UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from ________ to ________
Commission file number
(Exact Name of Registrant as Specified in Its Charter)
|
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| |
||
| (Address of Principal Executive Offices) | (Zip Code) |
(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.
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).
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 | ☐ |
| ☑ | Smaller reporting company | | |
| Emerging growth company | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
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. ☐
As of November 7, 2023, there were approximately million outstanding shares of common stock of Lightstone Value Plus REIT II, Inc., including shares issued pursuant to the distribution reinvestment plan.
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
INDEX
i
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS:
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
| September 30, 2023 |
December 31, 2022 |
|||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Investment property: | ||||||||
| Land and improvements | $ | $ | ||||||
| Building and improvements | ||||||||
| Furniture and fixtures | ||||||||
| Construction in progress | ||||||||
| Gross investment property | ||||||||
| Less accumulated depreciation | ( |
) | ( |
) | ||||
| Net investment property | ||||||||
| Investments in unconsolidated affiliated entities | ||||||||
| Cash and cash equivalents | ||||||||
| Marketable securities, available for sale | ||||||||
| Restricted cash | ||||||||
| Accounts receivable and other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Accounts payable and other accrued expenses | $ | $ | ||||||
| Mortgage payable, net | ||||||||
| Distributions payable | ||||||||
| Due to related party | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Company’s stockholders’ equity: | ||||||||
| Preferred shares, $ par value, million shares authorized, issued and outstanding | ||||||||
| Common stock, $ par value; million shares authorized, and million shares issued and outstanding, respectively | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total Company stockholders’ equity | ||||||||
| Noncontrolling interests | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(unaudited)
| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Expenses: | ||||||||||||||||
| Property operating expenses | ||||||||||||||||
| Real estate taxes | ||||||||||||||||
| General and administrative costs | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Impairment charge | ||||||||||||||||
| Total expenses | ||||||||||||||||
| Interest expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Gain on forgiveness of debt | ||||||||||||||||
| (Loss)/gain on sale of investment property, net | ( |
) | ||||||||||||||
| Earnings from investments in unconsolidated affiliated entities | ( |
) | ||||||||||||||
| Other income/(expense), net | ( |
) | ( |
) | ||||||||||||
| Net (loss)/income | ( |
) | ( |
) | ||||||||||||
| Less: net loss/(income) attributable to noncontrolling interests | ( |
) | ( |
) | ( |
) | ||||||||||
| Net (loss)/income applicable to Company’s common shares | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| Net (loss)/income per Company’s common share, basic and diluted | $ | ) | $ | $ | ) | $ | ||||||||||
| Weighted average number of common shares outstanding, basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(unaudited)
| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net (loss)/income | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| Other comprehensive loss: | ||||||||||||||||
| Holding loss on marketable securities, available for sale | ( |
) | ||||||||||||||
| Comprehensive (loss)/income | ( |
) | ( |
) | ||||||||||||
| Less: Comprehensive loss/(income) attributable to noncontrolling interests | ( |
) | ( |
) | ( |
) | ||||||||||
| Comprehensive (loss)/income attributable to the Company’s common shares | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in thousands)
(unaudited)
| Additional | Total | |||||||||||||||||||||||
| Common | Paid-In | Accumulated | Noncontrolling | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||
| BALANCE, June 30, 2022 | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Distributions to noncontrolling interests | - | ( |
) | ( |
) | |||||||||||||||||||
| Redemption and cancellation of shares | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
| BALANCE, September 30, 2022 | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Additional | Total | |||||||||||||||||||||||
| Common | Paid-In | Accumulated | Noncontrolling | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||
| BALANCE, December 31, 2021 | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Distributions to noncontrolling interests | - | ( |
) | ( |
) | |||||||||||||||||||
| Redemption and cancellation of shares | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| BALANCE, September 30, 2022 | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Additional | Accumulated Other | Total | ||||||||||||||||||||||||||
| Common | Paid-In | Comprehensive | Accumulated | Noncontrolling | Stockholders’ | |||||||||||||||||||||||
| Shares | Amount | Capital | Income | Deficit | Interests | Equity | ||||||||||||||||||||||
| BALANCE, June 30, 2023 | $ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Distributions to noncontrolling interests | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Distributions declared(a) | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Redemption and cancellation of shares | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
| BALANCE, September 30, 2023 | $ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||
| (a) |
| Additional | Accumulated Other | Total | ||||||||||||||||||||||||||
| Common | Paid-In | Comprehensive | Accumulated | Noncontrolling | Stockholders’ | |||||||||||||||||||||||
| Shares | Amount | Capital | Income | Deficit | Interests | Equity | ||||||||||||||||||||||
| BALANCE, December 31, 2022 | $ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||
| Other comprehensive loss | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Contributions of noncontrolling interests | - | |||||||||||||||||||||||||||
| Distributions to noncontrolling interests | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Distributions declared(a) | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Redemption and cancellation of shares | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
| BALANCE, September 30, 2023 | $ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||
| (a) |
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 REIT II, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)
| For the Nine Months Ended September 30, |
||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss)/income | $ | ( |
) | $ | ||||
| Adjustments to reconcile net (loss)/income to cash (used in)/provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Impairment charge | ||||||||
| Amortization of deferred financing costs | ||||||||
| Gain on sale of investment property, net | ( |
) | ( |
) | ||||
| Gain on forgiveness of debt | ( |
) | ||||||
| Earnings from investments in unconsolidated affiliated entities | ( |
) | ||||||
| Other non-cash adjustments | ||||||||
| Changes in assets and liabilities: | ||||||||
| Increase in accounts receivable and other assets | ( |
) | ( |
) | ||||
| (Decrease)/increase in accounts payable and other accrued expenses | ( |
) | ||||||
| Decrease in due to related party | ( |
) | ( |
) | ||||
| Cash (used in)/provided by operating activities | ( |
) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of investment property | ( |
) | ( |
) | ||||
| Proceeds from the sale of marketable securities | ||||||||
| Purchases of marketable securities | ( |
) | ||||||
| Proceeds from sale of investment property, net of closing costs | ||||||||
| Contributions to unconsolidated affiliated entities | ( |
) | ||||||
| Distributions from unconsolidated affiliated entities | ||||||||
| Cash provided by investing activities | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments on mortgages payable | ( |
) | ( |
) | ||||
| Payment on margin loan | ( |
) | ||||||
| Payment of loan fees and expenses | ( |
) | ( |
) | ||||
| Redemption and cancellation of common shares | ( |
) | ( |
) | ||||
| Distributions paid to noncontrolling interests | ( |
) | ( |
) | ||||
| Distributions paid to common stockholders | ( |
) | ||||||
| Contributions of noncontrolling interests | ||||||||
| Cash used in financing activities | ( |
) | ( |
) | ||||
| Change in cash, cash equivalents and restricted cash | ( |
) | ||||||
| Cash, cash equivalents and restricted cash, beginning of year | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
| Supplemental cash flow information for the periods indicated is as follows: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Distributions declared but not paid | $ | $ | ||||||
| Holding loss on marketable securities, available for sale | $ | $ | ||||||
| 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 | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
LIGHTSTONE VALUE PLUS REIT II, 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 Structure |
Lightstone Value Plus REIT II, Inc. (“Lightstone REIT II”), is a Maryland corporation formed on April 28, 2008, which elected to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2009.
Lightstone REIT II is structured as an umbrella partnership REIT, or UPREIT, and substantially all of its current and future business will be conducted through Lightstone Value Plus REIT II LP, a Delaware limited partnership (the “Operating Partnership”). As of September 30, 2023, Lightstone REIT II held an approximately
Lightstone REIT II and the Operating Partnership and its subsidiaries are collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns in these consolidated financial statements refers to Lightstone REIT II, its Operating Partnership or the Company as required by the context in which such pronoun is used.
Through the Operating Partnership, the Company owns and operates commercial properties and makes real estate-related investments. Since its inception, the Company has primarily acquired and operated commercial hospitality properties, principally consisting of limited-service-hotels all located in the United States. However, its commercial holdings may also consist of full-service hotels, and to a lesser extent, retail (primarily multi-tenanted shopping centers), industrial and office properties. The Company’s real estate investments are held by it alone or jointly with other parties. In addition, the Company may invest up to 20% of its net assets in collateralized debt obligations, commercial mortgage-backed securities (“CMBS”) and mortgage and mezzanine loans secured, directly or indirectly, by the same types of properties which it may acquire directly. Although most of its investments are these types, the Company may invest in whatever types of real estate or real estate-related investments that it believes are in its best interests. The Company evaluates all of its real estate investments as one operating segment. The Company currently intends to hold its investments until such time as it determines that a sale or other disposition appears to be advantageous to achieve its investment objectives or until it appears that the objectives will not be met.
As of September 30, 2023, the Company (i) majority owned and consolidated the operating results and financial condition of 10 limited service hotels containing a total of 1,352 rooms, (ii) held an unconsolidated
The Brownmill Joint Venture owns Browntown Shopping Center, located in Old Bridge, New Jersey, and Millburn Mall, located in Vauxhaull, New Jersey. The Hilton Garden Inn Joint Venture owns a 183-room, limited-service hotel (the “Hilton Garden Inn – Long Island City) located in the Long Island City neighborhood in the Queens borough of New York City. Both the Brownmill Joint Venture and the Hilton Garden Inn Joint Venture are between the Company and related parties.
As of September 30, 2023, five of the Company’s consolidated limited service hotels are held in LVP Holdco JV LLC (the “Hotel Joint Venture”), a joint venture formed between the Company and Lightstone Value Plus REIT I, Inc. (“Lightstone REIT I”), a related party REIT also sponsored by The Lightstone Group, LLC. The Company and Lightstone REIT I have 97.5% and 2.5% membership interests in the Hotel Joint Venture, respectively. Additionally, as of September 30, 2023, one of the Company’s consolidated hotels also has ownership interests held by unrelated minority owners. The membership interests of Lightstone REIT I and the unrelated minority owners are accounted for as noncontrolling interests.
6
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
The Company’s advisor is Lightstone Value Plus REIT II LLC (the “Advisor”), which is majority owned by David Lichtenstein. On May 20, 2008, the Advisor contributed $
The Company has no employees. The Company’s Advisor and its affiliates perform a full range of real estate services for it, including asset management, accounting, legal, and property management, as well as investor relations services.
The Company is dependent on the Advisor and its affiliates for services that are essential to it, including asset management and acquisition, disposition and financing activities, and other general administrative responsibilities. If the Advisor and its affiliates are unable to provide these services to the Company, it would be required to provide the services itself or obtain the services from other parties.
The Company also uses other unaffiliated third-party property managers, principally for the management of its hospitality properties.
The Company’s Common Shares are not currently listed on a national securities exchange. The Company may seek to list its Common Shares for trading on a national securities exchange only if a majority of its 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 Common Shares until they are listed for trading.
On January 17, 2023, the Company’s stockholders approved an amendment and restatement to the Company’s charter pursuant to which the Company is no longer required to either (a) amend its charter to extend the deadline to begin the process of achieving a liquidity event, or (b) hold a stockholders meeting to vote on a proposal for an orderly liquidation of its portfolio.
Noncontrolling Interests
Partners of the Operating Partnership
Limited Partner
On May 20, 2008, the Advisor contributed $2 to the Operating Partnership in exchange for 200 limited partner common units in the Operating Partnership. The Advisor has the right to convert limited partner common units into cash or, at the Company’s option, an equal number of Common Shares.
7
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
Associate General Partner
In connection with the Company’s Offerings, the Associate General Partner contributed (i) cash of $
As the indirect majority owner of the Associate General Partner, Mr. Lichtenstein is the beneficial owner of a 99% interest in such Subordinated Profits Interests and thus receives an indirect benefit from any distributions made in respect thereof.
These Subordinated Profits Interests may entitle the Associate General Partner to a portion of any regular distributions that the Company makes to its stockholders, but only after its stockholders have received a stated preferred return. There have been no distributions declared on the Subordinated Profits Interests for any periods after December 31, 2019. Since the Company’s inception through September 30, 2023, the cumulative distributions declared and paid on the Subordinated Profits Interests were $7.9 million. Any future distributions on the Subordinated Profits Interests will always be subordinated until stockholders receive a stated preferred return.
The Subordinated Profits Interests may also entitle the Associate General Partner to a portion of any liquidating distributions made by the Operating Partnership. The value of such distributions will depend upon the net sale proceeds upon the liquidation of the Company and, therefore, cannot be determined at the present time. Liquidating distributions to the Associate General Partner will always be subordinated until stockholders receive a distribution equal to their initial investment plus a stated preferred return.
See Note 8 for additional information with respect to the Subordinated Profits Interests.
Other Noncontrolling Interests in Consolidated Subsidiaries
Other noncontrolling interests consist of the (i) membership interest in the Joint Venture held by Lightstone REIT I and (ii) membership interests held by minority owners in one of the Company’s hotels.
Related Parties
The Company’s Sponsor, Advisor and its affiliates, including the Associate General Partner, are related parties of the Company as well as the other public REITs also sponsored and/or advised by these entities. Certain of these entities are entitled to compensation and reimbursement for services and costs incurred related to the investment, management and disposition of the Company’s assets during its acquisition, operational and liquidation stages. The compensation levels during the Company’s acquisition and operational stages are 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. See Note 8 for additional information.
| 2. | Summary of Significant Accounting Policies |
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Lightstone REIT II and its Operating Partnership and its subsidiaries, over which the Company exercises financial and operating control. As of September 30, 2023, Lightstone REIT II had a 99% general partnership interest in the common units of the Operating Partnership. All inter-company balances and transactions have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on accounting principles generally accepted in the United States of America (“GAAP”), and entities deemed to be variable interest entities (“VIE”) in which the Company is the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which the Company has control, substantive participating rights or both under the respective ownership agreement. For entities in which the Company has less than a controlling interest or entities which it is not deemed to be the primary beneficiary, it accounts for the investment using the equity method of accounting.
8
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of the Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair statement of the results for the periods presented. The accompanying unaudited consolidated financial statements of the Lightstone Value Plus REIT II, Inc. and Subsidiaries have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP 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 investment properties and investments in other unconsolidated real estate entities and depreciable lives of long-lived assets. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
The consolidated balance sheet as of December 31, 2022 included herein has been derived from the consolidated balance sheet included in the Company’s Annual Report on Form 10-K.
The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.
Income Taxes
The Company has elected to be taxed as a REIT commencing with the taxable year ended December 31, 2009. If the Company qualifies as a REIT, it generally will not be subject to U.S. federal income tax on its taxable income or capital gain that it distributes to its stockholders. To maintain its REIT qualification, the Company must meet a number of organizational and operational requirements, including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed at the regular corporate rate, and it may be precluded from qualifying for treatment as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders.
To qualify or maintain our qualification as a REIT, the Company engages in certain activities through wholly-owned taxable REIT subsidiaries (“TRS”). As such, it is subject to U.S. federal and state income and franchise taxes from these activities.
The Company’s income tax benefits and expense are included in other income/(expense), net on its consolidated statements of operations. During the three and nine months ended September 30, 2023, the Company recorded income tax expense of $
As of September 30, 2023 and December 31, 2022, the Company had
9
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
Revenues
The following table represents the total revenues from hotel operations on a disaggregated basis:
| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
| Revenues | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Room | $ | $ | $ | $ | ||||||||||||
| Food, beverage and other | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
Gain on Forgiveness of Debt
During the three and nine months ended September 30, 2022, notice was received from the U.S. Small Business Administration that $
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board issued an accounting standards update, “Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments,” which changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The updated standard replaces the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For trade and other receivables and held to maturity debt securities, entities are required to use a new forward looking expected loss model that generally will result in the earlier recognition of allowances for losses. The Company has adopted this standard effective January 1, 2023, noting that it did not have a material impact on the Company’s financial statements or related disclosures.
Concentration of Risk
As of September 30, 2023 and December 31, 2022, the Company had cash deposited in certain financial institutions in excess of federally insured levels. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk in cash and cash equivalents.
Current Environment
The Company’s operating results and financial condition 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, its 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 and uncertainty as a result of recent banking failures, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, inflation and recession.
The Company’s overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation, higher interest rates, certain labor and supply chain challenges and other changes in economic conditions may adversely affect the Company’s results of operations and financial performance.
10
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
| 3. | Disposition Activities |
Impairment Charge and Disposition of Florida Hotels
On May 8, 2023, the Hotel Joint Venture, which the Company majority owns and consolidates, through its subsidiaries (collectively, the “Sellers”), and Vista Acquisitions Inc. (the “Florida Hotels Buyer”), an unaffiliated third party, entered into a purchase and sale agreement, as amended, (the “Florida Hotels Agreement”) pursuant to which the Sellers would dispose of (i) a 126-room limited service hotel located in Miami, Florida (the “Hampton Inn - Miami”), and (ii) a 104-room limited service hotel located in Fort Lauderdale, Florida (the “Hampton Inn & Suites - Fort Lauderdale,” and collectively the “Florida Hotels”) to the Florida Hotels Buyer for an aggregate contractual sales price of $
During the second quarter of 2023, the Company recorded a non-cash impairment charge of $
On July 18, 2023 and July 21, 2023, the Sellers completed the disposition of the Florida Hotels to the Florida Hotels Buyer pursuant to the terms of the Florida Hotels Agreement. In connection with these transactions, the Sellers used an aggregate of $
Additionally, as a result of the sale of the Florida Hotels, the number of remaining hotels owned by the Hotel Joint Venture was reduced to five.
See Note 1, Note 5 and Note 6 for additional information.
Additionally, during the first quarter of 2023 the Company recognized a gain on the sale of investment property of $0.3 million which related to the sale of one of its hotels in 2017.
Disposition of the Courtyard – Paso Robles
On March 22, 2022, the Company completed the disposition of a 130-room limited service hotel located in Paso Robles, California (the “Courtyard – Paso Robles”) to an unaffiliated third party for a contractual sales price of $
11
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
Disposition of the TownePlace Suites - Little Rock
On July 14, 2022, the Company completed the disposition of a 92-room limited service hotel located in Little Rock, Arkansas (the “TownePlace Suites - Little Rock”) to an unaffiliated third party for a contractual sales price of $
The dispositions of the Florida Hotels, the Courtyard – Paso Robles and the TownePlace Suites - Little Rock did not qualify to be reported as discontinued operations since these dispositions did not represent a strategic shift that had a major effect on the Company’s operations and financial results. Accordingly, the operating results of the Florida Hotels, the Courtyard – Paso Robles and the TownePlace Suites - Little Rock are reflected in the Company’s results from continuing operations for all periods presented through their respective dates of disposition.
| 4. | Investments in Unconsolidated Affiliated Entities |
The entities listed below are partially owned by the Company. The Company accounts for these investments under the equity method of accounting as the Company exercises significant influence, but does not exercise financial and operating control over these entities. A summary of the Company’s investments in the unconsolidated affiliated entities is as follows:
| As of | |||||||||||||||
| Entity | Date of Ownership |
Ownership % | September 30, 2023 |
December 31, 2022 |
|||||||||||
| Brownmill Joint Venture | Various | % | $ | $ | |||||||||||
| Hilton Garden Inn Joint Venture | % | ||||||||||||||
| Total investments in unconsolidated affiliated real estate entities | $ | $ | |||||||||||||
Brownmill Joint Venture
During 2010 through 2012, the Company entered into various contribution agreements with Lightstone Holdings LLC (“LGH’’), a wholly-owned subsidiary of the Sponsor and a related party, pursuant to which LGH contributed to the Company an aggregate 48.6% membership interest in the Brownmill Joint Venture in exchange for the Company issuing an aggregate of 48 units of Subordinated Profits Interests, at $
As of September 30, 2023, the Company owns a
The Brownmill Joint Venture owns two retail properties known as Browntown Shopping Center, located in Old Bridge, New Jersey, and Millburn Mall, located in Vauxhaull, New Jersey.
12
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
Brownmill Joint Venture Financial Information
The Company’s carrying value of its interest in the Brownmill Joint Venture differs from its share of member’s equity reported in the condensed balance sheets of the Brownmill Joint Venture because the basis of the Company’s investment is in excess of the historical net book value of the Brownmill Joint Venture. The Company’s additional basis, which has been allocated to depreciable assets, is being recognized on a straight-line basis over the estimated useful lives of the appropriate assets.
The following table represents the condensed statements of operations for the Brownmill Joint Venture for the periods indicated:
| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Property operating expenses | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Operating income | ||||||||||||||||
| Gain on disposition of real estate(1) | ||||||||||||||||
| Interest expense and other, net | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Company’s share of earnings (48.6%) | $ | $ | $ | $ | ||||||||||||
| Additional depreciation and amortization(2) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Company’s earnings from investment | $ | $ | $ | $ | ||||||||||||
| (1) | ||
| (2) |
13
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
The following table represents the condensed balance sheets for the Brownmill Joint Venture as of the dates indicated:
| As of | As of | |||||||
| September 30, 2023 |
December 31, 2022 |
|||||||
| Investment property, net | $ | $ | ||||||
| Cash and restricted cash | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Mortgage payable | $ | $ | ||||||
| Other liabilities | ||||||||
| Members’ capital | ||||||||
| Total liabilities and members’ capital | $ | $ | ||||||
Hilton Garden Inn Joint Venture
On March 27, 2018, the Company and Lightstone Value Plus REIT III, Inc. (“Lightstone REIT III”), a related party REIT also sponsored by the Company’s Sponsor, acquired, through the newly formed Hilton Garden Inn Joint Venture, the Hilton Garden Inn - Long Island City from an unrelated third party, for aggregate consideration of $
Except as discussed below, the Hilton Garden Inn Mortgage bore interest at
On June 2, 2020, the Hilton Garden Inn Mortgage was amended to provide for the deferral of the six monthly debt service payments aggregating $
On March 27, 2023, the Hilton Garden Inn Joint Venture and the lender amended the Hilton Garden Inn Mortgage to extend the maturity date for 90 days, through June 25, 2023, to provide additional time to finalize the terms of a long-term extension. Subsequently, on May 31, 2023, the Hilton Garden Inn Mortgage was further amended to provide for (i) an extension of the maturity date for an additional five years, (ii) the interest rate to be adjusted to
14
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
The Company and Lightstone REIT III each have a 50.0% co-managing membership interest in the Hilton Garden Inn Joint Venture. The Company accounts for its membership interest in the Hilton Garden Inn Joint Venture in accordance with the equity method of accounting because it exerts significant influence over but does not control the Hilton Garden Inn Joint Venture. All capital contributions and distributions of earnings from the Hilton Garden Inn Joint Venture are made on a pro rata basis in proportion to each member’s equity interest percentage. Any distributions in excess of earnings from the Hilton Garden Inn Joint Venture are made to the members pursuant to the terms of the Hilton Garden Inn Joint Venture’s operating agreement. The Company commenced recording its allocated portion of profit/loss and cash distributions beginning as of March 27, 2018 with respect to its membership interest of
The Hilton Garden Inn Joint Venture is currently in compliance with respect to all of its financial debt covenants.
During the nine months ended September 30, 2023, the Company made aggregate capital contributions to the Hilton Garden Inn Joint Venture of $
Hilton Garden Inn Joint Venture Financial Information
The following table represents the condensed statements of operations for the Hilton Garden Inn Joint Venture for the periods indicated:
| For the Three Months Ended September 30, 2023 |
For the Three Months Ended September 30, 2022 |
For the Nine Months Ended September 30, 2023 |
For the 2022 |
|||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Property operating expenses | ||||||||||||||||
| General and administrative costs | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Operating income | ||||||||||||||||
| Gain on forgiveness of debt | ||||||||||||||||
| Interest expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net income/(loss) | $ | $ | $ | ( |
) | $ | ||||||||||
| Company’s share of earnings from investment (50.0%) | $ | $ | $ | ( |
) | $ | ||||||||||
15
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
The following table represents the condensed balance sheets for the Hilton Garden Inn Joint Venture as of the dates indicated:
| As of | As of | |||||||
| September 30, 2023 |
December 31, 2022 |
|||||||
| Investment property, net | $ | $ | ||||||
| Cash | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Mortgage payable, net | $ | $ | ||||||
| Other liabilities | ||||||||
| Members’ capital | ||||||||
| Total liabilities and members’ capital | $ | $ | ||||||
| 5. | Marketable Securities, Fair Value Measurements and Margin Loan |
Marketable Securities
The following is a summary of the Company’s available for sale securities as of the dates indicated:
| As of September 30, 2023 | ||||||||||||||||
| Adjusted Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
| Marketable Securities: | ||||||||||||||||
| Equity securities | $ | $ | $ | ( |
) | $ | ||||||||||
| As of December 31, 2022 | ||||||||||||||||
| Adjusted Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
| Marketable Securities: | ||||||||||||||||
| Equity securities | $ | $ | $ | ( |
) | $ | ||||||||||
| Debt securities: | ||||||||||||||||
| United States Treasury Bills | ||||||||||||||||
| Total | $ | $ | $ | ( |
) | $ | ||||||||||
16
LIGHTSTONE VALUE PLUS REIT II, 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. |
As of September 30, 2023 and December 31, 2022, the Company’s United States Treasury Bills were classified as Level 1 assets and the Company’s equity securities were classified as Level 2 assets. There were no transfers between the level classifications during the nine months ended September 30, 2023. The fair values of the Company’s equity securities are measured using readily available quoted prices for these securities; however, the markets for these securities are not active.
The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and other assets, accounts payable and other accrued expenses, distributions payable and due to related party approximated their fair values as of September 30, 2023 and December 31, 2022 because of the short maturity of these instruments.
As of September 30, 2023 and December 31, 2022, the estimated fair value our mortgage payable approximated its carrying value because of the floating interest rate.
Nonrecurring Fair Value Measurements
During the second quarter of 2023 the Company recorded a non-cash impairment charge of $
The Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized at fair value.
Margin loan
The Company has access to a margin loan from a financial institution that holds custody of certain of the Company’s marketable securities. The margin loan 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.
17
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
| 6. | Mortgage payable, net |
Mortgage payable, net consisted of the following:
| Description | Interest Rate |
Weighted Average Interest Rate for the Nine Months Ended September 30, 2023 |
Maturity Date |
Amount Due at Maturity |
As of September 30, 2023 |
As of December 31, 2022 |
||||||||||||
| Revolving Credit Facility | (floor of 6.45%) |
$ | $ | $ | ||||||||||||||
| Less: Deferred financing costs | ( |
) | ( |
) | ||||||||||||||
| Total mortgages payable, net | $ | $ | ||||||||||||||||
SOFR as of September 30, 2023 was
Revolving Credit Facility
The Company has a nonrecourse Revolving Credit Facility with a financial institution pursuant to which it may designate its hotel properties as collateral and borrow up a maximum
The Revolving Credit Facility was scheduled to mature on September 15, 2023 but its maturity was further extended until the Revolving Credit Facility was amended and restated on October 23, 2023, at which time the following key terms were adjusted:
| ● | The Revolving Credit Facility’s maturity date was extended by three years to |
| ● | The maximum borrowing amount under the Revolving Credit Facility was reduced from $140.0 million to $ |
| ● | The interest rate was changed from AMERIBOR plus 3.15%, subject to a 4.00% floor, to SOFR plus 3.45%, subject to a 6.45% floor; |
18
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
| ● | Phased increases to the prescribed minimum financial ratios throughout the term of the Revolving Credit Facility; |
| ● | The Company deposited $4.0 million into a cash collateral reserve account, of which all or a portion may be applied by the lender as a principal paydown if necessary to achieve the prescribed minimum financial ratios for the quarterly period ended December 31, 2023. Excess funds remaining in the cash collateral reserve account, if any, will be released to the Company. |
On September 6, 2022, in connection with a previous extension of the maturity of the Revolving Credit Facility to
In connection with any disposition of any hotel pledged under the Revolving Credit Facility, the Company is required to make a principal paydown on its outstanding balance in exchange for the hotel’s release from the designated collateral pool. In connection with the disposition of the TownePlace Suites – Little Rock on July 14, 2022, a required principal paydown of $
As of September 30, 2023, the Company’s 10 majority-owned and consolidated hotel properties were all pledged as collateral under the Revolving Credit Facility and the outstanding principal balance was $101.8 million. Additionally, no additional borrowings were available under the Revolving Credit Facility as of September 30, 2023.
As of September 30, 2023, the Company was in compliance with respect to all of its financial debt covenants.
| 7. | Company’s Stockholder’s Equity |
Distributions on Common Shares
On August 14, 2023, the Board of Directors authorized and the Company declared a Common Share distribution of $ per share for the quarterly period ending September 30, 2023. The distribution is the pro rata equivalent of an annual distribution of $ per share, or an annualized rate of
On November 13, 2023, the Board of Directors authorized and the Company declared a Common Share distribution of $ per share for the quarterly period ending December 31, 2023. The distribution is the pro rata equivalent of an annual distribution of $ per share, or an annualized rate of
Future distributions declared, if any, will be at the discretion of the Board of Directors based on their analysis of the Company’s performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, revenues and other sources of income, operating and interest expenses and the Company’s ability to refinance near-term debt as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. The Company cannot assure that any future distributions will be made or that it will maintain any particular level of distributions that it has previously established or may establish.
19
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
SRP
The Company’s share repurchase program (the “SRP”) may provide eligible stockholders with limited, interim liquidity by enabling them to sell their Common Shares back to the Company, subject to restrictions and applicable law.
On March 19, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of all redemptions.
Effective May 10, 2021, the Board of Directors reopened the SRP to allow, subject to various conditions as set forth below, for redemptions submitted in connection with a stockholder’s death or hardship and set the price for all such purchases to the Company’s current estimated net asset value per share of common stock, as determined by the Board of Directors and reported by the Company from time to time.
Deaths that occurred subsequent to January 1, 2020 were eligible for consideration, subject to certain conditions. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by the Company within one year of the stockholder’s date of death for consideration.
On the above noted date, the Board of Directors established that on an annual basis, the Company would not redeem in excess of of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Additionally, redemption requests generally would be processed on a quarterly basis and would be subject to pro ration if either type of redemption requests exceeded the annual limitation.
For the nine months ended September 30, 2023, the Company repurchased Common Shares at a weighted average price per share of $. For the nine months ended September 30, 2022, the Company repurchased Common Shares at a weighted average price per share of $.
Earnings per Share
The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, 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.
| 8. | Related Parties |
The Company’s Sponsor, Advisor and their affiliates, including the Special Limited Partner, are related parties of the Company as well as other public REITs also sponsored and/or advised by these entities. Pursuant to the terms of various agreements, certain of these entities are entitled to compensation and reimbursement of costs incurred for services related to the investment, development, management and disposition of the Company’s assets. The compensation is generally 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. Additionally, the Company’s ability to secure financing and its real estate operations are dependent upon its Advisor and its affiliates to perform such services as provided in these agreements. Amounts the Company owes to the Advisor and its affiliated entities are principally for asset management fees, and are classified as due to related parties on the consolidated balance sheets.
20
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
The following table represents the fees incurred associated with the payments to the Company’s Advisor for the periods indicated:
| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Asset management fees (general and administrative costs) | $ | $ | $ | $ | ||||||||||||
The advisory agreement has a one year term and is renewable for an unlimited number of successive one year periods upon the mutual consent of the Advisor and the Company’s independent directors. Payments to the Advisor or its affiliates may include asset acquisition fees and the reimbursement of acquisition-related expenses, development fees and the reimbursement of development-related costs, financing coordination fees, asset management fees or asset management participation, and construction management fees. The Company may also reimburse the Advisor and its affiliates for actual expenses it incurs for administrative and other services provided for it. Upon the liquidation of the Company’s assets, it may pay the Advisor or its affiliates a disposition commission.
Subordinated Profits Interests
In connection with the Company’s Offerings, the Associate General Partner, an affiliate of the Company’s Sponsor, contributed an aggregate of $17.7 million consisting of (i) cash of $
These Subordinated Profit Interests, for which the aggregate consideration of $
These Subordinated Profits Interests may entitle the Associate General Partner to a portion of any regular distributions that the Company makes to its stockholders, but only after its stockholders have received a stated preferred return. There have been no distributions declared on the Subordinated Profits Interests for any periods after December 31, 2019. Since the Company’s inception through September 30, 2023, the cumulative distributions declared and paid on the Subordinated Profits Interests were $
The Subordinated Profits Interests may also entitle Lightstone SLP II, LLC to a portion of any liquidating distributions made by the Operating Partnership. The value of such distributions will depend upon the net sale proceeds upon the liquidation of the Company and, therefore, cannot be determined at the present time. Liquidating distributions to Lightstone SLP II, LLC will always be subordinated until stockholders receive a distribution equal to their initial investment plus a stated preferred return.
21
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
| 9. | Commitments and Contingencies |
Management Agreements
The
Company’s hotels operate pursuant to management agreements (the “Management Agreements”) with various third-party
property management companies. The property management companies perform management functions including, but not limited to, hiring
and supervising employees, establishing room prices, establishing administrative policies and procedures, managing expenditures and
arranging and supervising public relations and advertising. The Management Agreements are for terms ranging from
The Management Agreements provide for the payment of a base management fee equal to
Franchise Agreements
As of September 30, 2023, the Company’s hotels operated pursuant to various franchise agreements. Under the franchise agreements, the Company generally pays a fee equal to
The franchise agreements are generally for initial terms ranging from
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. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.
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 REIT II, Inc. and Subsidiaries and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Lightstone Value Plus REIT II, Inc., a Maryland corporation, and, as required by context, Lightstone Value Plus REIT II LP and its wholly owned subsidiaries, which we collectively refer to as the “Operating Partnership”. Dollar amounts are presented in thousands, except per share data, revenue per available room (“RevPAR”), average daily rate (“ADR”), annualized revenue per square foot and where indicated in millions.
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include discussion and analysis of the financial condition of Lightstone Value Plus REIT II, Inc. and our subsidiaries (which may be referred to herein as the “Company,” “we,” “us” or “our”), including our ability to make accretive real estate or real estate-related investments, to rent space on favorable terms, to address our debt maturities and to fund our liquidity requirements, to sell our assets when we believe advantageous to achieve our investment objectives, to fund our anticipated capital expenditures, to meet the amount and timing of anticipated future cash distributions to our stockholders, to grow the estimated net asset value per share of our common stock (“NAV per Share”), and other matters. Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors described below:
| ● | market and economic challenges experienced by the U.S. and global economies or real estate industry as a whole and the local economic conditions in the markets in which our investments are located. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; such as inflation, recession, political upheaval or uncertainty, terrorism and acts of war, natural and man-made disasters, cybercrime, and outbreaks of contagious diseases; | |
| ● | the availability of cash flow from operating activities for distributions, if required to maintain our status as a real estate investment trust, or REIT; | |
| ● | conflicts of interest arising out of our relationships with our advisor and its affiliates; | |
| ● | our ability to retain our executive officers and other key individuals who provide advisory and property management services to us; | |
| ● | our level of debt and the terms and limitations imposed on us by our debt agreements; | |
| ● | the availability of credit generally, and any failure to obtain debt financing at favorable terms or a failure to satisfy the conditions and requirements of that debt; | |
| ● | our ability to make accretive investments; |
| ● | our ability to diversify our portfolio of assets; |
23
| ● | changes in market factors that could impact our rental rates and operating costs; | |
| ● | our ability to secure leases at favorable rental rates; | |
| ● | our ability to sell our assets at a price and on a timeline consistent with our investment objectives; | |
| ● | impairment charges; | |
| ● | unfavorable changes in laws or regulations impacting our business, our assets or our key relationships; and | |
| ● | factors that could affect our ability to qualify as a real estate investment trust. |
Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Report, and may ultimately prove to be incorrect. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results, except as required by applicable law. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.
Cautionary Note
The representations, warranties, and covenants made by us in any agreement filed as an exhibit to this Quarterly Report on Form 10-Q are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties, or covenants to or with any other parties. Moreover, these representations, warranties, or covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.
Business and Structure
Lightstone Value Plus REIT II, Inc. (“Lightstone REIT II”), is a Maryland corporation formed on April 28, 2008, which elected to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with the taxable year ending December 31, 2009.
Lightstone REIT II is structured as an umbrella partnership REIT (“UPREIT”), and substantially all of its current and future business is and will be conducted through Lightstone Value Plus REIT II LP (the “Operating Partnership”), a Delaware limited partnership formed on April 30, 2008. As of September 30, 2023, we held a 99% general partnership interest in our Operating Partnership’s common units.
Lightstone REIT II and the Operating Partnership and its subsidiaries are collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns in this annual report refers to Lightstone REIT II, its Operating Partnership or the Company as required by the context in which such pronoun is used.
Through the Operating Partnership, we own and operate commercial properties and makes real estate-related investments. Since our inception, we have primarily acquired and operated commercial hospitality properties, principally consisting of limited-service-hotels all located in the United States. However, our commercial holdings may also consist of full-service hotels, and to a lesser extent, retail (primarily multi-tenanted shopping centers), industrial and office properties. Our real estate investments are held by us alone or jointly with other parties. In addition, we may invest up to 20% of our net assets in collateralized debt obligations, commercial mortgage-backed securities (“CMBS”) and mortgage and mezzanine loans secured, directly or indirectly, by the same types of properties which we may acquire directly. Although most of our investments are these types, we may invest in whatever types of real estate or real estate-related investments that we believe are in our best interests. We evaluate all of our real estate investments as one operating segment. We currently intend to hold our investments until such time as we determine that a sale or other disposition appears to be advantageous to achieve our investment objectives or until it appears that the objectives will not be met.
24
As of September 30, 2023, we (i) majority owned and consolidated the operating results and financial condition of 10 limited service hotels containing a total of 1,352 rooms, (ii) held an unconsolidated 48.6% membership interest in Brownmill, LLC (the “Brownmill Joint Venture”), an affiliated entity that owns two retail properties, and (iii) held an unconsolidated 50.0% membership interest in LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”), an affiliated real estate entity that owns and operates a hotel. We account for our membership interests in the Brownmill Joint Venture and the Hilton Garden Inn Joint Venture under the equity method of accounting.
The Brownmill Joint Venture owns Browntown Shopping Center, located in Old Bridge, New Jersey, and Millburn Mall, located in Vauxhaull, New Jersey. The Hilton Garden Inn Joint Venture owns a 183-room, limited-service hotel (the “Hilton Garden Inn – Long Island City) located in the Long Island City neighborhood in the Queens borough of New York City. Both the Brownmill Joint Venture and the Hilton Garden Inn Joint Venture are between the Company and related parties.
As of September 30, 2023, five of our consolidated limited service hotels are held in LVP Holdco JV LLC (the “Hotel Joint Venture”), a joint venture formed between us and Lightstone Value Plus REIT I, Inc. (“Lightstone REIT I”), a related party REIT also sponsored by The Lightstone Group, LLC. We and Lightstone REIT I have 97.5% and 2.5% membership interests in the Hotel Joint Venture, respectively. Additionally, as of September 30, 2023, one of our consolidated hotels also has ownership interests held by unrelated minority owners. The membership interests of Lightstone REIT I and the unrelated minority owners are accounted for as noncontrolling interests.
Our advisor is Lightstone Value Plus REIT II LLC (the “Advisor”), which is majority owned by David Lichtenstein. On May 20, 2008, the Advisor contributed $2 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. Our Advisor also owns 20,000 shares of common stock (“Common Shares”) which were issued on May 20, 2008 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 our initial public offering and follow-on offering (the “Follow-On Offering”, and collectively, the “Offerings”), which terminated on August 15, 2012 and September 27, 2014, respectively. Our Advisor, pursuant to the terms of an advisory agreement, together with our board of directors (the “Board of Directors”), is primarily responsible for making investment decisions on our behalf and managing our 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 II LLC, a Delaware limited liability company (the “Associate General Partner”), which owns 177.0 subordinated profits interests (“Subordinated Profits Interests”) in the Operating Partnership which were acquired for aggregate consideration of $17.7 million in connection with our Offerings. Mr. Lichtenstein also acts as our Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT II or the Operating Partnership.
We have no employees. The Advisor and its affiliates perform a full range of real estate services for us, including asset management, accounting, legal, and property management, as well as investor relations services.
We are dependent on the Advisor and its affiliates for services that are essential to us, including asset management and acquisition, disposition and financing activities, and other general administrative responsibilities. If the Advisor and its affiliates are unable to provide these services to us, we would be required to provide the services ourselves or obtain the services from other parties.
We also use other unaffiliated third-party property managers, principally for the management of our hospitality properties.
Our Common Shares are not currently listed on a national securities exchange. We may seek to list our Common Shares for trading on a national securities exchange only if a majority of our independent directors believe listing would be in the best interest of our stockholders. We do not intend to list our Common Shares at this time. We do not anticipate that there would be any market for our Common Shares until they are listed for trading.
On January 17, 2023 our stockholders approved an amendment and restatement to our charter pursuant to which we are no longer required to either (a) amend our charter to extend the deadline to begin the process of achieving a liquidity event, or (b) hold a stockholders meeting to vote on a proposal for an orderly liquidation of our portfolio.
25
Concentration of Credit Risk
As of September 30, 2023 and December 31, 2022, we had cash deposited in certain financial institutions in excess of federally insured levels. We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents or restricted cash.
Current Environment
Our operating results and financial condition 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 and uncertainty as a result of recent banking failures, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, inflation and recession.
Our overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation, higher interest rates, certain labor and supply chain challenges and other changes in economic conditions may adversely affect our results of operations and financial performance.
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 generally accepted accounting principles in the United States of America (“GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period.
Portfolio Summary –
| Location | Year Built | Leasable Square Feet |
Percentage Occupied as of September 30, 2023 |
Annualized
Revenues based on rents as of September 30, 2023 |
Annualized Revenues per square foot as of September 30, 2023 |
||||||||||||||||
| Unconsolidated Affiliated Entities: | |||||||||||||||||||||
| Retail | |||||||||||||||||||||
| Brownmill LLC (2 retail properties) | Old Bridge and Vauxhall, New Jersey | 1962 | 155,975 | 91 | % | $ | 3.0 million | $ | 19.45 | ||||||||||||
Hospitality |
Location |
Year Built |
Year to Date Available Rooms |
Percentage Occupied for the Nine Months Ended September 30, 2023 |
RevPAR for the Nine Months Ended September 30, 2023 |
ADR for the Nine Months Ended September 30, 2023 |
|||||||||||||||
| Hilton Garden Inn - Long Island City | Long Island City, New York | 2014 | 49,959 | 87 | % | $ | 162.02 | $ | 186.25 | ||||||||||||
26
Consolidated Properties:
| Hospitality | Location | Year Built | Year to Date Available Rooms |
Percentage Occupied for the Nine Months Ended September 30, 2023 |
RevPAR for the Nine Months Ended September 30, 2023 |
ADR for the Nine Months Ended September 30, 2023 |
|||||||||||||||
| Fairfield Inn - East Rutherford | East Rutherford, New Jersey | 1990 | 38,493 | 74 | % | $ | 105.70 | $ | 143.32 | ||||||||||||
| Aloft - Tucson | Tucson, Arizona | 1971 | 42,042 | 63 | % | $ | 101.01 | $ | 159.33 | ||||||||||||
| Aloft - Philadelphia | Philadelphia, Pennsylvania | 2008 | 37,128 | 70 | % | $ | 80.81 | $ | 115.71 | ||||||||||||
| Four Points by Sheraton - Philadelphia | Philadelphia, Pennsylvania | 1985 | 48,321 | 75 | % | $ | 71.55 | $ | 95.39 | ||||||||||||
| Courtyard - Willoughby | Willoughby, Ohio | 1999 | 24,570 | 66 | % | $ | 90.30 | $ | 137.48 | ||||||||||||
| Fairfield Inn - Des Moines | West Des Moines, Iowa | 1997 | 27,846 | 63 | % | $ | 71.51 | $ | 113.26 | ||||||||||||
| SpringHill Suites - Des Moines | West Des Moines, Iowa | 1999 | 26,481 | 72 | % | $ | 77.63 | $ | 107.54 | ||||||||||||
| Courtyard - Parsippany | Parsippany, New Jersey | 2001 | 41,223 | 59 | % | $ | 84.63 | $ | 144.32 | ||||||||||||
| Hyatt Place - New Orleans | New Orleans, Louisiana | 1996 | 46,956 | 47 | % | $ | 85.96 | $ | 182.46 | ||||||||||||
| Residence Inn - Needham | Needham, Massachusetts | 2013 | 36,036 | 85 | % | $ | 141.66 | $ | 167.36 | ||||||||||||
| Hospitality Total | 369,096 | 67 | % | $ | 91.22 | $ | 136.39 | ||||||||||||||
Annualized base rent is defined as the minimum monthly base rent due as of September 30, 2023 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.
27
The following information generally applies to our investments in our real estate properties:
| ● | we believe our real estate properties are adequately covered by insurance and suitable for their intended purpose; | |
| ● | our real estate properties are located in markets where we are subject to competition; and | |
| ● | depreciation is provided on a straight-line basis over the estimated useful life of the applicable improvements. |
Critical Accounting Policies and Estimates
There were no material changes during the nine months ended September 30, 2023 to our critical accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2022.
Results of Operations
Disposition Activities
Florida Hotels
On July 18, 2023 and July 21, 2023, we, through majority owned and consolidated subsidiaries (collectively, the “Sellers”), completed the sales of (i) a 126-room limited service hotel located in Miami, Florida (the “Hampton Inn - Miami”) and (ii) a 104-room limited service hotel located in Fort Lauderdale, Florida (the “Hampton Inn & Suites - Fort Lauderdale,” and collectively, the “Florida Hotels”) to unaffiliated third parties for an aggregate contractual sales prices of $28.0 million. In connection with the sale of the Florida Hotels, we recognized a loss on the sale of investment property of $0.2 million during the third quarter of 2023. Previously, during the second quarter of 2023, we recorded a non-cash impairment charge of $5.0 million on the consolidated statements of operations to reduce the carrying value of the Florida Hotels to their fair value less the costs to sell.
Courtyard – Paso Robles
On March 22, 2022, we completed the disposition of a 130-room limited service hotel located in Paso Robles, California (the “Courtyard – Paso Robles”) to an unaffiliated third party for a contractual sales price of $32.3 million. In connection with the disposition of the Courtyard – Paso Robles, we recognized a gain on the sale of investment property of $7.7 million during the first quarter of 2022.
TownePlace Suites - Little Rock
On July 14, 2022, we completed the disposition of a 92-room limited service hotel located in Little Rock, Arkansas (the “TownePlace Suites - Little Rock”) to an unaffiliated third party for a contractual sales price of $5.9 million. In connection with the disposition of the TownePlace Suites - Little Rock, we recognized a gain on the sale of investment property of $0.8 million during the third quarter of 2022.
The dispositions of the Florida Hotels, the Courtyard – Paso Robles and the TownePlace Suites - Little Rock (collectively, the “Dispositions”) did not qualify to be reported as discontinued operations since they did not represent a strategic shift that had a major effect on our operations and financial results. Accordingly, the operating results of the Dispositions are reflected in our results from continuing operations for all periods presented through their respective dates of disposition.
Properties owned by us during the entire periods presented are referred to as our “Same Store” properties.
28
Comparison of the three months ended September 30, 2023 vs. September 30, 2022
Consolidated
Our consolidated revenues, property operating expenses, real estate taxes, and depreciation and amortization for the three months ended September 30, 2023 and 2022 are attributable to our consolidated hospitality properties, including the Dispositions through their respective dates of disposition.
During the three months ended September 30, 2023 compared to same period in 2022, our consolidated hospitality portfolio experienced increases in RevPAR to $92.50 from $87.43 and ADR to $133.65 from $124.01 and a decrease in the percentage of rooms occupied to 69% from 71%.
Revenues
Revenues decreased by $0.9 million to $12.6 million during the three months ended September 30, 2023 compared to $13.5 million for the same period in 2022. The decrease reflects higher revenues of $0.8 million for our Same Store properties, as a result of the higher RevPAR and ADR, offset by the overall decrease in occupancy during the 2023 period, and a reduction in revenues of $1.7 million attributable to the Dispositions.
Property operating expenses
Property operating expenses decreased by $0.7 million to $9.0 million during the three months ended September 30, 2023 compared to $9.7 million for the same period in 2022. Excluding the reduction in property operating expenses of $1.3 million attributable to the Dispositions, our property operating expenses increased by $0.6 million for our Same Store properties. The increase primarily reflects rising costs due to inflation leading to higher room and food expenses of $0.2 million, franchise management fees of $0.1 million, payroll expenses of $0.1 million and all other property operating expenses of $0.2 million.
Real estate taxes
Real estate taxes were unchanged at $0.6 million during both the three months ended September 30, 2023 and 2022.
General and administrative costs
General and administrative costs decreased by $0.3 million to $1.0 million during the three months ended September 30, 2023 compared to $1.3 million for the same period in 2022. The decrease was principally attributable to a decrease in professional fees and asset management fees.
Depreciation and amortization
Depreciation and amortization decreased by $0.4 million to $1.5 million during the three months ended September 30, 2023 compared to $1.9 million for the same period in 2022. The decrease reflects slightly lower depreciation and amortization of $0.1 million for our Same Store properties and a reduction in depreciation and amortization of $0.3 million attributable to the Dispositions.
Interest expense
Interest expense increased by $0.7 million to $2.4 million during the three months ended September 30, 2023 compared to $1.7 million for the same period in 2022. Interest expense is primarily attributable to the mortgage financings associated with our hotels and reflects higher market interest rates on our variable rate indebtedness during the 2023 period as well as changes in the weighted average principal outstanding during the periods.
29
Gain on forgiveness of debt
During the three months ended September 30, 2022, notice was received from the U.S. Small Business Administration that $2.6 million of our Paycheck Protection loans and related accrued interest had been legally forgiven and therefore, we recognized a gain on forgiveness of debt for that amount during the period.
Gain on sale of investment property
During the three months ended September 30, 2023, we recognized a loss on the sale of investment property of $0.2 million related to the sale of the Florida Hotels.
During the three months ended September 30, 2022, we recognized a gain on the sale of investment property of $1.0 million related to the sale of the TownePlace Suites - Little Rock.
Earnings from investments in unconsolidated affiliated real estate entities
Our income from investments in unconsolidated affiliated real estate entities was $0.2 million during the three months ended September 30, 2023 compared to $3.1 million for the same period in 2022. Our earnings from investments in unconsolidated affiliated real estate entities are attributable to our ownership interests in the Hilton Garden Inn Joint Venture and the Brownmill Joint Venture, which we account for under the equity method of accounting.
Noncontrolling interests
The income or loss allocated to noncontrolling interests relates to the interest in our Operating Partnership held by our Advisor, the membership interest held by Lightstone REIT I in the Hotel Joint Venture, and the ownership interests held by unrelated minority owners in one of our hotels.
Comparison of the nine months ended September 30, 2023 vs. September 30, 2022
Consolidated
Our consolidated revenues, property operating expenses, real estate taxes, general and administrative expense and depreciation and amortization for the nine months ended September 30, 2023 and 2022 are attributable to our consolidated hospitality properties, including the Dispositions through their respective dates of disposition.
During the nine months ended September 30, 2023 compared to same period in 2022, our consolidated hospitality portfolio experienced increases in RevPAR to $95.84 from $86.61 and ADR to $138.82 from $126.48 while the percentage of rooms occupied was 69% during both periods.
Revenues
Revenues increased by $0.2 million to $41.9 million during the nine months ended September 30, 2023 compared to $41.7 million for the same period in 2022. The increase reflects higher revenues of $3.4 million for our Same Store properties, as a result of the higher RevPAR and ADR during the 2023 period, substantially offset by a reduction in revenues of $3.2 million attributable to the Dispositions.
30
Property operating expenses
Property operating expenses increased by $0.2 million to $29.5 million during the nine months ended September 30, 2023 compared to $29.3 million for the same period in 2022. Excluding the reduction in property operating expenses of $2.3 million attributable to the Dispositions, our property operating expenses increased by $2.5 million for our Same Store properties. The increase reflects rising costs due to inflation leading to higher room, food and beverage expenses of $1.1 million, franchise management fees of $0.4 million, payroll expenses of $0.4 million and all other property operating expenses of $0.6 million.
Real estate taxes
Real estate taxes decreased by $0.3 million to $1.8 million during the nine months ended September 30, 2023 compared to $2.1 million for the same period in 2022. Excluding the reduction in real estate taxes of $0.1 million attributable to the Dispositions, our real estate taxes decreased by $0.2 million for our Same Store properties.
General and administrative costs
General and administrative costs decreased by $0.5 million to $3.4 million during the nine months ended September 30, 2023 compared to $3.9 million for the same period in 2022. The decrease was principally attributable to a decrease in professional fees and asset management fees.
Depreciation and amortization
Depreciation and amortization decreased by $0.9 million to $5.2 million during the nine months ended September 30, 2023 compared to $6.1 million for the same period in 2022. The decrease reflects slightly lower depreciation and amortization of $0.2 million for our Same Store properties and a reduction in depreciation and amortization of $0.7 million attributable to the Dispositions.
Impairment charge
During the nine months ended September 30, 2023, we recognized an impairment charge of $5.0 million during the second quarter to reduce the carrying value of the Florida Hotels to their fair value less costs to sell.
Interest expense
Interest expense increased by $2.7 million to $7.3 million during the nine months ended September 30, 2023 compared to $4.6 million for the same period in 2022. Interest expense is primarily attributable to the mortgage financings associated with our hotels and reflects higher market interest rates on our variable rate indebtedness during the 2023 period as well as changes in the weighted average principal outstanding during the periods.
Gain on forgiveness of debt
During the nine months ended September 30, 2022, notice was received from the U.S. Small Business Administration that $3.5 million of our Paycheck Protection loans and related accrued interest had been legally forgiven and therefore, we recognized a gain on forgiveness of debt for that amount during the period.
Gain on sale of investment property, net
During the nine months ended September 30, 2023, we recognized a net gain on the sale of investment property of $0.1 million consisting of a third quarter loss on the sale of investment property of $0.2 million related to the sale of the Florida Hotels and a first quarter gain of $0.3 million related to the sale of a hospitality property in 2017.
During the nine months ended September 30, 2022, we recognized an aggregate gain on the sale of investment property of $8.5 million consisting of a first quarter gain of $7.7 million related to the sale of the Courtyard – Paso Robles and a third quarter gain of $0.8 million related to the sale of the TownePlace Suites - Little Rock.
31
Earnings from investments in unconsolidated affiliated real estate entities
Our loss from investments in unconsolidated affiliated real estate entities was $0.1 million during the nine months ended September 30, 2023 compared to income of $3.3 million for the same period in 2022. Our earnings from investments in unconsolidated affiliated real estate entities are attributable to our ownership interests in the Hilton Garden Inn Joint Venture and the Brownmill Joint Venture, which we account for under the equity method of accounting.
Noncontrolling interests
The income or loss allocated to noncontrolling interests relates to the interest in our Operating Partnership held by our Advisor, the membership interest held by Lightstone REIT I in the Hotel Joint Venture, and the ownership interests held by unrelated minority owners in one of our hotels.
Financial Condition, Liquidity and Capital Resources
Overview:
As of September 30, 2023, we had $41.1 million of cash on hand and marketable securities of $9.1 million. We currently believe that these items, along with revenues from our properties, interest and dividend income on our marketable securities, proceeds from the potential sale of marketable securities, and potential distributions received from our unconsolidated affiliated entities will be sufficient to satisfy our expected cash requirements for at least twelve months from the date of filing this report, which primarily consist of our anticipated operating expenses, scheduled debt service (excluding balloon payments due at maturity), capital expenditures (excluding non-recurring capital expenditures), contributions to our unconsolidated affiliated entities, redemptions and cancellations of shares of our Common Shares, if approved, and distributions, if any, required to maintain our status as a REIT for the foreseeable future. However, we may also obtain additional funds through additional selective asset dispositions, joint venture arrangements, new borrowings and refinancing of existing borrowings.
As of September 30, 2023, we had mortgage indebtedness totaling $101.8 million. We have and intend to continue to limit our aggregate long-term permanent borrowings to 75% of the aggregate fair market value of all properties unless any excess borrowing is approved by a majority of our independent directors and is disclosed to our stockholders. Market conditions will dictate the overall leverage limit; as such our aggregate long-term permanent borrowings may be less than 75% of aggregate fair market value of all properties. We may also incur short-term indebtedness, having a maturity of two years or less.
Our charter provides that the aggregate amount of our borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a justification 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. Market conditions will dictate our overall leverage limit; as such our aggregate borrowings may be less than 300% of net assets. As of September 30, 2023, our total borrowings aggregated $101.8 million which represented 64% of our net assets.
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. This loan is due on demand and any outstanding balance must be paid upon the liquidation of securities.
Any future properties that we may acquire may be funded through a combination of borrowings and the proceeds received from the selective disposition of certain of our real estate assets. 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.
32
We may also obtain lines of credit to be used to acquire properties. If obtained, 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 and/or permanent financing. Our Sponsor and/or its affiliates may guarantee our lines of credit although they are not obligated to do so. We expect that such properties may be purchased by our Sponsor’s affiliates on our behalf, in our name, in order to minimize the imposition of a transfer tax upon a transfer of such properties to us.
We have various agreements, including an advisory agreement, with the Advisor to pay certain fees in exchange for services performed by the Advisor and/or its affiliated entities. Additionally, our ability to secure financing and our real estate operations are dependent upon our Advisor and its affiliates to perform such services as provided in these agreements.
In addition to meeting working capital needs and distributions, if any, made to maintain our status as a REIT, our capital resources are used to make certain payments to our Advisor, including payments related to asset acquisition fees and asset management fees, and the reimbursement of acquisition-related expenses to our Advisor. We also reimburse our advisor for actual expenses it incurs for administrative and other services provided to us.
The advisory agreement has a one year term and is renewable for an unlimited number of successive one year periods upon the mutual consent of the Advisor and our independent directors.
The following table represents the fees incurred associated with the payments to our Advisor for the periods indicated:
| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Asset management fees (general and administrative costs) | $ | 580 | $ | 663 | $ | 1,896 | $ | 2,081 | ||||||||
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 Nine Months Ended September 30, |
||||||||
| 2023 | 2022 | |||||||
| Cash (used in)/provided by operating activities | $ | (842 | ) | $ | 1,928 | |||
| Cash provided by investing activities | 21,075 | 46,280 | ||||||
| Cash used in financing activities | (21,228 | ) | (21,953 | ) | ||||
| (995 | ) | 26,255 | ||||||
| Cash, cash equivalents and restricted cash, beginning of year | 42,566 | 16,959 | ||||||
| Cash, cash equivalents and restricted cash, end of the period | $ | 41,571 | $ | 43,214 | ||||
Operating activities
The cash used in operating activities of $0.8 million for the nine months ended September 30, 2023 consisted of our net loss of $10.5 million plus a net gain recognized on the sale of investment property of $0.1 million and net changes in operating assets and liabilities of $1.1 million; partially offset by an impairment charge, depreciation and amortization, amortization of deferred financing costs and other non-cash items aggregating $10.9 million and the loss from investments in unconsolidated affiliated entities of $0.1 million.
33
Investing activities
The cash provided by investing activities of $21.1 million for the nine months ended September 30, 2023 consists primarily of the following:
| ● | capital expenditures of $0.8 million; |
| ● | aggregate capital contributions of $0.4 million to the Hilton Garden Inn Joint Venture; |
| ● | net proceeds of $26.8 million related to the disposition of the Florida Hotels; |
| ● | net purchases of marketable securities of $5.1 million; and |
| ● | aggregate distributions of $0.6 million received from the Brownmill Joint Venture and the Hilton Garden Inn Joint Venture. |
Financing activities
The cash used in financing activities of $21.2 million for the nine months ended September 30, 2023 consists primarily of the following:
| ● | debt principal payments of $16.7 million; |
| ● | payment of loan fees and expenses of $0.1 million; |
| ● | redemption and cancellation of common shares of $1.6 million; |
| ● | distributions paid to noncontrolling interests of $0.3 million; and |
| ● | distributions paid to common stockholders of $2.6 million. |
Distributions on Common Shares
On August 14, 2023, the Board of Directors authorized and we declared a Common Share distribution of $0.075 per share for the quarterly period ending September 30, 2023. The distribution is the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. On or about October 15, 2023, the distribution for the three-month period ending September 30, 2023 of $1.3 million was paid in cash.
On November 13, 2023, the Board of Directors authorized and we declared a Common Share distribution of $0.075 per share for the quarterly period ending December 31, 2023. The distribution is the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. 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.
Future distributions declared, if any, 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. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, revenues and other sources of income, operating and interest expenses and our ability to refinance near-term debt as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. We cannot assure that any future distributions will be made or that we will maintain any particular level of distributions that we have previously established or may establish.
34
SRP
Our share repurchase program (the “SRP”) may provide eligible stockholders with limited, interim liquidity by enabling them to sell Common Shares back to us, subject to restrictions and applicable law.
On March 19, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of all redemptions.
Effective May 10, 2021, the Board of Directors partially reopened the SRP to allow, subject to various conditions as set forth below, for redemptions submitted in connection with a stockholder’s death and hardship, respectively, and set the price for all such purchases to our current estimated net asset value per share of common stock, as determined by our board of directors and reported by us from time to time. Deaths that occurred subsequent to January 1, 2020 were eligible for consideration, subject to certain conditions. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by us within one year of the stockholder’s date of death for consideration.
On the above noted date, the Board of Directors established that on an annual basis, we would not redeem in excess of 0.5% of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Additionally, redemption requests generally would be processed on a quarterly basis and would be subject to proration if either type of redemption requests exceeded the annual limitation.
For the nine months ended September 30, 2023, we repurchased 157,931 Common Shares at a weighted average price per share of $10.04. For the nine months ended September 30, 2022, we repurchased 136,298 Common Shares at a weighted average price per share of $8.80.
Contractual Mortgage Obligations
The following is a summary of our estimated contractual mortgage obligations outstanding over the next five years and thereafter as of September 30, 2023.
| Contractual Mortgage Obligations | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | |||||||||||||||||||||
| Principal maturities | $ | - | $ | - | $ | - | $ | 101,818 | $ | - | $ | - | $ | 101,818 | ||||||||||||||
| Interest payments(1) | 1,475 | 9,077 | 9,052 | 7,168 | - | - | 26,772 | |||||||||||||||||||||
| Total Contractual Mortgage Obligations | $ | 1,475 | $ | 9,077 | $ | 9,052 | $ | 108,986 | $ | - | $ | - | $ | 128,590 | ||||||||||||||
Note:
| (1) | These amounts represent future interest payments related to our mortgage payable obligations based on the interest rates specified in the associated debt agreement. All variable rate debt agreements are based on the one-month SOFR rate. For purposes of calculating future interest amounts on variable interest rate debt the one-month SOFR rate as of September 30, 2023 was used. |
Revolving Credit Facility
We have a nonrecourse Revolving Credit Facility with a financial institution pursuant to which we may designate our hotel properties as collateral and borrow up a maximum 65% loan-to-value ratio, subject to meeting certain prescribed financial covenants and a maximum borrowing amount. The Revolving Credit Facility provides for monthly interest-only payments with the outstanding principal balance due at its final maturity. The Revolving Credit Facility also requires the maintenance of certain financial covenants, including prescribed minimum debt service coverage and debt yield ratios which may also be achieved through principal paydowns on the outstanding balance.
35
The Revolving Credit Facility was scheduled to mature on September 15, 2023 but its maturity was further extended until the Revolving Credit Facility was amended and restated on October 23, 2023, at which time the following key terms were adjusted:
| ● | The Revolving Credit Facility’s maturity date was extended by three years to September 15, 2026 with two additional one-year extension options at the sole discretion of the lender; |
| ● | The maximum borrowing amount under the Revolving Credit Facility was reduced from $140.0 million to $106.0 million (of which $101.8 million was outstanding); |
| ● | The interest rate was changed from AMERIBOR plus 3.15%, subject to a 4.00% floor, to SOFR plus 3.45%, subject to a 6.45% floor; |
| ● | Phased increases to the prescribed minimum financial ratios throughout the term of the Revolving Credit Facility; |
| ● | We deposited $4.0 million into a cash collateral reserve account, of which all or a portion may be applied by the lender as a principal paydown if necessary to achieve the prescribed minimum financial ratios for the quarterly period ended December 31, 2023. Excess funds remaining in the cash collateral reserve account, if any, will be released to us. |
On September 6, 2022, in connection with a previous extension of the maturity of the Revolving Credit Facility to September 15, 2023, its interest rate was changed from LIBOR plus 3.15%, subject to a 4.00% floor, to AMERIBOR plus 3.15%, subject to a 4.00% floor.
In connection with any disposition of any hotel pledged under the Revolving Credit Facility, we are required to make a principal paydown on its outstanding balance in exchange for the hotel’s release from the designated collateral pool. In connection with the disposition of the TownePlace Suites – Little Rock on July 14, 2022, a required principal paydown of $4.6 million was made on the Revolving Credit Facility reducing its outstanding principal balance to from $123.1 million to $118.5 million. In connection with the dispositions of the Florida Hotels on July 18, 2023 and July 21, 2023, required principal paydowns aggregating $16.7 million were made on the Revolving Credit Facility reducing its outstanding principal balance from $118.5 million to $101.8 million.
As of September 30, 2023, our 10 majority-owned and consolidated hotel properties were all pledged as collateral under the Revolving Credit Facility and the outstanding principal balance was $101.8 million. Additionally, no additional borrowings were available under the Revolving Credit Facility as of September 30, 2023.
As of September 30, 2023, we were in compliance with respect to all of our financial debt covenants.
In addition to the mortgage payable described above, we have access to a margin loan from a financial institution that holds custody of certain of our marketable securities. The margin loan 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. No amounts were outstanding under this margin loan as of September 30, 2023. Any borrowings under the margin loan bear interest at SOFR plus 0.85% (6.17 as of September 30, 2023).
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.
36
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, 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 incurred for business combinations, amounts relating to deferred rent receivables and amortization of market lease and other intangibles, net (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), accretion of discounts and amortization of premiums on debt investments and borrowings, mark-to-market adjustments included in net income (including gains or losses incurred on assets held for sale), gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. Certain of the above adjustments are also made to reconcile net income (loss) to net cash provided by (used in) operating activities, such as for the amortization of a premium and accretion of a discount on debt and securities investments, amortization of fees, any unrealized gains (losses) on derivatives, securities or other investments, as well as other adjustments.
37
MFFO excludes non-recurring impairment of real estate-related investments. We assess the credit quality of our investments and adequacy of reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. We consider the estimated net recoverable value of a loan as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive situation of the region where the borrower does business.
We believe that, because MFFO excludes costs that we consider more reflective of 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 once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.
Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO.
Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guidelines or the SEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry, and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.
38
The below table illustrates the items deducted from or added to net income/(loss) in the calculation of FFO and MFFO. Items are presented net of noncontrolling interest portions where applicable.
| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net (loss)/income | $ | (1,423 | ) | $ | 4,920 | $ | (10,520 | ) | $ | 10,811 | ||||||
| FFO adjustments: | ||||||||||||||||
| Depreciation and amortization of real estate assets | 1,498 | 1,878 | 5,167 | 6,069 | ||||||||||||
| Loss/(gain) on sale of investment property | 225 | (843 | ) | (114 | ) | (8,524 | ) | |||||||||
| Income tax on sale of real estate | - | - | 1,162 | - | ||||||||||||
| Impairment charge | - | - | 5,000 | - | ||||||||||||
| Adjustments to equity in earnings from unconsolidated affiliated entities | 417 | (2,191 | ) | 1,242 | (1,307 | ) | ||||||||||
| FFO | 717 | 3,764 | 1,937 | 7,049 | ||||||||||||
| MFFO adjustments: | ||||||||||||||||
| Adjustments to equity in earnings from unconsolidated affiliated entities | 21 | (246 | ) | 62 | (236 | ) | ||||||||||
| Gain on forgiveness of debt(1) | - | (2,622 | ) | - | (3,474 | ) | ||||||||||
| Mark-to-market adjustments(2) | 12 | 8 | 126 | 398 | ||||||||||||
| Non-recurring (gains)/losses from extinguishment/sale of debt, derivatives or securities holdings(1) | - | - | - | 83 | ||||||||||||
| MFFO - IPA recommended format | $ | 750 | $ | 904 | $ | 2,125 | $ | 3,820 | ||||||||
| Net (loss)/income | $ | (1,423 | ) | $ | 4,920 | $ | (10,520 | ) | $ | 10,811 | ||||||
| Less: loss/(income) attributable to noncontrolling interests | (15 | ) | (56 | ) | 144 | (55 | ) | |||||||||
| Net (loss)/income applicable to Company’s common shares | $ | (1,438 | ) | $ | 4,864 | $ | (10,376 | ) | $ | 10,756 | ||||||
| Net (loss)/income per common share, basic and diluted | $ | (0.08 | ) | $ | 0.28 | $ | (0.61 | ) | $ | 0.62 | ||||||
| FFO | $ | 717 | $ | 3,764 | $ | 1,937 | $ | 7,049 | ||||||||
| Less: FFO attributable to noncontrolling interests | (60 | ) | (99 | ) | 13 | (187 | ) | |||||||||
| FFO attributable to Company’s common shares | $ | 657 | $ | 3,665 | $ | 1,950 | $ | 6,862 | ||||||||
| FFO per common share, basic and diluted | 0.04 | $ | 0.21 | $ | 0.12 | $ | 0.40 | |||||||||
| MFFO - IPA recommended format | $ | 750 | $ | 904 | $ | 2,125 | $ | 3,820 | ||||||||
| Less: MFFO attributable to noncontrolling interests | (60 | ) | (52 | ) | (112 | ) | (121 | ) | ||||||||
| MFFO attributable to Company’s common shares | $ | 690 | $ | 852 | $ | 2,013 | $ | 3,699 | ||||||||
| Weighted average number of common shares outstanding, basic and diluted | 17,036 | 17,207 | 17,101 | 17,247 | ||||||||||||
| (1) | 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. |
| (2) | Management believes that adjusting for mark-to-market adjustments is appropriate because they are nonrecurring items that may not be reflective of ongoing operations and reflects unrealized impacts on value based only on then current market conditions, although they may be based upon current operational issues related to an individual property or industry or general market conditions. Mark-to-market adjustments are made for items such as ineffective derivative instruments, certain marketable 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. |
39
The table below presents our cumulative distributions declared and cumulative FFO attributable to our common shares:
| For the period April 28, 2008 (date of inception) through September 30, 2023 |
||||
| FFO attributable to Company’s common shares | $ | 79,560 | ||
| Distributions declared | $ | 88,885 | ||
New Accounting Pronouncements
See Note 2 of the Notes to Consolidated Financial Statements for further information of any accounting standards that have been adopted during 2023 and any 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.
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 significant deficiencies or material weaknesses identified in the evaluation, and therefore, no corrective actions were taken.
40
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, we are 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 our results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, we have 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
Recent Sales of Unregistered Securities
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
None.
ITEM 5. OTHER INFORMATION
None.
41
ITEM 6. EXHIBITS
| * | Filed herewith |
42
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 REIT II, INC. | ||
| Date: November 14, 2023 | By: | /s/ David Lichtenstein |
| David Lichtenstein | ||
|
Chairman and Chief Executive Officer (Principal Executive Officer) | ||
| Date: November 14, 2023 | By: | /s/ Seth Molod |
| Seth Molod | ||
|
Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) | ||
43