PART
I. FINANCIAL INFORMATION, CONTINUED:
ITEM
1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Amounts
in thousands)
(Unaudited)
| |
| | | |
| | |
| |
For
the
Six Months Ended
June 30, | |
| |
2022 | | |
2021 | |
CASH
FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
Net
(loss)/income | |
$ | (13,420 | ) | |
$ | 22,738 | |
Adjustments
to reconcile net (loss)/income to net cash provided by operating activities: | |
| | | |
| | |
Depreciation
and amortization | |
| 1,498 | | |
| 2,281 | |
Unrealized
loss/(gain) on marketable equity securities | |
| 18,774 | | |
| (14,077 | ) |
(Gain)/loss
on sale of marketable securities | |
| (1,160 | ) | |
| 16 | |
Mark
to market adjustment on derivative financial instruments | |
| (1,242 | ) | |
| - | |
Gain
on disposition of real estate | |
| - | | |
| (3,589 | ) |
Noncash
interest income | |
| (1,764 | ) | |
| (3,322 | ) |
Other
non-cash adjustments | |
| 102 | | |
| 471 | |
Changes
in assets and liabilities: | |
| | | |
| | |
Increase
in prepaid expenses and other assets | |
| (585 | ) | |
| (896 | ) |
(Decrease)/increase
in tenant allowances and deposits payable | |
| (152 | ) | |
| 79 | |
Increase
in accounts payable, accrued expenses and other liabilities | |
| 5,977 | | |
| 1,298 | |
Increase/(decrease)
in due to related parties | |
| 73 | | |
| (34 | ) |
Net
cash provided by operating activities | |
| 8,101 | | |
| 4,965 | |
| |
| | | |
| | |
CASH
FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Purchase
of development property and investment property | |
| (36,398 | ) | |
| (24,510 | ) |
Proceeds
from sale of marketable securities | |
| 8,345 | | |
| 3,631 | |
Proceeds
from disposition of real estate | |
| - | | |
| 6,460 | |
Investment
in joint venture | |
| - | | |
| (12 | ) |
Proceeds
from joint venture | |
| 51 | | |
| 102 | |
Proceeds
from redemption of preferred investment in related party | |
| 4,000 | | |
| - | |
Funding
of notes receivable | |
| (43,970 | ) | |
| - | |
Proceeds
from repayment of notes receivable | |
| 27,090 | | |
| 42,536 | |
Net
cash (used in)/provided by investing activities | |
| (52,934 | ) | |
| 24,558 | |
| |
| | | |
| | |
CASH
FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Proceeds
from mortgage financing | |
| 29,262 | | |
| 35,698 | |
Mortgage
principal payments | |
| (691 | ) | |
| (63,417 | ) |
Payment
of loan fees and expenses | |
| (522 | ) | |
| (5,629 | ) |
Redemption
and cancellation of common shares | |
| (3,210 | ) | |
| - | |
Contributions
received from noncontrolling interests | |
| 21,895 | | |
| 40 | |
Distributions
paid to noncontrolling interests | |
| (17,095 | ) | |
| (9,183 | ) |
Distributions
paid to Company’s common stockholders | |
| (7,590 | ) | |
| (7,650 | ) |
Net
cash provided by/(used in) financing activities | |
| 22,049 | | |
| (50,141 | ) |
| |
| | | |
| | |
Net
change in cash, cash equivalents and restricted cash | |
| (22,784 | ) | |
| (20,618 | ) |
Cash,
cash equivalents and restricted cash, beginning of year | |
| 42,592 | | |
| 46,841 | |
Cash,
cash equivalents and restricted cash, end of period | |
$ | 19,808 | | |
$ | 26,223 | |
| |
| | | |
| | |
See
Note 2 for supplemental cash flow information. | |
| | | |
| | |
| |
| | | |
| | |
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 | |
$ | 17,222 | | |
$ | 24,420 | |
Restricted
cash | |
| 2,586 | | |
| 1,803 | |
Total
cash, cash equivalents and restricted cash | |
$ | 19,808 | | |
$ | 26,223 | |
The
accompanying notes are an integral part of these consolidated financial statements.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Lightstone
Value Plus REIT I, Inc., which was formerly known as Lightstone Value Plus Real Estate Investment Trust, Inc. before September 16,
2021, a Maryland corporation (“Lightstone REIT I”), formed on June 8, 2004, which has elected to be taxed and qualify as
a real estate investment trust for U.S. federal income tax purposes (“REIT”). Lightstone REIT I was formed primarily for
the purpose of engaging in the business of investing in and owning commercial and residential real estate properties located throughout
the United States.
Lightstone
REIT I is structured as an umbrella partnership real estate investment trust, or UPREIT, and substantially all of the Company’s
current and future business is and will be conducted through Lightstone Value Plus REIT, L.P. (the “Operating Partnership”),
a Delaware limited partnership formed on July 12, 2004. As of June 30, 2022, the Company held a 98% general partnership interest in the
Company’s Operating Partnership’s common units (“Common Units”).
Lightstone
REIT I and the Operating Partnership and its subsidiaries are collectively referred to as the “Company” and the use of “we,”
“our,” “us” or similar pronouns refers to Lightstone REIT I, its Operating Partnership or the Company as required
by the context in which such pronoun is used.
Through
its Operating Partnership, the Company owns, operates and develops commercial, residential, and hospitality properties and makes real
estate-related investments, principally in the United States. The Company’s real estate investments are held alone or jointly with
other parties. The Company also originates or acquires mortgage loans secured by real estate. Although most of its investments are of
these types, the Company may invest in whatever types of real estate or real estate-related investments that it believes is in its best
interests.
Since
its inception, the Company has owned and managed various commercial and residential properties located throughout the United States.
The Company evaluates all of its real estate investments as one operating segment. As of June 30, 2022, the Company has ownership interests
in (i) two consolidated operating properties, (ii) two consolidated development properties and (iii) seven unconsolidated operating properties.
With respect to its consolidated operating properties, the Company wholly owns the St. Augustine Outlet Center, a retail property, and
has a majority ownership interest of 59.2% in Gantry Park Landing, a multi-family residential property containing 199 apartment units.
With respect to its consolidated development properties, the Company wholly owns two projects consisting of the Lower East Side Moxy
Hotel and the Exterior Street Project. The Company also holds a 2.5% ownership interest in seven hotel properties through a joint venture
(the “Joint Venture”) which the Company accounts for using a measurement alternative under which the Joint Venture is measured
at cost, adjusted for observable price changes and impairments, if any. The Joint Venture is between the Company and the operating partnership
of Lightstone Value Plus REIT II, Inc., a REIT also sponsored by the Company’s Sponsor, which has a 97.5% ownership interest in
the Joint Venture. Furthermore, the Company has other real estate-related investments, including preferred investments in related parties
and nonrecourse loans made to unaffiliated third-party borrowers.
The
Company’s advisor is Lightstone Value Plus REIT, LLC (the “Advisor”), which is majority owned by David Lichtenstein.
On July 6, 2004, the Advisor contributed $2 to the Operating Partnership in exchange for 200 Common Units. The Company’s Advisor
also owns 20,000 shares of the Company’s common stock (“Common Shares”) which were issued on July 6, 2004 for $200,
or $10.00 per share. Mr. Lichtenstein also is the majority owner of the equity interests of The Lightstone Group, LLC. The Lightstone
Group, LLC served as the sponsor (the “Sponsor”) during the Company’s initial public offering (the “Offering”),
which terminated on October 10, 2008. The Company’s Advisor, together with its board of directors (the “Board of Directors”),
is primarily responsible for making investment decisions on the Company’s behalf and managing its day-to-day operations. Through
his ownership and control of The Lightstone Group, LLC, Mr. Lichtenstein is the indirect owner and manager of Lightstone SLP, LLC, a
Delaware limited liability company, which owns an aggregate of $30.0 million of special general partner interests (“SLP Units”)
in the Operating Partnership which were purchased, at a cost of $100,000 per unit, in connection with the Company’s Offering. Mr.
Lichtenstein also acts as the Company’s Chairman and Chief Executive Officer. As a result, he exerts influence over but does not
control Lightstone REIT I or the Operating Partnership.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The
Company does not have any employees. The Advisor receives compensation and fees for services related to the investment and management
of the Company’s assets.
The
Company’s Advisor has affiliates which may manage and develop certain of its properties. However, the Company also contracts with
other unaffiliated third-party property managers.
The
Company’s Common Shares are not currently listed on a national securities exchange. The Company may seek to list its stock for
trading on a national securities exchange only if a majority of independent directors believe listing would be in the best interest of
its stockholders. The Company does not intend to list its shares at this time. The Company does not anticipate that there would be any
market for its shares of common stock until they are listed for trading.
Related
Parties
The
Advisor and its affiliates, and Lightstone SLP, LLC are related parties of the Company. Certain of these entities are entitled to compensation
for services related to the investment, management and disposition of the Company’s assets. The compensation is based on the cost
of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements
as outlined in each of the respective agreements.
Noncontrolling
Interests
Partners
of Operating Partnership
On
July 6, 2004, the Advisor contributed $2 to the Operating Partnership in exchange for 200 Common Units in the Operating Partnership.
The Advisor has the right to convert the Common Units into cash or, at the option of the Company, an equal number of shares of Common
Shares.
In
connection with the Offering, Lightstone SLP, LLC, an affiliate of the Advisor, purchased an aggregate of $30.0 million of SLP Units.
As the majority owner of the SLP Units, Mr. Lichtenstein is the beneficial owner of a 99% interest in such SLP Units and thus receives
an indirect benefit from any distributions made in respect thereof. These SLP Units may be entitled to a portion of any regular and liquidation
distributions that the Company makes to its stockholders, but only after the Company’s stockholders have received a stated preferred
return.
In
addition, an aggregate 497,209 Common Units were issued to other unrelated parties during the years ended December 31, 2008 and 2009
and remain outstanding as of June 30, 2022.
Other
Noncontrolling Interests in Consolidated Subsidiaries
Other
noncontrolling interests in consolidated subsidiaries include ownership interests in (i) Pro-DFJV Holdings LLC (“PRO”)
held by the Company’s Sponsor, (ii) 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”), held by
the Company’s Sponsor and other affiliates and (iii) various joint ventures held by affiliates of the Sponsor that have originated
promissory notes to unaffiliated third parties (see Note 5). PRO’s holdings principally consist of Marco OP Units and Marco
II OP Units (see Note 6). The 2nd Street Joint Venture owns Gantry Park Landing, a multi-family apartment building located in the Queens
neighborhood of New York City.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
|
2. |
Summary
of Significant Accounting Policies |
Basis
of Presentation
The
consolidated financial statements include the accounts of Lightstone REIT I and its Operating Partnership and its subsidiaries (over
which the Company exercises financial and operating control). All inter-company balances and transactions have been eliminated in consolidation.
In addition, interests in entities acquired are evaluated based on applicable accounting principles generally accepted in the United
States of America (“GAAP”), and if 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 but have
significant influence, the Company accounts for the investment using the equity method of accounting.
There
are judgments and estimates involved in determining if an entity in which the Company has made an investment is a VIE and, if so,
whether the Company is the primary beneficiary. The entity is evaluated to determine if it is a VIE by, among other things,
calculating the percentage of equity being risked compared to the total equity of the entity. Determining expected future losses
involves assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each
possibility and using a discount rate to determine the net present value of those future losses. A change in the judgments,
assumptions, and estimates outlined above could result in consolidating an entity that should not be consolidated or accounting for
an investment using the equity method that should in fact be consolidated, the effects of which could be material to our financial
statements.
The
accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated
Financial Statements of the Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 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 I, Inc. and its Subsidiaries have been prepared
in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of
America for complete financial statements.
GAAP
requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The
most significant assumptions and estimates relate to the valuation of real estate and real-estate related investments, marketable securities,
notes receivable, depreciable lives, and revenue recognition. Application of these assumptions requires the exercise of judgment as to
future uncertainties and, as a result, actual results could differ from these estimates.
The
consolidated balance sheet as of December 31, 2021 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.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Interest
Rate Cap Contracts
The
Company utilizes derivative financial instruments to reduce interest rate risk. The Company does not hold or issue derivative financial
instruments for trading purposes. The Company recognizes all derivatives as either assets or liabilities in the consolidated balance
sheets and measures those instruments at fair value. Changes in fair value of those instruments are reported in the consolidated statements
of operations.
Pre-Opening
Costs
The
Company expenses the costs associated with pre-opening activities associated with its development
and construction projects as incurred. Pre-opening costs generally consist of non-recurring
personnel, marketing and other costs.
COVID-19
Pandemic
On
March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and it remains highly unpredictable and dynamic and
its ultimate 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, and the ongoing development, administration and ultimate effectiveness of vaccines, including
booster shots. Accordingly, the ongoing COVID-19 pandemic may continue to have negative effects on the U.S. and global economies for
the foreseeable future.
During
the COVID-19 pandemic, the occupancy of the Company’s St. Augustine Outlet Center significantly declined and because of limited
leasing success, the Company began exploring various strategic alternatives for the property. See “St. Augustine Outlet Center”
for additional information.
Additionally,
during 2020 the Company saw deterioration in both the occupancy and rental rates for Gantry Park Landing, which is located on Long Island,
New York, as the luxury rental market in the greater New York City metropolitan area was negatively impacted by the COVID-19 pandemic.
However, both occupancy and rental rates consistently improved throughout 2021 and returned to pre-COVID-19 levels. Thereafter, occupancy
has continued to remain stable and the property has experienced strong growth in its rental rates thus far in 2022.
To-date,
the COVID-19 pandemic has not had any significant impact on the Company’s development projects, and its Lower East Side Moxy Hotel
development project is currently expected to open in the fourth quarter of 2022. Furthermore, the Company’s other real estate-related
investments (both its preferred investments in related parties and nonrecourse loans made to unaffiliated third-party borrowers) also
relate to various development projects, which are at different stages in their respective development process. These investments, which
are subject to similar risks, have also not yet been significantly impacted by the COVID-19 pandemic.
The
extent to which the Company’s business may be affected by the ongoing COVID-19 pandemic will largely depend on both current and
future developments, all of which are highly uncertain and cannot be reasonably predicted.
If
the Company’s operating properties, development projects and real estate-related investments are negatively impacted for an extended
period because (i) occupancy levels and rental rates decline, (ii) tenants are unable to pay their rent, (iii) borrowers are unable to
pay scheduled debt service on notes receivable, (iv) development activities are delayed and/or (v) various related party entities are
unable to pay monthly preferred distributions on the Company’s preferred investments in related parties, the Company’s business
and financial results could be materially and adversely impacted.
Reclassifications
Certain
prior period amounts have been reclassified to conform to the current year presentation.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
St.
Augustine Outlet Center
During
the COVID-19 pandemic, the occupancy of the Company’s St. Augustine Outlet Center, a retail property containing 0.3 million of
gross leasable area, significantly declined and because of limited leasing success, the Company began exploring various strategic alternatives
for the property. As a result, during the third quarter of 2021, the Company determined that it would no longer continue to pursue leasing
of space to tenants and therefore, entered into lease termination agreements with certain tenants and also provided notice to its other
tenants that it would not renew their leases at the scheduled expiration. Due to this change in leasing strategy and resulting decrease
in the fair value of the St. Augustine Outlet Center, the Company recorded a non-cash impairment charge of $11.3 million during the third
quarter of 2021.
Because
of the aforementioned lease terminations and scheduled expirations, substantially all of the tenants vacated the property during the
first quarter of 2022 and on June 29, 2022, the Company entered into a lease termination agreement with the property’s final tenant
providing for it to vacate the property no later than July 15, 2022 in return for a $750 payment from the Company (included in property
operating expenses on the consolidated statement of operations during the second quarter of 2022), of which $675 was paid in June 2022
and the balance of $75 (included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheet as of
June 30, 2022) was subsequently paid in July 2022.
The
Company ceased operations of the St. Augustine Outlet Center effective July 15, 2022 and shortly thereafter commenced demolition of the
existing building and improvements in order to prepare the property’s land parcels for sale and/or lease. As of June 30, 2022,
there was no impairment related to the St. Augustine Outlet Center. However, the Company expects to incur a non-cash charge of $16.7
million to write-off the carrying value of the building and improvements in the third quarter of 2022.
New
Accounting Pronouncements
In
June 2016, the FASB issued an accounting standards update which replaces the Company 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 adoption of this standard will not have a material effect on the Company’s
consolidated financial position, results of operations or cash flows.
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.
Supplemental
Cash Flow Information
Supplemental
cash flow information for the periods indicated is as follows:
Schedule
of summary of supplemental cash flow information | |
| | |
| | |
| |
For
the
Six Months Ended
June 30, | |
| |
2022 | | |
2021 | |
Cash
paid for interest | |
$ | 5,395 | | |
$ | 4,581 | |
Distributions
declared but not paid | |
$ | 3,840 | | |
$ | 3,908 | |
Investment
property acquired but not paid | |
$ | 3,450 | | |
$ | 5,588 | |
Amortization
of deferred financing costs included in development projects | |
$ | 1,253 | | |
$ | 297 | |
Holding
loss/gain on marketable securities | |
$ | 134 | | |
$ | 107 | |
Value
of shares issued from distribution reinvestment program | |
$ | 167 | | |
$ | 161 | |
Proceeds
from mortgage financing held by related party | |
$ | 28,643 | | |
$ | - | |
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Lower
East Side Moxy Hotel
On
December 3, 2018, the Company, through a subsidiary of the Operating Partnership, acquired three adjacent parcels of land located
at 147-151 Bowery in the Lower East Side neighborhood of Manhattan in New York City from unaffiliated third parties for aggregate consideration
of $56.5 million, excluding closing and other acquisition related costs. Additionally, on December 6, 2018, the Company, though
a subsidiary of the Operating Partnership, acquired certain air rights located at 329 Broome Street in the Lower East Side neighborhood
of Manhattan in New York City from an unaffiliated third party for $2.4 million, excluding closing and other acquisition related costs.
The Company is using the land and air rights for the development and construction of a 296-room Marriott Moxy hotel (the “Lower
East Side Moxy Hotel”). On June 3, 2021, the Company entered into a development agreement (the “Development Agreement”)
with an affiliate of the Advisor (the “Moxy Lower East Side Developer”) pursuant to which the Lower East Side Moxy Developer
is being paid a development fee equal to 3% of hard and soft costs incurred in connection with the development and construction of the
Lower East Side Moxy Hotel. The advisor and its affiliates are also reimbursed for certain development-related costs attributable to
the Lower East Side Moxy Hotel. Additionally on June 3, 2021, the Company obtained construction financing for the Lower East Side Moxy
Hotel. The Lower East Side Moxy Hotel is currently under construction and expected to open during the fourth quarter of 2022.
In
preparation for the opening of the Lower East Side Moxy Hotel, which is expected to occur during the fourth quarter of 2022, the Company
incurred pre-opening costs of $0.3 million during both the three and six months ended June 30, 2022. No pre-opening costs were incurred
in the 2021 periods. Pre-opening costs generally consist of non-recurring personnel, marketing and other costs.
Exterior
Street Project
On
February 27, 2019, the Company, through subsidiaries of the Operating Partnership, acquired two adjacent parcels of land located at 355
and 399 Exterior Street in the Bronx neighborhood of New York City from unaffiliated third parties for an aggregate purchase price of
$59.0 million, excluding closing and other acquisition related costs. In September 2021, the Company subsequently acquired an additional
adjacent parcel of land at cost from an affiliate of its Advisor for $1.0 million in order to achieve certain zoning compliance. The
Company is using the land parcels for the development of a multi-family residential property (the “Exterior Street Project”).
The
following is a summary of the total amounts incurred and capitalized to each of the Company’s development projects as of the dates
indicated and the amounts of interest capitalized to the Company’s development projects for the periods indicated:
Schedule of development projects | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | |
Capitalized
Interest | | |
Capitalized
Interest | |
| |
As
of June 30, | | |
As
of December 31, | | |
Three
Months Ended June 30, | | |
Six
Months Ended June 30, | |
Development
Project | |
2022 | | |
2021 | | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Lower
East Side Moxy Hotel | |
$ | 180,355 | | |
$ | 146,747 | | |
$ | 3,152 | | |
$ | 1,232 | | |
$ | 5,768 | | |
$ | 2,346 | |
Exterior
Street Project | |
| 90,071 | | |
| 87,467 | | |
| 664 | | |
| 480 | | |
| 1,236 | | |
| 1,039 | |
Total | |
$ | 270,426 | | |
$ | 234,214 | | |
$ | 3,816 | | |
$ | 1,712 | | |
$ | 7,004 | | |
$ | 3,385 | |
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
| 4. | Investments
in Related Parties |
Preferred
Investments
The
Company has entered into agreements with various related party entities that provide for it to make preferred contributions pursuant
to certain instruments (the “Preferred Investments”) that entitle it to certain prescribed monthly preferred distributions
at an annual rate of 12%. The fair value of these investments approximated their carrying values based on market rates for similar instruments.
During the second quarter of 2022, the Company redeemed $4.0 million of its East 11th Street Preferred Investment.
The
Preferred Investments are summarized as follows:
Schedule of preferred investments | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | |
Preferred
Investment Balance | | |
Investment
Income (1) | |
| |
Dividend | | |
As
of June 30, | | |
As
of December 31, | | |
Three
Months Ended June 30, | | |
Six
Months Ended June 30, | |
Preferred Investments | |
Rate | | |
2022 | | |
2021 | | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
40
East End Avenue | |
12% | | |
$ | 6,000 | | |
$ | 6,000 | | |
$ | 182 | | |
$ | 182 | | |
$ | 362 | | |
$ | 362 | |
East
11th Street | |
12% | | |
| 4,500 | | |
| 8,500 | | |
| 230 | | |
| 258 | | |
| 485 | | |
| 513 | |
Total | |
| | |
$ | 10,500 | | |
$ | 14,500 | | |
$ | 412 | | |
$ | 440 | | |
$ | 847 | | |
$ | 875 | |
Note:
| (1) | Included
in interest and dividend income on the consolidated statements of operations. |
The
Joint Venture
The
Company has a 2.5% membership interest in the Joint Venture, which holds ownership interests in seven hotels. The carrying value
of its investment was $1.0 million, as of both June 30, 2022 and December 31, 2021, which is included in investment in related parties
on the consolidated balance sheets.
The
Company has formed certain joint ventures (collectively, the “NR Joint Ventures”) between wholly-owned subsidiaries of the
Operating Partnership (collectively, the “NR Subsidiaries”) and affiliates of the Sponsor (the “NR Affiliates”)
which have originated nonrecourse loans (collectively, the “Joint Venture Promissory Notes”) to unaffiliated third-party
borrowers (collectively, the “Joint Venture Borrowers”).
The
NR Subsidiaries and NR Affiliates may have varying ownership interests in the NR Joint Ventures, however; certain other wholly-owned
subsidiaries of the Operating Partnership serve as the manager and are the sole decision-maker for each of the NR Joint Ventures.
The
Company has determined that the NR Joint Ventures are VIEs and the NR Subsidiaries are the primary beneficiaries. Since the NR
Subsidiaries are the primary beneficiaries, beginning on the applicable date of formation, the Company has consolidated the operating
results and financial condition of the NR Joint Ventures and accounted for the respective ownership interests of the NR Affiliates as
noncontrolling interests.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The
Joint Venture Promissory Notes generally provide for monthly interest at a prescribed variable rate, subject to a floor. In connection
with the initial funding of the Joint Venture Promissory Notes, the NR Joint Ventures receive origination fees (ranging from 1.00% to
1.50%) based on the principal commitment under the loan and retain a portion of the loan proceeds to establish a reserve for interest
and other items (the “Loan Reserves”). The Joint Venture Promissory Notes are recorded in notes receivable, net on the consolidated
balance sheets.
The
Joint Venture Promissory Notes generally have an initial term of one or two years and may provide for additional extension options subject
to satisfaction of certain conditions, including the funding of additional Loan Reserves and payment of extension fees. The Joint Venture
Promissory Notes are collateralized by either the membership interests of the Joint Venture Borrowers in the borrowing entity or the
underlying real property being developed by the Joint Venture Borrower.
Origination
fees are presented in the consolidated balance sheets as a direct deduction from the carrying value
of the Joint Venture Promissory Notes and are amortized into interest income, using
a straight-line method that approximates the effective interest method, over the initial term of the Joint
Venture Promissory Notes. The Loan Reserves are presented in the consolidated balance sheets as a direct
deduction from the carrying value of the Joint Venture Promissory Notes and are applied
against the monthly interest due over the term.
During
the six months ended June 30, 2022 and 2021, both the NR Subsidiaries and the NR Affiliates made aggregate contributions to the NR Joint
Ventures of $21.9 million and $40, respectively. Additionally, during the six months ended June 30, 2022 and 2021, the NR Joint
Ventures made aggregate distributions to both the NR Subsidiaries and NR Affiliates of $15.0 million and $7.9 million, respectively,
based on their respective membership interests.
The
following tables summarize the Notes Receivable as of the dates indicated:
Schedule of
summary of notes receivable | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| |
| |
Company’s | | |
Loan | | |
| | |
| | |
| | |
Contractual | |
As
of June 30, 2022 | |
| |
Ownership | | |
Commitment | | |
Origination | | |
Origination | | |
Maturity | | |
Interest | |
Outstanding | | |
| | |
Unamortized | | |
Carrying | | |
Unfunded | |
Joint
Venture/Lender | |
Percentage | | |
Amount | | |
Fee | | |
Date | | |
Date | | |
Rate | |
Principal | | |
Reserves | | |
Origination Fee | | |
Value | | |
Commitment | |
LSC
1543 7th LLC | |
50% | | |
| 49,000 | | |
1.00% | | |
March
2, 2022 | | |
August
31, 2023 | | |
SOFR
plus 7.00%
(Floor of 7.15%) | |
$ | 49,000 | | |
$ | (2,929 | ) | |
$ | (572 | ) | |
$ | 45,499 | | |
$ | - | |
| |
Company’s | | |
Loan | | |
| | |
| | |
| | |
Contractual | |
As
of December 31, 2021 | |
| |
Ownership | | |
Commitment | | |
Origination | | |
Origination | | |
Maturity | | |
Interest | |
Outstanding | | |
| | |
Unamortized | | |
Carrying | | |
Unfunded | |
Joint
Venture/Lender | |
Percentage | | |
Amount | | |
Fee | | |
Date | | |
Date | | |
Rate | |
Principal | | |
Reserves | | |
Origination Fee | | |
Value | | |
Commitment | |
LSC
1543 7th LLC (1) | |
50% | | |
| 20,000 | | |
1.00% | | |
August
27, 2019 | | |
February
28, 2022 | | |
Libor
plus 5.40%
(Floor of 7.90%) | |
$ | 17,500 | | |
$ | - | | |
$ | (33 | ) | |
$ | 17,467 | | |
$ | - | |
| |
| | |
| | | |
| | |
| | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
LSC
11640 Mayfield LLC (2) | |
50% | | |
| 18,000 | | |
1.50% | | |
March
4, 2020 | | |
March
1, 2022 | | |
Libor
plus 11.00%
(Floor of 13.00%) | |
| 10,040 | | |
| (629 | ) | |
| (24 | ) | |
| 9,387 | | |
| 6,960 | |
| |
| | |
| | | |
| | |
| | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
| | |
| | | |
| | |
| | |
| | |
| |
$ | 27,540 | | |
$ | (629 | ) | |
$ | (57 | ) | |
$ | 26,854 | | |
$ | 6,960 | |
(1) | Repaid
in full during March 2022. |
(2) | Repaid
in full during February 2022. |
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The
following summarizes the interest earned (included in interest and dividend income on the consolidated statements of operations) for
each of the Joint Venture Promissory Notes during the periods indicated:
Schedule of interest earned for each of the
joint venture promissory notes | |
| | | |
| | | |
| | | |
| | |
| |
For
the Three Months Ended June 30, | | |
For
the
Six Months Ended
June 30, | |
Joint
Venture/Lender | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
LSC
1543 7th LLC | |
$ | 1,038 | | |
| 449 | | |
$ | 1,727 | | |
$ | 894 | |
| |
| | | |
| | | |
| | | |
| | |
LSC
162nd Capital I LLC | |
| - | | |
| 126 | | |
| - | | |
| 250 | |
| |
| | | |
| | | |
| | | |
| | |
LSC
162nd Capital II LLC | |
| - | | |
| 272 | | |
| - | | |
| 541 | |
| |
| | | |
| | | |
| | | |
| | |
LSC
1650 Lincoln LLC | |
| - | | |
| 539 | | |
| - | | |
| 1,073 | |
| |
| | | |
| | | |
| | | |
| | |
LSC
11640 Mayfield LLC | |
| - | | |
| 373 | | |
| 455 | | |
| 743 | |
| |
| | | |
| | | |
| | | |
| | |
LSC
11640 Newkirk LLC | |
| - | | |
| 790 | | |
| - | | |
| 1,585 | |
| |
| | | |
| | | |
| | | |
| | |
Total | |
$ | 1,038 | | |
$ | 2,549 | | |
$ | 2,182 | | |
$ | 5,086 | |
| 6. | Marketable
Securities, Derivative Financial Instruments, Fair Value Measurements and Notes Payable |
Marketable
Securities
The
following is a summary of the Company’s available for sale securities:
Schedule
of summary of available for sale securities and other investments | |
| | | |
| | | |
| | | |
| | |
| |
As
of June 30, 2022 | |
| |
Adjusted
Cost | | |
Gross
Unrealized Gains | | |
Gross
Unrealized Losses | | |
Fair
Value | |
Marketable
Securities: | |
| | | |
| | | |
| | | |
| | |
Equity
securities: | |
| | | |
| | | |
| | | |
| | |
Common
and Preferred Equity Securities | |
$ | 24,600 | | |
$ | - | | |
$ | (2,797 | ) | |
$ | 21,803 | |
Marco
OP Units and Marco II OP Units | |
| 19,227 | | |
| 634 | | |
| - | | |
| 19,861 | |
| |
| 43,827 | | |
| 634 | | |
| (2,797 | ) | |
| 41,664 | |
Debt
securities: | |
| | | |
| | | |
| | | |
| | |
Corporate
Bonds | |
| 7,272 | | |
| 1 | | |
| (164 | ) | |
| 7,109 | |
Total | |
$ | 51,099 | | |
$ | 635 | | |
$ | (2,961 | ) | |
$ | 48,773 | |
| |
As
of December 31, 2021 | |
| |
Adjusted
Cost | | |
Gross
Unrealized Gains | | |
Gross
Unrealized Losses | | |
Fair
Value | |
Marketable
Securities: | |
| | | |
| | | |
| | | |
| | |
Equity
securities: | |
| | | |
| | | |
| | | |
| | |
Common
and Preferred Equity Securities | |
$ | 24,932 | | |
$ | 2,541 | | |
$ | (135 | ) | |
$ | 27,338 | |
Marco
OP Units and Marco II OP Units | |
| 19,227 | | |
| 14,204 | | |
| - | | |
| 33,431 | |
| |
| 44,159 | | |
| 16,745 | | |
| (135 | ) | |
| 60,769 | |
Debt
securities: | |
| | | |
| | | |
| | | |
| | |
Corporate
Bonds | |
| 2,073 | | |
| - | | |
| (28 | ) | |
| 2,045 | |
Total | |
$ | 46,232 | | |
$ | 16,745 | | |
$ | (163 | ) | |
$ | 62,814 | |
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
As
of both June 30, 2022 and December 31, 2021, the Company held an aggregate of 209,243 Marco OP Units and Marco II OP Units, of which
89,695 were owned by PRO. The Marco OP Units and the Marco II OP Units are both exchangeable for a similar number of common operating
partnership units (“Simon OP Units”) of Simon Property Group, L.P., (“Simon OP”), the operating partnership of
Simon Property Group, Inc. (“Simon Inc.”), a public REIT that is an owner and operator of shopping malls and outlet centers.
Subject to the various conditions, the Company may elect to exchange the Marco OP Units and/or the Marco II OP Units to Simon OP Units
which must be immediately delivered to Simon Inc. in exchange for cash or similar number of shares of Simon Inc.’s common stock
(“Simon Stock”). Accordingly, the Marco OP Units and Marco II OP Units are valued based on the closing price of Simon Stock,
which was $94.92 per share and $159.77 per share as of June 30, 2022 and December 31, 2021, respectively.
Financial
markets have been experiencing significant volatility resulting in swings in market interest rates and market prices of certain equity
securities. Primarily because of this volatility, particularly due to the above noted changes in the closing prices of Simon Stock, the
Company incurred an unrealized losses of $9.8 million and $18.8 million for the three and six months ended June 30, 2022, respectively,
and unrealized gains of $5.1 million and $14.1 million for the three and six months ended June 30, 2021, respectively. These
unrealized gains and losses incurred on the Company’s marketable equity securities are included in its consolidated statements
of operations.
Additionally,
as of June 30, 2022 and December 31, 2021, certain of the Company’s marketable debt securities had net unrealized losses of $163
and $28, respectively. However, the Company does not consider these declines in market value to be other than temporary in nature. When
evaluating the debt 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. During the three and six months ended June 30, 2022 and 2021, the Company did not recognize any other-than-temporary
impairment charges. As of both June 30, 2022 and December 31, 2021, the Company did not consider any of its investments to be other-than-temporarily
impaired.
The
Company may sell certain of its investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration,
or for duration management.
Derivative
Financial Instruments
The
Company has entered into two interest rate cap contracts with unrelated financial institutions in order to reduce the effect of interest
rate fluctuations or risk of certain real estate investment’s interest expense on its variable rate debt. The Company is exposed
to credit risk in the event of non-performance by the counterparty to these financial instruments. Management believes the risk of loss
due to non-performance to be minimal.
The
Company is accounting for the interest rate cap contracts as economic hedges, marking these contracts to market, taking into account
present interest rates compared to the contracted fixed rate over the life of the contract and recording the unrealized gain or loss
on the interest rate cap contracts in the consolidated statements of operations.
For
the three and six months ended June 30, 2022, the Company recorded an unrealized gain of $0.4 million and $1.2 million, which is included
in other income/(expense), net in the consolidated statement of operations, representing the change in the fair value of these economic
hedges during such periods.
The
two interest rate cap contracts have notional amounts of $90.0 million and $40.0 million, respectively, and effectively cap the London
Interbank Offered Rate (“LIBOR”) at 3.00% and 2.50%, respectively. Both interest rate cap contracts mature on June 3, 2024.
The aggregate fair value of the interest rate cap contracts was $1.5 million as of June 30, 2022 and is included in prepaid expenses,
restricted cash and other assets on the consolidated balance sheets. See Note 7 for additional information.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Fair
Value Measurements
Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The
standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last
unobservable, that may be used to measure fair value:
|
● |
Level
1 – Quoted prices in active markets for identical assets or liabilities. |
|
|
|
|
● |
Level
2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities. |
|
|
|
|
● |
Level
3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities. |
Marketable
securities and derivative financial instruments measured at fair value on a recurring basis as of the dates indicated are as follows:
Schedule of marketable securities measured at fair value on a recurring basis | |
| | | |
| | | |
| | | |
| | |
| |
Fair
Value Measurement Using | | |
| |
As
of June 30, 2022 | |
Level
1 | | |
Level
2 | | |
Level
3 | | |
Total | |
Marketable
Securities: | |
| | | |
| | | |
| | | |
| | |
Common
and Preferred Equity Securities | |
$ | 920 | | |
$ | 20,883 | | |
$ | - | | |
$ | 21,803 | |
Marco
OP and OP II Units | |
| - | | |
| 19,861 | | |
| - | | |
| 19,861 | |
Corporate
Bonds | |
| - | | |
| 7,109 | | |
| - | | |
| 7,109 | |
Total | |
$ | 920 | | |
$ | 47,853 | | |
$ | - | | |
$ | 48,773 | |
| |
| | | |
| | | |
| | | |
| | |
Derivative
Financial Instruments: | |
| | | |
| | | |
| | | |
| | |
Interest
Rate Cap Contracts | |
$ | - | | |
$ | 1,519 | | |
$ | - | | |
$ | 1,519 | |
| |
Fair
Value Measurement Using | | |
| |
As
of December 31, 2021 | |
Level
1 | | |
Level
2 | | |
Level
3 | | |
Total | |
Marketable
Securities: | |
| | | |
| | | |
| | | |
| | |
Common
and Preferred Equity Securities | |
$ | 6,825 | | |
$ | 20,513 | | |
$ | - | | |
$ | 27,338 | |
Marco
OP and OP II Units | |
| - | | |
| 33,431 | | |
| - | | |
| 33,431 | |
Corporate
Bonds | |
| - | | |
| 2,045 | | |
| - | | |
| 2,045 | |
Total | |
$ | 6,825 | | |
$ | 55,989 | | |
$ | - | | |
$ | 62,814 | |
The
fair values of the Company’s common equity securities are measured using readily quoted prices for these investments which are
listed for trade on active markets. The fair values of the Company’s preferred equity securities and corporate bonds are measured
using readily available quoted prices for these securities; however, the markets for these securities are not active. The fair values
of the Company’s interest rate cap contracts are measured using other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities. Additionally, as noted above, the Company’s Marco OP
and OP II units are both ultimately exchangeable for cash or similar number of shares of Simon Stock, therefore the Company uses the
quoted market price of Simon Stock to measure the fair value of the Company’s Marco OP and OP II units.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
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:
Schedule of contractual maturity | |
| |
| |
As
of | |
| |
June 30,
2022 | |
Due
in 1 year | |
$ | 5,982 | |
Due
in 1 year through 5 years | |
| - | |
Due
in 5 years through 10 years | |
| - | |
Due
after 10 years | |
| 1,127 | |
Total | |
$ | 7,109 | |
The
Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized
at fair value.
Notes
Payable
Margin
Loan
The
Company has access to a margin loan (the “Margin Loan”) from a financial institution that holds custody of certain of the
Company’s marketable securities. The Margin Loan, which is due on demand, bears interest at LIBOR + 0.85% (2.64% as of June 30,
2022) and is collateralized by the marketable securities in the Company’s account. The amounts available to the Company under the
Margin Loan are at the discretion of the financial institution and not limited to the amount of collateral in its account. There were
no amounts outstanding under this Margin Loan as of June 30, 2022 and December 31, 2021.
Line
of Credit
The
Company has a non-revolving credit facility (the “Line of Credit”) that provides for borrowings up to a maximum of $20.0
million, subject to a 55% loan-to-value ratio based on the fair value of the underlying collateral, matures on November 30, 2022 and
bears interest at LIBOR + 1.35% (3.14% as of June 30, 2022). The Line of Credit is collateralized by an aggregate of 209,243 of Marco
OP and OP II Units and is guaranteed by PRO. As of June 30, 2022, the amount of borrowings available to be drawn under the Line of Credit
was $10.9 million. No amounts were outstanding under the Line of Credit as of both June 30, 2022 and December 31, 2021.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
|
7. |
Mortgages
Payable, Net |
Mortgages
payable, net consists of the following:
Schedule of mortgages payable | |
| |
| | | |
|
| |
| | | |
| | | |
| | |
Property/Investment | |
Interest
Rate | |
|
Weighted Average Interest Rate as of June 30,
2022 | | |
Maturity
Date |
| |
Amount
Due
at Maturity | | |
As
of June 30,
2022 | | |
As
of December 31,
2021 | |
Gantry
Park Landing | |
4.48% | |
| 4.48% | | |
November
2024 |
| |
$ | 65,317 | | |
$ | 68,849 | | |
$ | 69,540 | |
| |
| |
| | | |
|
| |
| | | |
| | | |
| | |
Lower
East Side Moxy Hotel Senior | |
LIBOR
+ 7.50%
(floor of 7.75%) | |
| 7.88% | | |
June
2024 |
| |
| 46,817 | | |
| 46,817 | | |
| 35,610 | |
| |
| |
| | | |
|
| |
| | | |
| | | |
| | |
Lower
East Side Moxy Hotel Junior | |
LIBOR
+ 13.50%
(floor of 14.00%) | |
| 14.16% | | |
June
2024 |
| |
| 40,000 | | |
| 40,000 | | |
| 24,603 | |
| |
| |
| | | |
|
| |
| | | |
| | | |
| | |
Exterior
Street Project | |
LIBOR
+ 2.25% | |
| 2.70% | | |
October
2022 |
| |
| 35,000 | | |
| 35,000 | | |
| 35,000 | |
| |
| |
| | | |
|
| |
| | | |
| | | |
| | |
Exterior
Street Project Supplemental | |
LIBOR
+ 2.50% | |
| 2.97% | | |
October
2022 |
| |
| 7,000 | | |
| 7,000 | | |
| 7,000 | |
| |
| |
| | | |
|
| |
| | | |
| | | |
| | |
LSC
1543 7th LLC Note Receivable | |
SOFR
+ 3.50% | |
| 5.19% | | |
December
2023 |
| |
| 31,300 | | |
| 31,300 | | |
| - | |
| |
| |
| | | |
|
| |
| | | |
| | | |
| | |
Total
mortgages payable | |
| |
| 6.65% | | |
|
| |
$ | 225,434 | | |
| 228,966 | | |
| 171,753 | |
| |
| |
| | | |
|
| |
| | | |
| | | |
| | |
Less:
Deferred financing costs | |
| |
| | | |
|
| |
| | | |
| (5,175 | ) | |
| (6,047 | ) |
| |
| |
| | | |
|
| |
| | | |
| | | |
| | |
Total
mortgages payable, net | |
| |
| | | |
|
| |
| | | |
$ | 223,791 | | |
$ | 165,706 | |
LIBOR
as of June 30, 2022 and December 31, 2021 was 1.79% and 0.10%, respectively. SOFR as of June 30, 2022 was 1.69%. The Company’s
loans are secured by the indicated real estate and are non-recourse to the Company, unless otherwise indicated.
LSC
1543 7th LLC Loan
On
June 30, 2022, LSC 1543 7th LLC entered into a $31.3 million loan (the “LSC 1543 7th LLC Loan”) which bears interest
at SOFR + 3.50% (5.19% as of June 30, 2022). The LSC 1543 7th LLC Loan is initially scheduled to mature on December 30,
2023, but may be further extended through December 30, 2024 and June 30, 2025, through the exercise of two extension options. The LSC
1543 7th LLC Loan requires monthly interest-only payments with the outstanding principal balance due at its maturity date and is collateralized
by a nonrecourse loan originated by LSC 1543 7th LLC (the “LSC 1543 7th LLC Note Receivable”). See Note 5. On
June 30, 2022, $28.6 million of the net proceeds from the LSC 1543 7th LLC Loan were temporarily funded to an affiliate of the Company’s
advisor and were subsequently transferred to the Company and then distributed to the members of LSC 1543 7th LLC in July 2022, of which
the Company’s 50% share was $14.3 million. See Note 9.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Moxy
Construction Loans
On
June 3, 2021, the Company, through a wholly owned subsidiary, closed on a recourse construction loan facility (the “Moxy Senior
Loan”) providing for up to $90.0 million of funds for the development, construction and certain pre-opening costs associated
with the Lower East Side Moxy Hotel. At closing, $35.6 million of proceeds were initially advanced under the Moxy Senior Loan, which
were used to repay in full a then outstanding mortgage loan. The Moxy Senior Loan bears interest at LIBOR + 7.50%, subject to an
8.00% floor, and initially matures on June 3, 2024, with two one-year extension options, subject to the satisfaction of certain
conditions. The Moxy Senior Loan is collateralized by the Lower East Side Moxy Hotel. As of June 30, 2022, the outstanding principal
balance of the Moxy Senior Loan was $46.8 million, the interest rate was 9.29% and the remaining availability under the facility was
up to $43.2 million.
Simultaneously
on June 3, 2021, the Company, through the same wholly owned subsidiary, also entered into a mezzanine construction loan facility (the
“Moxy Junior Loan” and together with the Moxy Senior Loan, the “Moxy Construction Loans”) providing for up to
$40.0 million of additional funds for the development, construction and certain pre-opening costs associated with the Lower East
Side Moxy Hotel. The Moxy Junior Loan bears interest at LIBOR + 13.50%, subject to a 14.00% floor, and initially matures on
June 3, 2024, with two one-year extension options, subject to the satisfaction of certain conditions. The Moxy Junior Loan is subordinate
to the Moxy Senior Loan but also collateralized by the Lower East Side Moxy Hotel. The Company has provided a principal guarantee of
up to $7.0 million with respect to the Moxy Junior Loan. As of June 30, 2022, the outstanding principal balance of the Moxy Junior
Loan was $40.0 million as it was fully drawn and its interest rate was 15.29%.
In
connection with the Moxy Construction Loans, the Company has provided certain completion and carry cost guarantees. The Company has also
entered into two interest rate cap agreements with notional amounts of $90.0 million and $40.0 million pursuant to which the LIBOR rates
are capped at 3.00% and 2.50%, respectively, through June 3, 2024. Furthermore, in connection with the Moxy Construction Loans, the Company
paid $5.3 million of loan fees and expenses and accrued $1.1 million of loan exit fees which are due at the initial maturity
date and are included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets as of June 30, 2022
and December 31, 2021.
Exterior Street Loans
On
March 29, 2019, the Company entered into a $35.0 million loan (the “Exterior Street Loan”) which, commencing on October
10, 2020, bears interest at LIBOR + 2.25% (4.04% as of June 30, 2022) through its scheduled maturity date. The Exterior Street
Loan requires monthly interest-only payments with the outstanding principal balance due in full at its maturity date. The Exterior Street
Loan was initially scheduled to mature on April 9, 2021 but during April 2021, its maturity date was further extended to April 9, 2022.
Additionally, on December 21, 2021, the loan agreement was amended to provide an additional six-month extension and an additional $7.0 million
loan (the “Exterior Street Supplemental Loan” and collectively with the Exterior Street Loan, the “Exterior Street
Loans”) which bears interest at LIBOR + 2.50% (4.29% as of June 30, 2022) and requires monthly interest-only payments
through its maturity date. During April of 2022, the
Company exercised the additional six-month extension and the Exterior Street Loans are currently scheduled to mature on October 9, 2022
and are collateralized by the Exterior Street Project.
The
following table shows the contractually scheduled principal maturities of the Company’s mortgage debt during the next five years
and thereafter as of June 30, 2022:
Scheduled of contractually principal maturities during next five years | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
2022 | | |
2023 | | |
2024 | | |
2025 | | |
2026 | | |
Thereafter | | |
Total | |
Principal
maturities | |
$ | 42,698 | | |
$ | 32,754 | | |
$ | 153,514 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 228,966 | |
Less:
Deferred financing costs | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (5,175 | ) |
Total
principal maturities, net | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 223,791 | |
Certain
of the Company’s debt agreements require the maintenance of certain ratios, including debt service coverage. As of June 30, 2022,
the Company was in compliance with all of its financial debt covenants. Additionally, certain of our mortgages payable also contain clauses
providing for prepayment penalties.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Debt
Maturities
The
Exterior Street Loans (outstanding aggregate principal balance of $42.0 million as of June 30, 2022) mature on October 9, 2022.
The Company currently intends to seek to extend or refinance the Exterior Street Loans on or before their maturity date.
However,
if the Company is unable to extend or refinance its maturing indebtedness at favorable terms, it will look to repay the then outstanding
balance with available cash and/or proceeds from selective asset sales. The Company has no additional significant maturities of mortgage
debt over the next 12 months.
Share
Repurchase Program
The
Company’s share repurchase program (the “SRP”) may provide its stockholders with limited, interim liquidity by enabling
them to sell their shares of common stock back to the Company, subject to restrictions.
On
March 25, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of
all redemptions effective immediately.
Effective
March 18, 2021 and May 14, 2021, the Board of Directors partially reopened the SRP to allow, subject to various conditions as set forth
below, for redemptions submitted in connection with a stockholder’s death and hardship, respectively, and set the price for all
such purchases to our current net asset value per share (“NAV per Share”), as determined by the Board of Directors and reported
by the Company from time to time. Deaths that occurred subsequent to January 1, 2020 were eligible for consideration, subject to certain
conditions. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and
received by the Company within one year of the stockholder’s date of death for consideration.
At
the above noted dates, the Board of Directors established that on an annual basis, the Company would not redeem in excess of 0.5% of
the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Additionally,
redemption requests generally would be processed on a quarterly basis and would be subject to pro ration if either type of redemption
requests exceeded the annual limitation.
On
March 18, 2022, the Board of Directors approved an increase to the annual threshold for death redemptions from up to 0.5% to 1.0%.
For
the six months ended June 30, 2022 the Company repurchased 273,135 shares of common stock, pursuant to its SRP at an average price per
share of $11.75 per share.
Net
Earnings Per Share
Basic
net earnings per share is calculated by dividing net income attributable to common shareholders by the weighted-average number of shares
of common stock outstanding during the applicable period. Dilutive income per share includes the potentially dilutive effect, if any,
which would occur if our outstanding options to purchase our common stock were exercised. For all periods presented dilutive net income
per share is equivalent to basic net income per share.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
|
9. |
Related
Party Transactions |
The
Company has various agreements, including an advisory agreement, with the Advisor and Lightstone Value Plus REIT Management LLC (the
“Property Manager”) to pay certain fees in exchange for services performed by these entities and other affiliated entities.
The Company’s ability to secure financing and subsequent real estate operations are dependent upon its Advisor, Property Manager
and their affiliates to perform such services as provided in these agreements. Amounts the Company owes to the Advisor and its
affiliated entities are principally for asset management fees, and are classified as due to related parties on the consolidated balance
sheets.
The
Company, pursuant to the related party arrangements, has recorded the following amounts for the periods indicated:
Schedule
of summary of amount recorded in pursuant to related party arrangement | |
| | | |
| | | |
| | | |
| | |
| |
For
the
Three Months Ended | | |
For
the
Six Months Ended | |
| |
June 30,
2022 | | |
June 30,
2021 | | |
June 30,
2022 | | |
June 30,
2021 | |
Asset
management fees (general and administrative costs) | |
$ | 171 | | |
$ | 211 | | |
$ | 325 | | |
$ | 455 | |
Property
management fees (property operating expenses) | |
| 74 | | |
| 72 | | |
| 155 | | |
| 168 | |
Development
fees and cost reimbursement (1) | |
| 733 | | |
| 1,603 | | |
| 1,617 | | |
| 1,913 | |
Total | |
$ | 978 | | |
$ | 1,886 | | |
$ | 2,097 | | |
$ | 2,536 | |
| (1) | Development
fees and the reimbursement of development-related costs that the Company pays to the Advisor
and its affiliates are capitalized and are included in the carrying value of the associated
development project which are classified as development projects on the consolidated balance
sheets. As of June 30, 2022 and December 31, 2021, the Company owed the Advisor and its affiliated
entities $0.5 million and $0.7 million, respectively, for development fees, which is included
in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets. |
See
Notes 3, 4 and 5 for other related party transactions.
The
advisory agreement has a one-year term and is renewable for an unlimited number of successive one-year periods upon the mutual consent
of the Advisor and the Company’s independent directors. Payments to the Advisor or its affiliates may include asset acquisition
fees and the reimbursement of acquisition-related expenses, development fees and the reimbursement of development-related costs, financing
coordination fees, asset management fees or asset management participation, and construction management fees. The Company may also reimburse
the Advisor and its affiliates for actual expenses it incurs for administrative and other services provided for it. Upon the liquidation
of the Company’s assets, it may pay the Advisor or its affiliates a disposition commission.
In
connection with the Company’s Offering, Lightstone SLP, LLC purchased an aggregate of $30.0 million of SLP Units which are included
in noncontrolling interests in the consolidated balance sheets. These SLP Units, the purchase price of which will be repaid only after
stockholders receive a stated preferred return and their net investment, entitle Lightstone SLP, LLC to a portion of any regular distributions
made by the Operating Partnership.
During
both the three and six months ended June 30, 2022 and 2021, distributions of $0.5 million and $1.0 million were declared and paid on
the SLP units.
Funds
Held by Related Party
As
of June 30, 2022, $28.6 million of the net proceeds from the LSC 1543 7th LLC Loan were temporarily held by an affiliate of the Company’s
advisor and were subsequently transferred to the Company and then distributed to the members of LSC 1543 7th LLC in July 2022, of which
the Company’s 50% share was $14.3 million. See Note 7.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
|
10. |
Financial
Instruments |
The
carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, funds held by related party, prepaid
expenses, restricted cash and other assets, notes receivable, accounts payable, accrued expenses and other liabilities, due to related
parties, and distributions payable approximate their fair values because of the short maturity of these instruments. The carrying amounts
of the notes receivable approximate their fair values because the interest rates are variable and reflective of market rates.
The
carrying amount and estimated fair value (in millions) of the Company’s mortgage debt is summarized as follows:
Schedule of mortgage debt | |
| | |
| | |
| | |
| |
| |
As
of
June 30,
2022 | | |
As
of
December 31,
2021 | |
| |
Carrying
Amount | | |
Estimated
Fair Value | | |
Carrying
Amount | | |
Estimated
Fair Value | |
Mortgages
payable | |
$ | 229.0 | | |
$ | 227.9 | | |
$ | 171.8 | | |
$ | 174.4 | |
The
fair value of the mortgages payable was determined by discounting the future contractual interest and principal payments by estimated
current market interest rates.
|
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.
Distribution
Payment
On
July 15, 2022, the distribution for the three-month period ending June 30, 2022 of $3.8 million was paid in full using a combination
of cash and approximately 7,000 shares of the Company’s common stock issued pursuant to the Company’s DRIP, at a discounted
price of $11.16 per share, equal to 95% of the Company’s most recently published estimated net asset value per share of $11.75
as of September 30, 2021.
Distribution
Declaration
On
August 8, 2022, the Company’s Board of Directors authorized and the Company declared a distribution of $0.175 per share for the
quarterly period ending September 30, 2022. The quarterly distribution is the pro rata equivalent of an annual distribution of $0.70
per share, or an annualized rate of 7.0% assuming a purchase price of $10.00 per share. The distribution will be paid on or about the
15th day of the month following the quarter-end to stockholders of record at the close of business on the last day of the quarter-end.
The stockholders have an option to elect the receipt of shares under the Company’s DRIP.
Additionally,
on August 8, 2022, the Board of Directors declared a quarterly distribution for the quarterly period ending September 30, 2022 on the
SLP Units at an annualized rate of 7.0%. Any future distributions on the SLP Units will always be subordinated until stockholders receive
a stated preferred return.
Future
distributions, if any, declared will be at the discretion of the Board of Directors based on their analysis of the Company’s performance
over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in
its determination, including but not limited to, the sources and availability of capital, operating and interest expenses, the Company’s
ability to refinance near-term debt, as well as the IRS’s annual distribution requirement that REITs distribute no less than 90%
of their taxable income. The Company cannot assure that any future distributions will be made or that it will maintain any particular
level of distributions that it has previously established or may establish.
PART
I. FINANCIAL INFORMATION, CONTINUED: