Tender Offer, which expired on February 5, 2024, we repurchased 520,141 Common Shares for an aggregate of $3.1 million on February 16, 2024.

 

SRP

 

Our share repurchase program (the “SRP”) may provide eligible stockholders with limited, interim liquidity by enabling them to sell Common Shares back to us, subject to restrictions and applicable law.

 

On March 19, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of all redemptions.

 

Effective May 10, 2021, the Board of Directors partially reopened the SRP to allow, subject to various conditions as set forth below, for redemptions submitted in connection with a stockholder’s death and hardship, respectively, and set the price for all such purchases to our current estimated net asset value per share of common stock, as determined by our board of directors and reported by us from time to time. Deaths that occurred subsequent to January 1, 2020 were eligible for consideration, subject to certain conditions. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by us within one year of the stockholder’s date of death for consideration.

 

On the above noted date, the Board of Directors established that on an annual basis, we would not redeem in excess of 0.5% of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Additionally, redemption requests generally would be processed on a quarterly basis and would be subject to proration if either type of redemption requests exceeded the annual limitation.

 

In connection with the approval of the 2023 Tender Offer, on November 13, 2023, the Board of Directors approved the suspension of the SRP effective November 20, 2023. As a result of the termination of the 2023 Tender Offer on February 5, 2024, on March 18, 2024, the Board of Directors reinstated the SRP.

 

In connection with the approval of the 2024 Tender Offer, on April 17, 2024, the Board of Directors approved the suspension of the SRP effective April 17, 2024. As a result of the termination of the 2024 Tender Offer on June 14, 2024, on August 9, 2024, the Board of Directors reinstated the SRP.

 

For the six months ended June 30, 2024, we repurchased 53,805 Common Shares at a weighted average price per share of $9.84. For the six months ended June 30, 2023, we repurchased 76,461 Common Shares at a weighted average price per share of $9.96.

 

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Contractual Mortgage Obligations

 

The following is a summary of our estimated contractual mortgage obligations outstanding over the next five years and thereafter as of June 30, 2024.

 

Contractual Mortgage Obligations  2024   2025   2026   2027   2028   Thereafter   Total 
Principal maturities  $-   $-   $101,818   $-   $-   $-   $101,818 
Interest payments(1)   4,548    9,070    7,182    -    -    -    20,800 
Total Contractual Mortgage Obligations  $4,548   $9,070   $109,000   $-   $-   $-   $122,618 

 

Note:

(1) These amounts represent future interest payments related to our mortgage payable obligation based on the interest rate specified in the associated debt agreement. Our variable rate debt agreement is based on the one-month SOFR rate. For purposes of calculating future interest amounts on variable interest rate debt the one-month SOFR rate as of June 30, 2024 was used.

 

Revolving Credit Facility

 

On October 23, 2023, we entered into a loan agreement with a financial institution providing for a non-recourse revolving credit facility (the “Revolving Credit Facility”) of up to $106.0 million. We received an initial advance of $101.8 million under the Revolving Credit Facility and designated 10 hotel properties as collateral. The Revolving Credit Facility bears interest at SOFR plus 3.45%, subject to a 6.45% floor, with an initial scheduled maturity of September 15, 2026, subject to two, one-year extension options at the sole discretion of the lender, and provides for monthly interest-only payments with the unpaid principal balance due at maturity. The Revolving Credit Facility provides for borrowings up to 65% of the loan-to-value ratio of properties designated as collateral and also requires the maintenance of certain covenants, including prescribed minimum debt service coverage and debt yield ratios which if not met may also be achieved through principal paydowns on the outstanding balance. In connection with entering into the Revolving Credit Facility, we deposited $4.0 million into a cash collateral reserve account.

 

If a principal paydown is deemed necessary to achieve compliance with respect to the financial debt covenants for any quarterly period, the lender may, if it so chooses, apply the necessary amount of the funds held in the cash collateral reserve account towards the required principal paydown. Additionally, if there are not sufficient funds held in the cash collateral reserve account, the lender may, if it so chooses, require us to fund the shortfall.

 

As of June 30, 2024, we were in compliance with all of our financial debt covenants.

 

As of June 30, 2024, the outstanding principal balance of the Revolving Credit Facility was $101.8 million and its interest rate was 8.79%. Additionally, all 10 of our majority-owned and consolidated hotel properties were pledged as collateral and no additional borrowings were available under the Revolving Credit Facility as of June 30, 2024.

 

Pursuant to the terms of our loan agreements, escrows in the amount of $4.7 million and $4.5 million were held in restricted cash accounts as of June 30, 2024 and December 31, 2023, respectively. Such escrows will be released in accordance with the applicable loan agreements for payments of real estate taxes, debt service payments, insurance and capital improvement transactions, as required.

 

In addition to the Revolving Credit Facility, we have access to a margin loan from another financial institution that holds custody of certain of our marketable securities. The margin loan is collateralized by the marketable securities in our account. The amounts available to us under the margin loan are at the discretion of the financial institution and not limited to the amount of collateral in our account. No amounts were outstanding under this margin loan as of June 30, 2024. Any borrowings under the margin loan bear interest at SOFR plus 0.85% (6.19% as of June 30, 2024).

 

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Investments in Unconsolidated Affiliated Entities

 

Brownmill Joint Venture

 

During 2010 through 2012, we entered into various contribution agreements with LGH, a wholly owned subsidiary of the Sponsor and a related party, pursuant to which LGH contributed to our Operating Partnership an aggregate 48.6% membership interest in the Brownmill Joint Venture in exchange for it issuing an aggregate of 48 units of Subordinated Profits Interests to the Associate General Partner at $100,000 per unit, with an aggregate total value of $4.8 million.

 

Our 48.6% membership interest in the Brownmill Joint Venture is a non-managing interest. LGH is the majority owner and manager of the Brownmill Joint Venture. Profit and cash distributions are allocated in accordance with each investor’s ownership percentage. We account for our investment in the Brownmill Joint Venture in accordance with the equity method of accounting. During the six months ended June 30, 2024 and 2023, we received distributions from the Brownmill Joint Venture of $0.3 million and $0.2 million, respectively. 

 

Hilton Garden Inn Joint Venture

 

On March 27, 2018, we and Lightstone Value Plus REIT III, Inc. (“Lightstone REIT III”), a related party REIT also sponsored by the Sponsor, acquired, through the newly formed Hilton Garden Inn Joint Venture, the Hilton Garden Inn - Long Island City from an unrelated third party, for aggregate consideration of $60.0 million, which consisted of $25.0 million of cash and $35.0 million of proceeds from a non-recourse loan from a financial institution (the “Hilton Garden Inn Mortgage”), excluding closing and other related transaction costs. We paid $12.9 million for a 50% membership interest in the Hilton Garden Inn Joint Venture.

 

On May 31, 2023, the Hilton Garden Inn Mortgage was amended to provide for (i) an extension of the maturity date through May 31, 2028, (ii) the interest rate to be adjusted to SOFR plus 3.25%, subject to a 6.41% floor, (iii) interest-only payments for the first two years of its extended term with principal and interest payments pursuant to a 300-month amortization schedule thereafter and the remaining unpaid balance due in full at its maturity date of May 31, 2028, (iv) the ability to draw up to an additional $3.0 million of principal, subject to the satisfaction of certain conditions, and (v) certain changes to its financial covenants. Additionally, the Hilton Garden Inn Joint Venture is required to fund an aggregate of $1.3 million, through monthly payments of $37 from May 31, 2023 through June 1, 2026, into a cash collateral reserve account which may be drawn upon for specified capital expenditures.

 

We and Lightstone REIT III each have a 50% co-managing membership interest in the Hilton Garden Inn Joint Venture. We account for our membership interest in the Hilton Garden Inn Joint Venture in accordance with the equity method of accounting because we exert significant influence over but do not control the Hilton Garden Inn Joint Venture. All capital contributions and distributions of earnings from the Hilton Garden Inn Joint Venture are made on a pro rata basis in proportion to each member’s equity interest percentage. Any distributions in excess of earnings from the Hilton Garden Inn Joint Venture are made to the members pursuant to the terms of the Hilton Garden Inn Joint Venture’s operating agreement.

 

During the six months ended June 30, 2024, we received distributions from the Hilton Garden Joint Venture of $0.6 million and made contributions of $0.1 million to the Hilton Garden Inn Joint Venture. During the six months ended June 30, 2023, we made contributions of $0.4 million to the Hilton Garden Inn Joint Venture.

 

As of June 30, 2024, the Hilton Garden Inn Joint Venture was in compliance with all of its financial covenants.

 

36

 

 

Funds from Operations and Modified Funds from Operations

 

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings, improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be less informative.

 

Because of these factors, the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has published a standardized measure of performance known as funds from operations (“FFO”), which is used in the REIT industry as a supplemental performance measure. We believe FFO, which excludes certain items such as real estate-related depreciation and amortization, is an appropriate supplemental measure of a REIT’s operating performance. FFO is not equivalent to our net income or loss as determined under GAAP.

 

We calculate FFO, a non-GAAP measure, consistent with the standards established over time by the Board of Governors of NAREIT, as restated in a White Paper approved by the Board of Governors of NAREIT effective in December 2018 (the “White Paper”). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Our FFO calculation complies with NAREIT’s definition.

 

We believe that the use of FFO provides a more complete understanding of our performance to investors and to management, and reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.

 

Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT’s definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.

 

Because of these factors, the Investment Program Association (the “IPA”), an industry trade group, published a standardized measure of performance known as modified funds from operations (“MFFO”), which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that both before and after we have deployed all of our offering proceeds, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP.

 

37

 

 

We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the “Practice Guideline”) issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction-related fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and exclude acquisition and transaction-related fees and expenses incurred for business combinations, amounts relating to deferred rent receivables and amortization of market lease and other intangibles, net (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), accretion of discounts and amortization of premiums on debt investments and borrowings, mark-to-market adjustments included in net income (including gains or losses incurred on assets held for sale), gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. Certain of the above adjustments are also made to reconcile net income (loss) to net cash provided by (used in) operating activities, such as for the amortization of a premium and accretion of a discount on debt and securities investments, amortization of fees, any unrealized gains (losses) on derivatives, securities or other investments, as well as other adjustments.

 

MFFO excludes non-recurring impairment of real estate-related investments. We assess the credit quality of our investments and adequacy of reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. We consider the estimated net recoverable value of a loan as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive situation of the region where the borrower does business.

 

We believe that, because MFFO excludes costs that we consider more reflective of non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.

 

Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO.

 

Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guidelines or the SEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry, and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.

 

38

 

 

The below table illustrates the items deducted from or added to net income/(loss) in the calculation of FFO and MFFO. Items are presented net of noncontrolling interest portions where applicable.

 

   For the
Three Months Ended
June 30,		   For the
Six Months Ended
June 30,		 
   2024   2023   2024   2023 
Net (loss)/income  $459   $(7,241)  $(2,142)  $(9,097)
FFO adjustments:                    
Depreciation and amortization of real estate assets   1,479    1,809    2,969    3,669 
Loss/(gain) on sale of investment property   -    3    (14)   (339)
Impairment charge   -    5,000    -    5,000 
Income tax on sale of real estate   -    1,162    -    1,162 
Adjustments to equity in earnings from unconsolidated affiliated entities   410    410    825    825 
FFO   2,348    1,143    1,638    1,220 
MFFO adjustments:                    
Adjustments to equity in earnings from unconsolidated affiliated entities   32    20    54    40 
Gain on forgiveness of debt(1)   -    -    -    - 
Mark-to-market adjustments(2)   (32)   (44)   (207)   114 
Non-recurring (gains)/losses from extinguishment/sale of debt, derivatives or securities holdings(1)   28    -    28    - 
MFFO                    
Straight-line rent   -    -    -    - 
MFFO - IPA recommended format   2,376    1,119    1,513    1,374 
                     
Net (loss)/income  $459   $(7,241)  $(2,142)  $(9,097)
Less: loss/(income) attributable to noncontrolling interests   (41)   118    6    159 
Net (loss)/income applicable to Company’s common shares  $418   $(7,123)  $(2,136)  $(8,938)
Net (loss)/income per common share, basic and diluted  $0.03   $(0.42)  $(0.13)  $(0.52)
                     
FFO  $2,348   $1,143   $1,638   $1,220 
Less: FFO attributable to noncontrolling interests   (79)   73    (65)   73 
FFO attributable to Company’s common shares  $2,269   $1,216   $1,573   $1,293 
FFO per common share, basic and diluted  $0.14   $0.07   $0.09   $0.08 
                     
MFFO - IPA recommended format  $2,376   $1,119   $1,513   $1,374 
Less: MFFO attributable to noncontrolling interests   (79)   (52)   (65)   (52)
MFFO attributable to Company’s common shares  $2,297   $1,067   $1,448   $1,322 
                     
Weighted average number of common shares outstanding, basic and diluted   16,428    17,112    16,586    17,135 

 

 
(1) Management believes that adjusting for gains or losses related to extinguishment/sale of debt, derivatives or securities holdings is appropriate because they are items that may not be reflective of ongoing operations. By excluding these items, management believes that MFFO provides supplemental information related to sustainable operations that will be more comparable between other reporting periods.
(2) Management believes that adjusting for mark-to-market adjustments is appropriate because they are nonrecurring items that may not be reflective of ongoing operations and reflects unrealized impacts on value based only on then current market conditions, although they may be based upon current operational issues related to an individual property or industry or general market conditions. Mark-to-market adjustments are made for items such as ineffective derivative instruments, certain marketable securities and any other items that GAAP requires we make a mark-to-market adjustment for. The need to reflect mark-to-market adjustments is a continuous process and is analyzed on a quarterly and/or annual basis in accordance with GAAP.

 

39

 

 

The table below presents our cumulative distributions declared and cumulative FFO attributable to our common shares:

 

    For the period
April, 28, 2008
(date of inception)
through
June 30,
2024		  
FFO attributable to Company’s common shares   $ 81,495  
Distributions declared   $ 92,608  

 
New Accounting Pronouncements

 

See Note 2 of the Notes to Consolidated Financial Statements for further information of any accounting standards that have been adopted during 2024 and any accounting standards that we have not yet been required to implement and may be applicable to our future operations.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

As of the end of the period covered by this report, management, including our chief executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of the evaluation, our chief executive officer and principal financial officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.

 

There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no significant deficiencies or material weaknesses identified in the evaluation, and therefore, no corrective actions were taken.

 

40

 

 

PART II. OTHER INFORMATION:

 

ITEM 1. LEGAL PROCEEDINGS.

 

From time to time in the ordinary course of business, we may become subject to legal proceedings, claims or disputes.

 

As of the date hereof, we are not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on our results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, we have not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Recent Sales of Unregistered Securities

 

During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5. OTHER INFORMATION

 

None.

 

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ITEM 6. EXHIBITS

 

Exhibit
Number

  

Description
31.1*   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2*   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
32.1*   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”
32.2*   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”
101*   XBRL (eXtensible Business Reporting Language).The following financial information from Lightstone Value Plus REIT II, Inc. on Form 10-Q for the quarter ended June 30, 2024, filed with the SEC on August 14, 2024, formatted in XBRL includes: (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations, (3) Consolidated Statements of Comprehensive Loss, (4) Consolidated Statements of Stockholders’ Equity, (5) Consolidated Statements of Cash Flows and (6) the Notes to the Consolidated Financial Statement.

 

 
* Filed herewith

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

LIGHTSTONE VALUE PLUS REIT II, INC.
   
Date: August 14, 2024 By: /s/ David Lichtenstein
    David Lichtenstein
   

Chairman and Chief Executive Officer
    (Principal Executive Officer)

 

Date: August 14, 2024 By: /s/ Seth Molod
    Seth Molod
   

Chief Financial Officer
    (Duly Authorized Officer and Principal Financial and Accounting Officer)

 

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EXHIBIT 31.1

 

Certifications

 

I, David Lichtenstein, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Lightstone Value Plus REIT II, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the registrant and have:

 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

/s/ David Lichtenstein  
David Lichtenstein
Chairman and Chief Executive Officer
(Principal Executive Officer)		  

 

Date: August 14, 2024

 

 

 

EXHIBIT 31.2

 

Certifications

 

I, Seth Molod, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Lightstone Value Plus REIT II, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the registrant and have:

 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

/s/ Seth Molod  

Seth Molod
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)

  

 

Date: August 14, 2024

 

 

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

 

I, David Lichtenstein, the Chief Executive Officer and Chairman of the Board of Directors of Lightstone Value Plus REIT II, Inc. (the “Company”) certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

 

(1) The Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2024 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C 78m); and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ David Lichtenstein  
David Lichtenstein  
Chairman and Chief Executive Officer  
(Principal Executive Officer)  

 

Date: August 14, 2024

 

 

 

EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

 

I, Seth Molod, the Chief Financial Officer, Treasurer and Principal Accounting Officer of Lightstone Value Plus REIT II, Inc. (the “Company”) certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

 

(1) The Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2024 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C 78m); and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ Seth Molod  
Seth Molod  
Chief Financial Officer and Treasurer  
(Principal Financial and Accounting Officer)  

 

Date: August 14, 2024

 

 

v3.24.2.u1
Cover - shares
 6 Months Ended
Jun. 30, 2024
Aug. 07, 2024
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Jun. 30, 2024  
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2024  
Current Fiscal Year End Date --12-31  
Entity File Number 000-54047  
Entity Registrant Name LIGHTSTONE VALUE PLUS REIT II, INC.  
Entity Central Index Key 0001436975  
Entity Tax Identification Number 83-0511223  
Entity Incorporation, State or Country Code MD  
Entity Address, Address Line One 1985 Cedar Bridge Avenue  
Entity Address, Address Line Two Suite 1  
Entity Address, City or Town Lakewood  
Entity Address, State or Province NJ  
Entity Address, Postal Zip Code 08701  
City Area Code (732)  
Local Phone Number 367-0129  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   16,100,000
v3.24.2.u1
CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)
$ in Thousands
Jun. 30, 2024
Dec. 31, 2023
Investment property:    
Land and improvements $ 26,155 $ 26,152
Building and improvements 146,348 146,129
Furniture and fixtures 28,997 28,883
Construction in progress 169 128
Gross investment property 201,669 201,292
Less accumulated depreciation (61,449) (58,490)
Net investment property 140,220 142,802
Investments in unconsolidated affiliated entities 12,363 13,415
Cash and cash equivalents 29,783 36,192
Marketable securities, available for sale 9,582 9,287
Restricted cash 4,736 4,549
Accounts receivable and other assets 4,436 3,194
Total Assets 201,120 209,439
Liabilities and Stockholders’ Equity    
Accounts payable and other accrued expenses 8,299 6,871
Mortgages payable, net 101,001 100,820
Distributions payable 1,212 1,275
Due to related party 371 360
Total liabilities 110,883 109,326
Company’s stockholders’ equity:    
Preferred shares, $0.01 par value, 10.0 million shares authorized, none issued and outstanding
Common stock, $0.01 par value, 100.0 million shares authorized, 16.2 million and 17.0 million shares issued and outstanding, respectively 161 169
Additional paid-in-capital 137,940 143,219
Accumulated deficit (58,868) (54,284)
Total Company stockholders’ equity 79,233 89,104
Noncontrolling interests 11,004 11,009
Total Stockholders’ Equity 90,237 100,113
Total Liabilities and Stockholders’ Equity $ 201,120 $ 209,439
v3.24.2.u1
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares
shares in Thousands
Jun. 30, 2024
Dec. 31, 2023
Statement of Financial Position [Abstract]    
Preferred Stock, par value per share $ 0.01 $ 0.01
Preferred Stock, shares authorized 10,000 10,000
Preferred Stock, shares issued 0 0
Preferred Stock, shares outstanding 0 0
Common Stock, par value per share $ 0.01 $ 0.01
Common Stock, shares authorized 100,000 100,000
Common Stock, shares issued 16,200 17,000
Common Stock, shares outstanding 16,200 17,000
v3.24.2.u1
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Income Statement [Abstract]        
Revenues $ 13,935 $ 15,345 $ 24,583 $ 29,328
Expenses:        
Property operating expenses 8,790 10,559 16,838 20,513
Real estate taxes 561 672 1,217 1,136
General and administrative costs 1,082 1,246 2,084 2,438
Depreciation and amortization 1,479 1,809 2,969 3,669
Impairment charge 5,000 5,000
Total expenses 11,912 19,286 23,108 32,756
Interest expense (2,355) (2,544) (4,713) (4,918)
(Loss)/gain on sale of investment property (3) 339
Earnings from investments in unconsolidated affiliated entities 58 (30) (234) (294)
Other income/(expense), net 733 (723) 1,330 (796)
Net income/(loss) 459 (7,241) (2,142) (9,097)
Less: net (income)/loss attributable to noncontrolling interests (41) 118 6 159
Net income/(loss) applicable to Company’s common shares $ 418 $ (7,123) $ (2,136) $ (8,938)
Net (loss)/income per Company's common share, basic $ 0.03 $ (0.42) $ (0.13) $ (0.52)
Net (loss)/income per Company's common share, diluted $ 0.03 $ (0.42) $ (0.13) $ (0.52)
Weighted average number of common shares outstanding, basic 16,428 17,112 16,586 17,135
Weighted average number of common shares outstanding, diluted 16,428 17,112 16,586 17,135
v3.24.2.u1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Income Statement [Abstract]        
Net income/(loss) $ 459 $ (7,241) $ (2,142) $ (9,097)
Other comprehensive loss:        
Holding loss on marketable securities, available for sale (7)
Comprehensive income/(loss) 459 (7,241) (2,142) (9,104)
Less: Comprehensive (income)/loss attributable to noncontrolling interests (41) 118 6 159
Comprehensive income/(loss) attributable to the Company’s common shares $ 418 $ (7,123) $ (2,136) $ (8,945)
v3.24.2.u1
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
Common Stock [Member]
Additional Paid-in Capital [Member]
AOCI Attributable to Parent [Member]
Retained Earnings [Member]
Noncontrolling Interest [Member]
Total
Beginning balance, value at Dec. 31, 2022 $ 171 $ 144,971 $ 7 $ (37,663) $ 11,337 $ 118,823
Beginning balance, shares at Dec. 31, 2022 17,172          
Net loss (8,938) (159) (9,097)
Other comprehensive loss (7) (7)
Distributions declared [1] (2,566) (2,566)
Contributions of noncontrolling interests 4 4
Redemption and cancellation of shares $ (1) (761) (762)
Redemption and cancellation of shares, shares (76)          
Ending balance, value at Jun. 30, 2023 $ 170 144,210 (49,167) 11,182 106,395
Ending balance, shares at Jun. 30, 2023 17,096          
Beginning balance, value at Mar. 31, 2023 $ 171 144,798 (40,763) 11,300 115,506
Beginning balance, shares at Mar. 31, 2023 17,154          
Net loss (7,123) (118) (7,241)
Distributions declared [2] (1,281) (1,281)
Redemption and cancellation of shares $ (1) (588) (589)
Redemption and cancellation of shares, shares (58)          
Ending balance, value at Jun. 30, 2023 $ 170 144,210 (49,167) 11,182 106,395
Ending balance, shares at Jun. 30, 2023 17,096          
Beginning balance, value at Dec. 31, 2023 $ 169 143,219   (54,284) 11,009 100,113
Beginning balance, shares at Dec. 31, 2023 17,002          
Net loss   (2,136) (6) (2,142)
Distributions declared [3]   (2,448) (2,448)
Contributions of noncontrolling interests   9 9
Distributions from noncontrolling interests   (8) (8)
Tender, redemption and cancellation of shares $ (8) (5,279)   (5,287)
Tender, redemption and cancellation of shares, shares (838)          
Ending balance, value at Jun. 30, 2024 $ 161 137,940   (58,868) 11,004 90,237
Ending balance, shares at Jun. 30, 2024 16,164          
Beginning balance, value at Mar. 31, 2024 $ 164 140,099   (58,074) 10,966 93,155
Beginning balance, shares at Mar. 31, 2024 16,482          
Net loss   418 41 459
Distributions declared [4]   (1,212) (1,212)
Contributions of noncontrolling interests   5 5
Distributions from noncontrolling interests   (8) (8)
Tender, redemption and cancellation of shares $ (3) (2,159)   (2,162)
Tender, redemption and cancellation of shares, shares (318)          
Ending balance, value at Jun. 30, 2024 $ 161 $ 137,940   $ (58,868) $ 11,004 $ 90,237
Ending balance, shares at Jun. 30, 2024 16,164          
[1] Distributions per share were $0.150.
[2] Distributions per share were $0.075.
[3] Distributions per share were $0.150.
[4] Distributions per share were $0.075.
v3.24.2.u1
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
$ in Thousands
 6 Months Ended
Jun. 30, 2024
Jun. 30, 2023
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (2,142) $ (9,097)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 2,969 3,669
Impairment charge 5,000
Amortization of deferred financing costs 181 203
Loss from investments in unconsolidated affiliated entities 234 294
Other non-cash adjustments (148) (21)
Changes in assets and liabilities:    
Increase in accounts receivable and other assets (1,296) (572)
Decrease in accounts payable and other accrued expenses (144) (61)
Increase/(decrease) in due to related party 11 (6)
Net cash used in operating activities (335) (591)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchase of investment property (377) (646)
Proceeds from the sale of marketable securities 1,000 2,957
Purchases of marketable securities (1,116) (7,878)
Contributions to unconsolidated affiliated entities (74) (445)
Distributions from unconsolidated affiliated entities 892 219
Net cash provided by/(used in) investing activities 325 (5,793)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Payment of loan fees and expenses (140)
Tender, redemption and cancellation of common shares (3,702) (762)
Contributions of noncontrolling interests 9 4
Distributions paid to common stockholders (2,511) (1,285)
Distributions paid to noncontrolling interests (8)
Net cash used in financing activities (6,212) (2,183)
Change in cash, cash equivalents and restricted cash (6,222) (8,567)
Cash, cash equivalents and restricted cash, beginning of year 40,741 42,566
Cash, cash equivalents and restricted cash, end of period 34,519 33,999
Supplemental cash flow information for the periods indicated is as follows:    
Cash paid for interest 4,557 4,615
Cash paid for taxes 184 1,395
Distributions declared but not paid 1,212 1,281
Tender of common shares included in accounts payable and other liabilities 1,585
Holding loss on marketable securities, available for sale 7
The following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in our statements of cash flows for the periods presented:    
Cash and cash equivalents 29,783 33,585
Restricted cash 4,736 414
Total cash, cash equivalents and restricted cash $ 34,519 $ 33,999
v3.24.2.u1
Business and Structure
 6 Months Ended
Jun. 30, 2024
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Business and Structure

 

1.

Business and Structure

 

Lightstone Value Plus REIT II, Inc. (“Lightstone REIT II”), is a Maryland corporation formed on April 28, 2008, which elected to qualify as a real estate investment trust (“REIT”) for United States (the “U.S.”) federal income tax purposes beginning with the taxable year ended December 31, 2009.

 

Lightstone REIT II is structured as an umbrella partnership REIT, or UPREIT, and substantially all of its current and future business will be conducted through Lightstone Value Plus REIT II LP, a Delaware limited partnership (the “Operating Partnership”). As of June 30, 2024, Lightstone REIT II held an approximately 99% general partnership interest in the Operating Partnership’s common units.

 

Lightstone REIT II and the Operating Partnership and its subsidiaries are collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns in these consolidated financial statements refers to Lightstone REIT II, its Operating Partnership or the Company as required by the context in which such pronoun is used.

 

Through the Operating Partnership, the Company owns and operates commercial properties and makes real estate-related investments. Since its inception, the Company has primarily acquired and operated commercial hospitality properties, principally consisting of limited service-hotels all located in the U.S. Although the Company has historically acquired hotels, it has and may continue to purchase other types of real estate. Assets other than hotels may include, without limitation, office buildings, shopping centers, business and industrial parks, manufacturing facilities, single-tenant properties, multifamily properties, student housing properties, warehouses and distribution facilities and medical/life sciences office buildings. The Company’s real estate investments are held by it alone or jointly with other parties. In addition, the Company may invest up to 20% of its net assets in collateralized debt obligations, commercial mortgage-backed securities (“CMBS”) and mortgage and mezzanine loans secured, directly or indirectly, by the same types of properties which it may acquire directly. Although most of its investments are these types, the Company may invest in whatever types of real estate or real estate-related investments that it believes are in its best interests. The Company evaluates all of its real estate investments as one operating segment. The Company currently intends to hold its investments until such time as it determines that a sale or other disposition appears to be advantageous to achieve its investment objectives or until it appears that the objectives will not be met.

 

As of June 30, 2024, the Company (i) majority owned and consolidated the operating results and financial condition of 10 limited service hotels containing a total of 1,352 rooms, (ii) held an unconsolidated 48.6% membership interest in Brownmill, LLC (the “Brownmill Joint Venture”), an affiliated entity that owns two retail properties, and (iii) held an unconsolidated 50% membership interest in LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”), an affiliated real estate entity that owns one hotel. The Company accounts for its membership interests in the Brownmill Joint Venture and the Hilton Garden Inn Joint Venture under the equity method of accounting.

 

The Brownmill Joint Venture owns Browntown Shopping Center, located in Old Bridge, New Jersey, and Millburn Mall, located in Vauxhaull, New Jersey. The Hilton Garden Inn Joint Venture owns a 183-room, limited service hotel (the “Hilton Garden Inn – Long Island City) located in the Long Island City neighborhood in the Queens borough of New York City. Both the Brownmill Joint Venture and the Hilton Garden Inn Joint Venture are between the Company and related parties.

 

As of June 30, 2024, five of the Company’s consolidated limited service hotels are held in LVP Holdco JV LLC (the “Hotel Joint Venture”), a joint venture formed between the Company and Lightstone Value Plus REIT I, Inc. (“Lightstone REIT I”), a related party REIT also sponsored by The Lightstone Group, LLC (the “Sponsor”). The Company and Lightstone REIT I have 97.5% and 2.5% membership interests in the Hotel Joint Venture, respectively. Additionally, as of June 30, 2024, one of the Company’s consolidated hotels also has ownership interests held by unrelated minority owners. The membership interests of Lightstone REIT I and the unrelated minority owners are accounted for as noncontrolling interests.

 

The Company’s advisor is Lightstone Value Plus REIT II LLC (the “Advisor”), which is majority owned by David Lichtenstein. On May 20, 2008, the Advisor contributed $2 to the Operating Partnership in exchange for 200 limited partner common units in the Operating Partnership. The Advisor also owns 20,000 shares of the Company’s common stock (“Common Shares”) which were issued on May 20, 2008 for $200, or $10.00 per share. Mr. Lichtenstein also is a majority owner of the equity interests of the Sponsor, which served as the Company’s sponsor during its initial public offering and follow-on offering (collectively, “the Offerings”), which terminated on August 15, 2012 and September 27, 2014, respectively. The Advisor, pursuant to the terms of an advisory agreement, together with the Company’s board of directors (the “Board of Directors”), is primarily responsible for making investment decisions on behalf of the Company and managing its day-to-day operations.

 

Through his ownership and control of the Sponsor, Mr. Lichtenstein is the indirect owner and manager of Lightstone SLP II LLC, a Delaware limited liability company (the “Associate General Partner”), which owns 177 subordinated profits interests (“Subordinated Profits Interests”) in the Operating Partnership, which were acquired, at a cost of $100,000 per unit, or aggregate consideration of $17.7 million in connection with the Company’s Offerings. Mr. Lichtenstein also acts as the Company’s Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT II or the Operating Partnership.

 

The Company has no employees. The Company is dependent on the Advisor and certain affiliates of the Sponsor for performing a full range of services that are essential to it, including asset management, property management (excluding our hospitality properties, which are each managed by an unrelated third party property manager) and acquisition, disposition and financing activities, and other general administrative responsibilities, such as tax, accounting, legal, information technology and investor relations services. If the Advisor and certain affiliates of the Sponsor are unable to provide these services to the Company, it would be required to provide the services itself or obtain the services from other parties.

 

The Company’s Common Shares are not currently listed on a national securities exchange. The Company may seek to list its Common Shares for trading on a national securities exchange only if a majority of its independent directors believe listing would be in the best interest of its stockholders. The Company does not intend to list its shares at this time. The Company does not anticipate that there would be any active market for its Common Shares until they are listed for trading.

 

Noncontrolling Interests –

 

Partners of the Operating Partnership

 

Limited Partner

 

On May 20, 2008, the Advisor contributed $2 to the Operating Partnership in exchange for 200 limited partner common units in the Operating Partnership. The Advisor has the right to convert its limited partner common units into cash or, at the Company’s option, an equal number of Common Shares.

 

Associate General Partner

 

In connection with the Company’s Offerings, the Sponsor and its wholly owned subsidiary, Lightstone Holdings LLC (“LGH”), contributed (i) cash of $12.9 million and (ii) equity interests totaling 48.6% in the Brownmill Joint Venture, which were valued at $4.8 million, to the Operating Partnership in exchange for it issuing 177 Subordinated Profits Interests in the Operating Partnership to the Associate General Partner at a cost of $100,000 per unit, with an aggregate value of $17.7 million.

 

As the indirect majority owner of the Associate General Partner, Mr. Lichtenstein is the beneficial owner of a 99% interest in such Subordinated Profits Interests and thus receives an indirect benefit from any distributions made in respect thereof.

 

These Subordinated Profits Interests may entitle the Associate General Partner to a portion of any regular distributions that the Company makes to its stockholders, but only after its stockholders have received a stated preferred return. However, there have been no distributions declared on the Subordinated Profits Interests for any periods after December 31, 2019. Since the Company’s inception through June 30, 2024, the cumulative distributions declared and paid on the Subordinated Profits Interests were $7.9 million. Any future distributions on the Subordinated Profits Interests will always be subordinated until stockholders receive a stated preferred return.

 

The Subordinated Profits Interests may also entitle the Associate General Partner to a portion of any liquidating distributions made by the Operating Partnership. The value of such distributions will depend upon the net proceeds available for distribution upon the liquidation of the Company and, therefore, cannot be determined at the present time. Liquidating distributions to the Associate General Partner will always be subordinated until stockholders receive a distribution equal to their initial investment plus a stated preferred return.

 

Other Noncontrolling Interests in Consolidated Subsidiaries

 

Other noncontrolling interests consist of the (i) membership interest in the Joint Venture held by Lightstone REIT I and (ii) membership interests held by minority owners in one of the Company’s hotels.

 

Related Parties

 

The Company’s Sponsor, Advisor and their affiliates, including the Associate General Partner and LGH, are related parties of the Company as well as the other public REITs also sponsored and/or advised by these entities. Pursuant to the terms of various agreements, certain of these entities are entitled to compensation and reimbursement for services and costs incurred related to the investment, development, management and disposition of the Company’s assets. The compensation is generally based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements.
v3.24.2.u1
Summary of Significant Accounting Policies
 6 Months Ended
Jun. 30, 2024
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

 

2. Summary of Significant Accounting Policies

 

Principles of Consolidation and Basis of Presentation

 

The consolidated financial statements include the accounts of Lightstone REIT II and its Operating Partnership and its subsidiaries, over which the Company exercises financial and operating control. As of June 30, 2024, Lightstone REIT II had a 99% general partnership interest in the common units of the Operating Partnership. All inter-company balances and transactions have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on accounting principles generally accepted in the U.S. (“GAAP”), and entities deemed to be variable interest entities (“VIE”) in which the Company is the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which the Company has control, substantive participating rights or both under the respective ownership agreement. For entities in which the Company has less than a controlling interest or entities which it is not deemed to be the primary beneficiary, it accounts for the investment using the equity method of accounting.

 

The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of the Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Form 10-K”). The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair statement of the results for the periods presented. The accompanying unaudited consolidated financial statements of the Lightstone Value Plus REIT II, Inc. and Subsidiaries have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

 

GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of investment properties and investments in other unconsolidated real estate entities and depreciable lives of long-lived assets. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.

 

The consolidated balance sheet as of December 31, 2023 included herein has been derived from the consolidated balance sheet included in the Company’s 2023 Form 10-K for the fiscal year ended December 31, 2023.

 

The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.

 

Tax Status and Income Taxes

 

The Company elected to be taxed and qualify as a REIT commencing with the taxable year ended December 31, 2009. As a REIT, the Company generally will not be subject to U.S. federal income tax on its net taxable income that it distributes currently to its stockholders. To maintain its REIT qualification under the Internal Revenue Code of 1986, as amended, or the Code, the Company must meet a number of organizational and operational requirements, including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed at regular corporate rates, and it may be precluded from qualifying for treatment as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders. Additionally, even if the Company continues to qualify as a REIT for U.S. federal income tax purposes, it may still be subject to some U.S. federal, state and local taxes on its income and property and to U.S. federal income taxes and excise taxes on its undistributed income, if any.

 

To maintain its qualification as a REIT, the Company engages in certain activities through a taxable REIT subsidiary (“TRS”), including when it acquires a hotel it usually establishes a new TRS and enters into an operating lease agreement for the hotel. As such, the Company is subject to U.S. federal and state income taxes and franchise taxes from these activities.

 

The Company’s income tax benefit and expense are included in other income/(expense), net on its consolidated statements of operations. During the three and six months ended June 30, 2024, the Company recorded an income tax benefit of $0.2 million and $0.1 million, respectively. During the three and six months ended June 30, 2023, the Company recorded income tax expense of $1.2 million and $1.4 million, respectively.

 

As of June 30, 2024 and December 31, 2023, the Company had no material uncertain income tax positions.

 

Revenues

 

The following table represents the total revenues from hotel operations on a disaggregated basis:

 

Schedule of total revenues from hotel operations on a disaggregated basis                                
    For the
Three Months Ended
June 30,		    

For the
Six Months Ended

June 30,

  
Revenues   2024     2023     2024     2023  
Room   $ 13,123     $ 14,548     $ 23,070     $ 27,873  
Food, beverage and other     812       797       1,513       1,455  
Total revenues   $ 13,935     $ 15,345     $ 24,583     $ 29,328  

 

New Accounting Pronouncements

 

In November 2023, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The amendments will require entities to disclose significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within segment profit and loss, as well as the title and position of the CODM. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is evaluating the guidance and the impact it may have on its consolidated financial statements.

 

In December 2023, the FASB issued an accounting standards update which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. This update is effective for annual periods beginning after December 15, 2024. The Company is evaluating the guidance and the impact it may have on its consolidated financial statements.

 

The Company has reviewed and determined that other recently issued accounting pronouncements will not have a material impact on its financial position, results of operations and cash flows, or do not apply to its current operations.

 

Concentration of Risk

 

As of June 30, 2024 and December 31, 2023, the Company had cash deposited in certain financial institutions in excess of U.S. federally insured levels. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk with respect to its cash and cash equivalents or restricted cash.

 

Current Environment

 

The Company’s operating results and financial condition are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, its business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility and banking failures, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, inflation and recession.

 

The Company’s overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation, higher interest rates, labor and supply chain challenges and other changes in economic conditions could adversely affect the Company’s future results of operations and financial condition.
v3.24.2.u1
Disposition Activities
 6 Months Ended
Jun. 30, 2024
Property, Plant and Equipment [Abstract]  
Disposition Activities

 

3. Disposition Activities

 

Impairment Charge and Disposition of Florida Hotels

 

On May 8, 2023, the Hotel Joint Venture, which the Company majority owns and consolidates, through its subsidiaries (collectively, the “Sellers”), and Vista Acquisitions Inc. (the “Florida Hotels Buyer”), an unaffiliated third party, entered into a purchase and sale agreement, as amended, (the “Florida Hotels Agreement”) pursuant to which the Sellers would dispose of (i) a 126-room limited service hotel located in Miami, Florida (the “Hampton Inn - Miami”), and (ii) a 104-room limited service hotel located in Fort Lauderdale, Florida (the “Hampton Inn & Suites - Fort Lauderdale” and collectively, the “Florida Hotels”) to the Florida Hotels Buyer for an aggregate contractual sales price of $28.0 million.

 

The Company recognized a non-cash impairment charge of $5.0 million during the second quarter of 2023 to reduce the carrying value of the Florida Hotels to their fair value less estimated costs to sell of $27.1 million.

 

On July 18, 2023 and July 21, 2023, the Sellers completed the disposition of the Florida Hotels to the Florida Hotels Buyer pursuant to the terms of the Florida Hotels Agreement. In connection with these transactions, the Sellers used an aggregate of $16.7 million of the net proceeds to make required principal paydowns on a nonrecourse revolving loan (the “Revolving Loan”) in order for the Florida Hotels to be released from its pledged collateral pool. The Hotel Joint Venture’s net proceeds from the disposition of the Florida Hotels were $10.3 million (of which the Company’s share was $10.0 million and Lightstone REIT I’s share was $0.3 million) after the aforementioned principal paydowns, pro rations, and closing and other related transaction costs. In connection with the disposition of the Florida Hotels, the Company recognized a gain on the sale of investment property of $0.1 million during the third quarter of 2023.

 

The Company also recognized a gain on the sale of investment property of $0.3 million during the first quarter of 2023 related to one of its hotels which was previously sold in 2017.
v3.24.2.u1
Investments in Unconsolidated Affiliated Entities
 6 Months Ended
Jun. 30, 2024
Equity Method Investments and Joint Ventures [Abstract]  
Investments in Unconsolidated Affiliated Entities

 

4.

Investments in Unconsolidated Affiliated Entities

 

The entities listed below are partially owned by the Company. The Company accounts for these investments under the equity method of accounting as the Company exercises significant influence, but does not exercise financial and operating control over these entities. A summary of the Company’s investments in the unconsolidated affiliated entities is as follows:

 

 Summary of investments in unconsolidated entities               As of  
Entity   Date of Ownership     Ownership %     June 30,
2024		     December 31,
2023		  
Brownmill Joint Venture   Various     48.6%     $ 3,855     $ 4,025  
Hilton Garden Inn Joint Venture   March 27, 2018     50.0%       8,508       9,390  
Total investments in unconsolidated affiliated real estate entities               $ 12,363     $ 13,415  

 

LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

(Unaudited)

 

Brownmill Joint Venture

 

During 2010 through 2012, the Company entered into various contribution agreements with LGH, a wholly owned subsidiary of the Sponsor and a related party, pursuant to which LGH contributed to the Operating Partnership an aggregate 48.6% membership interest in the Brownmill Joint Venture in exchange for it issuing an aggregate of 48 units of Subordinated Profits Interests to the Associate General Partner at $100,000 per unit, with an aggregate total value of $4.8 million.

 

The Company’s 48.6% membership interest in the Brownmill Joint Venture is a non-managing interest. LGH is the majority owner and manager of the Brownmill Joint Venture. Profit and cash distributions are allocated in accordance with each investor’s ownership percentage. The Company accounts for its investment in the Brownmill Joint Venture in accordance with the equity method of accounting.

 

During the six months ended June 30, 2024 and 2023, the Company received distributions from the Brownmill Joint Venture of $0.3 million and $0.2 million, respectively.

 

Brownmill Joint Venture Financial Information

 

The Company’s carrying value of its interest in the Brownmill Joint Venture differs from its share of member’s equity reported in the condensed balance sheets of the Brownmill Joint Venture because the basis of the Company’s investment is in excess of the historical net book value of the Brownmill Joint Venture. The Company’s additional basis, which has been allocated to depreciable assets, is being recognized on a straight-line basis over the estimated useful lives of the appropriate assets.

 

The following table represents the condensed statements of operations for the Brownmill Joint Venture for the periods indicated:

 

 Schedule of condensed income statements                                
    For the
Three Months Ended
June 30,		     For the
Six Months Ended
June 30,		  
    2024     2023     2024     2023  
Revenue   $ 786     $ 972     $ 1,837     $ 1,941  
                                 
Property operating expenses     461       439       886       677  
Depreciation and amortization     186       188       373       374  
Operating income     139       345       578       890  
                                 
Interest expense and other, net     (147 )     (38 )     (297 )     (322 )
Net (loss)/income   $ (8 )   $ 307     $ 281     $ 568  
                                 
Company’s share of net (loss)/income   $ (4 )   $ 149     $ 136     $ 276  
Additional depreciation and amortization expense(1)     (20 )     (20 )     (41 )     (41 )
Company’s earnings from investment   $ (24 )   $ 129     $ 95     $ 235  

 

 
(1) Additional depreciation and amortization relates to the amortization of the difference between the cost of the interest in the Brownmill Joint Venture and the amount of the underlying equity in net assets of the Brownmill Joint Venture.

 

 

The following table represents the condensed balance sheets for the Brownmill Joint Venture as of the dates indicated:

 

Schedule of condensed balance sheets                
    As of     As of  
    June 30,
2024		     December 31,
2023		  
Investment property, net   $ 12,073     $ 12,423  
Cash and restricted cash     1,480       1,598  
Other assets     1,102       1,153  
Total assets   $ 14,655     $ 15,174  
                 
Mortgage payable   $ 12,938     $ 13,075  
Other liabilities     619       736  
Members’ capital     1,098       1,363  
Total liabilities and members’ capital   $ 14,655     $ 15,174  

 

Hilton Garden Inn Joint Venture

 

On March 27, 2018, the Company and Lightstone Value Plus REIT III, Inc. (“Lightstone REIT III”), a related party REIT also sponsored by the Company’s Sponsor, acquired, through the newly formed Hilton Garden Inn Joint Venture, the Hilton Garden Inn - Long Island City from an unrelated third party, for aggregate consideration of $60.0 million, which consisted of $25.0 million of cash and $35.0 million of proceeds from a non-recourse loan from a financial institution (the “Hilton Garden Inn Mortgage”), excluding closing and other related transaction costs. The Company paid $12.9 million for a 50% membership interest in the Hilton Garden Inn Joint Venture.

 

On May 31, 2023, the Hilton Garden Inn Mortgage was amended to provide for (i) an extension of the maturity date for an additional five years, (ii) the interest rate to be adjusted to SOFR plus 3.25%, subject to a 6.41% floor, (iii) interest-only payments for the first two years of its extended term with principal and interest payments pursuant to a 300-month amortization schedule thereafter and the remaining unpaid balance due in full at its maturity date of May 31, 2028, (iv) the ability to draw up to an additional $3.0 million of principal, subject to the satisfaction of certain conditions, and (v) certain changes to its financial covenants. Additionally, the Hilton Garden Inn Joint Venture is required to fund an aggregate of $1.3 million, through monthly payments of $37 from May 31, 2023 through June 1, 2026, into a cash collateral reserve account which may be drawn upon for specified capital expenditures.

 

The Company and Lightstone REIT III each have a 50% co-managing membership interest in the Hilton Garden Inn Joint Venture. The Company accounts for its membership interest in the Hilton Garden Inn Joint Venture in accordance with the equity method of accounting because it exerts significant influence over but does not control the Hilton Garden Inn Joint Venture. All capital contributions and distributions of earnings from the Hilton Garden Inn Joint Venture are made on a pro rata basis in proportion to each member’s equity interest percentage. Any distributions in excess of earnings from the Hilton Garden Inn Joint Venture are made to the members pursuant to the terms of the Hilton Garden Inn Joint Venture’s operating agreement.

 

During the six months ended June 30, 2024, the Company received distributions from the Hilton Garden Joint Venture of $0.6 million and made contributions of $0.1 million to the Hilton Garden Joint Venture. During the six months ended June 30, 2023, the Company made contributions of $0.4 million to the Hilton Garden Inn Joint Venture.

 

As of June 30, 2024, the Hilton Garden Inn Joint Venture was in compliance with all of its financial debt covenants.

 

Hilton Garden Inn Joint Venture Financial Information

 

The following table represents the condensed statements of operations for the Hilton Garden Inn Joint Venture for the periods indicated:

 

 Schedule of condensed income statements                                
    For the
Three Months Ended
June 30,
2024		     For the
Three Months Ended
June 30,
2023		     For the
Six Months Ended
June 30,
2024		     For the
Six Months Ended
June 30,
2023		  
Revenues   $ 3,473     $ 3,115     $ 5,775     $ 5,144  
                                 
Property operating expenses     1,992       1,907       3,803       3,414  
General and administrative costs     13       106       35       132  
Depreciation and amortization     598       596       1,206       1,205  
Operating income     870       506       731       393  
Interest expense     (705 )     (825 )     (1,389 )     (1,451 )
Net income/(loss)   $ 165     $ (319 )   $ (658 )   $ (1,058 )
Company’s share of earnings (50.00%)   $ 83     $ (159 )   $ (329 )   $ (529 )

 

The following table represents the condensed balance sheets for the Hilton Garden Inn Joint Venture as of the dates indicated:

 

Schedule of condensed balance sheets                
    As of
June 30,
2024		     As of
December 31,
2023		  
Investment property, net   $ 46,893     $ 48,001  
Cash     820       1,741  
Other assets     2,024       1,816  
Total assets   $ 49,737     $ 51,558  
                 
Mortgage payable, net   $ 32,280     $ 32,273  
Other liabilities     1,011       1,075  
Members’ capital     16,446       18,210  
Total liabilities and members’ capital   $ 49,737     $ 51,558  

 
v3.24.2.u1
Marketable Securities, Fair Value Measurements and Margin Loan
 6 Months Ended
Jun. 30, 2024
Marketable Securities Fair Value Measurements And Margin Loan  
Marketable Securities, Fair Value Measurements and Margin Loan

 

5. Marketable Securities, Fair Value Measurements and Margin Loan

 

Marketable Securities

 

The following is a summary of the Company’s available for sale securities as of the dates indicated:

 

 Summary of available for sale securities                                
    As of June 30, 2024  
    Adjusted Cost    

Gross

Unrealized Gains

     Gross
Unrealized Losses		     Fair Value  
Marketable Securities:                                
                                 
Equity Securities   $ 8,554     $ 87     $ (175 )   $ 8,466  
Mutual Funds     1,116       -       -       1,116  
Total   $ 9,670     $ 87     $ (175 )   $ 9,582  

 

    As of December 31, 2023  
    Adjusted Cost     Gross
Unrealized Gains		     Gross
Unrealized Losses		     Fair Value  
Marketable Securities:                                
                                 
Equity Securities   $ 9,582     $ 37     $ (332 )   $ 9,287  

 

Fair Value Measurements

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

 

The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

 

  ● Level 1 – Quoted prices in active markets for identical assets or liabilities.
     
  ● Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
     
  ● Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of June 30, 2024 and December 31, 2023, the Company’s mutual funds were classified as Level 1 assets and its equity securities were classified as Level 2 assets. The fair values of the Company’s investments in mutual funds are measured using quoted prices in active markets for identical assets and its investments in equity securities are measured using readily available quoted prices for these securities; however, the markets for the equity securities are not active. There were no transfers between the level classifications during the three and six months ended June 30, 2024.

 

The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and other assets, accounts payable and other accrued expenses, distribution payable and due to related party approximated their fair values as of June 30, 2024 and December 31, 2023 because of the short maturity of these instruments.

 

As of June 30, 2024 and December 31, 2023, the estimated fair value our mortgages payable approximated their carrying values because they bear interest at a floating rate.

 

Margin loan

 

The Company has access to a margin loan from a financial institution that holds custody of certain of the Company’s marketable securities. The margin loan is collateralized by the marketable securities in the Company’s account. The amounts available to the Company under the margin loan are at the discretion of the financial institution and not limited to the amount of collateral in its account. No amounts were outstanding under this margin loan as of June 30, 2024 and December 31, 2023. Any borrowing under the margin loan bear interest at SOFR plus 0.85% (6.19% as of June 30, 2024).
v3.24.2.u1
Mortgage payable, net
 6 Months Ended
Jun. 30, 2024
Debt Disclosure [Abstract]  
Mortgage payable, net

 

6. Mortgage payable, net

 

Mortgage payable, net consisted of the following:

 

 Schedule of mortgages payable                                    
Description   Interest
Rate		   Weighted
Average
Interest Rate
as of
June 30,
2024		   Maturity
Date		   Amount Due
at Maturity		     As of
June 30,
2024		     As of
December 31,
2023		  
Revolving Credit Facility   SOFR + 3.45%
(floor of 6.45%)		   8.92%   September 2026   $ 101,818     $ 101,818     $ 101,818  
                                     
Total mortgage payable       8.92%       $ 101,818       101,818       101,818  
                                     
Less: Deferred financing costs                         (817 )     (998 )
                                     
Total mortgage payable, net                       $ 101,001     $ 100,820  

 

SOFR as of June 30, 2024 and December 31, 2023 was 5.34% and 5.35%, respectively.

Revolving Credit Facility

 

On October 23, 2023, the Company entered into a loan agreement with a financial institution providing for a non-recourse revolving credit facility (the “Revolving Credit Facility”) of up to $106.0 million. The Company received an initial advance of $101.8 million under the Revolving Credit Facility and designated 10 hotel properties as collateral. The Revolving Credit Facility bears interest at SOFR plus 3.45%, subject to a 6.45% floor, with an initial scheduled maturity of September 15, 2026, subject to two, one-year extension options at the sole discretion of the lender, and provides for monthly interest-only payments with the unpaid principal balance due at maturity. The Revolving Credit Facility provides for borrowings up to 65% of the loan-to-value ratio of properties designated as collateral and also requires the maintenance of certain covenants, including prescribed minimum debt service coverage and debt yield ratios which if not met may also be achieved through principal paydowns on the outstanding balance. In connection with entering into the Revolving Credit Facility, the Company deposited $4.0 million into a cash collateral reserve account.

 

If a principal paydown is deemed necessary to achieve compliance with respect to the financial debt covenants for any quarterly period, the lender may, if it so chooses, apply the necessary amount of the funds held in the cash collateral reserve account towards the required principal paydown. Additionally, if there are not sufficient funds held in the cash collateral reserve account to make the necessary principal paydown, the lender may, if it so chooses, require the Company to fund the shortfall.

 

As of June 30, 2024, the Company was in compliance with all of its financial debt covenants.

 

As of June 30, 2024, the outstanding principal balance of the Revolving Credit Facility was $101.8 million and its interest rate was 8.79%. Additionally, all 10 of the Company’s majority owned and consolidated hotel properties were pledged as collateral and no additional borrowings were available under the Revolving Credit Facility as of June 30, 2024.

 

Pursuant to the Company’s loan agreements, total escrows in the amount of $4.7 million and $4.5 million were held in restricted cash accounts as of June 30, 2024 and December 31, 2023, respectively. Such escrows, which include the $4.0 million held in the cash collateral reserve account, will be released in accordance with the applicable loan agreements for payments of real estate taxes, debt service payments, insurance and capital improvement transactions, as required.
v3.24.2.u1
Company’s Stockholder’s Equity
 6 Months Ended
Jun. 30, 2024
Equity [Abstract]  
Company’s Stockholder’s Equity

 

7. Company’s Stockholder’s Equity

 

Distributions on Common Shares

 

On November 13, 2023, the Board of Directors authorized and the Company declared a Common Share distribution of $0.075 per share for the quarterly period ending December 31, 2023. The distribution is the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. The distribution of $1.3 million was paid on January 15, 2024 to stockholders of record at the close of business on December 31, 2023.

 

On March 18, 2024, the Board of Directors authorized and the Company declared a Common Share distribution of $0.075 per share for the quarterly period ending March 31, 2024. The distribution is the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. The distribution of $1.2 million was paid on April 15, 2024 to stockholders of record at the close of business on March 31, 2024.

 

On May 9, 2024, the Board of Directors authorized and the Company declared a Common Share distribution of $0.075 per share for the quarterly period ending June 30, 2024. The distribution is the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. The distribution of $1.2 million was paid on July 15, 2024 to stockholders of record at the close of business on June 30, 2024.

On August 9, 2024, the Board of Directors authorized and the Company declared a Common Share distribution of $0.075 per share for the quarterly period ending September 30, 2024. The distribution is the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. The distribution will be paid on or about the 15th day of the month following the quarter-end to stockholders of record at the close of business on the last day of the quarter end.

 

Future distributions declared, if any, will be at the discretion of the Board of Directors based on their analysis of the Company’s performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, revenues and other sources of income, operating and interest expenses and the Company’s ability to refinance near-term debt as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. The Company cannot assure that any future distributions will be made or that it will maintain any particular level of distributions that it has previously established or may establish.

 

Tender Offers

 

2024 Tender Offer

 

The Company commenced a tender offer on April 24, 2024, pursuant to which it offered to acquire up to 700,000 of its Common Shares at a purchase price of $6.00 per share, or $4.2 million in the aggregate (the “2024 Tender Offer”). Pursuant to the terms of the Tender Offer, which expired on June 14, 2024, the Company’s stock transfer agent initially funded on behalf of the Company the repurchase of 264,233 Common Shares for an aggregate cost of $1.6 million on June 28, 2024 and the Company subsequently reimbursed the stock transfer agent on July 1, 2024. Because the Company did not reimburse its stock transfer agent until July 1, 2024, the $1.6 million cost related to the 2024 Tender Offer is included in accounts payable and other accrued expenses on the Company’s consolidated balance sheet as of June 30, 2024.

 

2023 Tender Offer

 

The Company commenced a tender offer on November 28, 2023, pursuant to which it offered to acquire up to 860,000 of its Common Shares at a purchase price of $6.00 per share, or $5.2 million in the aggregate (the “2023 Tender Offer”). Pursuant to the terms of the Tender Offer, which expired on February 5, 2024, the Company repurchased 520,141 Common Shares for an aggregate cost of $3.1 million on February 16, 2024.

 

SRP

 

The Company’s share repurchase program (the “SRP”) may provide eligible stockholders with limited, interim liquidity by enabling them to sell their Common Shares back to the Company, subject to restrictions and applicable law.

 

On March 19, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of all redemptions.

 

Effective May 10, 2021, the Board of Directors reopened the SRP to allow, subject to various conditions as set forth below, for redemptions submitted in connection with a stockholder’s death or hardship and set the price for all such purchases to the Company’s current estimated net asset value per share of common stock, as determined by the Board of Directors and reported by the Company from time to time.

 

Deaths that occurred subsequent to January 1, 2020 were eligible for consideration, subject to certain conditions. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by the Company within one year of the stockholder’s date of death for consideration.

On the above noted date, the Board of Directors established that on an annual basis, the Company would not redeem in excess of 0.5% of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Additionally, redemption requests generally would be processed on a quarterly basis and would be subject to pro ration if either type of redemption requests exceeded the annual limitation.

 

In connection with the approval of the 2023 Tender Offer, on November 13, 2023, the Board of Directors approved the suspension of the SRP effective November 20, 2023. As a result of the termination of the 2023 Tender Offer on February 5, 2024, on March 18, 2024, the Board of Directors reinstated the SRP.

 

In connection with the approval of the 2024 Tender Offer, on April 17, 2024, the Board of Directors approved the suspension of the SRP effective April 17, 2024. As a result of the termination of the 2024 Tender Offer on June 14, 2024, on August 9, 2024, the Board of Directors reinstated the SRP.

 

For the six months ended June 30, 2024, the Company repurchased 53,805 Common Shares at a weighted average price per share of $9.84. For the six months ended June 30, 2023, the Company repurchased 76,461 Common Shares at a weighted average price per share of $9.96.

 

Earnings per Share

 

The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, earnings per share is calculated by dividing net income/loss attributable to common shareholders by the weighted-average number of Common Shares outstanding during the applicable period.
v3.24.2.u1
Related Parties
 6 Months Ended
Jun. 30, 2024
Related Party Transactions [Abstract]  
Related Parties

 

8. Related Parties

 

The Company’s Sponsor, Advisor and their affiliates, including the Associate General Partner and LGH, are related parties of the Company as well as other public REITs also sponsored and/or advised by these entities. Pursuant to the terms of various agreements, certain of these entities are entitled to compensation and reimbursement of costs incurred for services related to the investment, development, management and disposition of our assets. The compensation is generally based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements.

 

The following table represents the fees incurred associated with the payments to the Company’s Advisor for the periods indicated:

 

Schedule of fees to related parties                            
    For the
Three Months Ended
June 30,		     For the
Six Months Ended
June 30,		  
    2024     2023     2024     2023  
Asset management fees (general and administrative costs)   $ 564     $ 657     $ 1,127     $ 1,316  

 

The advisory agreement has a one year term and is renewable for an unlimited number of successive one year periods upon the mutual consent of the Advisor and the Company’s independent directors.

Subordinated Profits Interests

 

In connection with the Company’s Offerings, the Sponsor and its wholly owned subsidiary, LGH, contributed (i) cash of $12.9 million and (ii) equity interests totaling 48.6% in the Brownmill Joint Venture, which were valued at $4.8 million, to the Operating Partnership in exchange for it issuing 177 Subordinated Profits Interests in the Operating Partnership to the Associate General Partner at a cost of $100,000 per unit, with an aggregate value of $17.7 million.

 

These Subordinated Profits Interests may entitle the Associate General Partner to a portion of any regular distributions that the Company makes to its stockholders, but only after its stockholders have received a stated preferred return. However, there have been no distributions declared on the Subordinated Profits Interests for any periods after December 31, 2019. Since the Company’s inception through June 30, 2024, the cumulative distributions declared and paid on the Subordinated Profits Interests were $7.9 million. Any future distributions on the Subordinated Profits Interests will always be subordinated until stockholders receive a stated preferred return.

 

The Subordinated Profits Interests may also entitle the Associate General Partner to a portion of any liquidating distributions made by the Operating Partnership. The value of such distributions will depend upon the net proceeds available for distribution upon the liquidation of the Company and, therefore, cannot be determined at the present time. Liquidating distributions to the Associate General Partner will always be subordinated until stockholders receive a distribution equal to their initial investment plus a stated preferred return.
v3.24.2.u1
Commitments and Contingencies
 6 Months Ended
Jun. 30, 2024
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

 

9. Commitments and Contingencies

 

Management Agreements

 

The Company’s hotels operate pursuant to management agreements (the “Management Agreements”) with various third-party property management companies. The property management companies perform management functions including, but not limited to, hiring and supervising employees, establishing room prices, establishing administrative policies and procedures, managing expenditures and arranging and supervising public relations and advertising. The Management Agreements are for terms up to 10 years however, the agreements can be cancelled for any reason by the Company after giving 60 days’ notice after the one-year anniversary of the commencement of the respective agreement.

 

The Management Agreements provide for the payment of a base management fee equal to 3% to 3.5% of gross revenues, as defined, and an incentive management fee based on the operating results of the hotel, as defined. The base management fee and incentive management fee, if any, are recorded as a component of property operating expenses in the consolidated statements of operations.

 

Franchise Agreements

 

As of June 30, 2024, the Company’s hotels operated pursuant to various franchise agreements. Under the franchise agreements, the Company generally pays a fee equal to 5% of gross room sales, as defined, and a marketing fund charge ranging from 1.5% to 3.5% of gross room sales. The franchise fees and marketing fund charges are recorded as a component of property operating expenses in the consolidated statements of operations.

 

The franchise agreements are generally for initial terms ranging from 15 years to 20 years, expiring between 2025 and 2037.

 

Legal Proceedings

 

From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.

 

As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

v3.24.2.u1
Summary of Significant Accounting Policies (Policies)
 6 Months Ended
Jun. 30, 2024
Accounting Policies [Abstract]  
Principles of Consolidation and Basis of Presentation

Principles of Consolidation and Basis of Presentation

 

The consolidated financial statements include the accounts of Lightstone REIT II and its Operating Partnership and its subsidiaries, over which the Company exercises financial and operating control. As of June 30, 2024, Lightstone REIT II had a 99% general partnership interest in the common units of the Operating Partnership. All inter-company balances and transactions have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on accounting principles generally accepted in the U.S. (“GAAP”), and entities deemed to be variable interest entities (“VIE”) in which the Company is the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which the Company has control, substantive participating rights or both under the respective ownership agreement. For entities in which the Company has less than a controlling interest or entities which it is not deemed to be the primary beneficiary, it accounts for the investment using the equity method of accounting.

 

The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of the Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Form 10-K”). The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair statement of the results for the periods presented. The accompanying unaudited consolidated financial statements of the Lightstone Value Plus REIT II, Inc. and Subsidiaries have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

 

GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of investment properties and investments in other unconsolidated real estate entities and depreciable lives of long-lived assets. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.

 

The consolidated balance sheet as of December 31, 2023 included herein has been derived from the consolidated balance sheet included in the Company’s 2023 Form 10-K for the fiscal year ended December 31, 2023.

 

The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.

 
Tax Status and Income Taxes

Tax Status and Income Taxes

 

The Company elected to be taxed and qualify as a REIT commencing with the taxable year ended December 31, 2009. As a REIT, the Company generally will not be subject to U.S. federal income tax on its net taxable income that it distributes currently to its stockholders. To maintain its REIT qualification under the Internal Revenue Code of 1986, as amended, or the Code, the Company must meet a number of organizational and operational requirements, including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed at regular corporate rates, and it may be precluded from qualifying for treatment as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders. Additionally, even if the Company continues to qualify as a REIT for U.S. federal income tax purposes, it may still be subject to some U.S. federal, state and local taxes on its income and property and to U.S. federal income taxes and excise taxes on its undistributed income, if any.

 

To maintain its qualification as a REIT, the Company engages in certain activities through a taxable REIT subsidiary (“TRS”), including when it acquires a hotel it usually establishes a new TRS and enters into an operating lease agreement for the hotel. As such, the Company is subject to U.S. federal and state income taxes and franchise taxes from these activities.

 

The Company’s income tax benefit and expense are included in other income/(expense), net on its consolidated statements of operations. During the three and six months ended June 30, 2024, the Company recorded an income tax benefit of $0.2 million and $0.1 million, respectively. During the three and six months ended June 30, 2023, the Company recorded income tax expense of $1.2 million and $1.4 million, respectively.

 

As of June 30, 2024 and December 31, 2023, the Company had no material uncertain income tax positions.

 
Revenues

Revenues

 

The following table represents the total revenues from hotel operations on a disaggregated basis:

 

Schedule of total revenues from hotel operations on a disaggregated basis                                
    For the
Three Months Ended
June 30,		    

For the
Six Months Ended

June 30,

  
Revenues   2024     2023     2024     2023  
Room   $ 13,123     $ 14,548     $ 23,070     $ 27,873  
Food, beverage and other     812       797       1,513       1,455  
Total revenues   $ 13,935     $ 15,345     $ 24,583     $ 29,328  

 
New Accounting Pronouncements

New Accounting Pronouncements

 

In November 2023, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The amendments will require entities to disclose significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within segment profit and loss, as well as the title and position of the CODM. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is evaluating the guidance and the impact it may have on its consolidated financial statements.

 

In December 2023, the FASB issued an accounting standards update which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. This update is effective for annual periods beginning after December 15, 2024. The Company is evaluating the guidance and the impact it may have on its consolidated financial statements.

 

The Company has reviewed and determined that other recently issued accounting pronouncements will not have a material impact on its financial position, results of operations and cash flows, or do not apply to its current operations.

 
Concentration of Risk

Concentration of Risk

 

As of June 30, 2024 and December 31, 2023, the Company had cash deposited in certain financial institutions in excess of U.S. federally insured levels. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk with respect to its cash and cash equivalents or restricted cash.

 
Current Environment

Current Environment

 

The Company’s operating results and financial condition are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, its business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility and banking failures, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, inflation and recession.

 

The Company’s overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation, higher interest rates, labor and supply chain challenges and other changes in economic conditions could adversely affect the Company’s future results of operations and financial condition.
v3.24.2.u1
Summary of Significant Accounting Policies (Tables)
 6 Months Ended
Jun. 30, 2024
Accounting Policies [Abstract]  
Schedule of total revenues from hotel operations on a disaggregated basis
Schedule of total revenues from hotel operations on a disaggregated basis                                
    For the
Three Months Ended
June 30,		    

For the
Six Months Ended

June 30,

  
Revenues   2024     2023     2024     2023  
Room   $ 13,123     $ 14,548     $ 23,070     $ 27,873  
Food, beverage and other     812       797       1,513       1,455  
Total revenues   $ 13,935     $ 15,345     $ 24,583     $ 29,328  
v3.24.2.u1
Investments in Unconsolidated Affiliated Entities (Tables)
 6 Months Ended
Jun. 30, 2024
Restructuring Cost and Reserve [Line Items]  
Summary of investments in unconsolidated entities
 Summary of investments in unconsolidated entities               As of  
Entity   Date of Ownership     Ownership %     June 30,
2024		     December 31,
2023		  
Brownmill Joint Venture   Various     48.6%     $ 3,855     $ 4,025  
Hilton Garden Inn Joint Venture   March 27, 2018     50.0%       8,508       9,390  
Total investments in unconsolidated affiliated real estate entities               $ 12,363     $ 13,415  
Schedule of condensed income statements
 Schedule of condensed income statements                                
    For the
Three Months Ended
June 30,		     For the
Six Months Ended
June 30,		  
    2024     2023     2024     2023  
Revenue   $ 786     $ 972     $ 1,837     $ 1,941  
                                 
Property operating expenses     461       439       886       677  
Depreciation and amortization     186       188       373       374  
Operating income     139       345       578       890  
                                 
Interest expense and other, net     (147 )     (38 )     (297 )     (322 )
Net (loss)/income   $ (8 )   $ 307     $ 281     $ 568  
                                 
Company’s share of net (loss)/income   $ (4 )   $ 149     $ 136     $ 276  
Additional depreciation and amortization expense(1)     (20 )     (20 )     (41 )     (41 )
Company’s earnings from investment   $ (24 )   $ 129     $ 95     $ 235  

 

 
(1) Additional depreciation and amortization relates to the amortization of the difference between the cost of the interest in the Brownmill Joint Venture and the amount of the underlying equity in net assets of the Brownmill Joint Venture.
Schedule of condensed balance sheets
Schedule of condensed balance sheets                
    As of     As of  
    June 30,
2024		     December 31,
2023		  
Investment property, net   $ 12,073     $ 12,423  
Cash and restricted cash     1,480       1,598  
Other assets     1,102       1,153  
Total assets   $ 14,655     $ 15,174  
                 
Mortgage payable   $ 12,938     $ 13,075  
Other liabilities     619       736  
Members’ capital     1,098       1,363  
Total liabilities and members’ capital   $ 14,655     $ 15,174  
Hilton Garden Inn Joint Venture [Member]  
Restructuring Cost and Reserve [Line Items]  
Schedule of condensed income statements
 Schedule of condensed income statements                                
    For the
Three Months Ended
June 30,
2024		     For the
Three Months Ended
June 30,
2023		     For the
Six Months Ended
June 30,
2024		     For the
Six Months Ended
June 30,
2023		  
Revenues   $ 3,473     $ 3,115     $ 5,775     $ 5,144  
                                 
Property operating expenses     1,992       1,907       3,803       3,414  
General and administrative costs     13       106       35       132  
Depreciation and amortization     598       596       1,206       1,205  
Operating income     870       506       731       393  
Interest expense     (705 )     (825 )     (1,389 )     (1,451 )
Net income/(loss)   $ 165     $ (319 )   $ (658 )   $ (1,058 )
Company’s share of earnings (50.00%)   $ 83     $ (159 )   $ (329 )   $ (529 )
Schedule of condensed balance sheets
Schedule of condensed balance sheets                
    As of
June 30,
2024		     As of
December 31,
2023		  
Investment property, net   $ 46,893     $ 48,001  
Cash     820       1,741  
Other assets     2,024       1,816  
Total assets   $ 49,737     $ 51,558  
                 
Mortgage payable, net   $ 32,280     $ 32,273  
Other liabilities     1,011       1,075  
Members’ capital     16,446       18,210  
Total liabilities and members’ capital   $ 49,737     $ 51,558  
v3.24.2.u1
Marketable Securities, Fair Value Measurements and Margin Loan (Tables)
 6 Months Ended
Jun. 30, 2024
Marketable Securities Fair Value Measurements And Margin Loan  
Summary of available for sale securities
 Summary of available for sale securities                                
    As of June 30, 2024  
    Adjusted Cost    

Gross

Unrealized Gains

     Gross
Unrealized Losses		     Fair Value  
Marketable Securities:                                
                                 
Equity Securities   $ 8,554     $ 87     $ (175 )   $ 8,466  
Mutual Funds     1,116       -       -       1,116  
Total   $ 9,670     $ 87     $ (175 )   $ 9,582  

 

    As of December 31, 2023  
    Adjusted Cost     Gross
Unrealized Gains		     Gross
Unrealized Losses		     Fair Value  
Marketable Securities:                                
                                 
Equity Securities   $ 9,582     $ 37     $ (332 )   $ 9,287  
v3.24.2.u1
Mortgage payable, net (Tables)
 6 Months Ended
Jun. 30, 2024
Debt Disclosure [Abstract]  
Schedule of mortgages payable
 Schedule of mortgages payable                                    
Description   Interest
Rate		   Weighted
Average
Interest Rate
as of
June 30,
2024		   Maturity
Date		   Amount Due
at Maturity		     As of
June 30,
2024		     As of
December 31,
2023		  
Revolving Credit Facility   SOFR + 3.45%
(floor of 6.45%)		   8.92%   September 2026   $ 101,818     $ 101,818     $ 101,818  
                                     
Total mortgage payable       8.92%       $ 101,818       101,818       101,818  
                                     
Less: Deferred financing costs                         (817 )     (998 )
                                     
Total mortgage payable, net                       $ 101,001     $ 100,820  
v3.24.2.u1
Related Parties (Tables)
 6 Months Ended
Jun. 30, 2024
Related Party Transactions [Abstract]  
Schedule of fees to related parties
Schedule of fees to related parties                            
    For the
Three Months Ended
June 30,		     For the
Six Months Ended
June 30,		  
    2024     2023     2024     2023  
Asset management fees (general and administrative costs)   $ 564     $ 657     $ 1,127     $ 1,316  
v3.24.2.u1
Business and Structure (Details Narrative) - USD ($)
$ / shares in Units, $ in Thousands
 1 Months Ended 6 Months Ended
Sep. 27, 2014
May 20, 2008
Jun. 30, 2024
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]      
Distribution per unit of limited partner interest     $ 100,000
Business acquired assets     $ 17,700
Cash     $ 12,900
Equity interests 48.60%    
Noncontrolling interests $ 4,800    
Lightstone Value Plus REIT III LLC [Member]      
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]      
Issuance of common shares, shares     20,000
Issuance of common shares, value     $ 200
Shares issued, price per share     $ 10.00
General Partner [Member]      
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]      
Contribution from advisor   $ 2  
Number of limited partner units issued to advisor   200  
Limited Partner [Member]      
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]      
Distribution per unit of limited partner interest $ 100,000    
Partners capital account, units, contributed 177    
Partners capital account, contributions $ 17,700    
Brownmill Joint Venture [Member]      
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]      
Ownership interest     48.60%
Lightstone REIT II [Member]      
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]      
General partner ownership interest     99.00%
v3.24.2.u1
Summary of Significant Accounting Policies (Details) - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Product Information [Line Items]        
Revenue $ 13,935 $ 15,345 $ 24,583 $ 29,328
Room [Member]        
Product Information [Line Items]        
Revenue 13,123 14,548 23,070 27,873
Food and Beverage [Member]        
Product Information [Line Items]        
Revenue $ 812 $ 797 $ 1,513 $ 1,455
v3.24.2.u1
Summary of Significant Accounting Policies (Details Narrative) - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Dec. 31, 2023
Real Estate Investment Trust Mandated Annual Distributions Percentage Taxable Income     90.00%    
Income tax expense $ 200 $ 1,200 $ 100 $ 1,400  
Uncertain income tax positions $ 0   $ 0   $ 0
Lightstone REIT II [Member]          
Percentage of general partnership interest in common units of the operating partnership     99.00%    
v3.24.2.u1
Disposition Activities (Details Narrative) - USD ($)
$ in Thousands
 1 Months Ended 3 Months Ended
May 08, 2023
Jul. 18, 2023
Sep. 30, 2023
Jun. 30, 2023
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]        
Contractual sales price $ 28,000      
Non-cash impairment charge       $ 5,000
Hampton Inn Suites [Member]        
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]        
Principal amount   $ 16,700    
Fort Lauderdale And Hampton Inn [Member]        
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]        
Recognized loss on the sale of investment     $ 100  
Florida Hotel Portfolio [Member]        
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]        
Sale of investment property       $ 27,100
v3.24.2.u1
Investments in Unconsolidated Affiliated Entities (Details) - USD ($)
$ in Thousands
 6 Months Ended
Jun. 30, 2024
Dec. 31, 2023
Schedule of Equity Method Investments [Line Items]    
Total investments in unconsolidated affiliated real estate entities $ 12,363 $ 13,415
Brownmill Joint Venture [Member]    
Schedule of Equity Method Investments [Line Items]    
Ownership percentage 48.60%  
Total investments in unconsolidated affiliated real estate entities $ 3,855 4,025
Hilton Garden Inn Joint Venture [Member]    
Schedule of Equity Method Investments [Line Items]    
Ownership percentage 50.00%  
Total investments in unconsolidated affiliated real estate entities $ 8,508 $ 9,390
Business acquisition, date of acquisition agreement Mar. 27, 2018  
v3.24.2.u1
Investments in Unconsolidated Affiliated Entities (Details 1) - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Restructuring Cost and Reserve [Line Items]        
Revenue $ 13,935 $ 15,345 $ 24,583 $ 29,328
Depreciation and amortization 1,479 1,809 2,969 3,669
Net (loss)/income 418 (7,123) (2,136) (8,938)
Brownmill Joint Venture [Member]        
Restructuring Cost and Reserve [Line Items]        
Revenue 786 972 1,837 1,941
Property operating expenses 461 439 886 677
Depreciation and amortization 186 188 373 374
Operating income 139 345 578 890
Interest expense and other, net (147) (38) (297) (322)
Net (loss)/income (8) 307 281 568
Company’s share of net (loss)/income (4) 149 136 276
Additional depreciation and amortization expense [1] (20) (20) (41) (41)
Company’s earnings from investment $ (24) $ 129 $ 95 $ 235
[1] Additional depreciation and amortization relates to the amortization of the difference between the cost of the interest in the Brownmill Joint Venture and the amount of the underlying equity in net assets of the Brownmill Joint Venture.
v3.24.2.u1
Investments in Unconsolidated Affiliated Entities (Details 2) - USD ($)
$ in Thousands
Jun. 30, 2024
Dec. 31, 2023
Restructuring Cost and Reserve [Line Items]    
Cash and restricted cash $ 12,900  
Total assets 201,120 $ 209,439
Members’ capital 79,233 89,104
Total liabilities and members’ capital 201,120 209,439
Brownmill Joint Venture [Member]    
Restructuring Cost and Reserve [Line Items]    
Investment property, net 12,073 12,423
Cash and restricted cash 1,480 1,598
Other assets 1,102 1,153
Total assets 14,655 15,174
Mortgage payable 12,938 13,075
Other liabilities 619 736
Members’ capital 1,098 1,363
Total liabilities and members’ capital $ 14,655 $ 15,174
v3.24.2.u1
Investments in Unconsolidated Affiliated Entities (Details 3) - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Restructuring Cost and Reserve [Line Items]        
Revenues $ 13,935 $ 15,345 $ 24,583 $ 29,328
General and administrative costs 1,082 1,246 2,084 2,438
Depreciation and amortization 1,479 1,809 2,969 3,669
Net income/(loss) 418 (7,123) (2,136) (8,938)
Hilton Garden Inn Joint Venture [Member]        
Restructuring Cost and Reserve [Line Items]        
Revenues 3,473 3,115 5,775 5,144
Property operating expenses 1,992 1,907 3,803 3,414
General and administrative costs 13 106 35 132
Depreciation and amortization 598 596 1,206 1,205
Operating income 870 506 731 393
Interest expense (705) (825) (1,389) (1,451)
Net income/(loss) 165 (319) (658) (1,058)
Company’s share of earnings (50.00%) $ 83 $ (159) $ (329) $ (529)
v3.24.2.u1
Investments in Unconsolidated Affiliated Entities (Details 4) - USD ($)
$ in Thousands
Jun. 30, 2024
Dec. 31, 2023
Restructuring Cost and Reserve [Line Items]    
Investment property, net $ 201,669 $ 201,292
Cash 12,900  
Total assets 201,120 209,439
Members’ capital 79,233 89,104
Total liabilities and members’ capital 201,120 209,439
Hilton Garden Inn Joint Venture [Member]    
Restructuring Cost and Reserve [Line Items]    
Investment property, net 46,893 48,001
Cash 820 1,741
Other assets 2,024 1,816
Total assets 49,737 51,558
Mortgage payable, net 32,280 32,273
Other liabilities 1,011 1,075
Members’ capital 16,446 18,210
Total liabilities and members’ capital $ 49,737 $ 51,558
v3.24.2.u1
Investments in Unconsolidated Affiliated Entities (Details Narrative) - USD ($)
$ / shares in Units, $ in Thousands
 1 Months Ended 6 Months Ended
May 31, 2023
Mar. 27, 2018
Jun. 30, 2024
Jun. 30, 2023
Schedule of Equity Method Investments [Line Items]        
Partners' Capital Account, Distribution Per Unit of Limited Partner Interest     $ 100,000  
Hilton Garden Inn Joint Venture [Member]        
Schedule of Equity Method Investments [Line Items]        
Debt instrument, interest rate, basis for effective rate SOFR plus 3.25%      
Maturity date May 31, 2028      
Principal paydown $ 3,000      
Brownmill Joint Venture [Member]        
Schedule of Equity Method Investments [Line Items]        
Partners' Capital Account, Distribution Per Unit of Limited Partner Interest     $ 100,000  
Business acquisition percentage of voting interest acquired     48.60%  
Proceeds from equity method investment, distribution, return of capital     $ 300 $ 200
Hilton Garden Inn [Member]        
Schedule of Equity Method Investments [Line Items]        
Aggregate purchase price   $ 60,000    
Offering funds used in acquisition   25,000    
Proceeds from issuance of debt   35,000    
Venture pre-funding   $ 12,900    
Business acquisition percentage of voting interest acquired   50.00%    
Distributions received     600  
Capital contributions     $ 100 $ 400
v3.24.2.u1
Marketable Securities, Fair Value Measurements and Margin Loan (Details) - USD ($)
$ in Thousands
 6 Months Ended 12 Months Ended
Jun. 30, 2024
Dec. 31, 2023
Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items]    
Adjusted Cost $ 9,670  
Gross Unrealized Gains 87  
Gross Unrealized Losses (175)  
Fair Value 9,582  
Equity Securities [Member]    
Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items]    
Adjusted Cost 8,554 $ 9,582
Gross Unrealized Gains 87 37
Gross Unrealized Losses (175) (332)
Fair Value 8,466 $ 9,287
Mutual Fund [Member]    
Debt Securities, Held-to-Maturity, Allowance for Credit Loss [Line Items]    
Adjusted Cost 1,116  
Gross Unrealized Gains  
Gross Unrealized Losses  
Fair Value $ 1,116  
v3.24.2.u1
Marketable Securities, Fair Value Measurements and Margin Loan (Details Narrative) - USD ($)
$ in Thousands
 6 Months Ended
Jun. 30, 2024
Dec. 31, 2023
Marketable Securities Fair Value Measurements And Margin Loan    
Margin loan $ 0 $ 0
Debt Instrument, Interest Rate Terms SOFR plus 0.85%  
v3.24.2.u1
Mortgage payable, net (Details) - USD ($)
$ in Thousands
 6 Months Ended
Jun. 30, 2024
Dec. 31, 2023
Short-Term Debt [Line Items]    
Debt, Weighted Average Interest Rate 8.92%  
Amount due at maturity $ 101,818  
Total mortgages payable 101,818 $ 101,818
Less: Deferred financing costs (817) (998)
Total mortgages payable, net $ 101,001 100,820
Revolving Credit Facility [Member]    
Short-Term Debt [Line Items]    
Debt Instrument, Description of Variable Rate Basis SOFR + 3.45% (floor of 6.45%)  
Debt, Weighted Average Interest Rate 8.92%  
Maturity Date September 2026  
Amount due at maturity $ 101,818  
Total mortgages payable $ 101,818 $ 101,818
v3.24.2.u1
Mortgage payable, net (Details Narrative) - USD ($)
$ in Thousands
 1 Months Ended
Oct. 23, 2023
Jun. 30, 2024
Dec. 31, 2023
Revolving Credit Facility [Member]      
Debt Instrument [Line Items]      
Maturity date Oct. 23, 2023    
Face amount $ 106,000    
Outstanding balance   $ 101,800  
Maximum borrowing capacity percentage   65.00%  
Escrows, amount held in cash collateral reserve account   $ 4,000  
Escrows amount   $ 4,700 $ 4,500
SOFR [Member]      
Debt Instrument [Line Items]      
Interest rate   5.34% 5.35%
v3.24.2.u1
Company’s Stockholder’s Equity (Details Narrative) - USD ($)
$ / shares in Units, $ in Thousands
 1 Months Ended 3 Months Ended 6 Months Ended 12 Months Ended
Aug. 09, 2024
May 09, 2024
Feb. 05, 2024
Nov. 13, 2023
Jun. 28, 2024
Apr. 24, 2024
Mar. 18, 2024
Nov. 28, 2023
Mar. 31, 2024
Jun. 30, 2024
Jun. 30, 2023
Dec. 31, 2023
Equity [Abstract]                        
Common share distribution per share $ 0.075 $ 0.075   $ 0.075     $ 0.075          
Annual distributions paid per share $ 0.30 $ 0.30   $ 0.30     $ 0.30          
Annualized distribution rate 3.00% 3.00%   3.00%     3.00%          
Share Price $ 10.00 $ 10.00   $ 10.00     $ 10.00          
Distribution paid in cash                 $ 1,200 $ 1,200   $ 1,300
Repurchase of shares     520,141   264,233 700,000   860,000   53,805 76,461  
Weighted average price per share           $ 6.00   $ 6.00   $ 9.84 $ 9.96  
Shares repurchased value     $ 3,100   $ 1,600 $ 4,200   $ 5,200        
v3.24.2.u1
Related Parties (Details) - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2024
Jun. 30, 2023
Jun. 30, 2024
Jun. 30, 2023
Advisor [Member]        
Related Party Transaction [Line Items]        
Asset management fees (general and administrative costs) $ 564 $ 657 $ 1,127 $ 1,316
v3.24.2.u1
Related Parties (Details Narrative)
$ in Thousands
 6 Months Ended
Jun. 30, 2024
USD ($)
Related Party Transactions [Abstract]  
Cash $ 12,900
Equity interests 4,800
Aggregate consideration 17,700
Distributions declared and paid $ 7,900
v3.24.2.u1
Commitments and Contingencies (Details Narrative)
 6 Months Ended
Jun. 30, 2024
Loss Contingencies [Line Items]  
Management Agreement Term 10 years
Franchise Fee Percentage 5.00%
Minimum [Member]  
Loss Contingencies [Line Items]  
Property Management Fee, Percent Fee 3.00%
Marketing Fund Charge Percent 1.50%
Franchise Agreement Term 15 years
Maximum [Member]  
Loss Contingencies [Line Items]  
Property Management Fee, Percent Fee 3.50%
Marketing Fund Charge Percent 3.50%
Franchise Agreement Term 20 years
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