Notes
to Consolidated Financial Statements (Unaudited)
(Dollar
amounts in thousands, except per share/unit data and where indicated in millions)
1. |
Business
and Structure |
Lightstone
Value Plus REIT I, Inc., 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 (“REIT”) for U.S. federal income tax purposes. 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 its 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 March 31, 2023, Lightstone REIT I held a 98% general partnership interest in the
its 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 and residential properties and makes real estate-related
investments, principally in the United States. The Company’s real estate investments are held by it 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 March 31, 2023, the Company (i) has ownership interests in and consolidates two operating properties, one development property
and certain land holdings and (ii) has ownership interests through two unconsolidated joint ventures in nine multifamily residential
properties and seven commercial hotel properties. Additionally, as of March 31, 2023, the Company has other real estate-related
investments consisting of a preferred investment in a related party and a promissory loan it originated, through a joint venture with
a related party, to an unaffiliated third-party borrower.
With
respect to its consolidated operating properties, the Company wholly owns a 296-room Marriott Moxy hotel (the “Lower East Side
Moxy Hotel”), located in the Lower East Side neighborhood in the Manhattan borough of New York City, which it developed, constructed
and opened on October 27, 2022 and has a 59.2% majority ownership interest in 50-01 2nd St. Associates LLC (the “2nd Street
Joint Venture”), a joint venture between the Company and a related party, which developed, constructed and owns a 199-unit luxury,
multifamily residential property (“Gantry Park Landing”), located in the Long Island City neighborhood in the Queens borough
of New York City.
With
respect to its consolidated development property, the Company wholly owns land parcels located at 355 & 399 Exterior Street in the
Mott Haven neighborhood in the Bronx borough of New York City, on which it plans to construct a proposed mixed-use multifamily residential
and commercial retail project (the “Exterior Street Project”).
The
Company also wholly owns and consolidates certain adjacent land parcels (the “St. Augustine Land Holdings) located in St. Augustine,
Florida.
Additionally,
the Company holds a 19.0% joint venture ownership interest in Columbus Portfolio Member LLC (the “Columbus Joint Venture”),
which owns nine multifamily residential properties, which its accounts for using the equity method of accounting and it holds a 2.5%
joint venture ownership interest in LVP Holdco JV LLC (the “Hotel Joint Venture”) which owns seven hotel properties, which
the Company accounts for using a measurement alternative under which the Hotel Joint Venture is measured at cost, adjusted for observable
price changes and impairments, if any. Both the Columbus Joint Venture and the Hotel Joint Venture are between the Company and related
parties.
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’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.
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
Sponsor, Advisor and its affiliates, and Lightstone SLP, LLC are related parties of the Company as well as other public REITs also sponsored
and/or advised by these entities. 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 March 31, 2023.
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)
Other
Noncontrolling Interests in Consolidated Subsidiaries
Other
noncontrolling interests in consolidated subsidiaries include the joint venture ownership interests held by either the Sponsor or its
affiliates in (i) Pro-DFJV Holdings LLC (“PRO”), (ii) the 2nd Street Joint Venture and (iii) other entities that have originated
promissory notes to unaffiliated third parties (see Note 6). PRO’s holdings principally consist of Marco OP Units and Marco II
OP Units (see Note 7). The 2nd Street Joint Venture owns Gantry Park Landing.
2. |
Summary
of Significant Accounting Policies |
Principles
of Consolidation and Basis of Presentation
The
consolidated financial statements include the accounts of Lightstone REIT I and its Operating Partnership and its subsidiaries (over
which Lightstone REIT I 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, 2022. 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, 2022 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)
Income
Taxes
The
Company has elected to be taxed as a REIT commencing with the taxable year ended December 31, 2005. If the Company qualifies as
a REIT, it generally will not be subject to U.S. federal income tax on its taxable income or capital gain that it distributes to its
stockholders. To maintain its REIT qualification, the Company must meet a number of organizational and operational requirements, including
a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not equal net income,
as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain.
If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify for certain statutory relief
provisions, its income for that year will be taxed at the regular corporate rate, and it may be precluded from qualifying for treatment
as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could materially adversely affect the Company’s
net income and net cash available for distribution to stockholders. Additionally, even if the Company continues to qualify as a REIT,
it may still be subject to some U.S. federal, state and local taxes on our income and property and to U.S. federal income taxes and excise
taxes on its undistributed income, if any.
To
qualify or maintain our qualification as a REIT, the Company engages in certain activities through wholly-owned taxable REIT subsidiaries
(“TRS”). As such, it is subject to U.S. federal and state income and franchise taxes from these activities.
Revenues
The
following table represents the total hotel revenues from hotel operations on a disaggregated basis:
Schedule of revenues on a disaggregated | |
| | |
| |
For the
Three Months ended March 31, | |
| |
2023 | |
Hotel revenues | |
| |
Room revenue | |
$ | 2,995 | |
Food, beverage and other revenue | |
| 4,549 | |
Total revenues | |
$ | 7,544 | |
Land
Parcel Sale
The
Company completed the disposition of a parcel of land, which was part of its St. Augustine Land Holdings, to an unrelated third party
for a contractual sales price of $1.5 million and recognized a gain on disposition of real estate of $1.1 million during the three months
ended March 31, 2023.
Recently
Adopted Accounting Standards
In
June 2016, the Financial Accounting Standards Board issued an accounting standards
update, "Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments,"
which changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair
value through net income. The updated standard introduces an impairment model that is based on expected credit losses, rather than incurred
losses, to estimate credit losses for financial instruments measured at amortized cost. For trade receivables, other receivables, and
held-to-maturity debt instruments, entities are required to use a new forward looking expected loss model that generally will result
in an earlier recognition of allowances for losses. Financial instruments with similar risk characteristics may be grouped together when
estimating expected credit losses. The update was effective for fiscal years beginning after December 15, 2022, including interim periods
within those fiscal years. The Company adopted the new standard, as of January 1, 2023, and it did not have a material impact on the
consolidated financial statements.
Adverse
Developments Affecting the Financial Services Industry and Concentration of Risk
As
of March 31, 2023 and December 31, 2022, the Company had cash deposited in certain financial institutions in excess of federally
insured levels. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed
to any significant credit risk in cash and cash equivalents. However, in March and April 2023, certain U.S. government banking regulators
took steps to intervene in the operations of certain financial institutions due to liquidity concerns, which caused general heightened
uncertainties in financial markets. While these events have not had a material direct impact on the Company’s operations, if further
liquidity and financial stability concerns arise with respect to banks and financial institutions, either nationally or in specific regions,
the Company’s ability to access cash or enter into new financing arrangements may be threatened, which could have a material adverse
effect on its business, financial condition and results of operations.
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)
Current
Environment
The
Company’s operating results are substantially impacted by the overall health of local, U.S. national and global economies and may
be influenced by market and other challenges. Additionally, the Company’s business and financial performance may be adversely affected
by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets
volatility, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws
and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, inflation and recession.
The
Company’s overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior.
Worsening economic conditions, increases in costs due to inflation, higher interest rates, certain labor and supply chain challenges,
and developments related to the COVID-19 pandemic, and other changes in economic conditions, may adversely affect the Company’s
results of operations and financial performance.
Reclassifications
Certain
prior period amounts have been reclassified to conform to the current period’s presentation.
Supplemental
Cash Flow Information
Summary of supplemental cash flow information | |
| | | |
| | |
| |
For the
Three Months Ended
March 31, | |
| |
2023 | | |
2022 | |
Cash paid for interest | |
$ | 6,678 | | |
$ | 2,806 | |
Distributions declared but not paid | |
$ | 3,820 | | |
$ | 3,873 | |
Capital expenditures for investment property in accounts payable, accrued expenses and other liabilities | |
$ | 1,190 | | |
$ | 3,289 | |
Amortization of deferred financing costs included in development projects | |
$ | 139 | | |
$ | 669 | |
Holding gain/loss on marketable securities | |
$ | 151 | | |
$ | 47 | |
Value of shares issued from distribution reinvestment program | |
$ | 83 | | |
$ | 84 | |
3. | Development
Project - Exterior Street Project |
In
February 2019, the Company, through subsidiaries of the Operating Partnership, acquired two adjacent parcels of land located at
355 and 399 Exterior Street in the Mott Haven neighborhood in the Bronx borough 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. On these three land parcels the Company plans to construct a proposed mixed-use multifamily residential and
commercial retail property (the “Exterior Street Project”). Through March 31, 2023 and December 31, 2022, the Company
has incurred and capitalized $95.7 million and $93.6 million of costs related to the development of the Exterior Street Project. During
the three months ended March 31, 2023 and 2022, $1.5 million and $0.6 million, respectively, of interest was capitalized to the
Exterior Street Project, which is classified as development project on the consolidated balance
sheets.
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. | Lower
East Side Moxy Hotel |
In
December 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 the borough 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, in December 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, from an unaffiliated third party for $2.4 million, excluding closing and other acquisition related costs. The
land and air rights were acquired 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 opened on October 27, 2022 and all four of its food and beverage venues opened during
the fourth quarter of 2022.
The
Company incurred pre-opening costs of $48 and $23 related to the Lower East Side Moxy Hotel during the three months ended March 31,
2023 and 2022, respectively. Pre-opening costs generally consist of non-recurring personnel, marketing and other costs.
5. | Investment
in Unconsolidated Affiliated Real Estate Entity |
Columbus
Joint Venture
On
November 29, 2022, the Company, CRE Columbus Member (“Converge”), a majority owned subsidiary of Converge Holdings LLC,
a reinsurance business owned by the Sponsor, and LEL Columbus Member LLC (the “BVI member”), a wholly owned subsidiary of
Lightstone Enterprises Limited (“BVI”), a real estate investment company owned by the Sponsor, entered into a joint venture
agreement to form Columbus Portfolio Member LLC (“the Columbus Joint Venture”) for the purpose of acquiring nine multifamily
properties (the “Columbus Properties”) located in the area of Columbus, Ohio for a contractual purchase price of $465.0 million.
The Company has an ownership interest of 19% in the Columbus Joint Venture. Converge and the BVI Member,
which are both related parties, have ownership interests of 19% and 62%, respectively. Additionally, the manager of the Columbus Joint
Venture is LEL Bronx Manager LLC (“Manager”), an entity wholly owned by BVI.
On
November 29, 2022, the Columbus Joint Venture completed the purchase of the Columbus Properties. The acquisition was funded with
$74.3 million of cash and $390.7 million of aggregate proceeds from preferred investments from unrelated third-parties and loans from
two financial institutions. In connection with the acquisition and financings, the total cash paid, including closing costs, was $92.3
million and the Company paid $17.5 million representing its 19.0% pro rata share. In connection with the acquisition, the Company also
paid the Advisor a separate acquisition fee of $2.4 million, equal to 2.75% of the Company’s pro-rata share of the contractual
purchase price which is reflected in the carrying value of the Company’s investment in unconsolidated affiliated real estate entity
on the consolidated balance sheets. During the three months ended March 31, 2023, the Company’s
made $10 of additional capital contributions to the Columbus Joint Venture.
The
Company has determined that the Columbus Joint Venture is a variable interest entity but the Company is not the primary beneficiary.
The Company accounts for its ownership interest in the Columbus Joint Venture in accordance with the equity method of accounting because
it exerts significant influence over but does not control the Columbus Joint Venture. All capital contributions and distributions of
earnings from the Columbus Joint Venture are made on a pro rata basis in proportion to each member’s equity interest percentage.
Any distributions in excess of earnings from the Columbus Joint Venture are made to the members pursuant to the terms of the Columbus
Joint Venture’s operating agreement. The Company commenced recording its allocated portion of profit/loss and cash distributions
beginning as of November 29, 2022 with respect to its membership interest of 19.0% in the Columbus Joint Venture.
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)
In
connection with the closing of the Columbus Properties, the Columbus Joint Venture simultaneously entered into two mortgage loans from
financial institutions in the aggregate amount of $300.7 million and received two preferred investments from unaffiliated third parties
in the aggregate amount of $90.0 million (collectively, the “Loans”) The Loans are collateralized by the Columbus Properties.
The Sponsor (the “Guarantor”) has fully guaranteed the Columbus Joint Venture’s obligation to repay the outstanding
balance of the Loans (the “Loan Guarantee”). Each of the joint venture members have agreed to reimburse the Guarantor for
their pro rata share of any balance that may become due under the Loan Guarantee, of which the Company’s share is up to 19% of
the outstanding balance. The Company has determined that the fair value of the Loan Guarantee is immaterial.
Columbus
Joint Venture Financial Information
The
following table represents the condensed statement of operations for the Columbus Joint Venture:
Schedule of condensed statement of operations for the Columbus joint venture | |
| | |
| |
For the
Three Months Ended March 31,
2023 | |
Revenues | |
$ | 10,511 | |
Property operating expenses | |
| 4,892 | |
General and administrative income | |
| (45 | ) |
Depreciation and amortization | |
| 4,746 | |
Operating income | |
| 918 | |
Interest expense and other, net | |
| (7,206 | ) |
Net loss | |
$ | (6,288 | ) |
Company’s share of net loss (19.0%) | |
$ | (1,195 | ) |
Additional depreciation and amortization expense(1) | |
| (25 | ) |
Company’s loss from investment | |
$ | (1,220 | ) |
(1) | Additional depreciation and amortization expense relates
to the amortization of the difference between the cost of the interest in the Columbus Joint Venture and the amount of the underlying
equity in net assets of the Columbus Joint Venture. |
The
following table represents the condensed balance sheet for the Columbus Joint Venture:
Schedule of condensed balance sheet for the Columbus joint venture | |
| | | |
| | |
| |
As of
March 31,
2023 | | |
As of
December 31,
2022 | |
Real estate, at cost (net) | |
$ | 455,065 | | |
$ | 457,339 | |
Cash and restricted cash | |
| 16,216 | | |
| 15,770 | |
Other assets | |
| 7,656 | | |
| 10,096 | |
Total assets | |
$ | 478,937 | | |
$ | 483,205 | |
| |
| | | |
| | |
Mortgages payable, net | |
$ | 384,712 | | |
$ | 383,266 | |
Other liabilities | |
| 9,041 | | |
| 8,495 | |
Members’ equity | |
| 85,184 | | |
| 91,444 | |
Total liabilities and members’ equity | |
$ | 478,937 | | |
$ | 483,205 | |
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)
| 6. | Investments
in Related Parties |
Preferred
Investments
The
Company previously entered into agreements with various related party entities that provided for it to make preferred contributions
pursuant to certain instruments (the “Preferred Investments”) that entitle it to certain prescribed monthly preferred
distributions. During the first quarter of 2023, the Company redeemed
$2.3
million of its only remaining Preferred Investment, which is the 40 East End Avenue Preferred Investment, reducing its outstanding
balance from $6.0
million to $3.7
million 3,708 as of March 31, 2023, which is included in investments in related parties on the consolidated financial
statements. The estimated fair value of 40 East End Avenue Preferred Investment approximates
its carrying value based on market rates for similar instruments.
The
Preferred Investments are summarized as follows:
Schedule of preferred investments | |
| | |
| | | |
| | | |
| | | |
| | |
| |
| | |
Preferred Investment Balance | | |
Investment Income(1) | |
| |
Dividend | | |
As of
March 31, | | |
As of
December 31, | | |
Three Months Ended
March 31, | |
Preferred Investments | |
Rate | | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
40 East End Avenue | |
12% | | |
$ | 3,708 | | |
$ | 6,000 | | |
$ | 179 | | |
$ | 180 | |
East 11th Street | |
12% | | |
| - | | |
| - | | |
| - | | |
| 255 | |
Total Preferred Investments | |
| | |
$ | 3,708 | | |
$ | 6,000 | | |
$ | 179 | | |
$ | 435 | |
Note:
(1) | Included
in interest and dividend income on the consolidated statements of operations. |
Hotel
Joint Venture
The
Company has a 2.5%
membership interest in the Hotel Joint Venture, which holds ownership interests in seven hotels. The carrying value of its
investment was $0.9
million
as of March 31, 2023 and December 31, 2022, which is included in investments 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.
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.
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 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 three months ended March 31, 2023, the NR Joint Ventures made aggregate distributions of $1.3 million to both the NR Subsidiaries
and NR Affiliates, based on their respective membership interests. During the three months ended March 31, 2022, both the NR Subsidiaries
and the NR Affiliates made aggregate contributions to the NR Joint Ventures of $21.9 million, principally to fund their respective shares
of the Joint Venture Promissory Note that was originated. Additionally, during the three months ended March 31, 2022, the NR Joint
Ventures made aggregate distributions of $15.4 million to both the NR Subsidiaries and NR Affiliates, based on their respective membership
interests.
The
following tables summarize the Note Receivable as of the dates indicated:
Summary
of notes receivable | |
| | |
| | | |
| | |
| |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Joint
Venture/Lender | |
Company’s
Ownership Percentage | | |
Loan
Commitment Amount | | |
Origination
Fee | | |
Origination
Date | |
Maturity
Date | |
Contractual
Interest Rate | |
Outstanding
Principal | | |
Reserves | | |
Unamortized
Origination Fee | | |
Carrying
Value | | |
Unfunded
Commitment | |
| |
| | |
| | |
| | |
| |
| |
| |
As
of March 31, 2023 | |
LSC
1543 7th LLC | |
50% | | |
$ | 49,000 | | |
1.00% | | |
March 2,
2022 | |
August 31,
2023 | |
SOFR plus 7.00%
(Floor of 7.15%) | |
$ | 35,000 | | |
$ | - | | |
$ | (204 | ) | |
$ | 34,796 | | |
$ | - | |
| |
| | |
| | | |
| | |
| |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | |
| | | |
| | |
| |
| |
| |
As
of December 31, 2022 | |
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 | | |
$ | (614 | ) | |
$ | (327 | ) | |
$ | 48,059 | | |
$ | - | |
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:
Summarizes the interest earned for each of the joint venture promissory notes | |
| | | |
| | |
Joint Venture/Lender |
|
For the
Three Months Ended
March 31,
2023 |
|
|
For the
Three Months Ended
March 31,
2022 |
|
LSC 1543 7th LLC | |
$ | 1,498 | | |
$ | 689 | |
LSC 11640 Mayfield LLC | |
| - | | |
| 455 | |
Total | |
$ | 1,498 | | |
$ | 1,144 | |
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)
| 8. | 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:
Summary of available for sale securities and other investments | |
| | | |
| | | |
| | | |
| | |
| |
As of March 31, 2023 | |
| |
Adjusted
Cost | | |
Gross Unrealized
Gains | | |
Gross Unrealized
Losses | | |
Fair
Value | |
Marketable Securities: | |
| | | |
| | | |
| | | |
| | |
Equity securities: | |
| | | |
| | | |
| | | |
| | |
Common and Preferred Equity Securities | |
$ | 20,421 | | |
$ | 58 | | |
$ | (1,558 | ) | |
$ | 18,921 | |
Marco OP Units and Marco II OP Units | |
| 19,227 | | |
| 4,202 | | |
| - | | |
| 23,429 | |
| |
$ | 39,648 | | |
$ | 4,260 | | |
$ | (1,558 | ) | |
$ | 42,350 | |
| |
As of December 31, 2022 | |
| |
Adjusted
Cost | | |
Gross Unrealized
Gains | | |
Gross Unrealized
Losses | | |
Fair
Value | |
Marketable Securities: | |
| | | |
| | | |
| | | |
| | |
Equity securities: | |
| | | |
| | | |
| | | |
| | |
Common and Preferred Equity Securities | |
$ | 22,993 | | |
$ | - | | |
$ | (2,103 | ) | |
$ | 20,890 | |
Marco OP Units and Marco II OP Units | |
| 19,227 | | |
| 5,355 | | |
| - | | |
| 24,582 | |
| |
| 42,220 | | |
| 5,355 | | |
| (2,103 | ) | |
| 45,472 | |
Debt securities: | |
| | | |
| | | |
| | | |
| | |
Corporate Bonds | |
| 602 | | |
| - | | |
| (150 | ) | |
| 452 | |
Total | |
$ | 42,822 | | |
$ | 5,355 | | |
$ | (2,253 | ) | |
$ | 45,924 | |
As
of both March 31, 2023 and December 31, 2022, 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 $111.97 per share and $131.56 per share as of March 31, 2023 and 2022, respectively. Additionally, the closing price of
Simon Stock was $117.48 per share as of December 31, 2022.
Throughout
2022 and continuing into 2023, financial markets have been experiencing increases in interest rates primarily as a result of higher inflation,
leading to the lower market prices of the Company equity’s securities, especially those highly sensitive to movements in interest
rates, such as REITs and preferred securities. Because of the change in the closing price of Simon Stock and the market price of the
Company’s other equity securities, the Company incurred unrealized losses of $0.6 million and $9.0 million for the three
months ended March 31, 2023 and 2022, respectively.
These unrealized losses incurred on the Company’s marketable equity securities are included in its consolidated statements of operations.
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)
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 on the consolidated statements of operations.
For
the three months ended March 31, 2023 and 2022, the Company recorded unrealized losses of $0.4 million and unrealized gains of $0.9
million, respectively, on the consolidated statements 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 LIBOR through June
30, 2023 and its replacement rate thereafter at 3.00%.
Both interest rate cap contracts mature on June 3, 2024. The aggregate fair values of the interest rate cap contracts of $2.9
million 2,857
and $3.3
million 3,279 as of March 31, 2023 and December 31, 2022, respectively, are included in other assets on the consolidated
balance sheets.
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 March 31, 2023 | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Marketable Securities: | |
| | | |
| | | |
| | | |
| | |
Common and Preferred Equity Securities | |
$ | 1,085 | | |
$ | 17,836 | | |
$ | - | | |
$ | 18,921 | |
Marco OP and OP II Units | |
| - | | |
| 23,429 | | |
| - | | |
| 23,429 | |
Total | |
$ | 1,085 | | |
$ | 41,265 | | |
$ | - | | |
$ | 42,350 | |
| |
| | | |
| | | |
| | | |
| | |
Derivative Financial Instruments: | |
| | | |
| | | |
| | | |
| | |
Interest Rate Cap Contracts | |
$ | - | | |
$ | 2,857 | | |
$ | - | | |
$ | 2,857 | |
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 Measurement Using | | |
| |
As of December 31, 2022 | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Marketable Securities: | |
| | | |
| | | |
| | | |
| | |
Common and Preferred Equity Securities | |
$ | 1,138 | | |
$ | 19,752 | | |
$ | - | | |
$ | 20,890 | |
Marco OP and OP II Units | |
| - | | |
| 24,582 | | |
| - | | |
| 24,582 | |
Corporate Bonds | |
| - | | |
| 452 | | |
| - | | |
| 452 | |
Total | |
$ | 1,138 | | |
$ | 44,786 | | |
$ | - | | |
$ | 45,924 | |
| |
| | | |
| | | |
| | | |
| | |
Derivative Financial Instruments: | |
| | | |
| | | |
| | | |
| | |
Interest Rate Cap Contracts | |
$ | - | | |
$ | 3,279 | | |
$ | - | | |
$ | 3,279 | |
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. Additionally, as
noted and disclosed 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.
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 plus 0.85% (5.71% as of March 31,
2023) 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 March 31, 2023 and December 31, 2022.
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, which matures on November 30,
2024 and bears interest at LIBOR plus 1.35% (6.21% as of March 31, 2023). Additionally, the Line of Credit provides for a replacement
benchmark rate in connection with the phase-out of LIBOR, which is expected to be for periods after June 30, 2023. The Line of Credit
is collateralized by an aggregate of 209,243 of Marco OP Units and Marco II OP Units and is guaranteed by PRO. As of March 31, 2023,
the amount of borrowings available to be drawn under the Line of Credit was $12.9 million. No amounts were outstanding under the Line
of Credit as of both March 31, 2023 and December 31, 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)
Mortgages
payable, net consists of the following:
Schedule of mortgages payable | |
| |
| |
| |
| | | |
| | | |
| | |
Property/Investment | |
Interest
Rate | |
Weighted
Average
Interest Rate for the
Three Months Ended
March 31,
2023 | |
Maturity
Date | |
Amount
Due
at Maturity | | |
As
of March 31,
2023 | | |
As
of December 31,
2022 | |
Gantry
Park Landing | |
4.48% | |
4.48% | |
November 2024 | |
$ | 65,317 | | |
$ | 67,783 | | |
$ | 68,151 | |
Lower
East Side Moxy Hotel Senior | |
LIBOR + 7.50%
(floor of 7.75%) | |
11.96% | |
June 2024 | |
| 86,852 | | |
| 86,852 | | |
| 82,811 | |
Lower
East Side Moxy Hotel Junior | |
LIBOR + 13.50%
(floor of 14.00%) | |
18.28% | |
June 2024 | |
| 40,000 | | |
| 40,000 | | |
| 40,000 | |
Exterior
Street Project | |
SOFR + 2.60% | |
7.22% | |
November 2023 | |
| 35,000 | | |
| 35,000 | | |
| 35,000 | |
Exterior
Street Project Supplemental | |
SOFR + 2.60% | |
7.22% | |
November 2023 | |
| 7,000 | | |
| 7,000 | | |
| 7,000 | |
LSC
1543 7th LLC Note Receivable | |
SOFR
+ 3.50% | |
8.42% | |
December 2023 | |
| 21,529 | | |
| 21,529 | | |
| 32,152 | |
Total
mortgages payable | |
| |
9.91% | |
| |
$ | 255,698 | | |
| 258,164 | | |
| 265,114 | |
| |
| |
| |
| |
| | | |
| | | |
| | |
Less:
Deferred financing costs | |
| |
| |
| |
| | | |
| (3,699 | ) | |
| (4,535 | ) |
| |
| |
| |
| |
| | | |
| | | |
| | |
Total
mortgages payable, net | |
| |
| |
| |
| | | |
$ | 254,465 | | |
$ | 260,579 | |
One-month
LIBOR as of March 31, 2023 and December 31, 2022 was 4.86% and 4.39%, respectively. One-month SOFR
as of March 31, 2023 and December 31, 2022 was 4.80% and 4.36%. The Company’s
loans are secured by the indicated real estate/investment and are non-recourse to the Company, unless otherwise indicated.
LSC
1543 7th LLC Loan
On
June 30, 2022, LSC 1543 7th LLC obtained a loan of up to $33.1 million (the “LSC 1543 7th LLC Loan”) which bears interest
at SOFR + 3.50% (8.30% as of March 31, 2023). 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 September 20, 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”). During the first quarter of
2023, LSC 1543 7th LLC received a payment of $14.0 million on the LSC 1543 7th LLC Note Receivable and used a portion of the proceeds
to repay $11.3 million of the LSC 1543 7th LLC Loan, which reduced the outstanding balance to $21.5 million.
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 plus 7.50%, subject to an 7.75%
floor, and initially matures on June 3, 2024, with two one-year extension options, subject to the satisfaction of certain conditions.
Additionally, the Moxy Senior Loan provides for a replacement benchmark rate in connection with the phase-out of LIBOR, which is expected
to be for periods after June 30, 2023. The Moxy Senior Loan is collateralized by the Lower East Side Moxy Hotel. As of March 31,
2023, the outstanding principal balance of the Moxy Senior Loan was $86.9 million, the interest rate was 12.61% and the remaining availability
under the facility was up to $3.1 million, which is expected to be used to fund the remaining construction and pre-opening costs for
the project. Additionally, the Company was required by the lender to deposit the $4.7 million of key money received from Marriott during
the fourth quarter of 2022 into an escrow account (included in restricted cash on the consolidated balance sheet as of December 31,
2022), all of which was subsequently used to fund remaining construction costs for the project during the first quarter of 2023.
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)
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 plus 13.50%, subject to a 14.00% floor (18.36% as of March 31, 2023),
and initially matures on June 3, 2024, with two one-year extension options, subject to the satisfaction of certain conditions. Additionally,
the Moxy Junior Loan provides for a replacement benchmark rate in connection with the phase-out of LIBOR, which is expected to be for
periods after June 30, 2023. 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.
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 LIBOR through
June 30, 2023 and its replacement rate thereafter is capped at 3.00% 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 March 31, 2023 and
December 31, 2021.
Exterior
Street Loans
On
March 29, 2019, the Company obtained a $35.0 million loan (the “Exterior Street Loan”) from a financial institution
which, commencing on October 10, 2020, bore interest at LIBOR plus 2.25% through November 24, 2022. On December 21, 2021,
the loan agreement was amended to provide an additional $7.0 million loan (the “Exterior Street Supplemental Loan” and collectively
with the Exterior Street Loan, the “Exterior Street Loans”) which bore interest at LIBOR plus 2.50% through November 24,
2022. The Exterior Street Loans require monthly interest-only payments with the outstanding principal balances due in full at their maturity
date. The Exterior Street Loans are collateralized by the Exterior Street Project. On November 22, 2022, the Company and the financial
institution entered into an additional amendment to the Exterior Street Loans pursuant to which the interest rate on the Exterior Street
Loans was adjusted to SOFR plus 2.60% (7.40% as of March 31, 2023) and their maturity dates were extended to November 24, 2023.
The
following table shows the contractually scheduled principal maturities of the Company’s mortgage debt during the next five years
and thereafter as of March 31, 2023:
Scheduled of contractually principal maturities during next five years | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
2023 | | |
2024 | | |
2025 | | |
2026 | | |
2027 | | |
Thereafter | | |
Total | |
Principal maturities | |
$ | 64,615 | | |
$ | 193,549 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 258,164 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Less: Deferred financing costs | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (3,699 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total principal maturities, net | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 254,465 | |
Certain
of the Company’s debt agreements require the maintenance of certain ratios, including debt service coverage. As of March 31,
2023, 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 March 31, 2023) mature on November 24,
2023. The Company currently intends to seek to extend or refinance the Exterior Street Loans on or before their maturity date.
The
LSC 1543 7th LLC Loan (outstanding principal balance of $21.5 million as of March 31, 2023) is scheduled to initially mature on
December 30, 2023, but may be further extended through December 30, 2024 and September 20, 2025, through the exercise
of two extension options. The Company currently intends to repay the LSC 1543 7th LLC Loan with the proceeds from the expected repayment
of the LSC 1543 7th LLC Note Receivable, which has an outstanding principal balance of $35.0 million, or to seek to extend the LSC 1543
7th LLC Loan pursuant to the extension option on or before its 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.
Distribution
on Common Shares
On
March 15, 2023, the Board of Directors authorized and the Company declared a distribution of $0.175 per share for the quarterly
period ending March 31, 2023. On April 15, 2023, the distribution of
$3.7 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 $11.58 per share, equal to 95% of the Company’s most recently published estimated
net asset value per share of $12.19 as of September 30, 2022.
On
May 10, 2023, the Company’s Board of Directors authorized and the Company declared a distribution of $0.175 per share for
the quarterly period ending June 30, 2023. 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 May 10, 2023, the Board of Directors declared a quarterly distribution for the quarterly period ending June 30, 2023 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.
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)
SRP
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
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 estimated net asset value per share of common stock (“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. 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%.
At
the above noted dates, the Board of Directors established that on an annual basis, the Company would not redeem in excess of 1.0% and
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.
For
the three months ended March 31, 2023, the Company repurchased 37,405 Common Shares at a weighted average price per share of $12.19.
For the three months ended March 31, 2022, the Company repurchased 79,021 Common Shares
at a weighted average price per share of $11.75.
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)
| 11. | 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:
Summary of Amount recorded in pursuant to related party arrangement | |
| | | |
| | |
| |
For the
Three Months Ended | |
| |
March 31,
2023 | | |
March 31,
2022 | |
Asset management fees (general and administrative costs) | |
$ | 555 | | |
$ | 154 | |
Property management fees (property operating expenses) | |
| 72 | | |
| 80 | |
Development fees and cost reimbursement (1) | |
| 406 | | |
| 884 | |
Total | |
$ | 1,033 | | |
$ | 1,118 | |
(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 until construction is substantially completed and the associated assets are placed
in service. As of March 31, 2023 and December 31, 2022, the Company owed the Advisor
and its affiliated entities $0.1 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 months ended March 31, 2023 and 2022, distributions of $0.5 million were declared and paid on the SLP 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
carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, other assets, accounts payable,
accrued expenses and other liabilities, due to related parties, tenant allowances and deposits payable and deferred rental income 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
March 31,
2023 | | |
As of
December 31,
2022 | |
| |
Carrying
Amount | | |
Estimated Fair
Value | | |
Carrying
Amount | | |
Estimated Fair
Value | |
Mortgages payable | |
$ | 258.2 | | |
$ | 258.5 | | |
$ | 265.1 | | |
$ | 265.1 | |
The
fair value of the mortgages payable was determined by discounting the future contractual interest and principal payments by estimated
current market interest rates.
| 13. | Commitments
and Contingencies |
Hotel
Franchise Agreement
The
Lower East Side Moxy Hotel operates pursuant to a 30-year franchise agreement (the “Hotel Franchise Agreement”) with Marriott
International, Inc. (“Marriott”). The Hotel Franchise Agreement provides for the Company to pay franchise fees and marketing
fund charges equal to certain prescribed percentages of gross room sales, as defined. Additionally, pursuant to the terms of the Hotel
Franchise Agreement, the Company received a key money (“Key Money”) payment of $4.7 million from Marriott during the fourth
quarter of 2022. The Key Money, which is included in accounts payable, accrued expenses and other liabilities on the consolidated balance
sheet is being amortized as a reduction to franchise fees over the term of the Hotel Franchise Agreement. As of both March 31, 2023
and December 31, 2022, the remaining unamortized balance of the Key Money was $4.7 million. Pursuant to the terms of the Hotel Franchise
Agreement, the Company may be obligated to return the unamortized portion of the key money back to Marriott upon the occurrence of certain
events. The franchise fees and marketing fund charges are recorded as a component of hotel operating expenses in the consolidated statements
of operations.
Hotel
Management Agreements
With
respect to the Lower East Side Moxy Hotel, the Company has entered into a hotel management agreement, food and beverage operations management
agreement and an asset management agreement (collectively, the “Hotel Management Agreements”) with various third-party management
companies pursuant to which they provide oversight and management over the operation of the Lower East Side Moxy Hotel and its food and
beverage venues and receive payment of certain prescribed management fees, generally based on a percentage of revenues and certain incentives
for exceeding targeted earnings thresholds. The management fees are recorded as a component of hotel operating expenses on the consolidated
statements of operations. The Hotel Management Agreements have initial terms ranging from five to 20 years.
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.
PART
I. FINANCIAL INFORMATION, CONTINUED: