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 May 7, 2024, there were approximately million outstanding shares of common stock of Lightstone Value Plus REIT III, Inc., including shares issued pursuant to the dividend reinvestment plan.
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
INDEX
i
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS:
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data and where indicated in millions)
| March 31, 2024 | December 31, 2023 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Investment property: | ||||||||
| Land and improvements | $ | $ | ||||||
| Building and improvements | ||||||||
| Furniture and fixtures | ||||||||
| Construction in progress | ||||||||
| Gross investment property | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Net investment property | ||||||||
| Investments in unconsolidated affiliated real estate entities | ||||||||
| Cash and cash equivalents | ||||||||
| Marketable securities, available for sale | ||||||||
| Accounts receivable and other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Accounts payable and other accrued expenses | $ | $ | ||||||
| Mortgages payable, net | ||||||||
| Distributions payable | ||||||||
| Due to related parties | ||||||||
| 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 shares issued and outstanding | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Company stockholders’ equity | ||||||||
| Noncontrolling interests | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenues | $ | $ | ||||||
| Expenses: | ||||||||
| Property operating expenses | ||||||||
| Real estate taxes | ||||||||
| General and administrative costs | ||||||||
| Depreciation and amortization | ||||||||
| Total expenses | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Loss from investments in unconsolidated affiliated real estate entities | ( | ) | ( | ) | ||||
| Other income, net | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Less: net loss attributable to noncontrolling interests | ||||||||
| Net loss applicable to Company’s common shares | $ | ( | ) | $ | ( | ) | ||
| Net loss per Company’s common share, basic and diluted | $ | ) | $ | ) | ||||
| Weighted average number of common shares outstanding, basic and diluted | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive income: | ||||||||
| Holding gain on marketable securities, available for sale | ||||||||
| Comprehensive loss | ( | ) | ( | ) | ||||
| Less: Comprehensive income attributable to noncontrolling interests | ||||||||
| Comprehensive loss attributable to the Company’s common shares | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of these consolidated financial statements.
3
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in thousands)
(Unaudited)
| Common Shares | Additional | Accumulated Other | Total | |||||||||||||||||||||||||
| Common Shares | Amount | Paid-In Capital | Comprehensive Loss | Accumulated Deficit | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||
| BALANCE, December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Distributions declared (a) | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Redemption and cancellation of shares | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| BALANCE, March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| (a) |
| Common Shares | Additional | Accumulated Other | Total | |||||||||||||||||||||||||
| Common Shares | Amount | Paid-In Capital | Comprehensive Loss | Accumulated Deficit | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||
| BALANCE, December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Other comprehensive income | - | |||||||||||||||||||||||||||
| Redemption and cancellation of shares | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| BALANCE, March 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to cash provided by/(used in) operating activities: | ||||||||
| Loss from investments in unconsolidated affiliated real estate entities | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of deferred financing costs | ||||||||
| Other non-cash adjustments | ||||||||
| Changes in assets and liabilities: | ||||||||
| Increase in accounts receivable and other assets | ( | ) | ( | ) | ||||
| Increase in accounts payable and other accrued expenses | ||||||||
| Increase in due to related parties | ||||||||
| Cash provided by/(used in) operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of investment property | ( | ) | ( | ) | ||||
| Purchase of marketable securities | ( | ) | ( | ) | ||||
| Proceeds from sale of marketable securities | ||||||||
| Distributions from unconsolidated affiliated real estate entities | ||||||||
| Investments in unconsolidated affiliated real estate entities | ( | ) | ( | ) | ||||
| Cash provided by/(used in) investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments on mortgages payable | ( | ) | ||||||
| Distributions to common stockholders | ( | ) | ||||||
| Redemption and cancellation of common shares | ( | ) | ( | ) | ||||
| Cash used in financing activities | ( | ) | ( | ) | ||||
| Change in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash, beginning of year | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
| Supplemental cash flow information for the periods indicated is as follows: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Distributions declared, but not paid | $ | $ | ||||||
| Holding gain on marketable securities, available for sale | $ | $ | ||||||
| The following is a summary of the Company’s cash, cash equivalents and restricted cash total as presented in our statements of cash flows for the periods presented: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
Notes to Consolidated
Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
| 1. | Business and Structure |
Lightstone Value Plus REIT III, Inc. (“Lightstone REIT III”) is a Maryland corporation, formed on October 5, 2012, which elected to qualify as a real estate investment trust (“REIT”) for United States (the “U.S.”) federal income tax purposes beginning with the taxable year ended December 31, 2015.
Lightstone REIT III is structured as an umbrella partnership REIT, or UPREIT, and
substantially all of its current and future business will be conducted through Lightstone
Value Plus REIT III LP, a Delaware limited partnership (the “Operating Partnership”).
As of March 31, 2024, Lightstone REIT III had a
Lightstone REIT III and the Operating Partnership and its subsidiaries are collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns in these consolidated financial statements refers to Lightstone REIT III, its Operating Partnership or the Company as required by the context in which such pronoun is used.
Through the Operating Partnership, the Company owns, operates and develops commercial properties and makes real estate-related investments. Since its inception, the Company has primarily acquired, developed and operated commercial hospitality properties, principally consisting of limited service hotels and one full service hotel all located in the U.S. Although the Company has historically acquired hotels, it has and may continue to purchase other types of real estate. Assets other than hotels may include, without limitation, office buildings, shopping centers, business and industrial parks, manufacturing facilities, single-tenant properties, multifamily properties, student housing properties, warehouses and distribution facilities and medical/life sciences office buildings. The Company’s real estate investments are held by it alone or jointly with other parties. In addition, the Company may invest up to 20% of its net assets in collateralized debt obligations, commercial mortgage-backed securities (“CMBS”) and mortgage and mezzanine loans secured, directly or indirectly, by the same types of properties which it may acquire directly. Although most of its investments are these types, the Company may invest in whatever types of real estate or real estate-related investments that it believes are in its best interests. The Company evaluates all of its real estate investments as one operating segment. The Company currently intends to hold its investments until such time as it determines that a sale or other disposition appears to be advantageous to achieve its investment objectives or until it appears that the objectives will not be met.
As of March 31, 2024, the Company (i) wholly owned and consolidated the operating results and financial condition of eight limited service hotels containing a total of 872 rooms, (ii) held an unconsolidated 50% membership interest in LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”), which owns one limited service hotel, and (iii) held an unconsolidated 25% membership interest in Bedford Avenue Holdings LLC (the “Williamsburg Moxy Hotel Joint Venture”), which owns one full service hotel. The Company accounts for its unconsolidated membership interests in the Hilton Garden Inn Joint Venture and the Williamsburg Moxy Hotel Joint Venture under the equity method of accounting.
The Hilton Garden Inn Joint Venture owns a 183-room, limited service hotel (the “Hilton Garden Inn – Long Island City”) located in the Long Island City neighborhood in the Queens borough of New York City. The Williamsburg Moxy Hotel Joint Venture developed, constructed and owns a 216-room branded hotel (the “Williamsburg Moxy Hotel”) located in the Williamsburg neighborhood in the Brooklyn borough of New York City, which opened on March 7, 2023. Both the Hilton Garden Inn Joint Venture and the Williamsburg Moxy Hotel Joint Venture are between the Company and related parties.
6
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
Notes to Consolidated
Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
The Company’s advisor is Lightstone Value Plus REIT III LLC (the “Advisor”), which is majority
owned by David Lichtenstein. On July 16, 2014, the Advisor contributed $
The Company has no employees. The Company is dependent on the Advisor and certain affiliates of the Sponsor for performing a full range of services that are essential to it, including asset management, property management (excluding its hospitality properties, which are each managed by an unrelated third party property manager) and acquisition, disposition and financing activities, and other general administrative responsibilities, such as tax, accounting, legal, information technology and investor relations services. If the Advisor and its affiliates are unable to provide these services to the Company, it would be required to provide the services itself or obtain the services from other parties.
The Company’s Common Shares are not currently listed on a national securities exchange. The Company may seek to list its Common Shares for trading on a national securities exchange only if a majority of its independent directors believe listing would be in the best interest of its stockholders. The Company does not intend to list its Common Shares at this time. The Company does not anticipate that there would be any active market for its Common Shares until they are listed for trading.
Noncontrolling Interests – Partners of the Operating Partnership
Limited Partner
On July 16, 2014, the Advisor contributed $
Special Limited Partner
In connection with the Company’s Offering, the Special Limited Partner purchased from the Operating Partnership an aggregate of 242 Subordinated Participation Interests at a cost of $50,000 per unit, or aggregate consideration of $12.1 million.
As the indirect majority owner of the Special Limited Partner, Mr. Lichtenstein is the beneficial owner of a 99% interest in such Subordinated Participation Interests and will thus receive an indirect benefit from any distributions made in respect thereof.
7
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
Notes to Consolidated
Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
These Subordinated Participation Interests may entitle the Special Limited Partner to a portion of any regular distributions that the Company makes to its stockholders, but only after its stockholders have received a stated preferred return. However, from inception through March 31, 2024, there have been no distributions declared on the Subordinated Participation Interests. Any future distributions on the Subordinated Participation Interests will always be subordinated until stockholders receive a stated preferred return.
The Subordinated Participation Interests may also entitle the Special Limited Partner to a portion of any liquidating distributions made by the Operating Partnership. The value of such distributions will depend upon the net proceeds available for distribution upon the Company’s liquidation and, therefore, cannot be determined at the present time. Liquidating distributions to the Special Limited Partner will always be subordinated until stockholders receive a distribution equal to their initial investment plus a stated preferred return.
Related Parties
The Company’s Advisor and certain affiliates of the Sponsor, including the Special Limited Partner, are related parties of the Company as well as the other public REITs also sponsored and/or advised by these entities. Pursuant to the terms of various agreements, these entities are entitled to compensation and reimbursement for services and costs incurred for services related to the investment, development, management and disposition of the Company’s assets. The compensation is generally based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements.
| 2. | Summary of Significant Accounting Policies |
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Lightstone REIT III and the Operating Partnership and its subsidiaries (over which Lightstone REIT III exercises financial and operating control). As of March 31, 2024, Lightstone REIT III had a
The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements of the Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of the results for the periods presented. The accompanying unaudited consolidated financial statements of the Lightstone Value Plus REIT III, Inc. and its Subsidiaries have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.
8
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
Notes to Consolidated
Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
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 depreciable lives. 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, 2023 included herein has been derived from the consolidated balance sheet included in the Company’s Annual Report on Form 10-K.
The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.
Income Taxes
The Company elected to be taxed and qualify as a REIT commencing with the taxable year ended December 31, 2015. As a REIT, the Company generally will not be subject to U.S. federal income tax on its net taxable income that it distributes currently to its stockholders. To maintain its REIT qualification under the Internal Revenue Code of 1986, as amended, or the Code, 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 regular corporate rates, 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 for U.S. federal income tax purposes, it may still be subject to some U.S. federal, state and local taxes on its income and property and to U.S. federal income taxes and excise taxes on its undistributed income, if any.
To maintain its qualification as a REIT, the Company engages in certain activities through a taxable REIT subsidiary (“TRS”), including when it acquires a hotel it usually establishes a new TRS and enters into an operating lease agreement for the hotel. As such, the Company is subject to U.S. federal and state income taxes and franchise taxes from these activities.
The Company’s income tax benefits and expense are included in other income, net on its consolidated
statements of operations. During the three months ended March 31, 2024 and 2023, the Company recorded income tax expense of $
As of March 31, 2024 and December 31, 2023, the Company had
Revenues
The following table represents the total revenues from hotel operations on a disaggregated basis:
| For
the Three Months Ended March 31, | ||||||||
| Revenues | 2024 | 2023 | ||||||
| Room | $ | $ | ||||||
| Food, beverage and other | ||||||||
| Total revenues | $ | $ | ||||||
9
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
Notes to Consolidated
Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
New Accounting Pronouncements
In November 2023, the FASB issued an accounting standards update which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The amendments will require entities to disclose significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within segment profit and loss, as well as the title and position of the CODM. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the guidance and the impact it may have on the consolidated financial statements.
In December 2023, the FASB issued an accounting standards update which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. This update is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the guidance and the impact it may have on the consolidated financial statements.
The Company has reviewed and determined that other recently issued accounting pronouncements will not have a material impact on its financial position, results of operations and cash flows, or do not apply to its current operations.
Concentration of Risk
As of March 31, 2024 and December 31, 2023, the Company had cash deposited in certain financial institutions in excess of U.S. 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.
Current Environment
The Company’s operating results and financial condition are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, its business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility and uncertainty as a result of recent banking failures, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, inflation and recession.
The Company’s overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation, higher interest rates, certain labor and supply chain challenges and other changes in economic conditions may adversely affect the Company’s results of operations and financial performance.
10
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
Notes to Consolidated
Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
| 3. | Investments in Unconsolidated Affiliated Real Estate Entities |
The entities below are partially owned by the Company. The Company accounts for these investments under the equity method of accounting as the Company exercises significant influence, but does not exercise financial and operating control over these entities. A summary of the Company’s investments in unconsolidated affiliated real estate entities is as follows:
| As of | |||||||||||||||
| Entity | Date of Ownership | Ownership % | March 31, 2024 | December 31, 2023 | |||||||||||
| Hilton Garden Inn Joint Venture | % | $ | $ | ||||||||||||
| Williamsburg Moxy Hotel Joint Venture | % | ||||||||||||||
| Total investments in unconsolidated affiliated real estate entities | $ | $ | |||||||||||||
Hilton Garden Inn Joint Venture
On March 27, 2018, the Company and Lightstone Value Plus REIT II, Inc. (“Lightstone REIT II”),
a REIT also sponsored by the Company’s Sponsor and a related party, acquired, through the newly formed Hilton Garden Inn
Joint Venture, the Hilton Garden Inn – Long Island City from an unrelated third party,
for aggregate consideration of $
On May 31, 2023, the Hilton Garden Inn Mortgage was further amended to provide for (i) an
extension of the maturity date for an additional five years, (ii) the interest rate
to be adjusted to SOFR plus 3.25%, subject to a 6.41% floor, interest-only payments
for the first two years of its extended term with principal and interest payments
pursuant to a 300-month amortization schedule thereafter and the remaining unpaid
balance due in full at its maturity date of May 31, 2028, (iii) the ability to draw up to an additional $
The Company and Lightstone REIT II each have a
As of March 31, 2024, the Hilton Garden Inn Joint Venture is in compliance with respect to all of its financial covenants.
During the three months ended March 31, 2024, the Company received distributions from the Hilton Garden Joint Venture of
$
11
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
Notes to Consolidated
Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
Hilton Garden Inn Joint Venture Financial Information
The following table represents the condensed statements of operations for the Hilton Garden Inn Joint Venture for the periods indicated:
| For
the Three Months Ended March 31, 2024 | For
the Three Months Ended March 31, 2023 | |||||||
| Revenues | $ | $ | ||||||
| Property operating expenses | ||||||||
| General and administrative costs | ||||||||
| Depreciation and amortization | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Interest expense | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Company’s share of net loss (50.00%) | $ | ( | ) | $ | ( | ) | ||
The following table represents the condensed balance sheets for the Hilton Garden Inn Joint Venture as of the dates indicated:
| As of | As of | |||||||
| March 31, 2024 | December 31, 2023 | |||||||
| Investment property, net | $ | $ | ||||||
| Cash | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Mortgage payable, net | $ | $ | ||||||
| Other liabilities | ||||||||
| Members’ capital | ||||||||
| Total liabilities and members’ capital | $ | $ | ||||||
Williamsburg Moxy Hotel Joint Venture
On August 5, 2021, the Company formed a joint venture with Lightstone Value Plus REIT IV, Inc.
(“Lightstone REIT IV”), a related party REIT also sponsored by the Company’s Sponsor, pursuant to which the Company acquired 25% of Lightstone REIT IV’s membership interest in Bedford Avenue Holdings LLC, which effective on that date
became the Williamsburg Moxy Hotel Joint Venture, for aggregate consideration of $
12
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
Notes to Consolidated
Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
As a result, the Company and Lightstone REIT IV have 25% and 75% membership interests, respectively, in the Williamsburg Moxy Hotel Joint Venture. The Company has determined that the Williamsburg Moxy Hotel Joint Venture is a variable interest entity and the Company is not the primary beneficiary, as it was determined that Lightstone REIT IV is the primary beneficiary. Therefore, the Company accounts for its membership interest in the Williamsburg Moxy Hotel Joint Venture in accordance with the equity method because it exerts significant influence over but does not control the Williamsburg Moxy Hotel Joint Venture. All capital contributions and distributions of earnings from the Williamsburg Moxy Hotel 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 Williamsburg Moxy Hotel Joint Venture are made to the members pursuant to the terms of the Williamsburg Moxy Hotel Joint Venture’s operating agreement.
On August 5, 2021, the Williamsburg Moxy Hotel Joint Venture entered into a development agreement (the “Development Agreement”) with an affiliate of the Sponsor (the “Williamsburg Moxy Developer”) pursuant to which the Williamsburg Moxy Developer was 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. Additionally on August 5, 2021, the Williamsburg Moxy Hotel Joint Venture obtained construction financing for the Williamsburg Moxy Hotel as discussed below. Furthermore, certain affiliates of the Sponsor are reimbursed for various development and development-related costs attributable to the Williamsburg Moxy Hotel.
The Williamsburg Moxy Hotel was substantially completed and opened for business on
March 7, 2023. In preparation for the opening of the Williamsburg Moxy Hotel, which opened on March 7, 2023, the Williamsburg Moxy Hotel Joint Venture incurred pre-opening costs of $
During both the three months ended March 31, 2024 and 2023, the Company made capital contributions to the Williamsburg Moxy
Joint Venture of $
Moxy Construction Loan
On August 5, 2021, the Williamsburg Moxy Hotel Joint Venture entered into a recourse construction loan facility with a financial institution for up to $77.0 million (the “Moxy Construction Loan”) to fund certain of the development, construction and certain pre-opening costs associated with the Williamsburg Moxy Hotel. The Moxy Construction Loan, which was scheduled to initially mature on February 5, 2024, was further extended to May 4, 2024. The Moxy Construction Loan was collateralized by the Williamsburg Moxy Hotel. The Moxy Construction Loan provided for a replacement benchmark rate in connection with the phase-out of LIBOR and effective after June 30, 2023, the Moxy Construction Loan’s interest rate converted from LIBOR plus 9.00%, with a floor of 9.50%, to SOFR plus 9.11%, with a floor of 9.61%. The Moxy Construction Loan required monthly interest-only payments based on a rate of 7.50% and the excess added to the outstanding loan balance due at maturity. SOFR as of March 31, 2024 and December 31, 2023 was 5.32% and 5.35%, respectively.
As of March 31, 2024 and December 31, 2023, the outstanding principal balance of the Moxy Construction Loan was $
13
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
Notes to Consolidated
Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
In connection with the Moxy Construction Loan, the Williamsburg Moxy Hotel Joint Venture 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 included in other liabilities on the condensed balance sheets as of March 31, 2024 and December 31, 2023.
Moxy Mortgage Loans
On April 19, 2024, the Williamsburg Moxy Joint Venture entered into an $
The Moxy Mortgage Loans bear interest at
In connection with the Moxy Mortgage Loans, the Williamsburg Moxy Hotel Joint Venture
has provided certain interest and carry costs guarantees. Furthermore, in connection
with the Moxy Mortgage Loans, $3.2 million of the initial proceeds advanced at closing
were used to fund reserves for interest, real estate taxes and insurance. Additionally,
the Williamsburg Moxy Hotel Joint Venture paid an aggregate of $
Williamsburg Moxy Hotel Joint Venture Financial Information
The following table represents the condensed statements of operations for the Williamsburg Moxy Joint Venture for the periods indicated:
| For the Three Months Ended March 31, 2024 | For the Three Months Ended March 31, 2023 | |||||||
| Revenues | $ | $ | ||||||
| Property operating expenses | ||||||||
| Pre-opening costs | ||||||||
| General and administrative costs | ||||||||
| Depreciation and amortization | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Interest expense | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Company’s share of net loss (25.00%) | $ | ( | ) | $ | ( | ) | ||
14
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
Notes to Consolidated
Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
The following table represents the condensed balance sheets for the Williamsburg Moxy Hotel Joint Venture as of the dates indicated:
| As of | As of | |||||||
| March 31, 2024 | December 31, 2023 | |||||||
| Investment property, net | $ | $ | ||||||
| Cash | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Loans payable, net | $ | $ | ||||||
| Other liabilities | ||||||||
| Members’ capital | ||||||||
| Total liabilities and members’ capital | $ | $ | ||||||
| 4. | Marketable Securities and Fair Value Measurements |
Marketable Securities
The following is a summary of the Company’s available for sale securities as of the dates indicated:
| As of March 31, 2024 | ||||||||||||||||
| Adjusted Cost | Gross
Unrealized Gains | Gross
Unrealized Losses | Fair Value | |||||||||||||
| Marketable Securities: | ||||||||||||||||
| Equity securities: | ||||||||||||||||
| Preferred Equity Securities | $ | $ | $ | $ | ||||||||||||
| Mutual Funds | ||||||||||||||||
| Debt securities: | ||||||||||||||||
| Corporate Bonds | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
| As of December 31, 2023 | ||||||||||||||||
| Adjusted Cost | Gross
Unrealized Gains | Gross
Unrealized Losses | Fair Value | |||||||||||||
| Marketable Securities: | ||||||||||||||||
| Equity securities: | ||||||||||||||||
| Preferred Equity Securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Mutual Funds | ||||||||||||||||
| ( | ) | |||||||||||||||
| Debt securities: | ||||||||||||||||
| Corporate Bonds | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
15
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
Notes to Consolidated
Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
As of March 31, 2024, the Company has not recognized an allowance for expected credit losses related to available-for-sale debt securities as the Company has not identified any unrealized losses for these investments attributable to credit factors. The Company’s unrealized loss on investments in corporate bonds was primarily caused by recent rising interest rates. The Company does not intend to sell the investment and it is not more likely than not that the Company will be required to sell the investment before recovery of its amortized cost basis.
The Company may sell certain of its investments in marketable debt securities prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:
| ● | Level 1 – Quoted prices in active markets for identical assets or liabilities. | |
| ● | Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
| ● | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The Company’s mutual funds were classified as Level 1 assets and the Company’s preferred equity securities, corporate bonds and interest rate cap contract were classified as Level 2 assets. There were no transfers between the level classifications during the three months ended March 31, 2024 and 2023.
The fair values of the Company’s investments in mutual funds are measured using quoted prices in active markets for identical assets and its 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. The fair value of the Company’s interest rate cap contract is measured using other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
The following table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:
| As
of March 31, 2024 | ||||
| Due in 1 year | $ | |||
| Due in 1 year through 5 years | ||||
| Due in 5 year through 10 years | ||||
| Due after 10 years | ||||
| Total | $ | |||
The Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized at fair value.
16
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
Notes to Consolidated
Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
| 5. | Mortgages payable, net |
Mortgages payable, net consists of the following:
| Description | Interest Rate | Weighted
Average Interest Rate for the Three Months Ended March 31, 2024 | Maturity Date | Amount
Due at Maturity | As
of March 31, 2024 | As
of December 31, 2023 | ||||||||||||||
| Revolving Credit Facility | % | $ | $ | $ | ||||||||||||||||
| Home2 Suites Tukwila Loan | (floor of 3.75%) | % | ||||||||||||||||||
| Home2 Suites Salt Lake City Loan | % | |||||||||||||||||||
| Total mortgages payable | % | $ | ||||||||||||||||||
| Less: Deferred financing costs | ( | ) | ( | ) | ||||||||||||||||
| Total mortgage payable, net | $ | $ | ||||||||||||||||||
AMERIBOR as of March 31, 2024 and December 31, 2023 was
Revolving Credit Facility
The Company has a non-recourse revolving credit facility (the “Revolving Credit Facility”) with a financial
institution. The Revolving Credit Facility provides it with a line of credit of up
to $
17
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
Notes to Consolidated
Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
The Revolving Credit Facility had two one-year extension options that were exercised
on July 13, 2022 and July 13, 2023 at which times, the maturity dates of the Revolving Credit Facility were further
extended to July 13, 2023 and July 13, 2024, respectively. In connection with the exercise of the first extension option
on July 13, 2022, the interest rate on the Revolving Credit Facility was prospectively changed
to AMERIBOR plus
On December 1, 2023, the Company entered into an interest rate cap contract at a cost of $44 with
an unrelated financial institution in order to reduce the effect of interest rate
fluctuations or risk of certain real estate investment’s interest expense on the Revolving Credit Facility. The interest rate cap contract
has a notional amount of $
The Company did not meet the remaining financial debt covenant under the Revolving
Credit Facility for the quarterly period ended March 31, 2024, and therefore, the lender has the option of requiring a principal paydown
of $
As of both March 31, 2024 and December 31, 2023, the Revolving Credit Facility had an outstanding principal balance of $30.8 million and six of the Company’s hotel properties were pledged as collateral. Additionally, no additional borrowings were available under the Revolving Credit Facility as of March 31, 2024. The Company currently intends to seek to further extend the maturity or refinance the Revolving Credit Facility on or before its maturity date of July 13, 2024, however, there can be no assurances that it will be successful in such endeavors.
Principal Maturities
The following table sets forth the estimated contractual principal maturities of the Company’s mortgages payable, including balloon payments due at maturity, as of March 31, 2024:
| 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | Total | ||||||||||||||||||||||
| Principal maturities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Less: Deferred financing costs | ( | ) | ||||||||||||||||||||||||||
| Total principal maturities, net | $ | |||||||||||||||||||||||||||
Certain of the Company’s debt agreements also contain clauses providing for prepayment penalties. As of March 31, 2024, the Company was in compliance with all of its financial debt covenants, except for the Revolving Credit Facility as discussed above.
18
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
Notes to Consolidated
Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
| 6. |
Company’s Stockholder’s Equity |
Distributions on Common Shares
On November 13, 2023, the Board of Directors authorized and the Company declared a Common Share
distribution of $ per share for the quarterly period ending December 31, 2023. The distribution is the pro rata equivalent of an annual distribution of
$ per share, or an annualized rate of
On March 18, 2024, the Board of Directors determined to suspend regular quarterly distributions.
Future distributions declared, if any, will be at the discretion of the Board of Directors based on their analysis of the Company’s performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, revenues and other sources of income, operating and interest expenses and the Company’s ability to refinance near-term debt as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. The Company cannot assure that any future distributions will be made or that it will maintain any particular level of distributions that it has previously established or may establish.
SRP
The Company’s share repurchase program (the “SRP”) may provide eligible stockholders with limited, interim liquidity by enabling them to sell their Common Shares back to the Company, subject to restrictions and applicable law.
On March 19, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of all redemptions.
Effective May 10, 2021, the Board of Directors 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 the Company’s current estimated net asset value per share of common stock, as determined by the Board of Directors and reported by the Company from time to time. Deaths that occurred subsequent to January 1, 2020 were eligible for consideration, subject to certain conditions. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by the Company within one year of the stockholder’s date of death for consideration.
On the above noted date, the Board of Directors established that on an annual basis, the Company would not redeem in excess of of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Additionally, redemption requests generally would be processed on a quarterly basis and would be subject to proration if either type of redemption requests exceeded the annual limitation.
For the three months ended March 31, 2024, the Company repurchased Common Shares at a weighted average price of $. For the three months ended March 31, 2023, the Company repurchased Common Shares at a weighted average price of $.
19
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
Notes to Consolidated
Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
Earnings per Share
The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, basic and diluted earnings per share is calculated by dividing net income/(loss) by the weighted-average number of shares of common stock outstanding during the applicable period.
| 7. | Related Party Transactions |
The Company’s Sponsor, Advisor and their affiliates, including the Special Limited Partner, are related parties of the Company as well as other public REITs also sponsored and/or advised by these entities. Pursuant to the terms of various agreements, certain of these entities are entitled to compensation and reimbursement of costs incurred for services related to the investment, development, management and disposition of our assets. The compensation is generally based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements.
The following table represents the fees incurred associated with the payments to the Company’s Advisor for the periods indicated:
| For
the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Asset management fees (general and administrative costs) | $ | $ | ||||||
The advisory agreement has a one-year term and is renewable for an unlimited number of successive one-year periods upon the mutual consent of the Advisor and the Company’s independent directors. Payments to the Advisor or certain affiliates of the Sponsor 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 certain affiliates of the Sponsor 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 certain affiliates of the Sponsor a disposition commission.
| 8. | Financial Instruments |
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable and other assets, accounts payable and other accrued expenses, distributions payable and due to related parties approximate their fair values because of the short maturity of these instruments.
The carrying amount of the mortgages payable approximate fair value because the interest rates are variable and reflective of market rates.
20
LIGHTSTONE VALUE PLUS REIT III, INC. AND SUBSIDIARIES
Notes to Consolidated
Financial Statements
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
(Unaudited)
| 9. | Commitments and Contingencies |
Management Agreements
The
Company’s hotels operate pursuant to management agreements (the “Management Agreements”) with various third-party
management companies. The management companies perform management functions including, but not limited to, hiring and supervising
employees, establishing room prices, establishing administrative policies and procedures, managing expenditures and arranging and
supervising public relations and advertising. The Management Agreements are for initial terms ranging from
one year to
The Management Agreements provide for the payment of a base management fee equal to
Franchise Agreements
As of March 31, 2024, the Company’s hotels operated pursuant to various franchise agreements. Under the franchise agreements,
the Company generally pays a fee equal to 3% to 5.5% of gross room sales, as defined, and a marketing fund charge from
The franchise agreements are generally for initial terms ranging from
Legal Proceedings
From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.
As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss.
21
PART I. FINANCIAL INFORMATION, CONTINUED:
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Lightstone Value Plus REIT III, Inc. and Subsidiaries and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Lightstone Value Plus REIT III, Inc., a Maryland corporation, and, as required by context, Lightstone Value Plus REIT III, L.P., which we collectively refer to as the “Operating Partnership”. Dollar amounts are presented in thousands, except per share data, revenue per available room (“RevPAR”), average daily rate (“ADR”), annualized revenue per square foot and where indicated in millions.
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include discussion and analysis of the financial condition of Lightstone Value Plus REIT III, Inc. and our subsidiaries (which may be referred to herein as the “Company,” “we,” “us” or “our”), including our ability to make accretive real estate or real estate-related investments, to rent space on favorable terms, to address our debt maturities and to fund our liquidity requirements, to sell our assets when we believe advantageous to achieve our investment objectives, to fund our anticipated capital expenditures, to meet the amount and timing of anticipated future cash distributions to our stockholders, to grow the estimated net asset value per share of our common stock (“NAV per Share”), and other matters. Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors described below:
| ● | market and economic challenges experienced by the United States (“U.S.”) and global economies or real estate industry as a whole and the local economic conditions in the markets in which our investments are located. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; such as inflation, recession, political upheaval or uncertainty, terrorism and acts of war, natural and man-made disasters, cybercrime, and outbreaks of contagious diseases; | |
| ● | the availability of cash flow from operating activities for distributions, if required to maintain our status as a real estate investment trust (“REIT”); | |
| ● | conflicts of interest arising out of our relationships with our advisor and its affiliates; | |
| ● | our ability to retain our executive officers and other key individuals who provide advisory and property management services to us; | |
| ● | our level of debt and the terms and limitations imposed on us by our debt agreements; | |
| ● | the availability of credit generally, and any failure to obtain debt financing at favorable terms or a failure to satisfy the conditions and requirements of that debt; | |
| ● | our ability to make accretive investments; |
22
| ● | our ability to diversify our portfolio of assets; | |
| ● | changes in market factors that could impact our rental rates and operating costs; | |
| ● | our ability to secure leases at favorable rental rates; | |
| ● | our ability to sell our assets at a price and on a timeline consistent with our investment objectives; | |
| ● | impairment charges; | |
| ● | unfavorable changes in laws or regulations impacting our business, our assets or our key relationships; and | |
| ● | factors that could affect our ability to qualify as a REIT. |
Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Quarterly Report on Form 10-Q, and may ultimately prove to be incorrect. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results, except as required by applicable law. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.
Cautionary Note
The representations, warranties, and covenants made by us in any agreement filed as an exhibit to this Quarterly Report on Form 10-Q are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties, or covenants to or with any other parties. Moreover, these representations, warranties, or covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.
Business and Structure
Lightstone Value Plus REIT III, Inc. (“Lightstone REIT III”), is a Maryland corporation formed on October 5, 2012, which elected to qualify as a REIT for U.S. federal income tax purposes beginning with the taxable year ending December 31, 2015.
Lightstone REIT III is structured as an umbrella partnership REIT (“UPREIT”), and substantially all of its current and future business is and will be conducted through Lightstone Value Plus REIT III LP, a Delaware limited partnership (the “Operating Partnership”). As of March 31, 2024, Lightstone REIT III had a 99% general partnership interest in the Operating Partnership’s common units.
Lightstone REIT III and the Operating Partnership and its subsidiaries are collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns in this Quarterly Report on Form 10-Q refers to Lightstone REIT III, its Operating Partnership or the Company as required by the context in which such pronoun is used.
Through the Operating Partnership, we own, operate and develop commercial properties and make real estate-related investments. Since our inception, we have primarily acquired, developed and operated commercial hospitality properties, principally consisting of limited service hotels and one full service hotel all located in the U.S. However, our commercial holdings may also to a lesser extent, consist of retail (primarily multi-tenanted shopping centers), industrial and office properties. Our real estate investments are held by us alone or jointly with other parties. In addition, we may invest up to 20% of our net assets in collateralized debt obligations, commercial mortgage-backed securities (“CMBS”) and mortgage and mezzanine loans secured, directly or indirectly, by the same types of properties which we may acquire directly. Although most of our investments are these types, we may invest in whatever types of real estate or real estate-related investments that we believe are in our best interests. We evaluate all of our real estate investments as one operating segment. We currently intend to hold our investments until such time as we determine that a sale or other disposition appears to be advantageous to achieve our investment objectives or until it appears that the objectives will not be met.
23
As of March 31, 2024, we (i) wholly owned and consolidated the operating results and financial condition of eight limited service hotels containing a total of 872 rooms, (ii) held an unconsolidated 50% membership interest in LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”), which owns one limited service hotel, and (iii) held an unconsolidated 25% membership interest in Bedford Avenue Holdings LLC (the “Williamsburg Moxy Hotel Joint Venture”), which owns one full service hotel. We account for our unconsolidated membership interests in the Hilton Garden Inn Joint Venture and the Williamsburg Moxy Hotel Joint Venture under the equity method of accounting.
The Hilton Garden Inn Joint Venture owns a 183-room, limited service hotel (the “Hilton Garden Inn – Long Island City) located in the Long Island City neighborhood in the Queens borough of New York City. The Williamsburg Moxy Hotel Joint Venture developed, constructed and owns a 216-room branded hotel (the “Williamsburg Moxy Hotel”) located in the Williamsburg neighborhood in the Brooklyn borough of New York City, which opened on March 7, 2023. Both the Hilton Garden Inn Joint Venture and the Williamsburg Moxy Hotel Joint Venture are between us and related parties.
Our advisor is Lightstone Value Plus REIT III LLC (the “Advisor”), which is majority owned by David Lichtenstein. On July 16, 2014, the Advisor contributed $2 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. Our Advisor also owns 20,000 shares of our common stock (“Common Shares”) which were issued on December 24, 2012 for $200, or $10.00 per share. Mr. Lichtenstein also is the majority owner of the equity interests of the Lightstone Group, LLC (the Sponsor”), which served as our 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 December 11, 2014 for $2.0 million, or $9.00 per share. Pursuant to the terms of an advisory agreement and subject to the oversight of our board of directors (the “Board of Directors”), the Advisor has primary responsibility for making investment decisions on our behalf and managing our day-to-day operations. Through his ownership and control of the Sponsor, Mr. Lichtenstein is the indirect owner and manager of Lightstone SLP III LLC, a Delaware limited liability company (the “Special Limited Partner”), which owns 242 subordinated participation interests (“Subordinated Participation Interests”) in the Operating Partnership which were acquired at a cost of $50,000 per unit, or for aggregate consideration of $12.1 million in connection with our Offering. Mr. Lichtenstein also acts as our Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT III or the Operating Partnership.
We have no employees. We are dependent on the Advisor and certain affiliates of the Sponsor for services that are essential to us, including asset management, property management (excluding our hospitality properties, each of which are managed by an unrelated third party property manager) and acquisition, disposition, development and financing activities, and other general administrative responsibilities; such as tax, accounting, legal, information technology and investor relations services. If the Advisor and certain affiliates of the Sponsor are unable to provide these services to us, we would be required to provide the services ourselves or obtain the services from other parties.
Our Common Shares are not currently listed on a national securities exchange. We may seek to list our Common Shares for trading on a national securities exchange only if a majority of our independent directors believe listing would be in the best interest of our stockholders. We do not intend to list our Common Shares at this time. We do not anticipate that there would be any active market for our Common Shares until they are listed for trading.
Noncontrolling Interests – Partners of the Operating Partnership
Limited Partner
On July 16, 2014, the Advisor contributed $2 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. The Advisor has the right to convert its limited partner units into cash or, at our option, an equal number of our Common Shares.
24
Special Limited Partner
In connection with our Offering, the Special Limited Partner purchased from the Operating Partnership an aggregate of 242 Subordinated Participation Interests for $50,000 per unit, or aggregate consideration of $12.1 million.
As the indirect majority owner of the Special Limited Partner, Mr. Lichtenstein is the beneficial owner of a 99% interest in such Subordinated Participation Interests and thus receives an indirect benefit from any distributions made in respect thereof.
These Subordinated Participation Interests may entitle the Special Limited Partner to a portion of any regular distributions that we make to our stockholders, but only after our stockholders have received a stated preferred return. However, from inception through March 31, 2024, there have been no distributions declared on the Subordinated Participation Interests. Any future distributions on the Subordinated Participation Interests will always be subordinated until stockholders receive a stated preferred return.
The Subordinated Participation Interests may also entitle the Special Limited Partner to a portion of any liquidating distributions made by the Operating Partnership. The value of such distributions will depend upon the net proceeds available for distribution upon our liquidation and, therefore, cannot be determined at the present time. Liquidating distributions to the Special Limited Partner will always be subordinated until stockholders receive a distribution equal to their initial investment plus a stated preferred return.
Concentration of Credit Risk
As of March 31, 2024 and December 31, 2023, we had cash deposited in certain financial institutions in excess of U.S. federally insured levels. We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk with respect to our cash and cash equivalents or restricted cash.
Current Environment
Our operating results and financial condition are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility and banking failures, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, inflation and recession.
Our overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation, higher interest rates, certain labor and supply chain challenges and other changes in economic conditions may adversely affect our results of operations and financial performance.
We are not currently aware of any other material trends or uncertainties, favorable or unfavorable, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from our operations, other than those referred to above or throughout this Form 10-Q. The preparation of financial statements in conformity with generally accepted accounting principles in the U.S. (“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.
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Portfolio Summary –
| Location | Year Built | Date Acquired | Year to Date Available Rooms | Percentage Occupied for the Three Months Ended March 31, 2024 | RevPAR for the Three Months Ended March 31, 2024 | ADR For the Three Months Ended March 31, 2024 | ||||||||||||||||
| Wholly-Owned and Consolidated Hospitality Properties: | ||||||||||||||||||||||
| Hampton Inn – Des Moines | Des Moines, Iowa | 1987 | 2/4/2015 | 10,920 | 67 | % | $ | 74.45 | $ | 110.41 | ||||||||||||
| Courtyard - Durham | Durham, North Carolina | 1996 | 5/15/2015 | 13,286 | 54 | % | $ | 55.45 | $ | 102.07 | ||||||||||||
| Hampton Inn – Lansing | Lansing, Michigan | 2013 | 3/10/2016 | 7,826 | 67 | % | $ | 80.49 | $ | 119.58 | ||||||||||||
| Courtyard - Warwick | Warwick, Rhode Island | 2003 | 3/23/2016 | 8,372 | 56 | % | $ | 71.93 | $ | 127.80 | ||||||||||||
| Home2 Suites – Salt Lake | Salt Lake City, Utah | 2013 | 8/2/2016 | 11,375 | 65 | % | $ | 74.13 | $ | 113.69 | ||||||||||||
| Home2 Suites – Tukwila | Tukwila, Washington | 2015 | 8/2/2016 | 12,649 | 88 | % | $ | 123.31 | $ | 139.84 | ||||||||||||
| Fairfield Inn – Austin | Austin, Texas | 2014 | 9/13/2016 | 7,644 | 58 | % | $ | 57.46 | $ | 98.46 | ||||||||||||
| Staybridge Suites – Austin | Austin, Texas | 2009 | 10/7/2016 | 7,280 | 58 | % | $ | 59.24 | $ | 101.74 | ||||||||||||
| Total | 79,352 | 65 | % | $ | 76.31 | $ | 116.83 | |||||||||||||||
Unconsolidated Affiliated Real Estate Entities:
| Hospitality | Location | Year Built | Date Acquired/Opened | Year to Date Available Rooms | Percentage Occupied for the Three Months Ended March 31, 2024 | RevPAR 2024 | ADR For the Three Months Ended March 31, 2024 | |||||||||||||||
| Hilton Garden Inn - Long Island City | Long Island City, New York | 2014 | 3/27/2018 | 16,653 | 80 | % | $ | 127.31 | $ | 158.79 | ||||||||||||
| Williamsburg Moxy Hotel | Williamsburg, New York | 2023 | 3/7/2023 | 19,656 | 77 | % | $ | 147.84 | $ | 189.67 | ||||||||||||
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The following information generally applies to our investments in our real estate properties:
| ● | we believe our real estate properties are adequately covered by insurance and suitable for their intended purpose; | |
| ● | our real estate properties are located in markets where we are subject to competition; and | |
| ● | depreciation is provided on a straight-line basis over the estimated useful life of the applicable improvements. |
Critical Accounting Policies and Estimates
There were no material changes during the three months ended March 31, 2024 to our critical accounting policies as reported in our Annual Report on Form 10-K, for the year ended December 31, 2023.
Results of Operations
Comparison of the three months ended March 31, 2024 vs. March 31, 2023
Consolidated
Our consolidated revenues, property operating expenses, real estate taxes, general and administrative expense and depreciation and amortization for the three months ended March 31, 2024 and 2023 are attributable to our consolidated hospitality properties, all of which were owned by us during the entire periods presented.
During the three months ended March 31, 2024 compared to same period in 2023, our consolidated hospitality portfolio experienced decreases in RevPAR to $76.31 from $78.10, and ADR to $116.83 from $119.63 while the percentage of rooms occupied remained 65% for both periods.
Revenues
Revenues decreased slightly by $0.1 million to $6.3 million during the three months ended March 31, 2024 compared to $6.4 million for the same period in 2023.
Property operating expenses
Property operating expenses increased slightly by $0.1 million to $4.7 million during the three months ended March 31, 2024 compared to $4.6 million for the same period in 2023.
Real estate taxes
Real estate taxes increased slightly by $0.1 million to $0.4 million during the three months ended March 31, 2024 compared to $0.3 million for the same period in 2023.
General and administrative expense
General and administrative expenses increased slightly by $0.1 million to $0.7 million during the three months ended March 31, 2024 compared to $0.6 million for the same period in 2023.
Depreciation and amortization
Depreciation and amortization expense decreased by $0.4 million to $0.8 million during the three months ended March 31, 2024 compared to $1.2 million for the same period in 2023.
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Interest expense
Interest expense increased slightly by $0.1 million to $1.3 million during the three months ended March 31, 2024 compared to $1.2 million for the same period in 2023. Interest expense is attributable to the financings associated with our hotels and reflects changes in market interest rates on our mortgage debt, all of which bears interest at variable rates.
Loss from investments in unconsolidated affiliated real estate entities
Our loss from investments in unconsolidated affiliated real estate entities was $1.5 million and $1.2 million during the three months ended March 31, 2024 and 2023, respectively. Our earnings from investments in unconsolidated affiliated real estate entities are attributable to our unconsolidated 50% membership interest in the Hilton Garden Inn Joint Venture and our unconsolidated 25% membership interest Williamsburg Moxy Hotel Joint Venture.
Financial Condition, Liquidity and Capital Resources
Overview:
As of March 31, 2024, we had $5.5 million of cash on hand and $5.3 million of marketable securities. We currently believe that these items along with revenues generated from our properties, interest and dividend income earned on our marketable securities and distributions received from our unconsolidated affiliated real estate entities will be sufficient to satisfy our expected cash requirements for at least twelve months from the date of filing this Quarterly Report on Form 10-Q, which primarily consist of our anticipated operating expenses, scheduled debt service (excluding balloon payments due at maturity and including our expectation to extend or refinance our Revolving Credit Facility as discussed below), capital expenditures (excluding non-recurring capital expenditures), capital contributions to our unconsolidated affiliated real estate entities, redemptions and cancellations of Common Shares and distributions to our shareholders, if any, required to maintain our status as a REIT for the foreseeable future. However, we may also obtain additional funds, if necessary, through selective asset dispositions, proceeds received from the sale of marketable securities, joint venture arrangements, new borrowings and refinancing of existing borrowings.
As of March 31, 2024, we had mortgage indebtedness totaling $57.5 million. We have and intend to continue to limit our aggregate long-term permanent borrowings to 75% of the aggregate fair market value of all properties unless any excess borrowing is approved by a majority of 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 justification showing that a higher level is appropriate, the approval of our Board of Directors and disclosure to stockholders. Net assets mean our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. Market conditions will dictate our overall leverage limit; as such our aggregate borrowings may be less than 300% of net assets. As of March 31, 2024, our total borrowings were $57.5 million which represented 57% of our net assets.
Any future properties that we may acquire or develop may be funded through a combination of borrowings and the proceeds received from the disposition of certain of our assets. These borrowing 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.
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We may also obtain lines of credit to be used to acquire properties. If obtained, these lines of credit will be at prevailing market terms and will be repaid from proceeds from the sale or refinancing of properties, working capital and/or permanent financing. Our Sponsor and/or its affiliates may guarantee our lines of credit although they are not obligated to do so. We expect that such properties may be purchased by our Sponsor’s affiliates on our behalf, in our name, in order to minimize the imposition of a transfer tax upon a transfer of such properties to us.
We have an advisory agreement with the Advisor and various agreements with certain affiliates of our Sponsor which provide for us to pay certain fees in exchange for services performed by them on our behalf. Additionally, our ability to secure financing and our real estate operations are dependent upon our Advisor and certain affiliates of our Sponsor to perform such services as specified in these agreements.
In addition to meeting working capital needs and making distributions, if any, to maintain our status as a REIT, our capital resources are used to make various payments to our Advisor and certain affiliates of the Sponsor, such as payments of fees related to asset acquisition, development and leasing commissions, asset management fees, and property management (excluding our hospitality properties, each of which is managed by an unrelated third party property manager), as well as the reimbursement of acquisition related expenses and actual expenses it incurred for administrative and other services provided to us. Additionally, in the event of a liquidation of our assets, we may pay our Advisor or certain affiliates of our Sponsor, disposition fees. Furthermore, the Operating Partnership may be required to make distributions to the Special Limited Partner provided stockholders receive a distribution equal to their initial investment plus a stated preferred return. During the first quarter of 2024, the Advisor agreed to allow us to temporarily defer the payment of asset management fees.
The advisory agreement has a one-year term and is renewable for an unlimited number of successive one-year periods upon the mutual consent of the Advisor and our independent directors.
The following table represents the fees incurred associated with the payments to the Advisor for the periods indicated:
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Asset management fees (general and administrative costs) | $ | 365 | $ | 317 | ||||
Summary of Cash Flows
The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below:
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash provided by/(used in) operating activities | $ | 266 | $ | (123 | ) | |||
| Cash provided by/(used in) investing activities | 2,404 | (9,076 | ) | |||||
| Cash used in financing activities | (1,067 | ) | (249 | ) | ||||
| Change in cash, cash equivalents and restricted cash | 1,603 | (9,448 | ) | |||||
| Cash, cash equivalents and restricted cash, beginning of year | 3,853 | 18,391 | ||||||
| Cash, cash equivalents and restricted cash, end of the period | $ | 5,456 | $ | 8,943 | ||||
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Operating activities
The net cash provided by operating activities of $0.3 million during the three months ended March 31, 2024 consisted of our net loss of $3.0 million which was offset by the net changes in operating assets and liabilities of $0.8 million and depreciation and amortization, loss from investments in unconsolidated affiliated real estate entities and other non-cash items aggregating $2.4 million.
Investing activities
The net cash provided by investing activities of $2.4 million during the three months ended March 31, 2024 consisted of net proceeds from the sale of marketable securities of $2.0 million and distributions from the Hilton Garden Inn Joint Venture of $0.6 million partially offset by capital contributions of $0.1 million made to the Williamsburg Moxy Hotel Joint Venture and purchases of marketable securities of $0.1 million.
Financing activities
The cash used in financing activities of $1.1 million during the three months ended March 31, 2024 consisted of distributions to common stockholders of $1.0 million and debt principal payments of $0.1 million.
Distributions on Common Shares
On November 13, 2023, the Board of Directors authorized and we declared a Common Share distribution of $0.075 per share for the quarterly period ending December 31, 2023. The distribution is the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. The distribution of $1.0 million was paid on January 15, 2024 to stockholders of record at the close of business on December 31, 2023.
On March 18, 2024, the Board of Directors determined to suspend regular quarterly distributions.
Future distributions declared, if any, will be at the discretion of the Board of Directors based on their analysis of our performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, revenues and other sources of income, operating and interest expenses and our ability to refinance near-term debt as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. We cannot assure that any future distributions will be made or that we will maintain any particular level of distributions that we have previously established or may establish.
Subordinated Participation Interests
In connection with our Offering, the Special Limited Partner purchased 242 Subordinated Participation Interests in the Operating Partnership at a cost of $50,000 per unit, with an aggregate value of $12.1 million.
These Subordinated Participation Interests may entitle the Special limited Partner to a portion of any regular distributions that we make to our stockholders, but only after our stockholders have received a stated preferred return. However, from our inception through March 31, 2024, there have been no distributions declared on the Subordinated Participation Interests. Any future distributions on the Subordinated Participation Interests will always be subordinated until stockholders receive a stated preferred return.
The Subordinated Participation Interests may also entitle the Special Limited Partner to a portion of any liquidating distributions made by the Operating Partnership. The value of such distributions will depend upon the net proceeds available for distribution upon our liquidation and, therefore, cannot be determined at the present time. Liquidating distributions to the Special Limited Partner will always be subordinated until stockholders receive a distribution equal to their initial investment plus a stated preferred return.
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SRP
Our share repurchase program (the “SRP”) may provide eligible stockholders with limited, interim liquidity by enabling them to sell Common Shares back to us, subject to restrictions and applicable law.
On March 19, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension of all redemptions.
Effective May 10, 2021, the Board of Directors partially reopened the SRP to allow, subject to various conditions as set forth below, for redemptions submitted in connection with a stockholder’s death and hardship, respectively, and set the price for all such purchases to our current estimated NAV per Share, as determined by our board of directors and reported by us from time to time. Deaths that occurred subsequent to January 1, 2020 were eligible for consideration, subject to certain conditions. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by us within one year of the stockholder’s date of death for consideration.
On the above noted date, the Board of Directors established that on an annual basis, we would not redeem in excess of 0.5% of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Additionally, redemption requests generally would be processed on a quarterly basis and would be subject to proration if either type of redemption requests exceeded the annual limitation.
For the three months ended March 31, 2024, we repurchased 2,238 Common Shares at a weighted average price of $10.28. For the three months ended March 31, 2023, we repurchased 26,327 Common Shares at a weighted average price of $9.46.
Contractual Mortgage Obligations
The following is a summary of the estimated contractual obligations related to our mortgage payable over the next five years and thereafter as of March 31, 2024.
| Contractual Mortgage Obligations | 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | Total | |||||||||||||||||||||
| Principal maturities | $ | 31,151 | $ | 409 | $ | 25,960 | $ | - | $ | - | $ | - | $ | 57,520 | ||||||||||||||
| Interest payments(1) | 2,793 | 2,353 | 2,354 | - | - | - | 7,500 | |||||||||||||||||||||
| Total Contractual Mortgage Obligations | $ | 33,944 | $ | 2,762 | $ | 28,314 | $ | - | $ | - | $ | - | $ | 65,020 | ||||||||||||||
| (1) | These amounts represent future interest payments related to mortgage payable obligations based on the interest rate specified in the associated debt agreement. All of our mortgage debt outstanding as of March 31, 2024 bears interest based on one-month AMERIBOR plus a specified spread, subject to a floor. For purposes of calculating future interest amounts on our variable interest rate debt, the one-month AMERIBOR rate as of March 31, 2024 was used. |
Revolving Credit Facility
We have a non-recourse revolving credit facility (the “Revolving Credit Facility”) with a financial institution. The Revolving Credit Facility provides us with a line of credit of up to $60 million pursuant to which we may designate properties as collateral that allow borrowings up to a 65% loan-to-value ratio subject to also meeting certain financial covenants. The Revolving Credit Facility provides for monthly interest-only payments and the entire principal balance is due upon its expiration.
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The Revolving Credit Facility had two one-year extension options were exercised on July 13, 2022 and July 13, 2023 at which times, the maturity dates of the Revolving Credit Facility were further extended to July 13, 2023 and July 13, 2024, respectively. In connection with the exercise of the first extension option on July 13, 2022, the interest rate on the Revolving Credit Facility was prospectively changed to AMERIBOR plus 3.15%, subject to a 4.00% floor. In connection with the exercise of the second extension option on July 13, 2023, we were required to make a principal paydown of $1.4 million in August 2023 to meet the financial covenants under the Revolving Credit Facility for the quarterly period ended June 30, 2023. Furthermore, we did not meet the financial covenants for the quarterly period ended September 30, 2023 and subsequently in November 2023, the financial institution agreed to (i) waive one of the financial covenants for all remaining quarterly periods through the maturity date and (ii) modify the other financial covenant through the remaining term. In connection with the waiver and modification with respect to the financial covenants, we were required to make another principal paydown of $1.5 million in December 2023 which reduced the outstanding principal balance to $30.8 million and also purchase an interest rate cap contract for the remaining term of the Revolving Credit Facility as discussed below.
On December 1, 2023, we entered into an interest rate cap contract at a cost of $44 with an unrelated financial institution in order to reduce the effect of interest rate fluctuations or risk of certain real estate investment’s interest expense on the Revolving Credit Facility. The interest rate cap contract has a notional amount of $30.8 million, matures on July 13, 2024 and effectively caps AMERIBOR at 5.34%. As of March 31, 2024, the fair value of the interest rate cap contract was $3 and is included in prepaid expenses and other assets on the consolidated balance sheet.
We did not meet the remaining financial debt covenant under the Revolving Credit Facility for the quarterly period ended March 31, 2024, and therefore, the lender has the option of requiring a principal paydown of $2.0 million.
As of both March 31, 2024 and December 31, 2023, the Revolving Credit Facility had an outstanding principal balance of $30.8 million and six of our hotel properties were pledged as collateral. Additionally, no additional borrowings were available under the Revolving Credit Facility as of March 31, 2024. We currently intend to seek to further extend the maturity or refinance the Revolving Credit Facility on or before its maturity date of July 13, 2024, however, there can be no assurances that we will be successful in such endeavors.
Certain of our debt agreements also contain clauses providing for prepayment penalties. As of March 31, 2024, we were in compliance with all of our financial debt covenants, except for the Revolving Credit Facility as discussed above.
Investments in Unconsolidated Affiliated Entities
Hilton Garden Inn Joint Venture
On March 27, 2018, we and Lightstone Value Plus REIT II, Inc. (“Lightstone REIT II”), a related party REIT also sponsored by the Sponsor, acquired, through the newly formed Hilton Garden Inn Joint Venture, the Hilton Garden Inn - Long Island City from an unrelated third party, for aggregate consideration of $60.0 million, which consisted of $25.0 million of cash and $35.0 million of proceeds from a five-year term non-recourse loan from a financial institution (the “Hilton Garden Inn Mortgage”), excluding closing and other related transaction costs. We paid $12.9 million for a 50% membership interest in the Hilton Garden Inn Joint Venture.
On May 31, 2023, the Hilton Garden Inn Mortgage was further amended to provide for (i) an extension of the maturity date for an additional five years, (ii) the interest rate to be adjusted to SOFR plus 3.25%, subject to a 6.41% floor, (iii) interest-only payments for the first two years of its extended term with principal and interest payments pursuant to a 300-month amortization schedule thereafter and the remaining unpaid balance due in full at its maturity date of May 31, 2028, (iv) the ability to draw up to an additional $3.0 million of principal, subject to the satisfaction of certain conditions, and (v) certain changes to its financial covenants. Additionally, the Hilton Garden Inn Joint Venture is required to fund an aggregate of $1.3 million, through monthly payments of $37 from May 31, 2023 through June 1, 2026, into a cash collateral reserve account which may be drawn upon for specified capital expenditures.
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We and Lightstone REIT II each have a 50% co-managing membership interest in the Hilton Garden Inn Joint Venture. We account for our membership interest in the Hilton Garden Inn Joint Venture in accordance with the equity method of accounting because we exert significant influence over but do not control the Hilton Garden Inn Joint Venture. All capital contributions and distributions of earnings from the Hilton Garden Inn Joint Venture are made on a pro rata basis in proportion to each member’s equity interest percentage. Any distributions in excess of earnings from the Hilton Garden Inn Joint Venture are made to the members pursuant to the terms of the Hilton Garden Inn Joint Venture’s operating agreement.
As of March 31, 2024, the Hilton Garden Inn Joint Venture was in compliance with all of its financial covenants.
During the three months ended March 31, 2024, we received distributions from the Hilton Garden Joint Venture of $0.6 million.
Williamsburg Moxy Hotel Joint Venture
On August 5, 2021, we formed a joint venture with Lightstone Value Plus REIT IV, Inc. (“Lightstone REIT IV”), a related party REIT also sponsored by the Sponsor, pursuant to which we acquired 25% of Lightstone REIT IV’s membership interest in the Bedford Avenue Holdings LLC, which effective on that date became the Williamsburg Moxy Hotel Joint Venture, for aggregate consideration of $7.9 million. In July 2019, Lightstone REIT IV, through its then wholly owned subsidiary, Bedford Avenue Holdings LLC, previously acquired four adjacent parcels of land located at 353-361 Bedford Avenue in the Williamsburg neighborhood in the Brooklyn borough of New York City, from unrelated third parties, for the development of the Williamsburg Moxy Hotel.
As a result, we and Lightstone REIT IV have 25% and 75% membership interests, respectively, in the Williamsburg Moxy Hotel Joint Venture. We have determined that the Williamsburg Moxy Hotel Joint Venture is a variable interest entity and we are not the primary beneficiary, as it was determined that Lightstone REIT IV is the primary beneficiary. Therefore, we account for our membership interest in the Williamsburg Moxy Hotel Joint Venture in accordance with the equity method because we exert significant influence over but do not control the Williamsburg Moxy Hotel Joint Venture. All capital contributions and distributions of earnings from the Williamsburg Moxy Hotel 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 Williamsburg Moxy Hotel Joint Venture are made to the members pursuant to the terms of the Williamsburg Moxy Hotel Joint Venture’s operating agreement.
On August 5, 2021, the Williamsburg Moxy Hotel Joint Venture entered into a development agreement (the “Development Agreement”) with an affiliate of the Sponsor (the “Williamsburg Moxy Developer”) pursuant to which the Williamsburg Moxy Developer was 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. Additionally on August 5, 2021, the Williamsburg Moxy Hotel Joint Venture obtained construction financing for the Williamsburg Moxy Hotel as discussed below. Furthermore, certain affiliates of the Sponsor are reimbursed for various development and development-related costs attributable to the Williamsburg Moxy Hotel.
The Williamsburg Moxy Hotel was substantially completed and opened for business on March 7, 2023. In connection with the opening of the hotel, including its food and beverage venues, the Williamsburg Moxy Hotel Joint Venture incurred pre-opening costs of $1.7 million during the three months ended March 31, 2023. Pre-opening costs generally consist of non-recurring personnel, marketing and other costs.
During both the three months ended March 31, 2024 and 2023, we made capital contributions to the Williamsburg Moxy Joint Venture of $0.1 million.
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Moxy Construction Loan
On August 5, 2021, the Williamsburg Moxy Hotel Joint Venture entered into a recourse construction loan facility with a financial institution for up to $77.0 million (the “Moxy Construction Loan”) to fund certain of the development, construction and certain pre-opening costs associated with the Williamsburg Moxy Hotel. The Moxy Construction Loan, which was scheduled to initially mature on February 5, 2024, was further extended to May 4, 2024. The Moxy Construction Loan was collateralized by the Williamsburg Moxy Hotel. The Moxy Construction Loan provided for a replacement benchmark rate in connection with the phase-out of LIBOR and effective after June 30, 2023, the Moxy Construction Loan’s interest rate converted from LIBOR plus 9.00%, with a floor of 9.50%, to SOFR plus 9.11%, with a floor of 9.61%. The Moxy Construction Loan requires monthly interest-only payments based on a rate of 7.50% and the excess is added to the outstanding loan balance due at maturity. SOFR as of March 31, 2024 and December 31, 2023 was 5.32% and 5.35%, respectively.
As of March 31, 2024 and December 31, 2023, the outstanding principal balance of the Moxy Construction Loan was $85.4 million (including $8.4 million of interest added to principal), net of deferred financing fees of $39 and $83.8 million (including $6.9 million of excess interest added to principal), net of deferred financing fees of $0.1 million, respectively. As of March 31, 2024, the Williamsburg Moxy Construction Loan’s interest rate was 14.43%.
In connection with the Moxy Construction Loan, the Williamsburg Moxy Hotel Joint Venture 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.
Moxy Mortgage Loans
On April 19, 2024, the Williamsburg Moxy Joint Venture entered into an $86.0 million senior mortgage loan facility (the “Moxy Senior Loan”) and a $9.0 million junior mortgage loan facility (the “Moxy Junior Loan” and together with the Moxy Senior Loan, the “Moxy Mortgage Loans”) with unrelated third parties.
The Moxy Mortgage Loans bear interest at SOFR plus 5.10%, subject to a 8.75% floor. The Moxy Mortgage Loans initially mature on April 19, 2027, but may be further extended though the exercise of two six-month extension options, subject to the satisfaction of certain conditions. The Moxy Mortgage Loans require monthly interest-only payments with their outstanding principal due in full at maturity and are collateralized by the Williamsburg Moxy Hotel, however, the Moxy Junior Loan is subordinate to the Moxy Senior Loan. The Williamsburg Moxy Hotel Joint Venture used $85.8 million of the aggregate proceeds from the Moxy Mortgage Loans in connection with the payoff of the Moxy Construction Loan consisting of the outstanding indebtedness (principal and interest) of $86.0 million and accrued exit fees of $0.8 million, net of restricted escrows of $1.0 million.
In connection with the Moxy Mortgage Loans, the Williamsburg Moxy Hotel Joint Venture has provided certain interest and carry costs guarantees. Furthermore, in connection with the Moxy Mortgage Loans, $3.2 million of the initial proceeds advanced at closing were used to fund reserves for interest, real estate taxes and insurance. Additionally, the Williamsburg Moxy Hotel Joint Venture paid an aggregate of $2.8 million of loan fees and expenses in connection with the Moxy Mortgage Loans.
Funds from Operations and Modified Funds from Operations
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings, improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be less informative.
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Because of these factors, the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has published a standardized measure of performance known as funds from operations (“FFO”), which is used in the REIT industry as a supplemental performance measure. We believe FFO, which excludes certain items such as real estate-related depreciation and amortization, is an appropriate supplemental measure of a REIT’s operating performance. FFO is not equivalent to our net income or loss as determined under GAAP.
We calculate FFO, a non-GAAP measure, consistent with the standards established over time by the Board of Governors of NAREIT, as restated in a White Paper approved by the Board of Governors of NAREIT effective in December 2018 (the “White Paper”). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Our FFO calculation complies with NAREIT’s definition.
We believe that the use of FFO provides a more complete understanding of our performance to investors and to management, and reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.
Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT’s definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.
Because of these factors, the Investment Program Association (the “IPA”), an industry trade group, published a standardized measure of performance known as modified funds from operations (“MFFO”), which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that both before and after we have deployed all of our offering proceeds, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP.
We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the “Practice Guideline”) issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction-related fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and exclude acquisition and transaction-related fees and expenses (which includes costs incurred in connection with strategic alternatives), amounts relating to deferred rent receivables and amortization of market lease and other intangibles, net (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), accretion of discounts and amortization of premiums on debt investments and borrowings, mark-to-market adjustments included in net income (including gains or losses incurred on assets held for sale), gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. Certain of the above adjustments are also made to reconcile net income (loss) to net cash provided by (used in) operating activities, such as for the amortization of a premium and accretion of a discount on debt and securities investments, amortization of fees, any unrealized gains (losses) on derivatives, securities or other investments, as well as other adjustments.
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MFFO excludes non-recurring impairment of real estate-related investments. We assess the credit quality of our investments and adequacy of reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. We consider the estimated net recoverable value of a loan as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive situation of the region where the borrower does business.
We believe that, because MFFO excludes costs that we consider more reflective of non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.
Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO.
Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guidelines or the SEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry, and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.
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The below table illustrates the items deducted in the calculation of FFO and MFFO. Items are presented net of non-controlling interest portions where applicable.
| For the Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net loss | $ | (2,987 | ) | $ | (2,707 | ) | ||
| FFO adjustments: | ||||||||
| Depreciation and amortization of real estate assets | 834 | 1,180 | ||||||
| Adjustments to equity earnings from unconsolidated affiliated real estate entities | 531 | 372 | ||||||
| FFO | (1,622 | ) | (1,155 | ) | ||||
| MFFO adjustments: | ||||||||
| Loss on sale of marketable securities (1) | - | 4 | ||||||
| Unrealized (gain)/loss on marketable equity securities (2) | (50 | ) | 40 | |||||
| MFFO | (1,672 | ) | (1,111 | ) | ||||
| Straight-line rent | - | - | ||||||
| MFFO - IPA recommended format | $ | (1,672 | ) | $ | (1,111 | ) | ||
| Net loss | $ | (2,987 | ) | $ | (2,707 | ) | ||
| Less: net loss attributable to noncontrolling interests | - | - | ||||||
| Net loss applicable to Company’s common shares | $ | (2,987 | ) | $ | (2,707 | ) | ||
| Net loss per common share, basic and diluted | $ | (0.23 | ) | $ | (0.21 | ) | ||
| FFO | $ | (1,622 | ) | $ | (1,155 | ) | ||
| Less: FFO attributable to noncontrolling interests | - | - | ||||||
| FFO attributable to Company’s common shares | $ | (1,622 | ) | $ | (1,155 | ) | ||
| FFO per common share, basic and diluted | $ | (0.13 | ) | $ | (0.09 | ) | ||
| MFFO - IPA recommended format | $ | (1,672 | ) | $ | (1,111 | ) | ||
| Less: MFFO attributable to noncontrolling interests | - | - | ||||||
| MFFO attributable to Company’s common shares | $ | (1,672 | ) | $ | (1,111 | ) | ||
| Weighted average number of common shares outstanding, basic and diluted | 12,930 | 13,023 | ||||||
| (1) | Management believes that adjusting for gains or losses related to extinguishment/sale of debt, derivatives or securities holdings is appropriate because they are items that may not be reflective of ongoing operations. By excluding these items, management believes that MFFO provides supplemental information related to sustainable operations that will be more comparable between other reporting periods. | |
| (2) | Management believes that adjusting for mark-to-market adjustments is appropriate because they are nonrecurring items that may not be reflective of ongoing operations and reflects unrealized impacts on value based only on then current market conditions, although they may be based upon current operational issues related to an individual property or industry or general market conditions. Mark-to-market adjustments are made for items such as ineffective derivative instruments, certain marketable securities and any other items that GAAP requires we make a mark-to-market adjustment for. The need to reflect mark-to-market adjustments is a continuous process and is analyzed on a quarterly and/or annual basis in accordance with GAAP. |
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The table below presents our cumulative distributions paid and FFO attributable to our common shares:
| For the period October 5, 2012 (date of inception) through March 31, 2024 | ||||
| FFO attributable to Company’s common shares | $ | 18,703 | ||
| Distributions paid | $ | 29,764 | ||
ITEM 4. CONTROLS AND PROCEDURES.
As of the end of the period covered by this report, management, including our chief executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of the evaluation, our chief executive officer and principal financial officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.
There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no significant deficiencies or material weaknesses identified in the evaluation, and therefore, no corrective actions were taken.
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PART II. OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS.
From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes. See Note 9 of the Notes to Consolidated Financial Statements for additional information.
As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
During the period covered by this Form 10-Q, the Company did not sell any unregistered securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
| * | 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 III, INC. |
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| Date: May 15, 2024 | By: | /s/ David Lichtenstein |
| David Lichtenstein | ||
|
Chairman and Chief Executive Officer (Principal Executive Officer) |
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| Date: May 15, 2024 | By: | /s/ Seth Molod |
| Seth Molod | ||
|
Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) |
||
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