UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2019
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-55619
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Maryland | 46-1140492 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| 1985 Cedar Bridge Avenue, Suite 1 | ||
| Lakewood, New Jersey | 08701 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(732) 367-0129
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically 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 such files).
Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ¨ | Accelerated filer ¨ | ||
| Non-accelerated filer þ | Smaller reporting company þ | ||
| Emerging growth company þ |
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. þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
As of August 10, 2019, there were approximately 13.4 million outstanding shares of common stock of Lightstone Value Plus Real Estate Investment Trust III, Inc., including shares issued pursuant to the dividend reinvestment plan.
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
INDEX
| 2 |
PART I. FINANCIAL INFORMATION:
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| June 30, 2019 | December 31, 2018 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Investment property: | ||||||||
| Land and improvements | $ | 22,487,919 | $ | 22,446,179 | ||||
| Building and improvements | 107,658,856 | 106,017,613 | ||||||
| Furniture and fixtures | 19,325,498 | 17,801,356 | ||||||
| Construction in progress | 70,559 | 792,307 | ||||||
| Gross investment property | 149,542,832 | 147,057,455 | ||||||
| Less accumulated depreciation | (17,495,746 | ) | (14,639,315 | ) | ||||
| Net investment property | 132,047,086 | 132,418,140 | ||||||
| Investments in unconsolidated affiliated real estate entities | 28,144,798 | 29,983,987 | ||||||
| Cash and cash equivalents | 4,450,336 | 9,965,724 | ||||||
| Marketable securities, available for sale | 2,939,786 | 3,708,223 | ||||||
| Restricted cash | 2,066,020 | 1,672,957 | ||||||
| Accounts receivable and other assets | 3,214,686 | 2,178,388 | ||||||
| Total Assets | $ | 172,862,712 | $ | 179,927,419 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Accounts payable and other accrued expenses | $ | 4,082,229 | $ | 3,529,293 | ||||
| Mortgages payable, net | 79,306,725 | 79,336,807 | ||||||
| Due to related parties | 773,436 | 157,114 | ||||||
| Distributions payable | 659,851 | 685,449 | ||||||
| Total liabilities | 84,822,241 | 83,708,663 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders' Equity: | ||||||||
| Company's stockholders' equity: | ||||||||
| Preferred stock, $0.01 par value; 50.0 million shares authorized, none issued and outstanding | - | - | ||||||
| Common stock, $0.01 par value; 200.0 million shares authorized, 13.4 million and 13.5 million shares issued and outstanding, respectively | 133,804 | 134,515 | ||||||
| Additional paid-in-capital | 114,688,187 | 115,380,181 | ||||||
| Accumulated other comprehensive loss | (198,737 | ) | (450,285 | ) | ||||
| Accumulated deficit | (38,674,900 | ) | (30,937,879 | ) | ||||
| Total Company stockholders' equity | 75,948,354 | 84,126,532 | ||||||
| Noncontrolling interests | 12,092,117 | 12,092,224 | ||||||
| Total Stockholders' Equity | 88,040,471 | 96,218,756 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 172,862,712 | $ | 179,927,419 | ||||
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 REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Revenues | $ | 8,789,508 | $ | 9,367,673 | $ | 15,961,171 | $ | 16,953,971 | ||||||||
| Expenses: | ||||||||||||||||
| Property operating expenses | 5,359,526 | 5,404,396 | 10,236,205 | 10,377,785 | ||||||||||||
| Real estate taxes | 406,708 | 396,162 | 813,016 | 769,927 | ||||||||||||
| General and administrative costs | 706,218 | 690,631 | 1,459,399 | 1,422,969 | ||||||||||||
| Depreciation and amortization | 1,465,753 | 1,405,613 | 2,895,547 | 2,756,890 | ||||||||||||
| Total operating expenses | 7,938,205 | 7,896,802 | 15,404,167 | 15,327,571 | ||||||||||||
| Operating income | 851,303 | 1,470,871 | 557,004 | 1,626,400 | ||||||||||||
| Interest expense | (1,238,409 | ) | (1,354,143 | ) | (2,421,670 | ) | (2,801,656 | ) | ||||||||
| Loss from investments in unconsolidated affiliated real estate entities | (859,630 | ) | (507,281 | ) | (1,948,380 | ) | (1,244,609 | ) | ||||||||
| Other income, net | 34,311 | 582,601 | 57,616 | 587,638 | ||||||||||||
| Net (loss)/income | (1,212,425 | ) | 192,048 | (3,755,430 | ) | (1,832,227 | ) | |||||||||
| Less: net loss/(income) attributable to noncontrolling interests | 15 | (5 | ) | 50 | 21 | |||||||||||
| Net (loss)/income applicable to Company's common shares | $ | (1,212,410 | ) | $ | 192,043 | $ | (3,755,380 | ) | $ | (1,832,206 | ) | |||||
| Net (loss)/income per Company's common shares, basic and diluted | $ | (0.09 | ) | $ | 0.01 | $ | (0.28 | ) | $ | (0.13 | ) | |||||
| Weighted average number of common shares outstanding, basic and diluted | 13,381,201 | 13,565,950 | 13,388,924 | 13,583,311 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME
(Unaudited)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Net (loss)/income | $ | (1,212,425 | ) | $ | 192,048 | $ | (3,755,430 | ) | $ | (1,832,227 | ) | |||||
| Other comprehensive (loss)/income: | ||||||||||||||||
| Holding (loss)/gain on marketable securities, available for sale | (18,288 | ) | (167,799 | ) | 213,192 | (167,799 | ) | |||||||||
| Reclassification adjustment for loss included in net loss | - | - | 38,359 | - | ||||||||||||
| Other comprehensive (loss)/income | (18,288 | ) | (167,799 | ) | 251,551 | (167,799 | ) | |||||||||
| Comprehensive (loss)/income | (1,230,713 | ) | 24,249 | (3,503,879 | ) | (2,000,026 | ) | |||||||||
| Less: Comprehensive loss/(income) attributable to noncontrolling interests | 15 | (5 | ) | 50 | 21 | |||||||||||
| Comprehensive (loss)/income attributable to the Company's common shares | $ | (1,230,698 | ) | $ | 24,244 | $ | (3,503,829 | ) | $ | (2,000,005 | ) | |||||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED.
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
| Common Shares | ||||||||||||||||||||||||||||
| Common Shares | Amount | Additional
Paid- In Capital | Accumulated
Other Comprehensive Loss | Accumulated Deficit | Total Noncontrolling Interests | Total Equity | ||||||||||||||||||||||
| BALANCE, December 31, 2017 | 13,625,769 | $ | 136,258 | $ | 117,061,644 | $ | - | $ | (18,548,148 | ) | $ | 12,092,402 | $ | 110,742,156 | ||||||||||||||
| Net loss | - | - | - | - | (1,832,206 | ) | (21 | ) | (1,832,227 | ) | ||||||||||||||||||
| Other comprehensive loss | - | - | - | (167,799 | ) | - | - | (167,799 | ) | |||||||||||||||||||
| Distributions declared (a) | - | - | - | - | (4,039,524 | ) | - | (4,039,524 | ) | |||||||||||||||||||
| Distributions paid to noncontrolling interests | - | - | - | - | - | (60 | ) | (60 | ) | |||||||||||||||||||
| Redemption and cancellation of shares | (69,645 | ) | (697 | ) | (675,787 | ) | - | - | - | (676,484 | ) | |||||||||||||||||
| BALANCE, June 30, 2018 | 13,556,124 | $ | 135,561 | $ | 116,385,857 | $ | (167,799 | ) | $ | (24,419,878 | ) | $ | 12,092,321 | $ | 104,026,062 | |||||||||||||
(a) Distributions per share were $0.30.
| Common Shares | ||||||||||||||||||||||||||||
| Common Shares | Amount | Additional
Paid- In Capital | Accumulated
Other Comprehensive Loss | Accumulated Deficit | Total Noncontrolling Interests | Total Equity | ||||||||||||||||||||||
| BALANCE, March 31, 2018 | 13,581,976 | $ | 135,820 | $ | 116,633,887 | $ | - | $ | (22,583,603 | ) | $ | 12,092,346 | $ | 106,278,450 | ||||||||||||||
| Net income | - | - | - | - | 192,043 | 5 | 192,048 | |||||||||||||||||||||
| Other comprehensive loss | - | - | - | (167,799 | ) | - | - | (167,799 | ) | |||||||||||||||||||
| Distributions declared (a) | - | - | - | - | (2,028,318 | ) | - | (2,028,318 | ) | |||||||||||||||||||
| Distributions paid to noncontrolling interests | - | - | - | - | - | (30 | ) | (30 | ) | |||||||||||||||||||
| Redemption and cancellation of shares | (25,852 | ) | (259 | ) | (248,030 | ) | - | - | - | (248,289 | ) | |||||||||||||||||
| BALANCE, June 30, 2018 | 13,556,124 | $ | 135,561 | $ | 116,385,857 | $ | (167,799 | ) | $ | (24,419,878 | ) | $ | 12,092,321 | $ | 104,026,062 | |||||||||||||
(a) Distributions per share were $0.15.
| Common Shares | ||||||||||||||||||||||||||||
| Common Shares | Amount | Additional
Paid- In Capital | Accumulated
Other Comprehensive Loss | Accumulated Deficit | Total Noncontrolling Interests | Total Equity | ||||||||||||||||||||||
| BALANCE, December 31, 2018 | 13,451,431 | $ | 134,515 | $ | 115,380,181 | $ | (450,285 | ) | $ | (30,937,879 | ) | $ | 12,092,224 | $ | 96,218,756 | |||||||||||||
| Net loss | - | - | - | - | (3,755,380 | ) | (50 | ) | (3,755,430 | ) | ||||||||||||||||||
| Other comprehensive income | - | - | - | 251,548 | - | 3 | 251,551 | |||||||||||||||||||||
| Distributions declared (a) | - | - | - | - | (3,981,641 | ) | - | (3,981,641 | ) | |||||||||||||||||||
| Distributions paid to noncontrolling interests | - | - | - | - | - | (60 | ) | (60 | ) | |||||||||||||||||||
| Redemption and cancellation of shares | (71,069 | ) | (711 | ) | (691,994 | ) | - | - | - | (692,705 | ) | |||||||||||||||||
| BALANCE, June 30, 2019 | 13,380,362 | $ | 133,804 | $ | 114,688,187 | $ | (198,737 | ) | $ | (38,674,900 | ) | $ | 12,092,117 | $ | 88,040,471 | |||||||||||||
(a) Distributions per share were $0.30.
| Common Shares | ||||||||||||||||||||||||||||
| Common Shares | Amount | Additional
Paid- In Capital | Accumulated
Other Comprehensive Loss | Accumulated Deficit | Total Noncontrolling Interests | Total Equity | ||||||||||||||||||||||
| BALANCE, March 31, 2019 | 13,383,997 | $ | 133,841 | $ | 114,724,495 | $ | (180,449 | ) | $ | (35,460,942 | ) | $ | 12,092,163 | $ | 91,309,108 | |||||||||||||
| Net loss | - | - | - | - | (1,212,410 | ) | (15 | ) | (1,212,425 | ) | ||||||||||||||||||
| Other comprehensive loss | - | - | - | (18,288 | ) | - | (18,288 | ) | ||||||||||||||||||||
| Distributions declared (a) | - | - | - | - | (2,001,548 | ) | - | (2,001,548 | ) | |||||||||||||||||||
| Distributions paid to noncontrolling interests | - | - | - | - | - | (31 | ) | (31 | ) | |||||||||||||||||||
| Redemption and cancellation of shares | (3,635 | ) | (37 | ) | (36,308 | ) | - | - | - | (36,345 | ) | |||||||||||||||||
| BALANCE, June 30, 2019 | 13,380,362 | $ | 133,804 | $ | 114,688,187 | $ | (198,737 | ) | $ | (38,674,900 | ) | $ | 12,092,117 | $ | 88,040,471 | |||||||||||||
(a) Distributions per share were $0.15.
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Six Months Ended June 30, | ||||||||
| 2019 | 2018 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (3,755,430 | ) | $ | (1,832,227 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Loss from investments in unconsolidated affiliated real estate entities | 1,948,380 | 1,244,609 | ||||||
| Depreciation and amortization | 2,895,547 | 2,756,890 | ||||||
| Amortization of deferred financing costs | 202,352 | 239,523 | ||||||
| Other non-cash adjustments | 53,152 | 7,544 | ||||||
| Changes in assets and liabilities: | ||||||||
| Increase in accounts receivable and other assets | (1,090,206 | ) | (1,241,395 | ) | ||||
| Increase in accounts payable and other accrued expenses | 392,303 | 535,688 | ||||||
| Increase in due to related parties | 616,322 | 39,227 | ||||||
| Net cash provided by operating activities | 1,262,420 | 1,749,859 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of investment property | (2,324,744 | ) | (1,819,098 | ) | ||||
| Purchase of marketable securities | (37,236 | ) | (5,990,267 | ) | ||||
| Proceeds from sale of marketable securities | 1,018,865 | - | ||||||
| Investment in unconsolidated affiliated real estate entities | (246,692 | ) | (14,266,607 | ) | ||||
| Distributions from unconsolidated affiliated real estate entities | 137,500 | - | ||||||
| Net cash used in investing activities | (1,452,307 | ) | (22,075,972 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments on mortgages payable | (232,434 | ) | (7,660,499 | ) | ||||
| Payment of loan fees and expenses | - | (60,002 | ) | |||||
| Distributions to noncontrolling interests | (60 | ) | (60 | ) | ||||
| Distributions to common stockholders | (4,007,239 | ) | (4,065,326 | ) | ||||
| Redemption and cancellation of common shares | (692,705 | ) | (676,484 | ) | ||||
| Net cash used in financing activities | (4,932,438 | ) | (12,462,371 | ) | ||||
| Net change in cash, cash equivalents and restricted cash | (5,122,325 | ) | (32,788,484 | ) | ||||
| Cash, cash equivalents and restricted cash, beginning of year | 11,638,681 | 46,730,079 | ||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 6,516,356 | $ | 13,941,595 | ||||
| Supplemental cash flow information for the periods indicated is as follows: | ||||||||
| Cash paid for interest | $ | 2,239,665 | $ | 2,734,942 | ||||
| Distributions declared, but not paid | $ | 659,851 | $ | 668,532 | ||||
| Investment property acquired but not paid | $ | 160,633 | $ | 153,447 | ||||
| Holding gain on marketable securities, available for sale | $ | 251,551 | $ | 167,799 | ||||
| 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 | $ | 4,450,336 | $ | 12,481,860 | ||||
| Restricted cash | 2,066,020 | 1,459,735 | ||||||
| Total cash, cash equivalents and restricted cash | $ | 6,516,356 | $ | 13,941,595 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| 7 |
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
| 1. | Organization |
Lightstone Value Plus Real Estate Investment Trust III, Inc. (‘‘Lightstone REIT III’’), incorporated in Maryland on October 5, 2012, elected to qualify and be taxed as a real estate investment trust (‘‘REIT’’) for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2015.
The Lightstone REIT III 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 III LP, a Delaware limited partnership (the ‘‘Operating Partnership’’).
Lightstone REIT III and the Operating Partnership and its subsidiaries are collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns refers to Lightstone REIT III, its Operating Partnership or the Company as required by the context in which such pronoun is used.
The Company has and will continue to seek to acquire a diverse portfolio of real estate assets and real estate-related investments, including hotels, other commercial and/or residential properties, primarily located in the United States. All such properties may be acquired and operated by the Company alone or jointly with another party. The Company may also originate or acquire mortgage loans secured by real estate. Although the Company expects that most of its investments will be of these types, it may make other investments. In fact, it may invest in whatever types of real estate-related investments that it believes are in its best interests.
The Company’s advisor is Lightstone Value Plus REIT III LLC (the “Advisor”), which is majority owned by David Lichtenstein. 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 public offering which terminated on March 31, 2017. Subject to the oversight of the Company’s board of directors (the “Board of Directors”), the Advisor has primary responsibility for making investment decisions and managing the Company’s day-to-day operations. Through his ownership and control of the The Lightstone Group, LLC, Mr. Lichtenstein is the indirect owner of the Advisor and the indirect owner and manager of Lightstone SLP III LLC, a Delaware limited liability company (the “Special Limited Partner”), which has subordinated participation interests in the Operating Partnership (“Subordinated Participation Interests”). 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 III or the Operating Partnership.
The Company does not have any employees. The Advisor receives compensation and fees for services related to the investment and management of the Company’s assets.
The Sponsor has various majority owned and controlled affiliated property managers, which may manage certain of the properties the Company acquires. However, the Company also contracts with other unaffiliated third-party property managers, principally for the management of its hospitality properties.
The Company’s registration statement on Form S-11 (the “Offering”), pursuant to which it offered to sell up to 30.0 million shares of its common stock, par value $0.01 per share (which may be referred to herein as “shares of common stock” or as “Common Shares”) at an initial price of $10.00 per share, subject to certain volume and other discounts (the “Primary Offering”) (exclusive of 10.0 million shares of common stock which were available pursuant to our distribution reinvestment program (the “DRIP”) at an initial purchase price of $9.50 per share) was declared effective on July 15, 2014 by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933.
The Offering, which terminated on March 31, 2017, raised aggregate gross proceeds of approximately $131.7 million from the sale of approximately 13.4 million shares of common stock (including $2.0 million in Common Shares at a purchase price of $9.00 per Common Share to an entity 100% owned by David Lichtenstein, who also owns a majority interest in the Company’s Sponsor). After including the purchase of an aggregate of $12.1 million of Subordinated Participation Interests in the Operating Partnership by the Special Limited Partner and allowing for the payment of approximately $12.2 million in selling commissions and dealer manager fees and $4.8 million in organization and other offering expenses, the Offering generated aggregate net proceeds of approximately $126.8 million.
On April 21, 2017, the Company’s Board of Directors approved the termination of the DRIP effective May 15, 2017. Previously, the Company’s stockholders had an option to elect the receipt of shares of the Company’s common stock in lieu of cash distributions under the Company’s DRIP. As a result, all subsequent distributions have been in the form of cash. In addition, through May 15, 2017 (the termination date of the DRIP), the Company had issued approximately 0.3 million shares of common stock under its DRIP, representing approximately $3.2 million of additional proceeds under the Offering.
| 8 |
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
As of June 30, 2019, our Advisor owned 20,000 shares of common stock which were issued on December 24, 2012 for $200,000 or $10.00 per share.
The Company’s shares of common stock are not currently listed on a national securities exchange. The Company may seek to list its shares of common stock 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 of common stock at this time. The Company does not anticipate that there would be any market for its shares of common stock until they are listed for trading. In the event the Company does not begin the process of achieving a liquidity event prior to the eighth anniversary of the termination of its Offering which occurred on March 31, 2017, its charter requires either (a) an amendment to its charter to extend the deadline to begin the process of achieving a liquidity event, or (b) the holding of a stockholders meeting to vote on a proposal for an orderly liquidation of its portfolio.
Noncontrolling Interests
Partners of Operating Partnership
On July 16, 2014, the Advisor contributed $2,000 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. The limited partner has the right to convert operating partnership units into cash or, at the option of the Company, an equal number of common shares of the Company, as allowed by the limited partnership agreement.
Lightstone REIT III invested the proceeds received from the Offering and the Advisor in the Operating Partnership, and as a result, held an approximately 99% general partnership interest as of both June 30, 2019 and December 31, 2018 in the Operating Partnership’s common units.
Special Limited Partner
In connection with the Company’s Offering, which terminated on March 31, 2017, the Special Limited Partner purchased from the Operating Partnership an aggregate of approximately 242 Subordinated Participation Interests for consideration of $12.1 million. The Subordinated Participation Interests were each purchased for $50,000 in consideration and may be entitled to receive liquidation distributions upon the liquidation of Lightstone REIT III.
As the majority owner of the Special Limited Partner, Mr. Lichtenstein is the beneficial owner of a 99% interest in such Subordinated Participation Interests and will thus receive an indirect benefit from any distributions made in respect thereof.
These Subordinated Participation Interests will entitle the Special Limited Partner to a portion of any regular and liquidation distributions that the Company makes to stockholders, but only after stockholders have received a stated preferred return. Although the actual amounts are dependent upon results of operations and, therefore, cannot be determined at the present time, distributions to the Special Limited Partner, as holder of the Subordinated Participation Interests, could be substantial.
The Advisor and its affiliates and the Special Limited Partner are related parties of the Company. Certain of these entities have and/or will receive compensation for services related to the Offering (which was completed on March 31, 2017) and will continue to receive compensation and services for the investment, management and disposition of our assets. These entities have and/or will receive compensation during the offering, acquisition, operational and liquidation stages. The compensation levels during the offering stage were based on percentages of the offering proceeds raised and the compensation levels during the acquisition and operational stages are based the cost of acquired properties and the annual revenue earned from such properties, and other such fees outlined in each of the respective agreements. See Note 7 – Related Party Transactions for additional information.
| 2. | Summary of Significant Accounting Policies |
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, 2018. The unaudited interim 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 Real Estate Investment Trust III, Inc. and its Subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
| 9 |
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of real estate, depreciable lives, and revenue recognition. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
The consolidated balance sheet as of December 31, 2018 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.
To qualify or maintain our qualification as a REIT, we engage in certain activities through wholly-owned taxable REIT subsidiaries (“TRS”). As such, we are subject to U.S. federal and state income and franchise taxes from these activities.
Revenue
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, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Revenues | ||||||||||||||||
| Room | $ | 8,387,461 | $ | 9,040,202 | $ | 15,266,553 | $ | 16,332,969 | ||||||||
| Food, beverage and other | 402,047 | 327,471 | 694,618 | 621,002 | ||||||||||||
| Total revenues | $ | 8,789,508 | $ | 9,367,673 | $ | 15,961,171 | $ | 16,953,971 | ||||||||
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Lightstone REIT III and the Operating Partnership and its subsidiaries (over which the Company exercises financial and operating control). As of June 30, 2019, Lightstone REIT III had an approximate 99% general partnership interest in the common units of the Operating Partnership. All inter-company accounts and transactions have been eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a variable interest entity for which the Company is the primary beneficiary.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board issued an accounting standards update (“ASU”) that amends the existing lease accounting guidance and requires lessees to recognize a lease liability and a right-of-use asset for all leases on their balance sheets. Lessees of operating leases will continue to recognize lease expense in a manner similar to current accounting. The standard became effective for the Company on January 1, 2019.
The Company elected the following package of practical expedients provided by the standard: (i) an entity need not reassess whether any expired or existing contract is a lease or contains a lease, (ii) an entity need not reassess the lease classification of any expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases. The Company also elected the short-term lease exception provided for in the standard and therefore will only recognize right-of-use assets and lease liabilities for leases with a term greater than one year.
| 10 |
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The Company did not recognize any right-of-use assets or lease liabilities upon adoption of the standard. The Company does not have any material leases such as ground leases or building leases or any material leases with a term greater than one year. From time to time the Company will enter into immaterial leases for miscellaneous office equipment such as copiers. The resulting right-of-use assets or lease liabilities would be immaterial in the aggregate and are recognized in the period they are incurred as lease expense.
The adoption of this standard did not have a material effect on our consolidated financial position or our results of operations.
New Accounting Pronouncements
The Company has reviewed and determined that other recently issued accounting pronouncements will not have a material impact on its financial position, results of operations and cash flows, or do not apply to its current operations.
| 3. | Investments in Unconsolidated Affiliated Real Estate 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 real estate entities is as follows:
| As of | ||||||||||||||
| Entity | Date of Ownership | Ownership % | June 30, 2019 | December 31, 2018 | ||||||||||
| RP Maximus Cove, L.L.C. (the "Cove Joint Venture") | January 31, 2017 | 22.50 | % | $ | 15,680,402 | $ | 17,214,909 | |||||||
| LVP LIC Hotel JV LLC (the "Hilton Garden Inn Joint Venture") | March 27, 2018 | 50.00 | % | 12,464,396 | 12,769,078 | |||||||||
| Total investments in unconsolidated affiliated real estate entities | $ | 28,144,798 | $ | 29,983,987 | ||||||||||
The Cove Joint Venture
On January 31, 2017, the Company, through its wholly owned subsidiary, REIT III COVE LLC along with LSG Cove LLC, an affiliate of the Sponsor and a related party, REIT IV COVE LLC, a wholly owned subsidiary of Lightstone Real Estate Income Trust, Inc. (“Lightstone IV”), a real estate investment trust also sponsored by the Sponsor and a related party and Maximus Cove Investor LLC (“Maximus”), an unrelated third party, completed the acquisition of all of RP Cove, L.L.C’s membership interest in RP Maximus Cove, L.L.C. (the “Cove Joint Venture”) for aggregate consideration of approximately $255.0 million (the “Cove Transaction”). The Cove Joint Venture owns and operates The Cove at Tiburon (“the Cove”), a 281-unit, luxury waterfront multifamily residential property located in Tiburon, California. Prior to entering into The Cove Transaction, Maximus previously owned a separate noncontrolling interest in the Cove Joint Venture.
The Company paid approximately $20.0 million for a 22.5% membership interest in the Cove Joint Venture. The Company’s ownership interest in the Cove Joint Venture is a non-managing interest. The Company has determined that the Cove Joint Venture is a variable interest entity but the Company is not the primary beneficiary. The Company accounts for its ownership interest in the Cove Joint Venture in accordance with the equity method of accounting because it exerts significant influence over but does not control the Cove Joint Venture. All capital contributions and distributions of earnings from the Cove 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 Cove Joint Venture are made to the members pursuant to the terms of the Cove Joint Venture’s operating agreement. An affiliate of Maximus is the asset manager of the Cove and receives certain fees as defined in the Property Management Agreement for the management of the Cove. The Company commenced recording its allocated portion of profit/loss and cash distributions beginning as of January 31, 2017 with respect to its membership interest of 22.5% in the Cove Joint Venture.
Subsequent to the Company’s acquisition through June 30, 2019, the Company has made an aggregate of $2.3 million (including $0.1 million during the six months ended June 30, 2019) of additional capital contributions to the Cove Joint Venture.
In connection with the closing of the Cove Transaction, the Cove Joint Venture simultaneously entered into a $175.0 million loan (the “Loan”) which was initially scheduled to mature on January 31, 2020. The Loan required monthly interest payments through its maturity date. The Loan bore interest at Libor plus 3.85%. The Loan was collateralized by the Cove and an affiliate of the Company’s Sponsor (the “Guarantor”) had guaranteed the Cove Joint Venture’s obligation to pay the outstanding balance of the Loan up to approximately $43.8 million (the “Loan Guarantee”). The members had agreed to reimburse the Guarantor for any balance that may become due under the Loan Guarantee, of which the Company’s share was up to approximately $10.9 million.
On May 8, 2019, the Cove Joint Venture entered into loans aggregating $180.0 million (the “Cove Loans”). The Cove Loans mature in five years and require monthly interest payments through their maturity dates. The Cove Loans bear interest at a weighted average of LIBOR (with a floor of 2.0%) plus 2.15% and are collateralized by the Cove. The Cove Joint Venture used the proceeds from the Cove Loans to fully repay the Loan. In connection with the refinancing, the Cove Joint Venture incurred a loss on the early extinguishment of debt of approximately $1.5 million during the second quarter of 2019, of which the Company’s proportionate share was approximately $0.3 million.
| 11 |
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The Cove Joint Venture Financial Information
The Company’s carrying value of its interest in the Cove Joint Venture differs from its share of member’s equity reported in the condensed balance sheet of the Cove Joint Venture due to the Company’s basis of its investment in excess of the historical net book value of the Cove Joint Venture. The Company’s additional basis allocated to depreciable assets is being recognized on a straight-line basis over the lives of the appropriate assets.
The following table represents the unaudited condensed income statements for the Cove Joint Venture:
| (amounts in thousands) | For the Three Months Ended June 30, 2019 | For the Three Months Ended June 30, 2018 | For the Six Months Ended June 30, 2019 | For the Six Months Ended June 30, 2018 | ||||||||||||
| Revenue | $ | 3,992 | $ | 3,637 | $ | 7,685 | $ | 7,233 | ||||||||
| Property operating expenses | 1,237 | 1,193 | 2,477 | 2,421 | ||||||||||||
| General and administrative costs | 24 | 47 | 66 | 95 | ||||||||||||
| Depreciation and amortization | 2,899 | 2,398 | 5,736 | 4,794 | ||||||||||||
| Operating loss | (168 | ) | (1 | ) | (594 | ) | (77 | ) | ||||||||
| Loss on debt extinguishment | (1,526 | ) | - | (1,526 | ) | - | ||||||||||
| Interest expense and other, net | (2,517 | ) | (2,741 | ) | (5,451 | ) | (5,311 | ) | ||||||||
| Net loss | $ | (4,211 | ) | $ | (2,742 | ) | $ | (7,571 | ) | $ | (5,388 | ) | ||||
| Company's share of net loss (22.50%) | $ | (947 | ) | $ | (617 | ) | $ | (1,703 | ) | $ | (1,213 | ) | ||||
| Additional depreciation and amortization expense (1) | (10 | ) | 103 | (20 | ) | (76 | ) | |||||||||
| Company's loss from investment | $ | (957 | ) | $ | (514 | ) | $ | (1,723 | ) | $ | (1,289 | ) | ||||
The following table represents the unaudited condensed balance sheets for the Cove Joint Venture:
| As of | As of | |||||||
| (amounts in thousands) | June 30, 2019 | December 31, 2018 | ||||||
| Real estate, at cost (net) | $ | 143,512 | $ | 148,441 | ||||
| Cash and restricted cash | 3,335 | 2,138 | ||||||
| Other assets | 1,274 | 1,810 | ||||||
| Total assets | $ | 148,121 | $ | 152,389 | ||||
| Mortgage payable, net | $ | 178,161 | $ | 174,098 | ||||
| Other liabilities | 1,176 | 2,776 | ||||||
| Members' deficit (1) | (31,216 | ) | (24,485 | ) | ||||
| Total liabilities and members' deficit | $ | 148,121 | $ | 152,389 | ||||
| 1) | The adjustment to depreciation and amortization expense relates to the difference between the Company’s basis in the CoveJoint Venture and the amount of the underlying equity in net assets of the Cove Joint Venture. |
Hilton Garden Inn Joint Venture
On March 27, 2018, the Company and its Sponsor’s other public program, Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone REIT II”), acquired, through LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”) a 183-room, limited-service hotel located at 29-21 41st Avenue, Long Island City, New York (the “Hilton Garden Inn - Long Island City”) from an unrelated third party, for aggregate consideration of approximately $60.0 million, which consisted of $25.0 million of cash and $35.0 million of proceeds from a loan from a financial institution, excluding closing and other related transaction costs. The Company and Lightstone REIT II each have 50.0% joint venture ownership interests, respectively, in the Hilton Garden Inn Joint Venture.
| 12 |
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The Company paid approximately $12.9 million for a 50.0% membership interest in the Hilton Garden Inn Joint Venture. The Company’s ownership interest in the Hilton Garden Inn Joint Venture is a co-managing interest. The Company accounts for its ownership 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. During the six months ended June 30, 2019, the Company received distributions from the Hilton Garden Inn Joint Venture aggregating $0.1 million.
Subsequent to the Company’s acquisition through June 30, 2019, the Company has made an aggregate of $0.7 million (including $0.1 million during the six months ended June 30, 2019) of additional capital contributions to the Hilton Garden Inn Joint Venture.
Hilton Garden Inn Joint Venture Financial Information
The following table represents the condensed income statement for the Hilton Garden Inn Joint Venture for the period indicated:
| (amounts in thousands) | For the Three Months Ended June 30, 2019 | For the Three Months Ended June 30, 2018 | For the Six Months Ended June 30, 2019 | For the Six Months Ended June 30, 2018 | ||||||||||||
| Revenues | $ | 3,086 | $ | 3,015 | $ | 5,094 | $ | 3,185 | ||||||||
| Property operating expenses | 1,765 | 1,902 | 3,270 | 1,971 | ||||||||||||
| General and administrative costs | (22 | ) | 2 | (22 | ) | 2 | ||||||||||
| Depreciation and amortization | 627 | 635 | 1,269 | 635 | ||||||||||||
| Operating income | 716 | 476 | 577 | 577 | ||||||||||||
| Interest expense | (520 | ) | (463 | ) | (1,026 | ) | (488 | ) | ||||||||
| Net (loss)/income | $ | 196 | $ | 13 | $ | (449 | ) | $ | 89 | |||||||
| Company's share of net (loss)/income (50.00%) | $ | 98 | $ | 7 | $ | (225 | ) | $ | 45 | |||||||
The following table represents the condensed balance sheet for the Hilton Garden Inn Joint Venture:
| As of | As of | |||||||
| (amounts in thousands) | June 30, 2019 | December 31, 2018 | ||||||
| Investment property, net | $ | 57,716 | $ | 58,799 | ||||
| Cash | 927 | 554 | ||||||
| Other assets | 1,524 | 1,218 | ||||||
| Total assets | $ | 60,167 | $ | 60,571 | ||||
| Mortgage payable, net | $ | 34,793 | $ | 34,766 | ||||
| Other liabilities | 1,045 | 867 | ||||||
| Members' capital | 24,329 | 24,938 | ||||||
| Total liabilities and members' capital | $ | 60,167 | $ | 60,571 | ||||
| 13 |
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
| 4. | Marketable Securities and Fair Value Measurements |
Marketable Securities
The following is a summary of the Company’s available for sale securities as of the dates indicated:
| As of June 30, 2019 | ||||||||||||||||
| Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| Debt securities: | ||||||||||||||||
| Corporate Bonds | $ | 3,138,526 | $ | 5,079 | $ | (203,819 | ) | $ | 2,939,786 | |||||||
| As of December 31, 2018 | ||||||||||||||||
| Adjusted Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| Debt securities: | ||||||||||||||||
| Corporate Bonds | $ | 4,158,515 | $ | - | $ | (450,292 | ) | $ | 3,708,223 | |||||||
When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell the investment before recovery of the investment’s amortized cost basis. As of June 30, 2019, the Company did not recognize any impairment charges.
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, 2019 and December 31, 2018, all of the Company’s debt securities and were classified as Level 2 assets and there were no transfers between the level classifications during the six months ended June 30, 2019.
The fair values of the Company’s investments in Corporate Bonds are measured using readily available quoted prices for similar assets.
The following table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:
| As of June 30, 2019 | ||||
| Due in 1 year | $ | 220,015 | ||
| Due in 1 year through 5 years | 2,176,021 | |||
| Due in 5 year through 10 years | - | |||
| Due after 10 years | 543,750 | |||
| Total | $ | 2,939,786 | ||
| 14 |
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized at fair value.
| 5. | Mortgages payable, net |
Mortgages payable, net consists of the following:
| Weighted Average Interest Rate | ||||||||||||||||||||||
| Description | Interest Rate | as
of June 30, 2019 | Maturity Date | Amount
Due at Maturity | As
of June 30, 2019 | As
of December 31, 2018 | ||||||||||||||||
| Revolving Credit Facility, secured by seven properties | LIBOR + 3.50% | 5.98 | % | September 2019 | $ | 52,159,414 | $ | 52,159,414 | $ | 52,159,414 | ||||||||||||
| Promissory Note, secured by two properties | 4.73 | % | 4.73 | % | October 2021 | 26,127,572 | 27,230,141 | 27,462,575 | ||||||||||||||
| Total mortgages payable | 5.55 | % | $ | 78,286,986 | 79,389,555 | 79,621,989 | ||||||||||||||||
| Less: Deferred financing costs | (82,830 | ) | (285,182 | ) | ||||||||||||||||||
| Total mortgage payable, net | $ | 79,306,725 | $ | 79,336,807 | ||||||||||||||||||
Revolving Credit Facility
On July 13, 2016, the Company, through certain subsidiaries, entered into a nonrecourse revolving credit facility (the “Revolving Credit Facility”) with a bank. The Revolving Credit Facility initially bore interest at Libor plus 4.95% and provided a line of credit of up to $60.0 million over three years, with two, one-year options to extend solely at the discretion of the bank. Interest is payable monthly and the entire unpaid principal balance is due upon expiration of the Revolving Credit Facility. On June 19, 2018, the Company made a required principal payment of $7.4 million on the Revolving Credit Facility and the lender reduced the interest rate to Libor plus 3.50 % from Libor plus 4.95 %. Under the terms of the Revolving Credit Facility, the Company could designate properties as collateral that allowed it to borrow up to a 65.0% loan-to-value ratio of the properties and also subject to meeting certain financial covenants, including a prescribed minimum debt yield. As of June 30, 2019, the Company had pledged seven of its hotel properties as collateral under the Revolving Credit Facility.
The Revolving Credit Facility (outstanding principal balance of $52.2 million as of June 30, 2019) was initially scheduled to mature on July 11, 2019 but on July 1, 2019 was further extended an additional 60 days to September 11, 2019. During the 60-day extension period, the Revolving Credit Facility will bear interest at Libor plus 3.15%. The Company and the existing lender are in the process of finalizing a new facility to replace the Revolving Credit Facility on or before the extended maturity date.
Principal Maturities
The following table, based on the initial terms of the mortgage, sets forth their aggregate estimated contractual principal maturities, including balloon payments due at maturity, as of June 30, 2019:
| 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total | ||||||||||||||||||||||
| Principal maturities | $ | 52,393,851 | $ | 486,092 | $ | 26,509,612 | $ | - | $ | - | $ | - | $ | 79,389,555 | ||||||||||||||
| Less: Deferred financing costs | (82,830 | ) | ||||||||||||||||||||||||||
| Total principal maturiteis, net | $ | 79,306,725 | ||||||||||||||||||||||||||
Debt Compliance
Pursuant to the Company’s debt agreements, approximately $2.1 million and $1.7 million was held in restricted cash accounts as of June 30, 2019 and December 31, 2018, respectively. Such escrows are subject to release in accordance with the applicable debt agreement for the payment of real estate taxes, insurance and capital improvements, as required. Certain of our debt agreements contain clauses providing for prepayment penalties and requiring the maintenance of certain ratios including debt service coverage and fixed leverage charge ratio. The Company is currently in compliance with respect to all of its financial debt covenants.
| 15 |
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
| 6. | Earnings per Share |
The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, basic and diluted earnings per share is calculated by dividing earnings attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the applicable period.
| 7. | Related Party Transactions |
Due to related parties and other transactions
In addition to certain agreements with the Sponsor (see Note 1), the Company has agreements with the Advisor to pay certain fees in exchange for services performed by the Advisor and/or its affiliated entities. 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, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Acquisition Fees (1) | $ | - | $ | - | $ | - | $ | 300,000 | ||||||||
| Development fees (2) | 4,954 | - | 4,954 | 51,419 | ||||||||||||
| Asset Management Fees (general and administrative costs) | 457,214 | 438,392 | 910,782 | 824,732 | ||||||||||||
| Total | $ | 462,168 | $ | 438,392 | $ | 915,736 | $ | 1,176,151 | ||||||||
| (1) | Acquisition fees of $300,000 were capitalized and are reflected in the carrying value of our investment in the Hilton Garden Inn Joint Venture which is included in investments in unconsolidated affiliated real estate entities on the consolidated balance sheets. |
| (2) | Generally, capitalized and amortized over the estimated useful life of the associated asset. |
| 8. | Financial Instruments |
The carrying amounts reported in the consolidated balance sheets for cash, accounts receivable and other assets, accounts payable and other accrued expenses and due to/from related parties approximated their fair values because of the short maturity of these instruments.
The estimated fair value of our mortgages payable is as follows:
| As of June 30, 2019 | As of December 31, 2018 | |||||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||
| Mortgages payable | $ | 79,389,555 | $ | 79,011,329 | $ | 79,621,989 | $ | 78,692,677 | ||||||||
The fair value of our mortgages payable was determined by discounting the future contractual interest and principal payments by market interest rates.
| 9. | Commitments and Contingencies |
Legal Proceedings
From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes. As of the date hereof, we are not a party to any material pending legal proceedings.
| 16 |
LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
| 10. | Distributions |
On June 19, 2019, our Board of Directors determined to suspend regular monthly distributions.
Previously, distributions in an amount equal to a 6.0% annualized rate were declared on a monthly basis beginning on January 14, 2015 through June 30, 2019 and were paid on or about the 15th day following each month end.
Future distributions declared will be at the discretion of the Board of Directors based on their analysis of our performance over the previous periods and expectations of performance for future periods and may differ from the amount of the distribution determined for this period. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, current revenues, operating and interest expenses and our ability to refinance near-term debt. In addition, the Company currently intends to continue to comply with the REIT distribution requirement that it annually distribute no less than 90% of its taxable income. The Company cannot assure that regular distributions will continue to be made or that it will maintain any particular level of distributions that it has established or may establish.
On May 15, 2019, June 15, 2019 and July 16, 2019, the Company paid distributions for the months ended April 30, 2019, May 31, 2019 and June 30, 2019, respectively, totaling $2.0 million. The distributions were paid in cash.
| 17 |
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust III, Inc. and Subsidiaries and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Lightstone Value Plus Real Estate Investment Trust III, Inc., a Maryland corporation, and, as required by context, Lightstone Value Plus REIT III, L.P., which we collectively refer to as the “Operating Partnership”.
Forward-Looking Statements
Certain information included in this Quarterly Report on Form 10-Q contains, and other materials filed or to be filed by us with the United States Securities and Exchange Commission (the “SEC”), contain or will contain, forward-looking statements. All statements, other than statements of historical facts, including, among others, statements regarding our possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives, are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of Lightstone Value Plus Real Estate Investment Trust III, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements.
Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements.
Risks and other factors that might cause differences, some of which could be material, include, but are not limited to, economic and market conditions, competition, tenant or joint venture partner(s) bankruptcies, our lack of operating history, the availability of cash flows from operations to pay distributions, changes in governmental, tax, real estate and zoning laws and regulations, failure to increase tenant occupancy and operating income, rejection of leases by tenants in bankruptcy, financing and development risks, construction and lease-up delays, cost overruns, the level and volatility of interest rates, the rate of revenue increases versus expense increases, the financial stability of various tenants and industries, the failure of the Company to make additional investments in real estate properties, the failure to upgrade our tenant mix, restrictions in current financing arrangements, the failure to fully recover tenant obligations for common area maintenance, insurance, taxes and other property expenses, the failure of the Company to continue to qualify as a real estate investment trust (“REIT”), the failure to refinance debt at favorable terms and conditions, an increase in impairment charges, loss of key personnel, failure to achieve earnings/funds from operations targets or estimates, conflicts of interest with the Advisor and the Sponsor and their affiliates, failure of joint venture relationships, significant costs related to environmental issues as well as other risks listed from time to time in this Form 10-Q, our form 10-K, our Registration Statements on Form S-11, as the same may be amended and supplemented from time to time, and in the Company’s other reports filed with the SEC.
We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless required by law.
Overview
Lightstone Value Plus Real Estate Investment Trust III, Inc. (the ‘‘Lightstone REIT III’’) is a Maryland corporation, formed on October 5, 2012, which elected to qualify to be taxed as a REIT beginning with the taxable year ending December 31, 2015.
Lightstone REIT III 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 III LP, a Delaware limited partnership (the “Operating Partnership”).
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Lightstone REIT III 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 the Lightstone REIT III, its Operating Partnership or the Company as required by the context in which such pronoun is used.
We have and will continue to seek to acquire a diverse portfolio of real estate assets and real estate-related investments, including hotels, other commercial and/or residential properties, primarily located in the United States. All such properties may be acquired and operated by us alone or jointly with another party. We may also originate or acquire mortgage loans secured by real estate. Although we expect that most of our investments will be of these types, we may make other investments. In fact, we may invest in whatever types of real estate-related investments that we believe are in our best interests.
Our registration statement on Form S-11 (the “Offering”), pursuant to which we offered to sell up to 30,000,000 shares of our common stock, par value $0.01 per share (which may be referred to herein as ‘‘shares of common stock’’ or as ‘‘Common Shares’’) at an initial price of $10.00 per share, subject to certain volume and other discounts (the “Primary Offering”) (exclusive of 10,000,000 shares which were available pursuant to our distribution reinvestment plan (the “DRIP”) at an initial purchase price of $9.50 per share) was declared effective by the SEC under the Securities Act of 1933 on July 15, 2014.
The Offering, which terminated on March 31, 2017, raised aggregate gross proceeds of approximately $131.7 million from the sale of approximately 13.4 million shares of common stock (including $2.0 million in Common Shares at a purchase price of $9.00 per Common Share to an entity 100% owned by David Lichtenstein, who also owns a majority interest in the Company’s Sponsor). After including the purchase of an aggregate of $12.1 million of subordinated participation interests (the “Subordinated Participation Interests”) in the Operating Partnership by Lightstone SLP III LLC (the “Special Limited Partner”) and allowing for the payment of approximately $12.2 million in selling commissions and dealer manager fees and $4.8 million in organization and other offering expenses, the Offering generated aggregate net proceeds of approximately $126.8 million.
On April 21, 2017, our Board of Directors approved the termination of the DRIP effective May 15, 2017. Previously, our stockholders had an option to elect the receipt of shares of our common stock in lieu of cash distributions under the Company’s DRIP. As a result, all subsequent distributions have been in the form of cash. Through May 15, 2017 (the termination date of the DRIP), we issued approximately 0.3 million shares of common stock under the DRIP, representing approximately $3.2 million of additional proceeds under the Offering.
In connection with our Offering, which terminated on March 31, 2017, the Special Limited Partner purchased an aggregate of 242 Subordinated Participation Interests for consideration of $12.1 million from the Operating Partnership. The Subordinated Participation Interests were each purchased for $50,000 in consideration and may be entitled to receive liquidation distributions upon the liquidation of Lightstone REIT III.
We do not have employees. We have entered into an advisory agreement with Lightstone Value Plus REIT III LLC, a Delaware limited liability company, which we refer to as the “Advisor,” pursuant to which the Advisor supervises and manages our day-to-day operations and selects our real estate and real estate related investments, subject to oversight by our Board of Directors. We pay the Advisor fees for services related to the investment and management of our assets, and we reimburse the Advisor for certain expenses incurred on our behalf.
To qualify or maintain our qualification as a REIT, we engage in certain activities through a wholly-owned taxable REIT subsidiary (“TRS”). As such, we are subject to U.S. federal and state income and franchise taxes from these activities.
Current Environment
Our operating results as well as our investment opportunities are impacted by the health of the North American economies. Our business and financial performance may be adversely affected by current and future economic conditions, such as availability of credit, financial markets volatility, and recession.
Our business may be affected by market and economic challenges experienced by the U.S. and global economies. These conditions may materially affect the value and performance of our properties and investments, and may affect our ability to continue to pay regular monthly distributions to our shareholders, the availability or the terms of financing that we have or may anticipate utilizing, and our ability to make principal and interest payments on, or refinance, any outstanding debt when due.
We are not aware of any other material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting real estate generally, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from our real estate and real estate related investments, other than those referred to in this Form 10-Q.
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Portfolio Summary –
Consolidated Properties:
| Location | Year Built | Date Acquired | Year to Date Available Rooms | Percentage
Occupied for the Six Months Ended June 30, 2019 | Revenue
per Available Room for the Six Months Ended June 30, 2019 | Average
Daily Rate for the Six Months Ended June 30, 2019 | ||||||||||||||||
| Hampton Inn – Des Moines | Des Moines, Iowa | 1987 | 2/4/2015 | 21,720 | 67.4 | % | $ | 74.49 | $ | 110.56 | ||||||||||||
| Courtyard - Durham | Durham, North Carolina | 1996 | 5/15/2015 | 26,426 | 71.4 | % | $ | 75.14 | $ | 105.23 | ||||||||||||
| Hampton Inn – Lansing | Lansing, Michigan | 2013 | 3/10/2016 | 15,566 | 71.8 | % | $ | 85.73 | $ | 119.45 | ||||||||||||
| Courtyard - Warwick | Warwick, Rhode Island | 2003 | 3/23/2016 | 16,652 | 71.3 | % | $ | 95.30 | $ | 133.59 | ||||||||||||
| SpringHill Suites - Green Bay | Green Bay, Wisconsin | 2007 | 5/2/2016 | 22,987 | 54.8 | % | $ | 62.11 | $ | 113.24 | ||||||||||||
| Home2 Suites – Salt Lake | Salt Lake City, Utah | 2013 | 8/2/2016 | 22,625 | 64.8 | % | $ | 70.76 | $ | 109.18 | ||||||||||||
| Home2 Suites – Tukwila | Tukwila, Washington | 2015 | 8/2/2016 | 25,159 | 90.5 | % | $ | 127.49 | $ | 140.88 | ||||||||||||
| Fairfield Inn – Austin | Austin, Texas | 2014 | 9/13/2016 | 15,204 | 77.2 | % | $ | 87.30 | $ | 113.02 | ||||||||||||
| Staybridge Suites – Austin | Austin, Texas | 2009 | 10/7/2016 | 14,480 | 77.1 | % | $ | 81.35 | $ | 105.49 | ||||||||||||
| Total | 180,819 | 71.6 | % | $ | 84.43 | $ | 117.88 | |||||||||||||||
Unconsolidated Affiliated Real Estate Entities:
| Location | Year Built | Leasable Units | Percentage
Occupied as of June 30, 2019 |
Annualized
Revenues based on rents at June 30, 2019 |
Annualized
Revenues per unit at June 30, 2019 |
||||||||||||||
| The Cove (Multi-Family Complex)(1) | Tiburon, California | 1967 | 281 | 97 | % | $16.2 million | $ | 59,503 | |||||||||||
| Year to Date | Percentage
Occupied for the Six Months Ended |
Revenue
per Available Room for the Six Months |
Average
Daily Rate For the Six Months |
||||||||||||||||
| Location | Year Built | Available Rooms | June 30, 2019 | Ended June 30, 2019 | Ended June 30, 2019 | ||||||||||||||
| Hilton Garden Inn - Long Island City(2) | Long Island City, New York | 2014 | 33,123 | 90 | % | $ | 142.70 | $ | 158.71 | ||||||||||
(1) - Acquired on January 31, 2017.
(2) - Acquired on March 27, 2018.
Critical Accounting Policies and Estimates
There were no material changes during the six months ended June 30, 2019 to our critical accounting policies as reported in our Annual Report on Form 10-K, for the year ended December 31, 2018, except for as discussed in Note 2 to the financial statements.
Results of Operations
We currently have one operating segment. As of June 30, 2019, on a collective basis, we wholly owned and consolidated the operating results and financial condition of nine hospitality properties, or select services hotels, containing a total of 999 rooms.
Additionally, as of June 30, 2019, the Company held a 22.5% ownership interest in RP Maximus Cove, LLC (the “Cove Joint Venture”), an affiliated real estate entity that owns and operates The Cove at Tiburon (“the Cove”), a 281-unit, luxury waterfront multifamily residential property located in Tiburon, California and a 50.0% ownership interest in LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”), an affiliated real estate entity that owns and operates a 183-room, limited-service hotel located in Long Island City, New York (the “Hilton Garden Inn - Long Island City”). 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.
All of the Company’s properties are located within the United States.
Comparison of the Three Months Ended June 30, 2019 vs. June 30, 2018
Consolidated
The revenues, property operating expenses, real estate taxes, general and administrative expense and depreciation and amortization for the three months ended June 30, 2019 and 2018 are attributable to all nine of our consolidated hospitality properties. Overall, our hospitality portfolio experienced decreases in (i) the percentage of rooms occupied from 78.2% to 75.7% for the 2018 and 2019 periods, respectively, (ii) revenue per available room (“RevPAR”) from $99.44 to $92.26 for the 2018 and 2019 periods, respectively, and (iii) the average daily rate per room (“ADR”) from $127.21 to $121.93 for the 2018 and 2019 periods, respectively.
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Revenues
Revenues decreased by $0.6 million to $8.8 million during the three months ended June 30, 2019 compared to $9.4 million for the same period in 2018. The decrease is attributable to the lower percentage of rooms occupied, RevPAR and ADR during the 2019 period compared to the 2018 period.
Property operating expenses
Property operating expenses were relatively unchanged at approximately $5.4 million both the three months ended June 30, 2019 and 2018.
Real estate taxes
Real estate taxes were relatively unchanged at approximately $0.4 million during both the three months ended June 30, 2019 and 2018.
General and administrative expense
General and administrative expense was relatively unchanged at approximately $0.7 million during both the three months ended June 30, 2019 and 2018.
Depreciation and amortization
Depreciation and amortization expense increased slightly by $0.1 million to $1.5 million during the three months ended June 30, 2019 compared to $1.4 million for the same period in 2018.
Earnings from investments in unconsolidated affiliated real estate entities
Our loss from investments in unconsolidated affiliated real estate entities during three months ended June 30, 2019 was $0.9 million compared to $0.5 million for the same period in 2018. Our loss from investments in unconsolidated affiliated real estate entities is attributable to our ownership interests in the Hilton Garden Inn Joint Venture (acquired March 27, 2018) and the Cove Joint Venture (acquired January 31, 2017). We account for our ownership interest in the Hilton Garden Inn Joint Venture and the Cove Joint Venture under the equity method of accounting commencing on the date that we acquired our interests.
Interest expense
Interest expense decreased slightly by $0.2 million to $1.2 million during the three months ended June 30, 2019 compared to $1.4 million for the same period in 2018. Interest expense is 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.
Comparison of the Six Months Ended June 30, 2019 vs. June 30, 2018
Consolidated
The revenues, property operating expenses, real estate taxes, general and administrative expense and depreciation and amortization for the six months ended June 30, 2019 and 2018 are attributable to all nine of our consolidated hospitality properties. Overall, our hospitality portfolio experienced decreases in (i) the percentage of rooms occupied from 73.7% to 71.6% for the 2018 and 2019 periods, respectively, (ii) RevPAR from $90.33 to $84.43 for the 2018 and 2019 periods, respectively, and (iii) the ADR from $122.61 to $117.88 for the 2018 and 2019 periods, respectively.
Revenues
Revenues decreased by $1.0 million to $16.0 million during the six months ended June 30, 2019 compared to $17.0 million for the same period in 2018. The decrease is attributable to the lower percentage of rooms occupied, RevPAR and ADR during the 2019 period compared to the 2018 period.
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Property operating expenses
Property operating expenses decreased slightly by $0.2 million to $10.2 million during the six months ended June 30, 2019 compared to $10.4 million for the same period in 2018.
Real estate taxes
Real estate taxes were relatively unchanged at approximately $0.8 million during both the six months ended June 30, 2019 and 2018.
General and administrative expense
General and administrative expense was relatively unchanged at approximately $1.4 million during both the six months ended June 30, 2019 and 2018.
Depreciation and amortization
Depreciation and amortization expense increased slightly by $0.1 million to $2.9 million during the three months ended June 30, 2019 compared to $2.8 million for the same period in 2018.
Earnings from investments in unconsolidated affiliated real estate entities
Our loss from investments in unconsolidated affiliated real estate entities during six months ended June 30, 2019 was $1.9 million compared to $1.2 million for the same period in 2018. Our loss from investments in unconsolidated affiliated real estate entities is attributable to our ownership interests in the Hilton Garden Inn Joint Venture (acquired March 27, 2018) and the Cove Joint Venture (acquired January 31, 2017). We account for our ownership interest in the Hilton Garden Inn Joint Venture and the Cove Joint Venture under the equity method of accounting commencing on the date that we acquired our interests.
Interest expense
Interest expense decreased by $0.4 million to $2.4 million during the six months ended June 30, 2019 compared to $2.8 million for the same period in 2018. Interest expense is 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.
Financial Condition, Liquidity and Capital Resources
Overview:
Revenues, interest and dividend income, distributions from unconsolidated affiliated investments and borrowings are our principal sources of funds to pay operating expenses, scheduled debt service, capital expenditures (excluding non-recurring capital expenditures), redemptions and cancellations of shares of our common stock, if approved, and distributions to our shareholders, if any, required to maintain our status as a REIT. For the six months ended June 30, 2019, our primary sources of funds was approximately $1.3 million of cash flows from operations, $1.0 million of proceeds generated from the sale of our marketable securities and $0.1 million of distributions from our unconsolidated affiliated investments.
We currently believe that these cash resources along with our with our current available cash on hand of $4.5 million and marketable securities, available for sale, of $2.9 million as well as proceeds generated from the potential sale of operating properties will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other than these sources within the next 12 months.
We have and intend to continue to utilize leverage either in connection with acquiring our properties or subsequent to their acquisition. The number of different properties we will acquire will be affected by numerous factors, including, the amount of funds available to us. When interest rates on mortgage loans are high or financing is otherwise unavailable on terms that are satisfactory to us, we may purchase certain properties for cash with the intention of obtaining a mortgage loan for a portion of the purchase price at a later time.
We intend 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 the independent directors and is disclosed to our stockholders. Market conditions will dictate our 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.
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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 satisfactory showing that a higher level is appropriate, the approval of our Board of Directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. 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, 2019, our total borrowings were approximately $79.4 million which represented 76% of our net assets.
In connection with the closing of the Cove Transaction, the Cove Joint Venture simultaneously entered into a $175.0 million loan (the “Loan”) which was initially scheduled to mature on January 31, 2020. The Loan required monthly interest payments through its maturity date. The Loan bore interest at Libor plus 3.85%. The Loan was collateralized by the Cove and an affiliate of the Company’s Sponsor (the “Guarantor”) had guaranteed the Cove Joint Venture‘s obligation to pay the outstanding balance of the Loan up to approximately $43.8 million (the “Loan Guarantee”). The Members had agreed to reimburse the Guarantor for any balance that may become due under the Loan Guarantee, of which the Company’s share was up to approximately $10.9 million.
On May 8, 2019, the Cove Joint Venture entered into a five year, $180.0 million non-recourse loan (the “Cove Loan”). The Cove Loan requires monthly interest payments through its maturity date. The Cove Loan bears interest at Libor (with a floor of 2.0%) plus 2.15% and is collateralized by the Cove. The Cove Joint Venture used the proceeds from the Cove Loan to fully repay the Loan. In connection with the refinancing, the Cove Joint Venture incurred a loss on the early extinguishment of debt of approximately $1.5 million during the second quarter of 2019, of which the Company’s proportionate share was approximately $0.3 million.
Our future 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 non-recourse debt. 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.
In general the type of future financing executed by us to a large extent will be dictated by the nature of the investment and current market conditions. For long-term real estate investments, it is our intent to finance future acquisitions using long-term fixed rate debt. However there may be certain types of investments and market circumstances which may result in variable rate debt being the more appropriate choice of financing. To the extent floating rate debt is used to finance the purchase of real estate, management will evaluate a number of protections against significant increases in interest rates, including the purchase of interest rate cap instruments.
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.
In addition to making investments in accordance with our investment objectives, we have used and expect to continue use our capital resources to make certain payments to our Advisor. Our principal sources of cash flow are derived from operating cash flows. In the future, we believe our cash available on hand together with our expected earnings, and/or distributions from our investments will provide us with sufficient resources to fund our anticipated operating expenses, capital contributions, redemptions and cancellations of shares of our common stock, if approved, and distributions to our shareholders, if any, required to maintain our qualification as a REIT. We also expect to use these sources of liquidity and selective dispositions of properties, if any, and/or financings to fund future investment activities.
We have agreements with the Advisor to pay certain fees, in exchange for services performed by the Advisor and/or its affiliated entities.
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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, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Acquisition Fees (1) | $ | - | $ | - | $ | - | $ | 300,000 | ||||||||
| Development fees (2) | 4,954 | - | 4,954 | 51,419 | ||||||||||||
| Asset Management Fees (general and administrative costs) | 457,214 | 438,392 | 910,782 | 824,732 | ||||||||||||
| Total | $ | 462,168 | $ | 438,392 | $ | 915,736 | $ | 1,176,151 | ||||||||
| (1) | Acquisition fees of $300,000 were capitalized and are reflected in the carrying value of our investment in the Hilton Garden Inn Joint Venture which is included in investments in unconsolidated affiliated real estate entities on the consolidated balance sheets. |
| (2) | Generally, capitalized and amortized over the estimated useful life of the associated asset. |
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, | ||||||||
| 2019 | 2018 | |||||||
| Net cash provided by operating activities | $ | 1,262,420 | $ | 1,749,859 | ||||
| Net cash used in investing activities | (1,452,307 | ) | (22,075,972 | ) | ||||
| Net cash used in financing activities | (4,932,438 | ) | (12,462,371 | ) | ||||
| Net change in cash, cash equivalents and restricted cash | (5,122,325 | ) | (32,788,484 | ) | ||||
| Cash, cash equivalents and restricted cash, beginning of year | 11,638,681 | 46,730,079 | ||||||
| Cash, cash equivalents and restricted cash, end of the period | $ | 6,516,356 | $ | 13,941,595 | ||||
During the six months ended June 30, 2019, our principal sources of cash flow have been derived from operating cash flows.
Operating activities
The net cash provided by operating activities of $1.3 million during the six months ended June 30, 2019 consisted of our net loss of $3.8 million and net changes in operating assets and liabilities of $0.1 million offset by depreciation and amortization, loss from investments in unconsolidated affiliated real estate entities, amortization of deferred financing costs and other non-cash items aggregating $5.1 million.
Investing activities
The cash used in investing activities of $1.5 million during the six months ended June 30, 2019 primarily consisted of capital expenditures of $2.3 million and approximately $0.2 million of additional capital contributions to the Cove Joint Venture and the Hilton Garden Inn Joint Venture offset by the sale of approximately $1.0 million of marketable securities.
Financing activities
The net cash used in financing activities of $4.9 million during the six months ended June 30, 2019 consisted of the payment of cash distributions of $4.0 million to our common stockholders, $0.2 million in payments on our mortgages payable and redemptions and cancellation of common stock of $0.7 million.
Share Repurchase Program
Our share repurchase program may provide our stockholders with limited, interim liquidity by enabling them to sell their shares of common stock back to us, subject to certain restrictions. From our date of inception through December 31, 2018 we repurchased 256,166 shares of common stock, pursuant to our share repurchase program. We repurchased the shares at an average price per share of $9.69 per share. For the six months ended June 30, 2019, 71,069 shares of common stock have been repurchased under our share repurchase program at an average price per share of $9.75 per share. We funded share repurchases for the periods noted above from the cumulative proceeds of the sale of our shares pursuant to our DRIP, which has been terminated, and available cash.
Our Board of Directors reserves the right to terminate our share repurchase program for any reason without cause by providing written notice of termination of the share repurchase program to all stockholders.
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Contractual Obligations
The following is a summary of the estimated contractual obligations related to our mortgage payable over the next five years and thereafter as of June 30, 2019.
| Contractual Obligations | 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total | |||||||||||||||||||||
| Principal maturities | $ | 52,393,851 | $ | 486,092 | $ | 26,509,612 | $ | - | $ | - | $ | - | $ | 79,389,555 | ||||||||||||||
| Interest payments | 1,495,561 | 1,287,576 | 1,051,196 | - | - | - | 3,834,333 | |||||||||||||||||||||
| Total | $ | 53,889,412 | $ | 1,773,668 | $ | 27,560,808 | $ | - | $ | - | $ | - | $ | 83,223,888 | ||||||||||||||
Revolving Credit Facility
On July 13, 2016, we, through certain subsidiaries, entered into a nonrecourse revolving credit facility (the “Revolving Credit Facility”) with a bank. The Revolving Credit Facility initially bore interest at Libor plus 4.95% and provided a line of credit of up to $60.0 million over three years, with two, one-year options to extend solely at the discretion of the bank. Interest is payable monthly and the entire unpaid principal balance is due upon expiration of the Revolving Credit Facility. On June 19, 2018 the Company made a required principal payment of $7.4 million on the Revolving Credit Facility and the lender reduced the interest rate to Libor plus 3.50 % from Libor plus 4.95 %. Under the terms of the Revolving Credit Facility, the Company may designate properties as collateral that allows it to borrow up to a 65.0% loan-to-value ratio of the properties and also subject to meeting certain financial covenants, including a prescribed minimum debt yield. As of June 30, 2019, the Company has pledged seven of its hotel properties as collateral under the Revolving Credit Facility.
The Revolving Credit Facility (outstanding principal balance of $52.2 million as of June 30, 2019) was initially scheduled to mature on July 11, 2019 but on July 1, 2019 was further extended an additional 60 days to September 11, 2019. During the 60-day extension period, the Revolving Credit Facility will bear interest at Libor plus 3.15%. While we and the existing lender are in the process of finalizing a new facility to replace the Revolving Credit Facility on or before the extended maturity date, there can be no assurance that this will occur and, if extended, under what terms. If the Company is unable to extend the maturity date or if the new terms are less favorable, it could have a material adverse impact on the Company.
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.
| 25 |
Because of these factors, the Investment Program Association (the "IPA"), an industry trade group, published a standardized measure of performance known as modified funds from operations ("MFFO"), which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that both before and after we have deployed all of our offering proceeds and are no longer incurring a significant amount of acquisition fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP.
We define MFFO, a non-GAAP measure, consistent with the IPA's Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the "Practice Guideline") issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction-related fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and exclude acquisition and transaction-related fees and expenses (which includes costs incurred in connection with strategic alternatives), amounts relating to 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.
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 acquisition activities and other non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.
Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO.
Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guidelines or the SEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry, and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.
The below table illustrates the items deducted in the calculation of FFO and MFFO. Items are presented net of non-controlling interest portions where applicable.
| 26 |
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Net (loss)/income | $ | (1,212,425 | ) | $ | 192,048 | $ | (3,755,430 | ) | $ | (1,832,227 | ) | |||||
| FFO adjustments: | ||||||||||||||||
| Depreciation and amortization of real estate assets | 1,465,753 | 1,405,613 | 2,895,547 | 2,756,890 | ||||||||||||
| Adjustments to equity earnings from unconsolidated affiliated real estate entities | 975,498 | 754,208 | 1,945,038 | 1,473,050 | ||||||||||||
| FFO | 1,228,826 | 2,351,869 | 1,085,155 | 2,397,713 | ||||||||||||
| MFFO adjustments: | ||||||||||||||||
| Loss on sale of marketable securities | - | - | 38,359 | - | ||||||||||||
| Acquisition and other transaction related costs expensed | - | 269 | - | (311 | ) | |||||||||||
| Adjustments to equity earnings from unconsolidated affiliated real estate entities | 343,329 | - | 343,329 | - | ||||||||||||
| MFFO | 1,572,155 | 2,352,138 | 1,466,843 | 2,397,402 | ||||||||||||
| Straight-line rent(1) | - | - | - | - | ||||||||||||
| MFFO - IPA recommended format | $ | 1,572,155 | $ | 2,352,138 | $ | 1,466,843 | $ | 2,397,402 | ||||||||
| Net (loss)/income | $ | (1,212,425 | ) | $ | 192,048 | $ | (3,755,430 | ) | $ | (1,832,227 | ) | |||||
| Less: net loss/(income) attributable to noncontrolling interests | 15 | (5 | ) | 50 | 21 | |||||||||||
| Net (loss)/income applicable to Company's common shares | $ | (1,212,410 | ) | $ | 192,043 | $ | (3,755,380 | ) | $ | (1,832,206 | ) | |||||
| Net (loss)/income per common share, basic and diluted | $ | (0.09 | ) | $ | 0.01 | $ | (0.28 | ) | $ | (0.13 | ) | |||||
| FFO | $ | 1,228,826 | $ | 2,351,869 | $ | 1,085,155 | $ | 2,397,713 | ||||||||
| Less: FFO attributable to noncontrolling interests | (21 | ) | (38 | ) | (22 | ) | (43 | ) | ||||||||
| FFO attributable to Company's common shares | $ | 1,228,805 | $ | 2,351,831 | $ | 1,085,133 | $ | 2,397,670 | ||||||||
| FFO per common share, basic and diluted | $ | 0.09 | $ | 0.17 | $ | 0.08 | $ | 0.18 | ||||||||
| MFFO - IPA recommended format | $ | 1,572,155 | $ | 2,352,138 | $ | 1,466,843 | $ | 2,397,402 | ||||||||
| Less: MFFO attributable to noncontrolling interests | (26 | ) | (38 | ) | (28 | ) | (43 | ) | ||||||||
| MFFO attributable to Company's common shares | $ | 1,572,129 | $ | 2,352,100 | $ | 1,466,815 | $ | 2,397,359 | ||||||||
| Weighted average number of common shares outstanding, basic and diluted | 13,381,201 | 13,565,950 | 13,388,924 | 13,583,311 | ||||||||||||
| (1) | Under GAAP, rental receipts are allocated to periods using various methodologies. This may result in income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, providing insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management’s analysis of operating performance. |
Distributions
On June 19, 2019, our Board of Directors determined to suspend regular monthly distributions.
Previously, distributions in an amount equal to a 6.0% annualized rate were declared on a monthly basis beginning on January 14, 2015 through June 30, 2019 and were paid on or about the 15th day following each month end.
Future distributions declared will be at the discretion of the Board of Directors based on their analysis of our performance over the previous periods and expectations of performance for future periods and may differ from the amount of the distribution determined for this period. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, current revenues, operating and interest expenses and our ability to refinance near-term debt. In addition, the Company currently intends to continue to comply with the REIT distribution requirement that it annually distribute no less than 90% of its taxable income. The Company cannot assure that regular distributions will continue to be made or that it will maintain any particular level of distributions that it has established or may establish.
On May 15, 2019, June 15, 2019 and July 16, 2019, the Company paid distributions for the months ended April 30, 2019, May 31, 2019 and June 30, 2019, respectively, totaling $2.0 million. The distributions were paid in cash.
The table below presents our cumulative FFO attributable to the Company's common shares:
| For the period October 5, 2012 | ||||
| (date of inception) through | ||||
| June 30, 2019 | ||||
| FFO attributable to Company's common shares | $ | 12,870,196 | ||
| Distributions Paid | $ | 25,216,232 | ||
| 27 |
New Accounting Pronouncements
See Note 2 of the Notes to Consolidated Financial Statements for further information of certain accounting standards that have been issued or adopted during 2019, if any, and certain accounting standards that we have not yet been required to implement and may be applicable to our future operations.
ITEM 4. CONTROLS AND PROCEDURES.
As of the end of the period covered by this report, management, including our chief executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of the evaluation, our chief executive officer and principal financial officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.
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.
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.
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, the Company did not sell any unregistered securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
None.
*Filed herewith
| 28 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| LIGHTSTONE VALUE PLUS REAL ESTATE | |
| INVESTMENT TRUST III, INC. |
| Date: August 14, 2019 | By: | /s/ David Lichtenstein |
| David Lichtenstein | ||
| Chairman and Chief Executive Officer (Principal Executive Officer) |
| Date: August 14, 2019 | By: | /s/ Seth Molod |
| Seth Molod | ||
|
Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) |
| 29 |
EXHIBIT 31.1
Certifications
I, David Lichtenstein, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Lightstone Value Plus Real Estate Investment Trust III, 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, 2019
EXHIBIT 31.2
Certifications
I, Seth Molod, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Lightstone Value Plus Real Estate Investment Trust III, 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, 2019
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 Real Estate Investment Trust III, 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, 2019 (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, 2019
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 Real Estate Investment Trust III, 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, 2019 (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, 2019
Document and Entity Information - shares shares in Millions |
6 Months Ended | |
|---|---|---|
Jun. 30, 2019 |
Aug. 10, 2019 |
|
| Document and Entity Information [Abstract] | ||
| Document Type | 10-Q | |
| Amendment Flag | false | |
| Document Period End Date | Jun. 30, 2019 | |
| Document Fiscal Year Focus | 2019 | |
| Document Fiscal Period Focus | Q2 | |
| Entity Current Reporting Status | Yes | |
| Entity Registrant Name | Lightstone Value Plus Real Estate Investment Trust III, Inc. | |
| Entity Central Index Key | 0001563756 | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Filer Category | Non-accelerated Filer | |
| Entity Emerging Growth Company | true | |
| Entity Ex Transition Period | true | |
| Entity Small Business | true | |
| Entity Shell Company | false | |
| Entity Common Stock, Shares Outstanding | 13.4 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Jun. 30, 2019 |
Dec. 31, 2018 |
|---|---|---|
| CONSOLIDATED BALANCE SHEETS | ||
| Preferred Stock, par value per share | $ 0.01 | $ 0.01 |
| Preferred Stock, shares authorized | 50,000,000 | 50,000,000 |
| 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 | 200,000,000 | 200,000,000 |
| Common Stock, shares issued | 13,400,000 | 13,500,000 |
| Common Stock, shares outstanding | 13,400,000 | 13,500,000 |
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
|
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
| Revenues | $ 8,789,508 | $ 9,367,673 | $ 15,961,171 | $ 16,953,971 |
| Expenses: | ||||
| Property operating expenses | 5,359,526 | 5,404,396 | 10,236,205 | 10,377,785 |
| Real estate taxes | 406,708 | 396,162 | 813,016 | 769,927 |
| General and administrative costs | 706,218 | 690,631 | 1,459,399 | 1,422,969 |
| Depreciation and amortization | 1,465,753 | 1,405,613 | 2,895,547 | 2,756,890 |
| Total operating expenses | 7,938,205 | 7,896,802 | 15,404,167 | 15,327,571 |
| Operating income | 851,303 | 1,470,871 | 557,004 | 1,626,400 |
| Interest expense | (1,238,409) | (1,354,143) | (2,421,670) | (2,801,656) |
| Loss from investments in unconsolidated affiliated real estate entities | (859,630) | (507,281) | (1,948,380) | (1,244,609) |
| Other income, net | 34,311 | 582,601 | 57,616 | 587,638 |
| Net (loss)/income | (1,212,425) | 192,048 | (3,755,430) | (1,832,227) |
| Less: net loss/(income) attributable to noncontrolling interests | 15 | (5) | 50 | 21 |
| Net (loss)/income applicable to Company's common shares | $ (1,212,410) | $ 192,043 | $ (3,755,380) | $ (1,832,206) |
| Net (loss)/income per Company's common shares, basic and diluted | $ (0.09) | $ 0.01 | $ (0.28) | $ (0.13) |
| Weighted average number of common shares outstanding, basic and diluted | 13,381,201 | 13,565,950 | 13,388,924 | 13,583,311 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
|
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME | ||||
| Net (loss)/income | $ (1,212,425) | $ 192,048 | $ (3,755,430) | $ (1,832,227) |
| Other comprehensive (loss)/income: | ||||
| Holding (loss)/gain on marketable securities, available for sale | (18,288) | (167,799) | 213,192 | (167,799) |
| Reclassification adjustment for loss included in net loss | 38,359 | |||
| Other comprehensive (loss)/income | (18,288) | (167,799) | 251,551 | (167,799) |
| Comprehensive (loss)/income | (1,230,713) | 24,249 | (3,503,879) | (2,000,026) |
| Less: Comprehensive loss/(income) attributable to noncontrolling interests | 15 | (5) | 50 | 21 |
| Comprehensive (loss)/income attributable to the Company's common shares | $ (1,230,698) | $ 24,244 | $ (3,503,829) | $ (2,000,005) |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) |
Common Stock [Member] |
Additional Paid-In Capital [Member] |
Accumulated Other Comprehensive Loss [Member] |
Accumulated Deficit [Member] |
Total Noncontrolling Interests [Member] |
Total |
|---|---|---|---|---|---|---|
| BALANCE at Dec. 31, 2017 | $ 136,258 | $ 117,061,644 | $ (18,548,148) | $ 12,092,402 | $ 110,742,156 | |
| BALANCE (in shares) at Dec. 31, 2017 | 13,625,769 | |||||
| Net loss | (1,832,206) | (21) | (1,832,227) | |||
| Other comprehensive (loss)/income | $ (167,799) | (167,799) | ||||
| Distributions declared | (4,039,524) | (4,039,524) | ||||
| Distributions paid to noncontrolling interests | (60) | (60) | ||||
| Redemption and cancellation of shares | $ (697) | (675,787) | (676,484) | |||
| Redemption and cancellation of shares (in shares) | (69,645) | |||||
| BALANCE at Jun. 30, 2018 | $ 135,561 | 116,385,857 | (167,799) | (24,419,878) | 12,092,321 | 104,026,062 |
| BALANCE (in shares) at Jun. 30, 2018 | 13,556,124 | |||||
| BALANCE at Mar. 31, 2018 | $ 135,820 | 116,633,887 | (22,583,603) | 12,092,346 | 106,278,450 | |
| BALANCE (in shares) at Mar. 31, 2018 | 13,581,976 | |||||
| Net loss | 192,043 | 5 | 192,048 | |||
| Other comprehensive (loss)/income | (167,799) | (167,799) | ||||
| Distributions declared | (2,028,318) | (2,028,318) | ||||
| Distributions paid to noncontrolling interests | (30) | (30) | ||||
| Redemption and cancellation of shares | $ (259) | (248,030) | (248,289) | |||
| Redemption and cancellation of shares (in shares) | (25,852) | |||||
| BALANCE at Jun. 30, 2018 | $ 135,561 | 116,385,857 | (167,799) | (24,419,878) | 12,092,321 | 104,026,062 |
| BALANCE (in shares) at Jun. 30, 2018 | 13,556,124 | |||||
| BALANCE at Dec. 31, 2018 | $ 134,515 | 115,380,181 | (450,285) | (30,937,879) | 12,092,224 | 96,218,756 |
| BALANCE (in shares) at Dec. 31, 2018 | 13,451,431 | |||||
| Net loss | (3,755,380) | (50) | (3,755,430) | |||
| Other comprehensive (loss)/income | 251,548 | 3 | 251,551 | |||
| Distributions declared | (3,981,641) | (3,981,641) | ||||
| Distributions paid to noncontrolling interests | (60) | (60) | ||||
| Redemption and cancellation of shares | $ (711) | (691,994) | (692,705) | |||
| Redemption and cancellation of shares (in shares) | (71,069) | |||||
| BALANCE at Jun. 30, 2019 | $ 133,804 | 114,688,187 | (198,737) | (38,674,900) | 12,092,117 | 88,040,471 |
| BALANCE (in shares) at Jun. 30, 2019 | 13,380,362 | |||||
| BALANCE at Mar. 31, 2019 | $ 133,841 | 114,724,495 | (180,449) | (35,460,942) | 12,092,163 | 91,309,108 |
| BALANCE (in shares) at Mar. 31, 2019 | 13,383,997 | |||||
| Net loss | (1,212,410) | (15) | (1,212,425) | |||
| Other comprehensive (loss)/income | (18,288) | (18,288) | ||||
| Distributions declared | (2,001,548) | (2,001,548) | ||||
| Distributions paid to noncontrolling interests | (31) | (31) | ||||
| Redemption and cancellation of shares | $ (37) | (36,308) | (36,345) | |||
| Redemption and cancellation of shares (in shares) | (3,635) | |||||
| BALANCE at Jun. 30, 2019 | $ 133,804 | $ 114,688,187 | $ (198,737) | $ (38,674,900) | $ 12,092,117 | $ 88,040,471 |
| BALANCE (in shares) at Jun. 30, 2019 | 13,380,362 |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
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| CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY | ||||
| Annual distribution (in dollars per share) | $ 0.15 | $ 0.15 | $ 0.30 | $ 0.30 |
Organization |
6 Months Ended |
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Jun. 30, 2019 | |
| Organization | |
| Organization | 1. Organization
Lightstone Value Plus Real Estate Investment Trust III, Inc. (‘‘Lightstone REIT III’’), incorporated in Maryland on October 5, 2012, elected to qualify and be taxed as a real estate investment trust (‘‘REIT’’) for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2015.
The Lightstone REIT III 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 III LP, a Delaware limited partnership (the ‘‘Operating Partnership’’).
Lightstone REIT III and the Operating Partnership and its subsidiaries are collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns refers to Lightstone REIT III, its Operating Partnership or the Company as required by the context in which such pronoun is used.
The Company has and will continue to seek to acquire a diverse portfolio of real estate assets and real estate-related investments, including hotels, other commercial and/or residential properties, primarily located in the United States. All such properties may be acquired and operated by the Company alone or jointly with another party. The Company may also originate or acquire mortgage loans secured by real estate. Although the Company expects that most of its investments will be of these types, it may make other investments. In fact, it may invest in whatever types of real estate-related investments that it believes are in its best interests.
The Company’s advisor is Lightstone Value Plus REIT III LLC (the “Advisor”), which is majority owned by David Lichtenstein. 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 public offering which terminated on March 31, 2017. Subject to the oversight of the Company’s board of directors (the “Board of Directors”), the Advisor has primary responsibility for making investment decisions and managing the Company’s day-to-day operations. Through his ownership and control of the The Lightstone Group, LLC, Mr. Lichtenstein is the indirect owner of the Advisor and the indirect owner and manager of Lightstone SLP III LLC, a Delaware limited liability company (the “Special Limited Partner”), which has subordinated participation interests in the Operating Partnership (“Subordinated Participation Interests”). 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 III or the Operating Partnership.
The Company does not have any employees. The Advisor receives compensation and fees for services related to the investment and management of the Company’s assets.
The Sponsor has various majority owned and controlled affiliated property managers, which may manage certain of the properties the Company acquires. However, the Company also contracts with other unaffiliated third-party property managers, principally for the management of its hospitality properties.
The Company’s registration statement on Form S-11 (the “Offering”), pursuant to which it offered to sell up to 30.0 million shares of its common stock, par value $0.01 per share (which may be referred to herein as “shares of common stock” or as “Common Shares”) at an initial price of $10.00 per share, subject to certain volume and other discounts (the “Primary Offering”) (exclusive of 10.0 million shares of common stock which were available pursuant to our distribution reinvestment program (the “DRIP”) at an initial purchase price of $9.50 per share) was declared effective on July 15, 2014 by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933.
The Offering, which terminated on March 31, 2017, raised aggregate gross proceeds of approximately $131.7 million from the sale of approximately 13.4 million shares of common stock (including $2.0 million in Common Shares at a purchase price of $9.00 per Common Share to an entity 100% owned by David Lichtenstein, who also owns a majority interest in the Company’s Sponsor). After including the purchase of an aggregate of $12.1 million of Subordinated Participation Interests in the Operating Partnership by the Special Limited Partner and allowing for the payment of approximately $12.2 million in selling commissions and dealer manager fees and $4.8 million in organization and other offering expenses, the Offering generated aggregate net proceeds of approximately $126.8 million. On April 21, 2017, the Company’s Board of Directors approved the termination of the DRIP effective May 15, 2017. Previously, the Company’s stockholders had an option to elect the receipt of shares of the Company’s common stock in lieu of cash distributions under the Company’s DRIP. As a result, all subsequent distributions have been in the form of cash. In addition, through May 15, 2017 (the termination date of the DRIP), the Company had issued approximately 0.3 million shares of common stock under its DRIP, representing approximately $3.2 million of additional proceeds under the Offering.
As of June 30, 2019, our Advisor owned 20,000 shares of common stock which were issued on December 24, 2012 for $200,000 or $10.00 per share.
The Company’s shares of common stock are not currently listed on a national securities exchange. The Company may seek to list its shares of common stock 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 of common stock at this time. The Company does not anticipate that there would be any market for its shares of common stock until they are listed for trading. In the event the Company does not begin the process of achieving a liquidity event prior to the eighth anniversary of the termination of its Offering which occurred on March 31, 2017, its charter requires either (a) an amendment to its charter to extend the deadline to begin the process of achieving a liquidity event, or (b) the holding of a stockholders meeting to vote on a proposal for an orderly liquidation of its portfolio.
Noncontrolling Interests
Partners of Operating Partnership
On July 16, 2014, the Advisor contributed $2,000 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. The limited partner has the right to convert operating partnership units into cash or, at the option of the Company, an equal number of common shares of the Company, as allowed by the limited partnership agreement.
Lightstone REIT III invested the proceeds received from the Offering and the Advisor in the Operating Partnership, and as a result, held an approximately 99% general partnership interest as of both June 30, 2019 and December 31, 2018 in the Operating Partnership’s common units.
Special Limited Partner
In connection with the Company’s Offering, which terminated on March 31, 2017, the Special Limited Partner purchased from the Operating Partnership an aggregate of approximately 242 Subordinated Participation Interests for consideration of $12.1 million. The Subordinated Participation Interests were each purchased for $50,000 in consideration and may be entitled to receive liquidation distributions upon the liquidation of Lightstone REIT III.
As the majority owner of the Special Limited Partner, Mr. Lichtenstein is the beneficial owner of a 99% interest in such Subordinated Participation Interests and will thus receive an indirect benefit from any distributions made in respect thereof.
These Subordinated Participation Interests will entitle the Special Limited Partner to a portion of any regular and liquidation distributions that the Company makes to stockholders, but only after stockholders have received a stated preferred return. Although the actual amounts are dependent upon results of operations and, therefore, cannot be determined at the present time, distributions to the Special Limited Partner, as holder of the Subordinated Participation Interests, could be substantial.
The Advisor and its affiliates and the Special Limited Partner are related parties of the Company. Certain of these entities have and/or will receive compensation for services related to the Offering (which was completed on March 31, 2017) and will continue to receive compensation and services for the investment, management and disposition of our assets. These entities have and/or will receive compensation during the offering, acquisition, operational and liquidation stages. The compensation levels during the offering stage were based on percentages of the offering proceeds raised and the compensation levels during the acquisition and operational stages are based the cost of acquired properties and the annual revenue earned from such properties, and other such fees outlined in each of the respective agreements. See Note 7 – Related Party Transactions for additional information. |
Summary of Significant Accounting Policies |
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| Summary of Significant Accounting Policies | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies
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, 2018. The unaudited interim 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 Real Estate Investment Trust III, Inc. and its Subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of real estate, depreciable lives, and revenue recognition. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
The consolidated balance sheet as of December 31, 2018 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.
To qualify or maintain our qualification as a REIT, we engage in certain activities through wholly-owned taxable REIT subsidiaries (“TRS”). As such, we are subject to U.S. federal and state income and franchise taxes from these activities.
Revenue
The following table represents the total revenues from hotel operations on a disaggregated basis:
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Lightstone REIT III and the Operating Partnership and its subsidiaries (over which the Company exercises financial and operating control). As of June 30, 2019, Lightstone REIT III had an approximate 99% general partnership interest in the common units of the Operating Partnership. All inter-company accounts and transactions have been eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a variable interest entity for which the Company is the primary beneficiary.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board issued an accounting standards update (“ASU”) that amends the existing lease accounting guidance and requires lessees to recognize a lease liability and a right-of-use asset for all leases on their balance sheets. Lessees of operating leases will continue to recognize lease expense in a manner similar to current accounting. The standard became effective for the Company on January 1, 2019.
The Company elected the following package of practical expedients provided by the standard: (i) an entity need not reassess whether any expired or existing contract is a lease or contains a lease, (ii) an entity need not reassess the lease classification of any expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases. The Company also elected the short-term lease exception provided for in the standard and therefore will only recognize right-of-use assets and lease liabilities for leases with a term greater than one year.
The Company did not recognize any right-of-use assets or lease liabilities upon adoption of the standard. The Company does not have any material leases such as ground leases or building leases or any material leases with a term greater than one year. From time to time the Company will enter into immaterial leases for miscellaneous office equipment such as copiers. The resulting right-of-use assets or lease liabilities would be immaterial in the aggregate and are recognized in the period they are incurred as lease expense.
The adoption of this standard did not have a material effect on our consolidated financial position or our results of operations.
New Accounting Pronouncements
The Company has reviewed and determined that other recently issued accounting pronouncements will not have a material impact on its financial position, results of operations and cash flows, or do not apply to its current operations. |
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Investments in Unconsolidated Affiliated Real Estate Entities |
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| Investments in Unconsolidated Affiliated Real Estate Entities | 3. Investments in Unconsolidated Affiliated Real Estate 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 real estate entities is as follows:
The Cove Joint Venture
On January 31, 2017, the Company, through its wholly owned subsidiary, REIT III COVE LLC along with LSG Cove LLC, an affiliate of the Sponsor and a related party, REIT IV COVE LLC, a wholly owned subsidiary of Lightstone Real Estate Income Trust, Inc. (“Lightstone IV”), a real estate investment trust also sponsored by the Sponsor and a related party and Maximus Cove Investor LLC (“Maximus”), an unrelated third party, completed the acquisition of all of RP Cove, L.L.C’s membership interest in RP Maximus Cove, L.L.C. (the “Cove Joint Venture”) for aggregate consideration of approximately $255.0 million (the “Cove Transaction”). The Cove Joint Venture owns and operates The Cove at Tiburon (“the Cove”), a 281-unit, luxury waterfront multifamily residential property located in Tiburon, California. Prior to entering into The Cove Transaction, Maximus previously owned a separate noncontrolling interest in the Cove Joint Venture.
The Company paid approximately $20.0 million for a 22.5% membership interest in the Cove Joint Venture. The Company’s ownership interest in the Cove Joint Venture is a non-managing interest. The Company has determined that the Cove Joint Venture is a variable interest entity but the Company is not the primary beneficiary. The Company accounts for its ownership interest in the Cove Joint Venture in accordance with the equity method of accounting because it exerts significant influence over but does not control the Cove Joint Venture. All capital contributions and distributions of earnings from the Cove 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 Cove Joint Venture are made to the members pursuant to the terms of the Cove Joint Venture’s operating agreement. An affiliate of Maximus is the asset manager of the Cove and receives certain fees as defined in the Property Management Agreement for the management of the Cove. The Company commenced recording its allocated portion of profit/loss and cash distributions beginning as of January 31, 2017 with respect to its membership interest of 22.5% in the Cove Joint Venture.
Subsequent to the Company’s acquisition through June 30, 2019, the Company has made an aggregate of $2.3 million (including $0.1 million during the six months ended June 30, 2019) of additional capital contributions to the Cove Joint Venture.
In connection with the closing of the Cove Transaction, the Cove Joint Venture simultaneously entered into a $175.0 million loan (the “Loan”) which was initially scheduled to mature on January 31, 2020. The Loan required monthly interest payments through its maturity date. The Loan bore interest at Libor plus 3.85%. The Loan was collateralized by the Cove and an affiliate of the Company’s Sponsor (the “Guarantor”) had guaranteed the Cove Joint Venture’s obligation to pay the outstanding balance of the Loan up to approximately $43.8 million (the “Loan Guarantee”). The members had agreed to reimburse the Guarantor for any balance that may become due under the Loan Guarantee, of which the Company’s share was up to approximately $10.9 million.
On May 8, 2019, the Cove Joint Venture entered into loans aggregating $180.0 million (the “Cove Loans”). The Cove Loans mature in five years and require monthly interest payments through their maturity dates. The Cove Loans bear interest at a weighted average of LIBOR (with a floor of 2.0%) plus 2.15% and are collateralized by the Cove. The Cove Joint Venture used the proceeds from the Cove Loans to fully repay the Loan. In connection with the refinancing, the Cove Joint Venture incurred a loss on the early extinguishment of debt of approximately $1.5 million during the second quarter of 2019, of which the Company's proportionate share was approximately $0.3 million.
The Cove Joint Venture Financial Information
The Company’s carrying value of its interest in the Cove Joint Venture differs from its share of member’s equity reported in the condensed balance sheet of the Cove Joint Venture due to the Company’s basis of its investment in excess of the historical net book value of the Cove Joint Venture. The Company’s additional basis allocated to depreciable assets is being recognized on a straight-line basis over the lives of the appropriate assets.
The following table represents the unaudited condensed income statements for the Cove Joint Venture:
The following table represents the unaudited condensed balance sheets for the Cove Joint Venture:
Hilton Garden Inn Joint Venture
On March 27, 2018, the Company and its Sponsor’s other public program, Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone REIT II”), acquired, through LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”) a 183-room, limited-service hotel located at 29-21 41st Avenue, Long Island City, New York (the “Hilton Garden Inn - Long Island City”) from an unrelated third party, for aggregate consideration of approximately $60.0 million, which consisted of $25.0 million of cash and $35.0 million of proceeds from a loan from a financial institution, excluding closing and other related transaction costs. The Company and Lightstone REIT II each have 50.0% joint venture ownership interests, respectively, in the Hilton Garden Inn Joint Venture.
The Company paid approximately $12.9 million for a 50.0% membership interest in the Hilton Garden Inn Joint Venture. The Company’s ownership interest in the Hilton Garden Inn Joint Venture is a co-managing interest. The Company accounts for its ownership 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. During the six months ended June 30, 2019, the Company received distributions from the Hilton Garden Inn Joint Venture aggregating $0.1 million.
Subsequent to the Company’s acquisition through June 30, 2019, the Company has made an aggregate of $0.7 million (including $0.1 million during the six months ended June 30, 2019) of additional capital contributions to the Hilton Garden Inn Joint Venture.
Hilton Garden Inn Joint Venture Financial Information
The following table represents the condensed income statement for the Hilton Garden Inn Joint Venture for the period indicated:
The following table represents the condensed balance sheet for the Hilton Garden Inn Joint Venture:
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| Marketable Securities and Fair Value Measurements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Marketable Securities and Fair Value Measurements | 4. Marketable Securities and Fair Value Measurements
Marketable Securities
The following is a summary of the Company’s available for sale securities as of the dates indicated:
When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell the investment before recovery of the investment’s amortized cost basis. As of June 30, 2019, the Company did not recognize any impairment charges.
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, 2019 and December 31, 2018, all of the Company’s debt securities and were classified as Level 2 assets and there were no transfers between the level classifications during the six months ended June 30, 2019.
The fair values of the Company’s investments in Corporate Bonds are measured using readily available quoted prices for similar assets.
The following table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:
The Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized at fair value. |
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Mortgages payable, net |
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| Mortgages payable, net | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage payable, net | 5. Mortgages payable, net
Mortgages payable, net consists of the following:
Revolving Credit Facility
On July 13, 2016, the Company, through certain subsidiaries, entered into a nonrecourse revolving credit facility (the “Revolving Credit Facility”) with a bank. The Revolving Credit Facility initially bore interest at Libor plus 4.95% and provided a line of credit of up to $60.0 million over three years, with two, one-year options to extend solely at the discretion of the bank. Interest is payable monthly and the entire unpaid principal balance is due upon expiration of the Revolving Credit Facility. On June 19, 2018, the Company made a required principal payment of $7.4 million on the Revolving Credit Facility and the lender reduced the interest rate to Libor plus 3.50 % from Libor plus 4.95 %. Under the terms of the Revolving Credit Facility, the Company could designate properties as collateral that allowed it to borrow up to a 65.0% loan-to-value ratio of the properties and also subject to meeting certain financial covenants, including a prescribed minimum debt yield. As of June 30, 2019, the Company had pledged seven of its hotel properties as collateral under the Revolving Credit Facility.
The Revolving Credit Facility (outstanding principal balance of $52.2 million as of June 30, 2019) was initially scheduled to mature on July 11, 2019 but on July 1, 2019 was further extended an additional 60 days to September 11, 2019. During the 60-day extension period, the Revolving Credit Facility will bear interest at Libor plus 3.15%. The Company and the existing lender are in the process of finalizing a new facility to replace the Revolving Credit Facility on or before the extended maturity date.
Principal Maturities
The following table, based on the initial terms of the mortgage, sets forth their aggregate estimated contractual principal maturities, including balloon payments due at maturity, as of June 30, 2019:
Debt Compliance
Pursuant to the Company’s debt agreements, approximately $2.1 million and $1.7 million was held in restricted cash accounts as of June 30, 2019 and December 31, 2018, respectively. Such escrows are subject to release in accordance with the applicable debt agreement for the payment of real estate taxes, insurance and capital improvements, as required. Certain of our debt agreements contain clauses providing for prepayment penalties and requiring the maintenance of certain ratios including debt service coverage and fixed leverage charge ratio. The Company is currently in compliance with respect to all of its financial debt covenants. |
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Earnings per Share |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Earnings per Share | |
| Earnings per Share | 6. Earnings per Share
The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, basic and diluted earnings per share is calculated by dividing earnings attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the applicable period. |
Related Party Transactions |
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| Related Party Transactions | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions |
Due to related parties and other transactions
In addition to certain agreements with the Sponsor (see Note 1), the Company has agreements with the Advisor to pay certain fees in exchange for services performed by the Advisor and/or its affiliated entities. 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:
(1)Acquisition fees of $300,000 were capitalized and are reflected in the carrying value of our investment in the Hilton Garden Inn Joint Venture which is included in investments in unconsolidated affiliated real estate entities on the consolidated balance sheets. (2)Generally, capitalized and amortized over the estimated useful life of the associated asset. |
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Financial Instruments |
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial Instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial Instruments | 8. Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash, accounts receivable and other assets, accounts payable and other accrued expenses and due to/from related parties approximated their fair values because of the short maturity of these instruments.
The estimated fair value of our mortgages payable is as follows:
The fair value of our mortgages payable was determined by discounting the future contractual interest and principal payments by market interest rates. |
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Commitments and Contingencies |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Commitments and Contingencies. | |
| Commitments and Contingencies | 9. Commitments and Contingencies
Legal Proceedings
From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes. As of the date hereof, we are not a party to any material pending legal proceedings. |
Distributions |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Distributions | |
| Distributions | 10. Distributions
On June 19, 2019, our Board of Directors determined to suspend regular monthly distributions.
Previously, distributions in an amount equal to a 6.0% annualized rate were declared on a monthly basis beginning on January 14, 2015 through June 30, 2019 and were paid on or about the 15th day following each month end.
Future distributions declared will be at the discretion of the Board of Directors based on their analysis of our performance over the previous periods and expectations of performance for future periods and may differ from the amount of the distribution determined for this period. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, current revenues, operating and interest expenses and our ability to refinance near-term debt. In addition, the Company currently intends to continue to comply with the REIT distribution requirement that it annually distribute no less than 90% of its taxable income. The Company cannot assure that regular distributions will continue to be made or that it will maintain any particular level of distributions that it has established or may establish.
On May 15, 2019, June 15, 2019 and July 16, 2019, the Company paid distributions for the months ended April 30, 2019, May 31, 2019 and June 30, 2019, respectively, totaling $2.0 million. The distributions were paid in cash. |
Summary of Significant Accounting Policies (Policies) |
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| Summary of Significant Accounting Policies | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | Revenue
The following table represents the total revenues from hotel operations on a disaggregated basis:
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| Principles of Consolidation and Basis of Presentation | Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Lightstone REIT III and the Operating Partnership and its subsidiaries (over which the Company exercises financial and operating control). As of June 30, 2019, Lightstone REIT III had an approximate 99% general partnership interest in the common units of the Operating Partnership. All inter-company accounts and transactions have been eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a variable interest entity for which the Company is the primary beneficiary. |
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| Recently Adopted Accounting Pronouncements | Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board issued an accounting standards update (“ASU”) that amends the existing lease accounting guidance and requires lessees to recognize a lease liability and a right-of-use asset for all leases on their balance sheets. Lessees of operating leases will continue to recognize lease expense in a manner similar to current accounting. The standard became effective for the Company on January 1, 2019.
The Company elected the following package of practical expedients provided by the standard: (i) an entity need not reassess whether any expired or existing contract is a lease or contains a lease, (ii) an entity need not reassess the lease classification of any expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases. The Company also elected the short-term lease exception provided for in the standard and therefore will only recognize right-of-use assets and lease liabilities for leases with a term greater than one year.
The Company did not recognize any right-of-use assets or lease liabilities upon adoption of the standard. The Company does not have any material leases such as ground leases or building leases or any material leases with a term greater than one year. From time to time the Company will enter into immaterial leases for miscellaneous office equipment such as copiers. The resulting right-of-use assets or lease liabilities would be immaterial in the aggregate and are recognized in the period they are incurred as lease expense.
The adoption of this standard did not have a material effect on our consolidated financial position or our results of operations. |
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| New Accounting Pronouncements | New Accounting Pronouncements
The Company has reviewed and determined that other recently issued accounting pronouncements will not have a material impact on its financial position, results of operations and cash flows, or do not apply to its current operations. |
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Summary of Significant Accounting Policies (Tables) |
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| Summary of Significant Accounting Policies | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenues From Hotel Operations | The following table represents the total revenues from hotel operations on a disaggregated basis:
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Investments in Unconsolidated Affiliated Real Estate Entities (Tables) |
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| Investment in Unconsolidated Affiliated Entity | A summary of the Company’s investments in the unconsolidated affiliated real estate entities is as follows:
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| RP Maximus Cove LLC [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Condensed Income Statement | The following table represents the unaudited condensed income statements for the Cove Joint Venture:
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| Condensed Balance Sheet | The following table represents the unaudited condensed balance sheets for the Cove Joint Venture:
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| Hilton Garden Inn [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Condensed Income Statement | The following table represents the condensed income statement for the Hilton Garden Inn Joint Venture for the period indicated:
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| Condensed Balance Sheet | The following table represents the condensed balance sheet for the Hilton Garden Inn Joint Venture:
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Marketable Securities and Fair Value Measurements (Tables) |
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| Marketable Securities and Fair Value Measurements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Available-for-sale Securities Reconciliation | The following is a summary of the Company’s available for sale securities as of the dates indicated:
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| Available-for-sale Securities | The following table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:
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Mortgages payable, net (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mortgages payable, net | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mortgages Payable, Net | Mortgages payable, net consists of the following:
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| Schedule of Maturities of Long-term Debt | The following table, based on the initial terms of the mortgage, sets forth their aggregate estimated contractual principal maturities, including balloon payments due at maturity, as of June 30, 2019:
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Related Party Transactions (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Transactions | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Related Party Transactions | The following table represents the fees incurred associated with the payments to the Company’s Advisor for the periods indicated:
(1)Acquisition fees of $300,000 were capitalized and are reflected in the carrying value of our investment in the Hilton Garden Inn Joint Venture which is included in investments in unconsolidated affiliated real estate entities on the consolidated balance sheets. (2)Generally, capitalized and amortized over the estimated useful life of the associated asset. |
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Financial Instruments (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial Instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Mortgage Payable | The estimated fair value of our mortgages payable is as follows:
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Summary of Significant Accounting Policies - Summary of total revenues from hotel operations on a disaggregated basis (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
|
| Total revenues | $ 8,789,508 | $ 9,367,673 | $ 15,961,171 | $ 16,953,971 |
| Room [Member] | ||||
| Total revenues | 8,387,461 | 9,040,202 | 15,266,553 | 16,332,969 |
| Food, beverage and other [Member] | ||||
| Total revenues | $ 402,047 | $ 327,471 | $ 694,618 | $ 621,002 |
Summary of Significant Accounting Policies - Additional Information (Details) |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Summary of Significant Accounting Policies | |
| General partner ownership interest | 99.00% |
Investments in Unconsolidated Affiliated Real Estate Entities - Summary of investments in the unconsolidated affiliated real estate entities (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2019 |
Dec. 31, 2018 |
|
| Schedule of Equity Method Investments [Line Items] | ||
| Total investments in unconsolidated affiliated real estate entities | $ 28,144,798 | $ 29,983,987 |
| RP Maximus Cove LLC [Member] | ||
| Schedule of Equity Method Investments [Line Items] | ||
| Business Acquisition, Date of Acquisition Agreement | Jan. 31, 2017 | |
| Ownership Percentage | 22.50% | |
| Total investments in unconsolidated affiliated real estate entities | $ 15,680,402 | 17,214,909 |
| LVP LIC Hotel JV LLC [Member] | ||
| Schedule of Equity Method Investments [Line Items] | ||
| Business Acquisition, Date of Acquisition Agreement | Mar. 27, 2018 | |
| Ownership Percentage | 50.00% | |
| Total investments in unconsolidated affiliated real estate entities | $ 12,464,396 | $ 12,769,078 |
Investments in Unconsolidated Affiliated Real Estate Entities - Summary of unaudited condensed income statements for the Cove Joint Venture (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
|
| Schedule of Equity Method Investments [Line Items] | ||||
| Company's loss from investment | $ (859,630) | $ (507,281) | $ (1,948,380) | $ (1,244,609) |
| Hilton Garden Inn [Member] | ||||
| Schedule of Equity Method Investments [Line Items] | ||||
| Revenues | 3,086,000 | 3,015,000 | 5,094,000 | 3,185,000 |
| Property operating expenses | 1,765,000 | 1,902,000 | 3,270,000 | 1,971,000 |
| General and administrative costs | (22,000) | 2,000 | (22,000) | 2,000 |
| Depreciation and amortization | 627,000 | 635,000 | 1,269,000 | 635,000 |
| Operating (loss)/income | 716,000 | 476,000 | 577,000 | 577,000 |
| Interest expense and other, net | (520,000) | (463,000) | (1,026,000) | (488,000) |
| Net loss | 196,000 | 13,000 | (449,000) | 89,000 |
| Company's share of net loss | 98,000 | 7,000 | (225,000) | 45,000 |
| RP Maximus Cove LLC [Member] | ||||
| Schedule of Equity Method Investments [Line Items] | ||||
| Revenues | 3,992,000 | 3,637,000 | 7,685,000 | 7,233,000 |
| Property operating expenses | 1,237,000 | 1,193,000 | 2,477,000 | 2,421,000 |
| General and administrative costs | 24,000 | 47,000 | 66,000 | 95,000 |
| Depreciation and amortization | 2,899,000 | 2,398,000 | 5,736,000 | 4,794,000 |
| Operating (loss)/income | (168,000) | (1,000) | (594,000) | (77,000) |
| Loss on debt extinguishment | (1,526,000) | (1,526,000) | ||
| Interest expense and other, net | (2,517,000) | (2,741,000) | (5,451,000) | (5,311,000) |
| Net loss | (4,211,000) | (2,742,000) | (7,571,000) | (5,388,000) |
| Company's share of net loss | (947,000) | (617,000) | (1,703,000) | (1,213,000) |
| Additional depreciation and amortization expense | (10,000) | 103,000 | (20,000) | (76,000) |
| Company's loss from investment | $ (957,000) | $ (514,000) | $ (1,723,000) | $ (1,289,000) |
Investments in Unconsolidated Affiliated Real Estate Entities - Additional Information (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended | 13 Months Ended | ||||
|---|---|---|---|---|---|---|---|---|
May 08, 2019 |
Jan. 31, 2017 |
Jun. 30, 2019 |
Jun. 30, 2019 |
Mar. 27, 2019 |
Jul. 01, 2019 |
Dec. 31, 2018 |
Mar. 27, 2018 |
|
| Schedule of Equity Method Investments [Line Items] | ||||||||
| Debt Instrument, Term | 5 years | |||||||
| Guarantor Obligations, Current Carrying Value | $ 43,800,000 | |||||||
| Debt Instrument, Description of Variable Rate Basis | The Loan bore interest at Libor plus 3.85%. | |||||||
| Additional Paid in Capital | $ 114,688,187 | $ 114,688,187 | $ 115,380,181 | |||||
| Joint Venture Investment Property Description | The Cove Joint Venture owns and operates The Cove at Tiburon ("the Cove"), a 281-unit, luxury waterfront multifamily residential property located in Tiburon, California. Prior to entering into The Cove Transaction, Maximus previously owned a separate noncontrolling interest in the Cove Joint Venture. | |||||||
| Cove Joint Venture [Member] | ||||||||
| Schedule of Equity Method Investments [Line Items] | ||||||||
| Face amount | $ 180,000,000 | |||||||
| Debt Instrument, Description of Variable Rate Basis | LIBOR (with a floor of 2.0%) plus 2.15% | |||||||
| Additional Paid in Capital | 100,000 | 100,000 | $ 2,300,000 | |||||
| Debt Instrument, Interest Rate, Stated Percentage | 2.00% | |||||||
| Parent Company [Member] | ||||||||
| Schedule of Equity Method Investments [Line Items] | ||||||||
| Guarantor Obligations, Current Carrying Value | $ 10,900,000 | |||||||
| Cove Transaction [Member] | ||||||||
| Schedule of Equity Method Investments [Line Items] | ||||||||
| Aggregate purchase price | 255,000,000 | |||||||
| Cove Transaction [Member] | Parent Company [Member] | ||||||||
| Schedule of Equity Method Investments [Line Items] | ||||||||
| Offering funds used in acquisition | $ 20,000,000 | |||||||
| Business Acquisition, Percentage of Voting Interests Acquired | 22.50% | |||||||
| Hilton Garden Inn [Member] | ||||||||
| Schedule of Equity Method Investments [Line Items] | ||||||||
| Aggregate purchase price | $ 60,000,000 | |||||||
| Offering funds used in acquisition | 25,000,000 | |||||||
| Proceeds from Issuance of Debt | 35,000,000 | |||||||
| Business Acquisition, Percentage of Voting Interests Acquired | 50.00% | |||||||
| Hilton Garden Inn [Member] | Parent Company [Member] | ||||||||
| Schedule of Equity Method Investments [Line Items] | ||||||||
| Aggregate purchase price | 100,000 | |||||||
| Offering funds used in acquisition | $ 12,900,000 | |||||||
| Business Acquisition, Percentage of Voting Interests Acquired | 50.00% | |||||||
| Loan [Member] | ||||||||
| Schedule of Equity Method Investments [Line Items] | ||||||||
| Face amount | $ 175,000,000 | |||||||
| Debt Instrument, Maturity Date | Jan. 31, 2020 | |||||||
| Loss on debt extinguishment | 300,000 | |||||||
| Loan [Member] | Cove Joint Venture [Member] | ||||||||
| Schedule of Equity Method Investments [Line Items] | ||||||||
| Loss on debt extinguishment | 1,500,000 | |||||||
| Hilton Garden Inn Joint Venture [Member] | ||||||||
| Schedule of Equity Method Investments [Line Items] | ||||||||
| Additional Paid in Capital | $ 100,000 | $ 100,000 | $ 700,000 |
Marketable Securities and Fair Value Measurements - Summary of the Company's available for sale securities (Details) - USD ($) |
6 Months Ended | 12 Months Ended |
|---|---|---|
Jun. 30, 2019 |
Dec. 31, 2018 |
|
| Debt securities, Fair Value | $ 2,939,786 | $ 3,708,223 |
| Corporate Bonds [Member] | ||
| Debt securities, Adjusted Cost | 3,138,526 | 4,158,515 |
| Debt securities, Gross Unrealized Gains | 5,079 | 0 |
| Debt securities, Gross Unrealized Losses | (203,819) | (450,292) |
| Debt securities, Fair Value | $ 2,939,786 | $ 3,708,223 |
Marketable Securities and Fair Value Measurements - Estimated fair value of our investments in marketable debt securities (Details) - USD ($) |
Jun. 30, 2019 |
Dec. 31, 2018 |
|---|---|---|
| Marketable Securities and Fair Value Measurements | ||
| Due in 1 year | $ 220,015 | |
| Due in 1 year through 5 years | 2,176,021 | |
| Due in 5 year through 10 years | 0 | |
| Due after 10 years | 543,750 | |
| Total | $ 2,939,786 | $ 3,708,223 |
Mortgages payable, net - Summary of Mortgages payable, net (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2019 |
Dec. 31, 2018 |
|
| Total mortgages payable | $ 79,389,555 | $ 79,621,989 |
| Less: Deferred financing costs | (82,830) | (285,182) |
| Total mortgages payable, net | $ 79,306,725 | 79,336,807 |
| Weighted Average Interest Rate | 5.55% | |
| Amount Due at Maturity | $ 78,286,986 | |
| Revolving Credit Facility [Member] | ||
| Total mortgages payable | $ 52,159,414 | 52,159,414 |
| Interest Rate | LIBOR + 3.50 | |
| Weighted Average Interest Rate | 5.98% | |
| Maturity Date | September 2019 | |
| Amount Due at Maturity | $ 52,159,414 | |
| Promissory Note [Member] | ||
| Total mortgages payable | $ 27,230,141 | $ 27,462,575 |
| Interest Rate | 4.73% | |
| Weighted Average Interest Rate | 4.73% | |
| Maturity Date | October 2021 | |
| Amount Due at Maturity | $ 26,127,572 |
Mortgages payable, net - Summary of principal maturities (Details) - USD ($) |
Jun. 30, 2019 |
Dec. 31, 2018 |
|---|---|---|
| Mortgages payable, net | ||
| 2019 | $ 52,393,851 | |
| 2020 | 486,092 | |
| 2021 | 26,509,612 | |
| 2022 | 0 | |
| 2023 | 0 | |
| Thereafter | 0 | |
| Principal maturities | 79,389,555 | $ 79,621,989 |
| Less: Deferred financing costs | (82,830) | (285,182) |
| Total mortgages payable, net | $ 79,306,725 | $ 79,336,807 |
Mortgages payable, net - Additional Information (Details) $ in Millions |
1 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jul. 01, 2019 |
Jul. 13, 2016
USD ($)
|
Jun. 19, 2018
USD ($)
|
Jun. 30, 2019
USD ($)
property
|
Dec. 31, 2018
USD ($)
|
|
| Debt Instrument, Basis Spread on Variable Rate | 3.15% | ||||
| Line of Credit Facility, Maximum Amount Outstanding During Period | $ 52.2 | ||||
| Number of Hotel Properties Pledged as Collateral | property | 7 | ||||
| Additional extended period | 60 days | ||||
| Spread | 3.15% | ||||
| Revolving Credit Facility [Member] | |||||
| Escrow Deposits Related to Debt Compliance | $ 2.1 | $ 1.7 | |||
| Debt Instrument, Basis Spread on Variable Rate | 3.50% | 4.95% | |||
| Repayments of Secured Debt | $ 7.4 | ||||
| Line of Credit Facility, Maximum Borrowing Capacity | $ 60.0 | ||||
| Line of Credit Facility, Interest Rate Description | Libor plus 4.95% | ||||
| Line Of Credit Facility Current Borrowing Capacity Percentage | 65.00% | ||||
| Spread | 3.50% | 4.95% |
Related Party Transactions - Summary of fees incurred associated with the payments (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
||||||
| Related Party Transaction [Line Items] | |||||||||
| Acquisition fees | [1] | $ 300,000 | |||||||
| Development fees | [2] | $ 4,954,000 | $ 4,954 | 51,419 | |||||
| Advisor [Member] | |||||||||
| Related Party Transaction [Line Items] | |||||||||
| Asset Management Fees (general and administrative costs) | 457,214,000 | $ 438,392,000 | 910,782 | 824,732 | |||||
| Total | $ 462,168,000 | $ 438,392,000 | $ 915,736 | $ 1,176,151 | |||||
| |||||||||
Related Party Transactions - Additional Information (Details) |
Jun. 30, 2019
USD ($)
|
|---|---|
| Hilton Garden Inn Joint Venture [Member] | |
| Related Party Transaction [Line Items] | |
| Business Acquisition, Transaction Costs | $ 300,000 |
Financial Instruments - Summary of estimated fair value of our mortgages payable (Details) - USD ($) |
Jun. 30, 2019 |
Dec. 31, 2018 |
|---|---|---|
| Financial Instruments | ||
| Mortgages payable, Carrying Amount | $ 79,389,555 | $ 79,621,989 |
| Mortgages payable, Estimated Fair Value | $ 79,011,329 | $ 78,692,677 |
Distributions - Additional Information (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|---|
Jun. 30, 2019 |
May 31, 2019 |
Apr. 30, 2019 |
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
|
| Distributions [Line Items] | |||||||
| Distribution paid | $ 4,007,239 | $ 4,065,326 | |||||
| Annual distribution (in dollars per share) | $ 0.15 | $ 0.15 | $ 0.30 | $ 0.30 | |||
| Annualized rate (as a percent) | 6.00% | ||||||
| Dividend Paid [Member] | |||||||
| Distributions [Line Items] | |||||||
| Distribution paid | $ 2,000,000 | $ 2,000,000 | $ 2,000,000 | ||||