The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements ofLightstone Value Plus REIT I, Inc. and Subsidiaries and the notes thereto. As used herein, the terms "we," "our" and "us" refer toLightstone Value Plus REIT I, Inc. , which was formerly known asLightstone Value Plus Real Estate Investment Trust, Inc. beforeSeptember 16, 2021 , aMaryland corporation, and, as required by context,Lightstone Value Plus REIT, L.P. and its wholly owned subsidiaries, which we collectively refer to as "theOperating Partnership ." Dollar amounts are presented in thousands, except per share data and where indicated in millions. Forward-Looking Statements Certain information included in this Quarterly Report on Form 10-Q contains, and other materials filed or to be filed by us with theSecurities and Exchange Commission , or theSEC , contain or will contain, forward-looking statements. All statements, other than statements of historical facts, including, among others, statements regarding our possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives, are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations ofLightstone Value Plus REIT I, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements.
Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements.
Risks and other factors that might cause differences, some of which could be material, include, but are not limited to, economic and market conditions, competition, tenant or joint venture partner(s) bankruptcies, changes in governmental, tax, real estate and zoning laws and regulations, failure to increase tenant occupancy and operating income, rejection of leases by tenants in bankruptcy, financing and development risks, construction and lease-up delays, cost overruns, the level and volatility of interest rates, the rate of revenue increases versus expense increases, the effect of the phase-out of the London Interbank Offered Rate, or LIBOR, as a variable rate debt benchmark and the transition to a different benchmark interest rate, the financial stability of various tenants and industries, the failure of the Company (defined herein) to make additional investments in real estate properties, the failure to upgrade our tenant mix, restrictions in current financing arrangements, the failure to fully recover tenant obligations for common area maintenance ("CAM"), insurance, taxes and other property expenses, the failure of the Company to continue to qualify as a real estate investment trust ("REIT"), the failure to refinance debt at favorable terms and conditions, an increase in impairment charges, loss of key personnel, failure to achieve earnings/funds from operations targets or estimates, conflicts of interest with the Advisor, Sponsor and their affiliates, failure of joint venture relationships, significant costs related to environmental issues and uncertainties regarding the impact of the current COVID-19 pandemic, and restrictions intended to prevent its spread on our business and the economy generally, as well as other risks listed from time to time in this Form 10-Q, our Form 10-K and in the Company's other reports filed with theSEC .
We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless required by law. 19 OverviewLightstone Value Plus REIT I, Inc. (the "Lightstone REIT I"), (together with theOperating Partnership (as defined below), the "Company", also referred to as "we", "our" or "us" herein) has and expects to continue to acquire and operate or develop in the future, commercial, residential and hospitality properties and/or make real estate-related investments, principally inthe United States . Our acquisitions and investments are, principally conducted through theOperating Partnership , and may include both portfolios and individual properties. As ofMarch 31, 2022 , we have ownership interests in (i) two consolidated operating properties, (ii) two consolidated development properties and (iii) seven unconsolidated operating properties. With respect to our consolidated operating properties, we wholly own theSt. Augustine Outlet Center , a retail property containing 0.3 million square feet of gross leasable area, and have a majority ownership interest of 59.2% inGantry Park Landing , a multi-family residential property containing 199 apartment units. With respect to our consolidated development properties, we wholly own two projects consisting of theLower East Side Moxy Hotel and theExterior Street Project . We also hold a 2.5% ownership interest in seven hotel properties through a joint venture (the "Joint Venture") which we account for using a measurement alternative under which the Joint Venture is measured at cost, adjusted for observable price changes and impairments, if any. The Joint Venture is between us and the operating partnership ofLightstone Value Plus REIT II, Inc. , a REIT also sponsored by our Sponsor, which has a 97.5% ownership interest in the Joint Venture. Furthermore, we have other real estate-related investments, including preferred contributions that were made pursuant to agreements with various related party entities (the "Preferred Investments") and nonrecourse promissory notes made to unaffiliated third-parties. Our real estate investments have been and are expected to continue to be held by the Company alone or jointly with other parties.
We do not have employees. We entered into an advisory agreement pursuant to which the Advisor supervises and manages our day-to-day operations and selects our real estate and real estate related investments, subject to oversight by our board of directors (the "Board of Directors"). We pay the Advisor fees for services related to the investment and management of our assets, and we will reimburse the Advisor for certain expenses incurred on our behalf. To maintain our qualification as a REIT, we engage in certain activities through taxable REIT subsidiaries ("TRSs"). As such, we may still be subject toU.S. federal and state income and franchise taxes from these activities.
Acquisitions and Investment Strategy
We have, to date, acquired and/or developed residential, commercial and hospitality properties principally, all of which are located inthe United States and also made other real estate-related investments. Our acquisitions have included both portfolios and individual properties. Our current operating properties consist of one retail property (theSt. Augustine Outlet Center ) and one multi-family residential property (Gantry Park Landing ). We have also acquired various parcels of land and air rights related to the development and construction of real estate properties. Additionally, we have made preferred investments in related parties and originated nonrecourse loans to unaffiliated third-party borrowers. Investments in real estate are generally made through the purchase of all or part of a fee simple ownership, or all or part of a leasehold interest. We may also purchase limited partnership interests, limited liability company interests and other equity securities. We may also enter into joint ventures with related parties for the acquisition, development or improvement of properties as well as general partnerships, co-tenancies and other participations with real estate developers, owners and others for the purpose of developing, owning and operating real properties. We will not enter into a joint venture to make an investment that we would not be permitted to make on our own. Not more than 10% of our total assets will be invested in unimproved real property. For purposes of this paragraph, "unimproved real properties" does not include properties acquired for the purpose of producing rental or other operating income, properties under construction and properties for which development or construction is planned within one year. Current Environment Our operating results are substantially impacted by the overall health of local,U.S. national and global economies and may be influenced by market and other challenges. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, and recession. COVID-19 Pandemic
TheWorld Health Organization declared COVID-19 a global pandemic onMarch 11, 2020 and since that time many of the previously imposed restrictions and other measures which were instituted in response have been subsequently reduced or lifted. However, the COVID-19 pandemic remains highly unpredictable and dynamic and its duration and extent continue to be dependent on various developments, such as the emergence of variants to the virus that may cause additional strains of COVID-19, the administration and ultimate effectiveness of vaccines, and the eventual timeline to achieve a sufficient level of herd immunity among the general population. Accordingly, the COVID-19 pandemic may continue to have negative effects on the health of theU.S. economy for the foreseeable future. 20 During the COVID-19 pandemic, the occupancy of ourSt. Augustine Outlet Center . Located inSt. Augustine, Florida , significantly declined and because of limited leasing success, we began exploring various strategic alternatives for theSt. Augustine Outlet Center and as a result determined during the third quarter of 2021 that we would no longer pursue leasing of space to tenants and therefore, entered into lease termination agreements with certain tenants and also provided notice to our other tenants that we would not renew their leases at scheduled expiration. As a result of this change in leasing strategy and resulting decrease in the fair value of theSt. Augustine Outlet Center , we recorded a non-cash impairment charge of$11.3 million during the third quarter of 2021. Because of the aforementioned lease terminations and scheduled expirations, substantially all of the tenants vacated during the first quarter of 2022. Additionally, as a result of the COVID-19 pandemic, during 2020 we saw deterioration in both the occupancy and rental rates forGantry Park Landing , which is located onLong Island ,New York , as the luxury rental market in the greaterNew York City metropolitan area was negatively impacted. However, both occupancy and rental rates improved considerably throughout 2021 and have returned to pre-COVID-19 levels. To-date, the COVID-19 pandemic has not had any significant impact on our development projects. Furthermore, our other real estate-related investments (both our preferred investments in related parties and nonrecourse loans made to unaffiliated third-party borrowers) also relate to various development projects which are at different stages in their respective development process. These investments, which are subject to similar restrictions and other measures, have also not yet been significantly impacted by the COVID-19 pandemic. The overall extent to which our business may be affected by the ongoing COVID-19 pandemic will largely depend on both current and future developments, all of which are highly uncertain and cannot be reasonably predicted. If our operating properties, development projects and real estate-related investments are negatively impacted for an extended period because (i) occupancy levels and rental rates further decline, (ii) tenants are unable to pay their rent, (iii) borrowers are unable to pay scheduled debt service on notes receivable, (iv) development activities are delayed and/or (v) various related party entities are unable to pay monthly preferred distributions on our preferred investments in related parties, our business and financial results could be materially and adversely impacted. 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 accounting principles generally accepted inthe United States of America ("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.
St. Augustine Outlet Center
We wholly own theSt. Augustine Outlet Center , a retail property containing 0.3 million square feet of gross leasable area located inSt. Augustine, Florida .The St. Augustine Outlet Center was built in 1998 and subsequently acquired by us in 2006 and renovated and expanded in 2008. During the COVID-19 pandemic, the property's occupancy significantly declined and because of limited leasing success, we began exploring various strategic alternatives for ourSt. Augustine Outlet Center and as a result determined during the third quarter of 2021 that we would no longer pursue leasing of space to tenants and therefore, entered into lease termination agreements with certain tenants and also provided notice to our other tenants that we would not renew their leases at scheduled expiration. Because of the aforementioned lease terminations and scheduled expirations, substantially all of the tenants vacated during the first quarter of 2022. 21Gantry Park Landing
We have a 59.2% membership interest in a joint venture which developed,
constructed and owns
Annualized Annualized Revenues based Revenues per Percentage on rents at unit at March Occupied as of March 31, 31, Location Year Built Leaseable Units March 31, 2022 2022 2022 Gantry Park Landing (Multi-Family Queens, 9.6 Apartment Building) New York 2013 199 100.0 % $ million $ 48,011
Annualized revenue is defined as the minimum monthly payments due as of
Development Properties Lower East Side Moxy Hotel
On
Exterior Street Project
On
The following is a summary of the total amounts incurred and capitalized to our
development projects as of
Development Project Lower East Side Moxy Hotel $ 163,553 Exterior Street Project 88,674 Total$ 252,227 Results of Operations
For the Three Months Ended
Consolidated - Continuing Operations
Revenues Our revenues are comprised of rental income and tenant recovery income. Total revenues decreased by approximately$0.3 million to$2.5 million for the three months endedMarch 31, 2022 compared to$2.8 million for the same period in 2021. This decrease was primarily attributable to our decision to no longer pursue leasing of space to tenants at ourSt. Augustine Outlet Center and substantially all of the tenants vacating during the first quarter of 2022.
Property operating expenses Property operating expenses increased slightly by$0.1 million to$1.0 million for the three months endedMarch 31, 2022 compared to$0.9 million for the
same period in 2021. Real estate taxes
Real estate taxes were
22
General and administrative expenses
General and administrative expenses were
Depreciation and amortization
Depreciation and amortization decreased by$0.3 million to$0.8 million for the three months endedMarch 31, 2022 compared to$1.1 million for the same period in 2021. The decrease in depreciation and amortization reflects changes to the estimated remaining useful life of certain tenant-related building improvements resulting from the lease terminations for theSt. Augustine Outlet Center .
Interest and dividend income Interest and dividend income decreased by approximately$1.2 million to$2.3 million for the three months endedMarch 31, 2022 compared to$3.5 million for the same period in 2021. The decrease primarily reflects lower interest income earned on our notes receivable of$1.4 million partially offset by higher interest and dividend income earned on our available cash and investments in marketable securities of$0.2 million . Interest expense Interest expense, including amortization of deferred financing costs, decreased by$0.4 million to$0.4 million for the three months endedMarch 31, 2022 compared to$0.8 million for the same period in 2021. During the three months endedMarch 31, 2022 and 2021,$3.0 million and$1.7 million , respectively, of interest was capitalized to our development projects.
Unrealized (loss)/gain on marketable equity securities
During the three months endedMarch 31, 2022 , we recorded an unrealized loss on marketable equity securities of$9.0 million and during the three months endedMarch 31, 2021 , we recorded an unrealized gain on marketable equity securities of$9.0 million . These unrealized gains and losses represented the change in the fair value of our marketable equity securities during those periods.
Mark to Market Adjustment on Derivative Financial Instruments
During the three months ended
Gain/(loss) on sale and redemption of marketable securities
During the three months endedMarch 31, 2022 , we recorded a gain on the sale of marketable securities of$1.3 million and during the three months endedMarch 31, 2021 , we recorded a loss on the sale of marketable securities of$22 . These gains and losses represented the difference between the sales price and carrying value of our marketable securities sold during those periods. Noncontrolling interests The net earnings allocated to noncontrolling interests relates to (i) parties that hold units in theOperating Partnership , (ii) the interest inPRO-DFJV Holdings LLC ("PRO") held by our Sponsor, (iii) the ownership interests in50-01 2nd St. Associates LLC (the "2nd Street Joint Venture") held by our Sponsor and other affiliates and (iv) the ownership interest in various joint ventures held by affiliates of our Sponsor that have originated nonrecourse loans to unaffiliated third-party borrowers.
Financial Condition, Liquidity and Capital Resources
Overview:
As ofMarch 31, 2022 , we had$30.5 million of cash on hand,$0.9 million of restricted cash and$50.1 million of marketable securities. We also have the ability to make draws from a line of credit up to$20.0 million , subject to certain conditions (see "Notes Payable - Line of Credit"). We currently believe that these items along with rental income from our operating properties; interest and dividend income earned on our marketable securities, notes receivable and preferred investments; as well as proceeds received from the repayment of the notes receivable and redemptions of the preferred investments will be sufficient to satisfy our expected cash requirements primarily consisting our anticipated operating expenses, scheduled debt service, capital expenditures (including certain of our development activities) 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 through selective asset dispositions, joint venture arrangements, new borrowings and refinancing of existing debt. We currently have two development projects (see "Development Activities"). With respect to ourLower East Side Moxy Hotel , which is currently under construction and expected to open during the fourth quarter of 2022, we have obtained construction financings and the remaining costs associated with the construction of theLower East Side Moxy Hotel are expected to be funded from the remaining availability under such construction financings. See "Development Activities -Lower East Side Moxy Hotel " for additional information. OurExterior Street Project is currently under development and we expect to seek construction financing to fund a substantial portion of its future development and construction costs. See "Development Activities -Exterior Street Project "
for additional information. 23 Our borrowings consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. We typically have obtained level payment financing, meaning that the amount of debt service payable would be substantially the same each year. As such, most of the mortgages on our properties provide for a so-called "balloon" payment and are at a fixed interest rate.
Additionally, in order to leverage our investments in marketable securities and seek a higher rate of return, we have access to borrowings under a margin loan and line of credit collateralized by the securities held with the financial institution that provided the margin loan and line of credit as well as a portion of our Marco OP Units. These loans are due on demand and any outstanding balance must be paid upon the liquidation of securities. Our charter provides that the aggregate amount of borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a satisfactory showing that a higher level is appropriate, the approval of the Board of Directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. As ofMarch 31, 2022 , our total borrowings of$183.7 million represented 59% of net assets. Any future properties that we may acquire or investments we may make may be funded through a combination of borrowings, proceeds generated from the sale and redemption of our marketable securities, available for sale, proceeds received from the selective disposition of our properties and proceeds received from the redemption of our preferred investments in related parties. These borrowings may consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. Such mortgages may be put in place either at the time we acquire a property or subsequent to our purchasing a property for cash. In addition, we may acquire properties that are subject to existing indebtedness where we choose to assume the existing mortgages. Generally, though not exclusively, we intend to seek to encumber our properties with debt, which will be on a non-recourse basis. This means that a lender's rights on default will generally be limited to foreclosing on the property. However, we may, at our discretion, secure recourse financing or provide a guarantee to lenders if we believe this may result in more favorable terms. When we give a guaranty for a property owning entity, we will be responsible to the lender for the satisfaction of the indebtedness if it is not paid by the property owning entity. We may also obtain lines of credit to be used to acquire properties or real estate-related assets. 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 or permanent financing. Our Sponsor or its affiliates may guarantee the lines of credit although they will not be obligated to do so. We expect that such properties may be purchased by our Sponsor's affiliates on our behalf, in our name, in order to minimize the imposition of a transfer tax upon a transfer of such properties to us. We have various agreements, including an advisory agreement, with the Advisor to pay certain fees in exchange for services performed by the Advisor and/or its affiliated entities. Additionally, our ability to secure financing and our real estate operations are dependent upon our Advisor and its affiliates to perform such services as provided in these agreements. In addition to meeting working capital needs and distributions, if any, to our stockholders, our capital resources are used to make certain payments to our Advisor and our Property Manager, including payments related to asset acquisition fees, development fees and leasing commissions, asset management fees, the reimbursement of acquisition related expenses to our Advisor and property management fees. We also reimburse our Advisor and its affiliates for actual expenses it incurs for administrative and other services provided to us. Additionally, theOperating Partnership may be required to make distributions toLightstone SLP, LLC , an affiliate of the Advisor. 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. 24
The following table represents the fees incurred associated with the payments to our Advisor and its affiliates:
For the Three Months EndedMarch 31 ,March 31, 2022 2021
Asset management fees (general and administrative costs) $ 154 $ 244 Property management fees (property operating expenses)
80 96 Development fees and cost reimbursement (1)
884 310 Total $ 1,118 $ 650
(1) Development fees and development costs that we reimburse our Advisor for are
capitalized and are included in the carrying value of the associated
development project and classified as construction in progress on the
consolidated balance sheets. As of
owed the Advisor and its affiliated entities
respectively, for development fees, which is included in accounts payable,
accrued expenses and other liabilities on the consolidated balance sheets.
See Note 3 of the Notes to Consolidated Financial Statements for additional
information. Additionally, we may be required to make distributions on the special general partner interests ("SLP Units") in theOperating Partnership held byLightstone SLP, LLC , an affiliate of the Advisor. In connection with the Company's initial public offering,Lightstone SLP, LLC purchased an aggregate of$30.0 million of SLP Units. These SLP Units, the purchase price of which will be repaid only after stockholders receive a stated preferred return and their net investment, entitleLightstone SLP, LLC to a portion of any regular distributions made by theOperating Partnership .
During both the three months ended
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