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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
(Mark One)
For
the quarterly period ended
OR
For the transition period from ________ to ________
Commission
file number
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☑ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of August 5, 2022, there were million outstanding shares of common stock of Lightstone Value Plus REIT IV, Inc.
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
INDEX
i
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS:
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| June 30, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Investment property: | ||||||||
| Construction in progress | $ | $ | ||||||
| Investment in unconsolidated affiliated real estate entity | ||||||||
| Cash and cash equivalents | ||||||||
| Restricted cash and other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Mortgage payable, net | $ | $ | ||||||
| Accounts payable, accrued expenses and other liabilities | ||||||||
| Subordinated advances - related party | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Company’s Stockholders’ Equity: | ||||||||
| Preferred stock, $ par value; million shares authorized, issued and outstanding | ||||||||
| Common stock, $ par value; million shares authorized, million and million shares issued and outstanding, respectively | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Company’s Stockholders’ Equity | ||||||||
| Noncontrolling interests | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Loss: | ||||||||||||||||
| Investment income | $ | $ | $ | $ | ||||||||||||
| Loss from investment in unconsolidated affiliated real estate entity | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Expenses: | ||||||||||||||||
| General and administrative costs | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Pre-opening costs | ||||||||||||||||
| Total expenses | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: net loss attributable to noncontrolling interests | ||||||||||||||||
| Net loss attributable to Company’s common shares | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Weighted average number of common shares outstanding, basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED.
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
| Additional | Accumulated Other | Total | ||||||||||||||||||||||
| Common | Paid-In | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||
| BALANCE, March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| BALANCE, June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Additional | Accumulated Other | Total | ||||||||||||||||||||||
| Common | Paid-In | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Income | Deficit | Equity | |||||||||||||||||||
| BALANCE, December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| BALANCE, June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Additional | Total | |||||||||||||||||||||||
| Common | Paid-In | Accumulated | Noncontrolling | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||
| BALANCE, March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Contributions of noncontrolling interests | - | |||||||||||||||||||||||
| Redemption and cancellation of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| BALANCE, June 30, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Additional | Total | |||||||||||||||||||||||
| Common | Paid-In | Accumulated | Noncontrolling | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Interests | Equity | |||||||||||||||||||
| BALANCE, December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||
| Contributions of noncontrolling interests | - | |||||||||||||||||||||||
| Redemption and cancellation of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| BALANCE, June 30, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash provided by/(used in) operating activities: | ||||||||
| Loss from investment in unconsolidated affiliated real estate entity | ||||||||
| Changes in assets and liabilities: | ||||||||
| Increase in other assets | ( | ) | ( | ) | ||||
| Increase in accounts payable, accrued expenses and other liabilities | ||||||||
| Increase in accrued interest on subordinated advances - related party | ||||||||
| Cash provided by/(used in) operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of investment property | ( | ) | ( | ) | ||||
| Investment in unconsolidated affiliated real estate entity | ( | ) | ||||||
| Cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from mortgage financing | ||||||||
| Payment of loan fees and expenses | ( | ) | ||||||
| Contributions of noncontrolling interests | ||||||||
| Redemption and cancellation of common stock | ( | ) | ||||||
| Distributions paid to Company’s common stockholders | ( | ) | ||||||
| Cash provided by/(used in) financing activities | ( | ) | ||||||
| Net change in cash, cash equivalents and restricted cash | ( | ) | ( | ) | ||||
| Cash, cash equivalents and restricted cash, beginning of year | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Non-cash purchase of investment property | $ | $ | ||||||
| Unpaid interest accrued and capitalized as mortgage payable and construction in progress | $ | $ | ||||||
| Amortization of deferred financing costs included in construction in progress | $ | $ | ||||||
| The following is a summary of the Company’s cash, cash equivalents and restricted cash total as presented in our statements of cash flows for the periods presented: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(unaudited)
| 1. | Structure |
Lightstone
Value Plus REIT IV, Inc. (“Lightstone REIT IV”), which was formerly known as Lightstone Real Estate Income Trust,
Inc. before September 15, 2021, is a Maryland corporation, formed on
Lightstone REIT IV, together with its subsidiaries is collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns refers to Lightstone REIT IV or the Company as required by the context in which any such pronoun is used.
The Company has and intends to continue to seek opportunities to invest in real estate and real estate-related investments. The Company’s real estate investments may include operating properties and development projects and its real estate-related investment may include mezzanine loans, mortgage loans, bridge loans and preferred equity interests, with a focus on development-related investments, including investments intended to finance development or redevelopment opportunities. The Company may also invest in debt and derivative securities related to real estate assets. A portion of the Company’s investments by value may be secured by or related to properties or entities advised by, or wholly or partially, directly or indirectly owned by, The Lightstone Group, LLC (the “Sponsor”), its affiliates or other real estate investment programs it sponsors. Although the Company expects that most of its investments will be of these various types, it may also make other investments. In fact, it may invest in whatever types of investments that it believes are in its best interests.
The
Company currently has one operating segment. As of June 30, 2022, the Company majority owned and consolidated the operating
results of a joint venture (the “Williamsburg Moxy Hotel Joint Venture”), in which it has a 75% membership interest, and
held an unconsolidated approximate
The
Company’s advisor is Lightstone Real Estate Income LLC (the “Advisor”), which is majority owned by David Lichtenstein.
On September 12, 2014, the Advisor contributed $
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 Advisor has certain affiliates which may manage the properties the Company acquires. However, the Company may also contract with other unaffiliated third-party property managers.
The Company’s stock is 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 its independent directors believe listing would be in the best interest of its stockholders. The Company does not intend to list its shares at this time. The Company does not anticipate that there would be any market for its shares of common stock until they are listed for trading.
Noncontrolling Interests in Consolidated Subsidiaries
Noncontrolling
interests in consolidated subsidiaries represents the noncontrolling member’s
5
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(unaudited)
| 2. | Summary of Significant Accounting Policies |
The accompanying unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of the results for the periods presented. The accompanying unaudited consolidated financial statements of the Lightstone REIT IV and Subsidiaries have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X.
The consolidated financial statements have been prepared in accordance with 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 investments in other real estate entities. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
The consolidated balance sheet as of December 31, 2021 included herein has been derived from the consolidated balance sheet included in the Company’s Annual Report on Form 10-K.
The unaudited statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Lightstone REIT IV and its subsidiaries (over which it exercises financial and operating control). All inter-company balances and transactions have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on applicable GAAP, and if deemed to be variable interest entities (“VIE”) in which we are the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which we have control, substantive participating rights or both under the respective ownership agreement. Investments in other real estate 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 are accounted for using the equity method.
There are judgments and estimates involved in determining if an entity in which the Company has made an investment is a VIE and, if so, whether the Company is the primary beneficiary. The entity is evaluated to determine if it is a VIE by, among other things, calculating the percentage of equity being risked compared to the total equity of the entity. Determining expected future losses involves assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each possibility and using a discount rate to determine the net present value of those future losses. A change in the judgments, assumptions, and estimates outlined above could result in consolidating an entity that should not be consolidated or accounting for an investment using the equity method that should in fact be consolidated, the effects of which could be material to our financial statements.
Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash and other assets, accounts payable and accrued expenses and other liabilities approximate their fair values because of the short maturity of these instruments.
The carrying amount of the mortgage payable approximates fair value because its interest rate is variable and reflective of market rates.
Pre-Opening Costs
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.
6
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(unaudited)
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and it remains highly unpredictable and dynamic and its ultimate duration and extent continue to be dependent on various developments, such as the emergence of variants to the virus that may cause additional strains of COVID-19, and the ongoing development, administration and ultimate effectiveness of vaccines, including booster shots. Accordingly, the ongoing COVID-19 pandemic may continue to have negative effects on the U.S. and global economies for the foreseeable future.
To-date,
the COVID-19 pandemic has not had any significant impact on the Williamsburg Moxy Hotel Joint Venture’s 210-room branded hotel
(the “Williamsburg Moxy Hotel”) development project located in the Williamsburg neighborhood of Brooklyn in New York City,
which is currently under construction and expected to open during the fourth quarter of 2022. The Company’s other investment is
its approximately
The extent to which the Company’s business may be affected by the ongoing COVID-19 pandemic will largely depend on both current and future developments, all of which are highly uncertain and cannot be reasonably predicted. If the Company’s investments in the Williamsburg Moxy Hotel development project and/or 40 East End Ave. Joint Venture are negatively impacted, its business and financial results could be materially and adversely impacted.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation.
New Accounting Pronouncements
The Company has reviewed and determined that recently issued accounting pronouncements will not have a material impact on its financial position, results of operations and cash flows, or do not apply to its current operations.
| 3. | Williamsburg Moxy Hotel |
On
July 17, 2019, the Company, through its then wholly owned subsidiary, Bedford Avenue Holdings LLC acquired four adjacent parcels
of land located at 353-361 Bedford Avenue in the Williamsburg neighborhood of Brooklyn in New York City (collectively, the “Williamsburg
Land”), from unaffiliated third parties, for an aggregate purchase price of approximately $
Williamsburg Moxy Joint Venture
On
August 5, 2021, the Company formed the Williamsburg Moxy Hotel Joint Venture with Lightstone REIT III, pursuant to which Lightstone REIT
III acquired
As
a result, the Company and Lightstone REIT III have
7
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(unaudited)
The Company has determined that the Williamsburg Moxy Hotel Joint Venture is a VIE and the Company is the primary beneficiary. As the Company is the member most closely associated with the Williamsburg Moxy Hotel Joint Venture and therefore has the power to direct the activities of the Williamsburg Moxy Hotel Joint Venture that most significantly impact its performance, the Company consolidates the operating results and financial condition of the Williamsburg Moxy Hotel Joint Venture and accounts for the ownership interest of Lightstone REIT III as noncontrolling interests. Contributions are allocated in accordance with each investor’s ownership percentage. Earnings and cash distributions are allocated in accordance with each investor’s ownership percentage.
On August 4, 2021, the Williamsburg Joint Venture entered into a development agreement (the “Development Agreement”) with an affiliate of the Advisor (the “Williamsburg Moxy Developer”) pursuant to which the Williamsburg Moxy Developer is being paid a development fee equal to 3% of hard and soft costs, as defined in the Development Agreement, incurred in connection with the development and construction of the Williamsburg Moxy Hotel (see Note 6 for additional information). Additionally on August 5, 2021, the Williamsburg Moxy Joint Venture obtained construction financing for the Williamsburg Moxy Hotel as discussed below. The Williamsburg Moxy Hotel is under currently under construction and expected to open during the fourth quarter of 2022. Additionally, the advisor and its affiliates are reimbursed for certain development-related costs attributable to the Williamsburg Moxy Hotel.
As
of June 30, 2022, the Williamsburg Moxy Hotel Joint Venture incurred and capitalized to construction in progress an aggregate of $
In
preparation for the opening of the Williamsburg Moxy Hotel, which is expected to occur during the fourth quarter of 2022, the Williamsburg
Moxy Hotel Joint Venture incurred pre-opening costs of $
Moxy Construction Loan
On
August 5, 2021, the Williamsburg Moxy Hotel Joint Venture entered into a recourse construction loan facility for up to $77.0 million
(the “Moxy Construction Loan”) to fund the development, construction and certain pre-opening costs associated with the Williamsburg
Moxy Hotel. The Moxy Construction Loan is scheduled to initially mature on February 5, 2024, with two, six-month extension options, subject
to the satisfaction of certain conditions.
In
connection with the Moxy Construction Loan, the Williamsburg Moxy Hotel Joint Venture has provided certain completion and carry cost
guarantees. Furthermore, in connection with the Moxy Construction Loan, the Williamsburg Moxy Hotel Joint Venture paid $
8
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(unaudited)
| 4. | Investment in Unconsolidated Affiliated Real Estate Entity |
40 East End Ave. Joint Venture
On
March 31, 2017, the Company entered into a joint venture agreement (the “40 East End Ave. Transaction”) with SAYT Master
Holdco LLC, an entity majority-owned and controlled by David Lichtenstein, who also majority owns and controls the Sponsor, a related
party (the “40 East End Seller”), providing for the Company to acquire approximately
The
Company’s ownership interest in the 40 East End Ave. Joint Venture is a non-managing interest. Because the Company exerts significant
influence over but does not control the 40 East End Ave. Joint Venture, it accounts for its ownership interest in the 40 East End Ave.
Joint Venture in accordance with the equity method of accounting. All contributions to and distributions of earnings from the 40 East
End Ave. 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 40 East End Ave. Joint Venture are made to the members pursuant to the terms of its operating agreement.
The Company commenced recording its allocated portion of earnings and cash distributions, if any, from the 40 East End Ave. Joint Venture
beginning as of March 31, 2017 with respect to its membership interest of approximately
The 40 East End Ave. Joint Venture, through affiliates, owns the 40 East End Avenue Project, a luxury residential 29-unit condominium project located at the corner of 81st Street and East End Avenue in the Upper East Side neighborhood of Manhattan in New York City. The 40 East End Avenue Project received its final TCO in March 2020 and through June 30, 2022, 19 of the condominium units have been sold.
On
December 19, 2019, the 40 East End Ave. Joint Venture obtained financing (the “Condo Loan”) from a financial institution
of $
On
December 30, 2021, the 40 East End Ave. Joint Venture and the financial institution amended the Condo Loan providing for an extension
of the maturity date to December 20, 2022 and revisions to the timing and amounts of required principal payments to be made from proceeds
from the sale of condominium units. Pursuant to the amended terms of the Condo Loan, the 40 East End Ave. Joint Venture would have been
required to make a principal paydown on May 20, 2022, if the then outstanding principal balance of the Condo Loan had not been paid down
to at least $
As discussed above, the Condo Loan is currently scheduled to mature on December 20, 2022. If the Condo Loan has not been repaid in full before its maturity date, the 40 East End Ave. Joint Venture intends to seek a further extension to the maturity date. However, there can be no assurance that the 40 East End Ave. Joint Venture will be successful in such endeavors.
The
Sponsor and its affiliates (collectively, the “40 East End Guarantors”) have provided certain guarantees with respect to
the Condo Loan and the members have agreed to reimburse the 40 East End Guarantors for any balance that may become due under the guarantees
(the “40 East End Guarantee”), of which the Company’s share is approximately
9
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(unaudited)
In
connection with the closing of the Condo Loan, the 40 East End Ave. Joint Venture used a portion of the initial loan proceeds to (i)
fully repay an aggregate of $
Subsequent
to the Company’s acquisition through June 30, 2022, it has made an aggregate of $
The 40 East End Ave. Joint Venture Financial Information
The following table represents the condensed income statements for the 40 East End Ave. Joint Venture:
| (amounts in thousands) | For the Three Months Ended 2022 | For the Three Months Ended 2021 | For the Six Months Ended June 30, 2022 | For the Six Months Ended June 30, 2021 | ||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Impairment of real estate inventory | ||||||||||||||||
| Other expenses | ||||||||||||||||
| Operating income/(loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest expense and other, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Company’s share of net loss (33.3%) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The following table represents the condensed balance sheets for the 40 East End Ave. Joint Venture:
| As of | As of | |||||||
| (amounts in thousands) | June 30, 2022 | December 31, 2021 | ||||||
| Real estate inventory | $ | $ | ||||||
| Cash and restricted cash | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Mortgage payable, net | $ | $ | ||||||
| Other liabilities | ||||||||
| Members’ capital | ||||||||
| Total liabilities and members’ capital | $ | $ | ||||||
10
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(unaudited)
| 5. | Stockholders’ Equity |
Distributions
On March 25, 2020, the Board of Directors determined to suspend regular monthly distributions for months ending after March 2020.
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 maturing 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.
Share Repurchase Program
The Company’s share repurchase program may provide its stockholders with limited, interim liquidity by enabling them to sell their Common Shares back to the Company, subject to restrictions.
On March 25, 2020, the Board of Directors amended the share repurchase program to remove stockholder notice requirements and also approved the suspension of all redemptions effective immediately.
Effective May 10, 2021, the Board of Directors reopened the share repurchase program for redemptions submitted in connection with a stockholder’s death or hardship and set the price for all such purchases at the Company’s estimated net asset value per share, as determined by the Company’s board of directors and reported by the Company from time to time.
Deaths that occurred subsequent to January 1, 2020 are 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 an annual basis, the Company will not redeem in excess of % of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Redemption requests are expected to be processed on a quarterly basis and may be subject to pro ration if either type of redemption requests exceed the annual limitation.
For the six months ended June 30, 2022, the Company repurchased Common Shares at an average price per share of $ per share.
Net Earnings per Common Share
Net earnings per Common Share on a basic and fully diluted basis is earnings divided by the weighted average number of shares of common stock outstanding. The Company does not have any potentially dilutive securities.
11
LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(unaudited)
| 6. | Related Party Transactions and Other Arrangements |
The Company has agreements with the Advisor to pay certain fees, in exchange for services performed by the Advisor and/or its affiliated entities.
The advisory agreement has a one-year term and is renewable for an unlimited number of successive one-year periods upon the mutual consent of the Advisor and the Company’s independent directors. Payments to the Advisor or its affiliates may include asset acquisition fees and the reimbursement of acquisition-related expenses, development fees and the reimbursement of development-related costs, financing coordination fees, asset management fees or asset management participation, and construction management fees. The Company may also reimburse the Advisor and its affiliates for actual expenses it incurs for administrative and other services provided for it. Upon the liquidation of the Company’s assets, it may pay the Advisor or its affiliates a disposition commission.
Development
fees and the reimbursement of development-related costs attributable to the Williamsburg Moxy Hotel which are paid to the Advisor and
its affiliates are capitalized and included in the carrying value of the investment in the Williamsburg Moxy Hotel, which is classified
as construction in progress on the consolidated balance sheets. During the three and six months ended June 30, 2022, development fees
and reimbursed development-related costs totaling $
As
of December 31, 2021, the Company owed the Advisor and its affiliated entities $
Subordinated Advances – Related Party
On
March 18, 2016, the Company entered into a subordinated unsecured loan agreement (the “Subordinated Agreement”) with the
Sponsor pursuant to which the Sponsor made aggregate principal advances of $
Distributions
in connection with a liquidation of the Company initially will be made to holders of its Common Shares until holders of its Common Shares
have received liquidation distributions equal to their respective net investments plus a cumulative, pre-tax, non-compounded annual return
of
The
principal advances and the related interest are subordinate to all of the Company’s obligations as well as to the holders of its
Common Shares in an amount equal to the shareholder’s net investment plus a cumulative, pre-tax, non-compounded annual return of
In connection with the termination of the Offering, on March 31, 2017, the Company and the Sponsor simultaneously terminated the Subordinated Agreement. As a result of the termination, the Sponsor is no longer obligated to make any additional principal advances to the Company. Interest will continue to accrue on the outstanding principal advances and repayment, if any, of the principal advances and related accrued interest will be made according to the terms of the Subordinated Agreement disclosed above.
As
of both June 30, 2022 and December 31, 2021, an aggregate of approximately $
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LIGHTSTONE VALUE PLUS REIT IV, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(unaudited)
| 7. | Commitments and Contingencies |
Legal Proceedings
From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.
As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.
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PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Lightstone Value Plus REIT IV, Inc. and Subsidiaries (“Lightstone REIT IV”), and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Lightstone Value Plus REIT IV, Inc., a Maryland corporation, and its subsidiaries.
Forward-Looking Statements
Certain information included in this Quarterly Report on Form 10-Q contains, and other materials filed or to be filed by us with the Securities and Exchange Commission (the “SEC”), contain or will contain, forward-looking statements. All statements, other than statements of historical facts, including, among others, statements regarding our possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives, are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of Lightstone Value Plus REIT IV, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements.
Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements.
Risks and other factors that might cause differences, some of which could be material, include, but are not limited to, economic and market conditions, competition, tenant or joint venture partner(s) bankruptcies, our lack of operating history, the availability of cash flows from operations to pay distributions, changes in governmental, tax, real estate and zoning laws and regulations, financing and development risks, construction delays, cost overruns, the level and volatility of interest rates, our failure to make additional investments in real estate properties, restrictions in current financing arrangements, insurance, taxes and other property expenses, our failure to continue to qualify as a real estate investment trust (“REIT”), the failure to refinance debt at favorable terms and conditions, an increase in impairment charges, loss of key personnel, failure to achieve earnings/funds from operations targets or estimates, conflicts of interest with the Advisor and the Sponsor and their affiliates, failure of joint venture relationships, significant costs related to environmental issues and uncertainties regarding the impact of the current COVID-19 pandemic, and restrictions intended to prevent its spread on our business and the economy generally, as well as other risks listed from time to time in this Form 10-Q, our Form 10-K and in our other reports filed with the SEC.
We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless required by law.
Overview
Lightstone Value Plus REIT IV, Inc. (“Lightstone REIT IV”), which was formerly known as Lightstone Real Estate Income Trust, Inc. before September 15, 2021, is a Maryland corporation, formed on September 9, 2014, which elected to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with the taxable year ending December 31, 2016.
Lightstone REIT IV, together with its subsidiaries is collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns refers to Lightstone REIT IV or the Company as required by the context in which any such pronoun is used.
We have and intend to continue to seek opportunities to invest in real estate and real estate-related investments. Our real estate investments may include operating properties and development projects and our real estate-related investment may include mezzanine loans, mortgage loans, bridge loans and preferred equity interests, with a focus on development-related investments, including investments intended to finance development or redevelopment opportunities. We may also invest in debt and derivative securities related to real estate assets. A portion of our investments by value may be secured by or related to properties or entities advised by, or wholly or partially, directly or indirectly owned by The Lightstone Group, LLC (the “Sponsor”), its affiliates or other sponsored real estate investment programs it sponsors. Although we expect that most of our investments will be of these various types, we may also invest in whatever types of investments that we believe are in our best interests.
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We currently have one operating segment. As of June 30, 2022, we majority owned and consolidated the operating results of a joint venture (the “Williamsburg Moxy Hotel Joint Venture”), in which we have a 75% membership interest, and held an unconsolidated approximate 33.3% membership interest in 40 East End Ave. Pref Member LLC (the “40 East End Ave. Joint Venture”). We account for our unconsolidated membership interest in the 40 East End Ave. Joint Venture in accordance with the equity method of accounting.
Our advisor is Lightstone Real Estate Income LLC, a Delaware limited liability company (the “Advisor”), which is majority owned by David Lichtenstein. On September 12, 2014, the Advisor contributed $200,000 to Lightstone REIT IV in exchange for 20,000 shares of common stock (“Common Shares”), or $10.00 per share. Mr. Lichtenstein also is a majority owner of the equity interests of The Lightstone Group, LLC. The Lightstone Group, LLC served as the Sponsor during our initial public offering (the “Offering”) which terminated on March 31, 2017. Mr. Lichtenstein owns 222,222 Common Shares which were issued on June 15, 2015 for $2.0 million, or $9.00 per share. Subject to the oversight of our board of directors (the “Board of Directors”) and pursuant to the terms of an advisory agreement, the Advisor has the primary responsibility for making investment decisions on our behalf and managing our day-to-day operations. Mr. Lichtenstein also acts as our Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT IV.
We do not have any employees. The Advisor receives compensation and fees for services related to the investment and management of our assets. The Advisor has certain affiliates which may manage the properties we acquire. However, we may also contract with other unaffiliated third-party property managers.
Our Common Shares are not currently listed on a national securities exchange. We may seek to list our Common Shares for trading on a national securities exchange only if a majority of our independent directors believe listing would be in the best interest of its stockholders. We do not intend to list our shares at this time. We do not anticipate that there would be any market for our Common Shares until they are listed for trading.
Current Environment
Our operating results are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility, 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, competition, inflation and recession.
COVID-19 Pandemic
On March 20, 2020, the World Health Organization declared COVID-19 a global pandemic and it remains highly unpredictable and dynamic and its ultimate duration and extent continue to be dependent on various developments, such as the emergence of variants to the virus that may cause additional strains of COVID-19, and the ongoing development, administration and ultimate effectiveness of vaccines, including booster shots. Accordingly, the ongoing COVID-19 pandemic may continue to have negative effects on the U.S. and global economies for the foreseeable future.
To-date, the COVID-19 pandemic has not had any significant impact on the Williamsburg Moxy Joint Venture’s 210-room branded hotel (the “Williamsburg Moxy Hotel”) development project located in the Williamsburg neighborhood of Brooklyn in New York City, which is currently under construction and expected to open during the fourth quarter of 2022. Our other investment is our approximately 33.3% membership interest in the 40 East End Ave. Joint Venture, which substantially completed the development and construction of a 29-unit luxury residential condominium project (the “40 East End Avenue Project”) located in the Upper East Side neighborhood of Manhattan in New York City in March 2020, which was at the onset of the COVID-19 pandemic. Thereafter, the pace of condominium unit sales has been impacted by the ongoing COVID-19 pandemic and through June 30, 2022, 19 of the condominium units have been sold. Additionally, because of the pace of condominium sales, the 40 East End Joint Venture has obtained an amendment, including an extension of the maturity date, to the loan secured by the remaining unsold condominium units. See Note 4 of the Notes to Consolidated Financial Statements for additional information.
The extent to which our business may be affected by the ongoing COVID-19 pandemic will largely depend on both current and future developments, all of which are highly uncertain and cannot be reasonably predicted. If our investments in the Williamsburg Moxy Hotel development project and/or 40 East End Ave. Joint Venture are negatively impacted, our business and financial results could be materially and adversely impacted.
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We are not currently aware of any other material trends or uncertainties, favorable or unfavorable, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from our operations, other than those referred to above or throughout this Form 10-Q. The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period.
Current Portfolio Summary –
As of June 30, 2022, we majority owned and consolidated the operating results of the Williamsburg Moxy Hotel Joint Venture, which is currently developing and constructing the Williamsburg Moxy Hotel, a 210-room branded hotel.
As of June 30, 2022, we held an unconsolidated approximate 33.3% membership interest in the 40 East End Ave. Joint Venture, an affiliated real estate entity which owns the 40 East End Project, a luxury residential condominium project consisting of 29 units, of which 19 have been sold. We account for our unconsolidated membership interests in the 40 East End Ave. Joint Venture in accordance with the equity method of accounting.
Critical Accounting Policies and Estimates
There were no material changes during the six months ended June 30, 2022 to our critical accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2021.
Results of Operations
For the periods presented, we had ownership interests in the following real estate and real estate-related investments:
40 East End Ave. Joint Venture
On March 31, 2017, we entered into a joint venture agreement (the “40 East End Ave. Transaction”) with SAYT Master Holdco LLC, an entity majority-owned and controlled by David Lichtenstein, who also majority owns and controls the Sponsor, and a related party, (the “40 East End Seller”), providing for us to acquire an approximate 33.3% of the 40 East End Seller’s approximate 100% membership interest in the 40 East End Ave. Joint Venture.
The 40 East End Ave. Joint Venture, through affiliates, owns the 40 East End Avenue Project, a luxury residential 29-unit condominium project located at the corner of 81st Street and East End Avenue in the Upper East Side neighborhood of Manhattan in New York City. The 40 East End Avenue Project received its final TCO in March 2020 and through June 30, 2022, 19 condominium units have been sold.
We account for our approximately 33.3% membership interest in the 40 East End Ave. Joint Venture in accordance with the equity method of accounting.
Williamsburg Moxy Hotel
On July 17, 2019, we, through our then wholly owned subsidiary, Bedford Avenue Holdings LLC acquired four adjacent parcels of land located at 353-361 Bedford Avenue in the Williamsburg neighborhood of Brooklyn in New York City (collectively, the “Williamsburg Land”) on which the Williamsburg Moxy Hotel is being developed.
On August 5, 2021, we formed the Williamsburg Moxy Hotel Joint Venture with Lightstone REIT III, pursuant to which Lightstone REIT III acquired 25% of our membership interest in the Bedford Avenue Holdings LLC for aggregate consideration of $7.9 million. Subsequent to the initial acquisition, Lightstone REIT III made additional capital contributions to the Williamsburg Moxy Hotel Joint Venture of $4.6 million through June 30, 2022, including $0.3 million made during the six months ended June 30, 2022.
As a result, we and Lightstone REIT III have 75% and 25% membership interests, respectively, in the Williamsburg Moxy Hotel Joint Venture.
The operating results of these investments have been reflected in our consolidated statements of operations commencing from their respective dates of acquisition through their respective dates of disposition.
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For the Three Months Ended June 30, 2022 vs. June 30, 2021
Investment income – interest income
We did not have any investment income for the 2022 period. Our investment income was $9,600 for the three months ended June 30, 2021.
Earnings from investment in unconsolidated affiliated real estate entity
Our earnings from investment in unconsolidated affiliated real estate entity are solely attributable to our ownership interest in the 40 East End Ave. Joint Venture. The earnings from our investment in the 40 East End Ave. Joint Venture were losses of $0.1 million and $0.9 million for the three months ended June 30, 2022 and 2021, respectively. We account for our investment in the 40 East End Ave. Joint Venture in accordance with the equity method of accounting.
General and administrative costs
General and administrative costs were $0.1 million and $0.2 million for the three months ended June 30, 2022 and 2021, respectively.
Interest expense
Interest expense, which is attributable to the outstanding principal advances of $12.6 million included in Subordinated Advances – Related Party, was $46,610 for both the three months ended June 30, 2022 and 2021. Additionally, during the three months ended June 30, 2022 and 2021, $1.3 million and $0.1 million of interest was capitalized to construction in progress for the Williamsburg Moxy Hotel development project.
Pre-opening costs
In preparation for the opening of the Williamsburg Moxy Hotel, which is expected to occur during the fourth quarter of 2022, the Williamsburg Moxy Hotel Joint Venture incurred pre-opening costs of $0.4 million during the three months ended June 30, 2022. No pre-opening costs were incurred during the 2021 period.
For the Six Months Ended June 30, 2022 vs. June 30, 2021
Investment income – interest income
We did not have any investment income for the 2022 period. Our investment income was $21,283 during the six months ended June 30, 2021.
Earnings from investment in unconsolidated affiliated real estate entity
Our earnings from investment in unconsolidated affiliated real estate entity are solely attributable to our ownership interest in the 40 East End Ave. Joint Venture. The earnings from our investment in the 40 East End Ave. Joint Venture were losses of $0.3 million and $1.4 million for the six months ended June 30, 2022 and 2021, respectively. We account for our investment in the 40 East End Ave. Joint Venture in accordance with the equity method of accounting.
General and administrative costs
General and administrative costs were $0.3 million for both the six months ended June 30, 2022 and 2021.
Interest expense
Interest expense, which is attributable to the outstanding principal advances of $12.6 million included in Subordinated Advances – Related Party, was $92,708 for both the six months ended June 30, 2022 and 2021. Additionally, during the six months ended June 30, 2022 and 2021, $2.4 million and $0.2 million of interest was capitalized to construction in progress for our Williamsburg Moxy Hotel development project.
Pre-opening costs
In preparation for the opening of the Williamsburg Moxy Hotel, which is expected to occur during the fourth quarter of 2022, the Williamsburg Moxy Hotel Joint Venture incurred pre-opening costs of $0.4 million during the six months ended June 30, 2022. No pre-opening costs were incurred during the 2021 period.
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Financial Condition, Liquidity and Capital Resources
As of June 30, 2022, we had cash and cash equivalents of $10.2 million. We currently believe that our current available cash on hand will be sufficient to satisfy our expected cash requirements primarily consisting of our anticipated operating expenses, scheduled debt service, and any necessary capital contributions for our investment in unconsolidated affiliated real estate entity and distributions to our shareholders, if any, required to maintain our qualification as a REIT for the foreseeable future. The remaining development, construction and certain pre-opening costs associated with the Williamsburg Moxy Hotel are expected to be funded from the availability of up to $36.6 million under the construction financing. See “Williamsburg Moxy Hotel” for additional information.
We intend to limit our aggregate long-term permanent borrowings to 75% of the aggregate fair market value of all properties unless any excess borrowing is approved by a majority of the independent directors and is disclosed to our stockholders. Market conditions will dictate our overall leverage limit; as such our aggregate long-term permanent borrowings may be less than 75% of aggregate fair market value of all properties. We may also incur short-term indebtedness, having a maturity of two years or less.
Our charter provides that the aggregate amount of our borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a satisfactory showing that a higher level is appropriate, the approval of our Board of Directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. Market conditions will dictate our overall leverage limit; as such our aggregate borrowings may be less than 300% of net assets.
Our future borrowings may consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. Such mortgages may be put in place either at the time we acquire a property or subsequent to our purchasing a property for cash. In addition, we may acquire properties that are subject to existing indebtedness where we choose to assume the existing mortgages. Generally, though not exclusively, we intend to seek to encumber our properties with non-recourse debt. This means that a lender’s rights on default will generally be limited to foreclosing on the property. However, we may, at our discretion, secure recourse financing or provide a guarantee to lenders if we believe this may result in more favorable terms. When we give a guaranty for a property owning entity, we will be responsible to the lender for the satisfaction of the indebtedness if it is not paid by the property owning entity.
In general the type of future financing executed by us to a large extent will be dictated by the nature of the investment and current market conditions. For long-term real estate investments, it is our intent to finance future acquisitions using long-term fixed rate debt. However there may be certain types of investments and market circumstances which may result in variable rate debt being the more appropriate choice of financing. To the extent floating rate debt is used to finance the purchase of real estate, management will evaluate a number of protections against significant increases in interest rates, including the purchase of interest rate cap instruments.
We may also obtain lines of credit to be used to acquire real estate and/or real estate related investments. If obtained, these lines of credit will be at prevailing market terms and will be repaid from the sale or refinancing of real estate and/or real estate related investments, working capital and/or permanent financing. The Sponsor and/or its affiliates may guarantee our lines of credit although they are not obligated to do so. We expect that such properties may be purchased by the Sponsor’s affiliates on our behalf, in our name, in order to minimize the imposition of a transfer tax upon a transfer of such properties to us.
We have agreements with the Advisor to pay certain fees, in exchange for services performed by the Advisor and/or its affiliated entities.
The advisory agreement has a one-year term and is renewable for an unlimited number of successive one-year periods upon the mutual consent of the Advisor and our independent directors. Payments to the Advisor or its affiliates may include asset acquisition fees and the reimbursement of acquisition-related expenses, development fees and the reimbursement of development-related costs, financing coordination fees, asset management fees or asset management participation, and construction management fees. We may also reimburse the Advisor and its affiliates for actual expenses it incurs for administrative and other services provided for it. Upon the liquidation of our assets, we may pay the Advisor or its affiliates a disposition commission.
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Development fees and the reimbursement of development-related costs attributable to the Williamsburg Moxy Hotel which are paid to the Advisor and its affiliates are capitalized and included in the carrying value of the investment in the Williamsburg Moxy Hotel, which is classified as construction in progress on the consolidated balance sheets. During the three and six months ended June 30, 2022, development fees and reimbursed development-related costs totaling $0.4 million and $0.9 million, respectively, were incurred and during the three and six months ended June 30, 2021, respectively, development fees and reimbursed development-related costs totaling $0.3 million and $0.4 million, respectively, were incurred. See Notes 3 and 6 of the Notes to Consolidated Financial Statements for additional information.
As of December 31, 2021, we owed the Advisor and its affiliates $0.3 million, which is included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets. Additionally, as of June 30, 2022 the Advisor and its affiliates owed us $3,961, which is included in restricted cash and other assets on the consolidated balance sheets.
Summary of Cash Flows
The following summary discussion of our cash flows is based on the statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below:
For the Six Months Ended June 30, 2022 | For the Six Months Ended June 30, 2021 | |||||||
| Cash flows provided by/(used in) operating activities | $ | 47,898 | $ | (203,112 | ) | |||
| Cash flows used in investing activities | (23,157,260 | ) | (8,377,485 | ) | ||||
| Cash flows provided by/(used in) financing activities | 21,678,762 | (3,191,447 | ) | |||||
| Net change in cash, cash equivalents and restricted cash | (1,430,600 | ) | (11,772,044 | ) | ||||
| Cash, cash equivalents and restricted cash, beginning of the year | 12,197,119 | 31,490,826 | ||||||
| Cash, cash equivalents and restricted cash, end of the period | $ | 10,766,519 | $ | 19,718,782 | ||||
Operating activities
The net cash provided by operating activities during the six months ended June 30, 2022 consisted of our net loss of $1.2 million after adjustments for the noncash effect of our loss from our investment in unconsolidated affiliated real estate entity of $0.3 million and changes in assets and liabilities of $0.9 million.
Investing activities
The cash used in investing activities of $23.2 million during the six months ended June 30, 2022 consisted primarily of $22.9 million of development and construction costs associated with the Williamsburg Moxy Hotel and capital contributions of $0.3 million made to the 40 East End Ave. Joint Venture.
Financing activities
The cash provided by financing activities of $21.7 million during the six months ended June 30, 2022 consisted primarily of proceeds from the Moxy Construction Loan of $22.0 million, contributions of $0.3 million made by Lightstone REIT III to the Williamsburg Moxy Hotel Joint Venture and redemptions and cancellation of shares of common stock of $0.6 million.
Williamsburg Moxy Hotel
On July 17, 2019, we, through our then wholly owned subsidiary, Bedford Avenue Holdings LLC acquired the Williamsburg Land, from unaffiliated third parties, for an aggregate purchase price of $30.4 million, excluding closing and other acquisition related costs, on which the Williamsburg Moxy Hotel is being developed.
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Williamsburg Moxy Joint Venture
On August 5, 2021, we formed the Williamsburg Moxy Hotel Joint Venture with Lightstone REIT III, pursuant to which Lightstone REIT III acquired 25% of our membership interest in the Bedford Avenue Holdings LLC for aggregate consideration of $7.9 million. Subsequent to the initial acquisition, Lightstone REIT III made additional capital contributions to the Williamsburg Moxy Hotel Joint Venture of $4.6 million through June 30, 2022, including $0.3 million made during the six months ended June 30, 2022.
As a result, we and Lightstone REIT III have 75% and 25% membership interests, respectively, in the Williamsburg Moxy Hotel Joint Venture. Additionally, we are the managing member of the Williamsburg Moxy Hotel Joint Venture and Lightstone REIT III has consent rights with respect to all major decisions.
We determined that the Williamsburg Moxy Hotel Joint Venture is a VIE and we are the primary beneficiary. As we are the member most closely associated with the Williamsburg Moxy Hotel Joint Venture and therefore have the power to direct the activities of the Williamsburg Moxy Hotel Joint Venture that most significantly impact its performance, we consolidate the operating results and financial condition of the Williamsburg Moxy Hotel Joint Venture and account for the ownership interest of Lightstone REIT III as noncontrolling interests. 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.
On August 4, 2021, the Williamsburg Joint Venture entered into a development agreement (the “Development Agreement”) with an affiliate of the Advisor (the “Williamsburg Moxy Developer”) pursuant to which the Williamsburg Moxy Developer is being paid a development fee equal to 3% of hard and soft costs, as defined in the Development Agreement, incurred in connection with the development and construction of the Williamsburg Moxy Hotel (see Note 6 of the Notes to Consolidated Financial Statements for additional information). Additionally on August 5, 2021, the Williamsburg Moxy Joint Venture obtained construction financing for the Williamsburg Moxy Hotel as discussed below. The Williamsburg Moxy Hotel is under currently under construction and expected to open during the fourth quarter of 2022. Additionally, the advisor and its affiliates are reimbursed for certain development and development-related costs attributable to the Williamsburg Moxy Hotel.
As of June 30, 2022, the Williamsburg Moxy Hotel Joint Venture incurred and capitalized to construction in progress an aggregate of $95.0 million (including capitalized interest of $5.6 million) consisting of acquisition and other costs attributable to the development of the Williamsburg Moxy Hotel. During the three and six months ended June 30, 2022, $1.3 million and $2.4 million, respectively, of interest was capitalized to construction in progress and during the three and six months ended June 30, 2021, $0.1 million and $0.2 million, respectively, of interest was capitalized to construction in progress.
Moxy Construction Loan
On August 5, 2021, the Williamsburg Moxy Hotel Joint Venture entered into a recourse construction loan facility for up to $77.0 million (the “Moxy Construction Loan”) to fund the development, construction and certain pre-opening costs associated with the Williamsburg Moxy Hotel. The Moxy Construction Loan is scheduled to initially mature on February 5, 2024, with two, six-month extension options, subject to the satisfaction of certain conditions. The Moxy Construction Loan bears interest at LIBOR plus 9.00%, subject to a 9.50% floor, with the first 7.50% drawn under the facility and the excess added to the outstanding loan balance due at maturity. The Moxy Construction Loan is collateralized by the Williamsburg Moxy Hotel. As of June 30, 2022 and December 31, 2021, the outstanding principal balance of the Moxy Construction Loan was $40.9 million (including $0.5 million of interest capitalized to principal) which is presented, net of deferred financing fees of $2.8 million and $18.6 million (including $0.1 million of interest capitalized to principal) which is presented, net of deferred financing fees of $3.7 million, respectively, on the consolidated balance sheets and is classified as mortgage payable, net. As of June 30, 2022, the remaining availability under the facility was up to $36.6 million and its interest rate was 10.79%.
In connection with the Moxy Construction Loan, the Williamsburg Moxy Hotel Joint Venture has provided certain completion and carry cost guarantees. Furthermore, in connection with the Moxy Construction Loan, the Williamsburg Moxy Hotel Joint Venture paid $3.7 million of loan fees and expenses and accrued $0.8 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 both June 30, 2022 and December 31, 2021.
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40 East End Ave. Joint Venture
On March 31, 2017, we entered into the 40 East End Ave. Transaction with the 40 East End Seller, providing for us to acquire approximately 33.3% of the 40 East End Seller’s approximate 100% membership interest in the 40 East End Ave. Joint Venture for aggregate consideration of $10.3 million.
Our ownership interest in the 40 East End Ave. Joint Venture is a non-managing interest. Because we exert significant influence over but do not control the 40 East End Ave. Joint Venture, we account for our ownership interest in the 40 East End Ave. Joint Venture in accordance with the equity method of accounting. All contributions to and distributions of earnings from the 40 East End Ave. 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 40 East End Ave. Joint Venture are made to the members pursuant to the terms of its operating agreement. We commenced recording our allocated portion of earnings and cash distributions, if any, from the 40 East End Ave. Joint Venture beginning as of March 31, 2017 with respect to our membership interest of approximately 33.3% in the 40 East End Ave. Joint Venture. Additionally, Lightstone Value Plus REIT I, Inc.(“Lightstone REIT I”), a REIT also sponsored by our Sponsor, made $30.0 million of preferred equity contributions (the “Preferred Contributions”) to a subsidiary of the 40 East End Ave. Joint Venture, pursuant to an instrument that entitles Lightstone REIT I to monthly preferred distributions at a rate of 12% per annum. No distributions may be paid to the members until the Preferred Contributions are redeemed in full.
The 40 East End Ave. Joint Venture, through affiliates, owns the 40 East End Avenue Project, a luxury residential 29-unit condominium project located at the corner of 81st Street and East End Avenue in the Upper East Side neighborhood of Manhattan in New York City. The 40 East End Avenue Project received its final TCO in March 2020 and through June 30, 2022, 19 condominium units have been sold.
On December 19, 2019, the 40 East End Ave. Joint Venture obtained financing (the “Condo Loan”) from a financial institution of $95.2 million, of which $90.2 million was initially funded at closing and the remaining $5.0 million was subsequently advanced in April 2020. The Condo Loan, which was previously scheduled to mature on December 19, 2021, bears interest at LIBOR plus 2.45%, which is payable monthly, and requires principal payments to be made at certain prescribed amounts from proceeds from the sales of condominium units with any remaining outstanding balance due in full at maturity.
On December 30, 2021, the 40 East End Ave. Joint Venture and the financial institution amended the Condo Loan providing for an extension of the maturity date to December 20, 2022 and revisions to the timing and amounts of required principal payments to be made from proceeds from the sale of condominium units. Pursuant to the amended terms of the Condo Loan, the 40 East End Ave. Joint Venture would have been required to make a principal paydown on May 20, 2022, if the then outstanding principal balance of the Condo Loan has not been paid down to at least $26.5 million as of that date, with any remaining outstanding balance due in full at maturity. However, prior to May 20, 2022, the 40 East End Ave. Joint Venture used an aggregate of $17.3 million of proceeds from the sale of four condominium units to reduce the principal balance of the Condo Loan to $19.2 million, which remains outstanding as of June 30, 2022.
As discussed above, the Condo Loan is currently scheduled to mature on December 20, 2022. If the Condo Loan has not been repaid in full before its maturity date, the 40 East End Ave. Joint Venture intends to seek a further extension to the maturity date. However, there can be no assurance that the 40 East End Ave. Joint Venture will be successful in such endeavors.
Our Sponsor and its affiliates (collectively, the “40 East End Guarantors”) have provided certain guarantees with respect to the Condo Loan and the members have agreed to reimburse the 40 East End Guarantors for any balance that may become due under the guarantees (the “40 East End Guarantee”), of which our share is approximately 33.3%. We have determined that the fair value of our share of the 40 East End Guarantee is immaterial.
In connection with the closing of the Condo Loan, the 40 East End Ave. Joint Venture used a portion of the initial loan proceeds to (i) fully repay an aggregate of $80.5 million of principal and interest under a construction loan previously used to fund the development and construction of the 40 East End Avenue Project and (ii) redeem $9.5 million of Lightstone REIT I’s Preferred Contributions. The 40 East End Ave. Joint Venture subsequently redeemed an additional $3.5 million and $11.0 million of Preferred Contributions on December 26, 2019 and February 13, 2020, respectively, reducing Lightstone REIT I’s Preferred Contributions to $6.0 million, which remains outstanding as of June 30, 2022.
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Subsequent to our acquisition through June 30, 2022, we have made an aggregate of $6.2 million of additional capital contributions to the 40 East End Ave. Joint Venture, of which $0.3 million were made during the six months ended June 30, 2022.
Because proceeds from sales of condominium units must first be used to fully pay-down the Condo Loan and thereafter to redeem Lightstone REIT I’s remaining Preferred Contributions, we currently do not expect to receive any distributions from the 40 East End Ave. Joint Venture over the next 12 months.
Distributions
On March 25, 2020, the Board of Directors determined to suspend regular monthly distributions for months ending after March 2020.
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.
Share Repurchase Program
Our share repurchase program may provide our stockholders with limited, interim liquidity by enabling them to sell their Common Shares back to us, subject to restrictions.
On March 25, 2020, the Board of Directors amended the share repurchase program to remove stockholder notice requirements and also approved the suspension of all redemptions effective immediately.
Effective May 10, 2021, the Board of Directors reopened the share repurchase program for redemptions submitted in connection with a stockholder’s death or hardship and set the price for all such purchases at our current estimated net asset value per share, as determined by the Company’s board of directors and reported by the Company from time to time.
Deaths that occurred subsequent to January 1, 2020 are eligible for consideration, subject to certain conditions. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by us within one year of the stockholder’s date of death for consideration.
On an annual basis, we will not redeem in excess of 0.5% of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Redemption requests are expected to be processed on a quarterly basis and may be subject to pro ration if either type of redemption requests exceed the annual limitation.
For the six months ended June 30, 2022, the Company repurchased 73,270 Common Shares at an average price per share of $8.55 per share.
ITEM 4. CONTROLS AND PROCEDURES.
As of the end of the period covered by this report, management, including our chief executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of the evaluation, our chief executive officer and principal financial officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.
There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS.
From time to time in the ordinary course of business, we may become subject to legal proceedings, claims or disputes.
As of the date hereof, we are not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on our results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, we have not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
During the period covered by this Form 10-Q, we did not sell any unregistered securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
Exhibit Number |
Description | |
| 31.1* | ||
| 31.2* | ||
| 32.1* | ||
| 32.2* | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.” | |
| 101* | XBRL (eXtensible Business Reporting Language).The following financial information from Lightstone Value Plus REIT IV, Inc. on Form 10-Q for the quarter ended June 30, 2022, filed with the SEC on August 9, 2022, formatted in XBRL includes: (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations, (3) Consolidated Statements of Stockholders’ Equity, (4) Consolidated Statements of Cash Flows, and (5) the Notes to the Consolidated Financial Statement. |
| * | Filed herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LIGHTSTONE VALUE PLUS REIT IV, INC. | ||
| Date: August 9, 2022 | By: | /s/ David Lichtenstein |
| David Lichtenstein | ||
Chairman and Chief Executive Officer (Principal Executive Officer) | ||
| Date: August 9, 2022 | By: | /s/ Seth Molod |
| Seth Molod | ||
Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) |
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