Item 1. Financial
Statements.
Lightstone Value
Plus Real Estate Investment Trust V, Inc.
Consolidated
Balance Sheets
(dollars in thousands,
except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Investment property:
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
$
|
63,977
|
|
|
$
|
63,873
|
|
Building and improvements
|
|
|
249,863
|
|
|
|
248,079
|
|
Furniture, fixtures and equipment
|
|
|
6,856
|
|
|
|
6,552
|
|
Gross investment property
|
|
|
320,696
|
|
|
|
318,504
|
|
Less accumulated depreciation
|
|
|
(56,328
|
)
|
|
|
(50,823
|
)
|
Net investment property
|
|
|
264,368
|
|
|
|
267,681
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
25,074
|
|
|
|
27,078
|
|
Marketable securities, available for sale
|
|
|
3,665
|
|
|
|
3,654
|
|
Restricted cash
|
|
|
22,137
|
|
|
|
4,373
|
|
Note receivable, net
|
|
|
13,556
|
|
|
|
12,794
|
|
Prepaid expenses and other assets
|
|
|
1,863
|
|
|
|
1,604
|
|
Assets held for sale
|
|
|
-
|
|
|
|
24,140
|
|
Total Assets
|
|
$
|
330,663
|
|
|
$
|
341,324
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Notes payable, net
|
|
$
|
213,251
|
|
|
$
|
212,989
|
|
Accounts payable and accrued and other liabilities
|
|
|
6,645
|
|
|
|
6,530
|
|
Liabilities held for sale
|
|
|
-
|
|
|
|
37,165
|
|
Total liabilities
|
|
|
219,896
|
|
|
|
256,684
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company’s stockholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.0001 par value per share; 50.0 million shares authorized, none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Convertible stock, $.0001 par value per share; 1,000 shares authorized, issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $.0001 par value per share; 350.0 million shares authorized, 20.2 million shares issued and outstanding
|
|
|
2
|
|
|
|
2
|
|
Additional paid-in-capital
|
|
|
187,088
|
|
|
|
189,216
|
|
Accumulated other comprehensive income
|
|
|
85
|
|
|
|
140
|
|
Accumulated deficit
|
|
|
(75,039
|
)
|
|
|
(102,519
|
)
|
Total Company’s stockholders’ equity
|
|
|
112,136
|
|
|
|
86,839
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
(1,369
|
)
|
|
|
(2,199
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity
|
|
|
110,767
|
|
|
|
84,640
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
330,663
|
|
|
$
|
341,324
|
|
See Notes to
Consolidated Financial Statements.
Lightstone Value
Plus Real Estate Investment Trust V, Inc.
Consolidated
Statements of Operations and Comprehensive Income
(dollars and
shares in thousands, except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues
|
|
$
|
9,390
|
|
|
$
|
10,077
|
|
|
$
|
19,677
|
|
|
$
|
19,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses
|
|
|
3,062
|
|
|
|
3,095
|
|
|
|
6,239
|
|
|
|
6,055
|
|
Real estate taxes
|
|
|
1,358
|
|
|
|
1,447
|
|
|
|
2,829
|
|
|
|
2,665
|
|
General and administrative
|
|
|
1,568
|
|
|
|
1,572
|
|
|
|
3,221
|
|
|
|
3,111
|
|
Depreciation and amortization
|
|
|
2,755
|
|
|
|
3,411
|
|
|
|
5,665
|
|
|
|
5,922
|
|
Total operating expenses
|
|
|
8,743
|
|
|
|
9,525
|
|
|
|
17,954
|
|
|
|
17,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
647
|
|
|
|
552
|
|
|
|
1,723
|
|
|
|
1,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(2,215
|
)
|
|
|
(2,391
|
)
|
|
|
(4,668
|
)
|
|
|
(4,531
|
)
|
Interest income
|
|
|
495
|
|
|
|
450
|
|
|
|
978
|
|
|
|
937
|
|
Gain on sale of investment property
|
|
|
-
|
|
|
|
-
|
|
|
|
27,825
|
|
|
|
5,474
|
|
Gain on disposition of unconsolidated joint venture
|
|
|
1,457
|
|
|
|
-
|
|
|
|
1,457
|
|
|
|
-
|
|
Other income, net
|
|
|
115
|
|
|
|
127
|
|
|
|
296
|
|
|
|
326
|
|
Net income/(loss)
|
|
|
499
|
|
|
|
(1,262
|
)
|
|
|
27,611
|
|
|
|
3,930
|
|
Net income attributable to noncontrolling interests
|
|
|
(54
|
)
|
|
|
(21
|
)
|
|
|
(131
|
)
|
|
|
(1,232
|
)
|
Net income/(loss) attributable to the Company’s shares
|
|
$
|
445
|
|
|
$
|
(1,283
|
)
|
|
$
|
27,480
|
|
|
$
|
2,698
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
20,193
|
|
|
|
20,353
|
|
|
|
20,193
|
|
|
|
21,293
|
|
Basic and diluted income/(loss) per share
|
|
$
|
0.02
|
|
|
$
|
(0.06
|
)
|
|
$
|
1.36
|
|
|
$
|
0.13
|
|
Comprehensive income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
499
|
|
|
$
|
(1,262
|
)
|
|
$
|
27,611
|
|
|
$
|
3,930
|
|
Other comprehensive (loss)/income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holding gain/(loss) on marketable securities, available for sale
|
|
|
(6
|
)
|
|
|
128
|
|
|
|
(48
|
)
|
|
|
100
|
|
Reclassification adjustment for loss/(gain) included in net income/(loss)
|
|
|
1
|
|
|
|
(46
|
)
|
|
|
(7
|
)
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive (loss)/income
|
|
|
(5
|
)
|
|
|
82
|
|
|
|
(55
|
)
|
|
|
48
|
|
Comprehensive income/(loss):
|
|
|
494
|
|
|
|
(1,180
|
)
|
|
|
27,556
|
|
|
|
3,978
|
|
Comprehensive income attributable to noncontrolling interests
|
|
|
(54
|
)
|
|
|
(21
|
)
|
|
|
(131
|
)
|
|
|
(1,232
|
)
|
Comprehensive income/(loss) attributable to the Company’s shares
|
|
$
|
440
|
|
|
$
|
(1,201
|
)
|
|
$
|
27,425
|
|
|
$
|
2,746
|
|
See Notes to
Consolidated Financial Statements.
Lightstone Value
Plus Real Estate Investment Trust V, Inc.
Consolidated
Statements of Stockholders’ Equity
(dollars and
shares in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Convertible Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income
|
|
|
Deficit
|
|
|
Interests
|
|
|
Equity
|
|
BALANCE, December 31, 2019
|
|
|
1
|
|
|
$
|
-
|
|
|
|
22,223
|
|
|
$
|
2
|
|
|
$
|
204,912
|
|
|
$
|
111
|
|
|
$
|
(102,404
|
)
|
|
$
|
478
|
|
|
$
|
103,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,698
|
|
|
|
1,232
|
|
|
|
3,930
|
|
Distributions paid to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,277
|
)
|
|
|
(3,277
|
)
|
Tender of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,003
|
)
|
|
|
-
|
|
|
|
(15,601
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,601
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holding gain on marketable securities, available for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100
|
|
Reclassification adjustment for gain on sale of marketable securities included in net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(52
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, June 30, 2020
|
|
|
1
|
|
|
$
|
-
|
|
|
|
20,220
|
|
|
$
|
2
|
|
|
$
|
189,311
|
|
|
$
|
159
|
|
|
$
|
(99,706
|
)
|
|
$
|
(1,567
|
)
|
|
$
|
88,199
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Convertible Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income
|
|
|
Deficit
|
|
|
Interests
|
|
|
Equity
|
|
BALANCE, March 31, 2020
|
|
|
1
|
|
|
$
|
-
|
|
|
|
22,223
|
|
|
$
|
2
|
|
|
$
|
204,841
|
|
|
$
|
77
|
|
|
$
|
(98,423
|
)
|
|
$
|
(151
|
)
|
|
$
|
106,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,283
|
)
|
|
|
21
|
|
|
|
(1,262
|
)
|
Distributions paid to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,437
|
)
|
|
|
(1,437
|
)
|
Tender of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,003
|
)
|
|
|
-
|
|
|
|
(15,530
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,530
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holding gain on marketable securities, available for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
128
|
|
|
|
-
|
|
|
|
-
|
|
|
|
128
|
|
Reclassification adjustment for gain on sale of marketable securities included in net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(46
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, June 30, 2020
|
|
|
1
|
|
|
$
|
-
|
|
|
|
20,220
|
|
|
$
|
2
|
|
|
$
|
189,311
|
|
|
$
|
159
|
|
|
$
|
(99,706
|
)
|
|
$
|
(1,567
|
)
|
|
$
|
88,199
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Convertible Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income
|
|
|
Deficit
|
|
|
Interests
|
|
|
Equity
|
|
BALANCE, December 31, 2020
|
|
|
1
|
|
|
$
|
-
|
|
|
|
20,193
|
|
|
$
|
2
|
|
|
$
|
189,216
|
|
|
$
|
140
|
|
|
$
|
(102,519
|
)
|
|
$
|
(2,199
|
)
|
|
$
|
84,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,480
|
|
|
|
131
|
|
|
|
27,611
|
|
Distributions paid to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(343
|
)
|
|
|
(343
|
)
|
Acquisition of noncontrolling interest in a subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,128
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,042
|
|
|
|
(1,086
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holding loss on marketable securities, available for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(48
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(48
|
)
|
Reclassification adjustment for gain on sale of marketable securities included in net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, June 30, 2021
|
|
|
1
|
|
|
$
|
-
|
|
|
|
20,193
|
|
|
$
|
2
|
|
|
$
|
187,088
|
|
|
$
|
85
|
|
|
$
|
(75,039
|
)
|
|
$
|
(1,369
|
)
|
|
$
|
110,767
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Convertible Stock
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income
|
|
|
Deficit
|
|
|
Interests
|
|
|
Equity
|
|
BALANCE, March 31, 2021
|
|
|
1
|
|
|
$
|
-
|
|
|
|
20,193
|
|
|
$
|
2
|
|
|
$
|
187,088
|
|
|
$
|
90
|
|
|
$
|
(75,484
|
)
|
|
$
|
(1,324
|
)
|
|
$
|
110,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
445
|
|
|
|
54
|
|
|
|
499
|
|
Distributions paid to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(99
|
)
|
|
|
(99
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holding loss on marketable securities, available for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(6
|
)
|
Reclassification adjustment for loss on sale of marketable securities included in net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, June 30, 2021
|
|
|
1
|
|
|
$
|
-
|
|
|
|
20,193
|
|
|
$
|
2
|
|
|
$
|
187,088
|
|
|
$
|
85
|
|
|
$
|
(75,039
|
)
|
|
$
|
(1,369
|
)
|
|
$
|
110,767
|
|
See Notes to
Consolidated Financial Statements.
Lightstone Value
Plus Real Estate Investment Trust V, Inc.
Consolidated
Statements of Cash Flows
(dollars in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
27,611
|
|
|
$
|
3,930
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,665
|
|
|
|
5,922
|
|
Amortization of deferred financing fees
|
|
|
308
|
|
|
|
266
|
|
Gain on disposition of unconsolidated joint venture
|
|
|
(1,457
|
)
|
|
|
-
|
|
Gain on sale of investment property
|
|
|
(27,825
|
)
|
|
|
(5,474
|
)
|
Non-cash interest income
|
|
|
(785
|
)
|
|
|
(852
|
)
|
Other non-cash adjustments
|
|
|
-
|
|
|
|
(52
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease in prepaid expenses and other assets
|
|
|
2,542
|
|
|
|
23
|
|
Decrease in accounts payable and accrued and other liabilities
|
|
|
(2,037
|
)
|
|
|
(60
|
)
|
Decrease in payables to related parties
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
4,022
|
|
|
|
3,697
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of investment property
|
|
|
(2,235
|
)
|
|
|
(46,189
|
)
|
Purchases of marketable securities
|
|
|
(795
|
)
|
|
|
(835
|
)
|
Proceeds from sale of marketable securities
|
|
|
736
|
|
|
|
2,742
|
|
Funding of note receivable, net
|
|
|
-
|
|
|
|
(648
|
)
|
Acquisition of noncontrolling interest
|
|
|
(1,086
|
)
|
|
|
-
|
|
Proceeds from sale of investment property, net of closing costs
|
|
|
14,364
|
|
|
|
23,673
|
|
Proceeds from disposition of unconsolidated joint venture
|
|
|
1,457
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash provided by/(used in) investing activities
|
|
|
12,441
|
|
|
|
(21,257
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
-
|
|
|
|
65,620
|
|
Payments on notes payable
|
|
|
(360
|
)
|
|
|
(12,788
|
)
|
Proceeds from advance from advisor
|
|
|
-
|
|
|
|
25,000
|
|
Payments on advance from advisor
|
|
|
-
|
|
|
|
(25,000
|
)
|
Payment of loan fees and expenses
|
|
|
-
|
|
|
|
(1,566
|
)
|
Tender of common stock
|
|
|
-
|
|
|
|
(15,601
|
)
|
Distributions to noncontrolling interests
|
|
|
(343
|
)
|
|
|
(3,277
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/provided by financing activities
|
|
|
(703
|
)
|
|
|
32,388
|
|
|
|
|
|
|
|
|
|
|
Net change in cash, cash equivalents and restricted cash
|
|
|
15,760
|
|
|
|
14,828
|
|
Cash, cash equivalents and restricted cash, beginning of year
|
|
|
31,451
|
|
|
|
19,950
|
|
Cash, cash equivalents and restricted cash, end of period
|
|
$
|
47,211
|
|
|
$
|
34,778
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information for the periods indicated is as follows:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
4,385
|
|
|
$
|
4,927
|
|
Debt assumed by buyer in connection with disposition of investment property
|
|
$
|
35,700
|
|
|
$
|
-
|
|
Capital expenditures for real estate in accrued liabilities and accounts payable
|
|
$
|
175
|
|
|
$
|
88
|
|
Holding loss/gain on marketable securities, available for sale
|
|
$
|
55
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
25,074
|
|
|
$
|
28,186
|
|
Restricted cash
|
|
|
22,137
|
|
|
|
6,592
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
47,211
|
|
|
$
|
34,778
|
|
See Notes to
Consolidated Financial Statements.
Lightstone Value
Plus Real Estate Investment Trust V, Inc.
Notes to Consolidated
Financial Statements (unaudited)
(Dollar amounts
in thousands, except per share/unit data and where indicated in millions)
Lightstone Value
Plus Real Estate Investment Trust V, Inc. which was previously named Behringer Harvard Opportunity REIT II, Inc., prior to July
20, 2017 (which may be referred to as the “Company,” “we,” “us,” or “our”), was organized
as a Maryland corporation on January 9, 2007 and has elected to be taxed, and currently qualifies, as a real estate investment trust
(“REIT”) for federal income tax purposes.
The Company was
formed primarily to acquire and operate commercial real estate and real estate-related assets on an opportunistic and value-add basis.
In particular, the Company has focused generally on acquiring commercial properties with significant possibilities for capital appreciation,
such as those requiring development, redevelopment, or repositioning, those located in markets and submarkets with high growth potential,
and those available from sellers who are distressed or face time-sensitive deadlines. The Company has acquired a wide variety of
commercial properties, including office, industrial, retail, hospitality, and multifamily. The Company has purchased existing,
income-producing properties, and newly-constructed properties. The Company has also invested in other real estate-related investments
such as mortgage and mezzanine loans. The Company intends to hold the various real properties in which it has invested until such time
as its board of directors determines that a sale or other disposition appears to be advantageous to achieve the Company’s investment
objectives or until it appears that the objectives will not be met. The Company currently has one operating segment. As of June 30, 2021,
the Company had seven real estate investments (five wholly owned properties and two properties consolidated through investments in joint
ventures) and one real estate-related investment (mezzanine loan).
Substantially all
of the Company’s business is conducted through Lightstone REIT V OP LP, a limited partnership organized in Delaware (the “Operating
Partnership”). As of June 30, 2021, the Company’s wholly-owned subsidiary, BHO II, Inc., a Delaware corporation,
owned a 0.1% partnership interest in the Operating Partnership as its sole general partner. As of June 30, 2021, the Company’s
wholly-owned subsidiary, BHO Business Trust II, a Maryland business trust, was the sole limited partner of the Operating Partnership
and owned the remaining 99.9% interest in the Operating Partnership.
The Company’s
business is managed by an external advisor and the Company has no employees. Effective February 10, 2017, the Company engaged affiliates
of The Lightstone Group (“Lightstone”), LSG-BH II Advisor LLC and LSG Development Advisor LLC (collectively, the “Advisor”),
to provide advisory services to the Company. Lightstone is majority owned by the chairman of the Company’s board of directors,
David Lichtenstein. Pursuant to the terms of an advisory agreement and subject to the oversight of the Company’s board of directors,
the Advisor is responsible for managing the Company’s day-to-day affairs and for services related to the management of the Company’s
assets.
Organization
In connection with
the Company’s initial capitalization, the Company issued 22,500 shares of its common stock and 1,000 shares of its convertible
stock to the Company’s previous advisor on January 19, 2007. The 1,000 shares of convertible stock were transferred
to an affiliate of Lightstone on February 10, 2017 and remain outstanding. As of June 30, 2021, the Company had 20.2 million shares of
common stock outstanding.
The Company’s
common stock is not currently listed on a national securities exchange. The timing of a liquidity event for the Company’s stockholders
will depend upon then prevailing market conditions. On January 9, 2020, the Company’s board of directors extended the targeted
timeline for the Company to commence a liquidity event until June 30, 2028 based on their assessment of the Company’s investment
objectives and liquidity options for the Company’s stockholders. The Company can provide no assurances as to the actual timing
of the commencement of a liquidity event for its stockholders or the ultimate liquidation of the Company. The Company will seek stockholder
approval prior to liquidating its entire portfolio.
Lightstone Value
Plus Real Estate Investment Trust V, Inc.
Notes to Consolidated
Financial Statements (unaudited)
(Dollar amounts
in thousands, except per share/unit data and where indicated in millions)
Noncontrolling
Interests
Noncontrolling
interests represents the noncontrolling ownership interest’s proportionate share of the equity in our consolidated real estate
investments. Income and losses are allocated to noncontrolling interest holders based generally on their ownership percentage.
If a property reaches a defined return threshold, then it will result in distributions to noncontrolling interests which is different
from the standard pro-rata allocation percentage. In certain instances, our joint venture agreements provide for liquidating distributions
based on achieving certain return metrics.
Acquisition
of Noncontrolling Member’s Ownership Interest (Lakes of Margate)
On March 17, 2021,
the Company acquired the noncontrolling member’s 7.5% ownership interest in the Lakes of Margate for $1.1 million and as a result,
owned 100% of the Lakes of Margate, which was subsequently sold (see Note 3).
|
2.
|
Summary of Significant Accounting
Policies
|
Interim Unaudited
Financial Information
The accompanying
unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial
statements and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2020, which was filed with the Securities and Exchange Commission (the “SEC”) on March 25, 2021. 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 presentation of the results for the periods presented. The accompanying unaudited consolidated
financial statements of Lightstone Value Plus Real Estate Investment Trust V, Inc. have been prepared in accordance with generally accepted
accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions
to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP
for complete financial statements.
Principles
of Consolidation and Basis of Presentation
Our consolidated
financial statements include our accounts and the accounts of other subsidiaries over which the Company has control. All inter-company
transactions, balances, and profits have been eliminated in consolidation. In addition, interests in entities acquired are evaluated
based on applicable 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 we are not
deemed to be the primary beneficiary, it accounts for the investment using the equity method of accounting.
The consolidated
balance sheet as of December 31, 2020 included herein has been derived from the consolidated balance sheet included in the Company’s
Annual Report on Form 10-K.
The unaudited consolidated
statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.
Investment
in Unconsolidated Joint Venture (Prospect Park)
The Company previously
participated in the residual interests of a mezzanine financing made to an unaffiliated third-party entity, which it accounted for in
accordance with the equity method of accounting. The third-party entity owned an apartment complex located in Denver, Colorado (“Prospect
Park”) which was sold to a third-party buyer in December 2017 and the carrying value of the Company’s unconsolidated investment
was subsequently reduced to zero during the first quarter of 2018. On May 10, 2021, the Company received an additional payment of $1.5
million in full settlement related to its prior participation in the residual interests Prospect Park and recognized a gain on disposition
of unconsolidated joint venture of $1.5 million in the consolidated statements of operations during the second quarter of 2021.
Lightstone Value
Plus Real Estate Investment Trust V, Inc.
Notes to Consolidated
Financial Statements (unaudited)
(Dollar amounts
in thousands, except per share/unit data and where indicated in millions)
Earnings
per Share
The Company had
no potentially dilutive securities outstanding during the periods presented. Accordingly, basic and diluted earnings per share is calculated
by dividing net income/(loss) by the weighted-average number of shares of common stock outstanding during the applicable period.
Restricted
cash
As required by the
Company’s lenders, restricted cash is held in escrow accounts for anticipated capital expenditures, real estate taxes, and other
reserves for certain of our consolidated properties. Capital reserves are typically utilized for non-operating expenses such as major
capital expenditures. Alternatively, a lender may require its own formula for an escrow of capital reserves. As of June 30, 2021, restricted
cash also included $14.1 million of the proceeds from the sale of Lakes of Margate. These funds were temporarily placed in escrow with
a qualified intermediary and subsequently released on July 7, 2021 in order to complete a like-kind exchange transaction in accordance
with Section 1031 of the Internal Revenue Code of 1986, as amended. See Notes 3 and 11 for additional information.
COVID-19
Pandemic
The World Health
Organization declared COVID-19 a global pandemic on March 11, 2020 and since that time many of the previously imposed restrictions and
other measures which were instituted in response have been subsequently reduced or lifted. However, the COVID-19 pandemic remains highly
unpredictable and dynamic and its duration and extent continue to be dependent on various developments, such as the emergence of variants
to the virus that may cause additional strains of COVID-19, the administration and ultimate effectiveness of vaccines, and the eventual
timeline to achieve a sufficient level of herd immunity among the general population. Accordingly, the COVID-19 pandemic may have negative
effects on the health of the U.S. economy for the foreseeable future.
As of June 30,
2021, the Company’s consolidated portfolio of properties consisted of six multi-family apartment complexes and one student housing
complex. Its multi-family properties have not been significantly impacted by the COVID-19 pandemic and their occupancy levels, rental
rates and rental collections have remained stable. The Company’s student housing complex, which consists of the River Club Apartments
and the Townhomes at River Club, are located in Athens, Georgia and principally serve as “off-campus” lodging for students
attending the University of Georgia (“UGA”). Leases for the River Club Apartments and Townhomes at River Club generally have
a term of one year running from August through July. Shortly after the onset of the COVID-19 pandemic, UGA transitioned to online instruction
during its Spring 2020 semester but subsequently resumed “on-campus” classes beginning with its Fall 2020 semester. The Company’s
student housing complex is located “off-campus” and therefore, its tenants would not be required to vacate even if UGA did
not conduct “on-campus” classes. The Company’s student housing complex has also not been significantly impacted by
the COVID-19 pandemic and its occupancy level, rental rates and rental collections have remained stable. However, if UGA decides to return
to online instruction for its students in lieu of “on-campus” classes in future semesters, it could adversely impact leasing
demand, occupancy levels and the operating results of the Company’s student housing complex in future periods. Additionally, the
Company’s note receivable is collateralized by a condominium development project located in New York City (the “Condominium
Project”), which has been subject to similar restrictions and risks. To date, both the Condominium Project and the Company’s
note receivable have not been significantly impacted by the COVID-19 pandemic.
The Company continues
to closely monitor the overall extent as to which its business may be affected by the ongoing COVID-19 pandemic which will largely depend
on current and future developments, all of which are highly uncertain and cannot be reasonably predicted.
Lightstone Value
Plus Real Estate Investment Trust V, Inc.
Notes to Consolidated
Financial Statements (unaudited)
(Dollar amounts
in thousands, except per share/unit data and where indicated in millions)
If the Company’s
properties and its real estate-related investments are negatively impacted in future periods for an extended period because (i) tenants
are unable to pay their rent, (ii) leasing demand falls causing declines in occupancy levels and/or rental rates, and (iii) its borrower
is unable to pay scheduled debt service on the outstanding note receivable; the Company’s business and financial results could
be materially and adversely impacted.
New Accounting
Pronouncements
In June 2016, the
FASB issued new guidance which replaces the incurred loss impairment methodology currently in use with a methodology that reflects expected
credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.
The new guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.
The Company is currently in the process of evaluating the impact the adoption of this standard will have on the Company’s 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.
|
3.
|
Held for Sale and Disposition
of Lakes of Margate
|
Lakes of Margate
During the fourth
quarter of 2020, Lakes of Margate met the criteria to be classified as held for sale and therefore, its associated assets and liabilities
were classified as held for sale in the consolidated balance sheet as of December 31, 2020.
On March 17, 2021,
the Company completed the disposition of the Lakes of Margate to Lakes of Margate FL LLC, an unrelated third party (the “Lakes
of Margate Buyer”), for aggregate consideration of $50.8 million. At closing, the Lakes of Margate Buyer paid $15.1 million and
assumed the existing Lakes of Margate Loan with an outstanding principal balance of $35.7 million and $14.1 million of the proceeds were
temporarily placed in escrow with a qualified intermediary and subsequently released on July 7, 2021 in order to complete a like-kind
exchange transaction in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended, and is included in restricted
cash on the consolidated balance sheet as of June 30, 2021. See Note 11 for additional information. In connection with the disposition
of the Lakes of Margate, the Company recognized a gain on sale of investment property of $27.8 million during the first quarter of 2021.
The disposition
of the Lakes of Margate did not qualify to be reported as discontinued operations since it did not represent a strategic shift that had
a major effect on the Company’s operations and financial results. Accordingly, the operating results of the Lakes of Margate are
reflected in our results from continuing operations for all periods presented through its date of disposition.
The following summary
presents the major components of the Lakes of Margate’s assets and liabilities held for sale, of as December 31, 2020.
Schedule
of assets and liabilities held for sale
|
|
|
|
|
|
|
As
of
|
|
|
|
December
31,
2020
|
|
|
|
|
|
Net
investment property
|
|
$
|
21,308
|
|
Other
assets
|
|
|
2,832
|
|
|
|
|
|
|
Total
assets held for sale
|
|
$
|
24,140
|
|
|
|
|
|
|
Note payable,
net
|
|
$
|
35,136
|
|
Accounts
payable and accrued expenses
|
|
|
2,029
|
|
|
|
|
|
|
Total
liabilities held for sale
|
|
$
|
37,165
|
|
Lightstone Value
Plus Real Estate Investment Trust V, Inc.
Notes to Consolidated
Financial Statements (unaudited)
(Dollar amounts
in thousands, except per share/unit data and where indicated in millions)
500 West 22nd
Street Mezzanine Loan
On February 28,
2019, the Company, as the lender, and an unrelated third party (the “500 West 22nd Street Mezzanine Loan Borrower”), as the
borrower, entered into a loan promissory note (the “500 West 22nd Street Mezzanine Loan”) pursuant to which the Company would
fund up to $12.0 million of mezzanine financing. On the same date, the Company initially funded $8.0 million of the 500 West 22nd Street
Mezzanine Loan. Subsequently, through the first quarter of 2020, the Company funded an additional $4.0 million and as a result, the 500
West 22nd Street Mezzanine Loan has been fully funded.
The 500 West 22nd
Street Mezzanine Loan is recorded in note receivable, net on the consolidated balance sheet. In connection with the fundings made for
the 500 West 22nd Street Mezzanine Loan, the Advisor has received an aggregate of $0.2 million in acquisition fees from the Company.
The acquisition fees are accounted for as an addition to the carrying value of the 500 West 22nd Street Mezzanine Loan and
are being amortized as a reduction to interest income over the initial term of the 500 West 22nd Street Mezzanine Loan using
a straight-line method that approximates the effective interest method.
The 500 West
22nd Street Mezzanine Loan has an initial maturity date of August
31, 2021, subject to two six-month extension options discussed below, and is collateralized by the ownership interests of the
500 West 22nd Street Mezzanine Loan Borrower. The 500 West 22nd Street Mezzanine Loan Borrower owns a parcel of land located at
500 West 22nd Street, New York, New York on which it is developing and constructing the Condominium Project. At the onset of
the COVID-19 pandemic, the Borrower’s construction activities related to the Condominium Project were temporarily suspended
due to restrictions on certain non-essential construction activities imposed by New York City. However, construction activities for
the Condominium Project fully resumed in early May 2020 and its anticipated construction timeline has not been significantly
impacted to date.
The 500 West 22nd Street
Mezzanine Loan bears interest at a rate of LIBOR + 11.0% per annum with a floor of 13.493% (13.493% as of June 30, 2021). The Company
received an origination fee of 1.0% of the loan balance, or $0.1 million, which is presented in the consolidated balance sheets
as a direct deduction from the carrying value of the 500 West 22nd Street Mezzanine Loan and is being amortized to
interest income, using a straight-line method that approximates the effective interest method, over the initial term of the 500
West 22nd Street Mezzanine Loan. The 500 West 22nd Street Mezzanine Loan may be extended two additional six-month periods by the
500 West 22nd Street Mezzanine Loan Borrower provided certain conditions are met, including the establishment of an additional reserve
for interest and the payment of an extension fee equal to 0.25% of the outstanding loan balance.
In connection with
the initial funding under the 500 West 22nd Street Mezzanine Loan, the Company retained $2.1 million of the proceeds to establish
a reserve for interest and other items, which is presented in the consolidated balance sheets as a direct deduction from the carrying
value of the 500 West 22nd Street Mezzanine Loan and are being applied against the first 8.0% of monthly interest
due during the initial term of the 500 West 22nd Street Mezzanine Loan. Through June 30, 2021, the entire $2.1 million reserve has been
recognized as interest income. The additional monthly interest due above the 8.0% threshold is added to the balance of the 500 West 22nd
Street Mezzanine Loan and payable at maturity. As of June 30, 2021, $1.6 million of additional interest due is included in the balance
of the 500 West 22nd Street Mezzanine Loan.
During the three
and six months ended June 30, 2021, the Company recorded $0.5 million and $0.9 million, respectively, of interest income related to the
note receivable and during the three and six months ended June 30, 2020, the Company recorded $0.4 million and $0.8 million, respectively,
of interest income related to the note receivable. As of June 30, 2021, the outstanding principal balance of the 500 West 22nd Street
Mezzanine Loan was $13.6 million.
The Company determined
the following disclosure of estimated fair values using available market information and appropriate valuation methodologies. However,
considerable judgment is necessary to interpret market data and develop the related estimates of fair value. The use of different market
assumptions or only estimation methodologies may have a material effect on the estimated fair value amounts.
Lightstone Value
Plus Real Estate Investment Trust V, Inc.
Notes to Consolidated
Financial Statements (unaudited)
(Dollar amounts
in thousands, except per share/unit data and where indicated in millions)
As of June 30,
2021 and December 31, 2020, management estimated that the carrying value of cash and cash equivalents, restricted cash, note receivable,
prepaid expenses and other assets, accounts payable and accrued and other liabilities were at amounts that reasonably approximated their
fair value based on their highly-liquid nature and/or short-term maturities.
The fair value
of the notes payable is categorized as a Level 2 in the fair value hierarchy. The fair value was estimated using a discounted cash
flow analysis valuation on the estimated borrowing rates currently available for loans with similar terms and maturities. The fair value
of the notes payable was determined by discounting the future contractual interest and principal payments by a market rate. Disclosure
about fair value of financial instruments is based on pertinent information available to management as of June 30, 2021 and December
31, 2020. Carrying amounts of our notes payable and the related estimated fair value is summarized as follows:
Schedule
of Notes payable and the related estimated fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of June 30, 2021
|
|
|
As
of December 31, 2020
|
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
Notes
payable
|
|
$
|
216,022
|
|
|
$
|
219,321
|
|
|
$
|
216,382
|
|
|
$
|
219,625
|
|
|
6.
|
Marketable Securities and
Fair Value Measurements
|
Marketable Securities
The
following is a summary of the Company’s available for sale securities as of the dates indicated:
Schedule
of available-for-sale securities reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of June 30, 2021
|
|
|
|
Adjusted
Cost
|
|
|
Gross
Unrealized Gains
|
|
|
Gross
Unrealized Losses
|
|
|
Fair
Value
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
and Government Bonds
|
|
$
|
3,580
|
|
|
$
|
95
|
|
|
$
|
(10
|
)
|
|
$
|
3,665
|
|
|
|
As
of December 31, 2020
|
|
|
|
Adjusted
Cost
|
|
|
Gross
Unrealized Gains
|
|
|
Gross
Unrealized Losses
|
|
|
Fair
Value
|
|
Debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
and Government Bonds
|
|
$
|
3,515
|
|
|
$
|
140
|
|
|
$
|
(1
|
)
|
|
$
|
3,654
|
|
When evaluating the
investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value
has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or
whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s amortized cost
basis. As of June 30, 2021, the Company did not recognize any impairment charges.
Lightstone
Value Plus Real Estate Investment Trust V, Inc.
Notes
to Consolidated Financial Statements (unaudited)
(Dollar
amounts in thousands, except per share/unit data and where indicated in millions)
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.
|
The fair values of
the Company’s investments in debt securities are measured using quoted prices for these investments; however, the markets for these
assets are not active. As of June 30, 2021, all of the Company’s debt securities were classified as Level 2 assets and there were
no transfers between the level classifications during the six months ended June 30, 2021.
The following table
summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted
for as available-for-sale securities and classified by the contractual maturity date of the securities:
Summary
of the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates
|
|
|
|
|
|
|
As
of
June 30,
2021
|
|
Due
in 1 year
|
|
$
|
760
|
|
Due in 1
year through 5 years
|
|
|
2,865
|
|
Due in 5
years through 10 years
|
|
|
40
|
|
Due
after 10 years
|
|
|
-
|
|
Total
|
|
$
|
3,665
|
|
Lightstone
Value Plus Real Estate Investment Trust V, Inc.
Notes
to Consolidated Financial Statements (unaudited)
(Dollar
amounts in thousands, except per share/unit data and where indicated in millions)
Notes payable, excluding
debt classified as held for sale, consists of the following:
Schedule
of information on notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
Interest
Rate
|
|
Weighted
Average Interest Rate as of June 30,
2021
|
|
|
Maturity
Date
|
|
Amount
Due at Maturity
|
|
|
As
of
June 30,
2021
|
|
|
As
of
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
River
Club and the Townhomes at River Club
|
|
LIBOR
+ 1.78%
|
|
|
1.88
|
%
|
|
May
1, 2025
|
|
$
|
28,419
|
|
|
$
|
30,359
|
|
|
$
|
30,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arbors
Harbor Town
|
|
4.53%
|
|
|
4.53
|
%
|
|
December
28, 2025
|
|
|
29,000
|
|
|
|
29,000
|
|
|
|
29,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parkside
|
|
4.45%
|
|
|
4.45
|
%
|
|
June
1, 2025
|
|
|
15,782
|
|
|
|
17,132
|
|
|
|
17,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axis
at Westmont
|
|
4.39%
|
|
|
4.39
|
%
|
|
February
1, 2026
|
|
|
34,343
|
|
|
|
37,397
|
|
|
|
37,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valley
Ranch Apartments
|
|
4.16%
|
|
|
4.16
|
%
|
|
March
1, 2026
|
|
|
43,414
|
|
|
|
43,414
|
|
|
|
43,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flats
at Fishers
|
|
3.78%
|
|
|
3.78
|
%
|
|
July
1, 2026
|
|
|
26,090
|
|
|
|
28,800
|
|
|
|
28,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Autumn
Breeze Apartments
|
|
3.39%
|
|
|
3.39
|
%
|
|
April
1, 2030
|
|
|
25,518
|
|
|
|
29,920
|
|
|
|
29,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable
|
|
|
|
|
3.79
|
%
|
|
|
|
$
|
202,566
|
|
|
|
216,022
|
|
|
|
216,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,771
|
)
|
|
|
(3,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
213,251
|
|
|
$
|
212,989
|
|
The following table
provides information with respect to the contractual maturities and scheduled principal repayments of the Company’s indebtedness
as of June 30, 2021.
Schedule
of contractual obligations for principal payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
Thereafter
|
|
|
Total
|
|
Principal
maturities
|
|
$
|
663
|
|
|
$
|
1,468
|
|
|
$
|
2,498
|
|
|
$
|
3,181
|
|
|
$
|
46,590
|
|
|
$
|
161,622
|
|
|
$
|
216,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
213,251
|
|
Share Redemption
Program and Redemption Price
The Company’s
board of directors has adopted a share redemption program (the “SRP”) that permits stockholders to sell their shares back
to it, subject to the significant conditions and limitations of the program. The Company’s board of directors can amend the
provisions of the SRP at any time without the approval of the stockholders.
On August 9,
2017, the board of directors adopted a Fourth Amended and Restated Share Redemption Program (the “Fourth Amended SRP”) which
became effective July 1, 2018. The Fourth Amended SRP established that the price at which the Company would redeem shares submitted
for redemption will be a percentage of the estimated net asset value per share (“NAV per Share”) as of the Effective Date,
as defined, as follows:
Schedule
of Redemption Program
|
|
For Redemptions
with an Effective Date Between
|
|
July 1, 2018 and June 30, 2019:
|
92.5%
of the estimated NAV per Share
|
July 1, 2019 and June 30, 2020:
|
95.0%
of the estimated NAV per Share
|
July 1, 2020 and June 30, 2021:
|
97.5%
of the estimated NAV per Share
|
Thereafter:
|
100%
of the estimated NAV per Share
|
Lightstone
Value Plus Real Estate Investment Trust V, Inc.
Notes
to Consolidated Financial Statements (unaudited)
(Dollar
amounts in thousands, except per share/unit data and where indicated in millions)
Pursuant to the
terms of the Fourth Amended SRP, any shares approved for redemption are redeemed on a periodic basis as determined from time to time
by the Company’s board of directors, and no less frequently than annually. The Company will not redeem, during any twelve-month
period, more than 5%
of the weighted average number of shares outstanding during the twelve-month period immediately prior to the date of redemption.
In addition, the cash available for redemptions is limited to no more than $10.0
million in any twelve-month period. Any redemption requests are honored pro rata among
all requests received based on funds available and are not honored on a first come, first served basis.
On December 28,
2018, the Company’s board of directors adopted a Fifth Amended and Restated Share Redemption Program (the “Fifth Amended
SRP”) which became effective on January 31, 2019. The only material change to the program was to change the measurement period
for the limitations on the number and dollar amount of shares that may be accepted for redemption from a rolling 12 month-period to a
calendar year.
In accordance with
the Company’s Fifth Amended SRP, the per share redemption price automatically adjusted to $8.64 effective November 7, 2019
as a result of the determination and approval by the Company’s board of directors of the updated estimated NAV per Share.
On December 13,
2019, the Company’s board of directors approved the suspension of the SRP. Pursuant to the terms of the SRP, while the SRP is suspended,
the Company will not accept any requests for redemption.
Effective March
25, 2021, the Company’s Board of Directors reopened the SRP solely for redemptions submitted in connection with a stockholder’s
death and set the price for all such purchases to $9.42, which is 100% of the NAV per Share as of September 30, 2020. Deaths that occurred
subsequent to January 1, 2020 are eligible for consideration. 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 an annual basis,
the Company will not redeem in excess of 0.5% of the number of shares outstanding as of the end of the preceding year. Death redemption
requests are expected to be processed on a quarterly basis and may be subject to pro ration if death redemption requests exceed the annual
limitation.
The Company’s
board of directors will continue to consider the liquidity available to stockholders going forward, balanced with other long-term interests
of the stockholders and the Company. It is possible that in the future additional liquidity will be made available by the Company through
the SRP, issuer tender offers or other methods, though it can make no assurances as to whether that will happen, or the timing or terms
of any such liquidity.
Distributions
The Company made
an election to qualify as a REIT for federal income tax purposes commencing with its taxable year ended December 31, 2008. U.S. federal
tax law requires a REIT distribute at least 90%
of its annual 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. In order to continue to qualify for REIT status, the Company
may be required to make distributions in excess of cash available. Distributions are authorized at the discretion of the Company’s
board of directors based on their analysis of the Company’s performance over the previous periods and expectations of performance
for future periods. Such analyses may include actual and anticipated operating cash flow, changes in market capitalization rates
for investments suitable for the Company’s portfolio, capital expenditure needs, general financial and market conditions, proceeds
from asset sales, and other factors that the Company’s board of directors deems relevant.
The Company’s
board of directors’ decision will be substantially influenced by their obligation to ensure that the Company maintains its federal
tax status as a REIT. The Company cannot provide assurance that it will pay distributions at any particular level, or at all.
The Company did
not make any distributions to its stockholders during the six months ended June 30, 2021 and 2020.
Lightstone
Value Plus Real Estate Investment Trust V, Inc.
Notes
to Consolidated Financial Statements (unaudited)
(Dollar
amounts in thousands, except per share/unit data and where indicated in millions)
|
9.
|
Related
Party Transactions
|
The Company has
agreements with the Advisor and its affiliates to pay certain fees in exchange for services performed by these entities and other related
parties. On June 11, 2021, these agreements were extended an additional year through June 10, 2022. The Company is dependent on
the Advisor and property manager for certain services that are essential to it, including asset disposition decisions, property management
and leasing services, and other general administrative responsibilities. In the event that these companies were unable to provide the
Company with their respective services, the Company would be required to obtain such services from other sources.
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,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Acquisition
fees and acquisition expense reimbursement(1)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
764
|
|
Debt
financing fees(2)
|
|
|
-
|
|
|
|
357
|
|
|
|
-
|
|
|
|
656
|
|
Property
management fees (property operating expenses)
|
|
|
110
|
|
|
|
112
|
|
|
|
228
|
|
|
|
227
|
|
Administrative
services reimbursement (general and administrative costs)
|
|
|
332
|
|
|
|
328
|
|
|
|
665
|
|
|
|
656
|
|
Asset
management fees (general and administrative costs)
|
|
|
626
|
|
|
|
691
|
|
|
|
1,321
|
|
|
|
1,323
|
|
Total
|
|
$
|
1,068
|
|
|
$
|
1,488
|
|
|
$
|
2,214
|
|
|
$
|
3,626
|
|
|
(1)
|
Capitalized
to the corresponding asset and amortized over its estimated useful life.
|
|
(2)
|
Capitalized
upon the execution of the loan, presented in the consolidated balance sheets as a direct
deduction from the carrying value of the corresponding loan and amortized over the initial
term of the corresponding loan.
|
|
10.
|
Commitments
and Contingencies
|
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.
Acquisition of BayVue Apartments
located in Tampa, Florida
On
July 7, 2021, the Company acquired a 368-unit multifamily property located in Tampa, Florida (the “BayVue Apartments”),
from BayVue Apartments Holdings, LLC, an unaffiliated third party, for an aggregate purchase price of $59.5 million, excluding closing
and other acquisition related costs.
In connection with
the acquisition of the BayVue Apartments, the Company simultaneously entered into a non-recourse mortgage loan facility for up to $52.2
million (the “BayVue Mortgage”) scheduled to initially mature on July 7, 2024, with two, one-year extension options,
subject to certain conditions. The BayVue Mortgage requires monthly interest-only payments through its maturity date and bears interest
at LIBOR+3.00% subject to a 3.10% floor. The BayVue Mortgage is collateralized by the BayVue Apartments.
In connection with the acquisition of the BayVue Apartments, $44.3 million was initially funded under the BayVue Mortgage and the
Company paid the balance of the purchase price of $15.2 million with cash, including escrowed funds released by a qualified intermediary.
As a result, the BayVue Mortgage has remaining availability of $7.9 million.
The acquisition
was funded with available cash and restricted cash and the initial proceeds from the BayVue Mortgage.
In connection with
the acquisition, the Advisor received an aggregate of $1.3
million in acquisition fees, acquisition expense reimbursements and debt financing fees.
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 and the notes thereto.
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 Real Estate Investment Trust V, Inc. and our subsidiaries (which may be referred to herein as
the “Company,” “we,” “us” or “our”), including our ability to make accretive real estate
or real estate-related investments, rent space on favorable terms, to address our debt maturities and to fund our liquidity requirements,
to sell our assets when we believe advantageous to achieve our investment objectives, our anticipated capital expenditures, the amount
and timing of anticipated future cash distributions to our stockholders, the estimated net asset value per share of our common stock
(“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 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 recession,
political upheaval or uncertainty, terrorism and acts of war, natural and man-made disasters, cybercrime, and outbreaks of contagious
diseases;
|
|
●
|
uncertainties regarding the impact of the current COVID-19 pandemic, and
restrictions and other measures intended to prevent its spread on our business and the economy generally;
|
|
●
|
the availability of cash flow from operating activities for distributions,
if any;
|
|
●
|
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 in a diversified portfolio of
assets;
|
|
●
|
future changes in market factors that could affect the ultimate performance
of any development or redevelopment projects, including but not limited to construction costs, plan or design changes, schedule delays,
availability of construction financing, performance of developers, contractors and consultants and growth in 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 Report, 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 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.
Executive Overview
We were formed
primarily to acquire and operate commercial real estate and real estate-related assets on an opportunistic and value-add basis.
In particular, we have focused generally on acquiring commercial properties with significant possibilities for capital appreciation,
such as those requiring development, redevelopment or repositioning, those located in markets and submarkets with high growth potential,
and those available from sellers who were distressed or faced time-sensitive deadlines. In addition, our opportunistic and value-add
investment strategy has included investments in real estate-related assets that present opportunities for higher current income. Since
inception, we have acquired a wide variety of commercial properties, including office, industrial, retail, hospitality, and multifamily.
We have purchased existing, income-producing properties and newly constructed properties. We have also invested in mortgage and mezzanine
loans. We have made our investments in or in respect of real estate assets located in the United States and other countries based on
our view of existing market conditions. As of June 30, 2021, our investments included multifamily and student housing communities and
a note receivable. All of our current investments are located in the United States. We currently intend to hold our various real properties
until such time as our board of directors determines 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.
Current Environment
Our operating results
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, 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, and recession.
COVID-19
Pandemic
The World Health
Organization declared COVID-19 a global pandemic on March 11, 2020 and since that time many of the previously imposed restrictions and
other measures which were instituted in response have been subsequently reduced or lifted. However, the COVID-19 pandemic remains highly
unpredictable and dynamic and its duration and extent continue to be dependent on various developments, such as the emergence of variants
to the virus that may cause additional strains of COVID-19, the administration and ultimate effectiveness of vaccines, and the eventual
timeline to achieve a sufficient level of herd immunity among the general population. Accordingly, the COVID-19 pandemic may continue
to have negative effects on the health of the U.S. economy for the foreseeable future.
As of June 30,
2021, our consolidated portfolio of properties consisted of six multi-family apartment complexes and one student housing complex. Our
multi-family properties have not been significantly impacted by the COVID-19 pandemic and their occupancy levels, rental rates and rental
collection have remained stable. Our student housing complex, which consists of the River Club Apartments and the Townhomes at River
Club, are located in Athens, Georgia and principally serve as “off-campus” lodging for students attending the University
of Georgia (“UGA”). Leases for the River Club Apartments and Townhomes at River Club generally have a term of one year running
from August through July. Shortly after the onset of the COVID-19 pandemic, UGA transitioned to online instruction during its Spring
2020 semester but subsequently resumed “on-campus” classes beginning with its Fall 2020. Our student housing complex is located
“off-campus” and therefore, its tenants would not be required to vacate even if UGA did not conduct “on-campus”
classes. Our student housing complex has also not been significantly impacted by the COVID-19 pandemic and its occupancy level, rental
rates and rental collections have remained stable. However, if UGA decides to return to online instruction for its students in lieu of
“on-campus” classes in future semesters, it could adversely impact leasing demand, occupancy levels and the operating results
of our student housing complex in future periods. Additionally, our note receivable is collateralized by a condominium development project
located in New Yok City (the “Condominium Project”), which has been subject to similar restrictions and risks. To date, both
the Condominium Project and our note receivable have not been significantly impacted by the COVID-19 pandemic.
We continue to
closely monitor l the overall extent as to which our business may be affected by the ongoing COID-19 pandemic which will largely depend
on both current and future developments, all of which are highly uncertain and cannot be reasonably predicted.
If our properties
and real estate-related investments are negatively impacted in future periods for an extended period because (i) tenants are unable to
pay their rent, (ii) leasing demand falls causing declines in occupancy levels and/or rental rates, and (iii) our borrower is unable
to pay scheduled debt service on the outstanding note receivable; our business and financial results could be materially and adversely
impacted.
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 Form 10-Q. The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America (“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. Actual results may differ from those estimates and assumptions used in these consolidated financial statements.
Liquidity and
Capital Resources
We had cash and
cash equivalents of $25.1 million, marketable securities, available for sale of $3.7 million and restricted cash of $22.1 million as
of June 30, 2021. Our principal demands for funds going forward will be for the payment of (a) operating expenses and (b) scheduled
interest and principal payments on our outstanding indebtedness. We also may, at our discretion use funds for (a) tender offers and/or
redemptions of shares of our common stock, (b) distributions, if any, to our shareholders, and (c) selective acquisitions and/or real
estate-related investments. Generally, we expect to meet our cash needs with our cash on hand and cash flow from operations as well as
the release of certain funds held in restricted cash. However, to the extent that our cash on hand and cash flow from operations are
not sufficient to cover our cash needs, we may use proceeds from additional borrowings and/or selective asset sales to fund such needs.
We have borrowed money to acquire properties and make other investments. Under our charter, the maximum amount of our indebtedness
is limited to 300% of our “net assets” (as defined by our charter) as of the date of any borrowing; however, we may exceed
that limit if approved by a majority of our independent directors. In addition to our charter limitation, our board of directors
has adopted a policy to generally limit our aggregate borrowings to 75% of the aggregate value of our assets unless substantial justification
exists that borrowing a greater amount is in our best interests. Our policy limitation, however, does not apply to individual real
estate assets.
Acquisition and Disposition Activities
Disposition
of Lakes of Margate
On March 17, 2021,
we completed the disposition of the Lakes of Margate for a contractual sales price of $50.8 million to an unrelated third party. At
closing, the buyer paid $15.1 million and assumed the existing mortgage loan secured by the Lakes of Margate with an outstanding principal
balance of $35.7 million. $14.1 million of the proceeds were temporary placed in escrow with a qualified intermediary and subsequently
released on July 7, 2021 in order to complete a like-kind exchange transaction in accordance with Section 1031 of the Internal Revenue
Code of 1986, as amended, and is included in restricted cash on the consolidated balance sheet as of June 30, 2021. See “Acquisition
of BayVue Apartments located in Tampa, Florida” below for additional information. In connection with the disposition of the Lakes
of Margate, we recognized a gain on the sale of investment property of $27.8 million during the first quarter of 2021.
Acquisition
of Autumn Breeze Apartments
On March 17,
2020, we completed the acquisition of a 280-unit multifamily property located in Noblesville, Indiana (the “Autumn Breeze
Apartments”) from an unrelated third party, for an aggregate purchase price of $43.0 million, excluding closing and other related
transaction costs. In connection with the acquisition, we paid the Advisor an aggregate of $0.8 million in acquisition fees and acquisition
expense reimbursements.
Disposition
of Gardens Medical Pavilion
On January 15,
2020, we and our noncontrolling member completed the disposition of the Gardens Medical Pavilion for a contractual sales price of $24.3
million to an unrelated third-party. In connection with the disposition of the Gardens Medical Pavilion, we recognized a gain on the
sale of investment property of $5.5 million during the first quarter of 2020. $12.6 million of the proceeds were used towards the repayment
in full of a mortgage loan secured by the Gardens Medical Pavilion. Additionally, $1.8 million of the remaining proceeds were distributed
to the noncontrolling member.
Acquisition of BayVue Apartments
located in Tampa, Florida
On July 7, 2021,
we acquired a 368-unit multifamily property located in Tampa, Florida (the “BayVue Apartments”), from BayVue Apartments
Holdings, LLC, an unaffiliated third party, for an aggregate purchase price of $59.5 million, excluding closing and other acquisition
related costs.
In connection with
the acquisition of the BayVue Apartments, we simultaneously entered into a non-recourse mortgage loan facility for up to $52.2 million
(the “BayVue Mortgage”) scheduled to initially mature on July 7, 2024, with two, one-year extension options, subject
to certain conditions. The BayVue Mortgage requires monthly interest-only payments through its maturity date and bears interest at LIBOR+3.00%
subject to a 3.10% floor. The BayVue Mortgage is collateralized by the BayVue Apartments. In connection with the acquisition of
the BayVue Apartments, $44.3 million was initially funded under the BayVue Mortgage and we paid the balance of the purchase price of
$15.2 million with cash, including escrowed funds released by a qualified intermediary. As a result, the BayVue Mortgage has remaining
availability of $7.9 million.
The acquisition
was funded with available cash and restricted cash and initial proceeds from the BayVue Mortgage.
In connection with
the acquisition, the Advisor received an aggregate of $1.3 million in acquisition fees, acquisition expense reimbursements and debt financing
fees.
Debt Financings
From time to time,
we have obtained mortgage, bridge, or mezzanine loans for acquisitions and investments, as well as property development. In the
future, we may obtain new financings to acquire properties and for property renovation development and redevelopment activities or refinance
our existing real estate assets, depending on multiple factors.
As of June 30,
2021, our outstanding notes payable were $213.3 million, net of deferred financing fees of $2.8 million and had a weighted average interest
rate of 3.79%. As of December 31, 2020, we had notes payable of $213.0 million, net of deferred financing fees of $3.4 million, with
a weighted average interest rate of 3.71%.
One of our principal
short-term and long-term liquidity requirements includes the repayment of maturing debt. The following table provides information
with respect to the contractual maturities and scheduled principal repayments of our indebtedness as of June 30, 2021 (dollars in thousands).
Contractual Obligations
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
Thereafter
|
|
|
Total
|
|
Mortgage Payable
|
|
$
|
663
|
|
|
$
|
1,468
|
|
|
$
|
2,498
|
|
|
$
|
3,181
|
|
|
$
|
46,590
|
|
|
$
|
161,622
|
|
|
$
|
216,022
|
|
Interest Payments
|
|
|
4,162
|
|
|
|
8,255
|
|
|
|
8,185
|
|
|
|
8,105
|
|
|
|
7,306
|
|
|
|
5,544
|
|
|
|
41,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations
|
|
$
|
4,825
|
|
|
$
|
9,723
|
|
|
$
|
10,683
|
|
|
$
|
11,286
|
|
|
$
|
53,896
|
|
|
$
|
167,166
|
|
|
$
|
257,579
|
|
Results of Operations
As of June 30,
2021, we had seven real estate investments (five wholly owned properties and two properties consolidated through investments in joint
ventures) and one real estate-related investment (mezzanine loan).
The tables below
reflect occupancy and effective monthly rental rates for our operating properties owned as of June 30, 2021:
|
|
Occupancy
|
|
|
Effective
Monthly Rent per Bed/Unit(1)
|
|
|
|
|
|
|
As
of June 30,
|
|
|
As
of June 30,
|
|
|
|
|
Property
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
River Club and the Townhomes at River Club
|
|
|
93
|
%
|
|
|
90
|
%
|
|
$
|
486.02
|
|
|
$
|
461.11
|
|
|
|
per
bed
|
|
Arbors Harbor Town
|
|
|
94
|
%
|
|
|
93
|
%
|
|
|
1,404.05
|
|
|
|
1,325.83
|
|
|
|
per
unit
|
|
Parkside
|
|
|
97
|
%
|
|
|
96
|
%
|
|
|
1,208.42
|
|
|
|
1,177.12
|
|
|
|
per
unit
|
|
Flats at Fishers
|
|
|
97
|
%
|
|
|
94
|
%
|
|
|
1,244.49
|
|
|
|
1,177.40
|
|
|
|
per
unit
|
|
Axis at Westmont
|
|
|
96
|
%
|
|
|
96
|
%
|
|
|
1,204.80
|
|
|
|
1,172.18
|
|
|
|
per
unit
|
|
Valley Ranch Apartments
|
|
|
95
|
%
|
|
|
95
|
%
|
|
|
1,494.66
|
|
|
|
1,444.82
|
|
|
|
per
unit
|
|
Autumn Breeze Apartments(2)
|
|
|
94
|
%
|
|
|
95
|
%
|
|
|
1,122.96
|
|
|
|
1,020.88
|
|
|
|
per
unit
|
|
|
(1)
|
Effective
monthly rent is calculated as in-place contracted monthly rental revenue, including any premiums
due for short-term or month-to-month leases, less any concessions or discounts.
|
|
(2)
|
The
Autumn Breeze Apartments were acquired on March 17, 2020.
|
On March 17, 2020,
we acquired the Autumn Breeze Apartments (the “2020 Acquisition”). On January 15, 2020, we disposed of the Gardens Medical
Pavilion (the “2020 Disposition”) and on March 17, 2021, we disposed of the Lakes of Margate (the “2021 Disposition”
and collectively, the “Dispositions”). In connection with the dispositions of Gardens Medical Pavilion and the Lakes of Margate,
we recognized gains on the sale of investment property of $5.5 million during the first quarter of 2020 and $27.8 million during the
first quarter of 2021, respectively. The Dispositions did not qualify to be reported as discontinued operations since neither disposition
represented a strategic shift that had a major effect on our operations and financial results. Accordingly, the operating results of
these properties are reflected in our results from continuing operations for all periods presented through their respective dates of
disposition.
Our results of
operations for the respective periods presented reflect our acquisition and disposition activities. Properties owned by us during the
entire periods presented are referred to as our “Same Store” properties.
Three months ended June 30, 2021
as compared to the three months ended June 30, 2020.
The following table
provides summary information about our results of operations (dollars in thousands):
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
Change
|
|
|
Change
|
|
|
|
June
30,
|
|
|
Increase/
|
|
|
Percentage
|
|
|
due
to
|
|
|
due
to
|
|
|
|
2021
|
|
|
2020
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Dispositions(1)
|
|
|
Same
Store(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues
|
|
$
|
9,390
|
|
|
$
|
10,077
|
|
|
$
|
(687
|
)
|
|
|
(7.0
|
%)
|
|
$
|
(1,216
|
)
|
|
$
|
529
|
|
Property operating expenses
|
|
|
3,062
|
|
|
|
3,095
|
|
|
|
(33
|
)
|
|
|
(1.0
|
%)
|
|
|
(385
|
)
|
|
|
352
|
|
Real estate taxes
|
|
|
1,358
|
|
|
|
1,447
|
|
|
|
(89
|
)
|
|
|
(6.0
|
%)
|
|
|
(222
|
)
|
|
|
133
|
|
General and administrative
|
|
|
1,568
|
|
|
|
1,572
|
|
|
|
(4
|
)
|
|
|
0.0
|
%
|
|
|
(44
|
)
|
|
|
40
|
|
Depreciation and amortization
|
|
|
2,755
|
|
|
|
3,411
|
|
|
|
(656
|
)
|
|
|
(19.0
|
%)
|
|
|
(530
|
)
|
|
|
(126
|
)
|
Interest expense, net
|
|
|
2,215
|
|
|
|
2,391
|
|
|
|
(176
|
)
|
|
|
(7.0
|
%)
|
|
|
(16
|
)
|
|
|
(160
|
)
|
Notes:
|
(1)
|
Represents
the effect on our operating results for the periods indicated resulting from the Dispositions.
|
|
(2)
|
Represents
the change for the three months ended June 30, 2021 compared to the same period in 2020 for
real estate and real estate-related investments owned by us during the entire periods presented
(“Same Store”). Our results for Same Store properties for the three months ended
June 30, 2021 and 2020 include River Club and the Townhomes at River Club, Arbors Harbor
Town, Parkside, Flats at Fishers, Axis at Westmont, the Valley Ranch Apartments and the Autumn
Breeze Apartments.
|
The following table
reflects total rental revenues and total property operating expenses for the three months ended June 30, 2021 and 2020 for: (i) our Same
Store properties, (ii) the 2020 Acquisition and (iii) the Dispositions (dollars in thousands):
|
|
Three
Months Ended June 30,
|
|
|
|
|
Description
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
Rental Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store
|
|
$
|
9,389
|
|
|
$
|
8,860
|
|
|
$
|
529
|
|
Dispositions
|
|
|
1
|
|
|
|
1,217
|
|
|
|
(1,216
|
)
|
Total rental revenues
|
|
$
|
9,390
|
|
|
$
|
10,077
|
|
|
$
|
(687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store
|
|
$
|
3,039
|
|
|
$
|
2,687
|
|
|
$
|
352
|
|
Dispositions
|
|
|
23
|
|
|
|
408
|
|
|
|
(385
|
)
|
Total property operating expenses
|
|
$
|
3,062
|
|
|
$
|
3,095
|
|
|
$
|
(33
|
)
|
Revenues.
Rental revenues for the three months ended June 30, 2021 were $9.4 million, a decrease of $0.7 million, compared to $10.1 million for
the same period in 2020. Excluding the effect of our disposition activities, our rental revenues increased by $0.5 million for
our Same Store properties primarily as a result of higher occupancy levels and average monthly rent per unit during the 2021 quarterly
period.
Property Operating
Expenses. Property operating expenses for both the three months ended June 30, 2021 and 2020 were $3.1 million. Excluding the effect
of our disposition activities, our property operating expenses increased by $0.4 million for our Same Store properties primarily as a
result of higher occupancy during the 2021 quarterly period.
Real Estate
Taxes. Real estate taxes for both the three months ended June 30, 2021 and 2020 were $1.4 million. Excluding the effect of our disposition
activities, real estate taxes increased slightly by $0.1 million for our Same Store properties.
General and
Administrative Expenses. General and administrative expenses for both the three months ended June 30, 2021 and 2020 were $1.6 million.
Depreciation
and Amortization. Depreciation and amortization expense for the three months ended June 30, 2021 was $2.8 million, a decrease
of $0.6 million, compared to $3.4 million for the same period in 2020. Excluding the effect of our disposition activities, depreciation
and amortization expenses decreased slightly by $0.1 million for our Same Store properties.
Interest Expense,
net. Interest expense for the three months ended June 30, 2021 was $2.2 million, a decrease of $0.2 million, compared to $2.4
million for the same period in 2020. All of the decrease in interest expense was attributable to our Same Store properties.
Gain on Disposition
of Unconsolidated Joint Venture. During the second quarter of 2021, we recognized a gain of $1.5 million for the settlement
of our prior participation in the residual interests of Prospect Park. See Note 2 of the Notes to Consolidated Financial Statements for
additional information.
Six months ended June 30, 2021
as compared to the six months ended June 30, 2020.
The following table
provides summary information about our results of operations (dollars in thousands):
|
|
Six
Months Ended
|
|
|
|
|
|
|
|
|
Change
|
|
|
Change
|
|
|
Change
|
|
|
|
June
30,
|
|
|
Increase/
|
|
|
Percentage
|
|
|
due
to
|
|
|
due
to
|
|
|
due
to
|
|
|
|
2021
|
|
|
2020
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Acquisitions(1)
|
|
|
Dispositions(2)
|
|
|
Same
Store(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
revenues
|
|
$
|
19,677
|
|
|
$
|
19,477
|
|
|
$
|
200
|
|
|
|
1.0
|
%
|
|
$
|
897
|
|
|
$
|
(1,499
|
)
|
|
$
|
802
|
|
Property
operating expenses
|
|
|
6,239
|
|
|
|
6,055
|
|
|
|
184
|
|
|
|
3.0
|
%
|
|
|
334
|
|
|
|
(470
|
)
|
|
|
320
|
|
Real estate
taxes
|
|
|
2,829
|
|
|
|
2,665
|
|
|
|
164
|
|
|
|
6.0
|
%
|
|
|
145
|
|
|
|
(292
|
)
|
|
|
311
|
|
General
and administrative
|
|
|
3,221
|
|
|
|
3,111
|
|
|
|
110
|
|
|
|
4.0
|
%
|
|
|
7
|
|
|
|
(18
|
)
|
|
|
121
|
|
Depreciation
and amortization
|
|
|
5,665
|
|
|
|
5,922
|
|
|
|
(257
|
)
|
|
|
(4.0
|
%)
|
|
|
345
|
|
|
|
(530
|
)
|
|
|
(72
|
)
|
Interest
expense, net
|
|
|
4,668
|
|
|
|
4,531
|
|
|
|
137
|
|
|
|
3.0
|
%
|
|
|
267
|
|
|
|
214
|
|
|
|
(344
|
)
|
Notes:
|
(1)
|
Represents
the effect on our operating results for the periods indicated resulting from the 2020 Acquisition.
|
|
(2)
|
Represents
the effect on our results for the periods indicated resulting from the Dispositions.
|
|
(3)
|
Represents
the change for the six months ended June 30, 2021 compared to the same period in 2020 for
real estate and real estate-related investments owned by us during the entire periods presented
(“Same Store”). Our results for Same Store properties for the six months ended
June 30, 2021 and 2020 include River Club and the Townhomes at River Club, Arbors Harbor
Town, Parkside, Flats at Fishers and the Axis at Westmont.
|
The following table
reflects total rental revenues and total property operating expenses for the six months ended June 30, 2021 and 2020 for: (i) our Same
Store properties, (ii) the 2020 Acquisition and (iii) the Dispositions (dollars in thousands):
|
|
Six
Months Ended June 30,
|
|
|
|
|
Description
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
Rental Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store
|
|
$
|
16,678
|
|
|
$
|
15,876
|
|
|
$
|
802
|
|
Acquisitions
|
|
|
1,938
|
|
|
|
1,041
|
|
|
|
897
|
|
Dispositions
|
|
|
1,061
|
|
|
|
2,560
|
|
|
|
(1,499
|
)
|
Total rental revenues
|
|
$
|
19,677
|
|
|
$
|
19,477
|
|
|
$
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store
|
|
$
|
5,197
|
|
|
$
|
4,877
|
|
|
$
|
320
|
|
Acquisitions
|
|
|
654
|
|
|
|
320
|
|
|
|
334
|
|
Dispositions
|
|
|
388
|
|
|
|
858
|
|
|
|
(470
|
)
|
Total property operating expenses
|
|
$
|
6,239
|
|
|
$
|
6,055
|
|
|
$
|
184
|
|
Revenues.
Rental revenues for the six months ended June 30, 2021 were $19.7 million, an increase of $0.2 million, compared to $19.5 million for
the same period in 2020. Excluding the effect of our acquisition and disposition activities, our rental revenues increased by $0.8
million for our Same Store properties primarily as a result of increased occupancy and average monthly rent per unit during the 2021
period.
Property Operating
Expenses. Property operating expenses for the six months ended June 30, 2021 were $6.2 million, an increase of $0.1 million, compared
to $6.1 million for the same period in 2020. Excluding the effect of our acquisition and disposition activities, our property operating
expenses increased by $0.3 million for our Same Store properties primarily as a result of higher occupancy during the 2021 period.
Real Estate
Taxes. Real estate taxes for the six months ended June 30, 2021 were $2.8 million, an increase of $0.1 million, compared to $2.7
million for the same period in 2020. Excluding the effect of our acquisition and disposition activities, our real estate taxes increased
by $0.3 million for our Same Store properties.
General and
Administrative Expenses. General and administrative expenses for the six months ended June 30, 2021 were $3.2 million, a slight increase
of $0.1 million, compared to $3.1 million for the same period in 2020.
Depreciation
and Amortization. Depreciation and amortization expense for the six months ended June 30, 2021 was $5.7 million, a decrease of $0.2
million, compared to $5.9 million for the same period in 2020. Excluding the effect of our acquisition and disposition activities, depreciation
and amortization decreased slightly $0.1 million for our Same Store Properties.
Interest Expense,
net. Interest expense for the six months ended June 30, 2021 was $4.7 million, an increase of $0.2 million, compared to $4.5 million
for the same period in 2020. Excluding the effect of our acquisition and disposition activities, interest expense decreased by $0.3 million
for our Same Store properties.
Gain on Sale
of Investment Property. During the first quarter of 2021, we recognized a gain on the sale of Lakes of Margate of $27.8 million.
See Note 3 of the Notes to Consolidated Financial Statements for additional information. During the first quarter of 2020, we recognized
a gain on the sale of the Gardens Medical Pavilion of $5.5 million.
Gain on Disposition
of Unconsolidated Joint Venture. During the second quarter of 2021, we recognized a gain of $1.5 million for the settlement of our
prior participation in the residual interests of Prospect Park. See Note 2 of the Notes to Consolidated Financial Statements for additional
information.
Related Party Transactions
We have agreements
with the Advisor and its affiliates to pay certain fees in exchange for services performed by these entities and other related parties.
On June 11, 2021, these agreements were extended an additional year through June 10, 2022. We are dependent on the Advisor and property
manager for certain services that are essential to us, including asset disposition decisions, property management and leasing services,
and other general administrative responsibilities. In the event that these companies were unable to provide us with their respective
services, we would be required to obtain such services from other sources.
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,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Acquisition
fees and acquisition expense reimbursement(1)
|
|
$
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
764
|
|
Debt financing
fees(2)
|
|
|
-
|
|
|
|
357
|
|
|
|
-
|
|
|
|
656
|
|
Property
management fees (property operating expenses)
|
|
|
110
|
|
|
|
112
|
|
|
|
228
|
|
|
|
227
|
|
Administrative
services reimbursement (general and administrative costs)
|
|
|
332
|
|
|
|
328
|
|
|
|
665
|
|
|
|
656
|
|
Asset
management fees (general and administrative costs)
|
|
|
626
|
|
|
|
691
|
|
|
|
1,321
|
|
|
|
1,323
|
|
Total
|
|
$
|
1,068
|
|
|
$
|
1,488
|
|
|
$
|
2,214
|
|
|
$
|
3,626
|
|
|
(1)
|
Capitalized
to the corresponding asset and amortized over its estimated useful life.
|
|
(2)
|
Capitalized
upon the execution of the loan, presented in the consolidated balance sheets as a direct
deduction from the carrying value of the corresponding loan and amortized over the initial
term of the corresponding loan.
|
Summary
of Cash Flows
Operating
activities
The net cash provided
by operating activities of $4.0 million for the six months ended June 30, 2021 consisted primarily of our net income of $27.6 million,
depreciation and amortization and amortization of deferred financing costs aggregating $6.0 million and the net change in assets and
liabilities of $0.5 million offset by a gain on the sale of investment property from the sale of the Lakes of Margate of $27.8 million,
a gain on the disposition of unconsolidated joint venture from the settlement of our participation in the residual interests of Prospect
Park of $1.5 million and non-cash interest income of $0.8 million.
Investing
activities
The net cash provided
by investing activities of $12.5 million for the six months ended June 30, 2021 consists primarily of the following:
|
●
|
net
proceeds from the sale of Lakes of Margate of $14.4 million;
|
|
●
|
net
proceeds from the settlement of our participation in the residual interests of Prospect Park
of $1.5 million;
|
|
●
|
payment
of $1.1 million to acquire the noncontrolling member’s 7.5% ownership interest in the
Lakes of Margate; and
|
|
●
|
capital
expenditures of $2.2 million.
|
Financing
activities
The net cash used
in financing activities of $0.7 million for the six months ended June 30, 2021 consists primarily of the following:
|
●
|
debt
principal payments of $0.4 million; and
|
|
●
|
distributions
paid to noncontrolling interests of $0.3 million.
|
Funds from Operations and Modified
Funds from Operations
The historical
accounting convention used for real estate assets requires straight-line depreciation of buildings and 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 generally accepted
accounting principles in the United States of America (“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 and are no longer incurring a significant amount of acquisition fees or other
related costs, 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.
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 (which includes costs incurred
in connection with strategic alternatives), 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.
We believe that,
because MFFO excludes costs that we consider more reflective of acquisition activities and other 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
after the period in which we are acquiring properties and 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.
Our calculations
of FFO and MFFO are presented below (dollars and shares in thousands, except per share amounts):
|
|
For
the Three Months Ended
June 30,
|
|
|
For
the Six Months Ended
June 30,
|
|
Description
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net income/(loss)
|
|
$
|
499
|
|
|
$
|
(1,262
|
)
|
|
$
|
27,611
|
|
|
$
|
3,930
|
|
FFO adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
of real estate assets
|
|
|
2,755
|
|
|
|
3,411
|
|
|
|
5,665
|
|
|
|
5,922
|
|
Gain on disposition of unconsolidated
joint venture
|
|
|
(1,457
|
)
|
|
|
-
|
|
|
|
(1,457
|
)
|
|
|
-
|
|
Gain on sale
of investment property
|
|
|
-
|
|
|
|
-
|
|
|
|
(27,825
|
)
|
|
|
(5,474
|
)
|
FFO
|
|
|
1,797
|
|
|
|
2,149
|
|
|
|
3,994
|
|
|
|
4,378
|
|
MFFO adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition and other transaction
related costs expensed(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Noncash adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of above or below
market leases and liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Mark-to-market adjustments(2)
|
|
|
|
|
|
|
9
|
|
|
|
(2
|
)
|
|
|
9
|
|
Non-recurring
(loss)/gain from extinguishment/sale of debt, derivatives or securities holdings(3)
|
|
|
1
|
|
|
|
(46
|
)
|
|
|
(7
|
)
|
|
|
(52
|
)
|
MFFO before straight-line rent
|
|
|
1,798
|
|
|
|
2,112
|
|
|
|
3,985
|
|
|
|
4,335
|
|
Straight-line rent(4)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(32
|
)
|
MFFO - IPA recommended format
|
|
$
|
1,798
|
|
|
$
|
2,112
|
|
|
$
|
3,985
|
|
|
$
|
4,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
499
|
|
|
$
|
(1,262
|
)
|
|
$
|
27,611
|
|
|
$
|
3,930
|
|
Less: income attributable to noncontrolling
interests
|
|
|
(54
|
)
|
|
|
(21
|
)
|
|
|
(131
|
)
|
|
|
(1,232
|
)
|
Net income/(loss) applicable to
Company’s common shares
|
|
$
|
445
|
|
|
$
|
(1,283
|
)
|
|
$
|
27,480
|
|
|
$
|
2,698
|
|
Net income/(loss) per common share,
basic and diluted
|
|
$
|
0.02
|
|
|
$
|
(0.06
|
)
|
|
$
|
1.36
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO
|
|
$
|
1,797
|
|
|
$
|
2,149
|
|
|
$
|
3,994
|
|
|
$
|
4,378
|
|
Less: FFO attributable to noncontrolling
interests
|
|
|
(138
|
)
|
|
|
(161
|
)
|
|
|
(288
|
)
|
|
|
(331
|
)
|
FFO attributable to Company’s
common shares
|
|
$
|
1,659
|
|
|
$
|
1,988
|
|
|
$
|
3,706
|
|
|
$
|
4,047
|
|
FFO per common share, basic and
diluted
|
|
$
|
0.08
|
|
|
$
|
0.10
|
|
|
$
|
0.18
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MFFO - IPA recommended format
|
|
$
|
1,798
|
|
|
$
|
2,112
|
|
|
$
|
3,985
|
|
|
$
|
4,303
|
|
Less: MFFO attributable to noncontrolling
interests
|
|
|
(138
|
)
|
|
|
(161
|
)
|
|
|
(288
|
)
|
|
|
(326
|
)
|
MFFO attributable to Company’s
common shares
|
|
$
|
1,660
|
|
|
$
|
1,951
|
|
|
$
|
3,697
|
|
|
$
|
3,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding, basic and diluted
|
|
|
20,193
|
|
|
|
20,353
|
|
|
|
20,193
|
|
|
|
21,293
|
|
|
1)
|
The
purchase of properties, and the corresponding expenses associated with that process, is a
key operational feature of our business plan to generate operational income and cash flows
in order to make distributions to investors. In evaluating investments in real estate, management
differentiates the costs to acquire the investment from the operations derived from the investment.
Such information would be comparable only for non-listed REITs that have completed their
acquisition activity and have other similar operating characteristics. By excluding expensed
acquisition costs, management believes MFFO provides useful supplemental information that
is comparable for each type of real estate investment and is consistent with management’s
analysis of the investing and operating performance of our properties. Acquisition fees and
expenses include payments to our advisor or third parties. Acquisition fees and expenses
under GAAP are considered operating expenses and as expenses included in the determination
of net income and income from continuing operations, both of which are performance measures
under GAAP. Such fees and expenses are paid in cash, and therefore such funds will not be
available to distribute to investors. Such fees and expenses negatively impact our operating
performance during the period in which properties are being acquired. Therefore, MFFO may
not be an accurate indicator of our operating performance, especially during periods in which
properties are being acquired. All paid and accrued acquisition fees and expenses will have
negative effects on returns to investors, the potential for future distributions, and cash
flows generated by us, unless earnings from operations or net sales proceeds from the disposition
of properties are generated to cover the purchase price of the property, these fees and expenses
and other costs related to the property. Acquisition fees and expenses will not be paid or
reimbursed, as applicable, to our advisor even if there are no further proceeds from the
sale of shares in our offering, and therefore such fees and expenses would need to be paid
from either additional debt, operational earnings or cash flows, net proceeds from the sale
of properties or from ancillary cash flows.
|
|
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 equity 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.
|
|
3)
|
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.
|
|
4)
|
Under
GAAP, rental receipts are allocated to periods using various methodologies. This may result
in income recognition that is significantly different than underlying contract terms. By
adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis
of disclosing the rent and lease payments), MFFO provides useful supplemental information
on the realized economic impact of lease terms and debt investments, providing insight on
the contractual cash flows of such lease terms and debt investments, and aligns results with
management’s analysis of operating performance.
|
Distributions
We made an election
to qualify as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2008. U.S. federal tax
law requires a REIT to distribute at least 90% of its annual REIT taxable income (which does not equal net income, as calculated in accordance
with generally accepted accounting principles, or GAAP) determined without regard to the deduction for dividends paid and excluding any
net capital gain. In order to continue to qualify for REIT status, we may be required to make distributions in excess of cash available.
Distributions, if any, are authorized at the discretion of our board of directors based on their analysis of our performance over the
previous periods and expectations of performance for future periods. Such analyses may include actual and anticipated operating cash
flow, capital expenditure needs, general financial and market conditions, proceeds from asset sales and other factors that our board
of directors deems relevant. Our board of directors’ decisions will be substantially influenced by their obligation to ensure that
we maintain our federal tax status as a REIT. We cannot provide assurance that we will pay distributions at any particular level, or
at all.
Off-Balance Sheet Arrangements
We have no off-balance
sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Critical Accounting Policies and
Estimates
Management’s
discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have
been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On a regular basis,
we evaluate these estimates, including investment impairment. These estimates include such items as impairment of long-lived assets,
depreciation and amortization, and allowance for doubtful accounts. Actual results could differ from those estimates.
Our critical accounting
policies and estimates have not changed significantly from the discussion found in the Management Discussion and Analysis and Results
of Operations in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 25, 2021.