NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Lightstone Value Plus REIT I, Inc., which was formerly known as Lightstone Value Plus Real Estate Investment Trust, Inc. before September 16, 2021, a Maryland corporation (“Lightstone REIT I”), formed on June 8, 2004, which has elected to be taxed and qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. Lightstone REIT I was formed primarily for the purpose of engaging in the business of investing in and owning commercial and residential real estate properties located throughout the United States.
Lightstone REIT I is structured as an umbrella partnership real estate investment trust, or UPREIT, and substantially all of the Company’s current and future business is and will be conducted through Lightstone Value Plus REIT, L.P. (the “Operating Partnership”), a Delaware limited partnership formed on July 12, 2004. As of December 31, 2022, the Company held a 98% general partnership interest in the Company’s Operating Partnership’s common units (“Common Units”).
Lightstone REIT I 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 I, its Operating Partnership or the Company as required by the context in which such pronoun is used.
Through its Operating Partnership, the Company owns, operates and develops commercial and residential properties and makes real estate-related investments, principally in the United States. The Company’s real estate investments are held by it alone or jointly with other parties. The Company also originates or acquires mortgage loans secured by real estate. Although most of its investments are of these types, the Company may invest in whatever types of real estate or real estate-related investments that it believes is in its best interests. Since its inception, the Company has owned and managed various commercial and residential properties located throughout the United States. The Company evaluates all of its real estate investments as one operating segment.
As of December 31, 2022, the Company (i) has ownership interests in and consolidate two operating properties, one development property and certain land holdings and (ii) has ownership interests through two unconsolidated joint ventures in nine unconsolidated multifamily residential properties and seven unconsolidated commercial hotel properties. Additionally, as of December 31, 2022, the Company has other real estate-related investments consisting of a preferred investment in a related party and a promissory loan it originated, through a joint venture with a related party, to an unaffiliated third-party borrower.
With respect to its consolidated operating properties, the Company wholly owns a 296-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”), located in the Lower East Side neighborhood in the Manhattan borough of New York City, which it developed, constructed and opened on October 27, 2022 and has a 59.2% majority ownership interest in 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”), a joint venture between the Company and a related party, which developed, constructed and owns a 199-unit luxury, multifamily residential property (“Gantry Park Landing”), located in the Long Island City neighborhood in the Queens borough of New York City.
With respect to its consolidated development property, the Company wholly owns land parcels located at 355 & 399 Exterior Street in the Mott Haven neighborhood in the Bronx borough of New York City, on which it plans to construct a proposed mixed-use multifamily residential and commercial retail project (the “Exterior Street Project”).
The Company also wholly owns and consolidate certain adjacent land parcels (the “St. Augustine Land Holdings) located in St. Augustine, Florida.
Additionally, the Company holds a 19.0% joint venture ownership interest in Columbus Portfolio Member LLC (the “Columbus Joint Venture”), which owns nine multifamily residential properties, which its accounts for using the equity method of accounting and it holds a 2.5% joint venture ownership interest in LVP Holdco JV LLC (the “Hotel Joint Venture”) which owns seven hotel properties, which the Company accounts for using a measurement alternative under which the Hotel Joint Venture is measured at cost, adjusted for observable price changes and impairments, if any. Both the Columbus Joint Venture and the Hotel Joint Venture are between the Company and related parties.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The Company’s advisor is Lightstone Value Plus REIT, LLC (the “Advisor”), which is majority owned by David Lichtenstein. On July 6, 2004, the Advisor contributed $2 to the Operating Partnership in exchange for 200 Common Units. The Company’s Advisor also owns 20,000 shares of the Company’s common stock (“Common Shares”) which were issued on July 6, 2004 for $200, or $10.00 per share. Mr. Lichtenstein also is the majority owner of the equity interests of The Lightstone Group, LLC. The Lightstone Group, LLC served as the sponsor (the “Sponsor”) during the Company’s initial public offering (the “Offering”), which terminated on October 10, 2008. The Company’s Advisor, together with its board of directors (the “Board of Directors”), is primarily responsible for making investment decisions on the Company’s behalf and managing its day-to-day operations. Through his ownership and control of The Lightstone Group, LLC, Mr. Lichtenstein is the indirect owner and manager of Lightstone SLP, LLC, a Delaware limited liability company, which owns an aggregate of $30.0 million of special general partner interests (“SLP Units”) in the Operating Partnership which were purchased, at a cost of $100,000 per unit, in connection with the Company’s Offering. Mr. Lichtenstein also acts as the Company’s Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT I or the Operating Partnership.
The Company does not have any employees. The Advisor receives compensation and fees for services related to the investment and management of the Company’s assets.
The Company’s Advisor has affiliates which may manage and develop certain of its properties. However, the Company also contracts with other unaffiliated third-party property managers.
The Company’s Common Shares are not currently listed on a national securities exchange. The Company may seek to list its stock for trading on a national securities exchange only if a majority of independent directors believe listing would be in the best interest of its stockholders. The Company does not intend to list its shares at this time. The Company does not anticipate that there would be any market for its shares of common stock until they are listed for trading.
Related Parties
The Sponsor, Advisor and its affiliates, and Lightstone SLP, LLC are related parties of the Company as well as other public REITs also sponsored and/or advised by these entities. Certain of these entities are entitled to compensation for services related to the investment, management and disposition of the Company’s assets. The compensation is based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements.
Noncontrolling Interests
Partners of Operating Partnership
On July 6, 2004, the Advisor contributed $2 to the Operating Partnership in exchange for 200 Common Units in the Operating Partnership. The Advisor has the right to convert the Common Units into cash or, at the option of the Company, an equal number of shares of Common Shares.
In connection with the Offering, Lightstone SLP, LLC, an affiliate of the Advisor, purchased an aggregate of $30.0 million of SLP Units. As the majority owner of the SLP Units, Mr. Lichtenstein is the beneficial owner of a 99% interest in such SLP Units and thus receives an indirect benefit from any distributions made in respect thereof. These SLP Units may be entitled to a portion of any regular and liquidation distributions that the Company makes to its stockholders, but only after the Company’s stockholders have received a stated preferred return.
In addition, an aggregate 497,209 Common Units were issued to other unrelated parties during the years ended December 31, 2008 and 2009 and remain outstanding as of December 31, 2022.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Other Noncontrolling Interests in Consolidated Subsidiaries
Other noncontrolling interests in consolidated subsidiaries include the joint venture ownership interests held by either the Sponsor or its affiliates in (i) Pro-DFJV Holdings LLC (“PRO”), (ii) the 2nd Street Joint Venture and (iii) other entities that have originated promissory notes to unaffiliated third parties (see Note 6). PRO’s holdings principally consist of Marco OP Units and Marco II OP Units (see Note 7). The 2nd Street Joint Venture owns Gantry Park Landing.
See Note 11 for further discussion of noncontrolling interests.
Current Environment
The Company’s operating results are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, the Company’s business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, inflation and recession.
The Company’s overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation, higher interest rates, certain labor and supply chain challenges, and developments related to the COVID-19 pandemic, and other changes in economic conditions, may adversely affect the Company’s results of operations and financial performance.
|
2. |
Summary of Significant Accounting Policies |
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Lightstone REIT I and the Operating Partnership and its subsidiaries (over which the Company exercises financial and operating control). As of December 31, 2022, Lightstone REIT I had a 98% general partnership interest in the Operating Partnership. All inter-company balances and transactions have been eliminated in consolidation.
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 and real estate-related investments, 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.
Investments in entities where the Company has the ability to exercise significant influence, but does not exercise financial and operating control, and is not considered to be the primary beneficiary of a variable interest entity will be accounted for using the equity method. Investments in entities where the Company has virtually no influence are accounted for using a measurement alternative under which the entity is measured at cost, adjusted for observable price changes and impairments, if any.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with an original maturity of three months or less when made to be cash equivalents.
As required by the Company’s lenders, restricted cash is held in escrow accounts for anticipated capital expenditures, real estate taxes, and other reserves for certain of its consolidated properties. Capital reserves are typically utilized for non-operating expenses such as tenant improvements, leasing commissions, and major capital expenditures. Alternatively, a lender may require its own formula for an escrow of capital reserves. Restricted cash may also include certain funds temporarily placed in escrow with qualified intermediaries to facilitate potential like-kind exchange transactions in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended.
The following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in the statements of cash flows for the periods presented:
Schedule of Company’s cash, cash equivalents |
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2022 |
|
|
2021 |
|
Cash and cash equivalents |
|
$ |
12,211 |
|
|
$ |
39,405 |
|
Restricted cash |
|
|
10,372 |
|
|
|
3,187 |
|
Total cash, cash equivalents and restricted cash |
|
$ |
22,583 |
|
|
$ |
42,592 |
|
Supplemental cash flow information for the periods indicated is as follows:
Summary of supplemental cash flow information |
|
|
|
|
|
|
|
|
|
|
For the Years Ended |
|
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
Cash paid for interest |
|
$ |
14,923 |
|
|
$ |
9,395 |
|
|
|
|
|
|
|
|
|
|
Distributions declared but not paid |
|
$ |
3,825 |
|
|
$ |
3,885 |
|
|
|
|
|
|
|
|
|
|
Accrued development costs |
|
$ |
1,894 |
|
|
$ |
4,602 |
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs included in development projects |
|
$ |
2,302 |
|
|
$ |
1,399 |
|
|
|
|
|
|
|
|
|
|
Holding gain/loss on available for sale debt securities |
|
$ |
122 |
|
|
$ |
427 |
|
|
|
|
|
|
|
|
|
|
Value of shares issued from distribution reinvestment program |
|
$ |
330 |
|
|
$ |
324 |
|
|
|
|
|
|
|
|
|
|
Accrued loan exit fee included in deferred financing costs |
|
$ |
- |
|
|
$ |
1,100 |
|
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Marketable Securities
Marketable securities consist of equity and debt securities that are designated as available-for-sale. Marketable debt securities are recorded at fair value and unrealized holding gains or losses are reported as a component of accumulated other comprehensive income. The Company’s marketable equity securities are recorded at fair value and unrealized holding gains and losses are recognized on the consolidated statements of operations.
Realized gains or losses resulting from the sale of these securities are determined based on the specific identification of the securities sold. An impairment charge is recognized when the decline in the fair value of a debt security below the amortized cost basis is determined to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the duration and severity of any decline in fair value below our amortized cost basis, any adverse changes in the financial condition of the issuers and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. The Board of Directors has authorized the Company from time to time to invest the Company’s available cash in marketable securities of real estate related companies. The Board of Directors has approved investments of marketable securities of real estate companies up to 30% of the Company’s total assets to be made at the Company’s discretion, subject to compliance with any REIT or other restrictions.
Revenue Recognition
Rental Revenues
Our rental revenues are comprised of rental income and tenant recovery income derived from operating leases for our commercial retail and multifamily residential properties. Minimum rents are recognized on a straight-line accrual basis, over the terms of the related leases. Recoveries from commercial retail tenants for real estate taxes, insurance and other operating expenses, and from residential tenants for utility costs, are recognized as revenues in the period that the applicable costs are incurred.
Substantially all of the Company’s multifamily residential property leases have initial terms of 12 months or less.
In connection with the closure and demolition of the St. Augustine Outlet Center during 2022, a retail property which was located in St. Augustine, Florida, all leases with tenants have been terminated. See Note 9.
Hotel Revenues
Hotel revenues consists of amounts derived from operation of the Lower East Side Moxy Hotel which opened on October 27, 2022.
Room revenue is generated through contracts with customers whereby the customers agree to pay a daily rate for the right to use a hotel room. The Company’s contract performance obligations are fulfilled at the end of the day that the customer is provided the room and revenue is recognized daily at the contract rate. Payment from the customer is secured at the end of the contract upon check-out by the customer from our hotel. The Company participates in a frequent guest program sponsored by the brand owner of its hotel whereby the brand owner allows guests to earn loyalty points during their hotel stay. The Company recognizes revenue at the amount earned that it will receive from the brand owner when a guest redeems their loyalty points by staying at the Company’s hotel.
Revenue from food, beverage and other ancillary services is generated when a customer chooses to purchase goods or services separately from a hotel room and revenue is recognized when these goods or services are provided to the customer and the Company’s contract performance obligations have been fulfilled.
Revenues are recorded net of any sales or occupancy tax collected from our guests. Some contracts for rooms, food, beverage or other services require an upfront deposit which is recorded as deferred revenue (or contract liabilities) and recognized once the performance obligations are satisfied. The contract liabilities are not significant.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The following table represents the total hotel revenues on a disaggregated basis:
Schedule of revenues on a disaggregated |
|
|
|
|
Hotel revenues |
|
For the Year Ended December 31, 2022 |
|
Room revenue |
|
$ |
3,097 |
|
Food, beverage and other revenue |
|
|
2,305 |
|
Total hotel revenues |
|
$ |
5,402 |
|
Consolidated VIEs
The Company consolidates certain joint ventures which have originated nonrecourse loans to unaffiliated third-party borrowers (see Note 6) which are variable interest entities, or VIEs, for which the Company is the primary beneficiary. Generally, a VIE is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A limited partnership, or legal entities such as an LLC, are considered a VIE when the majority of the limited partners unrelated to the general partner possess neither the right to remove the general partner without cause, nor certain rights to participate in the decisions that most significantly affect the financial results of the partnership. In determining whether the Company is the primary beneficiary of a VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; and the similarity with and significance to our business activities and the business activities of the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions.
Investments in Real Estate
Accounting for Asset Acquisitions
The cost of the real estate assets acquired in an asset acquisition is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases for acquired in-place leases and the value of tenant relationships, based in each case on their relative fair values. Fees incurred related to asset acquisitions are capitalized as part of the cost of the investment.
Accounting for Business Combinations
Upon the acquisition of real estate operating properties that meet the definition of a business, the Company estimates the fair value of acquired tangible assets and identified intangible assets and liabilities and assumed debt at the date of acquisition, based on evaluation of information and estimates available at that date. Based on these estimates, the Company evaluates the existence of goodwill or a gain from a bargain purchase and allocates the initial purchase price to the applicable assets, liabilities and noncontrolling interests, if any. As final information regarding fair value of the assets acquired, liabilities assumed and noncontrolling interests is received and estimates are refined, appropriate adjustments are made to the purchase price allocation. The allocations are finalized as soon as all the information necessary is available.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Accounting for Development Projects
The Company incurs a variety of costs in the development of a property. The costs of land and building under development include specifically identifiable costs. The capitalized costs include, but are not limited to, pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes and other costs incurred during the period of development. The Company ceases capitalization when the development project is substantially complete and placed in service, which may occur in phases. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. The Company expenses the costs associated with pre-opening activities associated with its development and construction projects as incurred. Pre-opening costs generally consist of non-recurring personnel, marketing and other costs.
Once a development project is placed in service, which may occur in phases or for an entire building or project, the costs capitalized to that development project are transferred to land and improvements, buildings and improvements, and furniture and fixtures on the Company’s consolidated balance sheets at the historical cost of the property.
Impairment Evaluation
The Company evaluates the recoverability of its investments in real estate assets at the lowest identifiable level, the individual property level. An impairment loss is recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value.
The Company evaluates the long-lived assets for potential impairment whenever events or changes in circumstances indicate that the undiscounted projected cash flows are less than the carrying amount for a particular property. No single indicator would necessarily result in the Company preparing an estimate to determine if a long-lived asset’s future undiscounted cash flows are less than its book value. The Company uses judgment to determine if the severity of any single indicator, or the fact there are a number of indicators of less severity that when combined, would result in an indication that a long-lived asset requires an estimate of the undiscounted cash flows to determine if an impairment has occurred. Relevant facts and circumstances include, among others, significant underperformance relative to historical or projected future operating results and significant negative industry or economic trends. The estimated cash flows used for the impairment analysis are subjective and require the Company to use its judgment and the determination of estimated fair value are based on the Company’s plans for the respective assets and the Company’s views of market and economic conditions. The estimates consider matters such as future operating income, market and other applicable trends and residual value, as well as the effects of demand, competition, and recent sales data for comparable properties. Changes in estimated future cash flows due to changes in the Company’s plans or views of market and economic conditions could result in recognition of impairment losses, which, under the applicable accounting guidance, may be substantial.
Notes Receivable and Preferred Investments
Notes receivable and preferred investments that the Company intends to hold to maturity are carried at cost, net of any unamortized origination costs, fees, discounts, premiums and unfunded commitments.
Investment income will be recognized on an accrual basis and any related premium, discount, origination costs and fees are amortized over the life of the investment using the effective interest method. The amortization is reflected as an adjustment to investment income in the Company’s statements of operations.
Income recognition is suspended when, in the opinion of management, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal is not in doubt, contractual interest is recorded as investment income when received, under the cash basis method, until an accrual is resumed when the instrument becomes contractually current and performance is demonstrated to be resumed.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Credit Losses and Impairment on Notes Receivable
Notes receivable are considered impaired when, based on current information and events, it is probable that the Company will not be able to collect principal and interest amounts due according to the contractual terms. The Company assesses the credit quality of our notes receivable and adequacy of reserves on a quarterly basis, or more frequently as necessary. Significant judgment of management is required in this analysis. The Company considers the estimated net recoverable value of the notes receivable 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 quality and financial condition of the borrower and the competitive situation of the area where the underlying collateral is located. Because this determination is based on projections of future economic events, which are inherently subjective, the amount ultimately realized may differ materially from the carrying value as of the balance sheet date. If upon completion of the assessment, the estimated fair value of the underlying collateral is less than the net carrying value of the notes receivable, a reserve is recorded with a corresponding charge to investment income. The reserve for each note receivable is maintained at a level that is determined to be adequate by management to absorb probable losses.
Credit Losses and Impairment on Preferred Investments
Preferred investments that are accounted for as held to maturity are assessed for impairment at the individual investment level when there is a decline in fair value below the amortized cost basis that is deemed to be other than temporary. In making the determination of an other-than-temporary impairment assessment, the Company considers all available information relevant to the collectability of the investment, including information about past events, current conditions, and reasonable and supportable forecasts when developing the estimate of cash flows expected to be collected. This information includes the remaining redemption terms of the investment, financial condition of the issuer, expected defaults and the value of any underlying collateral. In assessing whether the entire amortized cost basis of the investment will be recovered, the Company compares the present value of cash flows expected to be collected from the investment with the amortized cost basis and records an impairment based on the amount by which the present value of cash flows expected to be collected is less than the amortized cost basis of the investment.
Investments in Unconsolidated Entities
The Company evaluates its investments in other entities for consolidation. It considers its percentage interest in the joint venture, evaluation of control and whether a VIE exists when determining whether or not the investment qualifies for consolidation or if it should be accounted for as an unconsolidated investment under the equity method of accounting.
If an investment qualifies for the equity method of accounting, the Company’s investment is recorded initially at cost, and subsequently adjusted for equity in net income (loss) and cash contributions and distributions. The net income or loss of an unconsolidated investment is allocated to its investors in accordance with the provisions of the operating agreement of the entity. The allocation provisions in these agreements may differ from the ownership interest held by each investor. Differences, if any, between the carrying amount of our investment in the respective joint venture and the Company’s share of the underlying equity of such unconsolidated entity are amortized over the respective lives of the underlying assets as applicable. These items are reported in the statements of operations as income or loss from investments in unconsolidated affiliated entities.
The Company reviews investments for impairment in value whenever events or changes in circumstances indicate that the carrying amount of such investment may not be recoverable. An investment is impaired only if management’s estimate of the fair value of the investment is less than the carrying value of the investment, and such decline in value is deemed to be other than temporary. The ultimate realization of the Company’s investment in partially owned entities is dependent on a number of factors including the performance of that entity and market conditions. If the Company determines that a decline in the value of a partially owned entity is other than temporary, it will record an impairment charge.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Depreciation and Amortization
Depreciation expense is computed based on the straight-line method over the estimated useful life of the applicable real estate asset. The Company generally uses estimated useful lives of up to 39 years for buildings and improvements and five to 10 years for furniture and fixtures. Expenditures for tenant improvements and construction allowances paid to commercial tenants are capitalized and amortized over the initial term of each lease or the estimated useful life, if shorter. Expenditures for ordinary maintenance and repairs are charged to expense as incurred.
Deferred Costs
The Company capitalizes initial direct costs associated with financing activities. The costs are capitalized upon the execution of the loan, presented in the consolidated balance sheets as a direct deduction from the carrying value of the corresponding loan and amortized over the initial term of the corresponding loan. Amortization of deferred loan costs begin in the period during which the loan is originated using the effective interest method over the term of the loan and is included in interest expense in the consolidated statements of operations or capitalized to development projects. The Company capitalizes initial direct costs associated with leasing activities. The costs are capitalized upon the execution of the lease and amortized over the initial term of the corresponding lease.
Income Taxes
The Company has elected to be taxed as a REIT commencing with the taxable year ended December 31, 2005. If the Company qualifies as a REIT, it generally will not be subject to U.S. federal income tax on its taxable income or capital gain that it distributes to its stockholders. To maintain its REIT qualification, the Company must meet a number of organizational and operational requirements, including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed at the regular corporate rate, and it may be precluded from qualifying for treatment as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders. Additionally, even if the Company continues to qualify as a REIT, it may still be subject to some U.S. federal, state and local taxes on our income and property and to U.S. federal income taxes and excise taxes on its undistributed income, if any.
To maintain its qualification as a REIT, the Company engages in certain activities through wholly owned taxable REIT subsidiaries (“TRSs”). As such, the Company is subject to U.S. federal and state income and franchise taxes from these activities.
As of December 31, 2022 and 2021, the Company had no material uncertain income tax positions.
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash and other assets and accounts payable, accrued expenses and other liabilities approximate their fair values because of the short maturity of these instruments. The carrying amounts of the notes receivable approximate their fair values because the interest rates are variable and reflective of market rates.
The estimated fair value (in millions) of the Company’s mortgage debt is summarized as follows:
Schedule of mortgage debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2022 |
|
|
As of December 31, 2021 |
|
|
|
Carrying Amount |
|
|
Estimated Fair Value |
|
|
Carrying Amount |
|
|
Estimated Fair Value |
|
Mortgages payable |
|
$ |
265.1 |
|
|
$ |
265.1 |
|
|
$ |
171.8 |
|
|
$ |
174.4 |
|
The fair value of the mortgages payable was determined by discounting the future contractual interest and principal payments by estimated current market interest rates.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Derivative Financial Instruments
The Company utilizes derivative financial instruments to reduce interest rate risk. The Company does not hold or issue derivative financial instruments for trading purposes. The Company recognizes all derivatives as either assets or liabilities in the consolidated balance sheets and measures those instruments at fair value. Changes in fair value of those instruments are reported in the consolidated statements of operations.
Stock-Based Compensation
The Company had a stock-based incentive award plan for the independent directors of its Board pursuant to which awards were granted at fair market value as of the date of grant. This plan expired in April 2015. For the years ended December 31, 2022 and 2021, the Company had no compensation costs related to the incentive award plan.
Concentration of Risk
At December 31, 2022 and 2021, the Company had cash deposited in certain financial institutions in excess of federally insured levels. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk in cash and cash equivalents.
Net Earnings per Share
Basic net earnings per share is calculated by dividing net income attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the applicable period. Dilutive income per share includes the potentially dilutive effect, if any, which would occur if our outstanding options to purchase our common stock were exercised. For all periods presented dilutive net income per share is equivalent to basic net income per share.
New Accounting Pronouncements
In June 2016, the FASB issued an accounting standards update which replaces the incurred loss impairment methodology currently in use with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of this standard will not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.
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.
Reclassifications
Certain prior period amounts may have been reclassified to conform to the current year presentation.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Exterior Street Project
In February 2019, the Company, through subsidiaries of the Operating Partnership, acquired two adjacent parcels of land located at 355 and 399 Exterior Street in the Mott Haven neighborhood in the Bronx borough of New York City from unaffiliated third parties for an aggregate purchase price of $59.0 million, excluding closing and other acquisition related costs. In September 2021, the Company subsequently acquired an additional adjacent parcel of land at cost from an affiliate of its Advisor for $1.0 million in order to achieve certain zoning compliance. On these three land parcels the Company plans to construct a proposed mixed-use multifamily residential and commercial retail property (the “Exterior Street Project”).
Lower East Side Moxy Hotel
In December 2018, the Company, through a subsidiary of the Operating Partnership, acquired three adjacent parcels of land located at 147-151 Bowery, in the Lower East Side neighborhood of the borough of Manhattan in New York City, from unaffiliated third parties for aggregate consideration of $56.5 million, excluding closing and other acquisition related costs. Additionally, in December 2018, the Company, though a subsidiary of the Operating Partnership, acquired certain air rights located at 329 Broome Street in the Lower East Side neighborhood, from an unaffiliated third party for $2.4 million, excluding closing and other acquisition related costs. The land and air rights were acquired for the development and construction of a 296-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”). On June 3, 2021, the Company entered into a development agreement (the “Development Agreement”) with an affiliate of the Advisor (the “Moxy Lower East Side Developer”) pursuant to which the Lower East Side Moxy Developer is being paid a development fee equal to 3% of hard and soft costs incurred in connection with the development and construction of the Lower East Side Moxy Hotel. The Advisor and its affiliates are also reimbursed for certain development-related costs attributable to the Lower East Side Moxy Hotel. Additionally on June 3, 2021, the Company obtained construction financing for the Lower East Side Moxy Hotel. The Lower East Side Moxy Hotel opened on October 27, 2022 and all four of its food and beverage venues opened during the fourth quarter of 2022.
In connection with the opening of the Lower East Side Moxy Hotel on October 27, 2022, its aggregate development costs ($203.8 million), which were previously included in development projects on the consolidated balance sheets, were placed in service and reclassified to land and improvements ($71.5 million), buildings and improvements ($117.1 million), and furniture and fixtures ($15.2 million) on the consolidated balance sheets. See Note 13.
In preparation for the opening of the Lower East Side Moxy Hotel, the Company incurred pre-opening costs of $4.5 million during the year ended December 31, 2022. No pre-opening costs were incurred in 2021. Pre-opening costs generally consist of non-recurring personnel, marketing and other costs.
Santa Clara Project
In January 2019, the Company acquired a parcel of land located at 2175 Martin Avenue, Santa Clara, California (the “Martin Avenue Land”) from an unaffiliated third party for $10.6 million. Subsequently, the Company completed certain activities associated with the potential development and construction of a data center on the Martin Avenue Land (the “Santa Clara Project”).
On July 7, 2021, the Company disposed of the Santa Clara Project to an unrelated third party for a contractual sales price of $13.9 million. In connection with the disposition of the Santa Clara Data Center, the Company recognized a gain of $0.2 million during the third quarter of 2021, which is included in gain on disposition of real estate, net on the consolidated statements of operations.
The disposition of the Santa Clara Project did not qualify to be reported as discontinued operations since it did not represent a strategic shift that had a major effect on the Company’s operations and financial results. Accordingly, the operating results of the Santa Clara Project are reflected in the Company’s results from continuing operations for all periods presented through its date of disposition.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The following is a summary of the amounts incurred and capitalized to each of the Company’s development projects as of the dates indicated and the amounts of interest capitalized to each of the Company’s development projects for the periods indicated:
Schedule of development projects |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Capitalized to Construction in Progress |
|
|
Capitalized Interest |
|
|
|
As of
December 31, |
|
|
As of
December 31, |
|
|
Year Ended
December 31, |
|
Development Project |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Exterior Street Project |
|
$ |
93,614 |
|
|
$ |
87,467 |
|
|
$ |
3,205 |
|
|
$ |
1,986 |
|
Lower East Side Moxy Hotel |
|
|
- |
|
|
|
146,747 |
|
|
|
11,342 |
|
|
|
6,251 |
|
Total |
|
$ |
93,614 |
|
|
$ |
234,214 |
|
|
$ |
14,547 |
|
|
$ |
8,237 |
|
|
4. |
Investments in Unconsolidated Affiliated Real Estate Entity |
Columbus Joint Venture
On November 29, 2022, the Company, CRE Columbus Member (“Converge”), a majority owned subsidiary of Converge Holdings LLC, a reinsurance business owned by the Sponsor, and LEL Columbus Member LLC (the “BVI member”), a wholly owned subsidiary of Lightstone Enterprises Limited (“BVI”), a real estate investment company owned by the Sponsor, entered into a joint venture agreement to form Columbus Portfolio Member LLC (“the Columbus Joint Venture”) for the purpose of acquiring nine multifamily properties (the “Columbus Properties”) located in the area of Columbus, Ohio for a contractual purchase price of $465.0 million. The Company has an ownership interest of 19% in the Columbus Joint Venture. Converge and the BVI Member, which are both related parties, have ownership interests of 19% and 62%, respectively. Additionally, the Manager of the Columbus Joint Venture is LEL Bronx Manager LLC (“Manager”), an entity wholly owned by BVI.
On November 29, 2022, the Columbus Joint Venture completed the purchase of the Columbus Properties. The acquisition was funded $74.3 million of cash and $390.7 million of aggregate proceeds from preferred investments from an unrelated third-parties and loans from two financial institutions. In connection with the acquisition and financings, the total cash paid, including closing costs, was $92.3 million and the Company paid $17.5 million representing its 19.0% pro rata share. In connection with the acquisition, the Company also paid the Advisor a separate acquisition fee of $2.4 million, equal to 2.75% of the Company’s pro-rata share of the contractual purchase price which is reflected in the carrying value of the Company’s investment in unconsolidated affiliated real estate entity on the consolidated balance sheets.
The Company has determined that the Columbus Joint Venture is a variable interest entity but the Company is not the primary beneficiary. The Company accounts for its ownership interest in the Columbus Joint Venture in accordance with the equity method of accounting because it exerts significant influence over but does not control the Columbus Joint Venture. All capital contributions and distributions of earnings from the Columbus 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 Columbus Joint Venture are made to the members pursuant to the terms of the Columbus Joint Venture’s operating agreement. The Company commenced recording its allocated portion of profit/loss and cash distributions beginning as of November 29, 2022 with respect to its membership interest of 19.0% in the Columbus Joint Venture.
In connection with the closing of the Columbus Properties, the Columbus Joint Venture simultaneously entered into two mortgage loans from financial institutions in the aggregate amount of $300.7 million and received two preferred investments from unaffiliated third parties in the aggregate amount of $90.0 million (collectively, the “Loans”) The Loans are collateralized by the Columbus Properties. The Sponsor (the “Guarantor”) has fully guaranteed the Columbus Joint Venture’s obligation to repay the outstanding balance of the Loans (the “Loan Guarantee”). Each of the joint venture members have agreed to reimburse the Guarantor for their pro rata share of any balance that may become due under the Loan Guarantee, of which the Company’s share is up to 19% of the outstanding balance. The Company has determined that the fair value of the Loan Guarantee is immaterial.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Columbus Joint Venture Financial Information
The following table represents the condensed statement of operations for the Columbus Joint Venture:
Schedule of condensed statement of operations for the Columbus Joint Venture |
|
|
|
|
(amounts in thousands) |
|
For the Period November 29, 2022 (date of investment) through December 31, 2022 |
|
Revenues |
|
$ |
3,816 |
|
|
|
|
|
|
Property operating expenses |
|
|
1,462 |
|
General and administrative costs |
|
|
220 |
|
Depreciation and amortization |
|
|
1,580 |
|
Operating income |
|
|
554 |
|
|
|
|
|
|
Interest expense and other, net |
|
|
(2,676 |
) |
Net loss |
|
$ |
(2,122 |
) |
|
|
|
|
|
Company’s share of net loss (19.0%) |
|
$ |
(403 |
) |
Additional depreciation and amortization expense(1) |
|
|
(9 |
) |
Company’s loss from investment(2) |
|
$ |
(412 |
) |
|
(1) |
Additional depreciation and amortization expense relates to the amortization of the difference between the cost of the interest in the Columbus Joint Venture and the amount of the underlying equity in net assets of the Columbus Joint Venture. |
|
(2) |
The
Company’s loss from its investment in the Columbus Joint Venture is reported in the statements of operations as other expense,
net. |
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The following table represents the condensed balance sheet for the Columbus Joint Venture:
Schedule of condensed balance sheet for the Columbus Joint Venture |
|
|
|
|
|
|
As of |
|
|
|
December 31, 2022 |
|
Real estate, at cost (net) |
|
$ |
457,339 |
|
Cash and restricted cash |
|
|
15,770 |
|
Other assets |
|
|
10,096 |
|
Total assets |
|
$ |
483,205 |
|
|
|
|
|
|
Mortgages payable, net |
|
$ |
383,266 |
|
Other liabilities |
|
|
8,495 |
|
Members’ equity |
|
|
91,444 |
|
Total liabilities and members’ equity |
|
$ |
483,205 |
|
|
5. |
Investments in Related Parties |
Preferred Investments
The Company has entered into agreements with various related party entities that provide for it to make preferred contributions pursuant to certain instruments (the “Preferred Investments”) that entitle it to certain prescribed monthly preferred distributions (see below for additional information). During the year ended December 31, 2022, the Company redeemed the remaining $8.5 million of its East 11th Street Preferred Investment, which is now fully redeemed. As a result, as of December 31, 2022, the Company only has one remaining Preferred Investment, which is its 40 East End Avenue Preferred Investment with an outstanding balance of $6.0 million. The fair value of the Company’s remaining Preferred Investment approximates its carrying value based on market rates for similar instruments.
The Preferred Investments are summarized as follows:
Schedule of Preferred Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Investment Balance |
|
|
Investment Income(1) |
|
|
|
Dividend |
|
|
As of December 31, |
|
|
As of December 31, |
|
|
For the Year Ended December 31, |
|
Preferred Investments |
|
Rate |
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
40 East End Avenue |
|
12% |
|
|
$ |
6,000 |
|
|
$ |
6,000 |
|
|
$ |
730 |
|
|
$ |
730 |
|
East 11th Street |
|
12% |
|
|
|
- |
|
|
|
8,500 |
|
|
|
593 |
|
|
|
1,034 |
|
Total Preferred Investments |
|
|
|
|
$ |
6,000 |
|
|
$ |
14,500 |
|
|
$ |
1,323 |
|
|
$ |
1,764 |
|
Note:
|
(1) |
– Included in interest and dividend income on the consolidated statements of operations. |
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
40 East End Avenue Preferred Investment
In May 2015, the Company entered into an agreement pursuant to which it made aggregate contributions of $30.0 million in 40 East End Ave. Pref Member LLC (the “40 East End Ave. Joint Venture”), a related party entity. The 40 East End Ave. Joint Venture is a joint venture between an affiliate of our Sponsor and Lightstone Value Plus REIT IV, Inc. (“Lightstone REIT IV”), a related-party REIT also sponsored by the Company’s Sponsor, which developed and constructed a luxury residential condominium project consisting of 29 units (the “40 East End Avenue Project”) located at the corner of 81st Street and East End Avenue in the Upper East Side neighborhood in the borough of Manhattan of New York City. The 40 East End Avenue Project received its final temporary certificates of occupancy, or TCO, in March 2020 and through December 31, 2022, 21 of the condominium units had been sold.
Contributions were made pursuant to an instrument, the “40 East End Avenue Preferred Investment,” that is entitled to monthly preferred distributions, initially at a rate of 8% per annum which increased to 12% per annum upon procurement of construction financing in March 2017, and is redeemable by the Company beginning on April 27, 2022. During the fourth quarter of 2019, the Company redeemed $13.0 million of the 40 East End Avenue Preferred Investment. In February 2020, the Company redeemed an additional $11.0 million of the 40 East End Avenue Preferred Investment which reduced the remaining outstanding balance to $6.0 million.
East 11th Street Preferred Investment
On April 21, 2016, the Company entered into an agreement, as amended, with various related party entities pursuant to which it to made aggregate contributions of $57.5 million in an affiliate of its Sponsor (the “East 11th Street Developer”) which developed and constructed a Marriott Moxy Hotel located at 112-120 East 11th Street in New York, New York. Contributions were made pursuant to an instrument, the “East 11th Street Preferred Investment,” that entitled us to monthly preferred distributions at a rate of 12% per annum. During 2019 and 2018, the Company redeemed $34.5 million and $14.5 million, respectively of the East 11th Street Preferred Investment. During 2022, the Company redeemed the remaining $8.5 million of the East 11th Street Preferred Investment, which is now fully redeemed.
The Hotel Joint Venture
During 2015, the Company formed the Hotel Joint Venture with Lightstone REIT II. The Company has a 2.5% membership interest in the Hotel Joint Venture and Lightstone REIT II holds the remaining 97.5% membership interest. The Hotel Joint Venture holds ownership interests in seven hotels as of December 31, 2022.
The Company accounts for its 2.5% membership interest in the Hotel Joint Venture using a measurement alternative under which the Hotel Joint Venture is measured at cost, adjusted for observable price changes and impairments, if any, and as of December 31, 2022 and 2021, the carrying value of its investment was $0.9 million and $1.0 million, respectively, which is included in investments in related parties on the consolidated balance sheets.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The Company has formed certain joint ventures (collectively, the “NR Joint Ventures”) between wholly owned subsidiaries of the Operating Partnership (collectively, the “NR Subsidiaries”) and affiliates of the Sponsor (the “NR Affiliates”) which have originated nonrecourse loans (collectively, the “Joint Venture Promissory Notes”) to unaffiliated third-party borrowers (collectively, the “Joint Venture Borrowers”).
The NR Subsidiaries and NR Affiliates may have varying ownership interests in the NR Joint Ventures, however, and certain other wholly owned subsidiaries of the Operating Partnership serve as the manager and are the sole decision-maker for each of the NR Joint Ventures.
The Company has determined that the NR Joint Ventures are VIEs and the NR Subsidiaries are the primary beneficiaries. Since the NR Subsidiaries are the primary beneficiaries, beginning on the applicable date of formation, the Company has consolidated the operating results and financial condition of the NR Joint Ventures and accounted for the respective ownership interests of the NR Affiliates as noncontrolling interests.
The Joint Venture Promissory Notes generally provide for monthly interest at a prescribed variable rate, subject to a floor. In connection with the initial funding of the Joint Venture Promissory Notes, the NR Joint Ventures receive origination fees (ranging from 1.00% to 1.50%) based on the principal commitment under the loan and retain a portion of the loan proceeds to establish a reserve for interest and other items (the “Loan Reserves”). The Joint Venture Promissory Notes are recorded in notes receivable, net on the consolidated balance sheets.
The Joint Venture Promissory Notes generally have an initial term of one or two years and may provide for additional extension options subject to satisfaction of certain conditions, including the funding of additional Loan Reserves and payment of extension fees. The Joint Venture Promissory Notes are collateralized by either the membership interests of the Joint Venture Borrowers in the borrowing entity or the underlying real property being developed by the Joint Venture Borrower.
Origination fees are presented in the consolidated balance sheets as a direct deduction from the carrying value of the Joint Venture Promissory Notes and are amortized into interest income, using a straight-line method that approximates the effective interest method, over the initial term of the Joint Venture Promissory Notes. The Loan Reserves are presented in the consolidated balance sheets as a direct deduction from the carrying value of the Joint Venture Promissory Notes and are applied against the monthly interest due over the term.
During the years ended December 31, 2022 and 2021, both the NR Subsidiaries and the NR Affiliates made aggregate contributions to the NR Joint Ventures of $21.9 million and $0.2 million, respectively. Additionally, during the years ended December 31, 2022 and 2021, the NR Joint Ventures made aggregate distributions to both the NR Subsidiaries and NR Affiliates of $29.3 million and $16.3 million, respectively, based on their respective membership interests.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The Notes Receivable are summarized as follows:
Summary of Notes Receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2022 |
|
Joint
Venture/Lender |
|
Company’s
Ownership Percentage |
|
|
Loan
Commitment Amount |
|
|
Origination
Fee |
|
|
Origination
Date |
|
Maturity
Date |
|
Contractual
Interest Rate |
|
Outstanding
Principal |
|
|
Reserves |
|
|
Unamortized
Origination Fee |
|
|
Carrying
Value |
|
|
Unfunded
Commitment |
|
LSC
1543 7th LLC |
|
50% |
|
|
$ |
49,000 |
|
|
1.00% |
|
|
March 2, 2022 |
|
August 31, 2023 |
|
SOFR plus 7.00%
(Floor of 7.15%) |
|
$ |
49,000 |
|
|
$ |
(614 |
) |
|
$ |
(327 |
) |
|
$ |
48,059 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2021 |
|
Joint
Venture/Lender |
|
Company’s
Ownership Percentage |
|
|
Loan
Commitment Amount |
|
|
Origination
Fee |
|
|
Origination
Date |
|
Maturity
Date |
|
Contractual
Interest Rate |
|
Outstanding
Principal |
|
|
Reserves |
|
|
Unamortized
Origination Fee |
|
|
Carrying
Value |
|
|
Unfunded
Commitment |
|
LSC
1543 7th LLC (1) |
|
50% |
|
|
$ |
20,000 |
|
|
1.00% |
|
|
August 27, 2019 |
|
February 28, 2022 |
|
Libor plus 5.40%
(Floor of 7.90%) |
|
$ |
17,500 |
|
|
$ |
- |
|
|
$ |
(33 |
) |
|
$ |
17,467 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LSC
11640 Mayfield LLC (2) |
|
50% |
|
|
$ |
18,000 |
|
|
1.50% |
|
|
March
4, 2020 |
|
March
1, 2022 |
|
Libor
plus 11.00% (Floor of 13.00%) |
|
|
10,040 |
|
|
|
(629 |
) |
|
|
(24 |
) |
|
|
9,387 |
|
|
|
6,960 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,540 |
|
|
$ |
(629 |
) |
|
$ |
(57 |
) |
|
$ |
26,854 |
|
|
$ |
6,960 |
|
Notes:
|
(1) |
Repaid in full during March 2022. |
|
(2) |
Repaid in full during February 2022. |
The following summarizes the interest earned (included in interest and dividend income on the consolidated statements of operations) for each of the Joint Venture Promissory Notes during the periods indicated:
Summarizes the interest earned for each of the Joint Venture Promissory Notes |
|
|
|
|
|
|
|
|
Joint Venture/Lender |
|
For the Year Ended December 31, 2022 |
|
|
For the Year Ended December 31, 2021 |
|
LSC 1543 7th LLC |
|
$ |
4,400 |
|
|
$ |
1,802 |
|
|
|
|
|
|
|
|
|
|
LSC 11640 Mayfield LLC |
|
|
455 |
|
|
|
1,875 |
|
|
|
|
|
|
|
|
|
|
LSC 162nd Capital I LLC |
|
|
- |
|
|
|
491 |
|
|
|
|
|
|
|
|
|
|
LSC 162nd Capital II LLC |
|
|
- |
|
|
|
1,063 |
|
|
|
|
|
|
|
|
|
|
LSC 1650 Lincoln LLC |
|
|
- |
|
|
|
2,317 |
|
|
|
|
|
|
|
|
|
|
LSC 87 Newkirk LLC |
|
|
- |
|
|
|
1,585 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,855 |
|
|
$ |
9,133 |
|
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
|
7. |
Marketable Securities,
Fair Value Measurements and Notes Payable |
Marketable Securities:
The following is a summary of the Company’s available for sale securities as of the dates indicated:
Summary of available for sale securities and other investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2022 |
|
|
|
Adjusted Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
Marketable
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common and Preferred Equity Securities |
|
$ |
22,993 |
|
|
$ |
- |
|
|
$ |
(2,103 |
) |
|
$ |
20,890 |
|
Marco OP Units and Marco II OP Units |
|
|
19,227 |
|
|
|
5,355 |
|
|
|
- |
|
|
|
24,582 |
|
|
|
|
42,220 |
|
|
|
5,355 |
|
|
|
(2,103 |
) |
|
|
45,472 |
|
Debt
securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Bonds |
|
|
602 |
|
|
|
- |
|
|
|
(150 |
) |
|
|
452 |
|
Total |
|
$ |
42,822 |
|
|
$ |
5,355 |
|
|
$ |
(2,253 |
) |
|
$ |
45,924 |
|
|
|
As of December 31, 2021 |
|
|
|
Adjusted Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
Marketable
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common and Preferred Equity Securities |
|
$ |
24,932 |
|
|
$ |
2,541 |
|
|
$ |
(135 |
) |
|
$ |
27,338 |
|
Marco OP Units and Marco II OP Units |
|
|
19,227 |
|
|
|
14,204 |
|
|
|
- |
|
|
|
33,431 |
|
|
|
|
44,159 |
|
|
|
16,745 |
|
|
|
(135 |
) |
|
|
60,769 |
|
Debt
securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Bonds |
|
|
2,073 |
|
|
|
- |
|
|
|
(28 |
) |
|
|
2,045 |
|
Total |
|
$ |
46,232 |
|
|
$ |
16,745 |
|
|
$ |
(163 |
) |
|
$ |
62,814 |
|
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
As of both December 31, 2022 and 2021, the Company held an aggregate of 209,243 Marco OP Units and Marco II OP Units, of which 89,695 were owned by PRO. The Marco OP Units and the Marco II OP Units are both exchangeable for a similar number of common operating partnership units (“Simon OP Units”) of Simon Property Group, L.P., (“Simon OP”), the operating partnership of Simon Property Group, Inc. (“Simon Inc.”), a public REIT that is an owner and operator of shopping malls and outlet centers. Subject to the various conditions, the Company may elect to exchange the Marco OP Units and/or the Marco II OP Units to Simon OP Units which must be immediately delivered to Simon Inc. in exchange for cash or similar number of shares of Simon Inc.’s common stock (“Simon Stock”). Accordingly, the Marco OP Units and Marco II OP Units are valued based on the closing price of Simon Stock, which was $117.48 per share and $159.77 per share as of December 31, 2022 and 2021, respectively. Additionally, the closing price of Simon Stock was $85.28 per share as of December 31, 2020.
Throughout 2022, financial markets have been experiencing significant increases in interest rates primarily as a result of higher inflation, leading to the substantially lower market prices of the Company equity’s securities, especially those highly sensitive to movements in interest rates, such are REITs and preferred securities. Because of the change in the closing price of Simon Stock and the market price of the Company’s other equity securities, the Company incurred unrealized losses of $13.4 million for the year ended December 31, 2022 compared to unrealized gains of $16.5 million for the year ended December 31, 2021. These unrealized losses and gains incurred on the Company’s marketable equity securities are included in its consolidated statements of operations.
Additionally, as of December 31, 2022 and 2021, certain of the Company’s marketable debt securities had gross unrealized losses of $151 and $28, respectively. However, the Company does not consider these declines in market value to be other than temporary in nature. When evaluating the debt 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. During the years ended December 31, 2022 and 2021, the Company did not recognize any other-than-temporary impairment charges. As of both December 31, 2022 and 2021, the Company does not consider any of its investments to be other-than-temporarily impaired.
The Company may sell certain of its investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management.
Derivative Financial Instruments
The Company has entered into two interest rate cap contracts with unrelated financial institutions in order to reduce the effect of interest rate fluctuations or risk of certain real estate investment’s interest expense on its variable rate debt. The Company is exposed to credit risk in the event of non-performance by the counterparty to these financial instruments. Management believes the risk of loss due to non-performance to be minimal.
The Company is accounting for the interest rate cap contracts as economic hedges, marking these contracts to market, taking into account present interest rates compared to the contracted fixed rate over the life of the contract and recording the unrealized gain or loss on the interest rate cap contracts on the consolidated statements of operations.
For the years ended December 31, 2022 and 2021, the Company recorded mark to market adjustments on derivative financial instruments of $3.0 million and $0.2 million on the consolidated statements of operations, representing the change in the fair value of these economic hedges during such periods.
The two interest rate cap contracts have notional amounts of $90.0 million and $40.0 million, respectively, and effectively cap the LIBOR through June 30, 2023 and its replacement rate thereafter at 3.00%. Both interest rate cap contracts mature on June 3, 2024. The aggregate fair value of the interest rate cap contracts was $3.3 million as of December 31, 2022 and is included in prepaid expenses, restricted cash and other assets on the consolidated balance sheets.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
|
● |
Level 1 – Quoted prices in active markets for identical assets or liabilities. |
|
|
|
|
● |
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
|
|
|
|
● |
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Marketable securities, available for sale, and derivative financial instruments measured at fair value on a recurring basis as of the dates indicated are as follows:
Schedule of Marketable securities measured at fair value on a recurring basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using |
|
|
|
|
As of December 31, 2022 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Marketable Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common and Preferred Equity Securities |
|
$ |
1,138 |
|
|
$ |
19,752 |
|
|
$ |
- |
|
|
$ |
20,890 |
|
Marco OP and OP II Units |
|
|
- |
|
|
|
24,582 |
|
|
|
- |
|
|
|
24,582 |
|
Corporate Bonds |
|
|
- |
|
|
|
452 |
|
|
|
- |
|
|
|
452 |
|
Total |
|
$ |
1,138 |
|
|
$ |
44,786 |
|
|
$ |
- |
|
|
$ |
45,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Cap Contracts |
|
$ |
- |
|
|
$ |
3,279 |
|
|
$ |
- |
|
|
$ |
3,279 |
|
|
|
Fair Value Measurement Using |
|
|
|
|
As of December 31, 2021 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Marketable Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common and Preferred Equity Securities |
|
$ |
6,825 |
|
|
$ |
20,513 |
|
|
$ |
- |
|
|
$ |
27,338 |
|
Marco OP and OP II Units |
|
|
- |
|
|
|
33,431 |
|
|
|
- |
|
|
|
33,431 |
|
Corporate Bonds |
|
|
- |
|
|
|
2,045 |
|
|
|
- |
|
|
|
2,045 |
|
Total |
|
$ |
6,825 |
|
|
$ |
55,989 |
|
|
$ |
- |
|
|
$ |
62,814 |
|
The fair values of the Company’s common equity securities are measured using readily quoted prices for these investments which are listed for trade on active markets. The fair values of the Company’s preferred equity securities and corporate bonds are measured using readily available quoted prices for these securities; however, the markets for these securities are not active. Additionally, as noted and disclosed above, the Company’s Marco OP and OP II units are both ultimately exchangeable for cash or similar number of shares of Simon Stock, therefore the Company uses the quoted market price of Simon Stock to measure the fair value of the Company’s Marco OP and OP II units.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
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:
summarizes the estimated fair value of our investments in marketable debt securities |
|
|
|
|
|
|
December 31, 2022 |
|
Due in 1 year |
|
$ |
- |
|
Due in 1 year through 5 years |
|
|
- |
|
Due in 5 years through 10 years |
|
|
- |
|
Due after 10 years |
|
|
452 |
|
Total |
|
$ |
452 |
|
Nonrecurring Fair Value Measurements
During the third quarter of 2021, the Company recorded a non-cash impairment charge of $11.3 million to reduce the carrying value of the St. Augustine Outlet Center to its estimated fair value of $23.3 million as of September 30, 2021. In estimating the fair value of the St. Augustine Outlet Center, the Company used management’s internal comparable sales analysis prepared with consideration of local market conditions, which was considered a Level 3 under the fair value hierarchy described above. The carrying value of the St. Augustine Outlet Center is included in investment property on the consolidated balance sheets as of December 31, 2021. See Note 9.
The Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized at fair value.
Notes Payable
Margin Loan
The Company has access to a margin loan (the “Margin Loan”) from a financial institution that holds custody of certain of the Company’s marketable securities. The Margin Loan, which is due on demand, bears interest at LIBOR plus 0.85% (5.24% as of December 31, 2022) and is collateralized by the marketable securities in the Company’s account. The amounts available to the Company under the Margin Loan are at the discretion of the financial institution and not limited to the amount of collateral in its account. There were no amounts outstanding under this Margin Loan as of December 31, 2022 and 2021.
Line of Credit
The Company has a non-revolving credit facility (the “Line of Credit”) that provides for borrowings up to a maximum of $20.0 million, subject to a 55% loan-to-value ratio based on the fair value of the underlying collateral, which matures on November 30, 2024 and bears interest at LIBOR plus 1.35% (5.74% as of December 31, 2022). Additionally, the Line of Credit provides for a replacement benchmark rate in connection with the phase-out of LIBOR, which is expected to be for periods after June 30, 2023. The Line of Credit is collateralized by an aggregate of 209,243 of Marco OP Units and Marco II OP Units and is guaranteed by PRO. As of December 31, 2022, the amount of borrowings available to be drawn under the Line of Credit was $13.5 million. No amounts were outstanding under the Line of Credit as of both December 31, 2022 and 2021.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Mortgages payable, net consists of the following:
Schedule of Mortgages Payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property/Investment |
|
Interest Rate |
|
|
Weighted Average Interest Rate for the Year Ended December 31, 2022 |
|
|
Maturity Date |
|
Amount Due at Maturity |
|
|
As of December 31, 2022 |
|
|
As of December 31, 2021 |
|
Gantry Park Landing |
|
4.48% |
|
|
|
4.48 |
% |
|
November 2024 |
|
$ |
65,317 |
|
|
$ |
68,151 |
|
|
$ |
69,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lower East Side Moxy Hotel Senior |
|
LIBOR + 7.50% (floor of 7.75%) |
|
|
|
9.59 |
% |
|
June 2024 |
|
|
82,811 |
|
|
|
82,811 |
|
|
|
35,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lower East Side Moxy Hotel Junior |
|
LIBOR + 13.50% (floor of 14.00%) |
|
|
|
15.60 |
% |
|
June 2024 |
|
|
40,000 |
|
|
|
40,000 |
|
|
|
24,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exterior Street Project |
|
SOFR + 2.60% |
|
|
|
4.04 |
% |
|
November 2023 |
|
|
35,000 |
|
|
|
35,000 |
|
|
|
35,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exterior Street Project Supplemental |
|
SOFR + 2.60% |
|
|
|
4.27 |
% |
|
November 2023 |
|
|
7,000 |
|
|
|
7,000 |
|
|
|
7,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LSC 1543 7th LLC Note Receivable |
|
SOFR + 3.50% |
|
|
|
6.45 |
% |
|
December 2023 |
|
|
32,152 |
|
|
|
32,152 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgages payable |
|
|
|
|
|
7.93 |
% |
|
|
|
$ |
262,280 |
|
|
|
265,114 |
|
|
|
171,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Deferred financing costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,535 |
) |
|
|
(6,047 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgages payable, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
260,579 |
|
|
$ |
165,706 |
|
One-month LIBOR as of December 31, 2022 and 2021 was 4.39% and 0.10%, respectively. One-month SOFR as of December 31, 2022 was 4.36%. The Company’s loans are secured by the indicated real estate/investment and are non-recourse to the Company, unless otherwise indicated.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The following table shows the Company’s contractually scheduled principal maturities during the next five years and thereafter:
Scheduled of Contractually Principal Maturities During Next Five Years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
2024 |
|
|
2025 |
|
|
2026 |
|
|
2027 |
|
|
Thereafter |
|
|
Total |
|
Principal maturities |
|
$ |
75,606 |
|
|
$ |
189,508 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
265,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Deferred financing costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,535 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total principal maturities, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
260,579 |
|
LSC 1543 7th LLC Loan
On June 30, 2022, LSC 1543 7th LLC obtained a loan of up to $33.1 million (the “LSC 1543 7th LLC Loan”) which bears interest at SOFR + 3.50% (7.86% as of December 31, 2022). The LSC 1543 7th LLC Loan is initially scheduled to mature on December 30, 2023, but may be further extended through December 30, 2024 and September 20, 2025, through the exercise of two extension options. The LSC 1543 7th LLC Loan requires monthly interest-only payments with the outstanding principal balance due at its maturity date and is collateralized by a nonrecourse loan originated by LSC 1543 7th LLC (the “LSC 1543 7th LLC Note Receivable”). As of December 31, 2022, the outstanding principal balance of the LSC 1543 7th LLC Loan was $32.2 million. See Note 6.
Moxy Construction Loans
On June 3, 2021, the Company, through a wholly owned subsidiary, closed on a recourse construction loan facility (the “Moxy Senior Loan”) providing for up to $90.0 million of funds for the development, construction and certain pre-opening costs associated with the Lower East Side Moxy Hotel. At closing, $35.6 million of proceeds were initially advanced under the Moxy Senior Loan, which were used to repay in full a then outstanding mortgage loan. The Moxy Senior Loan bears interest at LIBOR plus 7.50%, subject to an 7.75% floor, and initially matures on June 3, 2024, with two one-year extension options, subject to the satisfaction of certain conditions. Additionally, the Moxy Senior Loan provides for a replacement benchmark rate in connection with the phase-out of LIBOR, which is expected to be for periods after June 30, 2023. The Moxy Senior Loan is collateralized by the Lower East Side Moxy Hotel. As of December 31, 2022, the outstanding principal balance of the Moxy Senior Loan was $82.8 million, the interest rate was 11.89% and the remaining availability under the facility was up to $7.2 million, which is expected to be used to fund the remaining construction and pre-opening costs for the project. Additionally, the Company was required by the lender to deposit the $4.7 million of key money received from Marriott into an escrow account (included in restricted cash on the consolidated balance sheet as of December 31, 2022) which may also be used to fund the remaining construction costs for the project.
Simultaneously on June 3, 2021, the Company, through the same wholly owned subsidiary, also entered into a mezzanine construction loan facility (the “Moxy Junior Loan” and together with the Moxy Senior Loan, the “Moxy Construction Loans”) providing for up to $40.0 million of additional funds for the development, construction and certain pre-opening costs associated with the Lower East Side Moxy Hotel. The Moxy Junior Loan bears interest at LIBOR plus 13.50%, subject to a 14.00% floor, and initially matures on June 3, 2024, with two one-year extension options, subject to the satisfaction of certain conditions. Additionally, the Moxy Junior Loan provides for a replacement benchmark rate in connection with the phase-out of LIBOR, which is expected to be for periods after June 30, 2023. The Moxy Junior Loan is subordinate to the Moxy Senior Loan but also collateralized by the Lower East Side Moxy Hotel. The Company has provided a principal guarantee of up to $7.0 million with respect to the Moxy Junior Loan. As of December 31, 2022, the outstanding principal balance of the Moxy Junior Loan was $40.0 million and its interest rate was 17.89%.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
In connection with the Moxy Construction Loans, the Company has provided certain completion and carry cost guarantees. The Company has also entered into two interest rate cap agreements with notional amounts of $90.0 million and $40.0 million pursuant to which LIBOR through June 30, 2023 and its replacement rate thereafter is capped at 3.00% through June 3, 2024. Furthermore, in connection with the Moxy Construction Loans, the Company paid $5.3 million of loan fees and expenses and accrued $1.1 million of loan exit fees which are due at the initial maturity date and are included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets as of December 31, 2022 and December 31, 2021.
Exterior Street Loans
On March 29, 2019, the Company obtained a $35.0 million loan (the “Exterior Street Loan”) from a financial institution which, commencing on October 10, 2020, bore interest at LIBOR plus 2.25% through November 24, 2022. On December 21, 2021, the loan agreement was amended to provide an additional $7.0 million loan (the “Exterior Street Supplemental Loan” and collectively with the Exterior Street Loan, the “Exterior Street Loans”) which bore interest at LIBOR plus 2.50% through November 24, 2022. The Exterior Street Loans require monthly interest-only payments with the outstanding principal balances due in full at their maturity date. The Exterior Street Loans are collateralized by the Exterior Street Project. On November 22, 2022, the Company and the financial institution entered into an additional amendment to the Exterior Street Loans pursuant to which the interest rate on the Exterior Street Loans were adjusted to SOFR plus 2.60% (6.96% as of December 31, 2022) and their maturity dates were extended to November 24, 2023.
Gantry Park Mortgage Loan
On November 19, 2014, the 2nd Street Joint Venture entered into a $74.5 million mortgage loan (the “Gantry Park Mortgage Loan”). The Gantry Park Mortgage Loan has a 10-year term with a maturity date of November 19, 2024, bears interest at 4.48%, and required monthly interest-only payments for the first three years and monthly principal and interest payments pursuant to a 30-year amortization schedule thereafter. The Gantry Park Mortgage Loan is collateralized by Gantry Park Landing.
Certain of the Company’s debt agreements require the maintenance of certain ratios, including debt service coverage. As of December 31, 2022, the Company was in compliance with all of its financial debt covenants. Additionally, certain of our mortgages payable also contain clauses providing for prepayment penalties.
Debt Maturities
The Exterior Street Loans (outstanding aggregate principal balance of $42.0 million as of December 31, 2022) mature on November 24, 2023. The Company currently intends to seek to extend or refinance the Exterior Street Loans on or before their maturity date.
The LSC 1543 7th LLC Loan (outstanding principal balance of $32.2 million as of December 31, 2022) is scheduled to initially mature on December 30, 2023, but may be further extended through December 30, 2024 and September 20, 2025, through the exercise of two extension options. The Company currently intends to repay the LSC 1543 7th LLC Loan with the proceeds from the expected repayment of the LSC 1543 7th LLC Note Receivable, which has an outstanding principal balance of $49.0 million, or to seek to extend the LSC 1543 7th LLC Loan pursuant to the extension option on or before its maturity date.
However, if the Company is unable to extend or refinance its maturing indebtedness at favorable terms, it will look to repay the then outstanding balance with available cash and/or proceeds from selective asset sales. The Company has no additional significant maturities of mortgage debt over the next 12 months.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
|
9. |
Closure and Demolition of St. Augustine Outlet Center |
The Company wholly owned the St. Augustine Outlet Center, a retail center located in St. Augustine, Florida, which was originally built in 1998 and subsequently acquired by the Company in 2006 and renovated and further expanded in 2008 to 0.3 million of gross leasable area. During the COVID-19 pandemic, the occupancy of the St. Augustine Outlet Center significantly declined and because of limited leasing success, the Company began exploring various strategic alternatives for the property. As a result, during the third quarter of 2021, the Company determined that it would no longer continue to pursue leasing of space to tenants and therefore, began to enter into lease termination agreements with certain tenants and also provided notice to its other tenants that it would not renew their leases at the scheduled expiration of their lease. Due to this change in leasing strategy and resulting decrease in the fair value of the St. Augustine Outlet Center, the Company recorded a non-cash loss on impairment of real estate of $11.3 million during the third quarter of 2021.
Because of the aforementioned lease terminations and scheduled expirations, substantially all of the tenants vacated the property during the first quarter of 2022 and on June 29, 2022, the Company entered into a lease termination agreement with the property’s final tenant providing for them to receive an aggregate of $0.8 million provided they vacated the property no later than July 15, 2022. The final tenant vacated the property in July 2022 and the Company ceased operations of the St. Augustine Outlet Center effective July 15, 2022 and shortly thereafter, commenced demolition of the property’s building and improvements in order to prepare the various land parcels for potential sale and/or lease. The demolition of the property’s buildings and improvements was substantially completed during the third quarter of 2022 and the Company recognized a loss on demolition of $16.6 million consisting of the write-off of the carrying value of the property’s building and improvements plus related costs. As a result the remaining carrying value of the St. Augustine land and improvements was $4.9 million as of December 31, 2022 and is included in land and improvements on the consolidated balance sheet.
In connection with the terms of certain of the lease termination agreements, the Company agreed to make various payments to certain tenants provided they closed their store and vacated the property. The Company expenses lease termination fees in the period the lease termination agreement is executed and such expenses are included in property operating expenses on the consolidated statements of operations. During the years ended December 31, 2022 and 2021, the Company recognized lease termination fees of $0.8 million and $0.4 million, respectively.
Land Parcel Sales
On May 25, 2021, the Company completed the disposition of a parcel of land adjacent to the St. Augustine Outlet Center to an unrelated third party for a contractual sales price of $6.8 million and recognized a gain of $3.6 million during the second quarter of 2021, which is included in gain on disposition of real estate, net on the consolidated statements of operations.
|
10. |
Company’s Stockholder’s Equity |
Preferred Shares
Shares of preferred stock may be issued in the future in one or more series as authorized by the Board of Directors. Prior to the issuance of shares of any series, the Board of Directors is required by the Company’s charter to fix the number of shares to be included in each series and the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each series. Because the Board of Directors has the power to establish the preferences, powers and rights of each series of preferred stock, it may provide the holders of any series of preferred stock with preferences, powers and rights, voting or otherwise, senior to the rights of holders of our common stock. The issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of the Company, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of the Company’s common stock. As of December 31, 2022 and 2021, the Company had no outstanding preferred shares.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Common Shares
All of the common stock offered by the Company will be duly authorized, fully paid and nonassessable. Subject to the preferential rights of any other class or series of stock and to the provisions of its charter regarding the restriction on the ownership and transfer of shares of our stock, holders of the Company’s common stock will be entitled to receive distributions if authorized by the Board of Directors and to share ratably in the Company’s assets available for distribution to the stockholders in the event of a liquidation, dissolution or winding-up.
Each outstanding share of the Company’s common stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of directors. There is no cumulative voting in the election of directors, which means that the holders of a majority of the outstanding common stock can elect all of the directors then standing for election, and the holders of the remaining common stock will not be able to elect any directors.
Holders of the Company’s common stock have no conversion, sinking fund, redemption or exchange rights, and have no preemptive rights to subscribe for any of its securities. Maryland law provides that a stockholder has appraisal rights in connection with some transactions. However, the Company’ charter provides that the holders of its stock do not have appraisal rights unless a majority of the Board of Directors determines that such rights shall apply. Shares of the Company’s common stock have equal dividend, distribution, liquidation and other rights.
Under its charter, the Company cannot make certain material changes to its business form or operations without the approval of stockholders holding at least a majority of the shares of our stock entitled to vote on the matter. These include (1) amendment of its charter, (2) its liquidation or dissolution, and (3) to the extent required under Maryland law its reorganization, and (4) its merger, consolidation or the sale or other disposition of all or substantially all of its assets.
SRP
The Company’s share repurchase program (the “SRP”) may provide its stockholders with limited, interim liquidity by enabling them to sell their shares of common stock back to the Company, subject to restrictions.
On March 25, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of all redemptions effective immediately.
Effective March 18, 2021 and May 14, 2021, the Board of Directors partially reopened the SRP to allow, subject to various conditions as set forth below, for redemptions submitted in connection with a stockholder’s death and hardship, respectively, and set the price for all such purchases to our current estimated net asset value per share of common stock (“NAV per Share”), as determined by the Board of Directors and reported by the Company from time to time. Deaths that occurred subsequent to January 1, 2020 were eligible for consideration, subject to certain conditions. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by the Company within one year of the stockholder’s date of death for consideration. On March 18, 2022, the Board of Directors approved an increase to the annual threshold for death redemptions from up to 0.5% to 1.0%.
At the above noted dates, the Board of Directors established that on an annual basis, the Company would not redeem in excess of 1.0% and 0.5% of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Additionally, redemption requests generally would be processed on a quarterly basis and would be subject to pro ration if either type of redemption requests exceeded the annual limitation.
For the year ended December 31, 2022, the Company repurchased 371,318 Common Shares at a weighted average price per share of $11.75. For the year ended December 31, 2021, the Company repurchased 143,918 Common Shares at a weighted average price per share of $11.18.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
DRIP
The Company’s distribution reinvestment program (“DRIP”) provides its shareholders with an opportunity to purchase additional shares of its common stock at a discount by reinvesting distributions. Under the Company’s DRIP, a shareholder may acquire, from time to time, additional shares of the Company’s common stock by reinvesting cash distributions payable by the Company to such shareholder, without incurring any brokerage commission, fees or service charges.
The DRIP had been suspended since 2015 until the Company’s DRIP Registration Statement on Form S-3D was filed and became effective as amended and restated, under the Securities Act of 1933 on October 25, 2018.
Pursuant to the DRIP following its reactivation, the Company’s stockholders who elect to participate may invest all or a portion of the cash distributions that the Company pays them on shares of its common stock in additional shares of the Company’s common stock at a purchase price equal to 95% of the Company’s current NAV per Share, as determined by the Board of Directors and reported by the Company from time to time. Effective on December 8, 2022, the Board of Directors determined the Company’s NAV per Share of $12.19, as of September 30, 2022, which resulted in a purchase price for shares under the DRIP of $11.58 per share. As of December 31, 2022, 9.9 million shares remain available for issuance under our DRIP.
The Board of Directors reserves the right to terminate the DRIP for any reason without cause by providing written notice of termination of the DRIP to all participants.
Distributions
Common Shares
The Board of Directors commenced declaring and the Company began paying regular quarterly distributions on its Common Shares at the pro rata equivalent of an annual distribution of $0.70 per share, or an annualized rate of 7.0% assuming a purchase price of $10.00 per share, beginning February 1, 2006. Subsequently, the Board of Directors has declared regular quarterly distributions of $0.175 per share at the annualized rate of rate of 7.0% assuming a purchase price of $10.00 per share, with the exception of the three-month period ended June 30, 2010. The distributions for the three-month period ended June 30, 2010 were at an aggregate annualized rate of 8% based on the share price of $10.00. Through December 31, 2022, the Company has paid aggregate distributions in the amount of $278.7 million, which includes cash distributions paid to stockholders and common stock issued under its DRIP.
Total distributions declared during the years ended December 31, 2022 and 2021 were $15.4 million and $15.6 million, respectively.
On November 9, 2022 and November 8, 2021 the Board of Directors authorized and the Company declared distributions of $0.175 per share for the quarterly periods ending December 31, 2022 and 2021. The distributions payable of $3.8 million and $3.9 million as of December 31, 2022 and 2021, respectively, were paid in January 2023 and 2022, respectively.
On March 15, 2023, the Board of Directors authorized and the Company declared a distribution of $0.175 per share for the quarterly period ending March 31, 2023. The distribution will be paid on or about the 15th day of the month following the quarter-end to stockholders of record at the close of business on the last day of the quarter-end. The stockholders have an option to elect the receipt of shares under the Company’s DRIP.
Future distributions, if any, declared will be at the discretion of the Board of Directors based on their analysis of the Company’s performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, operating and interest expenses, the Company’s ability to refinance near-term debt, as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. The Company cannot assure that any future distributions will be made or that it will maintain any particular level of distributions that it has previously established or may establish.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
|
11. |
Noncontrolling Interests |
The Company’s noncontrolling interests consist of (i) parties of the Company that hold units in the Operating Partnership, and (ii) certain interests in consolidated subsidiaries. The units held by noncontrolling interests in the Operating Partnership include SLP Units and Common Units. The noncontrolling interests in consolidated subsidiaries include joint venture ownership interests in (i) PRO held by the Company’s Sponsor and (ii) the 2nd Street Joint Venture held by the Company’s Sponsor and other affiliates and (iii) various entities held by affiliates of our Sponsor that have originated promissory notes to unaffiliated third parties (see Note 6). PRO’s holdings principally consist of Marco OP Units and Marco II OP Units (see Note 7). The 2nd Street Joint Venture owns Gantry Park Landing. See below for additional information.
Share Description
See Note 12 for discussion of rights related to SLP Units. The Common Units of the Operating Partnership have similar rights as those of the Company’s stockholders including distribution rights.
Distributions
During the years ended December 31, 2022 and 2021, the Company paid total distributions to noncontrolling interests of $33.8 million and $18.8 million, respectively. As of both December 31, 2022 and 2021, the total distributions declared and not paid to noncontrolling interests was $0.6 million (paid in January 2023 and January 2022, respectively).
Noncontrolling Interest of Subsidiary within the Operating Partnership
PRO
During 2009, the Operating Partnership acquired certain membership interests in Prime Outlets Acquisition Company (“POAC”) and Mill Run, LLC (“Mill Run”), which were subsequently contributed to PRO in exchange for a 99.99% managing membership interest in PRO. In addition, the Company contributed $3 for a 0.01% non-managing membership interest in PRO. Because the Operating Partnership is the managing member with control, PRO is consolidated into the results and financial position of the Company. In connection with the acquisitions of the memberships interests in POAC and Mill Run, the Advisor accepted a 19.17% profit membership interest in PRO in lieu of an acquisition fee and assigned its rights to receive distributions to the Sponsor, who assigned the same to David Lichtenstein. Distributions are split between the three members in proportion to their respective profit interests. PRO subsequently disposed of all of its membership interests in POAC and Mill Run in August 2010 and its current holdings primarily consist of Marco OP Units and Marco II OP Units (see Note 7).
On September 19, 2018, the Company’s Sponsor transferred 9.14% of its profit membership interest in PRO to the Operating Partnership. As of both December 31, 2022 and 2021, the Sponsor had a 10.03% profit membership interest in PRO, which is accounted for as a noncontrolling interest.
Consolidated Joint Venture
In August 2011, the Operating Partnership and the Sponsor and other related parties formed the 2nd Street Joint Venture, which owns Gantry Park Landing. The Operating Partnership has a 59.2% membership interest in the 2nd Street Joint Venture (the “2nd Street JV Interest”). The 2nd Street JV Interest is a managing membership interest. The Sponsor and other related parties have an aggregate 40.8% non-managing membership interest with certain consent rights with respect to major decisions. Contributions are allocated in accordance with each investor’s ownership percentage. Profit and cash distributions are allocated in accordance with each investor’s ownership percentage. As the Operating Partnership through the 2nd Street Joint Venture Interest has the power to direct the activities of the 2nd Street Joint Venture that most significantly impact the performance, the Company consolidates the operating results and financial condition of the 2nd Street Joint Venture and accounts for the ownership interests of the Sponsor and other related parties as noncontrolling interests.
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
|
12. |
Related Party Transactions |
The Company has agreements with the Advisor and its affiliates to pay certain fees, as follows, in exchange for services performed by these entities and other related parties. The Company’s ability to secure financing and subsequent real estate operations are dependent upon its Advisor and their affiliates to perform such services as provided in these agreements.
Fees |
|
Amount |
Acquisition Fee |
|
The Advisor is paid an acquisition fee equal to 2.75% of the gross contractual purchase price (including any mortgage assumed) of each property purchased. The Advisor is also reimbursed for expenses that it incurs in connection with the purchase of a property. The acquisition fee and acquisition-related expenses for any particular property, including amounts payable to related parties, will not exceed, in the aggregate 5% of the gross contractual purchase price (including mortgage assumed) of the property. |
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|
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Property Management - Residential/Retail
|
|
The property managers are paid a monthly management fee of up to 5% of the gross revenues from residential and retail properties. The Company pays the property managers a separate fee for (i) the development of, (ii) the one-time initial rent-up or (iii) the leasing-up of newly constructed properties in an amount not to exceed the fee customarily charged in arm’s length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area. |
|
|
|
Property Management - Office/Industrial |
|
The property managers are paid monthly property management and leasing fees of up to 4.5% of gross revenues from office and industrial properties. In addition, the Company pays the property managers a separate fee for the one-time initial rent-up or leasing-up of newly constructed properties in an amount not to exceed the fee customarily charged in arm’s length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area. |
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|
|
Asset Management Fee |
|
The Advisor or its affiliates are paid an asset management fee of 0.55% of the Company’s average invested assets, as defined, payable quarterly in an amount equal to 0.1375 of 1% of average invested assets as of the last day of the immediately preceding quarter. |
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|
|
Reimbursement of Other expenses
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|
For any year in which the Company qualifies as a REIT, the Advisor must reimburse the Company for the amounts, if any, by which the total operating expenses, the sum of the advisor asset management fee plus other operating expenses paid during the previous fiscal year exceed the greater of 2% of average invested assets, as defined, for that fiscal year, or, 25% of net income, as defined, for that fiscal year. Items such as property operating expenses, depreciation and amortization expenses, interest payments, taxes, non-cash expenditures, the special liquidation distribution, the special termination distribution, organization and offering expenses, and acquisition fees and expenses are excluded from the definition of total operating expenses, which otherwise includes the aggregate expense of any kind paid or incurred by the Company. |
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|
|
|
|
The Advisor or its affiliates are reimbursed for expenses that may include costs of goods and services, administrative services and non-supervisory services performed directly for the Company by independent parties. |
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
In connection with the Company’s Offering, Lightstone SLP, LLC, an affiliate of the Company’s Sponsor, purchased SLP Units in the Operating Partnership for an aggregate of $30.0 million. These SLP Units, the purchase price of which will be repaid only after stockholders receive a stated preferred return and their net investment, entitle Lightstone SLP, LLC to a portion of any regular distributions made by the Operating Partnership.
From the Company’s inception through March 31, 2010, cumulative distributions declared to Lightstone SLP, LLC were $4.9 million, all of which had been paid as of April 2010. For the three months ended June 30, 2010, the Operating Partnership did not declare a distribution related to the SLP Units as the distribution to the stockholders was less than 7% for this period. On August 30, 2010, the Company declared additional distributions to the stockholders to bring the annualized distribution to at least 7%. As such, the Operating Partnership as of August 30, 2010 recommenced declaring distributions on the SLP Units at the 7% annualized rate, except for the three months ended June 30, 2010 which was at an 8% annualized rate which represents the same rate paid to the stockholders. Since inception through December 31, 2022, cumulative distributions declared were $31.8 million, of which $31.2 million have been paid.
During each of the years ended December 31, 2022 and 2021, distributions of $2.1 million were declared and paid related to the SLP Units and are part of noncontrolling interests.
Additionally, on March 15, 2023, the Board of Directors declared a quarterly distribution for the quarterly period ending March 31, 2023 on the SLP Units at an annualized rate of 7.0%. Any future distributions on the SLP Units will always be subordinated until stockholders receive a stated preferred return.
The SLP Units also entitle Lightstone SLP, LLC to a portion of any liquidating distributions made by the Operating Partnership. The value of such distributions will depend upon the net sale proceeds upon the liquidation of the Lightstone REIT I and, therefore, cannot be determined at the present time. Liquidating distributions to Lightstone SLP, LLC will always be subordinated until stockholders receive a distribution equal to their initial investment plus a stated preferred return, as described below:
Operating Stage Distributions |
|
Amount of Distribution |
7% Stockholder Return Threshold |
|
Once a cumulative non-compounded return of 7% per year on their net investment is realized by stockholders, Lightstone SLP, LLC is eligible to receive available distributions from the Operating Partnership until it has received an amount equal to a cumulative non-compounded return of 7% per year on the purchase price of the special general partner interests. “Net investment” refers to $10 per share, less a pro rata share of any proceeds received from the sale or refinancing of the Company’s assets. |
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|
|
12% Stockholder Return Threshold |
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Once a cumulative non-compounded return of 12% per year is realized by stockholders on their net investment (including amounts equaling a 7% return on their net investment as described above), 70% of the aggregate amount of any additional distributions from the Operating Partnership will be payable to the stockholders, and 30% of such amount will be payable to Lightstone SLP, LLC. |
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|
|
Returns in Excess of 12% |
|
After the 12% return threshold is realized by stockholders and Lightstone SLP, LLC, 60% of any remaining distributions from the Operating Partnership will be distributable to stockholders, and 40% of such amount will be payable to Lightstone SLP, LLC. |
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Liquidating Stage Distributions |
|
Amount of Distribution |
7% Stockholder Return Threshold |
|
Once stockholders have received liquidation distributions, and a cumulative non-compounded 7% return per year on their initial net investment, Lightstone SLP, LLC will receive available distributions until it has received an amount equal to its initial purchase price of the special general partner interests plus a cumulative non-compounded return of 7% per year. |
|
|
|
12% Stockholder Return Threshold |
|
Once stockholders have received liquidation distributions [in an amount equal to their net investment] plus a cumulative non-compounded return of 12% per year on their initial net investment (including amounts equaling a 7% return on their net investment as described above), 70% of the aggregate amount of any additional distributions from the Operating Partnership will be payable to the stockholders, and 30% of such amount will be payable to Lightstone SLP, LLC. |
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|
|
Returns in Excess of 12% |
|
After stockholders and Lightstone LP, LLC have received liquidation distributions [in an amount equal to their net investment] plus a cumulative non-compounded return of 12% per year on their initial net investment, 60% of any remaining distributions from the Operating Partnership will be distributable to stockholders, and 40% of such amount will be payable to Lightstone SLP, LLC. |
The following table represents the fees incurred and reimbursement associated with the payments to the Company’s Sponsor, Advisor and their affiliates for the period indicated:
Summary of Amount recorded in pursuant to related party arrangement |
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|
|
|
|
|
|
|
|
|
For the Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2022 |
|
|
2021 |
|
Asset management fees (general and administrative costs) |
|
$ |
825 |
|
|
$ |
849 |
|
Property management fees (property operating expenses) |
|
|
295 |
|
|
|
362 |
|
Acquisition fees(1) |
|
|
2,430 |
|
|
|
- |
|
Development fees and cost reimbursement(2) |
|
|
2,681 |
|
|
|
3,595 |
|
Total |
|
$ |
6,231 |
|
|
$ |
4,806 |
|
|
(1) |
Acquisition fees of $2.4 million were capitalized and are reflected in the carrying value of our investment in the Columbus Joint Venture which is included in investments in unconsolidated affiliated real estate entity on the consolidated balance sheets. |
(2) |
Development fees and the reimbursement of development-related costs that the Company pays to the Advisor and its affiliates are capitalized and are included in the carrying value of the associated development project which are classified as development projects on the consolidated balance sheets. As of December 31, 2022, the Company owed the Advisor and its affiliated entities $0.7 million for development fees, which is included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets. |
LIGHTSTONE VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2022 and 2021
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
|
13. |
Commitments and Contingencies |
Hotel Franchise Agreement
The Lower East Side Moxy Hotel operates pursuant to a 30-year franchise agreement (the “Hotel Franchise Agreement”) with Marriott International, Inc. (“Marriott”). The Hotel Franchise Agreement provides for the Company to pay franchise fees and marketing fund charges equal to certain prescribed percentages of gross room sales, as defined. Additionally, pursuant to the terms of the Hotel Franchise Agreement, the Company received a key money payment of $4.7 million from Marriott during the fourth quarter of 2022, which is included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheet as of December 31, 2022, and is being amortized as a reduction to franchise fees over the term of the Hotel Franchise Agreement. Pursuant to the terms of the Hotel Franchise Agreement, the Company may be obligated to return the unamortized portion of the key money back to Marriott upon the occurrence of certain events. The franchise fees and marketing fund charges are recorded as a component of hotel operating expenses in the consolidated statements of operations.
Hotel Management Agreements
With respect to the Lower East Side Moxy Hotel, the Company has entered into a hotel management agreement, food and beverage operations management agreement and an asset management agreement (collectively, the “Hotel Management Agreements”) with various third-party management companies pursuant to which they provide oversight and management over the operation of the Lower East Side Moxy Hotel and its food and beverage venues and receive payment of certain prescribed management fees, generally based on a percentage of revenues and certain incentives for exceeding targeted earnings thresholds. The management fees are recorded as a component of hotel operating expenses on the consolidated statements of operations. The Hotel Management Agreements have initial terms ranging from five to 20 years.
Legal Proceedings
From time to time in the ordinary course of business, the Lightstone REIT I 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.
PART II. CONTINUED: