Attached files

file filename
EX-32.2 - EXHIBIT 32.2 - Lightstone Value Plus Real Estate Investment Trust, Inc.tm2014623d1_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - Lightstone Value Plus Real Estate Investment Trust, Inc.tm2014623d1_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - Lightstone Value Plus Real Estate Investment Trust, Inc.tm2014623d1_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - Lightstone Value Plus Real Estate Investment Trust, Inc.tm2014623d1_ex31-1.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

 

OR

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to

 

Commission file number 000-52610

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Maryland   20-1237795

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

1985 Cedar Bridge Avenue, Suite 1    
Lakewood, New Jersey   08701
(Address of Principal Executive Offices)   (Zip Code)

 

(732) 367-0129

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

Yes   þ    No  ¨

 

 Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  

Yes  þ     No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨     Accelerated filer   ¨
Non-accelerated filer   þ            Smaller reporting company  þ
      Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨ No þ

 

As of May 11, 2020, there were approximately 22.3 million outstanding shares of common stock of Lightstone Value Plus Real Estate Investment Trust, Inc., including shares issued pursuant to the dividend reinvestment plan.

 

 

 

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

 

INDEX

 

    Page
PART I FINANCIAL INFORMATION  
     
Item 1. Financial Statements (unaudited)  
     
  Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 3
     
  Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019 4
     
  Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2020 and 2019 5
     
  Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019 6
     
  Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 7
     
  Notes to Consolidated Financial Statements 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23
     
Item 4. Controls and Procedures 37
     
PART II OTHER INFORMATION  
     
Item 1. Legal Proceedings 38
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 38
     
Item 3. Defaults Upon Senior Securities 38
     
Item 4. Mine Safety Disclosures 38
     
Item 5. Other Information 38
     
Item 6. Exhibits 38

 

 

 

 

PART I. FINANCIAL INFORMATION, CONTINUED:

 

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

(Amounts in thousands, except per share data)

 

   As of   As of 
   March 31,
2020
   December 31,
2019
 
   (unaudited)      
Assets          
           
Investment property:          
Land and improvements  $30,664   $30,664 
Building and improvements   101,832    101,827 
Furniture and fixtures   2,408    2,404 
Construction in progress   160,276    152,896 
Gross investment property   295,180    287,791 
Less accumulated depreciation   (30,645)   (29,685)
Net investment property   264,535    258,106 
Investments in related parties   15,709    35,738 
Cash and cash equivalents   81,972    77,569 
Marketable securities and other investments   31,462    54,738 
Restricted cash   2,984    2,231 
Notes receivable, net   63,998    55,723 
Prepaid expenses and other assets   2,032    2,075 
           
Total Assets  $462,692   $486,180 
           
Liabilities and Stockholders' Equity          
Mortgages payable, net  $165,402   $164,705 
Accounts payable, accrued expenses and other liabilities   5,360    4,380 
Due to related parties   236    244 
Tenant allowances and deposits payable   635    594 
Distributions payable   3,911    3,960 
Deferred rental income   428    524 
           
Total Liabilities   175,972    174,407 
           
Commitments and contingencies          
           
Stockholders' equity:          
Company's Stockholders Equity:          
Preferred shares, $0.01 par value, 10.0 million shares authorized,none issued and outstanding   -    - 
Common stock, $0.01 par value; 60.0 million shares authorized, 22.3 million and 22.6 million shares issued and outstanding, respectively   223    226 
Additional paid-in-capital   169,701    172,749 
Accumulated other comprehensive (loss)/income   (1,810)   408 
Accumulated surplus   86,687    109,559 
           
Total Company's stockholders' equity   254,801    282,942 
    -    - 
Noncontrolling interests   31,919    28,831 
           
Total Stockholders' Equity   286,720    311,773 
           
Total Liabilities and Stockholders' Equity  $462,692   $486,180 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)

 

   For the Three Months Ended
March 31,
 
   2020   2019 
Revenues:        
Rental income  $3,170   $3,601 
Tenant recovery income   97    433 
           
Total revenues   3,267    4,034 
           
Expenses:          
Property operating expenses   1,064    1,161 
Real estate taxes   116    284 
General and administrative costs   747    829 
Depreciation and amortization   992    1,279 
           
Total operating expenses   2,919    3,553 
           
Operating income   348    481 
           
Other income/(loss), net   22    (44)
Interest and dividend income   2,900    3,902 
Interest expense   (650)   (399)
Unrealized (loss)/gain on marketable equity securities   (21,298)   3,117 
Loss on sale and redemption of marketable securities   -    (311)
           
Net (loss)/income from continuing operations   (18,678)   6,746 
           
Net income from discontinued operations   -    13,481 
           
Net (loss)/income   (18,678)   20,227 
           
Less: net income attributable to noncontrolling interests   (283)   (854)
           
Net (loss)/income attributable to Company's common shares  $(18,961)  $19,373 
           
Basic and diluted net (loss)/income  per Company's common share:          
Continuing operations  $(0.85)  $0.26 
Discontinued operations   -    0.57 
           
Net (loss)/income per Company’s common share, basic and diluted  $(0.85)  $0.83 
           
Weighted average number of common shares outstanding, basic and diluted   22,418    23,478 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4

 

 

PART I. FINANCIAL INFORMATION, CONTINUED:

 

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)  

 

   For the Three Months
Ended March 31,
 
   2020   2019 
Net (loss)/income  $(18,678)  $20,227 
           
Other comprehensive (loss)/income          
Holding (loss)/gain on available for sale debt securities   (2,267)   1,360 
Reclassification adjustment for loss included in net income   -    311 
           
Other comprehensive (loss)/income   (2,267)   1,671 
           
Comprehensive (loss)/income   (20,945)   21,898 
           
Less: Comprehensive income attributable to noncontrolling interests   (233)   (889)
           
Comprehensive (loss)/income  attributable to Company's common shares  $(21,178)  $21,009 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5

 

 

PART I. FINANCIAL INFORMATION, CONTINUED:

 

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Amounts in thousands)

(Unaudited)

 

   Common      Accumulated          
   Shares   Amount  

Additional
Paid-In

Capital 

  

Other
Comprehensive

Income/(loss) 

   Accumulated
Surplus
   Noncontrolling
Interests
   Total
Stockholders'
Equity
 
BALANCE, December 31, 2018   23,708   $237   $184,469   $(2,251)  $101,382   $14,404   $298,241 
Net income   -    -    -    -    19,373    854    20,227 
Other comprehensive income   -    -    -    1,636    -    35    1,671 
Distributions declared (a)   -    -    -    -    (4,096)   -    (4,096)
Distributions paid to noncontrolling interests   -    -    -    -    -    (831)   (831)
Contributions received from noncontrolling interests   -    -    -    -    -    6,390    6,390 
Redemption and cancellation of shares   (306)   (3)   (3,325)                  (3,328)
Shares issued from distribution reinvestment program   5    1    52    -    -    -    53 
BALANCE, March 31, 2019   23,407   $235   $181,196   $(615)  $116,659   $20,852   $318,327 

 

(a) Distributions per share were $0.175.

 

   Common      Accumulated          
   Shares   Amount  

Additional
Paid-In

Capital 

  

Other
Comprehensive

Income/(loss) 

   Accumulated
Surplus
   Noncontrolling
Interests
   Total
Stockholders'
Equity
 
BALANCE, December 31, 2019   22,608   $226   $172,749   $408   $109,559   $28,831    311,773 
Net loss   -    -    -    -    (18,961)   283    (18,678)
Other comprehensive loss   -    -    -    (2,218)   -    (49)   (2,267)
Distributions declared (a)   -    -    -    -    (3,911)   -    (3,911)
Distributions paid to noncontrolling interests   -    -    -    -    -    (636)   (636)
Contributions received from noncontrolling interests   -    -    -    -    -    3,490    3,490 
Redemption and cancellation of shares   (288)   (3)   (3,128)                  (3,131)
Shares issued from distribution reinvestment program   7    -    80    -    -    -    80 
BALANCE, March 31, 2020   22,327   $223   $169,701   $(1,810)  $86,687   $31,919   $286,720 

 

(a) Distributions per share were $0.175.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6

 

 

PART I. FINANCIAL INFORMATION, CONTINUED:

 

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)(Unaudited)

 

   For the Three Months Ended
March 31,
 
   2020   2019 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net (loss)/income  $(18,678)  $20,227 
Less net income – discontinued operations   -    13,481 
Net (loss)/income – continuing operations   (18,678)   6,746 
Adjustments to reconcile net (loss)/income to net cash provided by operating activities:          
Depreciation and amortization   992    1,279 
Mark to market adjustment on derivative financial instruments   -    49 
Unrealized loss/(gain) on marketable equity securities, available for sale   21,298    (3,117)
Loss on sale and redemption of marketable securities, available for sale   -    311 
Amortization of deferred financing costs   144    235 
Noncash interest income   (1,191)   (234)
Other non-cash adjustments   143    288 
Changes in assets and liabilities:          
Decrease/(increase) in prepaid expenses and other assets   51    (115)
(Decrease)/increase in tenant allowances and deposits payable   (117)   95 
(Decrease)/increase in accounts payable,  accrued expenses and other liabilities   (6)   435 
Decrease in due to related parties   (8)   (2)
(Decrease)/increase in deferred rental income   (96)   53 
Net cash provided by operating activities – continuing operations   2,532    6,023 
Net cash used in operating activities – discontinued operations   -    (55)
Net cash provided by operating activities   2,532    5,968 
           
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of investment property   (5,787)   (74,319)
Purchase of marketable securities   (289)   (990)
Proceeds from sale of marketable securities   -    49,180 
Investment in joint venture   (63)   (33)
Proceeds from joint venture   78    2 
Funding of notes receivable   (7,095)   (12,000)
Proceeds from investments in related parties   20,000    20,000 
           
Net cash provided by/(used in) investing activities – continuing operations   6,844    (18,160)
Net cash used in investing activities – discontinued operations   -    (239)
Net cash provided by/(used in) investing activities   6,844    (18,399)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from mortgage financing   339    35,535 
Mortgage principal payments   (314)   (411)
Payment of loan fees and expenses   (88)   (2,655)
Proceeds from line of credit   -    18,000 
Redemption and cancellation of common shares   (3,131)   (3,328)
Contributions received from noncontrolling interests   3,490    6,390 
Distributions paid to noncontrolling interests   (636)   (831)
Distributions paid to Company's common stockholders   (3,880)   (4,134)
           
           
Net cash (used in)/provided by financing activities   (4,220)   48,566 
           
Net change in cash, cash equivalents and restricted cash   5,156    36,135 
Cash, cash equivalents and restricted cash, beginning of year   79,800    36,582 
Cash, cash equivalents and restricted cash, end of period  $84,956   $72,717 
           
See Note 2 for supplemental cash flow information.          
           
The following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in our statements of cash flows for the periods presented:          
Cash and cash equivalents  $81,972   $69,752 
Restricted cash   2,984    2,965 
Total cash, cash equivalents and restricted cash  $84,956   $72,717 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

 

1. Business and Organization

 

Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation (“Lightstone REIT”), formed on June 8, 2004, which has elected to be taxed and qualify as a real estate investment trust for U.S. federal income tax purposes (“REIT”). The Lightstone REIT 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.

 

The Lightstone REIT is structured as an umbrella partnership real estate investment trust, or UPREIT, and substantially all of the Company’s current and future business is and will be conducted through Lightstone Value Plus REIT, L.P. (the “Operating Partnership”), a Delaware limited partnership formed on July 12, 2004.  As of March 31, 2020, the Company held a 98% general partnership interest in the Company’s Operating Partnership’s common units (“Common Units”).

 

The Lightstone REIT 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 the Lightstone REIT, its Operating Partnership or the Company as required by the context in which such pronoun is used.

 

Through its Operating Partnership, the Company owns, operates and develops commercial, residential, and hospitality properties and make real estate-related investments, principally in the United States. The Company’s real estate investments are held alone or jointly with other parties. The Company also originates or acquires mortgage loans secured by real estate. Although most of its investments are of these types, the Company may invest in whatever types of real estate or real estate-related investments that it believes is in its best interests. Because of the composition of the Company’s real estate and real estate investments, the Company evaluates all of its real estate investments as one operating segment.

 

As of March 31, 2020, the Company has ownership interests in (i) two consolidated operating properties, (ii) three consolidated development properties and (iii) seven unconsolidated operating properties. With respect to its consolidated operating properties, the Company wholly owns the St. Augustine Outlet Center, a retail property containing approximately 0.3 million square feet of gross leasable area, and has a majority ownership interest of approximately 59.2% in Gantry Park Landing, a multi-family residential property containing 199 apartment units. With respect to its consolidated development properties, the Company wholly owns three projects consisting of the Lower East Side Moxy Hotel, the Exterior Street Project and the Santa Clara Data Center, all of which were in their pre-development stage as of March 31, 2020. The Company also holds a 2.5% ownership interest in seven hotel properties through a joint venture (the “Joint Venture”) which it accounts for under the cost method of accounting. The Joint Venture is between the Company and the operating partnership of Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone II”), a REIT also sponsored by the Company’s Sponsor, which has a 97.5% ownership interest in the Joint Venture. Furthermore, the Company has other real estate-related investments, including preferred investments in related parties and nonrecourse loans made to unaffiliated third-party borrowers.

 

The Company’s advisor is Lightstone Value Plus REIT, LLC (the “Advisor”), which is majority owned by David Lichtenstein. On July 6, 2004, the Advisor contributed $2 to the Operating Partnership in exchange for 200 Common Units. The Company’s Advisor also owns 20,000 shares of the Company’s common stock (“Common Shares”) which were issued on July 6, 2004 for $200, or $10.00 per share. Mr. Lichtenstein also is the majority owner of the equity interests of The Lightstone Group, LLC. The Lightstone Group, LLC served as the sponsor (the ‘‘Sponsor’’) during the Company’s initial public offering (the “Offering”), which terminated on October 10, 2008. The Company’s Advisor, together with its board of directors (the “Board of Directors”), is primarily responsible for making investment decisions on the Company’s behalf and managing its day-to-day operations. Through his ownership and control of The Lightstone Group, LLC, Mr. Lichtenstein is the indirect owner and manager of Lightstone SLP, LLC, a Delaware limited liability company, which owns an aggregate of $30.0 million of special general partner interests (“SLP Units”) in the Operating Partnership which were purchased, at a cost of $100,000 per unit, in connection with the Company’s Offering. Mr. Lichtenstein also acts as the Company’s Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control the Lightstone REIT 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 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.

 

8

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

 

Related Parties:

 

The Advisor and its affiliates, and Lightstone SLP, LLC are related parties of the Company. Certain of these entities are entitled to compensation for services related to the investment, management and disposition of the Company’s assets. The compensation is based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements.

 

Discontinued Operations

 

During the first quarter of 2019, a portfolio comprised of the Company’s 10 industrial properties located in Louisiana (seven properties located in New Orleans and three properties located in Baton Rouge, and collectively, the “Louisiana Assets”) met the criteria to be classified as discontinued operations in the consolidated statements of operations for all periods presented, through their date of disposition. The disposition of the Louisiana Assets, which represented all of the Company’s remaining industrial properties, represented a strategic shift that had a major effect on the Company’s operations and financial results and therefore, upon their disposition, the operating results of the Louisiana Assets were classified as discontinued operations in the Company’s consolidated statements of operations for all periods presented through their date of disposition (See Note 8).

 

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, 2020.

 

Other Noncontrolling Interests in Consolidated Subsidiaries

 

Other noncontrolling interests in consolidated subsidiaries include ownership interests in (i) Pro-DFJV Holdings LLC (“PRO”) held by the Company’s Sponsor, (ii) 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”), held by the Company’s Sponsor and other affiliates and (iii) various joint ventures held by affiliates of the Sponsor that have originated promissory notes to unaffiliated third parties. PRO’s holdings principally consist of Marco OP Units and Marco II OP Units. The 2nd Street Joint Venture owns Gantry Park Landing, a multi-family apartment building located in Queens, New York.

  

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The consolidated financial statements include the accounts of the Lightstone REIT and its Operating Partnership and its subsidiaries (over which the Company exercises financial and operating control). All inter-company balances and transactions have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on applicable accounting principles generally accepted in the United States of America (“GAAP”), and if deemed to be variable interest entities (“VIE”) in which the Company is the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which the Company has control, substantive participating rights or both under the respective ownership agreement. For entities in which the Company has less than a controlling interest but have significant influence, the Company accounts for the investment using the equity method of accounting.

 

9

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

 

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, 2019. The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of the results for the periods presented. The accompanying unaudited consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust, 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 10 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, 2019 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.

 

COVID-19 Pandemic

 

The global impact of the COVID-19 pandemic has been rapidly evolving and, as cases of the illness caused by the virus have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines and restrictions on travel. In addition, all the states where we operate properties and have development projects have reacted to the COVID-19 pandemic by instituting quarantines, restrictions on travel, “shelter in place” rules, restrictions on types of business that may continue to operate and/or restrictions on types of construction projects that may continue. Many states have recently announced guidelines to reduce certain of these restrictions.

 

As a result of such restrictions, the Company temporarily closed the St. Augustine Outlet Center effective March 20, 2020. The St. Augustine Outlet Center was subsequently reopened on May 7, 2020 with reduced operating hours in accordance with the State of Florida’s guidelines. Because all of the Company’s development projects are in their pre-development stage, the COVID-19 pandemic has not currently affected the associated pre-development activities. Additionally, the Company’s other real estate-related investments (preferred investments in related parties and nonrecourse loans made to unaffiliated third-party borrowers) principally relate to various development projects at different stages in their respective development process, and as such, are subject to similar restrictions.

 

The extent to which the Company’s business may be affected by the current COVID-19 pandemic will largely depend on both current and future developments, including its duration, spread and treatment, and related travel advisories and restrictions, all of which are highly uncertain and cannot be reasonably predicted.

 

If the Company’s operating properties, development projects and real estate-related investments are negatively impacted for an extended period because (i) tenants are unable to pay their rent, (ii) borrowers are unable to pay scheduled debt service on notes receivable, (iii) development activities are delayed and/or (iv) various related party entities are unable to pay monthly preferred distributions on the Company’s preferred investments in related parties, the Company’s business and financial results could be materially and adversely impacted. While the Company has implemented various cost reduction strategies, including the deferral of certain non-critical capital expenditures, there can be no assurance that these cost savings will fully mitigate the potential adverse impact of any lost revenue and income.

 

10

 

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

 

COVID-19 Lease Modification Accounting Relief

 

Due to the business disruptions and challenges severely affecting the global economy caused by the COVID-19 pandemic, many lessors may be required to provide rent deferrals and other lease concessions to lessees. While the lease modification guidance addresses routine changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance did not contemplate concessions being so rapidly executed to address the sudden liquidity constraints of some lessees arising from the COVID-19 pandemic and restrictions intended to prevent its spread.

 

In April 2020, the Financial Accounting Standards Board (“FASB”) staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing GAAP, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. The Company has elected to apply such relief and will avail itself of the election to avoid performing a lease by lease analysis. The Lease Modification Q&A had no material impact on the Company’s consolidated financial statements as of and for the three months ended March 31, 2020, however, its future impact to the Company is dependent upon the extent of lease concessions, if any, granted to tenants as a result of the COVID-19 pandemic in future periods and the elections made by the Company at the time of entering into such concessions.

 

New Accounting Pronouncements

 

In June 2016, the FASB issued an accounting standards update which replaces the Company incurred loss impairment methodology currently in use with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  The new guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.  The Company is currently in the process of evaluating the impact the adoption of this standard will have on the Company’s consolidated financial statements.

 

The Company has reviewed and determined that other recently issued accounting pronouncements will not have a material impact on its financial position, results of operations and cash flows, or do not apply to its current operations.

 

Supplemental Cash Flow Information

 

Supplemental cash flow information for the periods indicated is as follows:  

 

   For the Three Months Ended March 31, 
   2020   2019 
Cash paid for interest  $2,145   $1,601 
Distributions declared but not paid  $3,911   $4,043 
Investment property acquired but not paid  $2,068   $160 
Assets transferred in connection with assignment transaction  $-   $37,299 
Amortization of deferred financing costs included in construction in progress  $615   $- 
Liabilities extinguished in connection with assignment transaction  $-   $50,914 
Holding loss/gain on marketable securities  $2,267   $1,671 
Value of shares issued from distribution reinvestment program  $80   $53 

 

Reclassifications 

 

Certain prior period amounts may have been reclassified to conform to the current year presentation.

 

11

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

 

3. Development Projects

 

Lower East Side Moxy Hotel

 

On December 3, 2018, the Company, through a subsidiary of the Operating Partnership, acquired adjacent three parcels of land located at 147-151 Bowery, New York, New York (collectively, the “Bowery Land”) from 151 Emmut Properties LLC and 145-149 Bowery LLC, both unaffiliated third parties, for aggregate consideration of approximately $56.5 million, excluding closing and other acquisition related costs, on which it intends to develop and construct a 296-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”). Additionally, on December 6, 2018, the Company, though a subsidiary of the Operating Partnership, acquired certain air rights located at 329 Broome Street, New York, New York (the “Air Rights”) from B.R.P. Realty Corp., an unaffiliated third party, for approximately $2.4 million, excluding closing and other acquisition related costs. The Company intends to use the Air Rights in connection with the development and construction of the Lower East Side Moxy Hotel. In connection with the acquisition of the Bowery Land and the Air Rights, the Advisor earned an acquisition fee equal to 2.75% of the gross contractual purchase price, which was approximately $1.6 million. As of March 31, 2020, the Lower East Side Moxy Hotel was in pre-development and not under construction.

 

Exterior Street Project

 

On February 27, 2019, the Company, through subsidiaries of the Operating Partnership, acquired two adjacent parcels of land located at 355 and 399 Exterior Street, New York, New York (collectively, the “Exterior Street Land”), from Borden Realty Corp and 399 Exterior Street Associates LLC, unaffiliated third parties, for an aggregate purchase price of approximately $59.0 million, excluding closing and other acquisition related costs, on which it intends to develop and construct a multi-family residential property (the “Exterior Street Project”).

 

On March 29, 2019, the Company entered into a $35.0 million loan (the “Exterior Street Loan”) which bears interest at 4.50% and was scheduled to initially mature on April 9, 2020, but may be further extended through the exercise of two, six-month extension options, which the Company can exercise by providing the lender with notice of its intent to extend. The Company exercised the first extension option on April 9, 2020 and extended the maturity date to October 9, 2020. The Exterior Street Loan requires monthly interest payments through its maturity date and is collateralized by the Exterior Street Land. In connection with the acquisition of the Exterior Street Land, the Advisor earned an acquisition fee equal to 2.75% of the gross aggregate contractual purchase price, which was approximately $1.6 million. As of March 31, 2020, the Exterior Street Project was in pre-development and not under construction.

 

Santa Clara Data Center

 

On January 10, 2019, the Company, through subsidiaries of the Operating Partnership, acquired a parcel of land located at 2175 Martin Avenue, Santa Clara, California (the “Martin Avenue Land”) from The Chioini Living Trust, an unaffiliated third party, for approximately $10.6 million, excluding closing and other acquisition related costs, on which the Company intends to develop and construct a data center (the “Santa Clara Data Center”). In connection with the acquisition of the Martin Avenue Land, the Advisor earned an acquisition fee equal to 2.75% of the gross contractual purchase price, which was approximately $0.2 million. As of March 31, 2020, the Santa Clara Data Center was in pre-development and not under construction.

 

The following is a summary of the amounts incurred and capitalized to construction in progress as of the dates indicated and the amounts of interest capitalized to construction in progress for the periods indicated:

 

   Amounts Capitalized to
Construction in Progress
   Capitalized Interest 
   As of   As of   Three Months Ended 
Development Projects  March 31,
2020
   December 31,
2019
   March 31,
2020
   March 31,
2019
 
Lower East Side Moxy Hotel  $79,000   $73,776   $1,047   $1,078 
Exterior Street Project   68,075    66,084    1,108    291 
Santa Clara Data Center   13,193    13,027    99    105 
Total Devlopments Projects  $160,268   $152,887   $2,254   $1,474 

 

12

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

 

4. Marketable Securities, Fair Value Measurements and Notes Payable

 

Marketable Securities:

 

The following is a summary of the Company’s available for sale securities:

 

   As of March 31, 2020
   Adjusted Cost   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair Value 
Marketable Securities:                    
Equity securities:                    
Equity Securities, primarily REITs  $7,088   $-   $(1,250)  $5,838 
Marco OP Units and Marco II OP Units   19,227    -    (7,748)   11,479 
    26,315    -    (8,998)   17,317 
Debt securities:                    
Corporate Bonds   15,993    -    (1,848)   14,145 
                                      
Total  $42,308   $-   $(10,846)  $31,462 

 

   As of December 31, 2019 
   Adjusted Cost   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair Value 
Marketable Securities:                    
Equity securities:                    
Equity Securities, primarily REITs  $6,799   $375   $       (17)  $7,157 
Marco OP Units and Marco II OP Units   19,227    11,942    -    31,169 
    26,026    12,317    (17)   38,326 
Debt securities:                    
Corporate Bonds   15,993    442    (23)   16,412 
                     
Total  $42,019   $12,759   $(40)  $54,738 

 

As of both March 31, 2020 and December 31, 2019, 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 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”), 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 in exchange for cash or similar number of shares of Simon’s common stock (“Simon Stock”). Accordingly, the Marco OP Units and Marco II OP Units are valued based on the closing price of Simon’s stock as of the dates indicated.

 

Financial markets have experienced significant volatility in response to the current COVID-19 pandemic, including significant reductions in market interest rates and market prices of certain equity securities during the three months ended March 31, 2020. During the three months ended March 31, 2020, the Company incurred an unrealized loss on its marketable equity securities of approximately $21.3 million, which is included in its consolidated statements of operations. Approximately $19.7 million of this unrealized loss was attributable to its Marco OP Units and Marco II OP Units. As a result, the Company’s marketable equity securities had an aggregate unrealized loss of approximately $9.0 million, including $7.7 million attributable to the Marco OP Units and Marco II OP Units, as of March 31, 2020. Additionally, during the three months ended March 31, 2020, the Company’s experienced a holding loss of approximately $2.3 million on its available for sale marketable debt securities, which is included in its consolidated statements of comprehensive income.

 

The Company considers the declines in market value of its investments in marketable debt securities to be temporary in nature as the unrealized losses were caused primarily by financial market volatility associated with the current COVID-19 pandemic which resulting in significant reductions in market interest rates and market prices of certain debt securities. When evaluating its investments in marketable debt securities for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the marketable security before recovery of its amortized cost basis. During the three months ended March 31, 2020 and 2019, the Company did not recognize any impairment charges on its investments in marketable debt securities. As of March 31, 2020, the Company does not consider any of its investments in marketable debt securities to be other-than-temporarily impaired.

 

The Company may sell certain of its investments in marketable debt securities prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management.

 

13

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

 

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 measured at fair value on a recurring basis as of the dates indicated are as follows:

 

   Fair Value Measurement Using     
As of March 31, 2020  Level 1   Level 2   Level 3   Total 
Marketable Securities:                    
Equity Securities, primarily REITs  $5,838   $-   $-   $5,838 
Marco OP and OP II Units   -    11,479    -    11,479 
Corporate Bonds   -    14,145    -    14,145 
Total  $5,838   $25,624   $-   $31,462 

 

   Fair Value Measurement Using     
As of December 31, 2019  Level 1   Level 2   Level 3   Total 
Marketable Securities:                    
Equity Securities, primarily REITs  $7,157   $-   $-   $7,157 
Marco OP and OP II Units   -    31,169    -    31,169 
Corporate Bonds   -    16,412    -    16,412 
Total  $7,157   $47,581   $-   $54,738 

 

The fair values of the Company’s investments in Corporate Bonds are measured using readily available quoted prices for similar assets. Additionally, as noted above, the Company’s Marco OP and Marco OP II Units are 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 Marco OP II Units.

 

The following table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:

 

14

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

 

   As of March 31, 2020 
Due in 1 year  $1,685 
Due in 1 year through 5 years   2,020 
Due in 5 years through 10 years   1,938 
Due after 10 years   8,502 
Total  $14,145 

 

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% (1.84% as of March 31, 2020) 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, 2020 and December 31, 2019.

 

Line of Credit

 

The Company has a non-revolving credit facility (the “Line of Credit”) that provides for borrowings up to a maximum of $20.0 million, subject to a 55% loan-to-value ratio based on the fair value of the underlying collateral, matures on June 19, 2021 and bears interest at Libor plus 1.35% (2.34% as of March 31, 2020). 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, 2020, the amount of borrowings available to be drawn under the Line of Credit was approximately $6.3 million. No amounts were outstanding under the Line of Credit as of March 31, 2020 and December 31, 2019.

 

5. Notes Receivable

 

Beginning in 2019, 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 have varying ownership interests in the NR Joint Ventures and 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 provide for monthly interest at a prescribed variable rate, subject to a floor. In connection with funding of the Joint Venture Promissory Notes, the NR Joint Ventures have received origination fees (1.00% - 1.50%) based on the principal amount of the loan and retained a portion of the loan proceeds to establish a reserve for interest and other items (the “Loan Reserves”). The Joint Venture Promissory Notes are recorded in notes receivable, net on the consolidated balance sheets.

 

The Joint Venture Promissory Notes generally have an initial term of one or two years and may provide for an additional one-year extension option subject to satisfaction of certain prescribed conditions, including the funding of an additional reserve for interest and payment of an extension fee. 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.

 

15

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

 

The origination fees received 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 initial term.

 

The following tables summarize the Notes Receivable as of the dates indicated:

 

   Company's   Loan             Contractual  As of March 31, 2020 
Joint Venture/Lender  Ownership
Percentage
   Commitment
Amount
   Origination
Fee
   Origination
Date
  Maturity
Date
  Interest
Rate
  Outstanding
Principal
   Reserves   Unamortized
Origination Fee
   Carrying
Value
   Unfunded
Commitment
 
LSC 162nd Capital I LLC    45.45%  $4,234    1.50%  February 5, 2019  October 31, 2020  Libor plus 7.50%
(Floor of 10%)
  $4,234   $(19)  $-   $4,215   $- 
                                                  
LSC 162nd Capital II LLC   45.45%   9,166    1.50%  February 5, 2019  October 31, 2020  Libor plus 7.50%
(Floor of 10%)
   9,166    (41)   -    9,125    - 
                                                  
LSC 1543 7th LLC   50%   20,000    1.00%  August 27, 2019  August 26, 2020  Libor plus 5.15%
(Floor of 7.65%)
   20,000    (118)   (81)   19,801    - 
                                                  
LSC 1650 Lincoln LLC   50%   24,000    1.00%  August 27, 2019  August 26, 2020  Libor plus 5.15%
(Floor of 7.65%)
   24,000    (141)   (97)   23,762    - 
                                                  
LSC 11640 Mayfield LLC   50%   18,000    1.00%  March 4, 2020  March 1, 2022  Libor plus 10.50%
(Floor of 12.50%)
   10,750    (3,395)   (260)   7,095    7,250 
  Total                          $68,150   $(3,714)  $(438)  $63,998   $7,250 

 

   Company's   Loan             Contractual  As of December 31, 2019 
Joint Venture/Lender  Ownership
Percentage
   Commitment
Amount
   Origination
Fee
   Origination
Date
  Maturity
Date
  Interest
Rate
  Outstanding Principal   Reserves   Unamortized
Origination Fee
   Carrying
Value
 
LSC 162nd Capital I LLC   45.45%  $4,234    1.50%  February 5, 2019  March 1,2020  Libor plus 7.50%
(Floor of 10%)
  $4,234   $(82)  $(6)  $4,146 
                                             
LSC 162nd Capital II LLC   45.45%   9,166    1.50%  February 5, 2019  March 1,2020  Libor plus 7.50%
(Floor of 10%)
   9,166    (178)   (14)   8,974 
                                             
LSC 47-16 Greenpoint LLC   50%   13,000    1.00%  April 5, 2019  April 4, 2020  Libor plus 5.75%
(Floor of 8.25%)
   -    -    -    - 
                                             
LSC 1543 7th LLC   50%   20,000    1.00%  August 27, 2019  August 26, 2020  Libor plus 5.15%
(Floor of 7.65%)
   20,000    (504)   (131)   19,365 
                                             
LSC 1650 Lincoln LLC   50%   24,000    1.00%  August 27, 2019  August 26, 2020  Libor plus 5.15%
(Floor of 7.65%)
   24,000    (605)   (157)   23,238 
  Total                          $57,400   $(1,369)  $(308)  $55,723 

 

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:

 

   For the Three Months Ended March 31, 
Joint Venture/Lender  2020   2019 
LSC 162nd Capital I LLC  $113   $74 
           
LSC 162nd Capital II LLC   245    161 
           
LSC 1543 7th LLC   437    - 
           
LSC 1650 Lincoln LLC   524    - 
           
LSC 11640 Mayfield LLC   115    - 
           
  Total  $1,434   $235 

 

16

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

 

6. Mortgages Payable, Net

 

Mortgages payable, net consists of the following:

 

Property/Investment  Interest Rate   Weighted Average
Interest Rate as of
December 31, 2019
   Maturity Date  Amount Due at
Maturity
   As of
March 31, 2020
   As of
December 31, 2019
 
Gantry Park   4.48%   4.48%  November 2024  $65,317   $71,814   $72,128 
Bowery Land and Air Rights   LIBOR + 4.25%    6.62%  December 2020   35,168    35,168    34,828 
Exterior Street Land   4.50%   4.50%  October 2020   35,000    35,000    35,000 
Santa Monica Note Receivable   LIBOR + 3.75%    5.50%  August 2020   25,000    25,000    25,000 
Total mortgages payable        5.09%     $160,485    166,982    166,956 
                             
Less: Deferred financing costs                     (1,580)   (2,251)
Total mortgages payable, net                    $165,402   $164,705 

 

Libor as of March 31, 2020 and December 31, 2019 was 1.00% and 1.76%, respectively. The Company’s loans are secured by the indicated real estate and are non-recourse to the Company, unless otherwise indicated.


On November 12, 2019, the Company, through the Santa Monica Joint Ventures, entered into a $25.0 million loan (the” Santa Monica Loan”) which bears interest at LIBOR+3.75% and is scheduled to initially mature on August 12, 2020 but may be further extended through the exercise of two, six-month extension options, which the Santa Monica Joint Ventures may exercise by providing the lender with advance written notice. The Santa Monica Loan requires monthly interest payments through its maturity date and is cross-collateralized by two nonrecourse loans originated by the Santa Monica Joint Ventures.

  

On March 29, 2019, the Company entered into the $35.0 million Exterior Street Loan which bears interest at 4.50% and was scheduled to initially mature on April 9, 2020 but may be further extended through the exercise of two, six-month extension options, which the Company can exercise by providing the lender with notice of its intent to extend. The Company exercised the first extension option on April 9, 2020 and extended the maturity date to October 9, 2020. The Exterior Street Loan requires monthly interest payments through its maturity date and is collateralized by the Exterior Street Land.

 

On December 3, 2018, the Company entered into a mortgage loan collateralized by the Bowery Land and the Air Rights (the “Bowery Mortgage) for up to $35.6 million. The Bowery Mortgage has a term of two years, bears interest at LIBOR+4.25% and requires monthly interest-only payments through its stated maturity with the entire unpaid balance due upon maturity. Through March 31, 2020, the Company received aggregate proceeds of $35.2 million under the Bowery Mortgage. As a result, the Bowery Mortgage had an outstanding balance and remaining availability of $35.2 million and $0.4 million, respectively, as of March 31, 2020.

 

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, 2020:

 

   2020   2021   2022   2023   2024   Thereafter   Total 
Principal maturities  $96,114   $1,328   $1,389   $1,454   $66,697   $-   $166,982 
                                    
Less: Deferred financing costs                                 (1,580)
                                          
Total principal maturities, net                                $165,402 

 

Certain of the Company’s debt agreements require the maintenance of certain ratios, including debt service coverage. As of March 31, 2020, 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.

 

17

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

 

Debt Maturities

 

The Exterior Street Loan (outstanding principal balance of $35.0 million as of March 31, 2020) initially matured on April 9, 2020 but had two, six-month extension options, which the Company may exercise by providing the lender with notice of its intent to extend. The Company exercised the first extension option on April 9, 2020 and extended the maturity date to October 9, 2020. The Company intends to exercise the second extension option or refinance the Exterior Street Loan on or before its applicable stated maturity date.

 

The Santa Monica Loan (outstanding principal balance of $25.0 million as of March 31, 2020) initially matures on August 12, 2020 but has two, six-month extension options, which the Company can exercise by providing the lender with notice of its intent to extend. The Company currently intends to exercise the extension options or refinance the Santa Monica Loan on or before its applicable stated maturity date.

 

The Bowery Mortgage (outstanding principal balance of $35.2 million as of March 31, 2020) matures on December 3, 2020. The Company currently intends to refinance the Bowery Mortgage on or before its maturity date.

 

However, if the Company is unable to extend or refinance any of 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.

 

7. Leases

 

The Company’s retail property and multi-family residential property are both leased to tenants under operating leases. Substantially all of our multi-family residential property leases have initial terms of 12 months or less. Our retail space leases expire between 2020 and 2026.

 

The Company, as a lessor, retains substantially all of the risks and benefits of ownership of the investment properties and continues to account for its leases as operating leases. The Company accrues fixed lease income on a straight-line basis over the terms of the leases. Some of the Company’s tenants are also required to pay overage rents based on sales over a stated base amount during the lease year. The Company recognizes this variable lease consideration only when each tenant’s sales exceed the applicable sales threshold. The Company amortizes any tenant inducements as a reduction of revenue utilizing the straight-line method over the term of the related lease.

 

The Company structures its leases to allow it to recover a portion of its property operating expenses from its tenants. A portion of The Company’s leases require the tenant to reimburse it for a portion of its operating expenses, including common area maintenance (“CAM”), real estate taxes and insurance. Such property operating expenses typically include utility, insurance and other administrative expenses. For some of the Company’s leases it receives a fixed payment from the tenant for the CAM component which is recognized as revenue on a straight-line basis over the term of the lease. When not reimbursed by the fixed CAM component, CAM expense reimbursements are based on the tenant’s proportionate share of the allocable operating expenses for the property. The Company accrues reimbursements from tenants for recoverable portions of all of these expenses as variable lease consideration in the period the applicable expenditures are incurred. The Company recognizes differences between estimated recoveries and the final billed amounts in the subsequent year. These differences were not material in any period presented.

 

As of March 31, 2020, the approximate fixed future minimum rent payments, excluding variable lease consideration, from the Company’s retail property, due to us under non-cancelable leases are as follows:

 

2020   2021   2022   2023   2024   Thereafter   Total 
$1,504   $1,440   $1,184   $1,114   $457   $229   $5,928 

 

Pursuant to the lease agreements, tenants of the property may be required to reimburse the Company for some or the entire portion of the particular tenant's pro rata share of the real estate taxes and operating expenses of the property. Such amounts are not included in the future minimum lease payments above, but are included in tenant recovery income on the accompanying consolidated statements of operations. Lease income of approximately $0.1 million and $0.3 million for the three months ended March 31, 2020 and 2019, respectively, related to variable lease payments was included in tenant recovery income on the accompanying consolidated statements of operations.

 

The Company has excluded its multi-family residential property’s leases from this table as substantially all of its multi-family residential property’s leases have initial terms of 12 months of less.

 

18

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

 

8. Dispositions

 

Disposition - Continuing Operations

 

The following disposition did not represent a strategic shift that had a major effect on the Company’s operations and financial results and therefore did not qualify to be reported as discontinued operations and its operating results are reflected in the Company’s results from continuing operations in the consolidated statements of operations for all periods presented through the date of disposition:

 

DePaul Plaza

 

On September 20, 2019, the Company disposed of a retail center located in Bridgeton, Missouri (“DePaul Plaza”), to an unrelated third party for aggregate consideration of approximately $19.8 million, excluding closing and other related costs. In connection with the disposition, the Company recorded a gain on the disposition of real estate of approximately $1.0 million during the third quarter of 2019.

 

Disposition – Discontinued Operations

 

The following dispositions qualified to be reported as discontinued operations and their operating results are classified as discontinued operations in the consolidated statements of operations for all periods presented through their respective dates of disposition:

 

Disposition Transactions related to Gulf Coast Industrial Portfolio

 

The Company had an outstanding non-recourse mortgage loan (the “Gulf Coast Industrial Portfolio Mortgage Loan”) which was originated in February 2007 and subsequently transferred during the third quarter of 2012 to a special servicer that discontinued scheduled debt service payments and notified the Company that the loan was in default and due on demand. The Gulf Coast Industrial Portfolio Mortgage Loan was initially cross-collateralized by a portfolio of 14 industrial properties (collectively, the “Gulf Coast Industrial Portfolio”) including the Louisiana Assets and four properties located in San Antonio, Texas (the “San Antonio Assets”).

 

Foreclosure of San Antonio Assets

 

On June 5, 2018, the special servicer completed a partial foreclosure of the Gulf Coast Industrial Portfolio pursuant to which it foreclosed on the San Antonio Assets. The San Antonio Assets were sold in a foreclosure sale by the special servicer for an aggregate amount of approximately $20.7 million.

 

Assignment of Ownership in Louisiana Assets to Lender

 

On February 12, 2019, the Company and the lender of the Gulf Coast Industrial Portfolio Mortgage entered into an assignment agreement (the “Assignment Agreement”) pursuant to which the Company assigned its membership interests in the Louisiana Assets to the lender with an effective date of February 7, 2019. Under the terms of the Assignment Agreement, the lender assumed the significant risks and rewards of ownership and took legal title and physical possession of the Louisiana Assets and assumed all the other assets and related liabilities, including the Gulf Coast Industrial Mortgage and its accrued and unpaid interest, and released the Company of any claims against the liabilities assumed.

 

As a result of the Assignment Agreement, the Company has fully satisfied all of its obligations with respect to the Gulf Coast Industrial Portfolio Mortgage and all amounts accrued but not paid for interest (including default interest) and no amounts are due to the lender. Additionally, the Company has no continuing involvement with the Louisiana Assets.

 

The aggregate carrying value of the assets transferred and the liabilities extinguished in connection with the Company’s assignment of its ownership interests in the Louisiana Assets to the lender was approximately $37.0 million and $49.6 million, respectively.

 

19

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

 

Since the Company’s performance obligations were met upon the assignment of its ownership interests in the Louisiana Assets to the lender and the Company has no continuing involvement with the Louisiana Assets, an aggregate gain on debt extinguishment of approximately $13.6 million was recognized during the first quarter of 2019.

 

The disposition of the Louisiana Assets, which comprised all of the Company’s remaining industrial properties, represented a strategic shift that had a major effect on the Company’s operations and financial results. As a result, the operating results of the Louisiana Assets have been classified as discontinued operations in the Company’s consolidated statements of operations for all periods presented through their date of disposition.

 

The following summary presents the operating results of the Louisiana Assets included in discontinued operations in the Consolidated Statements of Operations for the periods indicated.

 

   For the Months Ended
March  31, 2019
 
Revenues  $409 
Operating expenses   317 
Operating income   92 
      
Interest expense and other, net   (226)
Gain on debt extinguishment   13,615 
Net income from discontinued operations  $13,481 

 

Cash flows generated from discontinued operations are presented separately on the Company’s consolidated statements of cash flows.

 

9. Net Earnings Per Share

 

Basic net earnings per share is calculated by dividing net income/(loss) attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the applicable period. Diluted net income/(loss) 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/(loss) per share is equivalent to basic net income/(loss) per share.

 

10. Related Party Transactions

 

The Company has agreements 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. 

 

The Company, pursuant to the related party arrangements, has recorded the following amounts for the periods indicated:

 

   Three Months Ended March 31, 
   2020   2019 
Acquisition fees (capitalized and are reflected in the carrying value of the investment)  $-   $1,823 
Asset management fees (general and administrative costs)   215    336 
Property management fees (property operating expenses)   111    79 
Development fees and leasing commissions*   -    74 
Total  $326   $2,312 

 

* Generally, capitalized and amortized over the estimated useful life of the associated asset.

 

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.

 

20

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

 

During both the three months ended March 31, 2020 and 2019, distributions of $0.5 million were declared and paid on the SLP units.

 

Preferred Investments

 

The Company has entered into several agreements with various related party entities that provide for it to make preferred contributions pursuant to certain instruments (the “Preferred Investments”) that entitle the Company to certain prescribed monthly preferred distributions. The Preferred Investments had an aggregate balance of $14.5 million and $34.5 million as of March 31, 2020 and December 31, 2019, respectively, and are classified as held-to-maturity securities, recorded at cost and included in investments in related parties on the consolidated balance sheets. The fair value of these investments approximated their carrying values based on market rates for similar instruments.

 

During the three months ended March 31, 2020, the Company redeemed $11.0 million of the 40 East End Avenue Preferred Investment and the entire remaining Miami Moxy Preferred Investment of $9.0 million.

 

The Preferred Investments are summarized as follows:

 

       Preferred Investment Balance   Investment Income (1) 
   Dividend   As of   As of   Three Months Ended March 31, 
Preferred Investments  Rate   March 31, 2020   December 31, 2019   2020   2019 
40 East End Avenue   12%  $6,000   $17,000   $336   $900 
30-02 39th Avenue   12%   -    -    -    140 
East 11th Street   12%   8,500    8,500    261    1,100 
Miami Moxy   12%   -    9,000    45    532 
Total Preferred Investments       $14,500   $34,500   $642   $2,672 

 

Note:

(1)Included in interest and dividend income on the consolidated statements of operations.

 

The Joint Venture

 

The Company has a 2.5% membership interest in a joint venture (the “Joint Venture”) with Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone II”), a related party REIT also sponsored by our Sponsor. The Joint Venture holds ownership interests in seven hotels as of March 31, 2020.

 

The Company accounts for its 2.5% membership interest in the Joint Venture under the cost method and as of both March 31, 2020 and December 31, 2019, the carrying value of its investment was $1.2 million, which is included in investment in related parties on the consolidated balance sheets.

 

11. Financial Instruments

 

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted escrows, tenants’ accounts receivable, notes receivable and accounts payable and accrued expenses 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 estimated fair value (in millions) of the Company’s mortgage debt is summarized as follows:

  

   As of March 31, 2020   As of December 31, 2019 
   Carrying Amount   Estimated Fair Value   Carrying Amount   Estimated Fair Value 
Mortgages payable  $167.0   $171.2   $167.0   $167.9 

 

The fair value of the mortgages payable was determined by discounting the future contractual interest and principal payments by estimated current market interest rates.

 

21

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

 

 

12. Commitments and Contingencies

 

Legal Proceedings

 

From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.

 

As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss.

 

13. Subsequent Events

 

Distribution Payment

 

On April 15, 2020, the distribution for the three-month period ending March 31, 2020 of $3.9 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 distribution reinvestment program (the “DRIP”), at a discounted price of $11.23 per share, equal to 95% of the Company’s most recently published estimated net asset value per share of $11.82 as of September 30, 2019.

 

Distribution Declaration

 

On May 14, 2020, 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, 2020. 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 14, 2020, the Board of Directors declared a quarterly distribution for the quarterly period ending March 31, 2020 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 declared will be at the discretion of the Board of Directors based on their analysis of our performance over the previous periods and expectations of performance for future periods and may differ from the amount of the distribution determined for this period. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, current rental revenues, operating and interest expenses and our ability to refinance near-term debt. In addition, the Company currently intends to continue to comply with the REIT distribution requirement that it annually distribute no less than 90% of its taxable income. The Company cannot assure that regular distributions will continue to be made or that it will maintain any particular level of distributions that it has established or may establish.

 

22

 

 

PART I. FINANCIAL INFORMATION, CONTINUED:  

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust, Inc. and Subsidiaries and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Lightstone Value Plus Real Estate Investment Trust, 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 “the Operating Partnership.” Dollar amounts are presented in thousands, except per share data and where indicated in millions.

 

As discussed in Notes 1 and 8 of the Notes to Consolidated Financial Statements, the results of operations presented below exclude certain properties due to their classification as discontinued operations.

 

Forward-Looking Statements

 

Certain information included in this Quarterly Report on Form 10-Q contains, and other materials filed or to be filed by us with the Securities and Exchange Commission, or the SEC, contain or will contain, forward-looking statements. All statements, other than statements of historical facts, including, among others, statements regarding our possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives, are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of Lightstone Value Plus Real Estate Investment Trust, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements.

 

Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements.

 

Risks and other factors that might cause differences, some of which could be material, include, but are not limited to, economic and market conditions, competition, tenant or joint venture partner(s) bankruptcies, changes in governmental, tax, real estate and zoning laws and regulations, failure to increase tenant occupancy and operating income, rejection of leases by tenants in bankruptcy, financing and development risks, construction and lease-up delays, cost overruns, the level and volatility of interest rates, the rate of revenue increases versus expense increases, the financial stability of various tenants and industries, the failure of the Company (defined herein) to make additional investments in real estate properties, the failure to upgrade our tenant mix, restrictions in current financing arrangements, the failure to fully recover tenant obligations for common area maintenance (“CAM”), insurance, taxes and other property expenses, the failure of the Company to continue to qualify as a real estate investment trust (“REIT”), the failure to refinance debt at favorable terms and conditions, an increase in impairment charges, loss of key personnel, failure to achieve earnings/funds from operations targets or estimates, conflicts of interest with the Advisor, Sponsor and their affiliates, failure of joint venture relationships, significant costs related to environmental issues and uncertainties regarding the impact of the current COVID-19 pandemic, and restrictions intended to prevent its spread on our business and the economy generally, as well as other risks listed from time to time in this Form 10-Q, our Form 10-K and in the Company’s other reports filed with the SEC.

 

We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless required by law.

  

Overview

 

Lightstone Value Plus Real Estate Investment Trust, Inc. (the “Lightstone REIT”), (together with the Operating Partnership (as defined below), the “Company”, also referred to as “we”, “our” or “us” herein) has and expects to continue to acquire and operate or develop in the future, commercial, residential and hospitality properties and/or make real estate-related investments, principally in the United States. Our acquisitions and investments are, principally conducted through the Operating Partnership, and may include both portfolios and individual properties.

 

23

 

 

As of March 31, 2020, we have ownership interests in (i) two consolidated operating properties, (ii) three consolidated development properties and (iii) seven unconsolidated operating properties. With respect to our consolidated operating properties, we wholly own the St. Augustine Outlet Center, a retail property containing approximately 0.3 million square feet of gross leasable area, and have a majority ownership interest of approximately 59.2% in Gantry Park Landing, a multi-family residential property containing 199 apartment units. With respect to our consolidated development properties, we wholly own three projects consisting of the Lower East Side Moxy Hotel, the Exterior Street Project and the Santa Clara Data Center, all of which were in their pre-development stage as of March 31, 2020. We also hold a 2.5% ownership interest in seven hotel properties through a joint venture (the “Joint Venture”) which we account for our under the cost method of accounting. The Joint Venture is between us and the operating partnership of Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone II”), a real estate investment trust (“REIT”) also sponsored by our Sponsor, which has a 97.5% ownership interest in the Joint Venture. Furthermore, we have other real estate-related investments, including preferred investments in related parties and nonrecourse promissory notes made to unaffiliated third-parties. our real estate investments have been and are expected to continue to be held by the Company alone or jointly with other parties.

 

We do not have employees. We entered into an advisory agreement pursuant to which the Advisor supervises and manages our day-to-day operations and selects our real estate and real estate related investments, subject to oversight by our Board of Directors. We pay the Advisor fees for services related to the investment and management of our assets, and we will reimburse the Advisor for certain expenses incurred on our behalf.

 

To maintain our qualification as a REIT, we engage in certain activities such as providing real estate-related services through taxable REIT subsidiaries (“TRSs”). As such, we may still be subject to U.S. federal and state income and franchise taxes from these activities.

 

Acquisitions and Investment Strategy

 

We have, to date, acquired and/or developed residential, commercial and hospitality properties principally, all of which are located in the United States and also made other real estate-related investments. Our acquisitions have included both portfolios and individual properties. Our current operating properties consist of one retail property (the St. Augustine Outlet Center) and one multi-family residential property (Gantry Park Landing). We have also acquired various parcels of land and air rights related to the development and construction of real estate properties. Additionally, we have made preferred investments in related parties and originated nonrecourse loans to unaffiliated third-party borrowers.

 

Investments in real estate are generally made through the purchase of all or part of a fee simple ownership, or all or part of a leasehold interest. We may also purchase limited partnership interests, limited liability company interests and other equity securities. We may also enter into joint ventures with related parties for the acquisition, development or improvement of properties as well as general partnerships, co-tenancies and other participations with real estate developers, owners and others for the purpose of developing, owning and operating real properties. We will not enter into a joint venture to make an investment that we would not be permitted to make on our own. Not more than 10% of our total assets will be invested in unimproved real property. For purposes of this paragraph, “unimproved real properties” does not include properties acquired for the purpose of producing rental or other operating income, properties under construction and properties for which development or construction is planned within one year.

 

Current Environment

 

Our operating results are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, and recession.

 

COVID-19 Pandemic

 

The global impact of the COVID-19 pandemic has been rapidly evolving and, as cases of the illness caused by the virus have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines and restrictions on travel. In addition, all the states where we operate properties and have development projects have reacted to the COVID-19 pandemic by instituting quarantines, restrictions on travel, “shelter in place” rules, restrictions on types of business that may continue to operate and/or restrictions on types of construction projects that may continue. Many states have recently announced guidelines to reduce certain of these restrictions.

 

24

 

 

As a result of such restrictions, we temporarily closed the St. Augustine Outlet Center effective March 20, 2020. The St. Augustine Outlet Center was subsequently reopened on May 7, 2020 with reduced operating hours in accordance with the State of Florida’s guidelines. Because all of our development projects are in their pre-development stage, the COVID-19 pandemic has not currently affected the associated pre-development activities. Additionally, our other real estate-related investments (preferred investments in related parties and nonrecourse loans made to unaffiliated third-party borrowers) principally relate to various development projects at different stages in their respective development process, and as such, are subject to similar restrictions.

 

The extent to which our business may be affected by the current COVID-19 pandemic will largely depend on both current and future developments, including its duration, spread and treatment, and related travel advisories and restrictions, all of which are highly uncertain and cannot be reasonably predicted.

 

If our operating properties, development projects and real estate-related investments are negatively impacted for an extended period because (i) tenants are unable to pay their rent, (ii) borrowers are unable to pay scheduled debt service on notes receivable, (iii) development activities are delayed and/or (iv) various related party entities are unable to pay monthly preferred distributions on our preferred investments in related parties, our business and financial results could be materially and adversely impacted. While we have implemented various cost reduction strategies, including the deferral of certain non-critical capital expenditures, there can be no assurance that these cost savings will fully mitigate the potential adverse impact of any lost revenue and income.

 

These and other market and economic challenges could materially affect (i) the value and performance of our investments, (ii) our ability to pay future distributions, if any, (iii) the availability or terms of financings, (iv) our ability to make scheduled principal and interest payments, and (v) our ability to refinance any outstanding debt when contractually due.

 

We are not currently aware of any other material trends or uncertainties, favorable or unfavorable, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from our operations, other than those referred to above or throughout this Form 10-Q. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires 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.

 

Wholly Owned and Consolidated Real Estate Properties:

 

   Location  Year Built (Range of years built)   Date Acquired  Gross Leasable Area ("GLA") in Square Feet/Leaseable Units   Percentage Occupied as of March 31, 2020   Annualized Revenues based on rents at
March 31, 2020
  Annualized Revenues per square foot/unit at March 31, 2020 
St. Augustine Outlet Center (Retail Outlet Mall) (1)  St. Augustine, Florida   1998   March 2006   328,120  GLA    79.2%   $2.3 million  $8.96  sqft 
Gantry Park Landing (Multi-Family Apartment Building)  Queens, New York   2013   August 2013   199  units    99.0%   $9.2 million  $46,761  unit 

 

(1) On March 16, 2020, the St. Augustine Outlet Center was temporarily closed as a result of the COVID-19 pandemic.

 

Annualized revenue is defined as the minimum monthly payments due as of March 31, 2020 annualized, excluding periodic contractual fixed increases and rents calculated based on a percentage of tenants’ sales. The annualized base rent disclosed in the table above includes all concessions, abatements and reimbursements of rent to tenants as March 31, 2020.

 

Development Projects

 

Lower East Side Moxy Hotel

 

On December 3, 2018, we acquired three adjacent parcels of land located at 147-151 Bowery, New York, New York on which we intend to develop and construct a 296-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”).

 

Exterior Street Project

 

On February 27, 2019, we, acquired two adjacent parcels of land located at 355 and 399 Exterior Street, New York, New York, on which we intend to develop and construct a multi-family residential property (the “Exterior Street Project”).

 

25

 

 

Santa Clara Data Center

 

On January 10, 2019, we acquired a parcel of land located at 2175 Martin Avenue, Santa Clara, CA, on which we intend to develop and construct a data center (the “Santa Clara Data Center”).

 

The following is a summary of the amounts incurred and capitalized to construction in progress for our development projects as of March 31, 2020:

 

     
Development Projects    
Lower East Side Moxy Hotel  $79,000 
Exterior Street Project   68,075 
Santa Clara Data Center   13,193 
Total Devlopments Projects  $160,268 

 

All of our development projects were in their pre-development stage as of March 31, 2020. We do not currently intend to commence construction of any of our development projects prior to obtaining construction financing.

 

Results of Operations

 

Dispositions

 

Dispositions - Continuing Operations

 

The following disposition did not represent a strategic shift that had a major effect on our operations and financial results and therefore did not qualify to be reported as discontinued operations and its operating results are reflected in our results from continuing operations in the consolidated statements of operations for all periods presented through the date of disposition:

 

DePaul Plaza

 

On September 20, 2019, we disposed of a retail center located in Bridgeton, Missouri (“DePaul Plaza”), to an unrelated third party for aggregate consideration of approximately $19.8 million, excluding closing and other related costs. In connection with the disposition, we recorded a gain on the disposition of real estate of approximately $1.0 million during the third quarter of 2019.

 

Dispositions - Discontinued Operations

 

The following dispositions qualified to be reported as discontinued operations and their operating results are classified as discontinued operations in the consolidated statements of operations for all periods presented through their respective dates of disposition:

 

Disposition Transactions related to Gulf Coast Industrial Portfolio

 

We had an outstanding non-recourse mortgage loan (the “Gulf Coast Industrial Portfolio Mortgage Loan”) which was originated in February 2007 and subsequently transferred during the third quarter of 2012 to a special servicer that discontinued scheduled debt service payments and notified us that the loan was in default and due on demand. The Gulf Coast Industrial Portfolio Mortgage Loan was initially cross-collateralized by a portfolio of 14 industrial properties (collectively, the “Gulf Coast Industrial Portfolio”) including 10 properties located in Louisiana (seven properties located in New Orleans and three properties located in Baton Rouge, and collectively, the “Louisiana Assets”) and four properties located in San Antonio, Texas (the “San Antonio Assets”).

 

Foreclosure of San Antonio Assets

 

On June 5, 2018, the special servicer completed a partial foreclosure of the Gulf Coast Industrial Portfolio pursuant to which it foreclosed on the San Antonio Assets. The San Antonio Assets were sold in a foreclosure sale by the special servicer for an aggregate amount of approximately $20.7 million.

  

Assignment of Ownership in Louisiana Assets to Lender

 

On February 12, 2019, we and the lender of the Gulf Coast Industrial Portfolio Mortgage entered into an assignment agreement (the “Assignment Agreement”) pursuant to which we assigned our membership interests in the Louisiana Assets to the lender with an effective date of February 7, 2019. Under the terms of the Assignment Agreement, the lender assumed the significant risks and rewards of ownership and took legal title and physical possession of the Louisiana Assets and assumed all the other assets and related liabilities, including the Gulf Coast Industrial Mortgage and its accrued and unpaid interest, and released us of any claims against the liabilities assumed.

 

26

 

 

As a result of the Assignment Agreement, we have fully satisfied all of our obligations with respect to the Gulf Coast Industrial Portfolio Mortgage and all amounts accrued but not paid for interest (including default interest) and no amounts are due to the lender. Additionally, we have no continuing involvement with the Louisiana Assets. 

 

The aggregate carrying value of the assets transferred and the liabilities extinguished in connection with our assignment of our ownership interests in the Louisiana Assets to the lender was approximately $37.0 million and $49.6 million, respectively.

 

Since our performance obligations were met upon the assignment of our ownership interests in the Louisiana Assets to the lender and we have no continuing involvement with the Louisiana Assets, an aggregate gain on debt extinguishment of approximately $13.6 million was recognized during the first quarter of 2019.

 

The disposition of the Louisiana Assets, which comprised all of our remaining industrial properties, represented a strategic shift that had a major effect on our operations and financial results.

 

As a result, the operating results of the Louisiana Assets have been classified as discontinued operations in our consolidated statements of operations for all periods presented through their date of disposition.

 

For the Three Months Ended March 31, 2020 vs. March 31, 2019

 

Consolidated – Continuing Operations

 

Revenues

 

Our revenues are comprised of rental income and tenant recovery income. Total revenues decreased by approximately $0.7 million to $3.3 million for the three months ended March 31, 2020 compared to $4.0 million for the same period in 2019. Excluding the effect of the disposition of DePaul Plaza, revenues increased slightly by $0.1 million.

 

Property operating expenses

 

Property operating expenses decreased slightly by approximately $0.1 million to $1.1 million for the three months ended March 31, 2020 compared to $1.2 million for the same period in 2019. Excluding the effect of the disposition of DePaul Plaza, property operating expenses were relatively flat.

 

Real estate taxes

 

Real estate taxes decreased by approximately $0.2 million to $0.1 million for the three months ended March 31, 2020 compared to $0.3 million for the same period in 2019. Excluding the effect of the disposition of DePaul Plaza, real estate taxes were relatively flat.

 

 

General and administrative expenses

 

General and administrative expenses decreased slightly by approximately $0.1 million to $0.7 million for the three months ended March 31, 2020 compared to $0.8 million for the same period in 2019.

 

Depreciation and amortization

 

Depreciation and amortization decreased by approximately $0.3 million to $1.0 million for the three months ended March 31, 2020 compared to $1.3 million for the same period in 2019. Excluding the effect of the disposition of DePaul Plaza, depreciation and amortization increased slightly by $0.1 million.

 

Interest and dividend income

 

Interest and dividend income decreased by approximately $1.0 million to $2.9 million for the three months ended March 31, 2020 compared to $3.9 million for the same period in 2019. The decrease primarily reflects lower investment income of $2.0 million from our Preferred Investments partially offset by interest income earned on our notes receivable of $1.1 million.

 

27

 

 

Interest expense

 

Interest expense, including amortization of deferred financing costs, increased by approximately $0.3 million to $0.7 million for the three months ended March 31, 2020 compared to $0.4 million for the same period in 2019. This increase reflects higher interest expense resulting from an increase in the amount of debt outstanding during the 2020 period. During the three months ended March 31, 2020 and 2019, $2.3 million and $1.5 million, respectively, of interest was capitalized to construction in progress for our development projects.

 

Unrealized loss on marketable equity securities

 

During the three months ended March 31, 2020, we recorded an unrealized loss on marketable equity securities of $21.3 million and during the three months ended March 31, 2019, we recorded an unrealized gain on marketable equity securities of $3.1 million which represents the change in the fair value of our marketable equity securities during the three months ended March 31, 2020 and 2019, respectively.

 

Noncontrolling interests

 

The net earnings allocated to noncontrolling interests relates to (i) parties of the Company that hold units in the Operating Partnership, (ii) the interest in PRO-DFJV Holdings LLC (“PRO”) held by our Sponsor, (iii) the ownership interests in 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”) held by our Sponsor and other affiliates and (iv) the ownership interest in various joint ventures held by affiliates of our Sponsor that have originated nonrecourse loans to unaffiliated third-party borrowers.

 

Financial Condition, Liquidity and Capital Resources   

 

Overview:

  

Rental income, interest and dividend income and borrowings are our principal source of funds to pay operating expenses, scheduled debt service, routine capital expenditures and distributions.

 

We expect to meet our short-term liquidity requirements, including the costs of our expected non-recurring capital expenditures, including pre-development activities, generally through working capital, redemptions of our preferred investments, repayments of our outstanding notes receivable, the remaining availability on the Bowery Mortgage ($0.4 million as of March 31, 2020) and new borrowings. We currently do not intend to commence construction of any of our development projects prior to obtaining construction financing. As of March 31, 2020, we had approximately $82.0 million of cash and cash equivalents on hand and $31.5 million of marketable securities, available for sale. We believe that these cash resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other than these sources within the next twelve months.

 

Our borrowings consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. We typically have obtained level payment financing, meaning that the amount of debt service payable would be substantially the same each year. As such, most of the mortgages on our properties provide for a so-called “balloon” payment and are at a fixed interest rate.

 

Additionally, in order to leverage our investments in marketable securities and seek a higher rate of return, we have access to borrowings under a margin loan and line of credit collateralized by the securities held with the financial institution that provided the margin loan and line of credit as well as a portion of our Marco OP Units. These loans are due on demand and any outstanding balance must be paid upon the liquidation of securities.

 

Our charter provides that the aggregate amount of borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a satisfactory showing that a higher level is appropriate, the approval of our Board of Directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. As of March 31, 2020, our total borrowings of $167.0 million represented 53% of net assets.

 

28

 

 

Any future properties that we may acquire or investments we may make may be funded through a combination of borrowings, proceeds generated from the sale and redemption of our marketable securities, available for sale, proceeds received from the selective disposition of our properties and proceeds received from the redemption of our preferred investments in related parties. These borrowings may consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. Such mortgages may be put in place either at the time we acquire a property or subsequent to our purchasing a property for cash. In addition, we may acquire properties that are subject to existing indebtedness where we choose to assume the existing mortgages. Generally, though not exclusively, we intend to seek to encumber our properties with debt, which will be on a non-recourse basis. This means that a lender’s rights on default will generally be limited to foreclosing on the property. However, we may, at our discretion, secure recourse financing or provide a guarantee to lenders if we believe this may result in more favorable terms. When we give a guaranty for a property owning entity, we will be responsible to the lender for the satisfaction of the indebtedness if it is not paid by the property owning entity.

 

We may also obtain lines of credit to be used to acquire properties or real estate-related assets. These lines of credit will be at prevailing market terms and will be repaid from proceeds from the sale or refinancing of properties, working capital or permanent financing. Our Sponsor or its affiliates may guarantee the lines of credit although they will not be obligated to do so.

 

In addition to meeting working capital needs and making distributions, if any, to our stockholders and non-controlling interests, our capital resources are used to make certain payments to our Advisor and its affiliates, including payments related to asset acquisition fees, development fees and leasing commissions, asset management fees, the reimbursement of acquisition related expenses to our Advisor and property management fees. We also reimburse our Advisor and its affiliates for actual expenses it incurs for administrative and other services provided to us.

 

The following table represents the fees incurred associated with the payments to our Advisor and its affiliates for the periods indicated:

 

   Three Months Ended March 31, 
   2020   2019 
Acquisition fees (capitalized and are reflected in the carrying value of the investment)  $-   $1,823 
Asset management fees (general and administrative costs)   215    336 
Property management fees (property operating expenses)   111    79 
Development fees and leasing commissions*   -    74 
Total  $326   $2,312 

 

*Generally, capitalized and amortized over the estimated useful life of the associated asset.  

 

Additionally, we may be required to make distributions on the special general partner interests (“SLP Units”) in the Operating Partnership held by Lightstone SLP, LLC, an affiliate of the Advisor. In connection with the Company’s initial public offering, Lightstone SLP, LLC purchased an aggregate of $30.0 million of SLP Units. 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, 2020 and 2019, distributions of $0.5 million were declared and paid on the SLP units.

 

Summary of Cash Flows

 

The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below:

 

   For the Three Months Ended March 31, 
   2020   2019 
Net cash flows provided by operating activities  $2,532   $5,968 
Net cash flows provided by/(used in) investing activities   6,844    (18,399)
Net cash flows (used in)/provided by financing activities   (4,220)   48,566 
Net change in cash, cash equivalents and restricted cash   5,156    36,135 
           
Cash, cash equivalents and restricted cash, beginning of year   79,800    36,582 
Cash, cash equivalents and restricted cash, end of the period  $84,956   $72,717 

 

Our principal sources of cash flow are derived from the operation of our rental properties, interest and dividend income on our marketable securities and real estate-related investments, as well as loan proceeds and proceeds from redemptions of preferred investments in related parties. We intend that our properties and real estate-related investments will provide a relatively consistent stream of cash flow that provides us with resources to fund operating expenses, debt service and quarterly distributions if authorized by our board of directors.

 

29

 

 

Our principal demands for liquidity are (i) our property operating expenses, (ii) real estate taxes, (iii) insurance costs, (iv) leasing costs and related tenant improvements, (v) capital expenditures, (vi) acquisition and development activities, including our investments in related parties, (vi) funding of notes receivable, (viii) scheduled debt service and (ix) distributions to our stockholders and noncontrolling interests. The principal sources of funding for our operations are operating cash flows and proceeds from (i) the sale and redemption of marketable securities, (ii) the selective disposition of properties or interests in properties, (iii) redemptions of our preferred investments in related parties, (iv) the issuance of equity and debt securities and (v) the placement of mortgage loans or other indebtedness.

 

Operating activities

 

The net cash provided by operating activities of $2.5 million for the three months ended March 31, 2020 consists of the following:

 

·cash inflows of approximately $2.7 million from our net income after adjustment for non-cash items; and

 

·cash outflows of approximately $0.2 million associated with the net changes in operating assets and liabilities.

 

Investing activities

 

The net cash provided by investing activities of $6.8 million for the three months ended March 31, 2020 consists primarily of the following:

 

·purchases of investment property of approximately $5.8 million;

 

·funding of notes receivable of $7.1 million;

 

·proceeds from preferred investments in related parties of $20.0 million; and

 

·purchases of marketable securities of $0.3 million.

 

Financing activities

 

The net cash used in financing activities of approximately $4.2 million for the three months ended March 31, 2020 is primarily related to the following:

 

·contributions received from noncontrolling interests of $3.5 million;

 

·redemptions and cancellation of common stock of $3.1 million;

 

·distributions to our noncontrolling interests of $0.6 million; and

 

·distributions to our common shareholders of $3.9 million.

 

Development Activities

 

Lower East Side Moxy Hotel

 

On December 3, 2018, we, through a subsidiary of the Operating Partnership, acquired three adjacent parcels of land located at 147-151 Bowery, New York, New York (collectively, the “Bowery Land”) from 151 Emmut Properties LLC and 145-149 Bowery LLC, both unaffiliated third parties, for aggregate consideration of approximately $56.5 million, excluding closing and other acquisition related costs, on which we intend to develop and construct a 296-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”). Additionally, on December 6, 2018, we, though a subsidiary of the Operating Partnership, acquired certain air rights located at 329 Broome Street, New York, New York (the “Air Rights”) from B.R.P. Realty Corp., an unaffiliated third party, for approximately $2.4 million, excluding closing and other acquisition related costs. We intend to use the Air Rights in connection with the development and construction of the Lower East Side Moxy Hotel. As of March 31, 2020, the Lower East Side Moxy Hotel was in pre-development and not under construction.

 

On December 3, 2018, we entered into a mortgage loan collateralized by the Bowery Land and the Air Rights (the “Bowery Mortgage”) for approximately $35.6 million. The Bowery Mortgage has a term of two years, bears interest at LIBOR+4.25% and requires monthly interest-only payments through its stated maturity with the entire unpaid balance due upon maturity. Through March 31, 2020, we received aggregate proceeds of $35.2 million under the Bowery Mortgage. As a result, the Bowery Mortgage had an outstanding balance and remaining availability of $35.2 million and $0.4 million, respectively, as of March 31, 2020.

 

30

 

 

 

Exterior Street Project

 

On February 27, 2019, we, through subsidiaries of the Operating Partnership, acquired two adjacent parcels of land located at 355 and 399 Exterior Street, New York, New York (collectively, the “Exterior Street Land”), from Borden Realty Corp and 399 Exterior Street Associates LLC, unaffiliated third parties, for an aggregate purchase price of approximately $59.0 million, excluding closing and other acquisition related costs, on which we intends\ to develop and construct a multi-family residential property (the “Exterior Street Project”). As of March 31, 2020, the Exterior Street Project was in pre-development and not under construction.

 

On March 29, 2019, we entered into a $35.0 million loan (the “Exterior Street Loan”) which bears interest and 4.50% and was scheduled to initially mature on April 9, 2020, but has been further extended through the exercise of the first of two, six-month extension options.. The Exterior Street Loan requires monthly interest payments through its maturity date and is collateralized by the Exterior Street Land.

  

Santa Clara Data Center

 

On January 10, 2019, we, through subsidiaries of the Operating Partnership, acquired a parcel of land located at 2175 Martin Avenue, Santa Clara, California (the “Martin Avenue Land”) from The Chioini Living Trust, an unaffiliated third party, for approximately $10.6 million, excluding closing and other acquisition related costs, on which we intend to develop and construct a data center (the “Santa Clara Data Center”). As of March 31, 2020, the Santa Clara Data Center was in pre-development and not under construction.

 

The following is a summary of the amounts incurred and capitalized to construction in progress for our development projects as of March 31, 2020:

 

Development Projects    
Lower East Side Moxy Hotel  $79,000 
Exterior Street Project   68,075 
Santa Clara Data Center   13,193 
Total Devlopments Projects  $160,268 

 

The states where we have development projects (New York and California), have reacted to the COVID-19 pandemic by instituting quarantines, restrictions on travel, “shelter in place” rules, restrictions on types of business that may continue to operate and/or restrictions on types of construction projects that may continue, although, in certain cases, exceptions are available for certain essential construction projects.

 

Because all of our development projects are still in their pre-development stage, our predevelopment activities have been relatively unaffected by the COVID-19 pandemic to-date. While we do not currently intend to commence construction of any of our development projects prior to obtaining construction financing, the COVID-19 pandemic, and restrictions intended to prevent its spread, may (i) affect our ability to obtain construction financing, and/or (ii) cause delays or increase costs associated with building materials or construction services necessary for construction, which could adversely impact our ability to either ultimately commence and/or complete construction as planned, on budget or at all for our development projects.

 

We currently believe our capital resources are sufficient to fund our expected development activities related to the Lower East Side Moxy Hotel, the Exterior Street Project and the Santa Clara Data Center for the next 12 months. However, we ultimately expect to finance a substantial portion of our development costs through construction loans. Due to the uncertainty in capital and financial markets in the United States because of the current COVID-19 pandemic, there can be no assurance we will be successful in obtaining construction financing at favorable terms, if at all.

 

Preferred Investments

 

We have entered into several agreements with various related party entities that provide for us to make preferred contributions pursuant to certain instruments (the “Preferred Investments”) that entitle us to monthly preferred distributions. The Preferred Investments had an aggregate balance of $14.5 million and $34.5 million as of March 31, 2020 and December 31, 2019, respectively, and are classified as held-to-maturity securities, recorded at cost and included in investments in related parties on the consolidated balance sheets. The fair value of these investments approximated their carrying values based on market rates for similar instruments.

 

31

 

 

During the three months ended March 31, 2020, we (i) redeemed $11.0 million of the 40 East End Avenue Preferred Investment and the entire remaining Miami Moxy Preferred Investment of $9.0 million.

 

The Preferred Investments are summarized as follows:

 

       Preferred Investment Balance   Investment Income (1) 
       As of   As of   Three Months Ended March 31, 
Preferred Investments  Dividend Rate   March 31, 2020   December 31, 2019   2020   2019 
40 East End Avenue   12%  $6,000   $17,000   $336   $900 
30-02 39th Avenue   12%   -    -    -    140 
East 11th Street   12%   8,500    8,500    261    1,100 
Miami Moxy   12%   -    9,000    45    532 
Total Preferred Investments       $14,500   $34,500   $642   $2,672 

 

Note:

(1)– Included in interest and dividend income on the statements of operations.

 

Notes Receivable

 

Beginning in 2019, we 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”).

 

We 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, we 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 have an initial term of one or two years and may provide for an additional one-year extension option subject to satisfaction of certain prescribed conditions, including the funding of an additional reserve for interest and payment of an extension fee. 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.

 

The Joint Venture Promissory Notes are recorded in notes receivable, net on the consolidated balance sheets. The origination fees received 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 initial term.

 

The Notes Receivable are summarized as follows:

 

                      As of March 31, 2020 
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  
LSC 162nd Capital I LLC   45.45%  $4,234    1.50%   February 5, 2019    October 31, 2020   Libor plus 7.50% (Floor of 10%)  $4,234   $(19)  $-   $4,215   $- 
                                                             
LSC 162nd Capital II LLC   45.45%   9,166    1.50%   February 5, 2019    October 31, 2020   Libor plus 7.50% (Floor of 10%)   9,166    (41)   -    9,125    - 
                                                      
LSC 1543 7th LLC   50%   20,000    1.00%   August 27, 2019    August 26, 2020   Libor plus 5.15% (Floor of 7.65%)   20,000    (118)   (81)   19,801    - 
                                                      
LSC 1650 Lincoln LLC   50%   24,000    1.00%   August 27, 2019    August 26, 2020   Libor plus 5.15% (Floor of 7.65%)   24,000    (141)   (97)   23,762    - 
                                                      
LSC 11640 Mayfield LLC   50%   18,000    1.00%   March 4, 2020    March 1, 2022   Libor plus 10.50% (Floor of 12.50%)   10,750    (3,395)   (260)   7,095    7,250 
                                                      
Total                              $68,150   $(3,714)  $(438)  $63,998   $7,250 

 

32

 

  

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:

 

   For the Three Months Ended March 31, 
Joint Venture/Lender  2020   2019 
LSC 162nd Capital I LLC  $113   $74 
           
LSC 162nd Capital II LLC   245    161 
           
LSC 1543 7th LLC   437    - 
           
LSC 1650 Lincoln LLC   524    - 
           
LSC 11640 Mayfield LLC   115    - 
           
  Total  $1,434   $235 

 

Distribution Reinvestment Program (“DRIP”)

 

Our DRIP provides our shareholders with an opportunity to purchase additional shares of our common stock at a discount by reinvesting distributions. Under our distribution reinvestment program, a shareholder may acquire, from time to time, additional shares of our common stock by reinvesting cash distributions payable by us to such shareholder, without incurring any brokerage commission, fees or service charges.

 

Our Registration Statement on Form S-3D was filed and became effective as amended and restated, under the Securities Act of 1933 on October 25, 2018.

 

Pursuant to the DRIP, our stockholders who elect to participate may invest all or a portion of the cash distributions that we pay them on shares of our common stock in additional shares of our common stock without paying any fees or commissions. The purchase price for shares under the DRIP will be equal to 95% of the Company’s current estimated per-share net asset value (the “Estimated Per-Share NAV”), as determined by the Company’s board of directors and reported by the Company from time to time. On December 10, 2019, our Board of Directors determined our Estimated Per-Share NAV of $11.82 as of September 30, 2019, which resulted in a purchase price for shares under the DRIP of $11.23 per share. As of March 31, 2020, we had approximately 10.0 million shares available for issuance under our DRIP. 

 

Our Board of Directors reserves the right to terminate the DRIP for any reason without cause by providing written notice of termination of the DRIP to all participants.

 

Share Repurchase Program

 

Our share repurchase program may provide our stockholders with limited, interim liquidity by enabling them to sell their shares of common stock back to us, subject to restrictions. From our inception through December 31, 2019 we repurchased approximately 12.9 million shares of common stock. For the three months ended March 31, 2020, we repurchased 287,987 shares of common stock for $10.87 per share, pursuant to our share repurchase program.

 

On May 10, 2018, the Board of Directors amended the share repurchase program to set the price for all purchases under our share repurchase program equal to 92% of the Estimated Per-Share NAV and the number of shares repurchased during any calendar year to five (5.0%) of the weighted average number of shares outstanding during the previous year.

 

On March 25, 2020, the Board of Directors amended the share repurchase program to remove stockholder notice requirements and also approved the suspension of all redemptions effective immediately.

 

Contractual Obligations  

 

The following is a summary of our contractual obligations outstanding over the next five years and thereafter as of March 31, 2020.

 

33

 

 

Contractual Obligations  2020   2021   2022   2023   2024   Thereafter   Total 
Mortgage Payable  $96,114   $1,328   $1,389   $1,454   $66,697   $-   $166,982 
Interest Payments 1   5,393    3,191    3,130    3,065    2,917              -    17,696 
                                    
Total Contractual Obligations  $101,507   $4,519   $4,519   $4,519   $69,614   $-   $184,678 

 

1)These amounts represent future interest payments related to mortgage payable obligations based on the fixed and variable interest rates specified in the associated debt agreement. All variable rate debt agreements are based on the one month LIBOR rate. For purposes of calculating future interest amounts on variable interest rate debt the one month LIBOR rate as of March 31, 2020 was used.

 

Notes Payable

 

Margin Loan

 

We have access to a margin loan (the “Margin Loan”) from a financial institution that holds custody of certain of our marketable securities. The Margin Loan, which is due on demand, bears interest at Libor plus 0.85% (1.84% as of March 31, 2020) and is collateralized by the marketable securities in our account. The amounts available to us under the Margin Loan are at the discretion of the financial institution and not limited to the amount of collateral in our account. There were no amounts outstanding under the Margin Loan as of March 31, 2020 and December 31, 2019.

 

Line of Credit

 

We have a non-revolving credit facility (the “Line of Credit”) that provides for borrowings up to a maximum of $20.0 million, subject to a 55% loan-to-value ratio based on the fair value of the underlying collateral, matures on June 19, 2021 and bears interest at Libor plus 1.35% (2.34% as of March 31, 2020). The Line of Credit is collateralized by 209,243 of Marco OP Units and Marco II OP Units and is guaranteed by PRO. As of March 31, 2020, the amount of borrowings available to be drawn under the Line of Credit was approximately $6.3 million. No amounts were outstanding under the Line of Credit as of March 31, 2020 and December 31, 2019.

 

Debt Maturities

 

The Exterior Street Loan (outstanding principal balance of $35.0 million as of March 31, 2020) initially matured on April 9, 2020 but had two, six-month extension options, which may be exercised by providing the lender with notice of our intent to extend. We exercised the first six-month extension option on April 9, 2020 and extended the maturity date to October 9, 2020. We currently intend to exercise the second extension option or refinance the Exterior Street Loan on or before the applicable stated maturity date.

 

The Santa Monica Loan (outstanding principal balance of $25.0 million as of March 31, 2020) initially matures on August 12, 2020 but has two, six-month extension options, which we can exercise by providing the lender with notice of our intent to extend. We currently intend to exercise the extension options or refinance the Santa Monica Loan on or before its applicable stated maturity date.

 

The Bowery Mortgage (outstanding principal balance of $35.2 million as of March 31, 2020) matures on December 3, 2020. We currently intend to refinance the Bowery Mortgage on or before its maturity date.

 

However, if we are unable to extend or refinance any of our maturing indebtedness at favorable terms, we will look to repay the then outstanding balance with available cash and/or proceeds from selective asset sales. We have no additional significant maturities of mortgage debt over the next 12 months.

 

Funds from Operations and Modified Funds from Operations

 

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings, improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be less informative.

 

34

 

 

Because of these factors, the National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has published a standardized measure of performance known as funds from operations ("FFO"), which is used in the REIT industry as a supplemental performance measure. We believe FFO, which excludes certain items such as real estate-related depreciation and amortization, is an appropriate supplemental measure of a REIT's operating performance. FFO is not equivalent to our net income or loss as determined under GAAP.

 

We calculate FFO, a non-GAAP measure, consistent with the standards established over time by the Board of Governors of NAREIT, as restated in a White Paper approved by the Board of Governors of NAREIT effective in December 2018 (the "White Paper"). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Our FFO calculation complies with NAREIT's definition.

 

We believe that the use of FFO provides a more complete understanding of our performance to investors and to management and reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.

 

Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT's definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.

 

Because of these factors, the Investment Program Association (the "IPA"), an industry trade group, published a standardized measure of performance known as modified funds from operations ("MFFO"), which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that both before and after we have deployed all of our offering proceeds and are no longer incurring a significant amount of acquisition fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP.

 

We define MFFO, a non-GAAP measure, consistent with the IPA's Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the "Practice Guideline") issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction-related fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and exclude acquisition and transaction-related fees and expenses (which includes costs incurred in connection with strategic alternatives), amounts relating to straight line rent receivables and amortization of market lease and other intangibles, net (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), accretion of discounts and amortization of premiums on debt investments and borrowings, mark-to-market adjustments included in net income (including gains or losses incurred on assets held for sale), gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis.

 

We believe that, because MFFO excludes costs that we consider more reflective of acquisition activities and other non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.

 

35

 

 

Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO.

 

Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guidelines or the SEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry, and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.

 

The below table illustrates the items deducted in the calculation of FFO and MFFO. Items are presented net of non-controlling interest portions where applicable.

 

    For the Three Months Ended  
    March 31, 2020     March 31, 2019  
Net (loss)/income   $ (18,678 )   $ 20,227  
FFO adjustments:                
Depreciation and amortization:                
Depreciation and amortization of real estate assets     992       1,279  
Equity in depreciation and amortization for unconsolidated affiliated real estate entities     -       -  
Discontinued operations                
Depreciation and amortization of real estate assets     -       121  
Gain on disposal of investment property     -       (70 )
                 
FFO     (17,686 )     21,557  
MFFO adjustments:                
Other Adjustment                
Acquisition and other transaction related costs expensed(1)      -       (22 )
Amortization of above or below market leases and liabilities(2)     -       (35 )
Discontinued operations:                
Gain on debt extinguishment     -       (13,615 )
Accretion of discounts and amortization of premiums on debt investments     -       -  
Mark-to-market adjustments(3)     21,298       (3,068 )
Non-recurring (losses)/gains from extinguishment/sale of debt, derivatives or securities holdings(4)     -       311  
                 
MFFO     3,612       5,128  
Straight-line rent(5)     7       (4 )
MFFO - IPA recommended format(6)   $ 3,619     $ 5,124  
                 
Net (loss)/income   $ (18,678 )   $ 20,227  
Less: income attributable to noncontrolling interests     (283 )     (854 )
Net (loss)/income applicable to Company's common shares   $ (18,961 )   $ 19,373  
Net (loss)/income  per common share, basic and diluted   $ (0.85 )   $ 0.83  
                 
FFO   $ (17,686 )   $ 21,557  
Less: FFO attributable to noncontrolling interests     673       (1,047 )
FFO attributable to Company's common shares   $ (17,013 )   $ 20,510  
FFO per common share, basic and diluted   $ (0.76 )   $ 0.87  
                 
MFFO - IPA recommended format   $ 3,619     $ 5,124  
Less: MFFO attributable to noncontrolling interests     (881 )     (577 )
MFFO attributable to Company's common shares   $ 2,738     $ 4,547  
                 
Weighted average number of common shares outstanding, basic and diluted     22,418       23,478  

 

36

 

 

Notes:

 

(1)The purchase of properties, and the corresponding expenses associated with that process, is a key operational feature of our business plan to generate operational income and cash flows in order to make distributions to investors. In evaluating investments in real estate, management differentiates the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for non-listed REITs that have completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition costs, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our advisor or third parties. Acquisition fees and expenses under GAAP are considered operating expenses and as expenses included in the determination of net income and income from continuing operations, both of which are performance measures under GAAP. Such fees and expenses are paid in cash, and therefore such funds will not be available to distribute to investors. Such fees and expenses negatively impact our operating performance during the period in which properties are being acquired. Therefore, MFFO may not be an accurate indicator of our operating performance, especially during periods in which properties are being acquired. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to the property. Acquisition fees and expenses will not be paid or reimbursed, as applicable, to our advisor even if there are no further proceeds from the sale of shares in our offering, and therefore such fees and expenses would need to be paid from either additional debt, operational earnings or cash flows, net proceeds from the sale of properties or from ancillary cash flows.
  
(2)Under GAAP, certain intangibles are accounted for at cost and reviewed at least annually for impairment, and certain intangibles are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of other real estate related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, management believes that by excluding charges relating to amortization of these intangibles, MFFO provides useful supplemental information on the performance of the real estate.
  
(3)Management believes that adjusting for mark-to-market adjustments is appropriate because they are nonrecurring items that may not be reflective of ongoing operations and reflects unrealized impacts on value based only on then current market conditions, although they may be based upon current operational issues related to an individual property or industry or general market conditions. Mark-to-market adjustments are made for items such as ineffective derivative instruments, certain marketable equity securities and any other items that GAAP requires we make a mark-to-market adjustment for. The need to reflect mark-to-market adjustments is a continuous process and is analyzed on a quarterly and/or annual basis in accordance with GAAP.
  
(4)Management believes that adjusting for gains or losses related to extinguishment/sale of debt, derivatives or securities holdings is appropriate because they are items that may not be reflective of ongoing operations. By excluding these items, management believes that MFFO provides supplemental information related to sustainable operations that will be more comparable between other reporting periods.
  
(5)Under GAAP, rental receipts are allocated to periods using various methodologies. This may result in income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, providing insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management’s analysis of operating performance.

 

The table below presents our cumulative distributions paid and cumulative FFO attributable to the Company’s common shares:

 

   From inception through 
   March 31, 2020 
FFO attributable to  Company’s common shares  $219,028 
Distributions paid  $235,973 

 

On April 15, 2020, the distribution for the three-month period ending March 31, 2020 of $3.9 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 $11.23 per share, equal to 95% of the Company’s most recently published estimated net asset value per share of $11.82 as of September 30, 2019.

 

The amount of distributions paid to our stockholders in the future will be determined by our Board and is dependent on a number of factors, including funds available for payment of dividends, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code.

 

New Accounting Pronouncements

 

See Note 2 to the Notes to Consolidated Financial Statements for further information of certain accounting standards that have been adopted during 2020, if any, and certain accounting standards that we have not yet been required to implement and may be applicable to our future operations.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

As of the end of the period covered by this report, management, including our chief executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of the evaluation, our chief executive officer and principal financial officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.

 

37

 

 

There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no material weaknesses identified in the evaluation, and therefore, no corrective actions were taken.

 

PART II. OTHER INFORMATION:

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time in the ordinary course of business, we 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. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS

 

Exhibit
Number
  Description  
31.1*   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2*   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15 d-14(a) of the Securities Exchange Act, as amended.
32.1*   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”
32.2*   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”
101*   XBRL (eXtensible Business Reporting Language). The following financial information from Lightstone Value Plus Real Estate Investment Trust, Inc. on Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 15, 2020, formatted in XBRL includes: (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations, (3) Consolidated Statements of Comprehensive Income, (4) Consolidated Statements of Stockholders’ Equity, (5) Consolidated Statements of Cash Flows and (6) the Notes to the Consolidated Financial Statement.

 

*Filed herewith

 

38

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE

INVESTMENT TRUST, INC.

   
Date:     May 15, 2020 By:   /s/ David Lichtenstein
  David Lichtenstein
  Chairman and Chief Executive Officer (Principal Executive Officer)
   
Date:     May 15, 2020 By:   /s/ Seth Molod
  Seth Molod
 

Chief Financial Officer and Treasurer

(Duly Authorized Officer and Principal Financial and Accounting Officer)

 

39