UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
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 | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of August 7, 2024, the Registrant had approximately million shares of common stock outstanding.
LIGHTSTONE VALUE PLUS REIT V, INC.
INDEX
i
PART I
FINANCIAL INFORMATION
| Item 1. | Financial Statements. |
Lightstone Value Plus REIT V, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
| June 30, 2024 |
December 31, 2023 |
|||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Investment property: | ||||||||
| Land and improvements | $ | $ | ||||||
| Building and improvements | ||||||||
| Furniture, fixtures and equipment | ||||||||
| Gross investment property | ||||||||
| Less accumulated depreciation | ( |
) | ( |
) | ||||
| Net investment property | ||||||||
| Cash and cash equivalents | ||||||||
| Marketable securities, available for sale | ||||||||
| Restricted cash | ||||||||
| Note receivable, net | ||||||||
| Prepaid expenses and other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Notes payable, net | $ | $ | ||||||
| Accounts payable and accrued and other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Company’s stockholders’ equity: | ||||||||
| Preferred stock, $ par value per share; million shares authorized, issued and outstanding | ||||||||
| Convertible stock, $ par value per share; shares authorized, issued and outstanding | ||||||||
| Common stock, $ par value per share; million shares authorized, million and million shares issued and outstanding, respectively | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated other comprehensive loss | ( |
) | ( |
) | ||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See Notes to Consolidated Financial Statements.
1
Lightstone Value Plus REIT V, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(Dollars and shares in thousands, except per share amounts)
(unaudited)
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Rental revenues | $ | $ | $ | $ | ||||||||||||
| Expenses | ||||||||||||||||
| Property operating expenses | ||||||||||||||||
| Real estate taxes | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total expenses | ||||||||||||||||
| Interest expense, net | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Interest income | ||||||||||||||||
| Mark to market adjustment on derivative financial instruments | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other expense, net | ( |
) | ( |
) | ( |
) | ( | |||||||||
| Net loss | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
| Basic and diluted loss per share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Comprehensive loss: | ||||||||||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Other comprehensive income/(loss): | ||||||||||||||||
| Holding gain/(loss) on marketable securities, available for sale | ( |
) | ||||||||||||||
| Reclassification adjustment for loss on sale of marketable securities included in net loss | ||||||||||||||||
| Total other comprehensive income/(loss) | ( |
) | ||||||||||||||
| Comprehensive loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
See Notes to Consolidated Financial Statements.
2
Lightstone Value Plus REIT V, Inc.
Consolidated Statements of Stockholders’ Equity
(Dollars and shares in thousands)
(unaudited)
| Convertible Stock | Common Stock | Additional Paid-In |
Accumulated Other Comprehensive |
Accumulated | Total Stockholders’ |
|||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Equity | |||||||||||||||||||||||||
| BALANCE, December 31, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Redemption and cancellation of common stock | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Other comprehensive income: | ||||||||||||||||||||||||||||||||
| Holding gain on marketable securities, available for sale | - | - | ||||||||||||||||||||||||||||||
| Reclassification adjustment for loss on sale of marketable securities included in net loss | - | - | ||||||||||||||||||||||||||||||
| BALANCE, June 30, 2023 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Convertible Stock | Common Stock | Additional Paid-In |
Accumulated Other Comprehensive |
Accumulated | Total Stockholders’ |
|||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Equity | |||||||||||||||||||||||||
| BALANCE, March 31, 2023 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Redemption and cancellation of common stock | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Other comprehensive loss: | ||||||||||||||||||||||||||||||||
| Holding loss on marketable securities, available for sale | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Reclassification adjustment for loss on sale of marketable securities included in net loss | - | - | ||||||||||||||||||||||||||||||
| BALANCE, June 30, 2023 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Convertible Stock | Common Stock | Additional Paid-In |
Accumulated Other Comprehensive |
Accumulated | Total Stockholders’ |
|||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Equity | |||||||||||||||||||||||||
| BALANCE, March 31, 2024 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Redemption and cancellation of common stock | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Other comprehensive income: | ||||||||||||||||||||||||||||||||
| Holding gain on marketable securities, available for sale | - | - | ||||||||||||||||||||||||||||||
| Reclassification adjustment for loss on sale of marketable securities included in net loss | - | - | ||||||||||||||||||||||||||||||
| BALANCE, June 30, 2024 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Convertible Stock | Common Stock | Additional Paid-In |
Accumulated Other Comprehensive |
Accumulated | Total Stockholders’ |
|||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Equity | |||||||||||||||||||||||||
| BALANCE, December 31, 2023 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Redemption and cancellation of common stock | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Other comprehensive income: | ||||||||||||||||||||||||||||||||
| Holding gain on marketable securities, available for sale | - | - | ||||||||||||||||||||||||||||||
| Reclassification adjustment for loss on sale of marketable securities included in net loss | - | - | ||||||||||||||||||||||||||||||
| BALANCE, June 30, 2024 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
See Notes to Consolidated Financial Statements.
3
Lightstone Value Plus REIT V, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(unaudited)
| For the Six Months Ended June 30, |
||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of deferred financing fees | ||||||||
| Mark to market adjustment on derivative financial instruments | ||||||||
| Non-cash interest income | ( |
) | ||||||
| Other non-cash adjustments | ( |
) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Increase in prepaid expenses and other assets | ( |
) | ( |
) | ||||
| Increase/(decrease) in accounts payable and accrued and other liabilities | ( |
) | ||||||
| Cash provided by operating activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of investment property | ( |
) | ( |
) | ||||
| Purchases of marketable securities | ( |
) | ( |
) | ||||
| Proceeds from sale of marketable securities | ||||||||
| Funding of note receivable, net | ( |
) | ||||||
| Proceeds from repayment of note receivable, net | ||||||||
| Cash provided by/(used in) investing activities | ( |
) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from notes payable | ||||||||
| Payments on notes payable | ( |
) | ( |
) | ||||
| Redemption and cancellation of common stock | ( |
) | ( |
) | ||||
| 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 taxes | $ | $ | ||||||
| Capital expenditures for investment property in accounts payable and accrued and other liabilities | $ | $ | ||||||
| Holding gain 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 | $ | $ |
See Notes to Consolidated Financial Statements.
4
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data and where indicated in millions)
| 1. | Business |
Lightstone Value Plus REIT V, Inc. (“Lightstone REIT V,” which may also be referred to as the “Company,” “we,” “us,” or “our”), was organized as a Maryland corporation on January 9, 2007 and currently qualifies, as a real estate investment trust (“REIT”) for United States (“U.S.”) federal income tax purposes.
The Company was formed primarily to acquire and operate commercial real estate and real estate-related assets on an opportunistic and value-add basis. In particular, the Company has focused generally on acquiring commercial properties with significant possibilities for capital appreciation, such as those requiring development, redevelopment, or repositioning, those located in markets and submarkets with high growth potential, and those available from sellers who are distressed or face time-sensitive deadlines. Since its inception, the Company has acquired a wide variety of commercial properties, including office, industrial, retail, hospitality, multifamily and student housing. The Company has purchased existing, income-producing properties, and newly-constructed properties. The Company has also invested in other real estate-related investments such as mortgage and mezzanine loans. The Company has made its investments in or in respect of real estate assets located in the U.S. and other countries based on its view of existing market conditions.
Substantially all of the Company’s business is conducted through Lightstone REIT V OP LP, a limited partnership organized in Delaware (the “Operating Partnership”). As of June 30, 2024, the Company’s wholly-owned subsidiary, BHO II, Inc., a Delaware corporation, owned a
All of the Company’s current investments are located in the U.S. The Company currently intends to hold its various real properties until such time as its board of directors (the “Board of Directors”) determines that a sale or other disposition appears to be advantageous to achieve the Company’s investment objectives or until it appears that the objectives will not be met. The Company currently has one operating segment. As of June 30, 2024, the Company wholly owned and consolidated eight multifamily real estate properties containing an aggregate of 2,520 apartment units (see Note 5).
The Company’s business is externally managed by LSG Development Advisor LLC (the “Advisor”), an affiliate of the Lightstone Group LLC (“Lightstone”), which provides advisory services to us. Lightstone is majority owned by David Lichtenstein, a member of the Board of Directors. Pursuant to the terms of an advisory agreement and subject to the oversight of the Board of Directors, the Advisor is responsible for managing the Company’s day-to-day affairs and for services related to the management of its assets.
The Company has no employees. The Company is dependent on the Advisor and its affiliates for performing a full range of services that are essential to it, including asset management, property management, property management oversight (for those of its properties which are managed by an unrelated third party property manager) and acquisition, disposition and financing activities, and other general administrative responsibilities; such as tax, accounting, legal, information technology and investor relations services. 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.
See Note 9 for additional information.
Organization
In connection with the Company’s initial capitalization, the Company issued shares of its common stock (“Common Shares”) and shares of its convertible stock to the Company’s former advisor on January 19, 2007. The shares of convertible stock were transferred to an affiliate of Lightstone on February 10, 2017 and remain outstanding. As of June 30, 2024, the Company had million Common Shares outstanding.
5
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data and where indicated in millions)
The Company’s Common Shares are not currently listed on a national securities exchange. The timing of a liquidity event for the Company’s stockholders will depend upon then prevailing market conditions and the Board of Directors’ assessment of the Company’s investment objectives and liquidity options for the Company’s stockholders. Although the Board of Directors has currently targeted June 30, 2028 for the commencement of a liquidity event, the Company can provide no assurances as to the actual timing of the commencement of a liquidity event for its stockholders or the ultimate liquidation of the Company. Furthermore, the Company will seek stockholder approval prior to liquidating its entire portfolio.
| 2. | Summary of Significant Accounting Policies |
Interim Unaudited Financial Information
The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes as contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”), which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 28, 2024. The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of the results for the periods presented. The accompanying unaudited consolidated financial statements of Lightstone REIT V, Inc. have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.
Principles of Consolidation and Basis of Presentation
The Company’s consolidated financial statements includes its accounts and the accounts of other subsidiaries over which the Company has control. All inter-company transactions, balances, and profits have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on applicable 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.
The consolidated balance sheet as of December 31, 2023 included herein has been derived from the consolidated balance sheet included in the 2023 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.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, basic and diluted earnings per share is calculated by dividing net income/(loss) by the weighted-average number of Common Shares outstanding during the applicable period.
6
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data and where indicated in millions)
Tax Status and Income Taxes
The Company has elected to be taxed as a REIT commencing with the taxable year ended December 31, 2008. As a REIT, it generally will not be subject to U.S. federal income tax on its taxable income or capital gain that it distributes to its stockholders. To maintain its REIT qualification, the Company must meet a number of organizational and operational requirements, including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed at the regular corporate rate, and it may be precluded from qualifying for treatment as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders. Additionally, even if the Company continues to qualify as a REIT, it may still be subject to some U.S. federal, state and local taxes on its income and property and to U.S. federal income taxes and excise taxes on its undistributed income, if any.
To maintain its qualification as a REIT, the Company may engage in certain activities through a wholly-owned taxable REIT subsidiary. As such, the Company may be subject to U.S. federal and state income and franchise taxes from these activities.
The Company’s income tax
expense and benefits are included in other expense, net on its consolidated statements of operations. During the three and six
months ended June 30, 2024, the Company recorded income tax expense of $
As of June 30, 2024 and December 31, 2023, the Company had
Concentration of Credit Risk
As of June 30, 2024 and December 31, 2023, 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 or restricted cash.
New Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board, or FASB, issued an accounting standards update, “Segment Reporting-Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The amendments will require entities to disclose significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within segment profit and loss, as well as the title and position of the CODM. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is evaluating the guidance and the impact it may have on its consolidated financial statements.
In December 2023, the FASB issued an accounting standards update, “Income Taxes-Improvements to Income Tax Disclosures,” which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. This update is effective for annual periods beginning after December 15, 2024. The Company is evaluating the guidance and the impact it may have on its consolidated financial statements.
The Company has reviewed and determined that other recently issued accounting pronouncements will not have a material impact on its financial position, results of operations and cash flows, or do not apply to its current operations.
7
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data and where indicated in millions)
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 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, labor and supply chain challenges and other changes in economic conditions could adversely affect the Company’s future results from operations and its financial condition.
| 3. | Note Receivable |
On February 28, 2019, the Company, as the lender, and an unrelated third party (the “Loan Borrower”), as the borrower, entered into a loan promissory note (the “Mezzanine Loan”), pursuant to which the Company funded an aggregate $
During March 2023, the Company
and Loan Borrower refinanced the remaining outstanding principal and interest due under the Mezzanine Loan resulting in a new $
As of December 31, 2023,
the carrying amount of the Senior Mortgage Loan was $
| 4. | Financial Instruments |
The Company determined the following disclosure of estimated fair values using available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data and develop the related estimates of fair value. The use of different market assumptions or only estimation methodologies may have a material effect on the estimated fair value amounts.
As of June 30, 2024 and December 31, 2023, the Company estimated that the carrying value of its cash and cash equivalents, restricted cash, note receivable, prepaid expenses and other assets (exclusive of interest rate cap contracts - see Note 6), and accounts payable and accrued and other liabilities were at amounts that reasonably approximated their fair value based on their highly-liquid nature and/or short-term maturities.
8
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data and where indicated in millions)
The fair value of the notes payable is categorized as a Level 2 in the fair value hierarchy. The fair value was estimated using a discounted cash flow analysis valuation on the estimated borrowing rates currently available for loans with similar terms and maturities. The fair value of the notes payable was determined by discounting the future contractual interest and principal payments by a market rate. Disclosure about fair value of financial instruments is based on pertinent information available to management as of June 30, 2024 and December 31, 2023. Carrying amounts of the Company’s notes payable and the related estimated fair value is summarized as follows:
| As of June 30, 2024 |
As of December 31, 2023 |
|||||||||||||||
| Carrying Amount |
Estimated Fair Value |
Carrying Amount |
Estimated Fair Value |
|||||||||||||
| Notes payable | $ | $ | $ | $ | ||||||||||||
| 5. | Real Estate Properties |
The following table presents certain information about the Company’s wholly owned and consolidated multifamily real estate properties as of June 30, 2024:
| Property Name | Location | Date Acquired | ||
| Arbors Harbor Town | ||||
| Parkside Apartments | ||||
| Axis at Westmont | ||||
| Valley Ranch Apartments | ||||
| Autumn Breeze Apartments | ||||
| BayVue Apartments | ||||
| Citadel Apartments | ||||
| Camellia World Apartments |
| 6. | Marketable Securities, Derivative Financial Instruments and Fair Value Measurements |
Marketable Securities
The following is a summary of the Company’s available for sale securities as of the dates indicated:
| As of June 30, 2024 | ||||||||||||||||
| Debt securities: | Adjusted Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||||
| Corporate and Government Bonds | $ | $ | $ | ( |
) | $ | ||||||||||
| As of December 31, 2023 | ||||||||||||||||
| Debt securities: | Adjusted Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | ||||||||||||
| Corporate and Government Bonds | $ | $ | $ | ( |
) | $ | ||||||||||
9
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data and where indicated in millions)
As of June 30, 2024, the Company has not recognized an allowance for expected credit losses related to its available-for-sale debt securities as the Company has not identified any unrealized losses for these investments attributable to credit factors. The Company’s unrealized loss on investments in corporate and government bonds was primarily caused by an increase in market interest rates. The Company does not currently intend to sell these investments and therefore, it is more likely than not that the Company will not be required to sell these investments before the recovery of their amortized cost basis.
The following table summarizes the estimated fair value of the Company’s investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:
| As of June 30, 2024 |
||||
| Due in 1 year | $ | |||
| Due in 1 year through 5 years | ||||
| Due in 5 years through 10 years | ||||
| Due after 10 years | ||||
| Total | $ | |||
Derivative Financial Instruments
The Company has entered into interest rate cap contracts with unrelated financial institutions in order to reduce the effect of increases to interest rates associated with certain of its variable rate debt. The Company is exposed to credit risk in the event of non-performance by the counterparty to these financial instruments. Management believes the risk of loss due to non-performance is minimal.
The Company accounts for its interest rate cap contracts as economic hedges marking them to their fair value taking into account present interest rates compared to the contracted fixed rate over the life of the contract. The changes in the fair value of these economic hedges represent unrealized gains or losses which are classified as mark to market adjustment on derivative financial instruments on the consolidated statements of operations.
The fair value of the
Company’s interest rate cap contracts was $
For the three and six
months ended June 30, 2024, the Company recorded unrealized losses of $
During the three and six
months ended June 30, 2024, the Company earned $
10
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data and where indicated in millions)
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
| ● | Level 1 – Quoted prices in active markets for identical assets or liabilities. | |
| ● | Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
| ● | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The fair values of the Company’s investments in debt securities are measured using quoted prices for these investments; however, the markets for these assets are not active. The fair values of the Company’s interest rate cap contracts are measured using other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. As of June 30, 2024 and December 31, 2023, all of the Company’s debt securities and interest rate cap contracts were classified as Level 2 assets and there were no transfers between the level classifications during the six months ended June 30, 2024 and 2023.
11
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data and where indicated in millions)
| 7. | Notes Payable |
Notes payable consists of the following:
| Property | Interest Rate | Weighted Average Interest Rate for the Six Months Ended June 30, 2024 |
Maturity Date | Amount Due at Maturity |
As of June 30, 2024 |
As of December 31, 2023 |
||||||||||||||
| Arbors Harbor Town | $ | $ | $ | |||||||||||||||||
| Arbors Harbor Town Supplemental | ||||||||||||||||||||
| Parkside Apartments | ||||||||||||||||||||
| Axis at Westmont | ||||||||||||||||||||
| Valley Ranch Apartments | ||||||||||||||||||||
| Autumn Breeze Apartments | ||||||||||||||||||||
| BayVue Apartments | SOFR + (floor 3.21%) |
|||||||||||||||||||
| Citadel Apartments Senior | SOFR + (floor 1.71%) |
|||||||||||||||||||
| Citadel Apartments Junior | SOFR + (floor 8.96%) |
|||||||||||||||||||
| Camellia World Apartments | ||||||||||||||||||||
| Total notes payable | $ | |||||||||||||||||||
| Less: Deferred financing costs | ( |
) | ( |
) | ||||||||||||||||
| Total notes payable, net | $ | $ | ||||||||||||||||||
SOFR as of June 30,
2024 and December 31, 2023 was
12
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data and where indicated in millions)
Citadel Apartments Mortgages
On October 6, 2021, the Company entered into a non-recourse mortgage loan facility for up to $
The Citadel Apartments Mortgages, which initially mature on October 11, 2024, have two one-year extension options, subject to the satisfaction of certain conditions, and are both collateralized by the Citadel Apartments. However, the Citadel Apartments Junior Mortgage is subordinate to the Citadel Apartments Senior Mortgage.
Pursuant to the terms of
the Citadel Apartments Mortgages, the Company is required to enter into one or more interest rate cap contracts in the aggregate
notional amount of $
Although the Citadel Apartments Mortgages are currently scheduled to mature on October 11, 2024, the Company currently intends to exercise the first of its two one-year extension options to extend the maturity of the Citadel Apartments Mortgages to October 11, 2025. If the Company extends the maturity of the Citadel Apartments Mortgages, it will be required to enter into another interest rate cap contract at substantially similar terms as the interest rate cap contract that matures on October 11, 2024, pursuant to the terms of the Citadel Apartments Mortgages.
The Company did not meet the debt service coverage ratio with respect to the Citadel Apartments Mortgages for the quarterly period ended June 30, 2024, and therefore, the lender has the option of retaining any excess cashflow, as defined.
BayVue Apartments Mortgage
On July 7, 2021, the
Company entered into a non-recourse mortgage loan facility for up to $
Pursuant to the terms of
the BayVue Apartments Mortgage, the Company is required to enter into one or more interest rate cap contracts in the aggregate
notional amount of $
13
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data and where indicated in millions)
As of June 30, 2024, the outstanding principal balance and remaining availability under the BayVue Apartments Mortgage was $
The following table provides information with respect to the contractual maturities and scheduled principal repayments of the Company’s indebtedness as of June 30, 2024, but after taking into consideration the aforementioned extension of the maturity of the BayVue Apartments Mortgage to July 9, 2025.
| 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | Total | ||||||||||||||||||||||
| Principal maturities | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Less: Deferred financing costs | ( |
) | ||||||||||||||||||||||||||
| Total notes payable, net | $ | |||||||||||||||||||||||||||
As of June 30, 2024, other than the debt service coverage ratio with respect to the Citadel Apartments Mortgages discussed above, the Company was in compliance with all of its financial debt covenants.
| 8. | Stockholders’ Equity |
Amended SRP
On November 10, 2022, the Board of Directors adopted a Seventh Amended and Restated Share Redemption Program (the “Amended SRP”), which became effective on January 1, 2023. Under the terms of the Amended SRP, any stockholder may request redemption of their Common Shares, subject to the significant conditions and limitations of the program. Additionally, under the terms of the Amended SRP, the Company will redeem Common Shares at 85% of the Company’s most recently published net asset value (“NAV”) per Common Share (“NAV per Share”) in effect as of the date the request for redemption is approved.
Pursuant to the terms of the Amended SRP, any Common Shares approved for redemption are redeemed on a periodic basis as determined by the Board of Directors, generally expected to be shortly after the end of each calendar quarterly period. However, the Company will not redeem, during any calendar year, more than of the number of Common Shares outstanding on last day of the previous calendar year (the “5% Limitation”). The cash available for redemption of Common Shares will be set by the Board of Directors not less often than annually (the “Funding Limitation” and, together with the 5% Limitation, the “Redemption Limitations”). The Board of Directors has set the amount of cash available for redemption of shares for both of the years ended December 31, 2024 and 2023 at $ million, which is generally to be allocated $2.0 million for each calendar quarterly period. The Company may change the amount of the Redemption Limitations upon 10 business days’ notice to its stockholders and will provide notice of any change to the Redemption Limitations by including such information in (a) a Current Report on Form 8-K or in its annual or quarterly reports, all publicly filed with the SEC or (b) a separate mailing to its stockholders.
Redemption requests will be honored pro rata among all requests received subject to the Redemption Limitations and will not be honored on a first come, first served basis.
14
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data and where indicated in millions)
The Board of Directors reserves the right in its sole discretion at any time and from time to time, subject to any notice requirements described in our Amended SRP, to (1) reject any request for redemption of Common Shares, (2) change the purchase price for redemption of Common Shares, (3) limit the funds to be used for redemption of Common Shares under the Amended SRP or otherwise change the Redemption Limitations, or (4) amend, suspend (in whole or in part) or terminate the Amended SRP.
For the six months ended
June 30, 2024, the Company repurchased
Distributions
The Company did
| 9. | Related Party Transactions |
The Company’s business is externally managed by the Advisor which provides advisory services to the Company and the Company has no employees. Pursuant to the terms of an advisory agreement and subject to the oversight of the Board of Directors, the Advisor is responsible for managing the Company’s day-to-day affairs and for services related to the management of the Company’s assets.
The Company has agreements with the Advisor and its affiliates to pay certain fees and reimburse certain expenses in connection with services performed and costs incurred by these entities and other related parties. The Company is dependent on the Advisor and its affiliates for performing a full range of services that are essential to it, including asset management, property management, property management oversight (for those properties which are managed by an unrelated third party property manager) and acquisition, disposition and financing activities, and other general administrative responsibilities; such as tax, accounting, legal, information technology and investor relations services. If the Advisor and its affiliates are unable to provide these services to it, the Company would be required to provide the services itself or obtain the services from other parties.
The advisory agreement has a one-year term and is renewable annually upon the mutual consent of the Advisor and the Company’s independent directors.
The following table represents the fees incurred associated with the payments to the Company’s Advisor and its affiliates for the periods indicated:
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Acquisition fees and acquisition expense reimbursement(1) | $ | $ | $ | $ | ||||||||||||
| Property management oversight fees (property operating expenses) | ||||||||||||||||
| Administrative services reimbursement (general and administrative costs) | ||||||||||||||||
| Asset management fees (general and administrative costs) | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| (1) |
15
Lightstone Value Plus REIT V, Inc.
Notes to Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands, except per share data and where indicated in millions)
| 10. | Commitments and Contingencies |
Legal Proceedings
From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.
As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss.
16
| 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 and the notes thereto. Dollar and share amounts are presented in thousands, except per share data 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 V, 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, 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, our anticipated capital expenditures, the amount and timing of future cash distributions, if any, to our stockholders, the estimated net asset value (“NAV”) 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 United States (“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 (“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; | |
| ● | changes in market factors that could impact our rental rates and operating costs; | |
| ● | our ability to secure leases at favorable rental rates; |
17
| ● | 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 continue to qualify as a REIT. |
Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Quarterly Report on Form 10-Q, 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.
Executive Overview
We were formed primarily to acquire and operate commercial real estate and real estate-related assets on an opportunistic and value-add basis. In particular, we have focused generally on acquiring commercial properties with significant possibilities for capital appreciation, such as those requiring development, redevelopment or repositioning, those located in markets and submarkets with high growth potential, and those available from sellers who were distressed or faced time-sensitive deadlines. In addition, our opportunistic and value-add investment strategy has included investments in real estate-related assets that present opportunities for higher current income. Since our inception, we have acquired a wide variety of commercial properties, including office, industrial, retail, hospitality, multifamily and student housing. We have purchased existing, income-producing properties and newly constructed properties. We have also invested in mortgage and mezzanine loans. We have made our investments in or in respect of real estate assets located in the U.S. and other countries based on our view of existing market conditions.
All of our current investments are located in the U.S. We currently intend to hold our various real properties until such time as our board of directors (the “Board of Directors”) determines 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. We currently have one operating segment. As of June 30, 2024, we wholly owned and consolidated eight multifamily real estate properties containing an aggregate 2,520 apartment units.
Current Environment
Our operating results are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility and 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, labor and supply chain challenges, and other changes in economic conditions, could adversely affect our future results of operations and financial condition.
18
Liquidity and Capital Resources
As of June 30, 2024, we had cash and cash equivalents of $62.9 million, marketable securities, available for sale of $3.7 million and restricted cash of $5.6 million.
Our principal demands for funds going forward are expected to be for the payment of (a) operating expenses, including capital expenditures, and (b) scheduled debt service on our outstanding indebtedness, including any required replacement interest rate cap contracts. We also may, at our discretion, use funds for (a) tender offers and/or redemptions of shares of our common stock, (b) distributions, if any, to our shareholders, and (c) selective acquisitions and/or real estate-related investments. Generally, we expect to meet our cash needs with our cash and cash equivalents and marketable securities on hand along with our cash flow from operations, the release of certain funds held in restricted cash and the remaining availability of $4.8 million on one of our non-recourse mortgage loans (the “BayVue Apartments Mortgage”).
However, to the extent that these sources are not sufficient to cover our cash needs, we may use proceeds from additional borrowings and/or selective asset sales to fund such needs.
Our non-recourse mortgage loan facilities (the “Citadel Apartments Mortgages”), which had aggregate outstanding principal balances of $49.0 million as of June 30, 2024, are currently scheduled to mature on October 11, 2024, but have two one-year extension options, subject to the satisfaction of certain conditions. We currently intend to exercise the first extension option to extend the maturity date of the Citadel Apartments Mortgages to October 11, 2025, as discussed in Note 7 of the Notes to Consolidated Financial Statements.
On July 8, 2024, we exercised the first of two, one-year extension options, subject to the satisfaction of certain conditions, extending the maturity of our BayVue Apartments Mortgage, which had an outstanding principal balance of $47.4 million as of June 30, 2024, to July 9, 2025. We currently intend to exercise the remaining extension option to extend the maturity date of the BayVue Apartments Mortgage to July 9, 2026, as discussed in Note 7 of the Notes to Consolidated Financial Statements.
We have borrowed money to acquire properties and make other investments. Under our charter, the maximum amount of our indebtedness is limited to 300% of our “net assets” (as defined by our charter) as of the date of any borrowing; however, we may exceed that limit if approved by a majority of our independent directors. In addition to our charter limitation, our Board of Directors has adopted a policy to generally limit our borrowings to 75% of the value of our assets unless substantial justification exists that borrowing a greater amount is in our best interests. Our policy limitation, however, does not apply to individual real estate assets.
Concentration of Credit Risk
As of June 30, 2024 and December 31, 2023, 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.
Results of Operations
We currently have one operating segment. As of June 30, 2024, we wholly owned and consolidated eight multifamily real estate properties.
Recent Acquisition and Disposition Activities
Acquisition of the Camellia World Apartments
On December 19, 2023, we acquired a 210-unit multifamily property located in St. Augustine, Florida (the “Camellia World Apartments”), from an unrelated third party, for a contractual purchase price of $53.3 million, plus closing and other acquisition related costs totaling $1.1 million. The acquisition was funded with $33.9 million of proceeds from a mortgage financing (the “Camellia World Apartments Mortgage”) and $20.5 million of funds that had been temporarily placed in escrow with a qualified intermediary in connection with the Company’s disposition of a 306-unit multifamily property located in Fishers, Indiana (the “Flats at Fishers”).
Additionally, in connection with the acquisition of the Camellia World Apartments, the Advisor received an aggregate of $1.1 million in acquisition fees, acquisition expense reimbursements and debt financing fees.
19
Disposition of the Flats at Fishers
On November 1, 2023, we completed the disposition of Flats at Fishers for a contractual sales price of $71.0 million. In connection with the disposition of the Flats at Fishers, its non-recourse mortgage loan (the “Flats at Fishers Mortgage”) of $27.7 million was defeased at a cost of $27.1 million and its non-recourse subordinated mortgage loan (the “Flats at Fisher Supplemental Mortgage”) of $8.9 million was repaid in full. Our net proceeds from the disposition of the Flats at Fishers were $33.8 million, after the aforementioned defeasance of the Flats at Fishers Mortgage and the repayment of the Flats at Fisher Supplemental Mortgage, pro rations, and closing and other related transaction costs. In connection with the disposition of Flats at Fishers, we recognized a gain on sale of investment property of $41.1 million during the fourth quarter of 2023.
The disposition of the Flats at Fishers did not qualify to be reported as discontinued operations since it did not represent a strategic shift that had a major effect on our operations and financial results. Accordingly, the operating results of the Flats at Fishers are reflected in our results from continuing operations for all periods presented through its date of disposition.
The net proceeds from the disposition of the Flats of Fishers of $33.8 million were placed in an escrow with a qualified intermediary to potentially facilitate a Section 1031 exchange transaction pursuant to the requirements of the Internal Revenue Code and as described above, $20.8 million of these funds were used in connection with our acquisition of the Camellia World Apartments on December 19, 2023. An additional $0.1 million of these funds were used for other acquisition related costs in the first quarter of 2024. The remaining funds of $13.2 million were released to us on May 2, 2024.
Three months ended June 30, 2024 as compared to the three months ended June 30, 2023.
Our results of operations for the three months ended June 30, 2024 compared to the same period in 2023 reflect our acquisition and disposition activities during such periods. Properties which were owned by us during the entire periods presented are referred to as our “Same Store” properties.
The following table provides summary information about our results of operations:
| Three Months Ended June 30, |
Increase/ | Percentage | Change due to |
Change due to |
Change due to Same |
|||||||||||||||||||||||
| 2024 | 2023 | (Decrease) | Change | Acquisitions(1) | Dispositions(2) | Store(3) | ||||||||||||||||||||||
| Rental revenues | $ | 12,506 | $ | 12,660 | $ | (154 | ) | (1.0 | %) | $ | 999 | $ | (1,459 | ) | $ | 306 | ||||||||||||
| Property operating expenses | 3,935 | 4,093 | (158 | ) | (4.0 | %) | 410 | (466 | ) | (102 | ) | |||||||||||||||||
| Real estate taxes | 1,754 | 1,826 | (72 | ) | (4.0 | %) | 143 | (211 | ) | (4 | ) | |||||||||||||||||
| General and administrative | 1,871 | 1,906 | (35 | ) | (2.0 | %) | - | (14 | ) | (21 | ) | |||||||||||||||||
| Depreciation and amortization | 3,837 | 3,466 | 371 | 11.0 | % | 701 | (419 | ) | 89 | |||||||||||||||||||
| Interest expense, net | 3,810 | 3,623 | 187 | 5.0 | % | (565 | ) | 384 | 368 | |||||||||||||||||||
| (1) | Represents the effect on our operating results for the periods indicated resulting from our acquisition of the Camellia World Apartments on December 19, 2023. |
| (2) | Represents the effect on our results for the periods indicated resulting from our disposition of the Flats at Fishers on November 1, 2023. |
| (3) | Represents the change for three months ended June 30, 2024 compared to the same period in 2023 for real estate and real estate-related investments owned by us during the entire periods presented (“Same Store”). Same Store properties for the periods ended June 30, 2024 and 2023 include Arbors Harbor Town, Parkside Apartments, Axis at Westmont, Valley Ranch Apartments, Autumn Breeze Apartments, Citadel Apartments and Bay Vue Apartments. |
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The following table reflects total rental revenues and total property operating expenses for the three months ended June 30, 2024 and 2023 for our Same Store properties, acquisition and disposition:
| Three Months Ended June 30, |
||||||||||||
| Description | 2024 | 2023 | Change | |||||||||
| Rental revenues: | ||||||||||||
| Same Store | $ | 11,507 | $ | 11,201 | $ | 306 | ||||||
| Acquisition | 999 | - | 999 | |||||||||
| Disposition | - | 1,459 | (1,459 | ) | ||||||||
| Total rental revenues | $ | 12,506 | $ | 12,660 | $ | (154 | ) | |||||
| Property operating expenses: | ||||||||||||
| Same Store | $ | 3,525 | $ | 3,627 | $ | (102 | ) | |||||
| Acquisition | 410 | - | 410 | |||||||||
| Disposition | - | 466 | (466 | ) | ||||||||
| Total property operating expenses | $ | 3,935 | $ | 4,093 | $ | (158 | ) | |||||
The tables below reflect occupancy and effective monthly rental rates for our eight multifamily real estate properties as of the dates indicated:
| Occupancy | Effective Monthly Rent per Unit(1) |
|||||||||||||||
| As of June 30, |
As of June 30, |
|||||||||||||||
| Property | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Arbors Harbor Town | 91 | % | 90 | % | $ | 1,693 | $ | 1,698 | ||||||||
| Parkside Apartments | 93 | % | 94 | % | $ | 1,435 | $ | 1,435 | ||||||||
| Axis at Westmont | 96 | % | 96 | % | $ | 1,587 | $ | 1,509 | ||||||||
| Valley Ranch Apartments | 94 | % | 95 | % | $ | 1,858 | $ | 1,798 | ||||||||
| Autumn Breeze Apartments | 94 | % | 98 | % | $ | 1,529 | $ | 1,426 | ||||||||
| BayVue Apartments | 92 | % | 94 | % | $ | 1,586 | $ | 1,520 | ||||||||
| Citadel Apartments | 95 | % | 94 | % | $ | 1,739 | $ | 1,697 | ||||||||
| Camellia World Apartments(2) | 90 | % | N/A | $ | 1,698 | N/A | ||||||||||
| (1) | Effective monthly rent is calculated as in-place contracted monthly rental revenue, including any premiums due for short-term or month-to-month leases, less any concessions or discounts. |
| (2) | Camellia World Apartments were acquired on December 19, 2023. |
Revenues Rental revenues for the three months ended June 30, 2024 were $12.5 million, a decrease of $0.2 million, compared to $12.7 million for the same period in 2023. Excluding the effect of our recent acquisition and disposition activities discussed above, our rental revenues increased by $0.3 million for our Same Store properties during the 2024 period. This increase reflects the higher average monthly rent per unit for most of our Same Store properties during the 2024 period as well as the changes in occupancy during the periods.
Property Operating Expenses Property operating expenses for the three months ended June 30, 2024 were $3.9 million, a decrease of $0.2 million, compared to $4.1 million for the same period in 2023. Excluding the effect of our recent acquisition and disposition activities discussed above, our property operating expenses decreased slightly by $0.1 million for our Same Store properties during the 2024 period.
21
Real Estate Taxes Real estate taxes for both the three months ended June 30, 2024 and 2023 were $1.8 million.
General and Administrative Expenses General and administrative expenses for both the three months ended June 30, 2024 and 2023 were $1.9 million.
Depreciation and Amortization Depreciation and amortization expense for the three months ended June 30, 2024 was $3.8 million, an increase of $0.3 million, compared to $3.5 million for the same period in 2023. Excluding the effect of our recent acquisition and disposition activities discussed above, our depreciation and amortization expenses increased slightly by $0.1 million for our Same Store properties during the 2024 period.
Interest Expense, Net Interest expense, net for the three months ended June 30, 2024 was $3.8 million, an increase of $0.2 million, compared to $3.6 million for the same period in 2023. Interest expense is primarily attributable to financings associated with our multifamily real estate properties and reflects both changes in market interest rates on our variable rate indebtedness and the weighted average principal outstanding during each of the periods. Excluding the effect of our recent acquisition and disposition activities discussed above, interest expense, net for our Same Store properties increased by $0.4 million during the 2024 period. Additionally, during the three months ended June 30, 2024 and 2023, we earned $0.8 million and $0.6 million, respectively, from our interest rate cap contracts which is recorded in interest expense, net.
Mark to Market Adjustment on Derivative Financial Instruments During both the three months ended June 30, 2024 and 2023, we recorded negative mark to market adjustment of $0.7 million. These mark to market adjustments represented the change in the fair value of our interest rate cap contracts during the applicable period.
Six months ended June 30, 2024 as compared to the six months ended June 30, 2023.
Our results of operations for the six months ended June 30, 2024 compared to the same period in 2023 reflect our acquisition and disposition activities during such periods. Properties which were owned by us during the entire periods presented are referred to as our “Same Store” properties.
The following table provides summary information about our results of operations:
| Six Months Ended June 30, |
Increase/ | Percentage | Change due to |
Change due to |
Change due to Same |
|||||||||||||||||||||||
| 2024 | 2023 | (Decrease) | Change | Acquisitions(1) | Dispositions(2) | Store(3) | ||||||||||||||||||||||
| Rental revenues | $ | 24,909 | $ | 24,973 | $ | (64 | ) | 0.0 | % | $ | 1,960 | $ | (2,869 | ) | $ | 845 | ||||||||||||
| Property operating expenses | 7,836 | 7,993 | (157 | ) | (2.0 | %) | 734 | (847 | ) | (44 | ) | |||||||||||||||||
| Real estate taxes | 3,515 | 3,700 | (185 | ) | (5.0 | %) | 288 | (420 | ) | (53 | ) | |||||||||||||||||
| General and administrative | 3,813 | 3,769 | 44 | 1.0 | % | 9 | (24 | ) | 59 | |||||||||||||||||||
| Depreciation and amortization | 7,659 | 6,906 | 753 | 11.0 | % | 1,402 | (839 | ) | 190 | |||||||||||||||||||
| Interest expense, net | 7,620 | 7,221 | 399 | 6.0 | % | (1,130 | ) | 765 | 764 | |||||||||||||||||||
| (1) | Represents the effect on our operating results for the periods indicated resulting from our acquisition of the Camellia World Apartments on December 19, 2023. |
| (2) | Represents the effect on our results for the periods indicated resulting from our disposition of the Flats at Fishers on November 1, 2023. |
| (3) | Represents the change for six months ended June 30, 2024 compared to the same period in 2023 for real estate and real estate-related investments owned by us during the entire periods presented (“Same Store”). Same Store properties for the periods ended June 30, 2024 and 2023 include Arbors Harbor Town, Parkside Apartments, Axis at Westmont, Valley Ranch Apartments, Autumn Breeze Apartments, Citadel Apartments and Bay Vue Apartments. |
22
The following table reflects total rental revenues and total property operating expenses for the six months ended June 30, 2024 and 2023 for our Same Store properties, acquisition and disposition:
| Six Months Ended June 30, |
||||||||||||
| Description | 2024 | 2023 | Change | |||||||||
| Rental revenues: | ||||||||||||
| Same Store | $ | 22,949 | $ | 22,104 | $ | 845 | ||||||
| Acquisition | 1,960 | - | 1,960 | |||||||||
| Disposition | - | 2,869 | (2,869 | ) | ||||||||
| Total rental revenues | $ | 24,909 | $ | 24,973 | $ | (64 | ) | |||||
| Property operating expenses: | ||||||||||||
| Same Store | $ | 7,092 | $ | 7,136 | $ | (44 | ) | |||||
| Acquisition | 734 | - | 734 | |||||||||
| Disposition | 10 | 857 | (847 | ) | ||||||||
| Total property operating expenses | $ | 7,836 | $ | 7,993 | $ | (157 | ) | |||||
Revenues Rental revenues for the six months ended June 30, 2024 were $24.9 million, a decrease of $0.1 million, compared to $25.0 million for the same period in 2023. Excluding the effect of our recent acquisition and disposition activities discussed above, our rental revenues increased by $0.8 million for our Same Store properties during the 2024 period. This increase reflects the higher average monthly rent per unit for most of our Same Store properties during the 2024 period as well as the changes in occupancy during the periods.
Property Operating Expenses Property operating expenses for the six months ended June 30, 2024 were $7.8 million, a decrease of $0.2 million, compared to $8.0 million for the same period in 2023. Excluding the effect of our recent acquisition and disposition activities discussed above, our property operating expenses were relatively flat during the 2024 period.
Real Estate Taxes Real estate taxes for the six months ended June 30, 2024 were $3.5 million, a decrease of $0.2 million, compared to $3.7 million for the same period in 2023. Excluding the effect of our recent acquisition and disposition activities discussed above, our real estate taxes decreased slightly by $0.1 million for our Same Store properties during the 2024.
General and Administrative Expenses General and administrative expenses for both the six months ended June 30, 2024 and 2023 were $3.8 million.
Depreciation and Amortization Depreciation and amortization expense for the six months ended June 30, 2024 was $7.7 million, an increase of $0.8 million, compared to $6.9 million for the same period in 2023. Excluding the effect of our recent acquisition and disposition activities discussed above, our depreciation and amortization expenses increased by $0.2 million for our Same Store properties during the 2024 period.
Interest Expense, Net Interest expense, net for the six months ended June 30, 2024 was $7.6 million, an increase of $0.4 million, compared to $7.2 million for the same period in 2023. Interest expense is primarily attributable to financings associated with our multifamily real estate properties and reflects both changes in market interest rates on our variable rate indebtedness and the weighted average principal outstanding during each of the periods. Excluding the effect of our recent acquisition and disposition activities discussed above, interest expense, net for our Same Store properties increased by $0.8 million during the 2024 period. Additionally, during the six months ended June 30, 2024 and 2023, we earned $1.6 million and $1.3 million, respectively, from the interest rate cap contracts which is recorded in interest expense, net.
Mark to Market Adjustment on Derivative Financial Instruments During the six months ended June 30, 2024 and 2023, we recorded negative mark to market adjustment of $1.4 million and $1.2 million, respectively. These mark to market adjustments represented the change in the fair value of our interest rate cap contracts during the applicable period.
23
Related Party Transactions
Our business is externally managed by LSG Development Advisor LLC (the “Advisor”), an affiliate of the Lightstone Group LLC (“Lightstone”) which provides advisory services to us and we have no employees. Lightstone is majority owned by David Lichtenstein, a member of the Board of Directors. Pursuant to the terms of an advisory agreement and subject to the oversight of our Board of Directors, the Advisor is responsible for managing our day-to-day affairs and for services related to the management of our assets.
We have agreements with the Advisor and its affiliates to pay certain fees and reimburse certain expenses in connection with services performed and costs incurred by these entities and other related parties. We are dependent on the Advisor and its affiliates for performing a full range of services that are essential to us, including asset management, property management, property management oversight (for those properties which are managed by an unrelated third party property manager) and acquisition, disposition and financing activities, and other general administrative responsibilities; such as tax, accounting, legal, information technology and investor relations services. 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.
The advisory agreement has a one-year term and is renewable annually upon the mutual consent of our Advisor and our independent directors.
The following table represents the fees incurred associated with the payments to our Advisor and its affiliates for the periods indicated:
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Acquisition fees and acquisition expense reimbursement(1) | $ | - | $ | - | $ | - | $ | 21 | ||||||||
| Property management oversight fees (property operating expenses) | 135 | 135 | 267 | 270 | ||||||||||||
| Administrative services reimbursement (general and administrative costs) | 392 | 377 | 783 | 753 | ||||||||||||
| Asset management fees (general and administrative costs) | 898 | 907 | 1,798 | 1,813 | ||||||||||||
| Total | $ | 1,425 | $ | 1,419 | $ | 2,848 | $ | 2,857 | ||||||||
| (1) | Capitalized to the corresponding asset and amortized over its estimated useful life. |
Summary of Cash Flows
Operating activities
The cash provided by operating activities of $3.4 million for the six months ended June 30, 2024 consisted of our net loss of $5.5 million plus the net negative change in operating assets and liabilities of $0.9 million adjusted to add back the negative mark to market adjustments on derivative financial instruments of $1.4 million, depreciation and amortization of $7.7 million and amortization of deferred financing costs of $0.7 million.
Investing activities
The cash provided by investing activities of $3.2 million for the six months ended June 30, 2024 consisted primarily of payments received on our note receivable of $4.9 million partially offset by capital expenditures of $1.7 million.
Financing activities
The cash used in financing activities of $4.6 million for the six months ended June 30, 2024 consisted primarily of principal payments on notes payable of $0.9 million and redemptions and cancellation of common stock of $4.0 million offset by proceeds from notes payable of $0.2 million.
24
Debt Financings
From time to time, we have obtained mortgage, bridge, or mezzanine loans for acquisitions and investments, as well as property development, redevelopment and renovations. In the future, we may obtain new financings for such activities or to refinance our existing real estate assets, depending on multiple factors.
Our notes payable balance was $287.1 million, net of deferred financing fees of $2.0 million, and had a weighted average interest rate of 5.84% as of June 30, 2024. Our notes payable balance was $287.0 million, net of deferred financing fees of $2.8 million, and had a weighted average interest rate of 5.02% as of December 31, 2023.
Derivative Financial Instruments
We have entered into interest rate cap contracts with unrelated financial institutions in order to reduce the effect of increases to interest rates associated with certain of our variable rate debt. We are exposed to credit risk in the event of non-performance by the counterparty to these financial instruments. Management believes the risk of loss due to non-performance is minimal.
We account for our interest rate cap contracts as economic hedges marking them to their fair market value taking into account present interest rates compared to the contracted fixed rate over the life of the contract. The changes in the fair value of these economic hedges represent unrealized gains or losses on the interest rate cap contracts which are classified as mark to market adjustment on derivative financial instruments on the consolidated statements of operations.
Pursuant to the terms of our BayVue Apartments Mortgage and our Citadel Apartments Mortgages, we are required to enter into one or more interest rate cap contracts which cap SOFR at prescribed amounts for as long as these mortgages remain outstanding.
As of June 30, 2024, we had two interest rate cap contracts. The first interest rate cap contract, which was entered into at a cost of $1.4 million on July 17, 2023 with an effective date of July 15, 2023, had a notional amount of $52.2 million, matured on July 15, 2024 and effectively capped SOFR at 2.50% during its term. The second interest rate cap contract, which was entered into at a cost of $0.8 million on March 13, 2024 with an effective date of April 11, 2024, has a notional amount of $49.0 million, matures on October 11, 2024 and effectively caps SOFR at 2.00% during its term. Additionally, on July 8, 2024, we entered into another interest rate cap contract with an unrelated financial institution at a cost of $1.1 million. This interest rate cap contract has substantially similar terms as the interest rate cap contract that matured on July 15, 2024 and is effective from July 15, 2024 through its maturity on July 15, 2025.
Contractual Obligations
One of our principal short-term and long-term liquidity requirements includes the debt service payments on our outstanding notes payable. The following table provides information with respect to the contractual maturities and scheduled principal repayments of our indebtedness, as of June 30, 2024, but after taking into consideration the aforementioned extension of the maturity of the BayVue Apartments Mortgage to July 9, 2025.
| Contractual Obligations | 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | Total | |||||||||||||||||||||
| Principal Maturities | $ | 49,873 | $ | 64,755 | $ | 112,877 | $ | 654 | $ | 676 | $ | 60,313 | $ | 289,148 | ||||||||||||||
| Interest Payments(1) | 7,773 | 10,657 | 4,003 | 3,023 | 3,008 | 3,263 | 31,727 | |||||||||||||||||||||
| Total Contractual Obligations | $ | 57,646 | $ | 75,412 | $ | 116,880 | $ | 3,677 | $ | 3,684 | $ | 63,576 | $ | 320,875 | ||||||||||||||
| (1) | These amounts represent future interest payments related to notes payable obligations based on the fixed and variable interest rates specified in the associated debt agreement. All variable rate debt agreements are based on the one-month SOFR rate. For purposes of calculating future interest amounts on variable interest rate debt the one-month SOFR rate as of June 30, 2024 was used. |
As of June 30, 2024, we were in compliance with all of our financial debt covenants.
25
Funds from Operations and Modified Funds from Operations
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and 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.
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 generally accepted accounting principles in the U.S. (“GAAP”).
We calculate FFO, a non-GAAP measure, consistent with the standards established over time by the Board of Governors of NAREIT, as restated in a White Paper approved by the Board of Governors of NAREIT effective in December 2018 (the “White Paper”). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Our FFO calculation complies with NAREIT’s definition.
We believe that the use of FFO provides a more complete understanding of our performance to investors and to management and reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.
Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT’s definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.
Because of these factors, the Investment Program Association (the “IPA”), an industry trade group, published a standardized measure of performance known as modified funds from operations (“MFFO”), which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that both before and after we have deployed all of our offering proceeds and are no longer incurring a significant amount of acquisition fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP.
26
We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the “Practice Guideline”) issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction-related fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and exclude acquisition and transaction-related fees and expenses (which includes costs incurred in connection with strategic alternatives), amounts relating to 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.
We believe that, because MFFO excludes costs that we consider more reflective of acquisition activities and other non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.
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.
27
Our calculations of FFO and MFFO are presented below (dollars and shares in thousands, except per share amounts):
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
| Description | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Net loss | $ | (3,044 | ) | $ | (2,640 | ) | $ | (5,549 | ) | $ | (4,627 | ) | ||||
| FFO adjustments: | ||||||||||||||||
| Depreciation and amortization of real estate assets | 3,837 | 3,466 | 7,659 | 6,906 | ||||||||||||
| Income tax on sale of real estate | 740 | 631 | 740 | 631 | ||||||||||||
| FFO | 1,533 | 1,457 | 2,850 | 2,910 | ||||||||||||
| MFFO adjustments: | ||||||||||||||||
| Other adjustments: | ||||||||||||||||
| Mark to market adjustments(1) | 665 | 664 | 1,389 | 1,190 | ||||||||||||
| Non-recurring loss from extinguishment/sale of debt, derivatives or securities holdings(2) | 10 | 6 | 9 | 8 | ||||||||||||
| MFFO - IPA recommended format | $ | 2,208 | $ | 2,127 | $ | 4,248 | $ | 4,108 | ||||||||
| Net loss | $ | (3,044 | ) | $ | (2,640 | ) | $ | (5,549 | ) | $ | (4,627 | ) | ||||
| Net loss per common share, basic and diluted | $ | (0.16 | ) | $ | (0.13 | ) | $ | (0.29 | ) | $ | (0.23 | ) | ||||
| FFO | $ | 1,533 | $ | 1,457 | $ | 2,850 | $ | 2,910 | ||||||||
| FFO per common share, basic and diluted | $ | 0.08 | $ | 0.07 | $ | 0.15 | $ | 0.15 | ||||||||
| Weighted average number of common shares outstanding, basic and diluted | 19,280 | 19,918 | 19,361 | 19,977 | ||||||||||||
| 1) | Management believes that adjusting for mark-to-market adjustments is appropriate because they are nonrecurring items that may not be reflective of ongoing operations and reflects unrealized impacts on value based only on then current market conditions, although they may be based upon current operational issues related to an individual property or industry or general market conditions. Mark-to-market adjustments are made for items such as ineffective derivative instruments, certain marketable equity securities and any other items that GAAP requires we make a mark-to-market adjustment for. The need to reflect mark-to-market adjustments is a continuous process and is analyzed on a quarterly and/or annual basis in accordance with GAAP. |
| 2) | 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. |
28
Amended SRP
On November 10, 2022, the Board of Directors adopted a Seventh Amended and Restated Share Redemption Program (the “Amended SRP”), which became effective on January 1, 2023. Under the terms of the Amended SRP, any stockholder may request redemption of their Common Shares, subject to the significant conditions and limitations of the program. Additionally, under the terms of the Amended SRP, we will redeem Common Shares at 85% of our most recently published net asset value (“NAV”) per Common Shares (“NAV per Share”) in effect as of the date the request for redemption is approved.
Pursuant to the terms of the Amended SRP, any Common Shares approved for redemption are redeemed on a periodic basis as determined by the Board of Directors, generally expected to be shortly after the end of each calendar quarterly period. However, we will not redeem, during any calendar year, more than 5% of the number of Common Shares outstanding on last day of the previous calendar year (the “5% Limitation”). The cash available for redemption of Common Shares will be set by the Board of Directors not less often than annually (the “Funding Limitation” and, together with the 5% Limitation, the “Redemption Limitations”). The Board of Directors has set the amount of cash available for redemption of shares for both of the years ended December 31, 2024 and 2023 at $8.0 million, which is generally to be allocated $2.0 million for each calendar quarterly period. We may change the amount of the Redemption Limitations upon 10 business days’ notice to its stockholders and will provide notice of any change to the Redemption Limitations by including such information in (a) a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC or (b) a separate mailing to our stockholders.
Redemption requests will be honored pro rata among all requests received subject to the Redemption Limitations and will not be honored on a first come, first served basis.
The Board of Directors reserves the right in its sole discretion at any time and from time to time, subject to any notice requirements described in our Amended SRP, to (1) reject any request for redemption of Common Shares, (2) change the purchase price for redemption of Common Shares, (3) limit the funds to be used for redemption of Common Shares under the Amended SRP or otherwise change the Redemption Limitations, or (4) amend, suspend (in whole or in part) or terminate the Amended SRP.
For the six months ended June 30, 2024, we repurchased 304,414 Common Shares, pursuant to our Amended SRP at a weighted average price of $13.14. For the six months ended June 30, 2023, we repurchased 169,651 Common Shares, pursuant to its Amended SRP at a weighted average price of $12.67.
Distributions
We made an election to qualify as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2008. U.S. federal tax law requires a REIT to distribute at least 90% of its annual 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. In order to continue to qualify for REIT status, we may be required to make distributions in excess of cash available. Distributions, if any, are authorized at the discretion of our Board of Directors based on their analysis of our performance over the previous periods and expectations of performance for future periods. Such analyses may include actual and anticipated operating cash flow, capital expenditure needs, general financial and market conditions, proceeds from asset sales and other factors that our Board of Directors deems relevant. Our Board of Directors’ decisions will be substantially influenced by the intention to maintain our federal tax status as a REIT. However, we cannot provide assurance that we will pay distributions at any particular level, or at all.
We did not make any distributions to our stockholders during the six months ended June 30, 2024 and 2023.
29
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On a regular basis, we evaluate these estimates, including investment impairment. These estimates include such items as impairment of long-lived assets, depreciation and amortization, and allowance for doubtful accounts. Actual results could differ from those estimates.
Our critical accounting policies and estimates have not changed significantly from the discussion found in the Management Discussion and Analysis and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023 which was filed with the SEC on March 26, 2024.
| Item 4. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our principal executive officer and principal financial officer, evaluated, as of June 30, 2024, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e) using the criteria established in Internal Control-New Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective, as of June 30, 2024, to provide reasonable assurance that information required to be disclosed by us in this report is recorded, processed, summarized, and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.
Changes in Internal Control over Financial Reporting
There has been no change in 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.
30
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 its 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 quarterly report, we did not sell any equity securities that were not registered under the Securities Act of 1933.
Our Common Shares are not currently listed on a national securities exchange. The timing of a liquidity event for our stockholders will depend upon then prevailing market conditions and our Board of Directors’ assessment of our investment objectives and liquidity options for our stockholders. Currently, our Board of Directors has targeted June 30, 2028 for the commencement of a liquidity event. However, we can provide no assurances as to the actual timing of the commencement of a liquidity event for our stockholders or our ultimate liquidation. Furthermore, we will seek stockholder approval prior to liquidating our entire portfolio.
| Item 3. | Defaults Upon Senior Securities. |
None.
| Item 4. | Mine Safety Disclosures. |
None.
| Item 5. | Other Information. |
Submission of Matters to a Vote of Security Holders.
On August 8, 2024, Lightstone Value Plus REIT V, Inc. (the “Company”) held its annual meeting of stockholders. According to the inspector of elections, a total of 6,775,189 shares of the Company’s common stock outstanding and entitled to vote were represented at the meeting in person or by proxy, representing 35.2% of the total number of shares entitled to vote at the meeting. The voting results, as certified by the inspector of elections, are as follows:
31
Proposal 1 - Election of Directors.
The Company’s stockholders elected eight directors of the Company to hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. Stockholders voted as follows:
| FOR | WITHHELD | BROKER NON-VOTES |
||||||||||
| Andreas K. Bremer | 6,296,647 | 478,542 | - | |||||||||
| Diane S. Detering-Paddison | 6,297,280 | 477,909 | - | |||||||||
| Mitchell C. Hochberg | 6,303,696 | 471,493 | - | |||||||||
| Jeffrey F. Joseph | 6,306,926 | 468,263 | - | |||||||||
| David Lichtenstein | 6,310,754 | 464,435 | ||||||||||
| Jeffrey P. Mayer | 6,302,771 | 472,418 | - | |||||||||
| Cynthia Pharr Lee | 6,281,955 | 493,234 | - | |||||||||
| Steven Spinola | 6,298,943 | 476,246 | - | |||||||||
| Item 6. | Exhibits. |
The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.
32
SIGNATURE
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 V, INC. | ||
| Date: August 14, 2024 | By: | /s/ Mitchell C. Hochberg |
| Mitchell C. Hochberg | ||
|
Chief Executive Officer (Principal Executive Officer) | ||
| Date: August 14, 2024 | By: | /s/ Seth Molod |
| Seth Molod | ||
|
Chief Financial Officer (Duly Authorized Officer and |
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Index to Exhibits
| Exhibit Number |
Description | |
| 31.1* | Rule 13a-14(a)/15d-14(a) Certification | |
| 31.2* | Rule 13a-14(a)/15d-14(a) Certification | |
| 32.1* | Section 1350 Certification** | |
| 32.2* | ||
| 101* | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, filed on August 14, 2024, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Equity, (iv) Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements. |
| * | Filed or furnished herewith |
| ** | In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. |
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