Item
1. Financial Statements.
Lightstone
Value Plus REIT V, Inc.
Consolidated
Balance Sheets
(dollars
in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Investment property:
|
|
|
|
|
|
|
|
|
Land and improvements
|
|
$
|
76,892
|
|
|
$
|
63,873
|
|
Building and improvements
|
|
|
294,753
|
|
|
|
248,079
|
|
Furniture, fixtures and equipment
|
|
|
8,473
|
|
|
|
6,552
|
|
Gross investment property
|
|
|
380,118
|
|
|
|
318,504
|
|
Less accumulated depreciation
|
|
|
(59,493
|
)
|
|
|
(50,823
|
)
|
Net investment property
|
|
|
320,625
|
|
|
|
267,681
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
38,065
|
|
|
|
27,078
|
|
Marketable securities, available for sale
|
|
|
3,674
|
|
|
|
3,654
|
|
Restricted cash
|
|
|
7,148
|
|
|
|
4,373
|
|
Note receivable, net
|
|
|
13,742
|
|
|
|
12,794
|
|
Prepaid expenses and other assets
|
|
|
4,148
|
|
|
|
1,604
|
|
Assets held for sale
|
|
|
-
|
|
|
|
24,140
|
|
Total Assets
|
|
$
|
387,402
|
|
|
$
|
341,324
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Notes payable, net
|
|
$
|
270,593
|
|
|
$
|
212,989
|
|
Accounts payable and accrued and other liabilities
|
|
|
8,502
|
|
|
|
6,530
|
|
Liabilities held for sale
|
|
|
-
|
|
|
|
37,165
|
|
Total liabilities
|
|
|
279,095
|
|
|
|
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
|
|
|
186,686
|
|
|
|
189,216
|
|
Accumulated other comprehensive income
|
|
|
224
|
|
|
|
140
|
|
Accumulated deficit
|
|
|
(77,142
|
)
|
|
|
(102,519
|
)
|
Total Company’s stockholders’ equity
|
|
|
109,770
|
|
|
|
86,839
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
(1,463
|
)
|
|
|
(2,199
|
)
|
Total Stockholders’ Equity
|
|
|
108,307
|
|
|
|
84,640
|
|
Total Liabilities
and Stockholders’ Equity
|
|
$
|
387,402
|
|
|
$
|
341,324
|
|
See
Notes to Consolidated Financial Statements.
Lightstone
Value Plus REIT V, Inc.
Consolidated
Statements of Operations and Comprehensive Income
(dollars
and shares in thousands, except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues
|
|
$
|
11,187
|
|
|
$
|
10,185
|
|
|
$
|
30,864
|
|
|
$
|
29,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses
|
|
|
4,097
|
|
|
|
3,694
|
|
|
|
10,336
|
|
|
|
9,749
|
|
Real estate taxes
|
|
|
1,399
|
|
|
|
1,496
|
|
|
|
4,228
|
|
|
|
4,161
|
|
General and administrative
|
|
|
1,825
|
|
|
|
1,634
|
|
|
|
5,046
|
|
|
|
4,745
|
|
Depreciation and amortization
|
|
|
3,925
|
|
|
|
3,145
|
|
|
|
9,590
|
|
|
|
9,067
|
|
Total operating expenses
|
|
|
11,246
|
|
|
|
9,969
|
|
|
|
29,200
|
|
|
|
27,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss)/income
|
|
|
(59
|
)
|
|
|
216
|
|
|
|
1,664
|
|
|
|
1,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(2,735
|
)
|
|
|
(2,556
|
)
|
|
|
(7,403
|
)
|
|
|
(7,087
|
)
|
Interest income
|
|
|
515
|
|
|
|
465
|
|
|
|
1,493
|
|
|
|
1,402
|
|
Gain on sale of investment property
|
|
|
-
|
|
|
|
-
|
|
|
|
27,821
|
|
|
|
5,474
|
|
Gain on disposition of unconsolidated joint venture
|
|
|
-
|
|
|
|
-
|
|
|
|
1,457
|
|
|
|
-
|
|
Other income, net
|
|
|
190
|
|
|
|
196
|
|
|
|
490
|
|
|
|
522
|
|
Net (loss)/income
|
|
|
(2,089
|
)
|
|
|
(1,679
|
)
|
|
|
25,522
|
|
|
|
2,251
|
|
Net (income)/loss attributable to noncontrolling interests
|
|
|
(14
|
)
|
|
|
5
|
|
|
|
(145
|
)
|
|
|
(1,227
|
)
|
Net (loss)/income attributable to the Company’s shares
|
|
$
|
(2,103
|
)
|
|
$
|
(1,674
|
)
|
|
$
|
25,377
|
|
|
$
|
1,024
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
20,157
|
|
|
|
20,201
|
|
|
|
20,181
|
|
|
|
20,925
|
|
Basic and diluted (loss)/income per share
|
|
$
|
(0.10
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
1.26
|
|
|
$
|
0.05
|
|
Comprehensive (loss)/income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income
|
|
$
|
(2,089
|
)
|
|
$
|
(1,679
|
)
|
|
$
|
25,522
|
|
|
$
|
2,251
|
|
Other comprehensive income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holding (loss)/gain on marketable securities, available for sale
|
|
|
(20
|
)
|
|
|
(4
|
)
|
|
|
(68
|
)
|
|
|
96
|
|
Reclassification adjustment for loss/(gain) included in net (loss)/income
|
|
|
159
|
|
|
|
(11
|
)
|
|
|
152
|
|
|
|
(63
|
)
|
Total other comprehensive income/(loss)
|
|
|
139
|
|
|
|
(15
|
)
|
|
|
84
|
|
|
|
33
|
|
Comprehensive (loss)/income:
|
|
|
(1,950
|
)
|
|
|
(1,694
|
)
|
|
|
25,606
|
|
|
|
2,284
|
|
Comprehensive (income)/loss attributable to noncontrolling interests
|
|
|
(14
|
)
|
|
|
5
|
|
|
|
(145
|
)
|
|
|
(1,227
|
)
|
Comprehensive (loss)/income attributable to the Company’s shares
|
|
$
|
(1,964
|
)
|
|
$
|
(1,689
|
)
|
|
$
|
25,461
|
|
|
$
|
1,057
|
|
See
Notes to Consolidated Financial Statements.
Lightstone
Value Plus REIT V, Inc.
Consolidated
Statements of Stockholders’ Equity
(dollars
and shares in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Accumulated
Other Comprehensive
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
Total
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
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,024
|
|
|
|
1,227
|
|
|
|
2,251
|
|
Distributions
paid to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,488
|
)
|
|
|
(3,488
|
)
|
Tender
of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,030
|
)
|
|
|
-
|
|
|
|
(15,695
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,695
|
)
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holding
gain on marketable securities, available for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
96
|
|
|
|
-
|
|
|
|
-
|
|
|
|
96
|
|
Reclassification
adjustment for gain on sale of marketable securities included in net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(63
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(63
|
)
|
BALANCE,
September 30, 2020
|
|
|
1
|
|
|
$
|
-
|
|
|
|
20,193
|
|
|
$
|
2
|
|
|
$
|
189,217
|
|
|
$
|
144
|
|
|
$
|
(101,380
|
)
|
|
$
|
(1,783
|
)
|
|
$
|
86,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Stock
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
(Loss)/
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income
|
|
|
Deficit
|
|
|
Interests
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE,
June 30, 2020
|
|
|
1
|
|
|
$
|
-
|
|
|
|
20,220
|
|
|
$
|
2
|
|
|
$
|
189,311
|
|
|
$
|
159
|
|
|
$
|
(99,706
|
)
|
|
$
|
(1,567
|
)
|
|
$
|
88,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,674
|
)
|
|
|
(5
|
)
|
|
|
(1,679
|
)
|
Distributions
paid to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(211
|
)
|
|
|
(211
|
)
|
Tender
of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(27
|
)
|
|
|
-
|
|
|
|
(94
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(94
|
)
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holding
loss on marketable securities, available for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4
|
)
|
Reclassification
adjustment for gain on sale of marketable securities included in net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(11
|
)
|
BALANCE,
September 30, 2020
|
|
|
1
|
|
|
$
|
-
|
|
|
|
20,193
|
|
|
$
|
2
|
|
|
$
|
189,217
|
|
|
$
|
144
|
|
|
$
|
(101,380
|
)
|
|
$
|
(1,783
|
)
|
|
$
|
86,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
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
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,377
|
|
|
|
145
|
|
|
|
25,522
|
|
Distributions
paid to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(451
|
)
|
|
|
(451
|
)
|
Acquisition
of noncontrolling interest in a subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,128
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,042
|
|
|
|
(1,086
|
)
|
Redemption
and cancellation of common stock
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
-
|
|
|
|
(402
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(402
|
)
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holding
loss on marketable securities, available for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(68
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(68
|
)
|
Reclassification
adjustment for gain on sale of marketable securities included in net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
152
|
|
|
|
-
|
|
|
|
-
|
|
|
|
152
|
|
BALANCE,
September 30, 2021
|
|
|
1
|
|
|
$
|
-
|
|
|
|
20,150
|
|
|
$
|
2
|
|
|
$
|
186,686
|
|
|
$
|
224
|
|
|
$
|
(77,142
|
)
|
|
$
|
(1,463
|
)
|
|
$
|
108,307
|
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Stock
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income
|
|
|
Deficit
|
|
|
Interests
|
|
|
Equity
|
|
BALANCE, June 30, 2021
|
|
|
1
|
|
|
$
|
-
|
|
|
|
20,193
|
|
|
$
|
2
|
|
|
$
|
187,088
|
|
|
$
|
85
|
|
|
$
|
(75,039
|
)
|
|
$
|
(1,369
|
)
|
|
$
|
110,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,103
|
)
|
|
|
14
|
|
|
|
(2,089
|
)
|
Distributions paid to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(108
|
)
|
|
|
(108
|
)
|
Redemption and cancellation of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(43
|
)
|
|
|
-
|
|
|
|
(402
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(402
|
)
|
Other comprehensive loss:
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Holding loss on marketable securities, available for sale
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(20
|
)
|
Reclassification adjustment for gain on sale of marketable securities included in net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
159
|
|
|
|
-
|
|
|
|
-
|
|
|
|
159
|
|
BALANCE, September 30, 2021
|
|
|
1
|
|
|
$
|
-
|
|
|
|
20,150
|
|
|
$
|
2
|
|
|
$
|
186,686
|
|
|
$
|
224
|
|
|
$
|
(77,142
|
)
|
|
$
|
(1,463
|
)
|
|
$
|
108,307
|
|
See
Notes to Consolidated Financial Statements.
Lightstone
Value Plus REIT V, Inc.
Consolidated
Statements of Cash Flows
(dollars
in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
For
the Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
25,522
|
|
|
$
|
2,251
|
|
Adjustments
to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
9,590
|
|
|
|
9,067
|
|
Amortization
of deferred financing fees
|
|
|
576
|
|
|
|
432
|
|
Gain
on disposition of unconsolidated joint venture
|
|
|
(1,457
|
)
|
|
|
-
|
|
Gain
on sale of investment property
|
|
|
(27,821
|
)
|
|
|
(5,474
|
)
|
Non-cash
interest income
|
|
|
(976
|
)
|
|
|
(1,295
|
)
|
Other
non-cash adjustments
|
|
|
34
|
|
|
|
(63
|
)
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease
in prepaid expenses and other assets
|
|
|
2,537
|
|
|
|
(93
|
)
|
Decrease
in accounts payable and accrued and other liabilities
|
|
|
(52
|
)
|
|
|
1,461
|
|
Decrease
in payables to related parties
|
|
|
59
|
|
|
|
(3
|
)
|
Net
cash provided by operating activities
|
|
|
8,012
|
|
|
|
6,283
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase
of investment property
|
|
|
(64,755
|
)
|
|
|
(48,035
|
)
|
Purchases
of marketable securities
|
|
|
(934
|
)
|
|
|
(1,280
|
)
|
Proceeds
from sale of marketable securities
|
|
|
846
|
|
|
|
3,220
|
|
Funding
of note receivable, net
|
|
|
-
|
|
|
|
(636
|
)
|
Acquisition
of noncontrolling interest
|
|
|
(1,086
|
)
|
|
|
-
|
|
Proceeds
from sale of investment property, net of closing costs
|
|
|
14,360
|
|
|
|
23,673
|
|
Proceeds
from disposition of unconsolidated joint venture
|
|
|
1,457
|
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(50,112
|
)
|
|
|
(23,058
|
)
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from notes payable
|
|
|
59,350
|
|
|
|
65,620
|
|
Payments
on notes payable
|
|
|
(677
|
)
|
|
|
(12,862
|
)
|
Proceeds
from advance from advisor
|
|
|
-
|
|
|
|
25,000
|
|
Payments
on advance from advisor
|
|
|
-
|
|
|
|
(25,000
|
)
|
Payment
of loan fees and expenses
|
|
|
(1,958
|
)
|
|
|
(1,583
|
)
|
Tender,
redemption and cancellation of common stock
|
|
|
(402
|
)
|
|
|
(15,695
|
)
|
Distributions
to noncontrolling interests
|
|
|
(451
|
)
|
|
|
(3,488
|
)
|
Net
cash provided by financing activities
|
|
|
55,862
|
|
|
|
31,992
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash, cash equivalents and restricted cash
|
|
|
13,762
|
|
|
|
15,217
|
|
Cash,
cash equivalents and restricted cash, beginning of year
|
|
|
31,451
|
|
|
|
19,950
|
|
Cash,
cash equivalents and restricted cash, end of period
|
|
$
|
45,213
|
|
|
$
|
35,167
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information for the periods indicated is as follows:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
6,793
|
|
|
$
|
6,538
|
|
Debt
assumed by buyer in connection with disposition of investment property
|
|
$
|
35,700
|
|
|
$
|
-
|
|
Capital
expenditures for real estate in accrued liabilities and accounts payable
|
|
$
|
122
|
|
|
$
|
259
|
|
Holding
gain on marketable securities, available for sale
|
|
$
|
84
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
38,065
|
|
|
$
|
27,811
|
|
Restricted
cash
|
|
|
7,148
|
|
|
|
7,356
|
|
Total
cash, cash equivalents and restricted cash
|
|
$
|
45,213
|
|
|
$
|
35,167
|
|
See
Notes to Consolidated Financial Statements.
Lightstone Value Plus REIT 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 REIT V, Inc. (“Lightstone REIT V”) which was formerly known as Lightstone Value Plus Real Estate Investment Trust
V, Inc. before August 31, 2021, 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.
Lightstone
REIT V, together with its subsidiaries is collectively referred to as the ‘‘Company’’ and the use of ‘‘we,’’
‘‘our,’’ ‘‘us’’ or similar pronouns refers to Lightstone REIT V or the Company as required
by the context in which any such pronoun is used.
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 September
30, 2021, the Company had eight real estate investments (six 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 September 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 September 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 externally managed by LSG Development Advisor LLC (the “Advisor”), an affiliate of the Lightstone
Group LLC (“Lightstone”) which provides advisory services to the Company and the Company has no employees. Lightstone is
majority owned by the chairman emeritus 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 September 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 REIT 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 4).
|
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 REIT 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 of 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 REIT 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.
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 September 30, 2021, the Company’s consolidated portfolio of properties consisted of seven 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.
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.
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit
data and where indicated in millions)
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.
|
Real
Estate Asset Acquisition
|
BayVue
Apartments
On
July 7, 2021, the Company completed the acquisition of a 368-unit multifamily property located in Tampa, Florida (the “BayVue
Apartments”), from an unrelated third party, for an aggregate purchase price of $59.5 million, excluding closing and other
acquisition related costs. In connection with the acquisition, the Advisor received an aggregate of $1.3 million in acquisition fees,
acquisition expense reimbursements and debt financing fees.
The
Company determined this acquisition was an asset acquisition and allocated the total purchase price, including acquisition fees and expenses,
to the assets acquired based on their relative fair value. Approximately $12.7 million was allocated to land and improvements, $43.5
million was allocated to building and improvements, $1.3 million was allocated to furniture and fixtures and $3.0 million was allocated
to in-place lease intangibles.
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+3.10% 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. See Note 8 for additional information.
The
capitalization rate for the acquisition of the BayVue Apartments was approximately 4.22%. The Company calculates the capitalization rate
for a real property by dividing the net operating income (“NOI”) of the property by the purchase price of the property, excluding
costs. For purposes of this calculation, NOI was based upon the twelve months ended March 31, 2021. Additionally, NOI is all gross revenues
from the property less all operating expenses, including property taxes and management fees but excluding depreciation.
|
4.
|
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. 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.
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit
data and where indicated in millions)
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
|
|
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 classified as 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 were accounted for as an addition to the carrying value of the 500 West 22nd Street Mezzanine
Loan and were 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 approximated the effective interest method.
The
500 West 22nd Street Mezzanine Loan had an initial maturity date of August
31, 2021 and is collateralized by the ownership interests of the 500 West 22nd Street Mezzanine Loan Borrower. However,
because the 500 West 22nd Street Mezzanine Loan Borrower exercised the first of two six-month extension options, the current
maturity date is now February 28, 2022. 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 September
30, 2021). The Company received an origination fee of 1.0% of the loan balance, or $0.1 million, which was presented in the consolidated
balance sheets as a direct deduction from the carrying value of the 500 West 22nd Street Mezzanine Loan and was amortized to
interest income, using a straight-line method that approximated the effective interest method, over the initial term of the 500
West 22nd Street Mezzanine Loan.
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit
data and where indicated in millions)
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 was presented in the consolidated balance sheets as a direct deduction
from the carrying value of the 500 West 22nd Street Mezzanine Loan and was applied against the first 8.0% of monthly
interest due during the initial term of the 500 West 22nd Street Mezzanine Loan. Through September 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 September 30, 2021, $1.7 million of additional interest due
is included in the balance of the 500 West 22nd Street Mezzanine Loan.
During
the three and nine months ended September 30, 2021, the Company recorded $0.5 million and $1.3 million, respectively, of interest income
related to the note receivable and during the three and nine months ended September 30, 2020, the Company recorded $0.5 million and $1.3
million, respectively, of interest income related to the note receivable. As of September 30, 2021, the outstanding principal balance
of the 500 West 22nd Street Mezzanine Loan was $13.7 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.
As
of September 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 September 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 September 30, 2021
|
|
|
As
of December 31, 2020
|
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
Notes
payable
|
|
$
|
275,055
|
|
|
$
|
276,688
|
|
|
$
|
216,382
|
|
|
$
|
219,625
|
|
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit
data and where indicated in millions)
|
7.
|
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 September 30, 2021
|
|
Debt securities:
|
|
Adjusted
Cost
|
|
|
Gross
Unrealized Gains
|
|
|
Gross
Unrealized Losses
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
and Government Bonds
|
|
$
|
3,451
|
|
|
$
|
240
|
|
|
$
|
(17
|
)
|
|
$
|
3,674
|
|
|
|
As
of December 31, 2020
|
|
Debt securities:
|
|
Adjusted
Cost
|
|
|
Gross
Unrealized Gains
|
|
|
Gross
Unrealized Losses
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2021, the Company did not recognize any impairment charges.
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 September 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 nine months ended September 30, 2021.
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit
data and where indicated in millions)
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 September 30,
2021
|
|
Due
in 1 year
|
|
$
|
824
|
|
Due in
1 year through 5 years
|
|
|
2,673
|
|
Due in
5 years through 10 years
|
|
|
177
|
|
Due
after 10 years
|
|
|
-
|
|
Total
|
|
$
|
3,674
|
|
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
September 30,
2021
|
|
|
Maturity
Date
|
|
Amount
Due at Maturity
|
|
|
As
of
September 30,
2021
|
|
|
As
of
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
River
Club and the Townhomes at River Club
|
|
LIBOR + 1.78%
|
|
|
1.89
|
%
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arbors
Harbor Town Supplemental
|
|
3.52%
|
|
|
3.52
|
%
|
|
January 1, 2026
|
|
|
5,379
|
|
|
|
5,860
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parkside
|
|
4.45%
|
|
|
4.45
|
%
|
|
June 1, 2025
|
|
|
15,782
|
|
|
|
17,054
|
|
|
|
17,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axis at
Westmont
|
|
4.39%
|
|
|
4.39
|
%
|
|
February 1, 2026
|
|
|
34,343
|
|
|
|
37,252
|
|
|
|
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
|
|
|
|
28,720
|
|
|
|
28,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flats
at Fishers Supplemental
|
|
3.85%
|
|
|
3.85
|
%
|
|
July 1, 2026
|
|
|
8,366
|
|
|
|
9,176
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Autumn
Breeze Apartments
|
|
3.39%
|
|
|
3.39
|
%
|
|
April 1, 2030
|
|
|
25,518
|
|
|
|
29,920
|
|
|
|
29,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bay
Vue Apartments
|
|
LIBOR
+ 3.10% (floor 3.10%)
|
|
|
3.12
|
%
|
|
July
9, 2024
|
|
|
44,300
|
|
|
|
44,300
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable
|
|
|
|
|
3.68
|
%
|
|
|
|
$
|
260,611
|
|
|
|
275,055
|
|
|
|
216,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,462
|
)
|
|
|
(3,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
270,593
|
|
|
$
|
212,989
|
|
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit
data and where indicated in millions)
BayVue
Mortgage
On
July 7, 2021, the Company entered into the BayVue Mortgage scheduled to initially mature on July 9, 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+3.10% subject to a 3.10% floor. The BayVue Mortgage is collateralized by the BayVue Apartments. As of September
30, 2021, the outstanding principal balance of the BayVue Mortgage was $44.3 million and the remaining availability under the facility
was up to $7.9 million.
Flats
at Fisher Supplemental Mortgage
On
August 16, 2021, the Company entered into a non-recourse subordinated mortgage loan for $9.2 million (the “Flats at Fisher Supplemental
Mortgage”) scheduled to mature on July 1, 2026. The Flats at Fisher Supplemental Mortgage requires monthly payments of interest
and principal of $43 through its maturity date and bears interest at 3.85%. The Flats at Fisher Supplemental Mortgage is collateralized
with a subordinated interest in the Flats at Fisher. In connection with the Flats at Fisher Supplemental Mortgage, the Advisor received
$0.1 million in debt financing fees.
Arbors
Harbor Town Supplemental Mortgage
On
September 30, 2021, the Company entered into a non-recourse subordinated mortgage loan for $5.9 million (the “Arbors Harbor Town
Supplemental Mortgage”) scheduled to mature on January 1, 2026. The Arbors Harbor Town Supplemental Mortgage requires monthly payments
of interest and principal of $26 through its maturity date and bears interest at 3.52%. The Arbors Harbor Town Supplemental Mortgage
is collateralized with a subordinated interest in the Arbors Harbor Town. In connection with the Arbors Harbor Town Supplemental Mortgage,
the Advisor received $0.1 million in debt financing fees.
The
following table provides information with respect to the contractual maturities and scheduled principal repayments of the Company’s
indebtedness as of September 30, 2021.
Schedule of contractual obligations for principal payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
Thereafter
|
|
|
Total
|
|
Principal
maturities
|
|
$
|
404
|
|
|
$
|
1,740
|
|
|
$
|
2,781
|
|
|
$
|
47,773
|
|
|
$
|
46,895
|
|
|
$
|
175,462
|
|
|
$
|
275,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
270,593
|
|
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
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 was 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.
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit
data and where indicated in millions)
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.
In
accordance with the Company’s SRP, the per share redemption price automatically adjusted to $12.91 effective November 11, 2021
as a result of the determination and approval by the Company’s board of directors of the updated estimated NAV per Share.
For
the nine months ended September 30, 2021 the Company repurchased 42,696 shares of common stock, pursuant to its share repurchase program
at an average price per share of $9.42 per share.
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 nine months ended September 30, 2021 and 2020.
|
10.
|
Related
Party Transactions
|
The
Company has agreements with the Advisor and its affiliate to pay certain fees in exchange for services performed by these entities and
other related parties. These agreements have a one-year term and currently extend through June 10, 2022. The Company is dependent
on the Advisor and its affiliates 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 and its affiliates for the periods
indicated:
Schedule of Redemption Program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended September 30,
|
|
|
For
the Nine Months Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Acquisition
fees and acquisition expense reimbursement (1)
|
|
$
|
1,041
|
|
|
$
|
-
|
|
|
$
|
1,041
|
|
|
$
|
764
|
|
Debt
financing fees (2)
|
|
|
448
|
|
|
|
-
|
|
|
|
448
|
|
|
|
656
|
|
Property
management fees (property operating expenses)
|
|
|
109
|
|
|
|
123
|
|
|
|
337
|
|
|
|
350
|
|
Administrative
services reimbursement (general and administrative costs)
|
|
|
347
|
|
|
|
333
|
|
|
|
1,012
|
|
|
|
989
|
|
Asset
management fees (general and administrative costs)
|
|
|
723
|
|
|
|
691
|
|
|
|
2,044
|
|
|
|
2,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,668
|
|
|
$
|
1,147
|
|
|
$
|
4,882
|
|
|
$
|
4,773
|
|
(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.
|
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share/unit
data and where indicated in millions)
|
11.
|
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 Citadel Apartments located in Houston, Texas
On
October 6, 2021, the Company acquired a 293-unit multifamily property located in Houston, Texas (the “Citadel Apartments”),
from AHC Citadel, LLC, an unaffiliated third party, for an aggregate purchase price of $66.0 million, excluding closing and other
acquisition related costs.
In
connection with the acquisition of the Citadel Apartments, the Company simultaneously entered into a non-recourse mortgage loan facility
for up to $49.0 million (the “Citadel Mortgage”) scheduled to initially mature on October 11, 2024, with two, one-year
extension options, subject to certain conditions. The Citadel Mortgage requires monthly interest-only payments through its maturity date
and bears interest at LIBOR+2.95% subject to a 3.05% floor. The Citadel Mortgage is collateralized by the Citadel Apartments. In
connection with the acquisition of the Citadel Apartments, $38.0 million was initially funded under the Citadel Mortgage and the
Company paid the balance of the purchase price of $28.0 million with cash. As a result, the Citadel Mortgage has remaining availability
of $11.0 million.
In
connection with the acquisition, the Advisor received an aggregate of $1.6 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 REIT V, Inc. and our subsidiaries (which may be referred to herein as
the “Company,” “we,” “us” or “our”), which was formerly known as Lightstone Value Plus
Real Estate Investment Trust V, Inc. before August 31, 2021, 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 September 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 September 30, 2021, our consolidated portfolio of properties consisted of seven 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 the overall extent as to which our business may be affected by the ongoing COVID-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 $38.1 million, marketable securities, available for sale of $3.7 million and restricted cash of $7.1
million as of September 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
Acquisition
of BayVue Apartments
On
July 7, 2021, we completed the acquisition of a 368-unit multifamily property located in Tampa, Florida (the “BayVue Apartments”)
from an unrelated third party, for an aggregate purchase price of $59.5 million, excluding closing and other related transaction costs.
In connection with the acquisition, we paid the Advisor an aggregate of $1.3 million in acquisition fees, acquisition expense reimbursements
and debt financing fees.
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. 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 Citadel Apartments located in Houston, Texas
On
October 6, 2021, we acquired a 293-unit multifamily property located in Houston, Texas (the “Citadel Apartments”), from AHC
Citadel, LLC, an unaffiliated third party, for an aggregate purchase price of $66.0 million, excluding closing and other acquisition
related costs.
In
connection with the acquisition of the Citadel Apartments, we simultaneously entered into a non-recourse mortgage loan facility for up
to $49.0 million (the “Citadel Mortgage”) scheduled to initially mature on October 11, 2024, with two, one-year extension
options, subject to certain conditions. The Citadel Mortgage requires monthly interest-only payments through its maturity date and bears
interest at LIBOR+2.95% subject to a 3.05% floor. The Citadel Mortgage is collateralized by the Citadel Apartments. In connection
with the acquisition of the Citadel Apartments, $38.0 million was initially funded under the Citadel Mortgage and we paid the balance
of the purchase price of $28.0 million with cash. As a result, the Citadel Mortgage has remaining availability of $11.0 million.
In
connection with the acquisition, the Advisor received an aggregate of $1.6 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.
BayVue
Mortgage
On
July 7, 2021, we 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+3.10% subject to a 3.10% floor. The BayVue
Mortgage is collateralized by the BayVue Apartments. As of September 30, 2021, the outstanding principal balance of the BayVue Mortgage
was $44.3 million and the remaining availability under the facility was up to $7.9 million.
Flats
at Fisher Supplemental Mortgage
On
August 16, 2021, we entered into a non-recourse subordinated mortgage loan for $9.2 million (the “Flats at Fisher Supplemental
Mortgage”) scheduled to mature on July 1, 2026. The Flats at Fisher Supplemental Mortgage requires monthly payments of interest
and principal of $43,083 through its maturity date and bears interest at 3.85%. The Flats at Fisher Supplemental Mortgage is collateralized
with a subordinated mortgage interest in the Flats at Fisher. As of September 30, 2021, the outstanding principal balance of the Flats
at Fisher Supplemental Mortgage was $9.2 million. In connection with the Flats at Fisher Supplemental Mortgage, the Advisor received
$0.1 million in debt financing fees.
Arbors
Harbor Town Supplemental Mortgage
On
September 30, 2021, we entered into a non-recourse subordinated mortgage loan for $5.9 million (the “Arbors Harbor Town Supplemental
Mortgage”) scheduled to mature on January 1, 2026. The Arbors Harbor Town Supplemental Mortgage requires monthly payments of interest
and principal of $26,379 through its maturity date and bears interest at 3.52%. The Arbors Harbor Town Supplemental Mortgage is collateralized
with a subordinated mortgage interest in the Arbors Harbor Town. As of September 30, 2021, the outstanding principal balance of the Arbors
Harbor Town Supplemental Mortgage was $5.9 million. In connection with the Arbors Harbor Town Supplemental Mortgage, the Advisor
received $0.1 million in debt financing fees.
As
of September 30, 2021, our outstanding notes payable were $270.6 million, net of deferred financing fees of $4.5 million and had a weighted
average interest rate of 3.68%. 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 September 30, 2021
(dollars in thousands).
Contractual
Obligations
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
Thereafter
|
|
|
Total
|
|
Mortgage
Payable
|
|
$
|
404
|
|
|
$
|
1,740
|
|
|
$
|
2,781
|
|
|
$
|
47,773
|
|
|
$
|
46,895
|
|
|
$
|
175,462
|
|
|
$
|
275,055
|
|
Interest
Payments
|
|
|
2,544
|
|
|
|
10,238
|
|
|
|
10,157
|
|
|
|
9,474
|
|
|
|
7,832
|
|
|
|
5,752
|
|
|
|
45,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Contractual Obligations
|
|
$
|
2,948
|
|
|
$
|
11,978
|
|
|
$
|
12,938
|
|
|
$
|
57,247
|
|
|
$
|
54,727
|
|
|
$
|
181,214
|
|
|
$
|
321,052
|
|
Results
of Operations
As
of September 30, 2021, we had eight real estate investments (six 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 September 30, 2021:
|
|
Occupancy
|
|
|
Effective
Monthly Rent per Bed/Unit(1)
|
|
|
|
|
|
As
of September 30,
|
|
|
As
of September 30,
|
|
|
|
Property
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
River
Club and the Townhomes at River Club
|
|
|
99
|
%
|
|
|
97
|
%
|
|
$
|
487.91
|
|
|
$
|
471.84
|
|
|
per
bed
|
Arbors
Harbor Town
|
|
|
96
|
%
|
|
|
95
|
%
|
|
$
|
1,460.73
|
|
|
$
|
1,331.67
|
|
|
per
unit
|
Parkside
|
|
|
98
|
%
|
|
|
95
|
%
|
|
$
|
1,256.29
|
|
|
$
|
1,179.61
|
|
|
per
unit
|
Flats
at Fishers
|
|
|
97
|
%
|
|
|
96
|
%
|
|
$
|
1,335.79
|
|
|
$
|
1,169.65
|
|
|
per
unit
|
Axis
at Westmont
|
|
|
95
|
%
|
|
|
94
|
%
|
|
$
|
1,268.38
|
|
|
$
|
1,167.06
|
|
|
per
unit
|
Valley
Ranch Apartments
|
|
|
93
|
%
|
|
|
95
|
%
|
|
$
|
1,581.53
|
|
|
$
|
1,378.67
|
|
|
per
unit
|
Autumn
Breeze Apartments (2)
|
|
|
91
|
%
|
|
|
95
|
%
|
|
$
|
1,192.62
|
|
|
$
|
1,058.45
|
|
|
per
unit
|
BayVue
Apartments (3)
|
|
|
96
|
%
|
|
|
N/A
|
|
|
$
|
1,123.31
|
|
|
|
N/A
|
|
|
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.
|
|
(3)
|
The
BayVue Apartments were acquired on July 7, 2021.
|
On
March 17, 2020, we acquired the Autumn Breeze Apartments (the “2020 Acquisition”) and on July 7, 2021 we acquired the BayVue
Apartments (the “2021 Acquisition” and collectively, the “Acquisitions”). 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 September 30, 2021 as compared to the three months ended September 30, 2020.
The
following table provides summary information about our results of operations (dollars in thousands):
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
Change
|
|
|
Change
|
|
|
Change
|
|
|
|
September
30,
|
|
|
Increase/
|
|
|
Percentage
|
|
|
due
to
|
|
|
due
to
|
|
|
due
to
|
|
|
|
2021
|
|
|
2020
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Acquisitions(1)
|
|
|
Dispositions(2)
|
|
|
Same
Store(3)
|
|
Rental
revenues
|
|
$
|
11,187
|
|
|
$
|
10,185
|
|
|
$
|
1,002
|
|
|
|
10.0
|
%
|
|
$
|
1,446
|
|
|
$
|
(1,185
|
)
|
|
$
|
741
|
|
Property
operating expenses
|
|
|
4,097
|
|
|
|
3,694
|
|
|
|
403
|
|
|
|
11.0
|
%
|
|
|
658
|
|
|
|
(425
|
)
|
|
|
170
|
|
Real
estate taxes
|
|
|
1,399
|
|
|
|
1,496
|
|
|
|
(97
|
)
|
|
|
(6.0
|
%)
|
|
|
147
|
|
|
|
(221
|
)
|
|
|
(23
|
)
|
General
and administrative
|
|
|
1,825
|
|
|
|
1,634
|
|
|
|
191
|
|
|
|
12.0
|
%
|
|
|
26
|
|
|
|
(5
|
)
|
|
|
170
|
|
Depreciation
and amortization
|
|
|
3,925
|
|
|
|
3,145
|
|
|
|
780
|
|
|
|
25.0
|
%
|
|
|
1,143
|
|
|
|
(263
|
)
|
|
|
(100
|
)
|
Interest
expense, net
|
|
|
2,735
|
|
|
|
2,556
|
|
|
|
179
|
|
|
|
7.0
|
%
|
|
|
452
|
|
|
|
(303
|
)
|
|
|
30
|
|
Notes:
|
(1)
|
Represents
the effect on our operating results for the periods indicated resulting from the 2021 Acquisition.
|
|
(2)
|
Represents
the effect on our operating results for the periods indicated resulting from the 2021 Disposition.
|
|
(3)
|
Represents
the change for the three months ended September 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 September 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 September 30, 2021 and
2020 for: (i) our Same Store properties, (ii) the 2021 Acquisition and (iii) the 2021 Disposition (dollars in thousands):
|
|
Three
Months Ended
September 30,
|
|
|
|
|
Description
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
Rental
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Same
Store
|
|
$
|
9,741
|
|
|
$
|
9,000
|
|
|
$
|
741
|
|
2021
Acquisition
|
|
|
1,446
|
|
|
|
-
|
|
|
|
1,446
|
|
2021
Disposition
|
|
|
-
|
|
|
|
1,185
|
|
|
|
(1,185
|
)
|
Total
rental revenues
|
|
$
|
11,187
|
|
|
$
|
10,185
|
|
|
$
|
1,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Same
Store
|
|
$
|
3,426
|
|
|
$
|
3,256
|
|
|
$
|
170
|
|
2021
Acquisition
|
|
|
658
|
|
|
|
-
|
|
|
|
658
|
|
2021
Disposition
|
|
|
13
|
|
|
|
438
|
|
|
|
(425
|
)
|
Total
property operating expenses
|
|
$
|
4,097
|
|
|
$
|
3,694
|
|
|
$
|
403
|
|
Revenues.
Rental revenues for the three months ended September 30, 2021 were $11.2 million, an increase of $1.0 million, compared to $10.2 million
for the same period in 2020. Excluding the effect of our acquisition and disposition activities, our rental revenues increased
by $0.7 million for our Same Store properties primarily as a result of increased average monthly rent per unit and increased occupancy
during the 2021 period.
Property
Operating Expenses. Property operating expenses for the three months ended September 30, 2021 were $4.1 million,
an increase of $0.4 million, compared to $3.7 million for the same period in 2020. Excluding the effect of our acquisition and disposition
activities, our property operating expenses increased by $0.2 million for our Same Store properties primarily as a result of higher occupancy
during the 2021 period and the resulting increase in utilities and repair and maintenance costs.
Real
Estate Taxes. Real estate taxes for the three months ended September 30, 2021 were $1.4 million, a decrease of $0.1 million,
compared to $1.5 million for the same period in 2020. Excluding the effect of our acquisition and disposition activities, real estate
taxes were unchanged for our Same Store properties.
General
and Administrative Expenses. General and administrative expenses for the three months ended September 30, 2021 were $1.8 million,
an increase of $0.2 million, compared to $1.6 million for the same period in 2020. Excluding the effect of our acquisition and disposition
activities, our general and administrative expenses increased by $0.2 million for our Same Store properties.
Depreciation
and Amortization. Depreciation and amortization expense for the three months ended September 30, 2021 was $3.9 million, an
increase of $0.8 million, compared to $3.1 million for the same period in 2020. Excluding the effect of our acquisition and 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 September 30, 2021 was $2.7 million, an increase of $0.1 million,
compared to $2.6 million for the same period in 2020. Excluding the effect of our acquisition and disposition activities, interest expense
was unchanged for our Same Store properties.
Nine
months ended September 30, 2021 as compared to the nine months ended September 30, 2020.
The
following table provides summary information about our results of operations (dollars in thousands):
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
Change
|
|
|
Change
|
|
|
Change
|
|
|
|
September
30,
|
|
|
Increase/
|
|
|
Percentage
|
|
|
due
to
|
|
|
due
to
|
|
|
due
to
|
|
|
|
2021
|
|
|
2020
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Acquisitions(1)
|
|
|
Dispositions(2)
|
|
|
Same
Store(3)
|
|
Rental
revenues
|
|
$
|
30,864
|
|
|
$
|
29,662
|
|
|
$
|
1,202
|
|
|
|
4.0
|
%
|
|
$
|
2,434
|
|
|
$
|
(2,685
|
)
|
|
$
|
1,453
|
|
Property
operating expenses
|
|
|
10,336
|
|
|
|
9,749
|
|
|
|
587
|
|
|
|
6.0
|
%
|
|
|
954
|
|
|
|
(895
|
)
|
|
|
528
|
|
Real
estate taxes
|
|
|
4,228
|
|
|
|
4,161
|
|
|
|
67
|
|
|
|
2.0
|
%
|
|
|
300
|
|
|
|
(513
|
)
|
|
|
280
|
|
General
and administrative
|
|
|
5,046
|
|
|
|
4,745
|
|
|
|
301
|
|
|
|
6.0
|
%
|
|
|
36
|
|
|
|
(23
|
)
|
|
|
288
|
|
Depreciation
and amortization
|
|
|
9,590
|
|
|
|
9,067
|
|
|
|
523
|
|
|
|
6.0
|
%
|
|
|
1,360
|
|
|
|
(793
|
)
|
|
|
(44
|
)
|
Interest
expense, net
|
|
|
7,403
|
|
|
|
7,087
|
|
|
|
316
|
|
|
|
4.0
|
%
|
|
|
720
|
|
|
|
(53
|
)
|
|
|
(351
|
)
|
Notes:
|
(1)
|
Represents
the effect on our operating results for the periods indicated resulting from the Acquisitions.
|
|
(2)
|
Represents
the effect on our results for the periods indicated resulting from the Dispositions.
|
|
(3)
|
Represents
the change for the nine months ended September 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 nine
months ended September 30, 2021 and 2020 include River Club and the Townhomes at River Club,
Arbors Harbor Town, Parkside, Flats at Fishers, the Axis at Westmont and the Valley Ranch
Apartments.
|
The
following table reflects total rental revenues and total property operating expenses for the nine months ended September 30, 2021 and
2020 for: (i) our Same Store properties, (ii) the Acquisitions and (iii) the Dispositions (dollars in thousands):
|
|
Nine
Months Ended September 30,
|
|
|
|
|
Description
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
Rental
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Same
Store
|
|
$
|
25,387
|
|
|
$
|
23,934
|
|
|
$
|
1,453
|
|
Acquisitions
|
|
|
4,416
|
|
|
|
1,982
|
|
|
|
2,434
|
|
Disposition
|
|
|
1,061
|
|
|
|
3,746
|
|
|
|
(2,685
|
)
|
Total
rental revenues
|
|
$
|
30,864
|
|
|
$
|
29,662
|
|
|
$
|
1,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Same
Store
|
|
$
|
8,318
|
|
|
$
|
7,790
|
|
|
$
|
528
|
|
Acquisitions
|
|
|
1,616
|
|
|
|
662
|
|
|
|
954
|
|
Disposition
|
|
|
402
|
|
|
|
1,297
|
|
|
|
(895
|
)
|
Total
property operating expenses
|
|
$
|
10,336
|
|
|
$
|
9,749
|
|
|
$
|
587
|
|
Revenues.
Rental revenues for the nine months ended September 30, 2021 were $30.9 million, an increase of $1.2 million, compared to $29.7 million
for the same period in 2020. Excluding the effect of our acquisition and disposition activities, our rental revenues increased
by $1.5 million for our Same Store properties primarily as a result of increased average monthly rent per unit and increased occupancy
during the 2021 period.
Property
Operating Expenses. Property operating expenses for the nine months ended September 30, 2021 were $10.3 million, an increase of $0.6
million, compared to $9.7 million for the same period in 2020. Excluding the effect of our acquisition and disposition activities, our
property operating expenses increased by $0.5 million for our Same Store properties primarily as a result of higher occupancy during
the 2021 period and the resulting increase in utilities and repair and maintenance costs.
Real
Estate Taxes. Real estate taxes for both the three months ended September 30, 2021 and 2020 were $4.2 million. 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 nine months ended September 30, 2021 was $5.0 million,
an increase of $0.3 million, compared to $4.7 million for the same period in 2020. Excluding the effect of our acquisition and disposition
activities, general and administrative expenses increased by $0.3 million for our Same Store Properties.
Depreciation
and Amortization. Depreciation and amortization expense for the nine months ended September 30, 2021 was $9.6 million, an
increase of $0.5 million, compared to $9.1 million for the same period in 2020. Excluding the effect of our acquisition and disposition
activities, depreciation and amortization was unchanged for our Same Store properties.
Interest
Expense, net. Interest expense for the nine months ended September 30, 2021 was $7.4 million, an increase of $0.3 million,
compared to $7.1 million for the same period in 2020. Excluding the effect of our acquisition and disposition activities, interest expense
decreased by $0.4 million for our Same Store properties primarily as a result of lower interest rates on our variable rate loan resulting
from the decrease in LIBOR.
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 4 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 affiliate to pay certain fees in exchange for services performed by these entities and other
related parties. These agreements have one-year terms and currently extend through June 10, 2022. We are dependent on the Advisor
and its affiliates 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 and its affiliates for the periods indicated:
|
|
For
the Three Months Ended
September 30,
|
|
|
For
the Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Acquisition
fees and acquisition expense reimbursement (1)
|
|
$
|
1,041
|
|
|
$
|
-
|
|
|
$
|
1,041
|
|
|
$
|
764
|
|
Debt
financing fees (2)
|
|
|
448
|
|
|
|
-
|
|
|
|
448
|
|
|
|
656
|
|
Property
management fees (property operating expenses)
|
|
|
109
|
|
|
|
123
|
|
|
|
337
|
|
|
|
350
|
|
Administrative
services reimbursement (general and administrative costs)
|
|
|
347
|
|
|
|
333
|
|
|
|
1,012
|
|
|
|
989
|
|
Asset
management fees (general and administrative costs)
|
|
|
723
|
|
|
|
691
|
|
|
|
2,044
|
|
|
|
2,014
|
|
Total
|
|
$
|
2,668
|
|
|
$
|
1,147
|
|
|
$
|
4,882
|
|
|
$
|
4,773
|
|
|
(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 $8.0 million for the nine months ended September 30, 2021 consisted primarily of our net
income of $25.5 million, depreciation and amortization and amortization of deferred financing costs aggregating $10.2 million and the
net change in assets and liabilities of $2.5 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 $1.0 million.
Investing
activities
The
net cash used in investing activities of $50.1 million for the nine months ended September 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;
|
|
●
|
the
acquisition of the BayVue Apartments for $60.5 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 $4.3 million.
|
Financing
activities
The
net cash provided by financing activities of $55.9 million for the nine months ended September 30, 2021 consists primarily of the following:
|
●
|
net
proceeds from notes payable of $57.4 million;
|
|
●
|
debt
principal payments of $0.7 million;
|
|
●
|
distributions
paid to noncontrolling interests of $0.5 million; and
|
|
●
|
redemptions
and cancellation of common stock of $0.4 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
September 30,
|
|
|
For
the Nine Months Ended
September 30,
|
|
Description
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net
(loss)/income
|
|
$
|
(2,089
|
)
|
|
$
|
(1,679
|
)
|
|
$
|
25,522
|
|
|
$
|
2,251
|
|
FFO
adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization of real estate assets
|
|
|
3,925
|
|
|
|
3,145
|
|
|
|
9,590
|
|
|
|
9,067
|
|
Gain
on disposition of unconsolidated joint venture
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,457
|
)
|
|
|
-
|
|
Gain
on sale of investment property
|
|
|
-
|
|
|
|
-
|
|
|
|
(27,821
|
)
|
|
|
(5,474
|
)
|
FFO
|
|
|
1,836
|
|
|
|
1,466
|
|
|
|
5,834
|
|
|
|
5,844
|
|
MFFO
adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
and other transaction related costs expensed(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Noncash
adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on on forgiveness of debt(3)
|
|
|
(128
|
)
|
|
|
-
|
|
|
|
(128
|
)
|
|
|
-
|
|
Amortization
of above or below market leases and liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Mark-to-market
adjustments(2)
|
|
|
(7
|
)
|
|
|
(4
|
)
|
|
|
(9
|
)
|
|
|
5
|
|
Loss/(gain)
on sale of marketable securities(3)
|
|
|
159
|
|
|
|
(11
|
)
|
|
|
152
|
|
|
|
(63
|
)
|
MFFO
before straight-line rent
|
|
|
1,860
|
|
|
|
1,451
|
|
|
|
5,849
|
|
|
|
5,786
|
|
Straight-line
rent(4)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(32
|
)
|
MFFO
- IPA recommended format
|
|
$
|
1,860
|
|
|
$
|
1,451
|
|
|
$
|
5,849
|
|
|
$
|
5,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)/income
|
|
$
|
(2,089
|
)
|
|
$
|
(1,679
|
)
|
|
$
|
25,522
|
|
|
$
|
2,251
|
|
Less:
(income)/loss attributable to noncontrolling interests
|
|
|
(14
|
)
|
|
|
5
|
|
|
|
(145
|
)
|
|
|
(1,227
|
)
|
Net
(loss)/income applicable to Company’s common shares
|
|
$
|
(2,103
|
)
|
|
$
|
(1,674
|
)
|
|
$
|
25,377
|
|
|
$
|
1,024
|
|
Net
(loss)/income per common share, basic and diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
1.26
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO
|
|
$
|
1,836
|
|
|
$
|
1,466
|
|
|
$
|
5,834
|
|
|
$
|
5,844
|
|
Less:
FFO attributable to noncontrolling interests
|
|
|
(97
|
)
|
|
|
(89
|
)
|
|
|
(385
|
)
|
|
|
(368
|
)
|
FFO
attributable to Company’s common shares
|
|
$
|
1,739
|
|
|
$
|
1,377
|
|
|
$
|
5,449
|
|
|
$
|
5,476
|
|
FFO
per common share, basic and diluted
|
|
$
|
0.09
|
|
|
$
|
0.07
|
|
|
$
|
0.27
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MFFO
- IPA recommended format
|
|
$
|
1,860
|
|
|
$
|
1,451
|
|
|
$
|
5,849
|
|
|
$
|
5,754
|
|
Less:
MFFO attributable to noncontrolling interests
|
|
|
(97
|
)
|
|
|
(89
|
)
|
|
|
(385
|
)
|
|
|
(362
|
)
|
MFFO
attributable to Company’s common shares
|
|
$
|
1,763
|
|
|
$
|
1,362
|
|
|
$
|
5,464
|
|
|
$
|
5,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding, basic and diluted
|
|
|
20,157
|
|
|
|
20,201
|
|
|
|
20,181
|
|
|
|
20,925
|
|
|
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.