The
terms “we,” “our,” “us” and “the Company” refer to Lightstone Value Plus REIT I, Inc.,
a Maryland corporation, and, as required by context, Lightstone Value Plus REIT, L.P. and its wholly owned subsidiaries, which we collectively
refer to as our “Operating Partnership.
Estimated
Net Asset Value (“NAV”) and NAV per Share of Common Stock (“NAV per Share”)
On
December 8, 2022, our board of directors determined and approved our estimated NAV of $323.7 million and resulting estimated NAV per
Share of $12.19, after allocations of value to special general partner interests, or SLP Units, in our Operating Partnership, held by
Lightstone SLP, LLC, an affiliate of our Advisor, assuming a liquidation event, both as of September 30, 2022. From our inception through
the termination of our initial public offering on October 10, 2008, Lightstone SLP, LLC, an affiliate of our Advisor, contributed cash
of $30.0 million in exchange for 300 SLP Units, at a cost of $100,000 per unit. Our estimated NAV and resulting NAV per Share are based
upon the estimated fair values of our assets and liabilities as of September 30, 2022 and are effective as of December 8, 2022.
The
estimated NAV of our shares was calculated as of a particular point in time. The estimated NAV of our shares will fluctuate over time
in response to developments related to individual assets in the portfolio and the management of those assets and in response to the real
estate and finance markets. There is no assurance of the extent to which the current estimated valuation should be relied upon for any
purpose after its effective date regardless that it may be published on any statement issued by us or otherwise.
Process
and Methodology
Our
business in externally managed by Lightstone Value Plus REIT LLC (the “Advisor”), an affiliate of the Lightstone Group, LLC,
which provides advisory services to us and we have no employees. Our Advisor, along with any necessary material assistance or confirmation
of a third-party valuation expert or service, is responsible for calculating our estimated NAV and resulting NAV per Share, which we
currently expect will be done on an annual basis unless and until our Common Shares are approved for listing on a national securities
exchange. Our board of directors will review and approve each estimate of NAV and resulting NAV per Share.
Our
estimated NAV and resulting NAV per Share as of September 30, 2022 were calculated with both the assistance our Advisor and Robert A.
Stanger & Co, Inc. (“Stanger”), an independent third-party valuation firm engaged by us to assist with the valuation
of our assets, liabilities, other noncontrolling interests and allocation of value to the SLP Units. Our Advisor recommended and our
board of directors established the estimated NAV per Share as of September 30, 2022 based upon the analysis and reports provided by our
Advisor and Stanger. The process for estimating the value of our assets, liabilities, other noncontrolling interests and any allocation
of value to the SLP Units, is performed in accordance with the provisions of the Investment Program Association Practice Guideline 2013-01,
“Valuations of Publicly Registered Non-Listed REITs.” We believe that our valuations were developed in a manner reasonably
designed to ensure their reliability.
The
engagement of Stanger with respect to our estimated NAV and resulting NAV per Share as of September 30, 2022 was approved by our board
of directors, including all of our independent directors. Stanger has extensive experience in conducting asset valuations, including
valuations of commercial real estate, debt, properties and real estate-related investments.
With
respect to our estimated NAV and resulting NAV per Share as of September 30, 2022, Stanger prepared appraisal reports (the “Stanger
Appraisal Reports”), summarizing key inputs and assumptions, for our three wholly owned properties (the “Stanger Appraised
Properties”) consisting of (i) the St. Augustine Land Holdings and (ii) the Lower East Side Moxy Hotel and the Exterior Street
Project (collectively, the “Development Properties”).
Stanger
also prepared a NAV report (the “September 2022 NAV Report”) which summarized the values of our ownership interests in real
estate properties, non-real estate assets, liabilities, other noncontrolling interests and allocation of value to the SLP Units, which
were used to calculate our estimated NAV and resulting NAV per Share, all as of September 30, 2022. The values of our ownership interests
in real estate properties were based upon the Stanger Appraisal Reports for the Stanger Appraised Properties and an appraisal report
prepared by another independent third-party valuation firm for Gantry Park Landing, our 59.2% majority-owned and consolidated multi-family
residential property The values of our non-real estate assets, liabilities, other noncontrolling interests and allocation of value to
the SLP Units were based upon (i) Stanger’s estimated values for our notes receivable and mortgage notes payable as well as their
estimate of the allocation of value to the SLP Units and (ii) our Advisor’s estimated opinion of value for our cash and cash equivalents,
investments in related parties, marketable securities, prepaid expenses, restricted cash and other assets, other liabilities and other
noncontrolling interests.
The
table below sets forth the calculation of our estimated NAV and resulting NAV per Share as of September 30, 2022, as well as the comparable
calculation as of September 30, 2021. Certain amounts are reflected net of noncontrolling interests, as applicable. Dollar and share
amounts are presented in thousands, except per share data.
| |
As of September 30, 2022 | |
As of September 30, 2021 |
| |
Value | |
Per Share | |
Value | |
Per Share |
| |
| | | |
| | | |
| | | |
| | |
Net Assets: | |
| | | |
| | | |
| | | |
| | |
Real Estate Properties | |
$ | 439,366 | | |
$ | 19.64 | | |
$ | 329,755 | | |
$ | 14.53 | |
Non-Real Estate Assets: | |
| | | |
| | | |
| | | |
| | |
Cash and cash equivalents | |
| 36,901 | | |
| | | |
| 32,245 | | |
| | |
Investments in related parties | |
| 7,009 | | |
| | | |
| 15,541 | | |
| | |
Marketable securities | |
| 40,592 | | |
| | | |
| 53,071 | | |
| | |
Notes receivable | |
| 23,630 | | |
| | | |
| 32,468 | | |
| | |
Other assets | |
| 6,419 | | |
| | | |
| 3,441 | | |
| | |
Total non-real estate assets | |
| 114,551 | | |
| 5.12 | | |
| 136,766 | | |
| 6.02 | |
Total Assets | |
| 553,917 | | |
| 24.76 | | |
| 466,521 | | |
| 20.55 | |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
Mortgage notes payable | |
| (211,268 | ) | |
| | | |
| (131,811 | ) | |
| | |
Notes payable | |
| - | | |
| | | |
| - | | |
| | |
Other liabilities | |
| (18,309 | ) | |
| | | |
| (20,268 | ) | |
| | |
Total liabilities | |
| (229,577 | ) | |
| (10.26 | ) | |
| (152,079 | ) | |
| (6.70 | ) |
Other noncontrolling interests | |
| (621 | ) | |
| (0.03 | ) | |
| (617 | ) | |
| (0.03 | ) |
Net Asset Value before Allocations to SLP Units | |
| 323,719 | | |
| 14.47 | | |
| 313,825 | | |
| 13.82 | |
Allocations to SLP Units | |
| (51,008 | ) | |
| (2.28 | ) | |
| (47,040 | ) | |
| (2.07 | ) |
Net Asset Value | |
$ | 272,711 | | |
$ | 12.19 | | |
$ | 266,785 | | |
$ | 11.75 | |
| |
| | | |
| | | |
| | | |
| | |
Shares of Common Stock Outstanding(1) | |
| 22,369 | | |
| | | |
| 22,702 | | |
| | |
Note:
(1) |
Includes 0.5 million shares
of our common stock assuming the conversion of an equal number of common units of limited partnership interest in our Operating Partnership
(“common units”). |
Use
of Independent Valuation Firm:
As
discussed above, our Advisor is responsible for calculating our NAV. In connection with determining our NAV, our Advisor may rely on
the material assistance or confirmation of a third-party valuation expert or service. In this regard, Stanger was selected by our board
of directors to assist our Advisor in the calculation of our estimated NAV and resulting NAV per Share as of September 30, 2022. Stanger’s
service included appraising the Stanger Appraised Properties and preparing the September 2022 NAV Report. Stanger is engaged in the business
of appraising commercial real estate properties and is not affiliated with us or our Advisor. The compensation we paid to Stanger was
based on the scope of work and not on the appraised values of our real estate properties. The appraisals were performed in accordance
with the Code of Ethics and the Uniform Standards of Professional Appraisal Practice, or USPAP, the real estate appraisal industry standards
created by The Appraisal Foundation. The Stanger Appraisal Reports were reviewed, approved, and signed by an individual with the professional
designation of MAI licensed in the state where each real property is located. The use of the reports is subject to the requirements of
the Appraisal Institute relating to review by its duly authorized representatives. In preparing its reports, Stanger did not, and was
not requested to; solicit third-party indications of interest for our common stock in connection with possible purchases thereof or the
acquisition of all or any part of us.
Stanger
collected reasonably available material information that it deemed relevant in appraising our real estate properties. Stanger relied
in part on property-level information provided by our Advisor, including (i) property historical and projected operating revenues and
expenses; (ii) property lease agreements and/or lease abstracts; and (iii) information regarding recent or planned capital expenditures.
In
conducting their investigation and analyses, Stanger took into account customary and accepted financial and commercial procedures and
considerations as they deemed relevant. Although Stanger reviewed information supplied or otherwise made available by us or the Advisor
for reasonableness, they assumed and relied upon the accuracy and completeness of all such information and of all information supplied
or otherwise made available to them by any other party and did not independently verify any such information. Stanger has assumed that
any operating or financial forecasts and other information and data provided to or otherwise reviewed by or discussed with Stanger were
reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of our management, our board
of directors, and/or our Advisor. Stanger relied on us to advise them promptly if any information previously provided became inaccurate
or was required to be updated during the period of their review.
In
performing its analyses, Stanger made numerous other assumptions as of various points in time with respect to industry performance, general
business, economic, and regulatory conditions, and other matters, many of which are beyond their control and our control. Stanger also
made assumptions with respect to certain factual matters. For example, unless specifically informed to the contrary, Stanger assumed
that we have clear and marketable title to each real estate property appraised, that no title defects exist, that any improvements were
made in accordance with law, that no hazardous materials are present or were present previously, that no significant deed restrictions
exist, and that no changes to zoning ordinances or regulations governing use, density, or shape are pending or being considered. Furthermore,
Stanger’s analyses, opinions, and conclusions were necessarily based upon market, economic, financial, and other circumstances
and conditions existing as of or prior to the date of the Stanger Appraisal Reports, and any material change in such circumstances and
conditions may affect Stanger’s analyses and conclusions. The Stanger Appraisal Reports contain other assumptions, qualifications,
and limitations that qualify the analyses, opinions, and conclusions set forth therein. Furthermore, the prices at which our ownership
interests in our real estate properties may actually be sold could differ from Stanger’s analyses.
Stanger
is actively engaged in the business of appraising commercial real estate properties similar to those owned by us in connection with public
security offerings, private placements, business combinations, and similar transactions. We do not believe that there are any material
conflicts of interest between Stanger, on the one hand, and us, our Sponsor, our Advisor, and our affiliates, on the other hand. Our
Advisor engaged Stanger on behalf of our board of directors to deliver their reports to assist in the NAV calculation as of September
30, 2022 and Stanger received compensation for those efforts. In addition, we agreed to indemnify Stanger against certain liabilities
arising out of this engagement. In the two years prior to the date of this filing, Stanger was previously engaged by us for appraisal
and valuation services in connection with our financial reporting requirements. Stanger has received usual and customary fees in connection
with those services. Stanger may from time to time in the future perform other services for us and our Sponsor or other affiliates of
the Sponsor, so long as such other services do not adversely affect the independence of Stanger as certified in the applicable Appraisal
Reports. During the past two years Stanger has also been engaged to provide appraisal services to another non-traded REIT sponsored by
our Sponsor for which it was paid usual and customary fees.
Although
Stanger considered any comments received from us and our Advisor relating to their reports, the final appraised values of the Stanger
Appraised Properties were determined by Stanger. The reports are addressed to our board of directors to assist our board of directors
in calculating our estimated NAV per Share as of September 30, 2022. The reports are not addressed to the public, may not be relied upon
by any other person to establish our estimated NAV per Share, and do not constitute a recommendation to any person to purchase or sell
any shares of our common stock.
Our
goal in calculating our estimated NAV is to arrive at values that are reasonable and supportable using what we deem to be appropriate
valuation methodologies and assumptions. The reports, including the analysis, opinions, and conclusions set forth in such reports, are
qualified by the assumptions, qualifications, and limitations set forth in the respective reports. The following is a summary of our
valuation methodologies used to value our assets and liabilities by key component:
Real
estate properties:
As
of September 30, 2022, we have ownership interests in four consolidated properties (collectively, the “Real Estate Properties”).
As
described above, we engaged Stanger to provide an appraisal for each of the Stanger Appraised Properties as of September 30, 2022. The
Stanger Appraised Properties consist of the St. Augustine Land Holdings and the Development Properties. We also engaged another independent
third-party valuation firm to provide an appraisal report for Gantry Park Landing. In preparing their appraisal reports, the scope of
the work performed by Stanger and the other independent third-party valuation firm included the following procedures, as well other factors:
| ● | A
review of all property level information provided by our Advisor; |
| ● | A
review of the historical performance of our real estate investments and business plans related
to operations of the investments; |
| ● | A
review of the data models prepared by the Advisor supporting the valuation for each investment;
and |
| ● | A
review of the applicable markets by means of publications and other resources to measure
current market conditions, supply and demand factors, and growth patterns. |
Stanger
and the other independent third-party valuation firm employed the income approach and/or the sales comparison approach to estimate the
value of the appraised properties. The income approach involves an economic analysis of the property based on its potential to provide
future net annual income. As part of the valuation, a discounted cash flow analysis (“DCF Analysis”) and/or direct capitalization
analysis was used in the income approach to determine the value of our interest in the portfolio. The indicated value by the income approach
represents the amount an investor may pay for the expectation of receiving the net cash flow from the property.
The
direct capitalization analysis is based upon the net operating income of the property capitalized at an appropriate capitalization rate
for the property based upon property characteristics and competitive position and market conditions at the date of the appraisal.
In
applying the DCF Analysis, pro forma statements of operations for the property including revenues and expenses are analyzed and projected
over a multi-year period. The property is assumed to be sold at the end of the multi-year holding period. The reversion value of the
property which can be realized upon sale at the end of the holding period is calculated based on the capitalization of the estimated
net operating income of the property in the year of sale, utilizing a capitalization rate deemed appropriate in light of the age, anticipated
functional and economic obsolescence and competitive position of the property at the time of sale. Net proceeds to owners are determined
by deducting appropriate costs of sale. The discount rate selected for the DCF Analysis is based upon estimated target rates of return
for buyers of similar properties.
The
sales comparison approach utilizes indices of value derived from actual or proposed sales of comparable properties to estimate the value
of the subject property. The appraiser analyzed such comparable sale data as was available to develop a market value conclusion for the
subject property.
Stanger
prepared the Stanger Appraisal Reports and the other independent third-party valuation firm prepared an appraisal report for Gantry Park
Landing, summarizing key inputs and assumptions, for each of the appraised properties using financial information provided by us and
our Advisor. From such review, Stanger and the other independent third-party valuation firm selected the appropriate cash flow discount
rate, residual discount rate, and terminal capitalization rate in the DCF Analysis, if applicable, the appropriate capitalization rate
in the direct capitalization analysis and the appropriate price per unit in the sales comparison analysis. As for those properties consolidated
on our financials, and for which we do not own 100% of the ownership interest, the property value was adjusted to reflect our ownership
interest in such property after consideration of the distribution priorities associated with such property.
The
estimated values for our investments in real estate may or may not represent current market values and do not equal the book values of
our real estate investments in accordance with U.S. GAAP. Our consolidated investments in real estate are currently carried in our consolidated
financial statements at their amortized cost basis, adjusted for any loss impairments and bargain purchase gains recognized to date.
St.
Augustine Land Holdings
Effective
July 15, 2022, we ceased operations of our wholly-owned St. Augustine Outlet Center, a retail property located in St. Augustine, Florida,
and shortly thereafter, commenced demolition of the property’s building and improvements in order to prepare the various land parcels
for sale and/or lease. The demolition of the property’s buildings and improvements was substantially completed during the third
quarter of 2022 and we recognized a loss on demolition of $16.6 million consisting of the write-off of the carrying value of the property’s
building and improvements plus related costs, As a result, we owned various adjacent land parcels (the “St. Augustine Land Holdings”),
which were valued at $29.5 million as of September 30, 2022, based on a sales comparison approach.
Gantry
Park Landing
As
of September 30, 2022, our 59.2% ownership interest in Gantry Park Landing, a multi-family residential property, was valued at $77.0
million. The following summarizes the key assumptions that were used in the discounted cash flow model to estimate the value of Gantry
Park Landing as of September 30, 2022:
Exit capitalization rate | |
| 4.25 | % |
Discount rate | |
| 5.25 | % |
Annual market rent growth rate | |
| 3.28 | % |
Annual net operating income growth rate | |
| 2.94 | % |
Holding period (in years) | |
| 11.0 | |
While
we believe that the assumptions made by the other independent third-party appraisal firm for Gantry Park Landing are reasonable, a change
in these assumptions would impact the calculation of the estimated value included in our Real Estate Properties. The table below represents
the estimated increase or decrease to our estimated NAV per Share resulting from a 25-basis point increase and decrease in the capitalization
rate and discount rate which were used in the valuation for Gantry Park Landing. The table is presented to provide a hypothetical illustration
of the possible results if only one change in assumptions was made, with all other factors remaining constant. Further, each of these
assumptions could change by more or less than 25 basis points or not at all.
| |
Change in NAV per Share |
| |
Increase of | |
Decrease of |
| |
25 basis points | |
25 basis points |
Exit capitalization rate | |
$ | (0.12 | ) | |
$ | 0.14 | |
Discount rate | |
$ | (0.07 | ) | |
$ | 0.07 | |
Development
Properties
As
of September 30, 2022, we wholly owned the Development Properties consisting of the following:
Lower
East Side Moxy Hotel
We
are developing a 296-room branded hotel (the “Lower East Side Moxy Hotel”) on various adjacent parcels of land located at
147-151 Bowery in the Lower East Side neighborhood of Manhattan in New York City. As of September 30, 2022, the construction of the Lower
East Side Moxy Hotel was substantially complete and the hotel and two of its five food and beverage venues subsequently opened in October
2022. The remaining food and beverage venues are currently expected to open by the end of 2022.
Stanger
deemed it appropriate to determine the estimated fair value of the Lower East Side Moxy Hotel as of September 30, 2022 of $220.0 million
using a DCF Analysis taking into consideration the expected net operating income (“NOI”) of the property upon stabilization
less the remaining estimated costs to complete. Stanger used a capitalization rate of 7.0% and a discount rate of 9.0% in their DCF Analysis.
NOI is all gross revenues from the property less all operating expenses, including property taxes and management fees but excluding depreciation.
While
we believe that the assumptions utilized in the DCF Analysis are reasonable, a change in these assumptions would affect the calculation
of the value of the Lower East Side Moxy Hotel. The table below presents the estimated increase or decrease to our estimated NAV per
Share resulting from a 25-basis point increase and decrease in the discount rate and capitalization rate used in the DCF Analysis. The
table is presented to provide a hypothetical illustration of possible results if only one change in assumptions was made with all other
factors remaining constant. Further, each of these assumptions could change by more or less than 25-basis points or not at all.
| |
Change in NAV per Share |
| |
Increase of | |
Decrease of |
| |
25 basis points | |
25 basis points |
Exit capitalization rate | |
$ | (0.21 | ) | |
$ | 0.22 | |
Discount rate | |
$ | (0.20 | ) | |
$ | 0.20 | |
Exterior
Street Project
We
are developing a multi-family residential project (the “Exterior Street Project”) on using various adjacent parcels of land
located at 355 and 399 Exterior Street in the Bronx neighborhood of New York City. As of September 30, 2022, because the Exterior Street
Project was under development, Stanger deemed it appropriate to determine its fair value of $112.9 million as of that date based on the
aggregate estimated fair value of the underlying land of $79.3 million (using a sales comparison approach) plus other development costs
incurred of $33.6 million.
The
aggregate fair value of our Real Estate Properties of $439.3 million compared to their aggregate carrying value of $327.4 million, both
as of September 30, 2022, equates to an increase in value of 34.2%.
Cash
and cash equivalents: The estimated value of our cash and cash equivalents approximate their carrying value due to their short
maturities.
Investments
in related parties: As of September 30, 2022, we have investments in related parties as follows:
| ● | We
have a 2.5% non-managing ownership interest in a joint venture (the “Joint Venture”),
which owns seven hospitality properties. The Joint Venture is between us and the operating
partnership of Lightstone Value Plus REIT II, Inc. (“Lightstone II”), a real
estate investment trust also sponsored by our Sponsor, which has a 97.5% managing ownership
interest in the Joint Venture. We do not consolidate our ownership interest in the Joint
Venture but rather account for it using a measurement alternative under which the Joint Venture
is measured at cost, adjusted for observable price changes and impairments, if any. As of
September 30, 2022, our Advisor estimated the value of our ownership interest in the Joint
Venture was $1.0 million based on a hypothetical liquidation of the estimated value of the
Joint Venture’s net assets, which approximated our carrying value. We have entered
into an agreement with a related party entity pursuant to which we have made outstanding
contributions of $6.0 million to an affiliate of the Lightstone Group, LLC which has developed
and constructed a residential project located at 40 East End Avenue in the Upper East Side
neighborhood of New York City. The contributions were made pursuant to an instrument (the
“Preferred Investment”) that entitles us to monthly preferred distributions at
12% per annum and which is classified as a held-to-maturity security and is recorded at cost.
As of September 30, 2022, the estimated value of our Preferred Investments of $6.0 million
approximated its carrying value based on market rates for similar instruments. |
Marketable
securities: The estimated values of our marketable securities, which are available for sale, are based on Level 1 and Level 2
inputs. Level 1 inputs are inputs that are observable, either directly or indirectly, such as quoted prices in active markets for identical
assets or liabilities. Level 2 inputs are inputs 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. All of our marketable securities measured using Level 2 inputs
were valued based on a market approach using readily available quoted market prices for similar assets.
Notes
receivable: The estimated value of our notes receivable approximates its carrying value as of September 30, 2022 based on current
market rates for similar instruments.
Other
assets: Our other assets consist of restricted cash and prepaid expenses and other assets. The estimated values of these items
approximate their carrying values due to their short maturities. Certain other items, primarily straight-line rent receivable, intangibles
and deferred costs, have been eliminated for the purpose of the valuation because those items are already considered in our valuation
of the respective investments in Real Estate Properties or financial instruments.
Mortgage
notes payable: The estimated values for our mortgage loans were estimated using a discounted cash flow analysis, which used inputs
based on the remaining loan terms and estimated current market interest rates for mortgage loans with similar characteristics, including
remaining loan term and loan-to-value ratios. The current market interest rates for our mortgage loans were generally determined based
on market rates for available comparable debt. The estimated current market interest rates for our mortgage loans ranged from 5.52% to
8.40% as of September 30, 2022.
Other
liabilities: Our other liabilities consist of our accounts payable, accrued expenses and other liabilities, amounts due to related
parties, and distributions payable. The carrying values of these items were considered to equal their fair value due to their short maturities.
Certain other items, primarily intangibles, have been eliminated for the purpose of the valuation because those items are already considered
in our valuation of the respective Real Estate Properties or financial instruments.
Other
noncontrolling interests: Our other noncontrolling interests consist of accrued distributions on common units and SLP Units.
Allocations
of value to SLP units: The carrying value of the SLP Units held by Lightstone SLP, LLC, an affiliate of our Advisor, are classified
in noncontrolling interests on our consolidated balance sheet. The IPA’s Practice Guideline 2013—01 provides for adjustments
to the NAV for preferred securities, special interests and incentive fees based on the aggregate NAV of the company and payable to the
sponsor in a hypothetical liquidation of the company as of the valuation date in accordance with the provisions of the partnership or
advisory agreements and the terms of the preferred securities. Because certain distributions related to our SLP Units are only payable
to their holder in a liquidation event, we believe they should be valued for our NAV in accordance with these provisions.
Our
operating agreement provides for distributions to be made during our liquidating stage to our stockholders and the holder of the SLP
Units at certain prescribed thresholds. In connection with our initial public offering of common stock, Lightstone SLP, LLC purchased
an aggregate of $30.0 million of SLP Units. In the calculation of our estimated NAV, a $51.0 million allocation of value was made to
the SLP Units representing the amount of estimated distributions which would have been payable to the holder of the SLP Units, assuming
a liquidation event as of September 30, 2022.
Historical
Estimated NAV and NAV per Share
Additional
information on our historical reported estimated NAV and NAV per Share for the preceding year may be found in the following referenced
filing:
As
of September 30, 2021 – Current Report on Form 8-K filed on December 16, 2021.
Limitations
and Risks
As
with any valuation methodology, the methodology used to determine our estimated NAV and resulting estimated NAV per Share is based upon
a number of estimates and assumptions that may prove later not to be accurate or complete. Further, different participants with different
property-specific and general real estate and capital market assumptions, estimates, judgments and standards could derive a different
estimated NAV per Share, which could be significantly different from the estimated NAV per Share approved by our board of directors.
The estimated NAV per Share approved by our board of directors does not represent the fair value of our assets and liabilities in accordance
with GAAP, and such estimated NAV per Share is not a representation, warranty or guarantee that:
| ● | A
stockholder would be able to resell his or her shares at the estimated NAV per Share; |
| ● | A
stockholder would ultimately realize distributions per share of common stock equal to the
estimated NAV per Share upon liquidation of our assets and settlement of our liabilities
or a sale of the Company; |
| ● | Our
shares of common stock would trade at the estimated NAV per Share on a national securities
exchange; |
| ● | An
independent third-party appraiser or other third-party valuation firm would agree with the
estimated NAV per Share; or |
| ● | The
methodology used to estimate our NAV per Share would be acceptable to FINRA or under the
Employee Retirement Income Security Act with respect to their respective requirements. |
The
Internal Revenue Service and the Department of Labor do not provide any guidance on the methodology an issuer must use to determine its
estimated NAV per share. FINRA guidance provides that NAV valuations be derived from a methodology that conforms to standard industry
practice.
As
with any valuation methodology, our methodology is based upon a number of estimates and assumptions that may not be accurate or complete.
Different parties with different assumptions and estimates could derive different estimated NAVs and resulting NAVs per share, and these
differences could be significant. The estimated NAV per Share is not audited and does not represent the fair value of our assets less
our liabilities in accordance with GAAP, nor do they represent an actual liquidation value of our assets and liabilities or the amount
shares of our common stock would trade at on a national securities exchange. As of the date of this filing, although we have not sought
stockholder approval to adopt a plan of liquidation of the Company, certain distributions may be payable to Lightstone SLP, LLC for its
SLP Units in connection with a liquidation event. Accordingly, our estimated NAV reflects any allocations of value to the SLP Units representing
the amount that would be payable to Lightstone SLP, LLC in connection with a liquidation event pursuant to the guidelines for estimating
NAV contained in IPA Practice Guideline 2013-01, “Valuation of Publicly Registered Non-Listed REITs.’’ Our estimated
NAV per Share is based on the estimated value of our assets less the estimated value of our liabilities and other non-controlling interests
less any allocations to the SLP Units divided by the number of our diluted shares of common stock outstanding, all as of the date indicated.
Our estimated NAV per Share does not reflect a discount for the fact we are externally managed, nor does it reflect a real estate portfolio
premium/discount versus the sum of the individual property values. Our estimated NAV per Share does not take into account estimated disposition
costs or fees or penalties, if any, that may apply upon the prepayment of certain of our debt obligations or the impact of restrictions
on the assumption of certain debt. Our estimated NAV per Share will fluctuate over time as a result of, among other things, future acquisitions
or dispositions of assets, developments related to individual assets and the management of those assets and changes in the real estate
and capital markets. Different parties using different assumptions and estimates could derive different NAVs and resulting estimated
NAVs per share, and these differences could be significant. Markets for real estate and real estate-related investments can fluctuate
and values are expected to change in the future. We currently expect that our Advisor will estimate our NAV on at least an annual basis.
Our board of directors will review and approve each estimate of NAV and resulting estimated NAV per Share.
The
following factors may cause a stockholder not to ultimately realize distributions per share of common stock equal to the estimated NAV
per Share upon liquidation:
| ● | The
methodology used to determine estimated NAV per Share includes a number of estimates and
assumptions that may not prove to be accurate or complete as compared to the actual amounts
received in the liquidation; |
| ● | In
a liquidation, certain assets may not be liquidated at their estimated values because of
transfer fees and disposition fees, which are not reflected in the estimated NAV calculation; |
| ● | In
a liquidation, debt obligations may have to be prepaid and the costs of any prepayment penalties
may reduce the liquidation amounts. Prepayment penalties are not included in determining
the estimated value of liabilities in determining estimated NAV; |
| ● | In
a liquidation, the real estate assets may derive a portfolio premium which premium is not
considered in determining estimated NAV; |
| ● | In
a liquidation, the potential buyers of the assets may use different estimates and assumptions
than those used in determining estimated NAV; |
| ● | If
the liquidation occurs through a listing of the common stock on a national securities exchange,
the capital markets may value the Company’s net assets at a different amount than the
estimated NAV. Such valuation would likely be based upon customary REIT valuation methodology
including funds from operation (“FFO’’) multiples of other comparable
REITs, FFO coverage of dividends and adjusted FFO payout of the Company’s anticipated
dividend; and |
| ● | If
the liquidation occurs through a merger of the Company with another REIT, the amount realized
for the common stock may not equal the estimated NAV per Share because of many factors including
the aggregate consideration received, the make-up of the consideration (e.g., cash, stock
or both), the performance of any stock received as part of the consideration during the merger
process and thereafter, the reception of the merger in the market and whether the market
believes the pricing of the merger was fair to both parties. |