UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from __________ to __________
Commission file number
(Exact Name of Registrant as Specified in Its Charter)
|
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☑ | Smaller reporting company | ||
| Emerging growth company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
As of August 7, 2023, there were approximately million outstanding shares of common stock of Lightstone Value Plus REIT II, Inc., including shares issued pursuant to the distribution reinvestment plan.
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
INDEX
i
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS:
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
| June 30, 2023 |
December 31, 2022 |
|||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Investment property: | ||||||||
| Land and improvements | $ | $ | ||||||
| Building and improvements | ||||||||
| Furniture and fixtures | ||||||||
| Construction in progress | ||||||||
| Gross investment property | ||||||||
| Less accumulated depreciation | ( |
) | ( |
) | ||||
| Net investment property | ||||||||
| Investments in unconsolidated affiliated entities | ||||||||
| Cash and cash equivalents | ||||||||
| Marketable securities, available for sale | ||||||||
| Restricted cash | ||||||||
| Accounts receivable and other assets | ||||||||
| Assets held for sale | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Accounts payable and other accrued expenses | $ | $ | ||||||
| Mortgage payable, net | ||||||||
| Distributions payable | ||||||||
| Due to related party | ||||||||
| Liabilities held for sale | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Company’s stockholders’ equity: | ||||||||
| Preferred shares, $ par value, million shares authorized, issued and outstanding | ||||||||
| Common stock, $ par value; million shares authorized, million shares issued and outstanding | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total Company stockholders’ equity | ||||||||
| Noncontrolling interests | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(unaudited)
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Expenses: | ||||||||||||||||
| Property operating expenses | ||||||||||||||||
| Real estate taxes | ||||||||||||||||
| General and administrative costs | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Impairment charge | ||||||||||||||||
| Total expenses | ||||||||||||||||
| Interest expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Gain on forgiveness of debt | ||||||||||||||||
| (Loss)/gain on sale of investment property | ( |
) | ( |
) | ||||||||||||
| Earnings from investments in unconsolidated affiliated entities | ( |
) | ( |
) | ||||||||||||
| Other expense, net | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net (loss)/income | ( |
) | ( |
) | ||||||||||||
| Less: net loss/(income) attributable to noncontrolling interests | ( |
) | ||||||||||||||
| Net (loss)/income applicable to Company’s common shares | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| Net (loss)/income per Company’s common share, basic and diluted | $ | ) | $ | $ | ) | $ | ||||||||||
| Weighted average number of common shares outstanding, basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(unaudited)
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net (loss)/income | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| Other comprehensive loss: | ||||||||||||||||
| Holding loss on marketable securities, available for sale | ( |
) | ||||||||||||||
| Comprehensive (loss)/income | ( |
) | ( |
) | ||||||||||||
| Less: Comprehensive loss/(income) attributable to noncontrolling interests | ( |
) | ||||||||||||||
| Comprehensive (loss)/income attributable to the Company’s common shares | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in thousands)
(unaudited)
| Additional | Total | |||||||||||||||||||||||
| Common | Paid-In | Accumulated | Noncontrolling | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||
| BALANCE, March 31, 2022 | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Distributions to noncontrolling interests | - | ( |
) | ( |
) | |||||||||||||||||||
| Redemption and cancellation of shares | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| BALANCE, June 30, 2022 | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Additional | Total | |||||||||||||||||||||||
| Common | Paid-In | Accumulated | Noncontrolling | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||
| BALANCE, December 31, 2021 | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Net income | - | ( |
) | |||||||||||||||||||||
| Distributions to noncontrolling interests | - | ( |
) | ( |
) | |||||||||||||||||||
| Redemption and cancellation of shares | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| BALANCE, June 30, 2022 | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
| Additional | Accumulated Other | Total | ||||||||||||||||||||||||||
| Common | Paid-In | Comprehensive | Accumulated | Noncontrolling | Stockholders’ | |||||||||||||||||||||||
| Shares | Amount | Capital | Income | Deficit | Interests | Equity | ||||||||||||||||||||||
| BALANCE, March 31, 2023 | $ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||
| Distributions declared(a) | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Redemption and cancellation of shares | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
| BALANCE, June 30, 2023 | $ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||
| (a) |
| Additional | Accumulated Other | Total | ||||||||||||||||||||||||||
| Common | Paid-In | Comprehensive | Accumulated | Noncontrolling | Stockholders’ | |||||||||||||||||||||||
| Shares | Amount | Capital | Income | Deficit | Interests | Equity | ||||||||||||||||||||||
| BALANCE, December 31, 2022 | $ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||
| Other comprehensive loss | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Distributions declared(a) | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Contributions of noncontrolling interests | - | |||||||||||||||||||||||||||
| Redemption and cancellation of shares | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
| BALANCE, June 30, 2023 | $ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||||
| (a) |
The accompanying notes are an integral part of these consolidated financial statements.
4
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)
| For the Six Months Ended June 30, |
||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss)/income | $ | ( |
) | $ | ||||
| Adjustments to reconcile net (loss)/income to net cash (used in)/provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Impairment charge | ||||||||
| Amortization of deferred financing costs | ||||||||
| Gain on sale of investment property | ( |
) | ( |
) | ||||
| Gain on forgiveness of debt | ( |
) | ||||||
| Earnings from investments in unconsolidated affiliated entities | ( |
) | ||||||
| Other non-cash adjustments | ||||||||
| Changes in assets and liabilities: | ||||||||
| Increase in accounts receivable and other assets | ( |
) | ( |
) | ||||
| (Decrease)/increase in accounts payable and other accrued expenses | ( |
) | ||||||
| Decrease in due to related party | ( |
) | ( |
) | ||||
| Net cash (used in)/provided by operating activities | ( |
) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of investment property | ( |
) | ( |
) | ||||
| Proceeds from the sale of marketable securities | ||||||||
| Purchases of marketable securities | ( |
) | ||||||
| Proceeds from sale of investment property, net of closing costs | ||||||||
| Contributions to unconsolidated affiliated entities | ( |
) | ||||||
| Distributions from unconsolidated affiliated entities | ||||||||
| Net cash (used in)/provided by investing activities | ( |
) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments on mortgages payable | ( |
) | ||||||
| Payment on margin loan | ( |
) | ||||||
| Payment of loan fees and expenses | ( |
) | ||||||
| Redemption and cancellation of common shares | ( |
) | ( |
) | ||||
| Distributions paid to noncontrolling interests | ( |
) | ||||||
| Distributions paid to common stockholders | ( |
) | ||||||
| Contributions of noncontrolling interests | ||||||||
| Net cash used in financing activities | ( |
) | ( |
) | ||||
| Change in cash, cash equivalents and restricted cash | ( |
) | ||||||
| Cash, cash equivalents and restricted cash, beginning of year | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
| Supplemental cash flow information for the periods indicated is as follows: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Distributions declared, but not paid | $ | $ | ||||||
| Holding loss on marketable securities, available for sale | $ | $ | ||||||
| The following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in our statements of cash flows for the periods presented: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
| 1. | Business and Structure |
Lightstone Value Plus REIT II, Inc. (“Lightstone REIT II”), is a Maryland corporation formed on April 28, 2008, which elected to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2009.
Lightstone REIT II is structured as an umbrella partnership REIT, or UPREIT, and substantially all of its current and future business will be conducted through Lightstone Value Plus REIT II LP, a Delaware limited partnership (the “Operating Partnership”). As of June 30, 2023, Lightstone REIT II held an approximately
Lightstone REIT II and the Operating Partnership and its subsidiaries are collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns in these consolidated financial statements refers to Lightstone REIT II, its Operating Partnership or the Company as required by the context in which such pronoun is used.
Through the Operating Partnership, the Company owns and operates commercial properties and makes real estate-related investments. Since its inception, the Company has primarily acquired and operated commercial hospitality properties, principally consisting of limited-service-hotels all located in the United States. However, its commercial holdings may also consist of full-service hotels, and to a lesser extent, retail (primarily multi-tenanted shopping centers), industrial and office properties. The Company’s real estate investments are held by it alone or jointly with other parties. In addition, the Company may invest up to 20% of its net assets in collateralized debt obligations, commercial mortgage-backed securities (“CMBS”) and mortgage and mezzanine loans secured, directly or indirectly, by the same types of properties which it may acquire directly. Although most of its investments are these types, the Company may invest in whatever types of real estate or real estate-related investments that it believes are in its best interests. The Company evaluates all of its real estate investments as one operating segment. The Company currently intends to hold its investments until such time as it determines that a sale or other disposition appears to be advantageous to achieve its investment objectives or until it appears that the objectives will not be met.
As of June 30, 2023, the Company (i) majority owned and consolidated the operating results and financial condition of 12 limited service hotels containing a total of 1,582 rooms, (ii) held an unconsolidated
The Brownmill Joint Venture owns Browntown Shopping Center, located in Old Bridge, New Jersey, and Millburn Mall, located in Vauxhaull, New Jersey. The Hilton Garden Inn Joint Venture owns a 183-room, limited-service hotel (the “Hilton Garden Inn – Long Island City) located in the Long Island City neighborhood in the Queens borough of New York City. Both the Brownmill Joint Venture and the Hilton Garden Inn Joint Venture are between the Company and related parties.
As of June 30, 2023, seven of the Company’s consolidated limited service hotels are held in LVP Holdco JV LLC (the “Hotel Joint Venture”), a joint venture formed between the Company and Lightstone Value Plus REIT I, Inc. (“Lightstone REIT I”), a related party REIT also sponsored by The Lightstone Group, LLC. The Company and Lightstone REIT I have 97.5% and 2.5% membership interests in the Hotel Joint Venture, respectively. Additionally, as of June 30, 2023, one of the Company’s consolidated hotels also has ownership interests held by unrelated minority owners. The membership interests of Lightstone REIT I and the unrelated minority owners are accounted for as noncontrolling interests.
6
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
The Company’s advisor is Lightstone Value Plus REIT II LLC (the “Advisor”), which is majority owned by David Lichtenstein. On May 20, 2008, the Advisor contributed $
The Company has no employees. The Company’s Advisor and its affiliates perform a full range of real estate services for it, including asset management, accounting, legal, and property management, as well as investor relations services.
The Company is dependent on the Advisor and its affiliates for services that are essential to it, including asset management and acquisition, disposition and financing activities, and other general administrative responsibilities. If the Advisor and its affiliates are unable to provide these services to the Company, it would be required to provide the services itself or obtain the services from other parties.
The Company also uses other unaffiliated third-party property managers, principally for the management of its hospitality properties.
The Company’s Common Shares are not currently listed on a national securities exchange. The Company may seek to list its Common Shares for trading on a national securities exchange only if a majority of its independent directors believe listing would be in the best interest of its stockholders. The Company does not intend to list its shares at this time. The Company does not anticipate that there would be any market for its Common Shares until they are listed for trading.
On January 17, 2023, the Company’s stockholders approved an amendment and restatement to the Company’s charter pursuant to which the Company is no longer required to either (a) amend its charter to extend the deadline to begin the process of achieving a liquidity event, or (b) hold a stockholders meeting to vote on a proposal for an orderly liquidation of its portfolio.
Noncontrolling Interests
Partners of the Operating Partnership
Limited Partner
On May 20, 2008, the Advisor contributed $
7
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
Associate General Partner
In connection with the Company’s Offerings, the Associate General Partner contributed (i) cash of $
As the indirect majority owner of the Associate General Partner, Mr. Lichtenstein is the beneficial owner of a 99% interest in such Subordinated Profits Interests and thus receives an indirect benefit from any distributions made in respect thereof.
These Subordinated Profits Interests may entitle the Associate General Partner to a portion of any regular distributions that the Company makes to its stockholders, but only after its stockholders have received a stated preferred return. There were no distributions declared on the Subordinated Profits Interests for any periods after December 31, 2019. Since the Company’s inception through June 30, 2023, the cumulative distributions declared and paid on the Subordinated Profits Interests were $7.9 million. Any future distributions on the Subordinated Profits Interests will always be subordinated until stockholders receive a stated preferred return.
The Subordinated Profits Interests may also entitle the Associate General Partner to a portion of any liquidating distributions made by the Operating Partnership. The value of such distributions will depend upon the net sale proceeds upon the liquidation of the Company and, therefore, cannot be determined at the present time. Liquidating distributions to the Associate General Partner will always be subordinated until stockholders receive a distribution equal to their initial investment plus a stated preferred return.
See Note 8 for additional information with respect to the Subordinated Profits Interests.
Other Noncontrolling Interests in Consolidated Subsidiaries
Other noncontrolling interests consist of the (i) membership interest in the Joint Venture held by Lightstone REIT I and (ii) membership interests held by minority owners in one of the Company’s hotels.
Related Parties
The Company’s Sponsor, Advisor and its affiliates, including the Associate General Partner, are related parties of the Company as well as the other public REITs also sponsored and/or advised by these entities. Certain of these entities are entitled to compensation and reimbursement for services and costs incurred related to the investment, management and disposition of the Company’s assets during its acquisition, operational and liquidation stages. The compensation levels during the Company’s acquisition and operational stages are based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements. See Note 8 for additional information.
8
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
| 2. | Summary of Significant Accounting Policies |
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Lightstone REIT II and its Operating Partnership and its subsidiaries, over which the Company exercises financial and operating control. As of June 30, 2023, Lightstone REIT II had a 99% general partnership interest in the common units of the Operating Partnership. All inter-company balances and transactions have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on accounting principles generally accepted in the United States of America (“GAAP”), and entities deemed to be variable interest entities (“VIE”) in which the Company is the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which the Company has control, substantive participating rights or both under the respective ownership agreement. For entities in which the Company has less than a controlling interest or entities which it is not deemed to be the primary beneficiary, it accounts for the investment using the equity method of accounting.
The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of the Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair statement of the results for the periods presented. The accompanying unaudited consolidated financial statements of the Lightstone Value Plus REIT II, Inc. and Subsidiaries have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.
GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of investment properties and investments in other unconsolidated real estate entities and depreciable lives of long-lived assets. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
The consolidated balance sheet as of December 31, 2022 included herein has been derived from the consolidated balance sheet included in the Company’s Annual Report on Form 10-K.
The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.
Income Taxes
The Company has elected to be taxed as a REIT commencing with the taxable year ended December 31, 2009. If the Company qualifies as a REIT, it generally will not be subject to U.S. federal income tax on its taxable income or capital gain that it distributes to its stockholders. To maintain its REIT qualification, the Company must meet a number of organizational and operational requirements, including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed at the regular corporate rate, and it may be precluded from qualifying for treatment as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders.
To qualify or maintain our qualification as a REIT, the Company engages in certain activities through wholly-owned taxable REIT subsidiaries (“TRS”). As such, it is subject to U.S. federal and state income and franchise taxes from these activities.
9
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
The
Company’s income tax expense are included in other expense, net on its consolidated statements of operations. During the three
and six months ended June 30, 2023, the Company recorded income tax expense of $
As of June 30, 2023 and December 31, 2022, the Company had
Revenues
The following table represents the total revenues from hotel operations on a disaggregated basis:
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
| Revenues | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Room | $ | $ | $ | $ | ||||||||||||
| Food, beverage and other | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
Gain on Forgiveness of Debt
During the three and six months ended June 30, 2022, notice was received from the U.S. Small Business Administration that $
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board issued an accounting standards update, “Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments,” which changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The updated standard replaces the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For trade and other receivables and held to maturity debt securities, entities are required to use a new forward looking expected loss model that generally will result in the earlier recognition of allowances for losses. The Company has adopted this standard noting that it did not have a material impact on the Company’s financial statements or related disclosures.
Adverse Developments Affecting the Financial Services Industry and Concentration of Risk
As of June 30, 2023 and December 31, 2022, the Company had cash deposited in certain financial institutions in excess of federally insured levels. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk in cash and cash equivalents. However, in March and April 2023, certain U.S. government banking regulators took steps to intervene in the operations of certain financial institutions due to liquidity concerns, which caused general heightened uncertainties in financial markets. While these events have not had a material direct impact on the Company’s operations, if further liquidity and financial stability concerns arise with respect to banks and financial institutions, either nationally or in specific regions, the Company’s ability to access cash or enter into new financing arrangements may be threatened, which could have a material adverse effect on its business, financial condition and results of operations.
10
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
Current Environment
The Company’s operating results and financial condition are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, its business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility and uncertainty as a result of recent banking failures, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, inflation and recession.
The Company’s overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation, higher interest rates, certain labor and supply chain challenges and other changes in economic conditions may adversely affect the Company’s results of operations and financial performance.
| 3. | Held for Sale and Disposition Activities |
Held for Sale - Florida Hotel Portfolio
On May 8, 2023, the Hotel Joint Venture, which the Company majority owns and consolidates, through its subsidiaries (collectively, the “Sellers”), and Vista Acquisitions Inc. (the “Florida Hotel Portfolio Buyer”), an unaffiliated third party, entered into a purchase and sale agreement, as amended, (the “Florida Hotel Portfolio Agreement”) pursuant to which the Sellers would dispose of (i) a 126-room limited service hotel which operates as a Hampton Inn, located in Miami, Florida (the “Hampton Inn - Miami”), and (ii) a 104-room select service hotel which operates as a Hampton Inn & Suites, located in Fort Lauderdale, Florida (the “Hampton Inn & Suites - Fort Lauderdale”, and collectively the “Florida Hotel Portfolio”), to the Florida Hotel Portfolio Buyer for an aggregate contractual sales price of $
As of June 30, 2023, the Florida Hotel Portfolio met all of the required criteria to be classified as held for sale and therefore, its associated assets and liabilities are classified as held for sale in the consolidated balance sheet as of June 30, 2023.
The following summary presents the major components of assets and liabilities held for sale, of as the date indicated.
| As of | ||||
| June 30, 2023 |
||||
| Net investment property | $ | |||
| Accounts receivable and other assets | ||||
| Total assets held for sale | $ | |||
| Accounts payable and other accrued expenses | $ | |||
| Total liabilities held for sale | $ | |||
11
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
Disposition Activities
During the six months ended June 30, 2023, the Company recognized a gain on the sale of investment property of $
Disposition of Florida Hotel Portfolio
On July 18, 2023 and July 21, 2023, the Sellers completed the sale of the Hampton Inn & Suites - Fort Lauderdale and the Hampton Inn - Miami to the Florida Hotel Portfolio Buyer for $
The disposition of the Florida Hotel Portfolio does not qualify to be reported as discontinued operations since the disposition does not represent a strategic shift that has a major effect on the Company’s operations and financial results. Accordingly, the operating results of the Florida Hotel Portfolio will be reflected in the Company’s results from continuing operations for all periods presented through its dates of disposition.
Disposition of the Courtyard – Paso Robles
On March 22, 2022, the Company completed the disposition of a 130-room hotel located in Paso Robles, California, which operates as a Courtyard by Marriott (the “Courtyard – Paso Robles”), to an unaffiliated third party, for a contractual sales price of $
Disposition of the TownePlace Suites – Little Rock
On July 14, 2022, the Company completed the disposition of a 92-room hotel located in Little Rock, Arkansas, which operates as a TownePlace Suites (the “TownePlace Suites - Little Rock”), to an unaffiliated third party, for a contractual sales price of $
The dispositions of both the Courtyard – Paso Robles and the TownePlace Suites - Little Rock did not qualify to be reported as discontinued operations since the dispositions did not represent a strategic shift that had a major effect on the Company’s operations and financial results. Accordingly, the operating results of the Courtyard – Paso Robles and the TownePlace Suites - Little Rock are reflected in the Company’s results from continuing operations for all periods presented through their respective dates of disposition.
12
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
| 4. | Investments in Unconsolidated Affiliated Entities |
The entities listed below are partially owned by the Company. The Company accounts for these investments under the equity method of accounting as the Company exercises significant influence, but does not exercise financial and operating control over these entities. A summary of the Company’s investments in the unconsolidated affiliated entities is as follows:
| As of | ||||||||||||||
| Entity | Date of Ownership |
Ownership % | June 30, 2023 |
December 31, 2022 |
||||||||||
| Brownmill Joint Venture | Various | $ | $ | |||||||||||
| Hilton Garden Inn Joint Venture | ||||||||||||||
| Total investments in unconsolidated affiliated real estate entities | $ | $ | ||||||||||||
Brownmill Joint Venture
During 2010 through 2012, the Company entered into various contribution agreements with Lightstone Holdings LLC (“LGH”), a wholly-owned subsidiary of the Sponsor and a related party, pursuant to which LGH contributed to the Company an aggregate 48.6% membership interest in the Brownmill Joint Venture in exchange for the Company issuing an aggregate of 48 units of Subordinated Profits Interests, at $
As of June 30, 2023, the Company owns a
The Brownmill Joint Venture owns two retail properties known as Browntown Shopping Center, located in Old Bridge, New Jersey, and Millburn Mall, located in Vauxhaull, New Jersey.
Brownmill Joint Venture Financial Information
The Company’s carrying value of its interest in the Brownmill Joint Venture differs from its share of member’s equity reported in the condensed balance sheet of the Brownmill Joint Venture because the basis of the Company’s investment is in excess of the historical net book value of the Brownmill Joint Venture. The Company’s additional basis, which has been allocated to depreciable assets, is being recognized on a straight-line basis over the estimated useful lives of the appropriate assets.
13
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
The following table represents the condensed statements of operations for the Brownmill Joint Venture for the periods indicated:
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Property operating expenses | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Operating income | ||||||||||||||||
| Interest expense and other, net | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Company’s share of net income | $ | $ | $ | $ | ||||||||||||
| Additional depreciation and amortization expense(1) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Company’s earnings from investment | $ | $ | $ | $ | ||||||||||||
| (1) |
The following table represents the condensed balance sheets for the Brownmill Joint Venture as of the dates indicated:
| As of | As of | |||||||
| June 30, 2023 |
December 31, 2022 |
|||||||
| Investment property, net | $ | $ | ||||||
| Cash and restricted cash | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Mortgage payable | $ | $ | ||||||
| Other liabilities | ||||||||
| Members’ capital | ||||||||
| Total liabilities and members’ capital | $ | $ | ||||||
Hilton Garden Inn Joint Venture
On March 27, 2018, the Company and Lightstone Value Plus REIT III, Inc. (“Lightstone REIT III”), a related party REIT also sponsored by the Company’s Sponsor, acquired, through the newly formed Hilton Garden Inn Joint Venture, the Hilton Garden Inn - Long Island City from an unrelated third party, for aggregate consideration of $
14
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
Except as discussed below, the Hilton Garden Inn Mortgage bore interest at
On June 2, 2020, the Hilton Garden Inn Mortgage was amended to provide for the deferral of the six monthly debt service payments aggregating $
On March 27, 2023, the Hilton Garden Inn Joint Venture and the lender amended the Hilton Garden Inn Mortgage to extend the maturity date for 90 days, through June 25, 2023, to provide additional time to finalize the terms of a long-term extension. Subsequently, on May 31, 2023, the Hilton Garden Inn Mortgage was further amended to provide for (i) an extension of the maturity date for an additional five years, (ii) the interest rate to be adjusted to
The Company and Lightstone REIT III each have a 50.0% co-managing membership interest in the Hilton Garden Inn Joint Venture. The Company accounts for its membership interest in the Hilton Garden Inn Joint Venture in accordance with the equity method of accounting because it exerts significant influence over but does not control the Hilton Garden Inn Joint Venture. All capital contributions and distributions of earnings from the Hilton Garden Inn Joint Venture are made on a pro rata basis in proportion to each member’s equity interest percentage. Any distributions in excess of earnings from the Hilton Garden Inn Joint Venture are made to the members pursuant to the terms of the Hilton Garden Inn Joint Venture’s operating agreement. The Company commenced recording its allocated portion of profit/loss and cash distributions beginning as of March 27, 2018 with respect to its membership interest of 50.0% in the Hilton Garden Inn Joint Venture.
The Hilton Garden Inn Joint Venture is currently in compliance with respect to all of its financial debt covenants.
Subsequent to the Company’s acquisition of its
Hilton Garden Inn Joint Venture Financial Information
The following table represents the condensed statements of operations for the Hilton Garden Inn Joint Venture for the periods indicated:
| For the Three Months Ended June 30, 2023 |
For the Three Months Ended June 30, 2022 |
For the Six Months Ended June 30, 2023 |
For the Six Months Ended June 30, 2022 |
|||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Property operating expenses | ||||||||||||||||
| General and administrative costs | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Operating income | ||||||||||||||||
| Interest expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net (loss)/income | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||
| Company’s share of net (loss)/income (50.00%) | $ | ( |
) | $ | $ | ( |
) | $ | ||||||||
15
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
The following table represents the condensed balance sheets for the Hilton Garden Inn Joint Venture as of the dates indicated:
| As of | As of | |||||||
| June 30, 2023 |
December 31, 2022 |
|||||||
| Investment property, net | $ | $ | ||||||
| Cash | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Mortgage payable, net | $ | $ | ||||||
| Other liabilities | ||||||||
| Members’ capital | ||||||||
| Total liabilities and members’ capital | $ | $ | ||||||
| 5. | Marketable Securities, Fair Value Measurements and Margin Loan |
Marketable Securities
The following is a summary of the Company’s available for sale securities as of the dates indicated:
| As of June 30, 2023 | ||||||||||||||||
| Adjusted Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
| Marketable Securities: | ||||||||||||||||
| Equity securities | $ | $ | $ | ( |
) | $ | ||||||||||
| As of December 31, 2022 | ||||||||||||||||
| Adjusted Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
| Marketable Securities: | ||||||||||||||||
| Equity securities | $ | $ | $ | ( |
) | $ | ||||||||||
| Debt securities: | ||||||||||||||||
| United States Treasury Bills | ||||||||||||||||
| Total | $ | $ | $ | ( |
) | $ | ||||||||||
16
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
| ● | Level 1 – Quoted prices in active markets for identical assets or liabilities. | |
| ● | Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
| ● | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
As of June 30, 2023 and December 31, 2022, the Company’s United States Treasury Bills and money market funds were classified as Level 1 assets and the Company’s equity securities were classified as Level 2 assets. There were no transfers between the level classifications during the six months ended June 30, 2023. The fair values of the Company’s equity securities are measured using readily available quoted prices for these securities; however, the markets for these securities are not active.
The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and other assets, accounts payable and other accrued expenses and due to related party approximated their fair values as of June 30, 2023 and December 31, 2022 because of the short maturity of these instruments.
As of June 30, 2023 and December 31, 2022, the estimated fair value our mortgage payable approximated its carrying value because of the floating interest rate.
Nonrecurring Fair Value Measurements
During the second quarter of 2023 an impairment charge of $
As of June 30, 2023, the Company did not have any other significant financial assets or liabilities which would require revised valuations that are recognized at fair value.
Margin loan
The Company has access to a margin loan from a financial institution that holds custody of certain of the Company’s marketable securities. The margin loan is collateralized by the marketable securities in the Company’s account. The amounts available to the Company under the margin loan are at the discretion of the financial institution and not limited to the amount of collateral in its account.
17
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
| 6. | Mortgage payable, net |
Mortgage payable, net consisted of the following:
| Weighted Average Interest Rate |
|||||||||||||||||||
| Description | Interest Rate |
for the Six Months Ended June 30, 2023 |
Maturity Date |
Amount Due at Maturity |
As of June 30, 2023 |
As of December 31, 2022 |
|||||||||||||
| Revolving Credit Facility | (floor of 4.00%) |
$ | $ | $ | |||||||||||||||
| Less: Deferred financing costs | ( |
) | ( |
) | |||||||||||||||
| Total mortgages payable, net | $ | $ | |||||||||||||||||
AMERIBOR as of June 30, 2023 and December 31, 2022 was
Revolving Credit Facility
The Company, through certain subsidiaries, has a non-recourse Revolving Credit Facility with a financial institution. The Revolving Credit Facility provides a line of credit of up to $
Except as discussed below, the Revolving Credit Facility, which was scheduled to mature on
On March 31, 2021, the Revolving Credit Facility was further amended providing for (i) the Company to pledge the membership interests in another hotel as additional collateral within 45 days, (ii) the Company to fund an additional $
In connection with the disposition of the TownePlace Suites – Little Rock on July 14, 2022, a required principal paydown of $
As of June 30, 2023, the Company’s 12 majority-owned and consolidated hotel properties were all pledged as collateral under the Revolving Credit Facility and the outstanding principal balance was $
Subsequently, on July 18, 2023 and July 21, 2023, in connection with the dispositions of the Hampton Inn & Suites – Fort Lauderdale and Hampton Inn – Miami, respectively, aggregate principal paydowns of $
The Company currently intends to seek to extend or refinance the Revolving Credit Facility on or before its maturity date of September 15, 2023, however, there can be no assurances that it will be successful in such endeavors.
18
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
| 7. | Company’s Stockholder’s Equity |
Distributions on Common Shares
On May 11, 2023, the Board of Directors authorized and the Company declared a Common Share distribution of $ per share for the quarterly period ending June 30, 2023. The distribution is the pro rata equivalent of an annual distribution of $ per share, or an annualized rate of
On August 14, 2023, the Board of Directors authorized and the Company declared a Common Share distribution of $ per share for the quarterly period ending September 30, 2023. The distribution is the pro rata equivalent of an annual distribution of $ per share, or an annualized rate of
Future distributions declared, if any, will be at the discretion of the Board of Directors based on their analysis of the Company’s performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, revenues and other sources of income, operating and interest expenses and the Company’s ability to refinance near-term debt as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. The Company cannot assure that any future distributions will be made or that it will maintain any particular level of distributions that it has previously established or may establish.
SRP
The Company’s share repurchase program (the “SRP”) may provide eligible stockholders with limited, interim liquidity by enabling them to sell their Common Shares back to the Company, subject to restrictions and applicable law.
On March 19, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of all redemptions.
Effective May 10, 2021, the Board of Directors reopened the SRP to allow, subject to various conditions as set forth below, for redemptions submitted in connection with a stockholder’s death or hardship and set the price for all such purchases to the Company’s current estimated net asset value per share of common stock, as determined by the Board of Directors and reported by the Company from time to time.
Deaths that occurred subsequent to January 1, 2020 were eligible for consideration, subject to certain conditions. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by the Company within one year of the stockholder’s date of death for consideration.
On the above noted date, the Board of Directors established that on an annual basis, the Company would not redeem in excess of of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Additionally, redemption requests generally would be processed on a quarterly basis and would be subject to pro ration if either type of redemption requests exceeded the annual limitation.
For the six months ended June 30, 2023, the Company repurchased Common Shares at a weighted average price per share of $. For the six months ended June 30, 2022, the Company repurchased Common Shares at a weighted average price per share of $.
Earnings per Share
The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, earnings per share is calculated by dividing net income/loss attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the applicable period.
19
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
| 8. | Related Parties |
The Company’s Sponsor, Advisor and their affiliates, including the Special Limited Partner, are related parties of the Company as well as other public REITs also sponsored and/or advised by these entities. Pursuant to the terms of various agreements, certain of these entities are entitled to compensation and reimbursement of costs incurred for services related to the investment, development, management and disposition of the Company’s assets. The compensation is generally based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements. Additionally, the Company’s ability to secure financing and its real estate operations are dependent upon its Advisor and its affiliates to perform such services as provided in these agreements. Amounts the Company owes to the Advisor and its affiliated entities are principally for asset management fees, and are classified as due to related parties on the consolidated balance sheets.
The following table represents the fees incurred associated with the payments to the Company’s Advisor for the periods indicated:
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Asset management fees (general and administrative costs) | $ | $ | $ | $ | ||||||||||||
The advisory agreement has a one year term and is renewable for an unlimited number of successive one year periods upon the mutual consent of the Advisor and the Company’s independent directors. Payments to the Advisor or its affiliates may include asset acquisition fees and the reimbursement of acquisition-related expenses, development fees and the reimbursement of development-related costs, financing coordination fees, asset management fees or asset management participation, and construction management fees. The Company may also reimburse the Advisor and its affiliates for actual expenses it incurs for administrative and other services provided for it. Upon the liquidation of the Company’s assets, it may pay the Advisor or its affiliates a disposition commission.
Subordinated Profits Interests
In connection with the Company’s Offerings, the Associate General Partner, an affiliate of the Company’s Sponsor, contributed an aggregate of $17.7 million consisting of (i) cash of $
These Subordinated Profit Interests, for which the aggregate consideration of $
These Subordinated Profits Interests may entitle the Associate General Partner to a portion of any regular distributions that the Company makes to its stockholders, but only after its stockholders have received a stated preferred return. There have been no distributions declared on the Subordinated Profits Interests for any periods after December 31, 2019. Since the Company’s inception through June 30, 2023, the cumulative distributions declared and paid on the Subordinated Profits Interests were $
The Subordinated Profits Interests may also entitle Lightstone SLP II, LLC to a portion of any liquidating distributions made by the Operating Partnership. The value of such distributions will depend upon the net sale proceeds upon the liquidation of the Company and, therefore, cannot be determined at the present time. Liquidating distributions to Lightstone SLP II, LLC will always be subordinated until stockholders receive a distribution equal to their initial investment plus a stated preferred return.
20
LIGHTSTONE VALUE PLUS REIT II, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
| 9. | Commitments and Contingencies |
Management Agreements
The Company’s hotels operate pursuant to management agreements (the “Management Agreements”) with various third-party property management companies. The property management companies perform management functions including, but not limited to, hiring and supervising employees, establishing room prices, establishing administrative policies and procedures, managing expenditures and arranging and supervising public relations and advertising. The Management Agreements are for terms ranging from
The Management Agreements provide for the payment of a base management fee equal to
Franchise Agreements
As of June 30, 2023, the Company’s hotels operated pursuant to various franchise agreements. Under the franchise agreements, the Company generally pays a fee equal to
The franchise agreements are generally for initial terms ranging from
Legal Proceedings
From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.
As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.
21
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Lightstone Value Plus REIT II, Inc. and Subsidiaries and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Lightstone Value Plus REIT II, Inc., a Maryland corporation, and, as required by context, Lightstone Value Plus REIT II LP and its wholly owned subsidiaries, which we collectively refer to as the “Operating Partnership”. Dollar amounts are presented in thousands, except per share data, revenue per available room (“RevPAR”), average daily rate (“ADR”), annualized revenue per square foot and where indicated in millions.
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include discussion and analysis of the financial condition of Lightstone Value Plus REIT II, Inc. and our subsidiaries (which may be referred to herein as the “Company,” “we,” “us” or “our”), including our ability to make accretive real estate or real estate-related investments, to rent space on favorable terms, to address our debt maturities and to fund our liquidity requirements, to sell our assets when we believe advantageous to achieve our investment objectives, to fund our anticipated capital expenditures, to meet the amount and timing of anticipated future cash distributions to our stockholders, to grow the estimated net asset value per share of our common stock (“NAV per Share”), and other matters. Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors described below:
| ● | market and economic challenges experienced by the U.S. and global economies or real estate industry as a whole and the local economic conditions in the markets in which our investments are located. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; such as inflation, recession, political upheaval or uncertainty, terrorism and acts of war, natural and man-made disasters, cybercrime, and outbreaks of contagious diseases; | |
| ● | the availability of cash flow from operating activities for distributions, if required to maintain our status as a real estate investment trust, or REIT; | |
| ● | conflicts of interest arising out of our relationships with our advisor and its affiliates; | |
| ● | our ability to retain our executive officers and other key individuals who provide advisory and property management services to us; | |
| ● | our level of debt and the terms and limitations imposed on us by our debt agreements; | |
| ● | the availability of credit generally, and any failure to obtain debt financing at favorable terms or a failure to satisfy the conditions and requirements of that debt; | |
| ● | our ability to make accretive investments; | |
| ● | our ability to diversify our portfolio of assets; |
22
| ● | changes in market factors that could impact our rental rates and operating costs; | |
| ● | our ability to secure leases at favorable rental rates; | |
| ● | our ability to sell our assets at a price and on a timeline consistent with our investment objectives; | |
| ● | impairment charges; | |
| ● | unfavorable changes in laws or regulations impacting our business, our assets or our key relationships; and | |
| ● | factors that could affect our ability to qualify as a real estate investment trust. |
Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Report, and may ultimately prove to be incorrect. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results, except as required by applicable law. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.
Cautionary Note
The representations, warranties, and covenants made by us in any agreement filed as an exhibit to this Quarterly Report on Form 10-Q are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties, or covenants to or with any other parties. Moreover, these representations, warranties, or covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.
Business and Structure
Lightstone Value Plus REIT II, Inc. (“Lightstone REIT II”), is a Maryland corporation formed on April 28, 2008, which elected to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with the taxable year ending December 31, 2009.
Lightstone REIT II is structured as an umbrella partnership REIT (“UPREIT”), and substantially all of its current and future business is and will be conducted through Lightstone Value Plus REIT II LP (the “Operating Partnership”), a Delaware limited partnership formed on April 30, 2008. As of June 30, 2023, we held a 99% general partnership interest in our Operating Partnership’s common units.
Lightstone REIT II and the Operating Partnership and its subsidiaries are collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns in this annual report refers to Lightstone REIT II, its Operating Partnership or the Company as required by the context in which such pronoun is used.
Through the Operating Partnership, we own and operate commercial properties and makes real estate-related investments. Since our inception, we have primarily acquired and operated commercial hospitality properties, principally consisting of limited-service-hotels all located in the United States. However, our commercial holdings may also consist of full-service hotels, and to a lesser extent, retail (primarily multi-tenanted shopping centers), industrial and office properties. Our real estate investments are held by us alone or jointly with other parties. In addition, we may invest up to 20% of our net assets in collateralized debt obligations, commercial mortgage-backed securities (“CMBS”) and mortgage and mezzanine loans secured, directly or indirectly, by the same types of properties which we may acquire directly. Although most of our investments are these types, we may invest in whatever types of real estate or real estate-related investments that we believe are in our best interests. We evaluate all of our real estate investments as one operating segment. We currently intend to hold our investments until such time as we determine that a sale or other disposition appears to be advantageous to achieve our investment objectives or until it appears that the objectives will not be met.
23
As of June 30, 2023, we (i) majority owned and consolidated the operating results and financial condition of 12 limited service hotels containing a total of 1,582 rooms, (ii) held an unconsolidated 48.6% membership interest in Brownmill, LLC (the “Brownmill Joint Venture”), an affiliated entity that owns two retail properties, and (iii) held an unconsolidated 50.0% membership interest in LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”), an affiliated real estate entity that owns and operates a hotel. We account for our membership interests in the Brownmill Joint Venture and the Hilton Garden Inn Joint Venture under the equity method of accounting.
The Brownmill Joint Venture owns Browntown Shopping Center, located in Old Bridge, New Jersey, and Millburn Mall, located in Vauxhaull, New Jersey. The Hilton Garden Inn Joint Venture owns a 183-room, limited-service hotel (the “Hilton Garden Inn – Long Island City) located in the Long Island City neighborhood in the Queens borough of New York City. Both the Brownmill Joint Venture and the Hilton Garden Inn Joint Venture are between the Company and related parties.
As of June 30, 2023, seven of our consolidated limited service hotels are held in LVP Holdco JV LLC (the “Hotel Joint Venture”), a joint venture formed between us and Lightstone Value Plus REIT I, Inc. (“Lightstone REIT I”), a related party REIT also sponsored by The Lightstone Group, LLC. We and Lightstone REIT I have 97.5% and 2.5% membership interests in the Hotel Joint Venture, respectively. Additionally, as of June 30, 2023, one of our consolidated hotels also has ownership interests held by unrelated minority owners. The membership interests of Lightstone REIT I and the unrelated minority owners are accounted for as noncontrolling interests.
Our advisor is Lightstone Value Plus REIT II LLC (the “Advisor”), which is majority owned by David Lichtenstein. On May 20, 2008, the Advisor contributed $2 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. Our Advisor also owns 20,000 shares of common stock (“Common Shares”) which were issued on May 20, 2008 for $200, or $10.00 per share. Mr. Lichtenstein also is the majority owner of the equity interests of The Lightstone Group, LLC. The Lightstone Group, LLC served as the sponsor (the “Sponsor”) during our initial public offering and follow-on offering (the “Follow-On Offering”, and collectively, the “Offerings”), which terminated on August 15, 2012 and September 27, 2014, respectively. Our Advisor, pursuant to the terms of an advisory agreement, together with our board of directors (the “Board of Directors”), is primarily responsible for making investment decisions on our behalf and managing our day-to-day operations. Through his ownership and control of The Lightstone Group, LLC, Mr. Lichtenstein is the indirect owner and manager of Lightstone SLP II LLC, a Delaware limited liability company (the “Associate General Partner”), which owns 177.0 subordinated profits interests (“Subordinated Profits Interests”) in the Operating Partnership which were acquired for aggregate consideration of $17.7 million in connection with our Offerings. Mr. Lichtenstein also acts as our Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT II or the Operating Partnership.
We have no employees. The Advisor and its affiliates perform a full range of real estate services for us, including asset management, accounting, legal, and property management, as well as investor relations services.
We are dependent on the Advisor and its affiliates for services that are essential to us, including asset management and acquisition, disposition and financing activities, and other general administrative responsibilities. If the Advisor and its affiliates are unable to provide these services to us, we would be required to provide the services ourselves or obtain the services from other parties.
We also use other unaffiliated third-party property managers, principally for the management of our hospitality properties.
Our Common Shares are not currently listed on a national securities exchange. We may seek to list our Common Shares for trading on a national securities exchange only if a majority of our independent directors believe listing would be in the best interest of our stockholders. We do not intend to list our Common Shares at this time. We do not anticipate that there would be any market for our Common Shares until they are listed for trading.
On January 17, 2023 our stockholders approved an amendment and restatement to our charter pursuant to which we are no longer required to either (a) amend our charter to extend the deadline to begin the process of achieving a liquidity event, or (b) hold a stockholders meeting to vote on a proposal for an orderly liquidation of our portfolio.
24
Adverse Developments Affecting the Financial Services Industry and Concentration of Credit Risk
As of June 30, 2023 and December 31, 2022, we had cash deposited in certain financial institutions in excess of federally insured levels. We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents or restricted cash. However, in March and April 2023, certain U.S. government banking regulators took steps to intervene in the operations of certain financial institutions due to liquidity concerns, which caused general heightened uncertainties in financial markets. While these events have not had a material direct impact on our operations, if further liquidity and financial stability concerns arise with respect to banks and financial institutions, either nationally or in specific regions, our ability to access cash or enter into new financing arrangements may be threatened, which could have a material adverse effect on our business, financial condition and results of operations.
Current Environment
Our operating results and financial condition are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility and uncertainty as a result of recent banking failures, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, inflation and recession.
Our overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation, higher interest rates, certain labor and supply chain challenges and other changes in economic conditions may adversely affect our results of operations and financial performance.
We are not currently aware of any other material trends or uncertainties, favorable or unfavorable, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from our operations, other than those referred to above or throughout this Form 10-Q. The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period.
Portfolio Summary –
| Location | Year Built | Leasable Square Feet |
Percentage Occupied as of June 30, 2023 |
Annualized Revenues based on rents as of June 30, 2023 |
Annualized Revenues per square foot as of June 30, 2023 |
||||||||||||||||
| Unconsolidated Affiliated Entities: | |||||||||||||||||||||
| Retail | |||||||||||||||||||||
| Brownmill LLC (2 retail properties) | Old Bridge and Vauxhall, New Jersey | 1962 | 155,975 | 91 | % | $ | 3.0 million | $ | 19.41 | ||||||||||||
| Year to Date | Percentage Occupied for the Six Months Ended |
RevPAR for the Six Months Ended |
ADR for the Six Months Ended |
||||||||||||||||||
| Hospitality | Location | Year Built | Available Rooms |
June 30, 2023 |
June 30, 2023 |
June 30, 2023 |
|||||||||||||||
| Hilton Garden Inn - Long Island City | Long Island City, New York | 2014 | 33,123 | 85 | % | $ | 144.36 | $ | 170.33 | ||||||||||||
25
Consolidated Properties:
| Year to Date | Percentage Occupied for the Six Months Ended |
RevPAR for the Six Months Ended |
ADR for the Six Months Ended |
||||||||||||||||||
| Hospitality | Location | Year Built | Available Rooms |
June 30, 2023 |
June 30, 2023 |
June 30, 2023 |
|||||||||||||||
| Fairfield Inn - East Rutherford | East Rutherford, New Jersey | 1990 | 25,521 | 68 | % | $ | 92.98 | $ | 135.85 | ||||||||||||
| Aloft - Tucson | Tucson, Arizona | 1971 | 27,874 | 70 | % | $ | 114.95 | $ | 165.10 | ||||||||||||
| Aloft - Philadelphia | Philadelphia, Pennsylvania | 2008 | 24,616 | 68 | % | $ | 79.03 | $ | 115.71 | ||||||||||||
| Four Points by Sheraton - Philadelphia | Philadelphia, Pennsylvania | 1985 | 32,037 | 75 | % | $ | 70.62 | $ | 94.68 | ||||||||||||
| Courtyard - Willoughby | Willoughby, Ohio | 1999 | 16,290 | 59 | % | $ | 78.96 | $ | 133.22 | ||||||||||||
| Fairfield Inn - Des Moines | West Des Moines, Iowa | 1997 | 18,462 | 60 | % | $ | 64.00 | $ | 106.95 | ||||||||||||
| SpringHill Suites - Des Moines | West Des Moines, Iowa | 1999 | 17,557 | 71 | % | $ | 71.85 | $ | 101.65 | ||||||||||||
| Hampton Inn - Miami | Miami, Florida | 1996 | 22,806 | 85 | % | $ | 127.03 | $ | 149.61 | ||||||||||||
| Hampton Inn & Suites - Fort Lauderdale | Fort Lauderdale, Florida | 1996 | 18,824 | 88 | % | $ | 149.04 | $ | 169.11 | ||||||||||||
| Courtyard - Parsippany | Parsippany, New Jersey | 2001 | 27,331 | 54 | % | $ | 79.76 | $ | 147.81 | ||||||||||||
| Hyatt Place - New Orleans | New Orleans, Louisiana | 1996 | 31,132 | 53 | % | $ | 107.33 | $ | 203.68 | ||||||||||||
| Residence Inn - Needham | Needham, Massachusetts | 2013 | 23,892 | 82 | % | $ | 131.21 | $ | 159.47 | ||||||||||||
| Hospitality Total | 286,342 | 69 | % | $ | 97.34 | $ | 141.16 | ||||||||||||||
The Hampton Inn – Miami and the Hampton Inn & Suites – Fort Lauderdale are classified as held for sale along with their related assets and liabilities on the consolidated balance sheet as of June 30, 2023 and were both subsequently sold in July 2023. See “Held for Sale and Disposition Activities” below for additional information.
Annualized base rent is defined as the minimum monthly base rent due as of June 30, 2023 annualized, excluding periodic contractual fixed increases and rents calculated based on a percentage of tenants’ sales. The annualized base rent disclosed in the table above includes all concessions, abatements and reimbursements of rent to tenants.
The following information generally applies to our investments in our real estate properties:
| ● | we believe our real estate properties are adequately covered by insurance and suitable for their intended purpose; | |
| ● | our real estate properties are located in markets where we are subject to competition; and | |
| ● | depreciation is provided on a straight-line basis over the estimated useful life of the applicable improvements. |
Critical Accounting Policies and Estimates
There were no material changes during the six months ended June 30, 2023 to our critical accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2022.
26
Results of Operations
Held for Sale and Disposition Activities
Held for Sale – Florida Hotel Portfolio
On May 8, 2023, the Hotel Joint Venture, which we majority own and consolidate, through its subsidiaries (collectively, the “Sellers”), and Vista Acquisitions Inc. (the “Florida Hotel Portfolio Buyer”), an unaffiliated third party, entered into a purchase and sale agreement, as amended, (the “Florida Hotel Portfolio Agreement”) pursuant to which we would dispose of (i) a 126-room limited service hotel which operates as a Hampton Inn, located in Miami, Florida (the “Hampton Inn - Miami”), and (ii) a 104-room select service hotel which operates as a Hampton Inn & Suites, located in Fort Lauderdale, Florida (the “Hampton Inn & Suites - Fort Lauderdale”, and collectively the “Florida Hotel Portfolio”), to the Florida Hotel Portfolio Buyer for an aggregate contractual sales price of $28.0 million. During the second quarter of 2023, we recorded a non-cash impairment charge of $5.0 million on the consolidated statements of operations to reduce the carrying value of the Florida Hotel Portfolio to its fair value less the costs to sell of $27.1 million as of June 30, 2023. See Note 1 of the Notes to Consolidated Financial Statements for additional information on the Hotel Joint Venture.
As of June 30, 2023, the Florida Hotel Portfolio met all of the required criteria to be classified as held for sale and therefore, its associated assets and liabilities are classified as held for sale in the consolidated balance sheet as of June 30, 2023.
Disposition Activities
Florida Hotel Portfolio
On July 18, 2023 and July 21, 2023, the Sellers completed the sales of the Hampton Inn & Suites - Fort Lauderdale and the Hampton Inn & Suites - Miami to the Buyers for $11.5 million and $16.5 million, respectively, pursuant to the terms of the Florida Hotel Portfolio Agreement. In connection with these transactions, the Hotel Joint Venture used an aggregate of $16.7 million of the net proceeds to make required principal paydowns on a revolving credit facility (the “Revolving Credit Facility”), held by another subsidiary of the Company, reducing its outstanding balance to $101.8 million. The Hotel Joint Venture’s net proceeds from the disposition of the Florida Hotel Portfolio were $10.3 million (of which our share was $10.0 million and Lightstone REIT I’s was $0.3 million), after the principal paydowns on the Revolving Credit Facility, closing and other costs, pro rations and working capital adjustments. In connection with the disposition of the Florida Hotel Portfolio, the two hotels were released from the pledged collateral pool under the Revolving Credit Facility. Additionally, as a result of the sale of the Florida Hotel Portfolio, the number of remaining hotels owned by the Hotel Joint Venture has been reduced to five. See Note 1 and Note 6 of the Notes to Consolidated Financial Statements for additional information.
The disposition of the Florida Hotel Portfolio does not qualify to be reported as discontinued operations since the disposition does not represent a strategic shift that has a major effect on our operations and financial results. Accordingly, the operating results of the Florida Hotel Portfolio will be reflected in our results from continuing operations for all periods presented through its date of disposition.
Disposition of the Courtyard – Paso Robles
On March 22, 2022, we completed the disposition of a 130-room hotel located in Paso Robles, California, which operates as a Courtyard by Marriott (the “Courtyard – Paso Robles”), to an unaffiliated third party, for a contractual sales price of $32.3 million. In connection with the disposition of the Courtyard – Paso Robles, we recognized a gain on the sale of investment property of $7.7 million during the first quarter of 2022.
Disposition of the TownePlace Suites – Little Rock
On July 14, 2022, we completed the disposition of a 92-room hotel located in Little Rock, Arkansas, which operates as a TownePlace Suites (the “TownePlace Suites - Little Rock”), to an unaffiliated third party, for a contractual sales price of $5.9 million. In connection with the disposition of the TownePlace Suites - Little Rock, we recognized a gain on the sale of investment property of $0.8 million during the third quarter of 2022.
The dispositions of the Courtyard – Paso Robles and the TownePlace Suites - Little Rock (collectively, the “2022 Dispositions”) did not qualify to be reported as discontinued operations since they did not represent a strategic shift that had a major effect on our operations and financial results. Accordingly, the operating results of the 2022 Dispositions are reflected in our results from continuing operations for all periods presented through their respective dates of disposition.
Properties owned by us during the entire periods presented are referred to as our “Same Store” properties.
27
Comparison of the three months ended June 30, 2023 vs. June 30, 2022
Consolidated
Our consolidated revenues, property operating expenses, real estate taxes, and depreciation and amortization for the three months ended June 30, 2023 and 2022 are attributable to our consolidated hospitality properties, including the 2022 Dispositions through their respective dates of disposition.
As a result of the COVID-19 pandemic, room demand and rental rates for our consolidated and unconsolidated hotels significantly declined starting in March 2020 at the onset of the pandemic; and while these metrics have improved since then (late 2020 and continuing through the second quarter of 2023); room demand and rental rates still remain below their pre-pandemic historical levels for certain of our hotels. During the three months ended June 30, 2023 compared to same period in 2022, our consolidated hospitality portfolio experienced increases in RevPAR to $101.05 from $95.29 and ADR to $138.21 from $128.99 and a slight decrease in the percentage of rooms occupied to 73% from 74%.
Revenues
Revenues increased slightly by $0.1 million to $15.3 million during the three months ended June 30, 2023 compared to $15.2 million for the same period in 2022. The increase reflects higher revenues of $0.7 million for our Same Store properties, as a result of the higher RevPAR and ADR partially offset by decreases in occupancy in certain properties during the 2023 period, and a reduction in revenues of $0.6 million attributable to the 2022 Dispositions.
Property operating expenses
Property operating expenses increased by $0.6 million to $10.6 million during the three months ended June 30, 2023 compared to $10.0 million for the same period in 2022. Excluding the reduction in property operating expenses of $0.4 million attributable to the 2022 Dispositions, our property operating expenses increased by $1.0 million for our Same Store properties. The increase primarily reflects rising costs due to inflation leading to higher room and food expenses of $0.3 million, franchise management fees of $0.1 million other property operating expenses of $0.6 million.
Real estate taxes
Real estate taxes decreased by $0.2 million to $0.7 million during the three months ended June 30, 2023 compared to $0.9 million for the same period in 2022.
General and administrative costs
General and administrative costs were relatively unchanged at $1.2 million during both the three months ended June 30, 2023 and 2022.
Depreciation and amortization
Depreciation and amortization expense decreased slightly by $0.1 million to $1.8 million during the three months ended June 30, 2023 compared to $1.9 million for the same period in 2022.
Impairment charge
During the three months ended June 30, 2023, we recognized an impairment charge of $5.0 million to reduce the carrying value of the Florida Hotel Portfolio to its fair value less costs to sell as of June 30, 2023.
Interest expense
Interest expense increased by $1.1 million to $2.5 million during the three months ended June 30, 2023 compared to $1.4 million for the same period in 2022. Interest expense is primarily attributable to financings associated with our hotels and reflects both changes in market interest rates on our variable rate indebtedness and the weighted average principal outstanding during the periods.
28
Gain on forgiveness of debt
During the three months ended June 30, 2022, notice was received from the U.S. Small Business Administration that $0.3 million of our Paycheck Protection loans and related accrued interest had been legally forgiven and therefore, we recognized a gain on forgiveness of debt for that amount during the period.
Earnings from investments in unconsolidated affiliated real estate entities
Our loss from investments in unconsolidated affiliated real estate entities was $30 during the three months ended June 30, 2023 compared to income of $0.3 million for the same period in 2022. Our earnings from investments in unconsolidated affiliated real estate entities is attributable to our ownership interests in the Hilton Garden Inn Joint Venture and the Brownmill Joint Venture. We account for our membership interests in the Hilton Garden Inn Joint Venture and the Brownmill Joint Venture under the equity method of accounting.
Noncontrolling interests
The income or loss allocated to noncontrolling interests relates to the interest in our Operating Partnership held by our Advisor, the membership interest held by Lightstone REIT I in the Hotel Joint Venture, and the ownership interests held by unrelated minority owners in one of our hotels.
Comparison of the six months ended June 30, 2023 vs. June 30, 2022
Consolidated
Our consolidated revenues, property operating expenses, real estate taxes, general and administrative expense and depreciation and amortization for the six months ended June 30, 2023 and 2022 are attributable to our consolidated hospitality properties, including the 2022 Dispositions through their respective dates of disposition.
As a result of the COVID-19 pandemic, room demand and rental rates for our consolidated and unconsolidated hotels significantly declined starting in March 2020 at the onset of the pandemic; and while these metrics have improved since then (late 2020 and continuing through the second quarter of 2023); room demand and rental rates still remain below their pre-pandemic historical levels for certain of our hotels. During the six months ended June 30, 2023 compared to same period in 2022, our consolidated hospitality portfolio experienced increases in the percentage of rooms occupied to 69% from 68%, RevPAR to $97.34 from $86.23 and ADR to $141.16 from $127.68.
Revenues
Revenues increased by $1.1 million to $29.3 million during the six months ended June 30, 2023 compared to $28.2 million for the same period in 2022. The increase reflects higher revenues of $3.2 million for our Same Store properties, as a result of the higher occupancy, RevPAR and ADR during the 2023 period, partially offset by a reduction in revenues of $2.1 million attributable to the 2022 Dispositions.
Property operating expenses
Property operating expenses increased by $0.9 million to $20.5 million during the six months ended June 30, 2023 compared to $19.6 million for the same period in 2022. Excluding the reduction in property operating expenses of $1.6 million attributable to the 2022 Dispositions, our property operating expenses increased by $2.5 million for our Same Store properties. The increase reflects the higher occupancy during the 2023 period as well rising costs due to inflation leading to higher room, food and beverage expenses of $1.1 million, franchise management fees of $0.3 million, payroll expenses of $0.2 million and other property operating expenses of $0.9 million.
Real estate taxes
Real estate taxes decreased by $0.4 million to $1.1 million during the six months ended June 30, 2023 compared to $1.5 million for the same period in 2022. Excluding the reduction in real estate taxes of $0.1 million attributable to the 2022 Dispositions, our real estate taxes decreased by $0.3 million for our Same Store properties.
29
General and administrative costs
General and administrative costs decreased slightly by $0.1 million to $2.4 million during the six months ended June 30, 2023 compared to $2.5 million for the same period in 2022.
Depreciation and amortization
Depreciation and amortization expense decreased by $0.5 million to $3.7 million during the six months ended June 30, 2023 compared to $4.2 million for the same period in 2022. The decrease reflects slightly lower depreciation and amortization expense of $0.2 million for our Same Store properties and a reduction in depreciation and amortization expense of $0.3 million attributable to the 2022 Dispositions.
Impairment charge
During the six months ended June 30, 2023, we recognized an impairment charge of $5.0 million to reduce the carrying value of the Florida Hotel Portfolio to its fair value less costs to sell as of June 30, 2023.
Interest expense
Interest expense increased by $2.0 million to $4.9 million during the six months ended June 30, 2023 compared to $2.9 million for the same period in 2022. Interest expense is primarily attributable to financings associated with our hotels and reflects both changes in market interest rates on our variable rate indebtedness and the weighted average principal outstanding during the periods.
Gain on forgiveness of debt
During the six months ended June 30, 2022, notice was received from the U.S. Small Business Administration that $0.9 million of our Paycheck Protection loans and related accrued interest had been legally forgiven and therefore, we recognized a gain on forgiveness of debt for that amount during the period.
Gain on sale of investment property
During the six months ended June 30, 2023, we recognized a gain on the sale of investment property of $0.3 million related to the sale of a hospitality property in 2017.
During the six months ended June 30, 2022, we recognized a gain on the sale of investment property of $7.7 million in connection with the sale of the Courtyard – Paso Robles on March 22, 2022.
Earnings from investments in unconsolidated affiliated real estate entities
Our loss from investments in unconsolidated affiliated real estate entities was $0.3 million during the six months ended June 30, 2023 compared to income of $0.2 million for the same period in 2022. Our earnings from investments in unconsolidated affiliated real estate entities are attributable to our ownership interests in the Hilton Garden Inn Joint Venture and the Brownmill Joint Venture. We account for our membership interests in the Hilton Garden Inn Joint Venture and the Brownmill Joint Venture under the equity method of accounting.
Noncontrolling interests
The income or loss allocated to noncontrolling interests relates to the interest in our Operating Partnership held by our Advisor, the membership interest held by Lightstone REIT I in the Hotel Joint Venture, and the ownership interests held by unrelated minority owners in one of our hotels.
30
Financial Condition, Liquidity and Capital Resources
Overview:
As of June 30, 2023, we had $33.6 million of cash on hand and marketable securities of $9.0 million. Additionally, the sale of the Florida Hotel Portfolio during July 2023 generated $10.0 million of net proceeds to us after an aggregate of $16.7 million of required principal paydowns on our Revolving Credit Facility. We currently believe that these items, along with revenues from our properties, interest and dividend income on our marketable securities, proceeds from the potential sale of marketable securities, and potential distributions received from our unconsolidated affiliated entities will be sufficient to satisfy our expected cash requirements for at least twelve months from the date of filing this report, which primarily consist of our anticipated operating expenses, scheduled debt service (excluding balloon payments due at maturity), capital expenditures (excluding non-recurring capital expenditures), contributions to our unconsolidated affiliated entities, redemptions and cancellations of shares of our Common Shares, if approved, and distributions, if any, required to maintain our status as a REIT for the foreseeable future. Additionally, we currently intend to seek to extend or refinance the Revolving Credit Facility (remaining outstanding principal balance of $101.8 million after required principal paydowns aggregating $16.7 million made during July 2023) on or before its maturity date of September 15, 2023, however, there can be no assurances that we will be successful in such endeavors. However, we may also obtain additional funds through additional selective asset dispositions, joint venture arrangements, new borrowings and refinancing of existing borrowings.
As of June 30, 2023, we had mortgage indebtedness totaling $118.5 million. We have and intend to continue to limit our aggregate long-term permanent borrowings to 75% of the aggregate fair market value of all properties unless any excess borrowing is approved by a majority of our independent directors and is disclosed to our stockholders. Market conditions will dictate the overall leverage limit; as such our aggregate long-term permanent borrowings may be less than 75% of aggregate fair market value of all properties. We may also incur short-term indebtedness, having a maturity of two years or less.
Our charter provides that the aggregate amount of our borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a justification showing that a higher level is appropriate, the approval of our Board of Directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders n our next quarterly report to stockholders, along with justification for such excess. Market conditions will dictate our overall leverage limit; as such our aggregate borrowings may be less than 300% of net assets. As of June 30, 2023, our total borrowings aggregated $118.5 million which represented 74% of our net assets.
Additionally, in order to leverage our investments in marketable securities and seek a higher rate of return, we have access to borrowings under a margin loan. This loan is due on demand and any outstanding balance must be paid upon the liquidation of securities.
Any future properties that we may acquire may be funded through a combination of borrowings and the proceeds received from the selective disposition of certain of our real estate assets. These borrowings may consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. Such mortgages may be put in place either at the time we acquire a property or subsequent to our purchasing a property for cash. In addition, we may acquire properties that are subject to existing indebtedness where we choose to assume the existing mortgages. Generally, though not exclusively, we intend to seek to encumber our properties with debt, which will be on a non-recourse basis. This means that a lender’s rights on default will generally be limited to foreclosing on the property. However, we may, at our discretion, secure recourse financing or provide a guarantee to lenders if we believe this may result in more favorable terms. When we give a guaranty for a property owning entity, we will be responsible to the lender for the satisfaction of the indebtedness if it is not paid by the property owning entity.
We may also obtain lines of credit to be used to acquire properties. If obtained, these lines of credit will be at prevailing market terms and will be repaid from proceeds from the sale or refinancing of properties, working capital and/or permanent financing. Our Sponsor and/or its affiliates may guarantee our lines of credit although they are not obligated to do so. We expect that such properties may be purchased by our Sponsor’s affiliates on our behalf, in our name, in order to minimize the imposition of a transfer tax upon a transfer of such properties to us.
We have various agreements, including an advisory agreement, with the Advisor to pay certain fees in exchange for services performed by the Advisor and/or its affiliated entities. Additionally, our ability to secure financing and our real estate operations are dependent upon our Advisor and its affiliates to perform such services as provided in these agreements.
31
In addition to meeting working capital needs and distributions, if any, made to maintain our status as a REIT, our capital resources are used to make certain payments to our Advisor, including payments related to asset acquisition fees and asset management fees, and the reimbursement of acquisition-related expenses to our Advisor. We also reimburse our advisor for actual expenses it incurs for administrative and other services provided to us.
The advisory agreement has a one year term and is renewable for an unlimited number of successive one year periods upon the mutual consent of the Advisor and our independent directors.
The following table represents the fees incurred associated with the payments to our Advisor for the periods indicated:
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Asset management fees (general and administrative costs) | $ | 657 | $ | 680 | $ | 1,316 | $ | 1,418 | ||||||||
Summary of Cash Flows
The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below:
| For the Six Months Ended June 30, |
||||||||
| 2023 | 2022 | |||||||
| Net cash (used in)/provided by operating activities | $ | (591 | ) | $ | 598 | |||
| Net cash (used in)/provided by investing activities | (5,793 | ) | 35,524 | |||||
| Net cash used in financing activities | (2,183 | ) | (16,533 | ) | ||||
| (8,567 | ) | 19,589 | ||||||
| Cash, cash equivalents and restricted cash, beginning of year | 42,566 | 16,959 | ||||||
| Cash, cash equivalents and restricted cash, end of the period | $ | 33,999 | $ | 36,548 | ||||
Operating activities
The cash used in operating activities of $0.6 million for the six months ended June 30, 2023 consisted of our net loss of $9.1 million plus a gain recognized the sale of investment property of $0.3 million and net changes in operating assets and liabilities of $0.5 million partially offset by an impairment charge, depreciation and amortization, amortization of deferred financing costs and other non-cash items aggregating $9.1 million and the loss from investments in unconsolidated affiliated entities of $0.3 million.
Investing activities
The cash used in investing activities of $5.8 million for the six months ended June 30, 2023 consists primarily of the following:
| ● | capital expenditures of $0.6 million; |
| ● | $0.4 million of aggregate investments in the Hilton Garden Inn Joint Venture; |
| ● | $4.9 million net purchases of marketable securities; and |
| ● | $0.2 million of distributions from our investment in the Brownmill Joint Venture. |
32
Financing activities
The cash used in financing activities of $2.2 million for the six months ended June 30, 2023 consists primarily of the following:
| ● | payment of loan fees and expenses of $0.1 million; |
| ● | redemption and cancellation of common shares of $0.8 million; and |
| ● | distributions paid to common stockholders of $1.3 million. |
Distributions on Common Shares
On May 11, 2023, the Board of Directors authorized and we declared a Common Share distribution of $0.075 per share for the quarterly period ending June 30, 2023. The distribution is the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. On July 15, 2023, the distribution for the three-month period ending June 30, 2023 of $1.3 million was paid in cash.
On August 14, 2023, the Board of Directors authorized and we declared a Common Share distribution of $0.075 per share for the quarterly period ending September 30, 2023. The distribution is the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. The distribution will be paid on or about the 15th day of the month following the quarter-end to stockholders of record at the close of business on the last day of the quarter end.
Future distributions declared, if any, will be at the discretion of the Board of Directors based on their analysis of our performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, revenues and other sources of income, operating and interest expenses and our ability to refinance near-term debt as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. We cannot assure that any future distributions will be made or that we will maintain any particular level of distributions that we have previously established or may establish.
SRP
Our share repurchase program (the “SRP”) may provide eligible stockholders with limited, interim liquidity by enabling them to sell Common Shares back to us, subject to restrictions and applicable law.
On March 19, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of all redemptions.
Effective May 10, 2021, the Board of Directors partially reopened the SRP to allow, subject to various conditions as set forth below, for redemptions submitted in connection with a stockholder’s death and hardship, respectively, and set the price for all such purchases to our current estimated net asset value per share of common stock, as determined by our board of directors and reported by us from time to time. Deaths that occurred subsequent to January 1, 2020 were eligible for consideration, subject to certain conditions. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by us within one year of the stockholder’s date of death for consideration.
On the above noted date, the Board of Directors established that on an annual basis, we would not redeem in excess of 0.5% of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Additionally, redemption requests generally would be processed on a quarterly basis and would be subject to proration if either type of redemption requests exceeded the annual limitation.
For the six months ended June 30, 2023, we repurchased 76,461 Common Shares at a weighted average price per share of $9.96. For the six months ended June 30, 2022, we repurchased 90,275 Common Shares at a weighted average price per share of $8.47.
33
Contractual Mortgage Obligations
The following is a summary of our estimated contractual mortgage obligations outstanding over the next five years and thereafter as of June 30, 2023. This summary does not reflect required principal paydowns to our Revolving Credit Facility aggregating $16.7 million we made during July 2023 in connection with the sales of the Florida Hotel Portfolio.
| Contractual Mortgage Obligations | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | |||||||||||||||||||||
| Principal maturities | $ | 118,485 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 118,485 | ||||||||||||||
| Interest payments(1) | 2,107 | - | - | - | - | - | 2,107 | |||||||||||||||||||||
| Total Contractual Mortgage Obligations | $ | 120,592 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 120,592 | ||||||||||||||
Note:
| (1) | These amounts represent future interest payments related to mortgage payable obligations based on the interest rates specified in the associated debt agreement. All variable rate debt agreements are based on the one-month AMERIBOR rate. For purposes of calculating future interest amounts on variable interest rate debt the one-month AMERIBOR rate as of June 30, 2023 was used. |
Revolving Credit Facility
We, through certain subsidiaries, have a non-recourse revolving credit facility (the “Revolving Credit Facility”) with a financial institution. The Revolving Credit Facility provides a line of credit of up to $140.0 million pursuant to which we may designate our hotel properties as collateral that allow borrowings up to a 65.0% loan-to-value ratio subject to also meeting certain financial covenants. The Revolving Credit Facility provides for monthly interest-only payments and the entire principal balance is due upon its scheduled expiration.
Except as discussed below, the Revolving Credit Facility, which was scheduled to mature on September 15, 2022, bore interest at LIBOR plus 3.15%, subject to a 4.00% floor. However, on September 6, 2022, the Revolving Credit Facility was amended and is now scheduled to mature on September 15, 2023. In connection with the amendment of the Revolving Credit Facility, the interest rate was prospectively changed to AMERIBOR plus 3.15%, subject to a 4.00% floor.
On March 31, 2021, the Revolving Credit Facility was further amended providing for (i) us to pledge the membership interests in another hotel as additional collateral within 45 days, (ii) us to fund an additional $2.5 million into the cash collateral reserve account; (iii) a waiver of all financial covenants for quarter-end periods through September 30, 2021 with a phased-in gradual return to the full financial covenant requirements over the quarter-end periods beginning December 31, 2021 through March 31, 2023; (iv) an extension of the maturity date from May 17, 2021 to September 15, 2022 upon the pledge of the additional collateral (which was subsequently completed on May 13, 2021); (v) one additional one-year extension option at the lender’s sole discretion, which was exercised on September 6, 2022; and (vi) certain limitations and restrictions on asset sales and additional borrowings related to the pledged collateral pool.
As of June 30, 2023, all 12 of our majority-owned and consolidated hotel properties were pledged as collateral under the Revolving Credit Facility and the outstanding principal balance was $118.5 million. Additionally, no additional borrowings were available under the Revolving Credit Facility as of June 30, 2023.
Subsequently, on July 18, 2023 and July 21, 2023, in connection with the dispositions of the Hampton Inn & Suites – Fort Lauderdale and Hampton Inn – Miami, respectively, aggregate principal paydowns of $16.7 million were made on the Revolving Credit Facility reducing its outstanding principal balance to $101.8 million and the two hotels were released from the pledged collateral pool under the Revolving Credit Facility.
We currently intend to seek to extend or refinance the Revolving Credit Facility on or before its maturity date of September 15, 2023, however, there can be no assurances that we will be successful in such endeavors.
34
As of June 30, 2023, we were in compliance with respect to all of our financial debt covenants.
In addition to the mortgage payable described above, a margin loan that was made available to us from a financial institution that holds custody of certain of our marketable securities. The margin loan is collateralized by the marketable securities in our account. The amounts available to us under the margin loan are at the discretion of the financial institution and not limited to the amount of collateral in our account. No amounts were outstanding under this margin loan as of June 30, 2023. The margin loan bears interest at LIBOR plus 0.85% (6.07% as of June 30, 2023).
Investments in Unconsolidated Affiliated Entities
Hilton Garden Inn Joint Venture
On March 27, 2018, we and Lightstone Value Plus REIT III, Inc. (“Lightstone REIT III”), a related party REIT also sponsored by our Sponsor, acquired, through the newly formed Hilton Garden Inn Joint Venture, the Hilton Garden Inn — Long Island City from an unrelated third party for aggregate consideration of $60.0 million, which consisted of $25.0 million of cash and $35.0 million of proceeds from a five-year term, non-recourse mortgage loan from a financial institution (the “Hilton Garden Inn Mortgage”), excluding closing and other related transaction costs. We paid $12.9 million for a 50.0% membership interest in the Hilton Garden Inn Joint Venture.
Except as discussed below, the Hilton Garden Inn Mortgage bore interest at LIBOR plus 3.15%, subject to a 5.03% floor, initially provided for monthly interest-only payments for the first 30 months of its term with principal and interest payments pursuant to a 25-year amortization schedule thereafter, and the remaining unpaid balance due in full at its maturity on March 27, 2023.
On June 2, 2020, the Hilton Garden Inn Mortgage was amended to provide for the deferral of the six monthly debt service payments aggregating $0.9 million for the period from April 1, 2020 through September 30, 2020 until March 27, 2023.
On March 27, 2023, the Hilton Garden Inn Joint Venture and the lender amended the Hilton Garden Inn Mortgage to extend the maturity date for 90 days, through June 25, 2023, to provide additional time to finalize the terms of a long-term extension. Subsequently, on May 31, 2023, the Hilton Garden Inn Mortgage was further amended to provide for (i) an extension of the maturity date for an additional five years, (ii) the interest rate to be adjusted to SOFR plus 3.25% (8.39% as of June 30, 2023), subject to a 6.41% floor, interest-only payments for the first two years of its extended term with principal and interest payments pursuant to a 300-month amortization schedule thereafter and the remaining unpaid balance due in full at its maturity date of May 31, 2028, (iii) the ability to draw up to an additional $3.0 million of principal, subject to the satisfaction of certain conditions, and (iv) certain changes to its financial covenants. Additionally, the Hilton Garden Inn Joint Venture will fund $1.3 million, through monthly payments of $37 from May 31, 2023 through June 1, 2026, into a cash collateral reserve account which may be drawn upon for specified capital expenditures.
We and Lightstone REIT III each have a 50.0% co-managing membership interest in the Hilton Garden Inn Joint Venture. We account for our membership interest in the Hilton Garden Inn Joint Venture in accordance with the equity method of accounting because we exert significant influence over but do not control the Hilton Garden Inn Joint Venture. All capital contributions and distributions of earnings from the Hilton Garden Inn Joint Venture are made on a pro rata basis in proportion to each member’s equity interest percentage. Any distributions in excess of earnings from the Hilton Garden Inn Joint Venture are made to the members pursuant to the terms of the Hilton Garden Inn Joint Venture’s operating agreement. We commenced recording our allocated portion of profit/loss and cash distributions beginning as of March 27, 2018 with respect to our membership interest of 50.0% in the Hilton Garden Inn Joint Venture.
The Hilton Garden Inn Joint Venture is currently in compliance with respect to all of its financial debt covenants.
Subsequent to the acquisition of our 50.0% membership interest in the Hilton Garden Joint Venture through June 30, 2023, we made an aggregate of $3.2 million of additional capital contributions (of which $0.4 million were made during the six months ended June 30, 2023) and received aggregate distributions of $4.0 million.
35
Funds from Operations and Modified Funds from Operations
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings, improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be less informative.
Because of these factors, the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has published a standardized measure of performance known as funds from operations (“FFO”), which is used in the REIT industry as a supplemental performance measure. We believe FFO, which excludes certain items such as real estate-related depreciation and amortization, is an appropriate supplemental measure of a REIT’s operating performance. FFO is not equivalent to our net income or loss as determined under GAAP.
We calculate FFO, a non-GAAP measure, consistent with the standards established over time by the Board of Governors of NAREIT, as restated in a White Paper approved by the Board of Governors of NAREIT effective in December 2018 (the “White Paper”). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Our FFO calculation complies with NAREIT’s definition.
We believe that the use of FFO provides a more complete understanding of our performance to investors and to management, and reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.
Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT’s definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.
Because of these factors, the Investment Program Association (the “IPA”), an industry trade group, published a standardized measure of performance known as modified funds from operations (“MFFO”), which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that both before and after we have deployed all of our offering proceeds, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP.
We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the “Practice Guideline”) issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction-related fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and exclude acquisition and transaction-related fees and expenses incurred for business combinations, amounts relating to deferred rent receivables and amortization of market lease and other intangibles, net (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), accretion of discounts and amortization of premiums on debt investments and borrowings, mark-to-market adjustments included in net income (including gains or losses incurred on assets held for sale), gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. Certain of the above adjustments are also made to reconcile net income (loss) to net cash provided by (used in) operating activities, such as for the amortization of a premium and accretion of a discount on debt and securities investments, amortization of fees, any unrealized gains (losses) on derivatives, securities or other investments, as well as other adjustments.
36
MFFO excludes non-recurring impairment of real estate-related investments. We assess the credit quality of our investments and adequacy of reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. We consider the estimated net recoverable value of a loan as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive situation of the region where the borrower does business.
We believe that, because MFFO excludes costs that we consider more reflective of non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.
Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO.
Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guidelines or the SEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry, and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.
37
The below table illustrates the items deducted from or added to net income/(loss) in the calculation of FFO and MFFO. Items are presented net of noncontrolling interest portions where applicable.
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net (loss)/income | $ | (7,241 | ) | $ | 185 | $ | (9,097 | ) | $ | 5,891 | ||||||
| FFO adjustments: | ||||||||||||||||
| Depreciation and amortization of real estate assets | 1,809 | 1,923 | 3,669 | 4,191 | ||||||||||||
| Loss/(gain) on sale of investment property | 3 | 65 | (339 | ) | (7,681 | ) | ||||||||||
| Impairment charge | 5,000 | - | 5,000 | - | ||||||||||||
| Income tax on sale of real estate | 1,162 | - | 1,162 | - | ||||||||||||
| Adjustments to equity in earnings from unconsolidated affiliated entities | 410 | 440 | 825 | 884 | ||||||||||||
| FFO | 1,143 | 2,613 | 1,220 | 3,285 | ||||||||||||
| MFFO adjustments: | ||||||||||||||||
| Adjustments to equity in earnings from unconsolidated affiliated entities | 20 | 6 | 40 | 10 | ||||||||||||
| Gain on forgiveness of debt(1) | - | (259 | ) | - | (852 | ) | ||||||||||
| Mark-to-market adjustments(2) | (44 | ) | 150 | 114 | 390 | |||||||||||
| Non-recurring (gains)/losses from extinguishment/sale of debt, derivatives or securities holdings(1) | - | - | - | 83 | ||||||||||||
| MFFO - IPA recommended format | 1,119 | 2,510 | 1,374 | 2,916 | ||||||||||||
| Net (loss)/income | $ | (7,241 | ) | $ | 185 | $ | (9,097 | ) | $ | 5,891 | ||||||
| Less: loss/(income) attributable to noncontrolling interests | 118 | (24 | ) | 159 | 1 | |||||||||||
| Net (loss)/income applicable to Company’s common shares | $ | (7,123 | ) | $ | 161 | $ | (8,938 | ) | $ | 5,892 | ||||||
| Net (loss)/income per common share, basic and diluted | $ | (0.42 | ) | $ | 0.01 | $ | (0.52 | ) | $ | 0.34 | ||||||
| FFO | $ | 1,143 | $ | 2,613 | $ | 1,220 | $ | 3,285 | ||||||||
| Less: FFO attributable to noncontrolling interests | 73 | (67 | ) | 73 | (88 | ) | ||||||||||
| FFO attributable to Company’s common shares | $ | 1,216 | $ | 2,546 | $ | 1,293 | $ | 3,197 | ||||||||
| FFO per common share, basic and diluted | $ | 0.07 | $ | 0.15 | $ | 0.08 | $ | 0.19 | ||||||||
| MFFO - IPA recommended format | $ | 1,119 | $ | 2,510 | $ | 1,374 | $ | 2,916 | ||||||||
| Less: MFFO attributable to noncontrolling interests | (52 | ) | (63 | ) | (52 | ) | (69 | ) | ||||||||
| MFFO attributable to Company’s common shares | $ | 1,067 | $ | 2,447 | $ | 1,322 | $ | 2,847 | ||||||||
| Weighted average number of common shares outstanding, basic and diluted | 17,112 | 17,248 | 17,135 | 17,267 | ||||||||||||
| (1) | Management believes that adjusting for gains or losses related to extinguishment/sale of debt, derivatives or securities holdings is appropriate because they are items that may not be reflective of ongoing operations. By excluding these items, management believes that MFFO provides supplemental information related to sustainable operations that will be more comparable between other reporting periods. | |
| (2) | Management believes that adjusting for mark-to-market adjustments is appropriate because they are nonrecurring items that may not be reflective of ongoing operations and reflects unrealized impacts on value based only on then current market conditions, although they may be based upon current operational issues related to an individual property or industry or general market conditions. Mark-to-market adjustments are made for items such as ineffective derivative instruments, certain marketable securities and any other items that GAAP requires we make a mark-to-market adjustment for. The need to reflect mark-to-market adjustments is a continuous process and is analyzed on a quarterly and/or annual basis in accordance with GAAP. |
38
The table below presents our cumulative distributions declared and cumulative FFO attributable to our common shares:
| For the period April 28, 2008 (date of inception) through June 30, 2023 |
||||
| FFO attributable to Company’s common shares | $ | 77,681 | ||
| Distributions declared | $ | 87,606 | ||
New Accounting Pronouncements
See Note 2 of the Notes to Consolidated Financial Statements for further information of any accounting standards that have been adopted during 2023 and any accounting standards that we have not yet been required to implement and may be applicable to our future operations.
ITEM 4. CONTROLS AND PROCEDURES.
As of the end of the period covered by this report, management, including our chief executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of the evaluation, our chief executive officer and principal financial officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.
There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no significant deficiencies or material weaknesses identified in the evaluation, and therefore, no corrective actions were taken.
39
PART II. OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS.
From time to time in the ordinary course of business, we may become subject to legal proceedings, claims or disputes.
As of the date hereof, we are not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on our results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, we have not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
40
ITEM 6. EXHIBITS
| * | Filed herewith |
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
LIGHTSTONE VALUE PLUS REIT II, INC. | ||
| Date: August 14, 2023 | By: | /s/ David Lichtenstein |
| David Lichtenstein | ||
|
Chairman and Chief Executive Officer (Principal Executive Officer) | ||
| Date: August 14, 2023 | By: | /s/ Seth Molod |
| Seth Molod | ||
|
Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) |
42
EXHIBIT 31.1
Certifications
I, David Lichtenstein, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Lightstone Value Plus REIT II, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/ David Lichtenstein | |
| David Lichtenstein | |
| Chairman and Chief Executive Officer | |
| (Principal Executive Officer) |
Date: August 14, 2023
EXHIBIT 31.2
Certifications
I, Seth Molod, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Lightstone Value Plus REIT II, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/ Seth Molod | |
| Seth Molod | |
| Chief Financial Officer and Treasurer | |
| (Principal Financial and Accounting Officer) | |
| Date: August 14, 2023 |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, David Lichtenstein, the Chief Executive Officer and Chairman of the Board of Directors of Lightstone Value Plus REIT II, Inc. (the “Company”) certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) The Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2023 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C 78m); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ David Lichtenstein
David Lichtenstein
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 2023
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
I, Seth Molod, the Chief Financial Officer, Treasurer and Principal Accounting Officer of Lightstone Value Plus REIT II, Inc. (the “Company”) certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) The Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2023 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C 78m); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Seth Molod
Seth Molod
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Date: August 14, 2023
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares shares in Thousands |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, par value per share | $ 0.01 | $ 0.01 |
| Preferred stock, shares authorized | 10,000 | 10,000 |
| Preferred stock, shares issued | 0 | 0 |
| Preferred stock, shares outstanding | 0 | 0 |
| Common stock, par value per share | $ 0.01 | $ 0.01 |
| Common stock, shares authorized | 100,000 | 100,000 |
| Common stock, shares issued | 17,100 | 17,100 |
| Common stock, shares outstanding | 17,100 | 17,100 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Income Statement [Abstract] | ||||
| Net (loss)/income | $ (7,241) | $ 185 | $ (9,097) | $ 5,891 |
| Other comprehensive loss: | ||||
| Holding loss on marketable securities, available for sale | (7) | |||
| Comprehensive (loss)/income | (7,241) | 185 | (9,104) | 5,891 |
| Less: Comprehensive loss/(income) attributable to noncontrolling interests | 118 | (24) | 159 | 1 |
| Comprehensive (loss)/income attributable to the Company’s common shares | $ (7,123) | $ 161 | $ (8,945) | $ 5,892 |
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands |
6 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||
| Net (loss)/income | $ (9,097) | $ 5,891 |
| Adjustments to reconcile net (loss)/income to net cash (used in)/provided by operating activities: | ||
| Depreciation and amortization | 3,669 | 4,191 |
| Impairment charge | 5,000 | |
| Amortization of deferred financing costs | 203 | 160 |
| Gain on sale of investment property | (339) | (7,681) |
| Gain on forgiveness of debt | (852) | |
| Earnings from investments in unconsolidated affiliated entities | 294 | (209) |
| Other non-cash adjustments | 318 | 608 |
| Changes in assets and liabilities: | ||
| Increase in accounts receivable and other assets | (572) | (2,287) |
| (Decrease)/increase in accounts payable and other accrued expenses | (61) | 837 |
| Decrease in due to related party | (6) | (60) |
| Net cash (used in)/provided by operating activities | (591) | 598 |
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||
| Purchase of investment property | (646) | (280) |
| Proceeds from the sale of marketable securities | 2,957 | 3,015 |
| Purchases of marketable securities | (7,878) | |
| Proceeds from sale of investment property, net of closing costs | 31,126 | |
| Contributions to unconsolidated affiliated entities | (445) | |
| Distributions from unconsolidated affiliated entities | 219 | 1,663 |
| Net cash (used in)/provided by investing activities | (5,793) | 35,524 |
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||
| Payments on mortgages payable | (13,419) | |
| Payment on margin loan | (2,292) | |
| Payment of loan fees and expenses | (140) | |
| Redemption and cancellation of common shares | (762) | (764) |
| Distributions paid to noncontrolling interests | (58) | |
| Distributions paid to common stockholders | (1,285) | |
| Contributions of noncontrolling interests | 4 | |
| Net cash used in financing activities | (2,183) | (16,533) |
| Change in cash, cash equivalents and restricted cash | (8,567) | 19,589 |
| Cash, cash equivalents and restricted cash, beginning of year | 42,566 | 16,959 |
| Cash, cash equivalents and restricted cash, end of period | 33,999 | 36,548 |
| Supplemental cash flow information for the periods indicated is as follows: | ||
| Cash paid for interest | 4,615 | 2,733 |
| Cash paid for income taxes | 1,395 | 189 |
| Distributions declared, but not paid | 1,281 | |
| Holding loss on marketable securities, available for sale | 7 | |
| Cash and cash equivalents | 33,585 | 18,656 |
| Restricted cash | 414 | 17,892 |
| Total cash, cash equivalents and restricted cash | $ 33,999 | $ 36,548 |
Business and Structure |
6 Months Ended | |||
|---|---|---|---|---|
Jun. 30, 2023 | ||||
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||
| Business and Structure |
Lightstone Value Plus REIT II, Inc. (“Lightstone REIT II”), is a Maryland corporation formed on April 28, 2008, which elected to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2009.
Lightstone REIT II is structured as an umbrella partnership REIT, or UPREIT, and substantially all of its current and future business will be conducted through Lightstone Value Plus REIT II LP, a Delaware limited partnership (the “Operating Partnership”). As of June 30, 2023, Lightstone REIT II held an approximately 99% general partnership interest in the Operating Partnership’s common units.
Lightstone REIT II and the Operating Partnership and its subsidiaries are collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns in these consolidated financial statements refers to Lightstone REIT II, its Operating Partnership or the Company as required by the context in which such pronoun is used.
Through the Operating Partnership, the Company owns and operates commercial properties and makes real estate-related investments. Since its inception, the Company has primarily acquired and operated commercial hospitality properties, principally consisting of limited-service-hotels all located in the United States. However, its commercial holdings may also consist of full-service hotels, and to a lesser extent, retail (primarily multi-tenanted shopping centers), industrial and office properties. The Company’s real estate investments are held by it alone or jointly with other parties. In addition, the Company may invest up to 20% of its net assets in collateralized debt obligations, commercial mortgage-backed securities (“CMBS”) and mortgage and mezzanine loans secured, directly or indirectly, by the same types of properties which it may acquire directly. Although most of its investments are these types, the Company may invest in whatever types of real estate or real estate-related investments that it believes are in its best interests. The Company evaluates all of its real estate investments as one operating segment. The Company currently intends to hold its investments until such time as it determines that a sale or other disposition appears to be advantageous to achieve its investment objectives or until it appears that the objectives will not be met.
As of June 30, 2023, the Company (i) majority owned and consolidated the operating results and financial condition of 12 limited service hotels containing a total of 1,582 rooms, (ii) held an unconsolidated 48.6% membership interest in Brownmill, LLC (the “Brownmill Joint Venture”), an affiliated entity that owns two retail properties, and (iii) held an unconsolidated 50.0% membership interest in LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”), an affiliated real estate entity that owns one hotel. The Company accounts for its membership interests in the Brownmill Joint Venture and the Hilton Garden Inn Joint Venture under the equity method of accounting.
The Brownmill Joint Venture owns Browntown Shopping Center, located in Old Bridge, New Jersey, and Millburn Mall, located in Vauxhaull, New Jersey. The Hilton Garden Inn Joint Venture owns a 183-room, limited-service hotel (the “Hilton Garden Inn – Long Island City) located in the Long Island City neighborhood in the Queens borough of New York City. Both the Brownmill Joint Venture and the Hilton Garden Inn Joint Venture are between the Company and related parties.
As of June 30, 2023, seven of the Company’s consolidated limited service hotels are held in LVP Holdco JV LLC (the “Hotel Joint Venture”), a joint venture formed between the Company and Lightstone Value Plus REIT I, Inc. (“Lightstone REIT I”), a related party REIT also sponsored by The Lightstone Group, LLC. The Company and Lightstone REIT I have 97.5% and 2.5% membership interests in the Hotel Joint Venture, respectively. Additionally, as of June 30, 2023, one of the Company’s consolidated hotels also has ownership interests held by unrelated minority owners. The membership interests of Lightstone REIT I and the unrelated minority owners are accounted for as noncontrolling interests.
The Company’s advisor is Lightstone Value Plus REIT II LLC (the “Advisor”), which is majority owned by David Lichtenstein. On May 20, 2008, the Advisor contributed $2 to the Operating Partnership in exchange for 200 limited partner common units in the Operating Partnership. The Advisor also owns shares of the Company’s common stock (“Common Shares”) which were issued on May 20, 2008 for $200, or $ per share. Mr. Lichtenstein also is a majority owner of the equity interests of the Lightstone Group, LLC. The Lightstone Group, LLC served as the Company’s sponsor (the “Sponsor”) during its initial public offering (the “Offering”) and follow-on offering (the “Follow-on Offering”, and collectively, “the Offerings”), which terminated on August 15, 2012 and September 27, 2014, respectively. The Advisor, pursuant to the terms of an advisory agreement, together with the Company’s board of directors (the “Board of Directors”), is primarily responsible for making investment decisions on behalf of the Company and managing its day-to-day operations. Through his ownership and control of the Lightstone Group, LLC, Mr. Lichtenstein is the indirect owner and manager of Lightstone SLP II LLC, a Delaware limited liability company (the “Associate General Partner”), which has subordinated profits interests in the Operating Partnership (“Subordinated Profits Interests”) which were acquired for aggregate consideration of $17.7 million in connection with the Company’s Offerings. Mr. Lichtenstein also acts as the Company’s Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT II or the Operating Partnership.
The Company has no employees. The Company’s Advisor and its affiliates perform a full range of real estate services for it, including asset management, accounting, legal, and property management, as well as investor relations services.
The Company is dependent on the Advisor and its affiliates for services that are essential to it, including asset management and acquisition, disposition and financing activities, and other general administrative responsibilities. If the Advisor and its affiliates are unable to provide these services to the Company, it would be required to provide the services itself or obtain the services from other parties.
The Company also uses other unaffiliated third-party property managers, principally for the management of its hospitality properties.
The Company’s Common Shares are not currently listed on a national securities exchange. The Company may seek to list its Common Shares for trading on a national securities exchange only if a majority of its independent directors believe listing would be in the best interest of its stockholders. The Company does not intend to list its shares at this time. The Company does not anticipate that there would be any market for its Common Shares until they are listed for trading.
On January 17, 2023, the Company’s stockholders approved an amendment and restatement to the Company’s charter pursuant to which the Company is no longer required to either (a) amend its charter to extend the deadline to begin the process of achieving a liquidity event, or (b) hold a stockholders meeting to vote on a proposal for an orderly liquidation of its portfolio.
Noncontrolling Interests
Partners of the Operating Partnership
Limited Partner
On May 20, 2008, the Advisor contributed $2 to the Operating Partnership in exchange for 200 limited partner common units in the Operating Partnership. The Advisor has the right to convert limited partner common units into cash or, at the Company’s option, an equal number of Common Shares.
Associate General Partner
In connection with the Company’s Offerings, the Associate General Partner contributed (i) cash of $12.9 million and (ii) equity interests totaling 48.6% in the Brownmill Joint Venture, which were valued at $4.8 million, to the Operating Partnership in exchange for 177.0 Subordinated Profits Interests in the Operating Partnership with an aggregate value of $17.7 million.
As the indirect majority owner of the Associate General Partner, Mr. Lichtenstein is the beneficial owner of a 99% interest in such Subordinated Profits Interests and thus receives an indirect benefit from any distributions made in respect thereof.
These Subordinated Profits Interests may entitle the Associate General Partner to a portion of any regular distributions that the Company makes to its stockholders, but only after its stockholders have received a stated preferred return. There were no distributions declared on the Subordinated Profits Interests for any periods after December 31, 2019. Since the Company’s inception through June 30, 2023, the cumulative distributions declared and paid on the Subordinated Profits Interests were $7.9 million. Any future distributions on the Subordinated Profits Interests will always be subordinated until stockholders receive a stated preferred return.
The Subordinated Profits Interests may also entitle the Associate General Partner to a portion of any liquidating distributions made by the Operating Partnership. The value of such distributions will depend upon the net sale proceeds upon the liquidation of the Company and, therefore, cannot be determined at the present time. Liquidating distributions to the Associate General Partner will always be subordinated until stockholders receive a distribution equal to their initial investment plus a stated preferred return.
See Note 8 for additional information with respect to the Subordinated Profits Interests.
Other Noncontrolling Interests in Consolidated Subsidiaries
Other noncontrolling interests consist of the (i) membership interest in the Joint Venture held by Lightstone REIT I and (ii) membership interests held by minority owners in one of the Company’s hotels.
Related Parties
The Company’s Sponsor, Advisor and its affiliates, including the Associate General Partner, are related parties of the Company as well as the other public REITs also sponsored and/or advised by these entities. Certain of these entities are entitled to compensation and reimbursement for services and costs incurred related to the investment, management and disposition of the Company’s assets during its acquisition, operational and liquidation stages. The compensation levels during the Company’s acquisition and operational stages are based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements. See Note 8 for additional information.
|
Summary of Significant Accounting Policies |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies |
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Lightstone REIT II and its Operating Partnership and its subsidiaries, over which the Company exercises financial and operating control. As of June 30, 2023, Lightstone REIT II had a 99% general partnership interest in the common units of the Operating Partnership. All inter-company balances and transactions have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on accounting principles generally accepted in the United States of America (“GAAP”), and entities deemed to be variable interest entities (“VIE”) in which the Company is the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which the Company has control, substantive participating rights or both under the respective ownership agreement. For entities in which the Company has less than a controlling interest or entities which it is not deemed to be the primary beneficiary, it accounts for the investment using the equity method of accounting.
The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of the Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair statement of the results for the periods presented. The accompanying unaudited consolidated financial statements of the Lightstone Value Plus REIT II, Inc. and Subsidiaries have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.
GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of investment properties and investments in other unconsolidated real estate entities and depreciable lives of long-lived assets. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
The consolidated balance sheet as of December 31, 2022 included herein has been derived from the consolidated balance sheet included in the Company’s Annual Report on Form 10-K.
The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.
Income Taxes
The Company has elected to be taxed as a REIT commencing with the taxable year ended December 31, 2009. If the Company qualifies as a REIT, it generally will not be subject to U.S. federal income tax on its taxable income or capital gain that it distributes to its stockholders. To maintain its REIT qualification, the Company must meet a number of organizational and operational requirements, including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed at the regular corporate rate, and it may be precluded from qualifying for treatment as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders.
To qualify or maintain our qualification as a REIT, the Company engages in certain activities through wholly-owned taxable REIT subsidiaries (“TRS”). As such, it is subject to U.S. federal and state income and franchise taxes from these activities.
The Company’s income tax expense are included in other expense, net on its consolidated statements of operations. During the three and six months ended June 30, 2023, the Company recorded income tax expense of $1.2 million and $1.4 million, respectively, primarily consisting of estimated state income tax due. During the three and six months ended June 30, 2022, the Company recorded estimated income tax expense of $48.
As of June 30, 2023 and December 31, 2022, the Company had no material uncertain income tax positions.
Revenues
The following table represents the total revenues from hotel operations on a disaggregated basis:
Gain on Forgiveness of Debt
During the three and six months ended June 30, 2022, notice was received from the U.S. Small Business Administration that $0.3 million and $0.9 million, respectively, of the Company’s Paycheck Protection loans and related accrued interest had been legally forgiven and therefore, it recognized a gain on forgiveness of debt for those amounts during the respective periods.
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board issued an accounting standards update, “Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments,” which changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The updated standard replaces the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For trade and other receivables and held to maturity debt securities, entities are required to use a new forward looking expected loss model that generally will result in the earlier recognition of allowances for losses. The Company has adopted this standard noting that it did not have a material impact on the Company’s financial statements or related disclosures.
Adverse Developments Affecting the Financial Services Industry and Concentration of Risk
As of June 30, 2023 and December 31, 2022, the Company had cash deposited in certain financial institutions in excess of federally insured levels. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk in cash and cash equivalents. However, in March and April 2023, certain U.S. government banking regulators took steps to intervene in the operations of certain financial institutions due to liquidity concerns, which caused general heightened uncertainties in financial markets. While these events have not had a material direct impact on the Company’s operations, if further liquidity and financial stability concerns arise with respect to banks and financial institutions, either nationally or in specific regions, the Company’s ability to access cash or enter into new financing arrangements may be threatened, which could have a material adverse effect on its business, financial condition and results of operations.
Current Environment
The Company’s operating results and financial condition are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, its business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility and uncertainty as a result of recent banking failures, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, inflation and recession.
The Company’s overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation, higher interest rates, certain labor and supply chain challenges and other changes in economic conditions may adversely affect the Company’s results of operations and financial performance. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Held for Sale and Disposition Activities |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Held For Sale And Disposition Activities | |||||||||||||||||||||||||||||||||||||||||||||||||
| Held for Sale and Disposition Activities |
Held for Sale - Florida Hotel Portfolio
On May 8, 2023, the Hotel Joint Venture, which the Company majority owns and consolidates, through its subsidiaries (collectively, the “Sellers”), and Vista Acquisitions Inc. (the “Florida Hotel Portfolio Buyer”), an unaffiliated third party, entered into a purchase and sale agreement, as amended, (the “Florida Hotel Portfolio Agreement”) pursuant to which the Sellers would dispose of (i) a 126-room limited service hotel which operates as a Hampton Inn, located in Miami, Florida (the “Hampton Inn - Miami”), and (ii) a 104-room select service hotel which operates as a Hampton Inn & Suites, located in Fort Lauderdale, Florida (the “Hampton Inn & Suites - Fort Lauderdale”, and collectively the “Florida Hotel Portfolio”), to the Florida Hotel Portfolio Buyer for an aggregate contractual sales price of $28.0 million. During the second quarter of 2023, the Company recorded a non-cash impairment charge of $5.0 million on the consolidated statements of operations to reduce the carrying value of the Florida Hotel Portfolio to its fair value less costs to sell of $27.1 million as of June 30, 2023. See Note 1 for additional information on the Hotel Joint Venture.
As of June 30, 2023, the Florida Hotel Portfolio met all of the required criteria to be classified as held for sale and therefore, its associated assets and liabilities are classified as held for sale in the consolidated balance sheet as of June 30, 2023.
The following summary presents the major components of assets and liabilities held for sale, of as the date indicated.
Disposition Activities
During the six months ended June 30, 2023, the Company recognized a gain on the sale of investment property of $0.3 million related to the sale of one of its hotels in 2017.
Disposition of Florida Hotel Portfolio
On July 18, 2023 and July 21, 2023, the Sellers completed the sale of the Hampton Inn & Suites - Fort Lauderdale and the Hampton Inn - Miami to the Florida Hotel Portfolio Buyer for $11.5 million and $16.5 million, respectively, pursuant to the terms of the Florida Hotel Portfolio Agreement. In connection with these transactions, the Sellers were required to use an aggregate of $16.7 million of the net proceeds to make principal paydowns on a revolving credit facility (the “Revolving Credit Facility”), held by another subsidiary of the Company, reducing its outstanding balance to $101.8 million. The Hotel Joint Venture net proceeds from the disposition of the Florida Hotel Portfolio were $10.3 million (of which the Company’s share was $10.0 million and Lightstone REIT I’s was $0.3 million), after the principal paydowns on the Revolving Credit Facility, closing and other costs, pro rations and working capital adjustments. In connection with the disposition of the Florida Hotel Portfolio, the two hotels were released from the pledged collateral pool under the Revolving Credit Facility. Additionally, as a result of the sale of the Florida Hotel Portfolio, the number of remaining hotels owned by the Hotel Joint Venture has been reduced to five. See Note 1 and Note 6 for additional information.
The disposition of the Florida Hotel Portfolio does not qualify to be reported as discontinued operations since the disposition does not represent a strategic shift that has a major effect on the Company’s operations and financial results. Accordingly, the operating results of the Florida Hotel Portfolio will be reflected in the Company’s results from continuing operations for all periods presented through its dates of disposition.
Disposition of the Courtyard – Paso Robles
On March 22, 2022, the Company completed the disposition of a 130-room hotel located in Paso Robles, California, which operates as a Courtyard by Marriott (the “Courtyard – Paso Robles”), to an unaffiliated third party, for a contractual sales price of $32.3 million. In connection with the transaction, the Company also fully defeased a mortgage loan with an outstanding principal balance of $13.4 million at a total cost of $14.1 million and its net proceeds after closing and other costs, pro rations and working capital adjustments were $17.8 million. In connection with the disposition of the Courtyard – Paso Robles, the Company recognized a gain on the sale of investment property of $7.7 million during the first quarter of 2022.
Disposition of the TownePlace Suites – Little Rock
On July 14, 2022, the Company completed the disposition of a 92-room hotel located in Little Rock, Arkansas, which operates as a TownePlace Suites (the “TownePlace Suites - Little Rock”), to an unaffiliated third party, for a contractual sales price of $5.9 million. In connection with the disposition of the TownePlace Suites - Little Rock, the Company used proceeds of $4.6 million to make a required principal paydown on the Revolving Credit Facility and its net proceeds after closing and other costs, pro rations and working capital adjustments were $1.2 million. In connection with the disposition of the TownePlace Suites - Little Rock, the Company recognized gain on the sale of investment property of $0.8 million during the third quarter of 2022. In connection with the disposition of the TownePlace Suites – Little Rock, the hotel was released from the pledged collateral pool under the Revolving Credit Facility. See Note 6 for additional information.
The dispositions of both the Courtyard – Paso Robles and the TownePlace Suites - Little Rock did not qualify to be reported as discontinued operations since the dispositions did not represent a strategic shift that had a major effect on the Company’s operations and financial results. Accordingly, the operating results of the Courtyard – Paso Robles and the TownePlace Suites - Little Rock are reflected in the Company’s results from continuing operations for all periods presented through their respective dates of disposition.
|
||||||||||||||||||||||||||||||||||||||||||||||||
Investments in Unconsolidated Affiliated Entities |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity Method Investments and Joint Ventures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments in Unconsolidated Affiliated Entities |
The entities listed below are partially owned by the Company. The Company accounts for these investments under the equity method of accounting as the Company exercises significant influence, but does not exercise financial and operating control over these entities. A summary of the Company’s investments in the unconsolidated affiliated entities is as follows:
Brownmill Joint Venture
During 2010 through 2012, the Company entered into various contribution agreements with Lightstone Holdings LLC (“LGH”), a wholly-owned subsidiary of the Sponsor and a related party, pursuant to which LGH contributed to the Company an aggregate 48.6% membership interest in the Brownmill Joint Venture in exchange for the Company issuing an aggregate of 48 units of Subordinated Profits Interests, at $100,000 per unit (at an aggregate total value of $4.8 million), to Lightstone SLP II LLC.
As of June 30, 2023, the Company owns a 48.6% membership interest in the Brownmill Joint Venture, which is a non-managing interest. An affiliate of the Company’s Sponsor is the majority owner and manager of the Brownmill Joint Venture. Profit and cash distributions are allocated in accordance with each investor’s ownership percentage. The Company accounts for its investment in the Brownmill Joint Venture in accordance with the equity method of accounting. During the six months ended June 30, 2023 and 2022, the Company received distributions from the Brownmill Joint Venture aggregating $219 and $438, respectively.
The Brownmill Joint Venture owns two retail properties known as Browntown Shopping Center, located in Old Bridge, New Jersey, and Millburn Mall, located in Vauxhaull, New Jersey.
Brownmill Joint Venture Financial Information
The Company’s carrying value of its interest in the Brownmill Joint Venture differs from its share of member’s equity reported in the condensed balance sheet of the Brownmill Joint Venture because the basis of the Company’s investment is in excess of the historical net book value of the Brownmill Joint Venture. The Company’s additional basis, which has been allocated to depreciable assets, is being recognized on a straight-line basis over the estimated useful lives of the appropriate assets.
The following table represents the condensed statements of operations for the Brownmill Joint Venture for the periods indicated:
The following table represents the condensed balance sheets for the Brownmill Joint Venture as of the dates indicated:
Hilton Garden Inn Joint Venture
On March 27, 2018, the Company and Lightstone Value Plus REIT III, Inc. (“Lightstone REIT III”), a related party REIT also sponsored by the Company’s Sponsor, acquired, through the newly formed Hilton Garden Inn Joint Venture, the Hilton Garden Inn - Long Island City from an unrelated third party, for aggregate consideration of $60.0 million, which consisted of $25.0 million of cash and $35.0 million of proceeds from a five-year term non-recourse loan from a financial institution (the “Hilton Garden Inn Mortgage”), excluding closing and other related transaction costs. The Company paid $12.9 million for a 50.0% membership interest in the Hilton Garden Inn Joint Venture.
Except as discussed below, the Hilton Garden Inn Mortgage bore interest at LIBOR plus 3.15%, subject to a 5.03% floor, initially provided for monthly interest-only payments for the first 30 months of its term with principal and interest payments pursuant to a 25-year amortization schedule thereafter, and the remaining unpaid balance due in full at its maturity on March 27, 2023.
On June 2, 2020, the Hilton Garden Inn Mortgage was amended to provide for the deferral of the six monthly debt service payments aggregating $0.9 million for the period from April 1, 2020 through September 30, 2020 until March 27, 2023.
On March 27, 2023, the Hilton Garden Inn Joint Venture and the lender amended the Hilton Garden Inn Mortgage to extend the maturity date for 90 days, through June 25, 2023, to provide additional time to finalize the terms of a long-term extension. Subsequently, on May 31, 2023, the Hilton Garden Inn Mortgage was further amended to provide for (i) an extension of the maturity date for an additional five years, (ii) the interest rate to be adjusted to SOFR plus 3.25% (8.39% as of June 30, 2023), subject to a 6.41% floor, interest-only payments for the first two years of its extended term with principal and interest payments pursuant to a 300-month amortization schedule thereafter and the remaining unpaid balance due in full at its maturity date of May 31, 2028, (iii) the ability to draw up to an additional $3.0 million of principal, subject to the satisfaction of certain conditions, and (iv) certain changes to its financial covenants. Additionally, the Hilton Garden Inn Joint Venture will fund $1.3 million, through monthly payments of $37 from May 31, 2023 through June 1, 2026, into a cash collateral reserve account which may be drawn upon for specified capital expenditures.
The Company and Lightstone REIT III each have a 50.0% co-managing membership interest in the Hilton Garden Inn Joint Venture. The Company accounts for its membership interest in the Hilton Garden Inn Joint Venture in accordance with the equity method of accounting because it exerts significant influence over but does not control the Hilton Garden Inn Joint Venture. All capital contributions and distributions of earnings from the Hilton Garden Inn Joint Venture are made on a pro rata basis in proportion to each member’s equity interest percentage. Any distributions in excess of earnings from the Hilton Garden Inn Joint Venture are made to the members pursuant to the terms of the Hilton Garden Inn Joint Venture’s operating agreement. The Company commenced recording its allocated portion of profit/loss and cash distributions beginning as of March 27, 2018 with respect to its membership interest of 50.0% in the Hilton Garden Inn Joint Venture.
The Hilton Garden Inn Joint Venture is currently in compliance with respect to all of its financial debt covenants.
Subsequent to the Company’s acquisition of its 50.0% membership interest in the Hilton Garden Joint Venture through June 30, 2023, it has made an aggregate of $3.2 million of additional capital contributions (of which $0.4 million were made during the six months ended June 30, 2023) and received aggregate distributions of $4.0 million.
Hilton Garden Inn Joint Venture Financial Information
The following table represents the condensed statements of operations for the Hilton Garden Inn Joint Venture for the periods indicated:
The following table represents the condensed balance sheets for the Hilton Garden Inn Joint Venture as of the dates indicated:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Marketable Securities, Fair Value Measurements and Margin Loan |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments, Debt and Equity Securities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Marketable Securities, Fair Value Measurements and Margin Loan |
Marketable Securities
The following is a summary of the Company’s available for sale securities as of the dates indicated:
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:
As of June 30, 2023 and December 31, 2022, the Company’s United States Treasury Bills and money market funds were classified as Level 1 assets and the Company’s equity securities were classified as Level 2 assets. There were no transfers between the level classifications during the six months ended June 30, 2023. The fair values of the Company’s equity securities are measured using readily available quoted prices for these securities; however, the markets for these securities are not active.
The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and other assets, accounts payable and other accrued expenses and due to related party approximated their fair values as of June 30, 2023 and December 31, 2022 because of the short maturity of these instruments.
As of June 30, 2023 and December 31, 2022, the estimated fair value our mortgage payable approximated its carrying value because of the floating interest rate.
Nonrecurring Fair Value Measurements
During the second quarter of 2023 an impairment charge of $5.0 million was recorded on the consolidated statements of operations to reduce the carrying value of the Florida Hotel Portfolio to its fair value less costs to sell of $27.1 million as of June 30, 2023. In determining the fair value of the Florida Hotel Portfolio, the aggregate contractual sales price pursuant to the terms of the Florida Hotel Portfolio Agreement was used less costs to sell, which is considered a Level 1 input under the fair value hierarchy described above. The carrying value of the Florida Hotel Portfolio of $27.1 million is included in assets held for sale on the consolidated balance sheets as of June 30, 2023. See Note 3.
As of June 30, 2023, the Company did not have any other significant financial assets or liabilities which would require revised valuations that are recognized at fair value.
Margin loan
The Company has access to a margin loan from a financial institution that holds custody of certain of the Company’s marketable securities. The margin loan is collateralized by the marketable securities in the Company’s account. The amounts available to the Company under the margin loan are at the discretion of the financial institution and not limited to the amount of collateral in its account. No amounts were outstanding under this margin loan as of June 30, 2023 and December 31, 2022. The margin loan bears interest at LIBOR plus 0.85% (6.07% as of June 30, 2023).
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage payable, net |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage payable, net |
Mortgage payable, net consisted of the following:
AMERIBOR as of June 30, 2023 and December 31, 2022 was 5.17% and 4.64%, respectively.
Revolving Credit Facility
The Company, through certain subsidiaries, has a non-recourse Revolving Credit Facility with a financial institution. The Revolving Credit Facility provides a line of credit of up to $140.0 million pursuant to which Company may designate its hotel properties as collateral that allow borrowings up to a 65.0% loan-to-value ratio subject to also meeting certain financial covenants. The Revolving Credit Facility provides for monthly interest-only payments and the entire principal balance is due upon its scheduled expiration.
Except as discussed below, the Revolving Credit Facility, which was scheduled to mature on September 15, 2022, bore interest at LIBOR plus 3.15%, subject to a 4.00% floor. However, on September 6, 2022, the Revolving Credit Facility was amended and is now scheduled to mature on September 15, 2023. In connection with the amendment of the Revolving Credit Facility, the interest rate was prospectively changed to AMERIBOR plus 3.15%, subject to a 4.00% floor.
On March 31, 2021, the Revolving Credit Facility was further amended providing for (i) the Company to pledge the membership interests in another hotel as additional collateral within 45 days, (ii) the Company to fund an additional $2.5 million into the cash collateral reserve account; (iii) a waiver of all financial covenants for quarter-end periods through September 30, 2021 with a phased-in gradual return to the full financial covenant requirements over the quarter-end periods beginning December 31, 2021 through March 31, 2023; (iv) an extension of the maturity date from May 17, 2021 to September 15, 2022 upon the pledge of the additional collateral (which was subsequently completed on May 13, 2021); (v) one additional one-year extension option at the lender’s sole discretion which was exercised on September 6, 2022; and (vi) certain limitations and restrictions on asset sales and additional borrowings related to the pledged collateral pool.
In connection with the disposition of the TownePlace Suites – Little Rock on July 14, 2022, a required principal paydown of $4.6 million was made on the Revolving Credit Facility reducing its outstanding principal balance to $118.5 million and the hotel was released from the pledged collateral pool under the Revolving Credit Facility.
As of June 30, 2023, the Company’s 12 majority-owned and consolidated hotel properties were all pledged as collateral under the Revolving Credit Facility and the outstanding principal balance was $118.5 million. Additionally, no additional borrowings were available under the Revolving Credit Facility as of June 30, 2023.
Subsequently, on July 18, 2023 and July 21, 2023, in connection with the dispositions of the Hampton Inn & Suites – Fort Lauderdale and Hampton Inn – Miami, respectively, aggregate principal paydowns of $16.7 million were made on the Revolving Credit Facility reducing its outstanding principal balance to $101.8 million and the two hotels were released from the pledged collateral pool under the Revolving Credit Facility.
The Company currently intends to seek to extend or refinance the Revolving Credit Facility on or before its maturity date of September 15, 2023, however, there can be no assurances that it will be successful in such endeavors.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Company’s Stockholder’s Equity |
6 Months Ended | |||
|---|---|---|---|---|
Jun. 30, 2023 | ||||
| Equity [Abstract] | ||||
| Company’s Stockholder’s Equity |
Distributions on Common Shares
On May 11, 2023, the Board of Directors authorized and the Company declared a Common Share distribution of $ per share for the quarterly period ending June 30, 2023. The distribution is the pro rata equivalent of an annual distribution of $ per share, or an annualized rate of 3% based on a share price of $. On July 15, 2023, the distribution for the three-month period ending June 30, 2023 of $1.3 million was paid in cash.
On August 14, 2023, the Board of Directors authorized and the Company declared a Common Share distribution of $ per share for the quarterly period ending September 30, 2023. The distribution is the pro rata equivalent of an annual distribution of $ per share, or an annualized rate of 3% based on a share price of $. The distribution will be paid on or about the 15th day of the month following the quarter-end to stockholders of record at the close of business on the last day of the quarter end.
Future distributions declared, if any, will be at the discretion of the Board of Directors based on their analysis of the Company’s performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, revenues and other sources of income, operating and interest expenses and the Company’s ability to refinance near-term debt as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. The Company cannot assure that any future distributions will be made or that it will maintain any particular level of distributions that it has previously established or may establish.
SRP
The Company’s share repurchase program (the “SRP”) may provide eligible stockholders with limited, interim liquidity by enabling them to sell their Common Shares back to the Company, subject to restrictions and applicable law.
On March 19, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of all redemptions.
Effective May 10, 2021, the Board of Directors reopened the SRP to allow, subject to various conditions as set forth below, for redemptions submitted in connection with a stockholder’s death or hardship and set the price for all such purchases to the Company’s current estimated net asset value per share of common stock, as determined by the Board of Directors and reported by the Company from time to time.
Deaths that occurred subsequent to January 1, 2020 were eligible for consideration, subject to certain conditions. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by the Company within one year of the stockholder’s date of death for consideration.
On the above noted date, the Board of Directors established that on an annual basis, the Company would not redeem in excess of of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Additionally, redemption requests generally would be processed on a quarterly basis and would be subject to pro ration if either type of redemption requests exceeded the annual limitation.
For the six months ended June 30, 2023, the Company repurchased Common Shares at a weighted average price per share of $. For the six months ended June 30, 2022, the Company repurchased Common Shares at a weighted average price per share of $.
Earnings per Share
The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, earnings per share is calculated by dividing net income/loss attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the applicable period.
|
Related Parties |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Parties |
The Company’s Sponsor, Advisor and their affiliates, including the Special Limited Partner, are related parties of the Company as well as other public REITs also sponsored and/or advised by these entities. Pursuant to the terms of various agreements, certain of these entities are entitled to compensation and reimbursement of costs incurred for services related to the investment, development, management and disposition of the Company’s assets. The compensation is generally based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements. Additionally, the Company’s ability to secure financing and its real estate operations are dependent upon its Advisor and its affiliates to perform such services as provided in these agreements. Amounts the Company owes to the Advisor and its affiliated entities are principally for asset management fees, and are classified as due to related parties on the consolidated balance sheets.
The following table represents the fees incurred associated with the payments to the Company’s Advisor for the periods indicated:
The advisory agreement has a one year term and is renewable for an unlimited number of successive one year periods upon the mutual consent of the Advisor and the Company’s independent directors. Payments to the Advisor or its affiliates may include asset acquisition fees and the reimbursement of acquisition-related expenses, development fees and the reimbursement of development-related costs, financing coordination fees, asset management fees or asset management participation, and construction management fees. The Company may also reimburse the Advisor and its affiliates for actual expenses it incurs for administrative and other services provided for it. Upon the liquidation of the Company’s assets, it may pay the Advisor or its affiliates a disposition commission.
Subordinated Profits Interests
In connection with the Company’s Offerings, the Associate General Partner, an affiliate of the Company’s Sponsor, contributed an aggregate of $17.7 million consisting of (i) cash of $12.9 million and (ii) equity interests in the Brownmill Joint Venture valued at $4.8 million to the Operating Partnership in exchange for 177.0 Subordinated Profits Interests in the Operating Partnership with an aggregate value of $17.7 million, which are included in noncontrolling interests in the consolidated balance sheets.
These Subordinated Profit Interests, for which the aggregate consideration of $17.7 million will be repaid only after stockholders receive a stated preferred return in addition to their net investment, entitle the Associate General Partner to a portion of any regular distributions made by the Operating Partnership. There were no distributions paid on the Subordinated Profit Interests through December 31, 2016. However, in connection with the Board of Directors declaration of a special distribution on the Company’s Common Shares on February 28, 2017, they also declared that distributions be brought current through December 31, 2016 on the Subordinated Profits Interests at a 7% annualized rate of return which amounted to $4.2 million and were paid to the Associate General Partner on March 15, 2017. Beginning with the first quarter of 2017, the Company’s Board of Directors declared and the Company paid regular quarterly distributions on the Subordinated Profits Interests at an annualized rate of 7.0% along with the regular quarterly distributions on its Common Shares for all quarterly periods through December 31, 2019.
These Subordinated Profits Interests may entitle the Associate General Partner to a portion of any regular distributions that the Company makes to its stockholders, but only after its stockholders have received a stated preferred return. There have been no distributions declared on the Subordinated Profits Interests for any periods after December 31, 2019. Since the Company’s inception through June 30, 2023, the cumulative distributions declared and paid on the Subordinated Profits Interests were $7.9 million. Any future distributions on the Subordinated Profits Interests will always be subordinated until stockholders receive a stated preferred return.
The Subordinated Profits Interests may also entitle Lightstone SLP II, LLC to a portion of any liquidating distributions made by the Operating Partnership. The value of such distributions will depend upon the net sale proceeds upon the liquidation of the Company and, therefore, cannot be determined at the present time. Liquidating distributions to Lightstone SLP II, LLC will always be subordinated until stockholders receive a distribution equal to their initial investment plus a stated preferred return.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies |
6 Months Ended | |||
|---|---|---|---|---|
Jun. 30, 2023 | ||||
| Commitments and Contingencies Disclosure [Abstract] | ||||
| Commitments and Contingencies |
Management Agreements
The Company’s hotels operate pursuant to management agreements (the “Management Agreements”) with various third-party property management companies. The property management companies perform management functions including, but not limited to, hiring and supervising employees, establishing room prices, establishing administrative policies and procedures, managing expenditures and arranging and supervising public relations and advertising. The Management Agreements are for terms ranging from 1 year to 10 years, however, the agreements can be cancelled for any reason by the Company after giving 60 days’ notice after the one year anniversary of the commencement of the respective agreement.
The Management Agreements provide for the payment of a base management fee equal to 3% to 3.5% of gross revenues, as defined, and an incentive management fee based on the operating results of the hotel, as defined. The base management fee and incentive management fee, if any, are recorded as a component of property operating expenses in the consolidated statements of operations.
Franchise Agreements
As of June 30, 2023, the Company’s hotels operated pursuant to various franchise agreements. Under the franchise agreements, the Company generally pays a fee equal to 5% of gross room sales, as defined, and a marketing fund charge from 1.5% to 3.5% of gross room sales. The franchise fee and marketing fund charge are recorded as a component of property operating expenses in the consolidated statements of operations.
The franchise agreements are generally for initial terms ranging from 15 years to 20 years, expiring between 2025 and 2037.
Legal Proceedings
From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.
As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote. |
Summary of Significant Accounting Policies (Policies) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Principles of Consolidation and Basis of Presentation | Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Lightstone REIT II and its Operating Partnership and its subsidiaries, over which the Company exercises financial and operating control. As of June 30, 2023, Lightstone REIT II had a 99% general partnership interest in the common units of the Operating Partnership. All inter-company balances and transactions have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on accounting principles generally accepted in the United States of America (“GAAP”), and entities deemed to be variable interest entities (“VIE”) in which the Company is the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which the Company has control, substantive participating rights or both under the respective ownership agreement. For entities in which the Company has less than a controlling interest or entities which it is not deemed to be the primary beneficiary, it accounts for the investment using the equity method of accounting.
The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of the Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair statement of the results for the periods presented. The accompanying unaudited consolidated financial statements of the Lightstone Value Plus REIT II, Inc. and Subsidiaries have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.
GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of investment properties and investments in other unconsolidated real estate entities and depreciable lives of long-lived assets. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
The consolidated balance sheet as of December 31, 2022 included herein has been derived from the consolidated balance sheet included in the Company’s Annual Report on Form 10-K.
The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes | Income Taxes
The Company has elected to be taxed as a REIT commencing with the taxable year ended December 31, 2009. If the Company qualifies as a REIT, it generally will not be subject to U.S. federal income tax on its taxable income or capital gain that it distributes to its stockholders. To maintain its REIT qualification, the Company must meet a number of organizational and operational requirements, including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed at the regular corporate rate, and it may be precluded from qualifying for treatment as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders.
To qualify or maintain our qualification as a REIT, the Company engages in certain activities through wholly-owned taxable REIT subsidiaries (“TRS”). As such, it is subject to U.S. federal and state income and franchise taxes from these activities.
The Company’s income tax expense are included in other expense, net on its consolidated statements of operations. During the three and six months ended June 30, 2023, the Company recorded income tax expense of $1.2 million and $1.4 million, respectively, primarily consisting of estimated state income tax due. During the three and six months ended June 30, 2022, the Company recorded estimated income tax expense of $48.
As of June 30, 2023 and December 31, 2022, the Company had no material uncertain income tax positions.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues | Revenues
The following table represents the total revenues from hotel operations on a disaggregated basis:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gain on Forgiveness of Debt | Gain on Forgiveness of Debt
During the three and six months ended June 30, 2022, notice was received from the U.S. Small Business Administration that $0.3 million and $0.9 million, respectively, of the Company’s Paycheck Protection loans and related accrued interest had been legally forgiven and therefore, it recognized a gain on forgiveness of debt for those amounts during the respective periods.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Recently Adopted Accounting Standards | Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board issued an accounting standards update, “Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments,” which changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The updated standard replaces the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For trade and other receivables and held to maturity debt securities, entities are required to use a new forward looking expected loss model that generally will result in the earlier recognition of allowances for losses. The Company has adopted this standard noting that it did not have a material impact on the Company’s financial statements or related disclosures.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Adverse Developments Affecting the Financial Services Industry and Concentration of Risk | Adverse Developments Affecting the Financial Services Industry and Concentration of Risk
As of June 30, 2023 and December 31, 2022, the Company had cash deposited in certain financial institutions in excess of federally insured levels. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk in cash and cash equivalents. However, in March and April 2023, certain U.S. government banking regulators took steps to intervene in the operations of certain financial institutions due to liquidity concerns, which caused general heightened uncertainties in financial markets. While these events have not had a material direct impact on the Company’s operations, if further liquidity and financial stability concerns arise with respect to banks and financial institutions, either nationally or in specific regions, the Company’s ability to access cash or enter into new financing arrangements may be threatened, which could have a material adverse effect on its business, financial condition and results of operations.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Current Environment | Current Environment
The Company’s operating results and financial condition are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, its business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility and uncertainty as a result of recent banking failures, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, inflation and recession.
The Company’s overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation, higher interest rates, certain labor and supply chain challenges and other changes in economic conditions may adversely affect the Company’s results of operations and financial performance. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of revenues from hotel operations |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Held for Sale and Disposition Activities (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Held For Sale And Disposition Activities | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of assets and liabilities held for sale |
|
|||||||||||||||||||||||||||||||||||||||||||||
Investments in Unconsolidated Affiliated Entities (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring Cost and Reserve [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of investments in the unconsolidated affiliated real estate |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Brownmill Joint Venture [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring Cost and Reserve [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of condensed income statement |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of condensed balance sheet |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hilton Garden Inn Joint Venture [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring Cost and Reserve [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of condensed income statement |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of condensed balance sheet |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Marketable Securities, Fair Value Measurements and Margin Loan (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments, Debt and Equity Securities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of available-for-sale Securities Reconciliation |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage payable, net (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of mortgages Payable, Net |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Parties (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of fees payments to Company's Advisor |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business and Structure (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands |
1 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
May 20, 2020 |
Sep. 27, 2014 |
May 20, 2008 |
Jun. 30, 2023 |
May 20, 2018 |
|
| Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items] | |||||
| Business acquired assets | $ 17,700 | ||||
| Cash | 12,900 | ||||
| Equity interests | 48.60% | ||||
| Noncontrolling interests | $ 17,700 | $ 4,800 | |||
| Lightstone Value Plus Reit Iii Llc [Member] | |||||
| Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items] | |||||
| Issuance of common shares, shares | 20,000 | ||||
| Issuance of common shares, value | $ 200 | ||||
| Shares issued, price per share | $ 10.00 | ||||
| General Partner [Member] | |||||
| Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items] | |||||
| Contribution from advisor | $ 2 | ||||
| Limited Partner [Member] | |||||
| Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items] | |||||
| Partners capital account units, contributed | 177.0 | ||||
| Partners capital account, contributions | $ 17,700 | ||||
| Brownmill Joint Venture [Member] | |||||
| Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items] | |||||
| Ownership interest | 48.60% | ||||
| Lightstone Reit Iii [Member] | |||||
| Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items] | |||||
| General partner ownership interest | 99.00% | ||||
Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Product Information [Line Items] | ||||
| Total revenues | $ 15,345 | $ 15,152 | $ 29,328 | $ 28,229 |
| Occupancy [Member] | ||||
| Product Information [Line Items] | ||||
| Total revenues | 14,548 | 14,515 | 27,873 | 27,023 |
| Food and Beverage [Member] | ||||
| Product Information [Line Items] | ||||
| Total revenues | $ 797 | $ 637 | $ 1,455 | $ 1,206 |
Summary of Significant Accounting Policies (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2022 |
|
| Accounting Policies [Abstract] | |||||
| Income tax expense | $ 1,200,000 | $ 48,000 | $ 1,400,000 | $ 48,000 | |
| Uncertain income tax positions | $ 0 | $ 0 | $ 0 | ||
| Proceed from loans | $ 300,000 | $ 900,000 | |||
Held for Sale and Disposition Activities (Details) - USD ($) $ in Thousands |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Held For Sale And Disposition Activities | ||
| Net investment property | $ 27,068 | |
| Accounts receivable and other assets | 813 | |
| Total assets held for sale | 27,881 | |
| Accounts payable and other accrued expenses | 1,206 | |
| Total liabilities held for sale | $ 1,206 |
Held for Sale and Disposition Activities (Details Narrative) - USD ($) $ in Thousands |
1 Months Ended | 3 Months Ended | 6 Months Ended | |||||
|---|---|---|---|---|---|---|---|---|
May 08, 2023 |
Jul. 14, 2022 |
Jul. 21, 2023 |
Jul. 18, 2023 |
Mar. 22, 2022 |
Sep. 30, 2022 |
Mar. 31, 2022 |
Jun. 30, 2023 |
|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||||||
| Contractual sales price | $ 28,000 | $ 5,900 | $ 3,230 | |||||
| Non-cash impairment charge | $ 5,000 | |||||||
| Sale of investment property | $ 800 | $ 300 | ||||||
| Principal amount | 4,600 | |||||||
| Revolving credit facility description | The Hotel Joint Venture net proceeds from the disposition of the Florida Hotel Portfolio were $10.3 million (of which the Company’s share was $10.0 million and Lightstone REIT I’s was $0.3 million), after the principal paydowns on the Revolving Credit Facility, closing and other costs, pro rations and working capital adjustments. | |||||||
| Payments for Loans | 13,400 | |||||||
| Issuance costs | 14,100 | |||||||
| Working capital | $ 1,200 | $ 17,800 | ||||||
| Subsequent Event [Member] | Hampton Inn Suites [Member] | ||||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||||||
| Sale of investment property | $ 11,500 | |||||||
| Principal amount | $ 16,700 | |||||||
| Subsequent Event [Member] | Fort Lauderdale And Hampton Inn [Member] | ||||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||||||
| Sale of investment property | $ 16,500 | |||||||
| Principal amount | $ 101,800 | |||||||
| Florida Hotel Portfolio [Member] | ||||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||||||
| Sale of investment property | $ 27,100 | |||||||
| Venture pre-funding | ||||||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||||||
| Sale of investment property | $ 7,700 | |||||||
Investments in Unconsolidated Affiliated Entities (Details) - USD ($) $ in Thousands |
6 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Dec. 31, 2022 |
|
| Schedule of Equity Method Investments [Line Items] | ||
| Total investments in unconsolidated affiliated real estate entities | $ 13,725 | $ 13,793 |
| Hilton Garden Inn Joint Venture [Member] | ||
| Schedule of Equity Method Investments [Line Items] | ||
| Business acquisition, date of acquisition agreement | Mar. 27, 2018 | |
| Brownmill Joint Venture [Member] | ||
| Schedule of Equity Method Investments [Line Items] | ||
| Ownership percentage | 48.60% | |
| Total investments in unconsolidated affiliated real estate entities | $ 4,220 | 4,204 |
| Hilton Garden Inn Joint Venture [Member] | ||
| Schedule of Equity Method Investments [Line Items] | ||
| Ownership percentage | 50.00% | |
| Total investments in unconsolidated affiliated real estate entities | $ 9,505 | $ 9,589 |
Investments in Unconsolidated Affiliated Entities (Details 1) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|||
| Restructuring Cost and Reserve [Line Items] | ||||||
| Revenue | $ 15,345 | $ 15,152 | $ 29,328 | $ 28,229 | ||
| Depreciation and amortization | 1,809 | 1,923 | 3,669 | 4,191 | ||
| Net income | (7,123) | 161 | (8,938) | 5,892 | ||
| Brownmill Joint Venture [Member] | ||||||
| Restructuring Cost and Reserve [Line Items] | ||||||
| Revenue | 972 | 1,110 | 1,941 | 2,148 | ||
| Property operating expenses | 439 | 418 | 677 | 867 | ||
| Depreciation and amortization | 188 | 220 | 374 | 432 | ||
| Operating income | 345 | 472 | 890 | 849 | ||
| Interest expense and other, net | (38) | (137) | (322) | (307) | ||
| Net income | 307 | 335 | 568 | 542 | ||
| Company’s share of net income | 149 | 163 | 276 | 264 | ||
| Additional depreciation and amortization expense | [1] | (20) | (31) | (41) | (62) | |
| Company’s earnings from investment | $ 129 | $ 132 | $ 235 | $ 202 | ||
| ||||||
Investments in Unconsolidated Affiliated Entities (Details 2) - USD ($) $ in Thousands |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Restructuring Cost and Reserve [Line Items] | ||
| Cash and restricted cash | $ 12,900 | |
| Total assets | 234,286 | $ 245,442 |
| Members’ capital | 95,213 | 107,486 |
| Total liabilities and members’ capital | 234,286 | 245,442 |
| Brownmill Joint Venture [Member] | ||
| Restructuring Cost and Reserve [Line Items] | ||
| Investment property, net | 12,725 | 12,860 |
| Cash and restricted cash | 1,363 | 1,422 |
| Other assets | 1,484 | 1,283 |
| Total assets | 15,572 | 15,565 |
| Mortgage payable | 13,209 | 13,341 |
| Other liabilities | 684 | 662 |
| Members’ capital | 1,679 | 1,562 |
| Total liabilities and members’ capital | $ 15,572 | $ 15,565 |
Investments in Unconsolidated Affiliated Entities (Details 3) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Restructuring Cost and Reserve [Line Items] | ||||
| Revenues | $ 15,345 | $ 15,152 | $ 29,328 | $ 28,229 |
| General and administrative costs | 1,246 | 1,168 | 2,438 | 2,549 |
| Depreciation and amortization | 1,809 | 1,923 | 3,669 | 4,191 |
| Net (loss)/income | (7,123) | 161 | (8,938) | 5,892 |
| Hilton Garden Inn Joint Venture [Member] | ||||
| Restructuring Cost and Reserve [Line Items] | ||||
| Revenues | 3,115 | 2,910 | 5,144 | 5,078 |
| Property operating expenses | 1,907 | 1,518 | 3,414 | 2,946 |
| General and administrative costs | 106 | 6 | 132 | 16 |
| Depreciation and amortization | 596 | 606 | 1,205 | 1,226 |
| Operating income | 506 | 780 | 393 | 890 |
| Interest expense | (825) | (448) | (1,451) | (875) |
| Net (loss)/income | (319) | 332 | (1,058) | 15 |
| Company’s share of net (loss)/income (50.00%) | $ (159) | $ 166 | $ (529) | $ 8 |
Investments in Unconsolidated Affiliated Entities (Details 4) - USD ($) $ in Thousands |
Jun. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Restructuring Cost and Reserve [Line Items] | ||
| Investment property, net | $ 200,846 | $ 242,920 |
| Cash | 12,900 | |
| Total assets | 234,286 | 245,442 |
| Members’ capital | 95,213 | 107,486 |
| Total liabilities and members’ capital | 234,286 | 245,442 |
| Hilton Garden Inn Joint Venture [Member] | ||
| Restructuring Cost and Reserve [Line Items] | ||
| Investment property, net | 49,131 | 50,254 |
| Cash | 1,042 | 1,231 |
| Other assets | 1,677 | 1,276 |
| Total assets | 51,850 | 52,761 |
| Mortgage payable, net | 32,231 | 32,233 |
| Other liabilities | 1,178 | 1,920 |
| Members’ capital | 18,441 | 18,608 |
| Total liabilities and members’ capital | $ 51,850 | $ 52,761 |
Investments in Unconsolidated Affiliated Entities (Details Narrative) - USD ($) $ in Thousands |
1 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Mar. 27, 2023 |
Mar. 27, 2018 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Sep. 30, 2020 |
|
| Hilton Garden Inn Joint Venture [Member] | |||||
| Schedule of Equity Method Investments [Line Items] | |||||
| Debt instrument, interest rate, basis for effective rate | SOFR plus 3.25% | ||||
| Proceeds from mortgage | $ 900 | ||||
| Maturity date | May 31, 2028 | ||||
| Principal paydown | $ 3,000 | ||||
| Capital expenditures description | Additionally, the Hilton Garden Inn Joint Venture will fund $1.3 million, through monthly payments of $37 from May 31, 2023 through June 1, 2026, into a cash collateral reserve account which may be drawn upon for specified capital expenditures. | ||||
| Brownmill Joint Venture [Member] | |||||
| Schedule of Equity Method Investments [Line Items] | |||||
| Proceeds from sale of interest in corporate unit | $ 100,000 | ||||
| Business acquisition percentage of voting interest acquired | 48.60% | ||||
| Proceeds from equity method investment, distribution, return of capital | $ 219 | $ 438 | |||
| Hilton Garden Inn [Member] | |||||
| Schedule of Equity Method Investments [Line Items] | |||||
| Proceeds from equity method investment, distribution, return of capital | $ 4,000 | ||||
| Aggregate purchase price | $ 60,000 | ||||
| Offering funds used in acquisition | 25,000 | ||||
| Proceeds from issuance of debt | 35,000 | ||||
| Venture pre-funding | $ 12,900 | ||||
| Business acquisition percentage of voting interest acquired | 50.00% | 50.00% | |||
| Debt instrument, interest rate, basis for effective rate | LIBOR plus 3.15%, subject to a 5.03% floor | ||||
| Payments to acquire interest in joint venture | $ 3,200 | ||||
Marketable Securities, Fair Value Measurements and Margin Loan (Details) - USD ($) $ in Thousands |
6 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2023 |
Dec. 31, 2022 |
|
| Marketable Securities [Line Items] | ||
| Equity securities, Adjusted Cost | $ 4,507 | |
| Equity securities, Gross Unrealized Gains | 7 | |
| Equity securities, gross unrealized losses | (321) | |
| Equity securities, Fair Value | 4,193 | |
| Debt Securities [Member] | ||
| Marketable Securities [Line Items] | ||
| Equity securities, Adjusted Cost | 887 | |
| Equity securities, Gross Unrealized Gains | 7 | |
| Equity securities, gross unrealized losses | ||
| Equity securities, Fair Value | 894 | |
| Equity Securities [Member] | ||
| Marketable Securities [Line Items] | ||
| Equity securities, Adjusted Cost | $ 9,428 | 3,620 |
| Equity securities, Gross Unrealized Gains | 2 | |
| Equity securities, gross unrealized losses | (437) | (321) |
| Equity securities, Fair Value | $ 8,993 | $ 3,299 |
Marketable Securities, Fair Value Measurements and Margin Loan (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |
|---|---|---|---|
Sep. 30, 2022 |
Jun. 30, 2023 |
Dec. 31, 2022 |
|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||
| Impairment charge | $ 5,000 | ||
| Sale of investment property | $ 800 | 300 | |
| Assets held for sale | 27,100 | ||
| Margin loan | $ 0 | $ 0 | |
| Debt Instrument, Interest Rate Terms | LIBOR plus 0.85% | ||
| Florida Hotel Portfolio [Member] | |||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||
| Sale of investment property | $ 27,100 |
Mortgage payable, net (Details) - USD ($) $ in Thousands |
6 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Dec. 31, 2022 |
|
| Line of Credit Facility [Line Items] | ||
| Interest Rate | LIBOR plus 0.85% | |
| Total mortgages payable | $ 118,485 | $ 118,485 |
| Less: Deferred financing costs | (241) | (305) |
| Total mortgages payable, net | $ 118,244 | $ 118,180 |
| Revolving Credit Facility [Member] | ||
| Line of Credit Facility [Line Items] | ||
| Interest Rate | AMERIBOR plus 3.15% (floor of 4.00%) | |
| Weighted Average Interest Rate | 8.00% | |
| Maturity Date | September 2023 | |
| Amount Due at Maturity | $ 118,485 |
Mortgage payable, net (Details Narrative) - USD ($) $ in Thousands |
1 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
Sep. 06, 2022 |
Jul. 14, 2022 |
Jul. 21, 2023 |
Jul. 18, 2023 |
Sep. 15, 2022 |
Jun. 30, 2023 |
Dec. 31, 2022 |
Jul. 13, 2016 |
|
| Debt Instrument [Line Items] | ||||||||
| Principal amount | $ 4,600 | |||||||
| Outstanding balance | $ 118,500 | |||||||
| Subsequent Event [Member] | Hampton Inn Suites [Member] | ||||||||
| Debt Instrument [Line Items] | ||||||||
| Principal amount | $ 16,700 | |||||||
| Subsequent Event [Member] | Fort Lauderdale And Hampton Inn [Member] | ||||||||
| Debt Instrument [Line Items] | ||||||||
| Principal amount | $ 101,800 | |||||||
| Revolving Credit Facility [Member] | ||||||||
| Debt Instrument [Line Items] | ||||||||
| Maximum borrowing capacity | $ 140,000 | |||||||
| Current borrowing capacity percentage | 65.00% | |||||||
| Cash collateral | $ 2,500 | |||||||
| Face amount | $ 118,500 | |||||||
| Ameribor Unsecured Overnight Rate [Member] | ||||||||
| Debt Instrument [Line Items] | ||||||||
| Interest rate | 5.17% | 4.64% | ||||||
| Ameribor Unsecured Overnight Rate [Member] | Revolving Credit Facility [Member] | ||||||||
| Debt Instrument [Line Items] | ||||||||
| Maturity date | Sep. 15, 2023 | |||||||
| Basis for effective rate, description | the interest rate was prospectively changed to AMERIBOR plus 3.15%, subject to a 4.00% floor. | |||||||
| L I B O R [Member] | Revolving Credit Facility [Member] | ||||||||
| Debt Instrument [Line Items] | ||||||||
| Maturity date | Sep. 15, 2022 | |||||||
| Basis for effective rate, description | bore interest at LIBOR plus 3.15%, subject to a 4.00% floor. | |||||||
Company’s Stockholder’s Equity (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Jun. 30, 2023 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Subsequent Event [Line Items] | ||||
| Common share distribution per share | $ 0.075 | |||
| Annual distributions paid per share | $ 0.30 | |||
| Annualized distribution rate | 3.00% | 3.00% | ||
| Share Price | $ 10.00 | $ 10.00 | ||
| Distribution paid in cash | $ 1,300 | |||
| Share redemption program, annual limitation, percentage of weighted average shares outstanding | 0.50% | |||
| Repurchase of shares | 76,461 | 90,275 | ||
| Weighted average price per share | $ 9.96 | $ 8.47 | ||
| Subsequent Event [Member] | Board of Directors Chairman [Member] | ||||
| Subsequent Event [Line Items] | ||||
| Common share distribution per share | $ 0.075 | |||
| Annual distributions paid per share | $ 0.30 | |||
| Annualized distribution rate | 3.00% | |||
| Share Price | $ 10.00 | |||
Related Parties (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Advisor [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Asset management fees (general and administrative costs) | $ 657 | $ 680 | $ 1,316 | $ 1,418 |
Related Parties (Details Narrative) - USD ($) $ in Thousands |
6 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
May 20, 2018 |
|
| Related Party Transactions [Abstract] | ||
| Cash | $ 12,900 | |
| Equity interests | 4,800 | |
| Noncontrolling interests | 17,700 | $ 4,800 |
| Aggregate consideration | $ 17,700 | |
| Interest rate | 7.00% | |
| Distributions declared and paid | $ 7,900 |
Commitments and Contingencies (Details Narrative) |
6 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Loss Contingencies [Line Items] | |
| Franchise Fee Percentage | 5.00% |
| Minimum [Member] | |
| Loss Contingencies [Line Items] | |
| Management Agreement Term | 1 year |
| Property Management Fee, Percent Fee | 3.00% |
| Marketing Fund Charge Percent | 1.50% |
| Franchise Agreement Term | 15 years |
| Maximum [Member] | |
| Loss Contingencies [Line Items] | |
| Management Agreement Term | 10 years |
| Property Management Fee, Percent Fee | 3.50% |
| Marketing Fund Charge Percent | 3.50% |
| Franchise Agreement Term | 20 years |