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LVVR Lightstone Value Plus Real Estate Investment Trust III Inc (CE)

3.40
0.00 (0.00%)
04 Dec 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type
Lightstone Value Plus Real Estate Investment Trust III Inc (CE) USOTC:LVVR OTCMarkets Common Stock
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 3.40 0.00 00:00:00

Form 10-Q - Quarterly report [Sections 13 or 15(d)]

14/08/2023 10:10pm

Edgar (US Regulatory)


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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2023

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission file number 000-55619

 

LIGHTSTONE VALUE PLUS REIT III, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Maryland   46-1140492

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

1985 Cedar Bridge Avenue, Suite 1    
Lakewood, New Jersey   08701
(Address of Principal Executive Offices)   (Zip Code)

 

(732) 367-0129

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑   No

 

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).

Yes ☑   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer 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 ☐   No

 

As of August 7, 2023, there were approximately 13.0 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

 

        Page
PART I   FINANCIAL INFORMATION    
         
Item 1.   Financial Statements (unaudited)   1
     
    Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022   1
     
    Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022   2
         
    Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2023 and 2022   3
         
    Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022   4
         
    Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022   5
     
    Notes to Consolidated Financial Statements   6
     
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   22
     
Item 4.   Controls and Procedures   39
     
PART II   OTHER INFORMATION    
     
Item 1.   Legal Proceedings   40
     
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   40
     
Item 3.   Defaults Upon Senior Securities   40
     
Item 4.   Mine Safety Disclosures   40
     
Item 5.   Other Information   40
     
Item 6.   Exhibits   41

 

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)

 

                 
    June 30,
2023
    December 31,
2022
 
    (unaudited)        
Assets                
                 
Investment property:                
Land and improvements   $ 21,713     $ 21,711  
Building and improvements     92,132       91,987  
Furniture and fixtures     16,538       16,463  
Construction in progress     131       47  
Gross investment property     130,514       130,208  
Less: accumulated depreciation     (34,700 )     (32,438 )
Net investment property     95,814       97,770  
                 
Investments in unconsolidated affiliated real estate entities     20,577       21,755  
Cash and cash equivalents     9,310       18,391  
Marketable securities, available for sale     9,308       3,314  
Accounts receivable and other assets     2,599       1,585  
Total Assets   $ 137,608     $ 142,815  
                 
Liabilities and Stockholders’ Equity                
                 
Accounts payable and other accrued expenses   $ 3,358     $ 2,960  
Mortgages payable, net     60,921       60,814  
Distributions payable     970       -  
Due to related parties     396       302  
Total Liabilities     65,645       64,076  
                 
Commitments and Contingencies                
                 
Stockholders’ Equity:                
Company’s stockholders’ equity:                
Preferred stock, $0.01 par value; 50.0 million shares authorized, none issued and outstanding     -       -  
Common stock, $0.01 par value; 200.0 million shares authorized, 13.0 million shares issued and outstanding     129       130  
Additional paid-in-capital     110,721       111,585  
Accumulated other comprehensive loss     (226 )     (250 )
Accumulated deficit     (50,753 )     (44,818 )
Total Company stockholders’ equity     59,871       66,647  
Noncontrolling interests     12,092       12,092  
Total Stockholders’ Equity     71,963       78,739  
Total Liabilities and Stockholders’ Equity   $ 137,608     $ 142,815  

 

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
June 30,
    For the
Six Months Ended
June 30,
 
    2023     2022     2023     2022  
Revenues   $ 7,966     $ 7,986     $ 14,332     $ 13,731  
                                 
Expenses:                                
Property operating expenses     5,103       4,756       9,682       8,528  
Real estate taxes     267       357       597       707  
General and administrative costs     672       592       1,315       1,278  
Depreciation and amortization     1,114       1,214       2,294       2,482  
Total expenses     7,156       6,919       13,888       12,995  
                                 
Interest expense     (1,333 )     (709 )     (2,571 )     (1,370 )
Gain on forgiveness of debt     -       899       -       1,131  
Earnings from investments in unconsolidated affiliated real estate entities     (1,002 )     75       (2,180 )     (99 )
Other income/(expense), net     242       (30 )     317       (88 )
                                 
Net (loss)/income     (1,283 )     1,302       (3,990 )     310  
                                 
Less: net loss/(income) attributable to noncontrolling interests     -       -       -       -  
                                 
Net (loss)/income applicable to Company’s common shares   $ (1,283 )   $ 1,302     $ (3,990 )   $ 310  
                                 
Net (loss)/income per Company’s common share, basic and diluted   $ (0.10 )   $ 0.10     $ (0.31 )   $ 0.02  
                                 
Weighted average number of common shares outstanding, basic and diluted     12,973       13,084       12,998       13,107  

 

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
June 30,
    For the
Six Months Ended
June 30,
 
    2023     2022     2023     2022  
Net (loss)/income   $ (1,283 )   $ 1,302     $ (3,990 )   $ 310  
                                 
Other comprehensive income/(loss):                                
Holding gain/(loss) on marketable securities, available for sale     24       (44 )     24       (76 )
Comprehensive (loss)/income     (1,259 )     1,258       (3,966 )     234  
                                 
Less: Comprehensive loss/(income) attributable to noncontrolling interests     -       -       -       -  
                                 
Comprehensive (loss)/income attributable to the Company’s common shares   $ (1,259 )   $ 1,258     $ (3,966 )   $ 234  

 

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     Additional
Paid-In
    Accumulated
Other
Comprehensive
    Accumulated     Total
Noncontrolling
    Total  
    Shares     Amount     Capital     Loss     Deficit     Interests     Equity  
BALANCE, March 31, 2022     13,121     $ 131     $ 112,330     $ (139 )   $ (45,595 )   $ 12,092     $ 78,819  
                                                         
Net income     -       -       -       -       1,302       -       1,302  
Other comprehensive loss     -       -       -       (44 )     -       -       (44 )
Redemption and cancellation of shares     (52 )     (1 )     (491 )     -       -       -       (492 )
                                                         
BALANCE, June 30, 2022     13,069     $ 130     $ 111,839     $ (183 )   $ (44,293 )   $ 12,092     $ 79,585  

 

    Common     Additional
Paid-In
    Accumulated
Other
Comprehensive
    Accumulated     Total
Noncontrolling
    Total  
    Shares     Amount     Capital     Loss     Deficit     Interests     Equity  
BALANCE, December 31, 2021     13,152     $ 131     $ 112,581     $ (107 )   $ (44,603 )   $ 12,092     $ 80,094  
                                                         
Net income     -       -       -       -       310       -       310  
Other comprehensive loss     -       -       -       (76 )     -       -       (76 )
Redemption and cancellation of shares     (83 )     (1 )     (742 )     -       -       -       (743 )
                                                         
BALANCE, June 30, 2022     13,069     $ 130     $ 111,839     $ (183 )   $ (44,293 )   $ 12,092     $ 79,585  

 

    Common     Additional
Paid-In
    Accumulated
Other
Comprehensive
    Accumulated     Total
Noncontrolling
    Total  
    Shares     Amount     Capital     Loss     Deficit     Interests     Equity  
BALANCE, March 31, 2023     13,017     $ 130     $ 111,336     $ (250 )   $ (48,500 )   $ 12,092     $ 74,808  
                                                         
Net loss     -       -       -       -       (1,283 )     -       (1,283 )
Other comprehensive income     -       -       -       24     -       -       24  
Distributions declared(a)     -       -       -       -       (970 )     -       (970 )
Redemption and cancellation of shares     (60 )     (1 )     (615 )     -       -       -       (616 )
                                                         
BALANCE, June 30, 2023     12,957     $ 129     $ 110,721     $ (226 )   $ (50,753 )   $ 12,092     $ 71,963  

 

 
(a) Distributions per share were $0.075.

 

    Common     Additional
Paid-In
    Accumulated
Other
Comprehensive
    Accumulated     Total
Noncontrolling
    Total  
    Shares     Amount     Capital     Loss     Deficit     Interests     Equity  
BALANCE, December 31, 2022     13,043     $ 130     $ 111,585     $ (250 )   $ (44,818 )   $ 12,092     $ 78,739  
                                                         
Net loss     -       -       -       -       (3,990 )     -       (3,990 )
Other comprehensive income     -       -       -       24     -       -       24  
Distributions declared(a)     -       -       -       -       (1,945 )     -       (1,945 )
Redemption and cancellation of shares     (86 )     (1 )     (864 )     -       -       -       (865 )
                                                         
BALANCE, June 30, 2023     12,957     $ 129     $ 110,721     $ (226 )   $ (50,753 )   $ 12,092     $ 71,963  

 

 
(a) Distributions per share were $0.150.

 

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
Six Months Ended
June 30,
 
    2023     2022  
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net (loss)/income   $ (3,990 )   $ 310  
Adjustments to reconcile net (loss)/income to net cash provided by operating activities:                
Loss from investments in unconsolidated affiliated real estate entities     2,180       99  
Depreciation and amortization     2,294       2,482  
Amortization of deferred financing costs     107       119  
Gain on forgiveness of debt     -       (1,131 )
Other non-cash adjustments     31       132  
Changes in assets and liabilities:                
Increase in accounts receivable and other assets     (1,077 )     (1,982 )
Increase in accounts payable and other accrued expenses     399       1,141  
Increase in due to related parties     94       1  
Net cash provided by operating activities     38       1,171  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchase of investment property     (307 )     (134 )
Purchase of marketable securities     (10,373 )     (1 )
Proceeds from sale of marketable securities     4,403       -  
Distributions from unconsolidated affiliated real estate entity     -       1,225  
Investments in unconsolidated affiliated real estate entities     (1,002 )     (293 )
Net cash (used in)/provided by investing activities     (7,279 )     797  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Redemption and cancellation of common shares     (865 )     (743 )
Distributions paid to Company’s common stockholders     (975 )     -  
Net cash used in financing activities     (1,840 )     (743 )
                 
Change in cash and cash equivalents     (9,081 )     1,225  
Cash and cash equivalents, beginning of year     18,391       16,639  
Cash and cash equivalents, end of period   $ 9,310     $ 17,864  
                 
Supplemental cash flow information for the periods indicated is as follows:                
Cash paid for interest   $ 2,419     $ 1,209  
Distributions declared, but not paid   $ 970     $ -  
Holding gain/loss on marketable securities, available for sale   $ 24     $ 76  

 

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”), which was formerly known as Lightstone Value Plus Real Estate Investment Trust III, Inc., before September 16, 2021, is a Maryland corporation, formed on October 5, 2012, which elected to qualify as a real estate investment trust (“REIT”) for 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 June 30, 2023, 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 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 and operated commercial hospitality properties, principally consisting of limited-service-hotels all located in the United States. However, its commercial holdings may also consist of full-service hotels, and to a lesser extent, retail (primarily multi-tenanted shopping centers), industrial and office properties. 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 June 30, 2023, the Company (i) majority owned and consolidated the operating results and financial condition of eight limited-service hotels containing a total of 872 rooms, (ii) held an unconsolidated 50.0% membership interest in LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”) and (iii) held an unconsolidated 25.0% membership interest in Bedford Avenue Holdings LLC (the “Williamsburg Moxy Hotel Joint Venture”). 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 $2 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. The 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 a majority owner of the equity interests of the Lightstone Group, LLC. The Lightstone Group, LLC served as the Company’s sponsor (the “Sponsor”) during its 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 the Company’s board of directors (the “Board of Directors”), the Advisor has primary responsibility for making investment decisions on behalf of the Company and managing its day-to-day operations. Through his ownership and control of the Lightstone Group, LLC, Mr. Lichtenstein is the indirect owner and manager of Lightstone SLP 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 for $12.1 million in connection with the Offering. Mr. Lichtenstein also acts as the Company’s Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT III or the Operating Partnership.

 

The Company has no employees. The Company’s Advisor and its affiliates perform a full range of real estate services for it, including asset management, accounting, legal, and property management, as well as investor relations services.

 

The Company is dependent on the Advisor and its affiliates for services that are essential to it, including asset management and acquisition, disposition and financing activities, and other general administrative responsibilities. 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 also uses other unaffiliated third-party property managers, principally for the management of its hospitality properties.

 

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 market for its Common Shares until they are listed for trading.

 

On January 17, 2023, the Company’s stockholders approved an amendment and restatement to the Company’s charter pursuant to which the Company is no longer required to either (a) amend its charter to extend the deadline to begin the process of achieving a liquidity event, or (b) hold a stockholders meeting to vote on a proposal for an orderly liquidation of its portfolio.

 

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 limited partner units into cash or, at the Company’s option, an equal number of its Common Shares.

 

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)

 

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 for consideration of $12.1 million. The Subordinated Participation Interests were each purchased for $50 in consideration and may be entitled to receive liquidation distributions upon the liquidation of Lightstone REIT III.

 

As the majority owner of the Special Limited Partner, Mr. Lichtenstein is the beneficial owner of a 99% interest in such Subordinated Participation Interests and will thus receive an indirect benefit from any distributions made in respect thereof.

 

These Subordinated Participation Interests entitle the Special Limited Partner to a portion of any regular and liquidation distributions that the Company makes to its stockholders, but only after its stockholders have received a stated preferred return. From the Company’s inception through June 30, 2023, no distributions have been declared or paid on the Subordinated Participation Interests.

 

Related Parties

 

The Company’s Sponsor, Advisor and its affiliates, 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. Certain of these entities are entitled to compensation and reimbursement for services and costs incurred related to the investment, management and disposition of our assets during the Company’s acquisition, operational and liquidation stages. The compensation levels during the acquisition and operational stages are 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. See Note 7 – Related Party Transactions for additional information.

 

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 June 30, 2023, Lightstone REIT III had a 99% general partnership interest in the common units of the Operating Partnership. All inter-company balances and transactions have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on applicable accounting principles generally accepted in the United States of America (“GAAP”), and entities deemed to be variable interest entities (“VIE”) in which the Company is the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which the Company has control, substantive participating rights or both under the respective ownership agreement. For entities in which the Company has less than a controlling interest or entities which it is not deemed to be the primary beneficiary, it accounts for the investment using the equity method of accounting.

 

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, 2022. 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, 2022 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 has elected to be taxed as a REIT commencing with the taxable year ended December 31, 2009. If the Company qualifies as a REIT, it generally will not be subject to U.S. federal income tax on its taxable income or capital gain that it distributes to its stockholders. To maintain its REIT qualification, the Company must meet a number of organizational and operational requirements, including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed at the regular corporate rate, and it may be precluded from qualifying for treatment as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders.

 

To maintain its qualification as a REIT, the Company may engage in certain activities through taxable REIT subsidiaries (“TRSs”). As such, it may be subject to U.S. federal and state income and franchise taxes from these activities.

 

As of June 30, 2023 and December 31, 2022, the Company had no material uncertain income tax positions.

 

Revenues

 

The following table represents the total revenues from hotel operations on a disaggregated basis:

 

                               
    For the
Three Months Ended
June 30,
    For the
Six Months Ended
June 30,
 
Revenues   2023     2022     2023     2022  
Room   $ 7,726     $ 7,791     $ 13,856     $ 13,389  
Food, beverage and other     240       195       476       342  
Total revenues   $ 7,966     $ 7,986     $ 14,332     $ 13,731  

 

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)

 

Gain on Forgiveness of Debt

 

During the three and six months ended June 30, 2022, notice was received from the U.S. Small Business Administration that $0.9 million and $1.1 million, respectively, of the Company’s Paycheck Protection loans and related accrued interest had been legally forgiven and therefore, it recognized a gain on forgiveness of debt for those amounts during the periods.

 

Recently Adopted Accounting Standards

 

In June 2016, the Financial Accounting Standards Board issued an accounting standards update, “Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments,” which changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The updated standard replaces the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For trade receivables and held to maturity debt securities, entities are required to use a new forward looking expected loss model that generally will result in the earlier recognition of allowances for losses. The Company has adopted this standard noting that it did not have a material impact on the Company’s financial statements or related disclosures.

 

Adverse Developments Affecting the Financial Services Industry and Concentration of Risk

 

As of June 30, 2023 and December 31, 2022, the Company had cash deposited in certain financial institutions in excess of federally insured levels. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk in cash and cash equivalents. However, in March and April 2023, certain U.S. government banking regulators took steps to intervene in the operations of certain financial institutions due to liquidity concerns, which caused general heightened uncertainties in financial markets. While these events have not had a material direct impact on the Company’s operations, if further liquidity and financial stability concerns arise with respect to banks and financial institutions, either nationally or in specific regions, the Company’s ability to access cash or enter into new financing arrangements may be threatened, which could have a material adverse effect on its business, financial condition and results of operations.

 

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 %     June 30,
2023
    December 31,
2022
 
LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”)   March 27, 2018   50.00%     $ 9,520     $ 9,604  
Bedford Avenue Holdings LLC (the “Williamsburg Moxy Hotel Joint Venture”)   August 5, 2021   25.00%       11,057       12,151  
Total investments in unconsolidated affiliated real estate entities             $ 20,577     $ 21,755  

 

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 $60.0 million, which consisted of $25.0 million of cash and $35.0 million of proceeds from a five-year term non-recourse mortgage loan, collateralized by the Hilton Garden Inn – Long Island City, from a financial institution (the “Hilton Garden Inn Mortgage”), excluding closing and other related transaction costs. The Company paid $12.9 million for a 50.0% membership interest in the Hilton Garden Inn Joint Venture.

 

Except as discussed below, the Hilton Garden Inn Mortgage bore interest at LIBOR plus 3.15%, subject to a 5.03% floor, initially provided for monthly interest-only payments for the first 30 months of its term with principal and interest payments pursuant to a 25-year amortization schedule thereafter, and the remaining unpaid balance due in full at its maturity on March 27, 2023.

 

On June 2, 2020, the Hilton Garden Inn Mortgage was amended to provide for the deferral of the six monthly debt service payments aggregating $0.9 million for the period from April 1, 2020 through September 30, 2020 until March 27, 2023.

 

On March 27, 2023, the Hilton Garden Inn Joint Venture and the lender amended the Hilton Garden Inn Mortgage to extend the maturity date for 90 days, through June 25, 2023, to provide additional time to finalize the terms of a long-term extension. Subsequently, 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% (8.39% as of June 30, 2023), 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 $3.0 million of principal, subject to the satisfaction of certain conditions, and (iv) certain changes to its financial covenants. Additionally, the Hilton Garden Inn Joint Venture will fund $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.

 

The Company and Lightstone REIT II each have a 50.0% co-managing membership interest in the Hilton Garden Inn Joint Venture. The Company accounts for its membership interest in the Hilton Garden Inn Joint Venture in accordance with the equity method of accounting because it exerts significant influence over but does not control the Hilton Garden Inn Joint Venture. All capital contributions and distributions of earnings from the Hilton Garden Inn Joint Venture are made on a pro rata basis in proportion to each member’s equity interest percentage. Any distributions in excess of earnings from the Hilton Garden Inn Joint Venture are made to the members pursuant to the terms of the Hilton Garden Inn Joint Venture’s operating agreement. The Company commenced recording its allocated portion of profit/loss and cash distributions beginning as of March 27, 2018 with respect to its membership interest of 50.0% in the Hilton Garden Inn Joint Venture.

 

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)

 

The Hilton Garden Inn Joint Venture is currently in compliance with respect to all of its financial debt covenants.

 

Subsequent to the Company’s acquisition of its 50.0% membership interest in the Hilton Garden Joint Venture through June 30, 2023, it has made an aggregate of $3.2 million of additional capital contributions (of which $0.4 million was made during the six months ended June 30, 2023) and received aggregate distributions of $4.0 million.

 

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
June 30,
2023
    For the
Three Months Ended
June 30,
2022
    For the
Six Months Ended
June 30,
2023
    For the
Six Months Ended
June 30,
2022
 
Revenues   $ 3,115     $ 2,910     $ 5,144     $ 5,078  
                                 
Property operating expenses     1,907       1,518       3,414       2,946  
General and administrative costs     106       6       132       16  
Depreciation and amortization     596       606       1,205       1,226  
Operating income     506       780       393       890  
Interest expense     (825 )     (448 )     (1,451 )     (875 )
Net (loss)/income   $ (319 )   $ 332     $ (1,058 )   $ 15  
Company’s share of net (loss)/income (50.00%)   $ (159 )   $ 166     $ (529 )   $ 8  

 

The following table represents the condensed balance sheets for the Hilton Garden Inn Joint Venture as of the dates indicated:

 

               
    As of     As of  
    June 30,
2023
    December 31,
2022
 
Investment property, net   $ 49,131     $ 50,254  
Cash     1,042       1,231  
Other assets     1,677       1,276  
Total assets   $ 51,850     $ 52,761  
                 
Mortgage payable, net   $ 32,231     $ 32,233  
Other liabilities     1,178       1,920  
Members’ capital     18,441       18,608  
Total liabilities and members’ capital   $ 51,850     $ 52,761  

 

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)

 

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 REIT also sponsored by the Company’s Sponsor and a related party, 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 $7.9 million. Subsequent to its acquisition, the Company has made additional capital contributions to the Williamsburg Moxy Hotel Joint Venture of $5.3 million through June 30, 2023 (of which $0.6 million was made during the six months ended June 30, 2023).

 

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, 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 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.

 

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 $0.5 million and $2.2 million during the three and six months ended June 30, 2023, respectively and $357 and $419 during the three and six months ended June 30, 2022, respectively. Pre-opening costs generally consist of non-recurring personnel, marketing and other costs.

 

An adjacent land owner has filed a claim questioning the Williamsburg Moxy Hotel Joint Venture’s right to develop and construct the Williamsburg Moxy Hotel without his consent. The Williamsburg Moxy Hotel Joint Venture is currently responding to this claim and management believes it will, in due course, be recognized that the adjacent owner waived his right to object in 2017 when he signed a waiver, consent and subordination allowing the future development of our property as it exists today. While this matter is currently pending in the court system, the continued use of the property will ultimately be determined by the government of New York City and management has a number of avenues that it believes are viable paths to unfettered certificates of occupancy. While any dispute has an element of uncertainty, management currently believes that the likelihood of an unfavorable outcome with respect to any of the aforementioned proceedings is remote. No provision for loss has been recorded in connection therewith. See Note 9 for additional information.

 

Moxy Construction Loan

 

On August 5, 2021, the Williamsburg Moxy Hotel Joint Venture entered into a recourse construction loan facility for up to $77.0 million (the “Moxy Construction Loan”) to fund the development, construction and certain pre-opening costs associated with the Williamsburg Moxy Hotel. The Moxy Construction Loan is scheduled to initially mature on February 5, 2024, with two, six-month extension options, subject to the satisfaction of certain conditions. The Moxy Construction Loan bears interest at LIBOR plus 9.00%, subject to a 9.50% floor, with monthly interest-only payments based on a rate of 7.50% and the excess added to the outstanding loan balance due at maturity. LIBOR as of June 30, 2023 and December 31, 2022 was 5.22% and 4.39%, respectively. Additionally, the Moxy Construction Loan provides for a replacement benchmark rate based on SOFR in connection with the phase-out of LIBOR after June 30, 2023. The Moxy Construction Loan is collateralized by the Williamsburg Moxy Hotel.

 

As of June 30, 2023 and December 31, 2022, the outstanding principal balance of the Moxy Construction Loan was $78.4 million (including $4.0 million of interest capitalized to principal) which is presented, net of deferred financing fees of $1.0 million and $65.6 million (including $1.7 million of interest capitalized to principal) which is presented, net of deferred financing fees of $2.0 million, respectively, on the condensed balance sheets and is classified as mortgage payable, net. As of June 30, 2023, the remaining availability under the facility was up to $2.6 million and its interest rate was 14.22%.

 

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 has provided certain completion and carry cost guarantees. Furthermore, in connection with the Moxy Construction Loan, the Williamsburg Moxy Hotel Joint Venture paid $3.7 million of loan fees and expenses and accrued $0.8 million of loan exit fees which are due at the initial maturity date and are included in other liabilities on the condensed balance sheets as of both June 30, 2023 and December 31, 2022.

 

The Williamsburg Moxy Hotel Joint Venture currently intends to refinance the Moxy Construction Loan on or before its initial maturity date of February 5, 2024; however, there can be no assurances that it will be successful in such endeavors. If the Williamsburg Moxy Hotel Joint Venture is unable to refinance the Moxy Construction Loan on or before its initial maturity date, it will then seek to exercise the first of its two six-month extension options.

 

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
June 30,
2023
    For the
Three Months Ended
June 30,
2022
    For the
Six Months Ended
June 30,
2023
    For the
Six Months Ended
June 30,
2022
 
Revenues   $ 7,106     $ -     $ 8,059     $ -  
                                 
Property operating expenses     5,905       -       7,245       -  
Pre-opening costs     493       357       2,228       419  
General and administrative costs     47       7       79       7  
Depreciation and amortization     869       -       1,140       -  
Operating loss     (208 )     (364 )     (2,633 )     (426 )
Interest expense     (3,162 )     -       (3,970 )     -  
Net loss   $ (3,370 )   $ (364 )   $ (6,603 )   $ (426 )
Company’s share of net loss (25.00%)   $ (843 )   $ (91 )   $ (1,651 )   $ (107 )

 

The following table represents the condensed balance sheets for the Williamsburg Moxy Hotel Joint Venture as of the dates indicated:

 

               
    As of     As of  
    June 30,
2023
    December 31,
2022
 
Investment property, net   $ 123,859     $ 114,615  
Cash     1,630       752  
Other assets     3,285       2,346  
Total assets   $ 128,774     $ 117,713  
                 
Mortgage payable, net   $ 77,403     $ 63,631  
Other liabilities     7,731       6,064  
Members’ capital     43,640       48,018  
Total liabilities and members’ capital   $ 128,774     $ 117,713  

 

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)

 

4. Marketable Securities and Fair Value Measurements

 

Marketable Securities

 

The following is a summary of the Company’s available for sale securities as of the dates indicated:

 

                               
    As of June 30, 2023  
    Adjusted
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Fair
Value
 
Marketable Securities:                                
Equity securities:                                
Preferred Equity Securities   $ 4,417     $ 2     $ (47 )   $ 4,372  
Mutual Funds     4,416       -       -       4,416  
      8,833       2       (47 )     8,788  
Debt securities:                                
Corporate Bonds     746       -       (226 )     520  
Total   $ 9,579     $ 2     $ (273 )   $ 9,308  

 

    As of December 31, 2022  
    Adjusted
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Fair
Value
 
Marketable Securities:                                
Equity securities:                                
Preferred Equity Securities   $ 961     $ -     $ (45 )   $ 916  
Mutual Funds     222       -       (5 )     217  
      1,183       -       (50 )     1,133  
Debt securities:                                
Corporate Bonds     746       -       (263 )     483  
United States Treasury Bills     1,685       13       -       1,698  
      2,431       13       (263 )     2,181  
Total   $ 3,614     $ 13     $ (313 )   $ 3,314  

 

The Company may be exposed to credit losses through its available-for-sale debt securities. Unrealized losses or impairments resulting from the amortized cost basis of any available-for-sale debt security exceeding its fair value are evaluated for identification of credit and non-credit related factors. Any difference between the fair value of the debt security and the amortized cost basis not attributable to credit related factors are reported in other comprehensive income. A credit-related impairment is recognized as an allowance on the balance sheet with a corresponding adjustment to earnings. When evaluating the investments for impairment at each reporting period, the Company reviews factors such as the extent of the unrealized loss, current and future economic market conditions and the economic and financial condition of the issuer and any changes thereto. As of June 30, 2023, 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.

 

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)

 

Fair Value Measurements

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

 

The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

 

  Level 1 – Quoted prices in active markets for identical assets or liabilities.
     
  Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
     
  Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

As of June 30, 2023 and December 31, 2022, the Company’s mutual funds and United States Treasury Bills were classified as Level 1 assets and the Company’s preferred equity securities and corporate bonds were classified as Level 2 assets. There were no transfers between the level classifications during the six months ended June 30, 2023 and 2022.

 

The fair values of the Company’s investments in mutual funds and United States Treasury Bills 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 following table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:

 

       
    As of
June 30,
2023
 
Due in 1 year   $ -  
Due in 1 year through 5 years     -  
Due in 5 year through 10 years     -  
Due after 10 years     520  
Total   $ 520  

 

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:

 

                                     
        Weighted
Average
Interest Rate
               
Description   Interest
Rate
  for the
Six Months Ended
June 30,
2023
  Maturity
Date
  Amount
Due at
Maturity
    As of
June 30,
2023
    As of
December 31,
2022
 
Revolving Credit Facility   AMERIBOR + 3.15%
(floor of 4.00%)
  7.87%   July 2024   $ 34,573     $ 34,573     $ 34,573  
                                     
Home2 Suites Tukwila Loan   LIBOR + 3.50%
(floor of 3.75%)
  8.40%   December 2026     15,006       16,210       16,210  
                                     
Home2 Suites Salt Lake City Loan   LIBOR + 3.50%
(floor of 3.75%)
  8.40%   December 2026     9,757       10,540       10,540  
                                     
Total mortgages payable       8.10%       $ 59,336       61,323       61,323  
                                     
Less: Deferred financing costs                         (402 )     (509 )
                                     
Total mortgage payable, net                       $ 60,921     $ 60,814  

 

LIBOR as of June 30, 2023 and December 31, 2022 was 5.22% and 4.39%, respectively. AMERIBOR as of June 30, 2023 and December 31, 2022 was 5.17% and 4.64%, respectively.

 

Revolving Credit Facility

 

The Company, through certain subsidiaries, has a non-recourse revolving credit facility (the “Revolving Credit Facility”) with a financial institution. The Revolving Credit Facility provides the Company with a line of credit of up to $60.0 million pursuant to which it may designate properties as collateral that allow borrowings up to a 65.0% 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.

 

As a result of the impact of the COVID-19 pandemic on the operating results and financial condition of the Company’s hotels designated as collateral under the Revolving Credit Facility, its terms were amended by the lender in June 2020 to provide for a reduced interest rate, the deferral of interest payments and a waiver and/or modification of financial covenants during certain prescribed periods during 2020 and 2021.

 

Subsequently, on March 31, 2021, the Revolving Credit Facility was further amended providing for (i) the Company to make another principal paydown of $3.8 million, (ii) the Company to fund an additional $0.7 million into the cash collateral reserve account; (iii) a waiver of all financial covenants for quarter-end periods through September 30, 2021 with a phased-in gradual return to the full financial covenant requirements over the quarter-end periods beginning December 31, 2021 through March 31, 2023; (iv) two one-year extension options, subject to certain conditions, including the lender’s approval (including the first extension option which was exercised on July 13, 2022); and (v) certain limitations and restrictions on asset sales and additional borrowings related to the pledged collateral.

 

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)

 

Except as discussed above, the Revolving Credit Facility, which was scheduled to mature on July 13, 2022, bore interest at LIBOR plus 3.15%, subject to a 4.00% floor. However, on both July 13, 2022 and July 13, 2023, the maturity dates of the Revolving Credit Facility were further extended to July 13, 2023 and July 13, 2024, respectively, subject to the conditions of the two one-year extension options. In connection with the extension of the Revolving Credit Facility on July 13, 2022, the interest rate was prospectively changed to AMERIBOR plus 3.15%, subject to a 4.00% floor.

 

Additionally, in connection with the extension of the Revolving Credit facility on July 13, 2023, the Company was required to deposit $1.4 million into a cash collateral reserve account to achieve compliance with one of the Revolving Credit Facility’s financial debt covenants as of March 31, 2023. As of June 30, 2023, the Company did not achieve compliance with this financial debt covenant and is required to make a principal paydown of $2.3 million to achieve compliance with this covenant. The paydown will consist of the $1.4 million previously deposited into the cash collateral reserve account on July 13, 2023 and an additional payment of $0.9 million.

 

As of both June 30, 2023 and December 31, 2022, the Revolving Credit Facility had an outstanding principal balance of $34.6 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 June 30, 2023. 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.

 

Home2 Suites Financings

 

On December 6, 2021, the Company entered into a non-recourse loan facility providing for up to $19.1 million (the “Home2 Suites – Tukwila Loan”). At closing, the Company initially received $16.2 million and the remaining $2.9 million is available to be drawn upon subject to satisfaction of certain conditions. The Home2 Suites – Tukwila Loan is scheduled to mature on December 6, 2026, bears interest at LIBOR plus 3.50%, subject to a 3.75% floor, and requires monthly interest-only payments through December 2023 and subsequently, monthly payments of interest and principal of $0.1 million through its maturity date. Additionally, the Home2 Suites – Tukwila Loan provided for a replacement benchmark rate of AMERIBOR plus 3.50%, subject to a floor of 3.75%, in connection with the phase-out of LIBOR after June 30, 2023. The Home2 Suites Tukwila Loan is cross-collateralized by the Home2 Suites – Tukwila and the Home2 Suites – Salt Lake City.

 

On December 6, 2021, the Company entered into a non-recourse loan facility providing for up to $12.5 million (the “Home2 Suites – Salt Lake City Loan”). At closing, the Company initially received $10.5 million, and the remaining $2.0 million is available to be drawn upon subject to the satisfaction of certain conditions. The Home2 Suites – Salt Lake City Loan is scheduled to mature on December 6, 2026, bears interest at LIBOR plus 3.50%, subject to a 3.75% floor, and requires monthly interest-only payments through December 2023 and subsequently, monthly payments of interest and principal of $0.1 million through its maturity date. Additionally, the Home2 Suites – Salt lake City Loan provided for a replacement benchmark rate of AMERIBOR plus 3.50%, subject to a floor of 3.75%, in connection with the phase-out of LIBOR after June 30, 2023. The Home2 Suites Salt Lake City Loan is cross-collateralized by the Home2 Suites – Salt Lake City and the Home2 Suites – Tukwila.

 

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)

 

Principal Maturities

 

The following table sets forth the aggregate estimated contractual principal maturities of the Company’s mortgages payable, including balloon payments due at maturity, as of June 30, 2023:

 

                                                         
    2023     2024     2025     2026     2027     Thereafter     Total  
Principal maturities   $ -     $ 35,229     $ 684     $ 25,410     $ -     $ -     $ 61,323  
                                                         
Less: Deferred financing costs                                                     (402 )
                                                         
Total principal maturities, net                                                   $ 60,921  

 

Certain of the Company’s debt agreements also contain clauses providing for prepayment penalties. As of June 30, 2023, the Company did not meet one of the financial debt covenants with respect to the Revolving Credit Facility (see “Revolving Credit Facility” above). As of June 30, 2023, the Company was in compliance with respect to its remaining financial debt covenants.

 

6. Company’s Stockholder’s Equity

 

Distributions on Common Shares

 

On May 11, 2023, the Board of Directors authorized and the Company declared a Common Share distribution of $0.075 per share for the quarterly period ending June 30, 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. On July 15, 2023, the distribution for the three-month period ending June 30, 2023 of $1.0 million was paid in cash.

 

On August 14, 2023, the Board of Directors authorized and the Company declared a Common Share distribution of $0.075 per share for the quarterly period ending September 30, 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 will be paid on or about the 15th day of the month following the quarter-end to stockholders of record at the close of business on the last day of the quarter end.

 

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.

 

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)

 

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 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 six months ended June 30, 2023, the Company repurchased 86,223 Common Shares at a weighted average price per share of $10.03. For the six months ended June 30, 2022, the Company repurchased 83,226 Common Shares at a weighted average price per share of $8.93.

 

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 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. Additionally, the Company’s ability to secure financing and its real estate operations are dependent upon its Advisor and its affiliates to perform such services as provided in these agreements. Amounts the Company owes to the Advisor and its affiliated entities are principally for asset management fees, and are classified as due to related parties on the consolidated balance sheets.

 

The following table represents the fees incurred associated with the payments to the Company’s Advisor for the periods indicated:

 

                       
    For the
Three Months Ended
June 30,
    For the
Six Months Ended
June 30,
 
    2023     2022     2023     2022  
Asset management fees (general and administrative costs)   $ 360     $ 301     $ 677     $ 603  

 

The advisory agreement has a one-year term and is renewable for an unlimited number of successive one-year periods upon the mutual consent of the Advisor and the Company’s independent directors. Payments to the Advisor or its affiliates may include asset acquisition fees and the reimbursement of acquisition-related expenses, development fees and the reimbursement of development-related costs, financing coordination fees, asset management fees or asset management participation, and construction management fees. The Company may also reimburse the Advisor and its affiliates for actual expenses it incurs for administrative and other services provided for it. Upon the liquidation of the Company’s assets, it may pay the Advisor or its affiliates a disposition commission.

 

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)

 

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 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.

 

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 10 years however, the agreements can be cancelled for any reason by the Company after giving 60 days’ notice after the one year anniversary of the commencement of the respective agreement.

 

The Management Agreements provide for the payment of a base management fee equal to 3% to 3.5% of gross revenues, as defined, and an incentive management fee based on the operating results of the hotel, as defined. The base management fee and incentive management fee, if any, are recorded as a component of property operating expenses in the consolidated statements of operations.

 

Franchise Agreements

 

As of June 30, 2023, 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 2.0% to 2.5% of gross room sales. The franchise fee and marketing fund charge are recorded as a component of property operating expenses in the consolidated statements of operations.

 

The franchise agreements are generally for initial terms ranging from 15 years to 20 years, expiring between 2028 and 2034.

 

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 3 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.

 

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PART I. FINANCIAL INFORMATION, CONTINUED:

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Lightstone Value Plus REIT 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 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, or 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;
     
  our ability to diversify our portfolio of assets;

 

22

 

 

  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 real estate investment trust.

 

Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Report, 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”), which was formerly known as Lightstone Value Plus Real Estate Investment Trust III, Inc. before September 16, 2021, is a Maryland corporation formed on October 5, 2012, which elected to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with the taxable year ending December 31, 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 June 30, 2023, 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 annual report refers to Lightstone REIT III, its Operating Partnership or the Company as required by the context in which such pronoun is used.

 

Through our Operating Partnership, we own, operate and develop commercial properties and make real estate-related investments. Since our inception, we have primarily acquired and operated commercial hospitality properties, principally consisting of limited-service-hotels all located in the United States. However, our commercial holdings may also consist of full-service hotels, and to a lesser extent, 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 June 30, 2023, we (i) majority owned and consolidated the operating results and financial condition of eight limited-service hotels containing a total of 872 rooms, (ii) held an unconsolidated 50.0% membership interest in LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”) and (iii) held an unconsolidated 25.0% membership interest in Bedford Avenue Holdings LLC (the “Williamsburg Moxy Hotel Joint Venture”). 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 Lightstone Group, LLC served as our sponsor (the “Sponsor”) during our initial public offering (the “Offering”) which terminated on March 31, 2017. Mr. Lichtenstein owns 222,222 Common Shares which were issued on 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 Lightstone Group, LLC, 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 for $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. Our Advisor and its affiliates perform a full range of real estate services for us, including asset management, accounting, legal, and property management, as well as investor relations services.

 

We are dependent on the Advisor and its affiliates for services that are essential to us, including asset management and acquisition, disposition and financing activities, and other general administrative responsibilities. If the Advisor and its affiliates are unable to provide these services to us, we would be required to provide the services ourselves or obtain the services from other parties.

 

We also use other unaffiliated third-party property managers, principally for the management of our hospitality properties.

 

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.

 

On January 17, 2023 our stockholders approved an amendment and restatement to our charter pursuant to which we are no longer required to either (a) amend our charter to extend the deadline to begin the process of achieving a liquidity event, or (b) hold a stockholders meeting to vote on a proposal for an orderly liquidation of our portfolio.

 

24

 

 

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 the limited partner units into cash or, at our option, an equal number of our Common Shares.

 

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 consideration of $12.1 million. The Subordinated Participation Interests were each purchased for $50 in consideration and may be entitled to receive liquidation distributions upon the liquidation of Lightstone REIT III.

 

As the majority owner of the Special Limited Partner, Mr. Lichtenstein is the beneficial owner of a 99% interest in such Subordinated Participation Interests and will thus receive an indirect benefit from any distributions made in respect thereof.

 

These Subordinated Participation Interests entitle the Special Limited Partner to a portion of any regular and liquidation distributions that we make to our stockholders, but only after our stockholders have received a stated preferred return. From our inception through June 30, 2023, no distributions have been declared or paid on the Subordinated Participation Interests.

 

Adverse Developments Affecting the Financial Services Industry and Concentration of Credit Risk

 

As of June 30, 2023 and December 31, 2022, we had cash deposited in certain financial institutions in excess of 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 in cash and cash equivalents or restricted cash. However, in March and April 2023, certain U.S. government banking regulators took steps to intervene in the operations of certain financial institutions due to liquidity concerns, which caused general heightened uncertainties in financial markets. While these events have not had a material direct impact on our operations, if further liquidity and financial stability concerns arise with respect to banks and financial institutions, either nationally or in specific regions, our ability to access cash or enter into new financing arrangements may be threatened, which could have a material adverse effect on our business, financial condition and results of operations.

 

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 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.

 

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 United States of America (“GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period.

 

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Portfolio Summary –

 

    Location   Year Built   Date
Acquired
  Year to
Date
Available
Rooms
    Percentage
Occupied
for the
Six Months Ended
June 30,
2023
    RevPAR
for the
Six Months Ended
June 30,
2023
    ADR
For the
Six Months Ended
June 30,
2023
 
Wholly-Owned and Consolidated Hospitality Properties:                                            
                                             
Hampton Inn – Des Moines   Des Moines, Iowa   1987   2/4/2015     21,720       62 %   $ 72.57     $ 117.18  
                                             
Courtyard - Durham   Durham, North Carolina   1996   5/15/2015     26,426       60 %   $ 69.32     $ 115.73  
                                             
Hampton Inn – Lansing   Lansing, Michigan   2013   3/10/2016     15,566       66 %   $ 79.55     $ 121.23  
                                             
Courtyard - Warwick   Warwick, Rhode Island   2003   3/23/2016     16,652       68 %   $ 88.52     $ 131.16  
                                             
Home2 Suites – Salt Lake   Salt Lake City, Utah   2013   8/2/2016     22,625       71 %   $ 85.15     $ 120.82  
                                             
Home2 Suites – Tukwila   Tukwila, Washington   2015   8/2/2016     25,159       87 %   $ 136.37     $ 157.68  
                                             
Fairfield Inn – Austin   Austin, Texas   2014   9/13/2016     15,204       67 %   $ 76.18     $ 113.03  
                                             
Staybridge Suites – Austin   Austin, Texas   2009   10/7/2016     14,480       76 %   $ 84.19     $ 110.61  
                                             
            Total     157,832       70 %   $ 87.79     $ 126.29  

 

Unconsolidated Affiliated Real Estate Entities:

 

Hospitality   Location   Year Built   Date
Acquired/
Opened
  Year to
Date
Available
Rooms
    Percentage
Occupied
for the
Six Months Ended
June 30,
2023
    RevPAR
for the
Six Months Ended
June 30,
2023
    ADR
For the
Six Months Ended
June 30,
2023
 
Hilton Garden Inn - Long Island City   Long Island City, New York   2014   3/27/2018     33,123       85 %   $ 144.36     $ 170.33  
                                             
Williamsburg Moxy Hotel   Williamsburg, New York   2023   3/7/2023     25,056       78 %   $ 204.00     $ 261.04  

 

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 six months ended June 30, 2023 to our critical accounting policies as reported in our Annual Report on Form 10-K, for the year ended December 31, 2022.

 

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Results of Operations

 

Comparison of the three months ended June 30, 2023 vs. June 30, 2022

 

Consolidated

 

Our consolidated revenues, property operating expenses, real estate taxes, general and administrative expense and depreciation and amortization for the three months ended June 30, 2023 and 2022 are attributable to our consolidated hospitality properties, all of which were owned by us during the entire periods presented.

 

As a result of the COVID-19 pandemic, room demand and rental rates for our consolidated and unconsolidated hotels significantly declined starting in March 2020 at the onset of the pandemic; and while these metrics have improved since then (beginning late 2020 and continuing through the second quarter of 2023); room demand and rental rates still remain below their pre-pandemic historical levels for certain of our hotels. During the three months ended June 30, 2023 compared to same period in 2022, our consolidated hospitality portfolio experienced a decrease in the percentage of rooms occupied from 77% to 74% and in RevPAR from $98.18 to $97.36 and increases in ADR to $132.14 from $126.76.

 

Revenues

 

Revenues were relatively unchanged at $8.0 million during both the three months ended June 30, 2023 and 2022. The favorable impact on our revenues during the 2023 period resulting from higher ADR were fully offset by the negative impact of lower occupancy and RevPAR.

 

Property operating expenses

 

Property operating expenses increased by $0.3 million to $5.1 million during the three months ended June 30, 2023 compared to $4.8 million for the same period in 2022. This increase is attributable to primarily to higher labor costs resulting from wage inflation.

 

Real estate taxes

 

Real estate taxes decreased slightly by $0.1 million to $0.3 million during the three months ended June 30, 2023 compared to $0.4 million for the same period in 2022.

 

General and administrative expense

 

General and administrative expenses increased slightly by $0.1 million to $0.7 million during the three months ended June 30, 2023 compared to $0.6 million for the same period in 2022.

 

Depreciation and amortization

 

Depreciation and amortization expense decreased slightly by $0.1 million to $1.1 million during the three months ended June 30, 2023 compared to $1.2 million for the same period in 2022.

 

Interest expense

 

Interest expense increased by $0.6 million to $1.3 million during the three months ended June 30, 2023 compared to $0.7 million for the same period in 2022. 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.

 

Gain on forgiveness of debt

 

During the three months ended June 30, 2022 notice was received from the U.S. Small Business Administration that $0.9 million of Paycheck Protection loans and related accrued interest had been legally forgiven and therefore, we recognized a gain on forgiveness of debt for that amount during the three months ended June 30, 2022.

 

Earnings from investments in unconsolidated affiliated real estate entities

 

Our loss from investments in unconsolidated affiliated real estate entities was $1.0 million during the three months ended June 30, 2023 compared to income of $0.1 million for the same period in 2022. Our earnings from investments in unconsolidated affiliated real estate entities are attributable to our unconsolidated 50.0% membership interest in the Hilton Garden Inn Joint Venture and our unconsolidated 25.0% membership interest in the Williamsburg Moxy Hotel Joint Venture.

 

27

 

 

Comparison of the six months ended June 30, 2023 vs. June 30, 2022

 

Consolidated

 

Our consolidated revenues, property operating expenses, real estate taxes, general and administrative expense and depreciation and amortization for the six months ended June 30, 2023 and 2022 are attributable to our consolidated hospitality properties, all of which were owned by us during the entire periods presented.

 

As a result of the COVID-19 pandemic, room demand and rental rates for our consolidated and unconsolidated hotels significantly declined starting in March 2020 at the onset of the pandemic; and while these metrics have improved since then (beginning late 2020 and continuing through the first quarter of 2023); room demand and rental rates still remain below their pre-pandemic historical levels for certain of our hotels. During the six months ended June 30, 2023 compared to same period in 2022, our consolidated hospitality portfolio experienced increases in RevPAR to $87.79 from $84.83 and ADR to $126.29 from $116.97 and a decrease in the percentage of rooms occupied to 70% from 73%.

 

Revenues

 

Revenues increased by $0.6 million to $14.3 million during the six months ended June 30, 2023 compared to $13.7 million for the same period in 2022. The increase in revenues during the 2023 period is attributable to the favorable impact of higher RevPAR and ADR, which reflect the effect of inflation on our room rental rates, partially offset by the negative impact of lower occupancy.

 

Property operating expenses

 

Property operating expenses increased by $1.2 million to $9.7 million during the six months ended June 30, 2023 compared to $8.5 million for the same period in 2022. The increase in property operating expenses during the 2023 period is attributable to higher labor costs resulting from wage inflation plus increases in property management fees and franchise fees, both which are generally based on a percentage of revenues.

 

Real estate taxes

 

Real estate taxes decreased slightly by $0.1 million to $0.6 million during the six months ended June 30, 2023 compared to $0.7 million for the same period in 2022.

 

General and administrative expense

 

General and administrative expenses were relatively unchanged at $1.3 million during the six months ended June 30, 2023 and 2022.

 

Depreciation and amortization

 

Depreciation and amortization expense decreased by $0.2 million to $2.3 million during the six months ended June 30, 2023 compared to $2.5 million for the same period in 2022.

 

Interest expense

 

Interest expense increased by $1.2 million to $2.6 million during the six months ended June 30, 2023 compared to $1.4 million for the same period in 2022. 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.

 

Gain on forgiveness of debt

 

During the six months ended June 30, 2022 notice was received from the U.S. Small Business Administration that $1.1 million of Paycheck Protection loans and related accrued interest had been legally forgiven and therefore, we recognized a gain on forgiveness of debt for that amount during the six months ended June 30, 2022.

 

Earnings from investments in unconsolidated affiliated real estate entities

 

Our losses from investments in unconsolidated affiliated real estate entities was $2.2 million and $0.1 million during the six months ended June 30, 2023 and 2022, respectively. Our earnings from investments in unconsolidated affiliated real estate entities are attributable to our unconsolidated 50.0% membership interest in the Hilton Garden Inn Joint Venture and our unconsolidated 25.0% membership interest Williamsburg Moxy Hotel Joint Venture.

 

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Financial Condition, Liquidity and Capital Resources

 

Overview:

 

As of June 30, 2023, we had $9.3 million of cash on hand and $9.3 million of marketable securities. We currently believe that these items along with revenues from our hospitality properties, interest and dividend income earned on our marketable securities, distributions received from our unconsolidated affiliated real estate entities and proceeds received from the sale of marketable securities will be sufficient to satisfy our expected cash requirements for at least twelve months from the date of filing this report, which primarily consist of our anticipated operating expenses, scheduled debt service (excluding balloon payments due at maturity), capital expenditures (excluding non-recurring capital expenditures), contributions to our unconsolidated affiliated real estate entities, redemptions and cancellations of shares of our common stock and distributions to our shareholders, if any, required to maintain our status as a REIT for the foreseeable future. However, to the extent that our cash flow from operations and available cash on hand and marketable securities are not sufficient to cover our cash needs, we may use proceeds from additional borrowings and/or selective asset sales to fund such needs.

 

As of June 30, 2023, we have $61.3 million of outstanding mortgage debt. 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 means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. Market conditions will dictate our overall leverage limit; as such our aggregate borrowings may be less than 300% of net assets. As of June 30, 2023, our total borrowings were $61.3 million which represented 58% of our net assets.

 

Our borrowings currently consist of mortgages cross-collateralized by a pool of properties. Our mortgages typically provide for either interest-only payments (generally for variable-rate indebtedness) or level payments (generally for fixed-rate indebtedness) with “balloon” payments due at maturity.

 

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.

 

We may also obtain lines of credit to be used to acquire properties. If obtained, these lines of credit will be at prevailing market terms and will be repaid from proceeds from the sale or refinancing of properties, working capital and/or permanent financing. Our Sponsor and/or its affiliates may guarantee our lines of credit although they are not obligated to do so. We expect that such properties may be purchased by our Sponsor’s affiliates on our behalf, in our name, in order to minimize the imposition of a transfer tax upon a transfer of such properties to us.

 

In addition to meeting our working capital needs and making distributions, if any, to our stockholders, our capital resources are used to make certain payments to our Advisor and its affiliates, such as 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, in the event of a liquidation of our assets, we may pay our Advisor or its affiliates a real estate disposition fee. Furthermore, the Operating Partnership may be required to make distributions to Lightstone SLP III, 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.

 

29

 

 

The following table represents the fees incurred associated with the payments to the Advisor for the periods indicated:

 

    For the
Three Months Ended
June 30,
    For the
Six Months Ended
June 30,
 
    2023     2022     2023     2022  
Asset management fees (general and administrative costs)   $ 360     $ 301     $ 677     $ 603  

 

Summary of Cash Flows

 

The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below:

 

    For the
Six Months Ended
June 30,
 
    2023     2022  
Net cash provided by operating activities   $ 38     $ 1,171  
Net cash (used in)/provided by investing activities     (7,279 )     797  
Net cash used in financing activities     (1,840 )     (743 )
Net change in cash, cash equivalents and restricted cash     (9,081 )     1,225  
Cash, cash equivalents and restricted cash, beginning of year     18,391       16,639  
Cash, cash equivalents and restricted cash, end of the period   $ 9,310     $ 17,864  

 

Operating activities

 

The net cash provided by operating activities of $38 during the six months ended June 30, 2023 consisted of our net loss of $4.0 million and the net changes in operating assets and liabilities of $0.6 million offset by depreciation and amortization, loss from investments in unconsolidated affiliated real estate entities and other non-cash items aggregating $4.6 million.

 

Investing activities

 

The net cash used in investing activities of $7.3 million during the six months ended June 30, 2023 consisted of net purchases of marketable securities of $6.0 million, additional investments totaling $1.0 million in the Hilton Garden Inn Joint Venture and Williamsburg Moxy Hotel Joint Venture and capital expenditures of $0.3 million.

 

Financing activities

 

The cash used in financing activities of $1.8 million during the six months ended June 30, 2023 consisted of distributions to common stockholders of $1.0 million and redemptions and cancellations of common shares of $0.9 million.

 

Distributions on Common Shares

 

On May 11, 2023, the Board of Directors authorized and we declared a Common Share distribution of $0.075 per share for the quarterly period ending June 30, 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. On July 15, 2023, the distribution for the three-month period ending June 30, 2023 of $1.0 million was paid in cash.

 

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On August 14, 2023, the Board of Directors authorized and we declared a Common Share distribution of $0.075 per share for the quarterly period ending September 30, 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 will be paid on or about the 15th day of the month following the quarter-end to stockholders of record at the close of business on the last day of the quarter end.

 

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 initial public offering (the “Offering”), which terminated on March 31, 2017, Lightstone SLP III LLC, a Delaware limited liability company (the “Special Limited Partner”), purchased from Lightstone Value Plus REIT III LP, a Delaware limited partnership (the “Operating Partnership”) an aggregate of 242 Subordinated Participation Interests for consideration of $12.1 million. The Subordinated Participation Interests were each purchased for $50 in consideration and may be entitled to receive liquidation distributions upon the liquidation of Lightstone REIT III.

 

These Subordinated Participation Interests entitle the Special Limited Partner to a portion of any regular and liquidation distributions that we make to stockholders, but only after stockholders have received a stated preferred return. From our inception through June 30, 2023, no distributions have been declared or paid on the Subordinated Participation Interests.

 

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 net asset value per share of common stock, 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 six months ended June 30, 2023, we repurchased 86,223 Common Shares at a weighted average price per share of $10.03. For the six months ended June 30, 2022, we repurchased 83,226 Common Shares at a weighted average price per share of $8.93.

 

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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 June 30, 2023.

 

Contractual Mortgage Obligations   2023     2024     2025     2026     2027     Thereafter     Total  
Principal maturities   $ -     $ 35,229     $ 684     $ 25,410     $ -     $ -     $ 61,323  
Interest payments(1)     1,832       2,454       2,192       4,103       -       -       10,581  
Total Contractual Mortgage Obligations   $ 1,832     $ 37,683     $ 2,876     $ 29,513     $ -     $ -     $ 71,904  

 

 
(1) These amounts represent future interest payments related to mortgage payable obligations based on the interest rates specified in the associated debt agreement. All of our mortgage debt outstanding as of June 30, 2023 bears interest (i) based on one-month LIBOR, plus a specified spread, subject to a floor, or (ii) 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 LIBOR and one-month AMERIBOR rates as of June 30, 2023 were used.

 

Revolving Credit Facility

 

We, through certain subsidiaries, 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 $60.0 million pursuant to which we may designate properties as collateral that allow borrowings up to a 65.0% 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.

 

As a result of the impact of the COVID-19 pandemic on the operating results and financial condition of the Company’s hotels designated as collateral under the Revolving Credit Facility, its terms were amended by the lender in June 2020 to provide for a reduced interest rate, the deferral of interest payments and a waiver and/or modification of financial covenants during certain prescribed periods during 2020 and 2021.

 

Subsequently, on March 31, 2021, our Revolving Credit Facility was further amended providing for (i) us to make another principal paydown of $3.8 million, (ii) us to fund an additional $0.7 million into the cash collateral reserve account; (iii) a waiver of all financial covenants for quarter-end periods through September 30, 2021 with a phased-in gradual return to the full financial covenant requirements over the quarter-end periods beginning December 31, 2021 through March 31, 2023; (iv) two one-year extension options, subject to certain conditions, including the lender’s approval (including the first extension option which was exercised on July 13, 2022); and (v) certain limitations and restrictions on asset sales and additional borrowings related to the pledged collateral.

 

Except as discussed above, the Revolving Credit Facility, which was scheduled to mature on July 13, 2022, bore interest at LIBOR plus 3.15%, subject to a 4.00% floor. However, on both July 13, 2022 and July 13, 2023, the maturity dates of the Revolving Credit Facility were further extended to July 13, 2023 and July 13, 2024, respectively, subject to the conditions of the two one-year extension options, which both included the lender’s approval. In connection with the extension of the Revolving Credit Facility on July 13, 2022, the interest rate was prospectively changed to AMERIBOR plus 3.15%, subject to a 4.00% floor.

 

Additionally, in connection with the extension of the Revolving Credit facility on July 13, 2023, we were required to deposit $1.4 million into a cash collateral reserve account to achieve compliance with one of the Revolving Credit Facility’s financial debt covenants as of March 31, 2023. As of June 30, 2023, we did not achieve compliance with this financial debt covenant and are required to make a principal paydown of $2.3 million to achieve compliance with this covenant. The paydown will consist of the $1.4 million previously deposited into the cash collateral reserve account on July 13, 2023 and an additional payment of $0.9 million.

 

As of June 30, 2023, the Revolving Credit Facility had an outstanding principal balance of $34.6 million and six of our hotel properties were pledged as collateral. Additionally, no additional borrowings were available under the Revolving Credit Facility as of June 30, 2023. 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.

 

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Home2 Suites Financings

 

On December 6, 2021,we entered into a non-recourse loan facility providing for up to $19.1 million (the “Home2 Suites – Tukwila Loan”). At closing, we initially received $16.2 million and the remaining $2.9 million is available, subject to satisfaction of certain conditions. The Home2 Suites – Tukwila Loan is scheduled to mature on December 6, 2026, bears interest at LIBOR plus 3.50%, subject to a 3.75% floor, and requires monthly interest-only payments through December 2023 and subsequently, monthly payments of interest and principal of $0.1 million through its maturity date. Additionally, the Home2 Suites – Tukwila Loan provided for a replacement benchmark rate of AMERIBOR plus 3.50%, subject to a floor of 3.75%, in connection with the phase-out of LIBOR after June 30, 2023. The Home2 Suites Tukwila Loan is cross-collateralized by the Home2 Suites – Tukwila and the Home2 Suites – Salt Lake City.

 

On December 6, 2021, we entered into a non-recourse loan facility providing for up to $12.5 million (the “Home2 Suites – Salt Lake City Loan”). At closing we initially received $10.5 million, and the remaining $2.0 million is available, subject to satisfaction of certain conditions. The Home2 Suites – Salt Lake City Loan is scheduled to mature on December 6, 2026, bears interest at LIBOR plus 3.50%, subject to a 3.75% floor, and requires monthly interest-only payments through December 2023 and subsequently, monthly payments of interest and principal of $0.1 million through its maturity date. Additionally, the Home2 Suites – Salt Lake City Loan provided for a replacement benchmark rate of AMERIBOR plus 3.50%, subject to a floor of 3.75%, in connection with the phase-out of LIBOR after June 30, 2023. The Home2 Suites Salt Lake City Loan is cross-collateralized by the Home2 Suites – Salt Lake City and the Home2 Suites – Tukwila.

 

Certain of our debt agreements also contain clauses providing for prepayment penalties. As of June 30, 2023, we did not meet one of the financial debt covenants with respect to the Revolving Credit Facility (see “Revolving Credit Facility” above). As of June 30, 2023, we were in compliance with respect to our remaining financial debt covenants.

 

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 REIT also sponsored by our 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 $60.0 million, which consisted of $25.0 million of cash and $35.0 million of proceeds from a five-year term, non-recourse mortgage loan from a financial institution (the “Hilton Garden Inn Mortgage”), excluding closing and other related transaction costs. We paid $12.9 million for a 50.0% membership interest in the Hilton Garden Inn Joint Venture.

 

Except as discussed below, the Hilton Garden Inn Mortgage bore interest at LIBOR plus 3.15%, subject to a 5.03% floor, initially provided for monthly interest-only payments for the first 30 months of its term with principal and interest payments pursuant to a 25-year amortization schedule thereafter, and the remaining unpaid balance due in full at its maturity on March 27, 2023.

 

On June 2, 2020, the Hilton Garden Inn Mortgage was amended to provide for the deferral of the six monthly debt service payments aggregating $0.9 million for the period from April 1, 2020 through September 30, 2020 until March 27, 2023.

 

On March 27, 2023, the Hilton Garden Inn Joint Venture and the lender amended the Hilton Garden Inn Mortgage to extend the maturity date for 90 days, through June 25, 2023, to provide additional time to finalize the terms of a long-term extension. Subsequently, 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 payment 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 $3.0 million of principal, subject to the satisfaction of certain conditions, and (iv) certain changes to its financial covenants. Additionally, the Hilton Garden Inn Joint Venture will fund $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 II each have a 50.0% 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. We commenced recording our allocated portion of profit/loss and cash distributions beginning as of March 27, 2018 with respect to our membership interest of 50.0% in the Hilton Garden Inn Joint Venture.

 

The Hilton Garden Inn Joint Venture is currently in compliance with respect to all of its financial debt covenants.

 

Subsequent to the acquisition of our 50.0% membership interest in the Hilton Garden Joint Venture through June 30, 2023, we made an aggregate of $3.2 million of additional capital contributions (of which $0.4 million were made during the six months ended June 30, 2023) and received aggregate distributions of $4.0 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 REIT also sponsored by the Sponsor and a related party, 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. Subsequent to our acquisition, we have made aggregate capital contributions to the Williamsburg Moxy Hotel Joint Venture of $5.3 million through June 30, 2023 (of which $0.6 million was made during the six months ended June 30, 2023).

 

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 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 Advisor (the “Williamsburg Moxy Developer”) pursuant to which the Williamsburg Moxy Developer is being paid a development fee equal to 3% of hard and soft costs, as defined in the Development Agreement, incurred in connection with the development and construction of the Williamsburg Moxy Hotel. Additionally on August 5, 2021, the Williamsburg Moxy Hotel Joint Venture obtained construction financing for the Williamsburg Moxy Hotel as discussed below. Additionally, the Advisor and its affiliates are reimbursed for certain 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 $0.5 million and $2.2 million during the three and six months ended June 30, 2023, respectively and $357 and $419 during the three and six months ended June 30, 2022, respectively. Pre-opening costs generally consist of non-recurring personnel, marketing and other costs.

 

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An adjacent land owner has filed a claim questioning the Williamsburg Moxy Hotel Joint Venture’s right to develop and construct the Williamsburg Moxy Hotel without his consent. The Williamsburg Moxy Hotel Joint Venture is currently responding to this claim and we believe it will, in due course, be recognized that the adjacent owner waived his right to object in 2017 when he signed a waiver, consent and subordination allowing the future development of our property as it exists today. While this matter is currently pending in the court system, the continued use of the property will ultimately be determined by the government of New York City and we have a number of avenues that we believe are viable paths to unfettered certificates of occupancy. While any dispute has an element of uncertainty, we currently believe that the likelihood of an unfavorable outcome with respect to any of the aforementioned proceedings is remote. No provision for loss has been recorded in connection therewith. See Note 9 of the Notes to Consolidated Financial Statements for additional information.

 

Moxy Construction Loan

 

On August 5, 2021, the Williamsburg Moxy Hotel Joint Venture entered into a recourse construction loan facility for up to $77.0 million (the “Moxy Construction Loan”) to fund the development, construction and certain pre-opening costs associated with the Williamsburg Moxy Hotel. The Moxy Construction Loan is scheduled to initially mature on February 5, 2024, with two, six-month extension options, subject to the satisfaction of certain conditions. The Moxy Construction Loan bears interest at LIBOR plus 9.00%, subject to a 9.50% floor, with monthly interest-only payments based on a rate of 7.50% and the excess added to the outstanding loan balance due at maturity. LIBOR as of June 30, 2023 and December 31, 2022 was 5.22% and 4.39%, respectively. Additionally, the Moxy Construction Loan provides for a replacement benchmark rate based on SOFR in connection with the phase-out of LIBOR after June 30, 2023. The Moxy Construction Loan is collateralized by the Williamsburg Moxy Hotel.

 

As of June 30, 2023 and December 31, 2022, the outstanding principal balance of the Moxy Construction Loan was $78.4 million (including $4.0 million of interest capitalized to principal) which is presented, net of deferred financing fees of $1.0 million and $65.6 million (including $1.7 million of interest capitalized to principal) which is presented, net of deferred financing fees of $2.0 million, respectively, on the condensed balance sheets and is classified as mortgage payable, net. As of June 30, 2023, the remaining availability under the facility was up to $2.6 million and its interest rate was 14.22%.

 

In connection with the Moxy Construction Loan, the Williamsburg Moxy Hotel Joint Venture has provided certain completion and carry cost guarantees. Furthermore, in connection with the Moxy Construction Loan, the Williamsburg Moxy Hotel Joint Venture paid $3.7 million of loan fees and expenses and accrued $0.8 million of loan exit fees which are due at the initial maturity date and are included in other liabilities on the condensed balance sheets as of both and June 30, 2023 and December 31, 2022.

 

The Williamsburg Moxy Hotel Joint Venture currently intends to refinance the Moxy Construction Loan on or before its initial maturity date of February 5, 2024; however, there can be no assurances that it will be successful in such endeavors. If the Williamsburg Moxy Hotel Joint Venture is unable to refinance the Moxy Construction Loan on or before its initial maturity date, it will then seek to exercise the first of its two six-month extension options.

 

See Note 3 of the Notes to Consolidated Financial Statements for additional information.

 

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
June 30,
    For the
Six Months Ended
June 30,
 
    2023     2022     2023     2022  
Net (loss)/income   $ (1,283 )   $ 1,302     $ (3,990 )   $ 310  
FFO adjustments:                                
Depreciation and amortization of real estate assets     1,114       1,214       2,294       2,482  
Adjustments to equity earnings from unconsolidated affiliated real estate entities     515       303       887       613  
FFO     346       2,819       (809 )     3,405  
MFFO adjustments:                                
Loss on sale of marketable securities(1)     -       -       4       -  
Unrealized (gain)/loss on sale of marketable equity securities(2)     (44 )     29       (4 )     50  
Gain on forgiveness of debt(1)     -       (899 )     -       (1,131 )
MFFO - IPA recommended format   $ 302     $ 1,949     $ (809 )   $ 2,324  
                                 
Net (loss)/income   $ (1,283 )   $ 1,302     $ (3,990 )   $ 310  
Less: net (income)/loss attributable to noncontrolling interests     -       -       -       -  
Net (loss)/income applicable to Company’s common shares   $ (1,283 )   $ 1,302     $ (3,990 )   $ 310  
Net (loss)/income per common share, basic and diluted   $ (0.10 )   $ 0.10     $ (0.31 )   $ 0.02  
                                 
FFO   $ 346     $ 2,819     $ (809 )   $ 3,405  
Less: FFO attributable to noncontrolling interests     -       -       -       -  
FFO attributable to Company’s common shares   $ 346     $ 2,819     $ (809 )   $ 3,405  
FFO per common share, basic and diluted   $ 0.03     $ 0.22     $ (0.06 )   $ 0.26  
                                 
MFFO - IPA recommended format   $ 302     $ 1,949     $ (809 )   $ 2,324  
Less: MFFO attributable to noncontrolling interests     -       -       -       -  
MFFO attributable to Company’s common shares   $ 302     $ 1,949     $ (809 )   $ 2,324  
                                 
Weighted average number of common shares outstanding, basic and diluted     12,973       13,084       12,998       13,107  

 

 
(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.

 

38

 

 

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
 
    June 30,
2023
 
FFO attributable to Company’s common shares   $ 20,309  
Distributions paid   $ 26,851  

 

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.

 

39

 

 

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.

 

40

 

 

ITEM 6. EXHIBITS

 

Exhibit

Number

 

Description

31.1*   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2*   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
32.1*   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”
32.2*   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”
101*   XBRL (extensible Business Reporting Language).The following financial information from Lightstone Value Plus REIT III, Inc. on Form 10-Q for the quarter ended June 30, 2023, filed with the SEC on August 14, 2023, formatted in XBRL includes: (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations, (3) Consolidated Statements of Comprehensive Income, (4) Consolidated Statements of Stockholders’ Equity, (5) Consolidated Statements of Cash Flows, and (6) the Notes to the Consolidated Financial Statement.

 

 
* Filed herewith

 

41

 

 

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.

   
Date: August 14, 2023 By: /s/ David Lichtenstein
  David Lichtenstein
 

Chairman and Chief Executive Officer

(Principal Executive Officer)

 

Date: August 14, 2023 By: /s/ Seth Molod
  Seth Molod
 

Chief Financial Officer

(Duly Authorized Officer and Principal Financial and Accounting Officer)

 

42

 

EXHIBIT 31.1

 

Certifications

 

I, David Lichtenstein, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Lightstone Value Plus REIT III, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the registrant and have:

 

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

/s/ David Lichtenstein  
David Lichtenstein  
Chairman and Chief Executive Officer  
(Principal Executive Officer)  

 

Date: August 14, 2023

 

 

 

 

EXHIBIT 31.2

 

Certifications

 

I, Seth Molod, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Lightstone Value Plus REIT III, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), for the registrant and have:

 

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

/s/ Seth Molod  
Seth Molod  
Chief Financial Officer and Treasurer  
(Principal Financial and Accounting Officer)    
   
Date: August 14, 2023  

 

 

 

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

 

I, David Lichtenstein, the Chief Executive Officer and Chairman of the Board of Directors of Lightstone Value Plus REIT III, Inc. (the “Company”) certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

 

(1) The Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2023 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C 78m); and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

  

/s/ David Lichtenstein

 

David Lichtenstein

Chairman and Chief Executive Officer

(Principal Executive Officer)

 

Date: August 14, 2023

 

 

 

 

EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

 

I, Seth Molod, the Chief Financial Officer, Treasurer and Principal Accounting Officer of Lightstone Value Plus REIT III, Inc. (the “Company”) certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

 

(1) The Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2023 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C 78m); and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ Seth Molod      

 

Seth Molod

Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

 

Date: August 14, 2023

 

 

 

v3.23.2
Cover - shares
shares in Thousands
6 Months Ended
Jun. 30, 2023
Aug. 07, 2023
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Jun. 30, 2023  
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2023  
Current Fiscal Year End Date --12-31  
Entity File Number 000-55619  
Entity Registrant Name LIGHTSTONE VALUE PLUS REIT III, INC.  
Entity Central Index Key 0001563756  
Entity Tax Identification Number 46-1140492  
Entity Incorporation, State or Country Code MD  
Entity Address, Address Line One 1985 Cedar Bridge Avenue  
Entity Address, Address Line Two Suite 1  
Entity Address, City or Town Lakewood  
Entity Address, State or Province NJ  
Entity Address, Postal Zip Code 08701  
City Area Code (732)  
Local Phone Number 367-0129  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   13,000
v3.23.2
CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)
$ in Thousands
Jun. 30, 2023
Dec. 31, 2022
Investment property:    
Land and improvements $ 21,713 $ 21,711
Building and improvements 92,132 91,987
Furniture and fixtures 16,538 16,463
Construction in progress 131 47
Gross investment property 130,514 130,208
Less: accumulated depreciation (34,700) (32,438)
Net investment property 95,814 97,770
Investments in unconsolidated affiliated real estate entities 20,577 21,755
Cash and cash equivalents 9,310 18,391
Marketable securities, available for sale 9,308 3,314
Accounts receivable and other assets 2,599 1,585
Total Assets 137,608 142,815
Liabilities and Stockholders’ Equity    
Accounts payable and other accrued expenses 3,358 2,960
Mortgages payable, net 60,921 60,814
Distributions payable 970
Due to related parties 396 302
Total Liabilities 65,645 64,076
Company’s stockholders’ equity:    
Preferred stock, $0.01 par value; 50.0 million shares authorized, none issued and outstanding
Common stock, $0.01 par value; 200.0 million shares authorized, 13.0 million shares issued and outstanding 129 130
Additional paid-in-capital 110,721 111,585
Accumulated other comprehensive loss (226) (250)
Accumulated deficit (50,753) (44,818)
Total Company stockholders’ equity 59,871 66,647
Noncontrolling interests 12,092 12,092
Total Stockholders’ Equity 71,963 78,739
Total Liabilities and Stockholders’ Equity $ 137,608 $ 142,815
v3.23.2
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares
shares in Thousands
Jun. 30, 2023
Dec. 31, 2022
Statement of Financial Position [Abstract]    
Preferred stock, per share $ 0.01 $ 0.01
Preferred stock, shares authorized 50,000 50,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, per share $ 0.01 $ 0.01
Common stock, shares authorized 200,000 200,000
Common stock, shares issued 13,000 13,000
Common stock, shares outstanding 13,000 13,000
v3.23.2
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Income Statement [Abstract]        
Revenues $ 7,966 $ 7,986 $ 14,332 $ 13,731
Expenses:        
Property operating expenses 5,103 4,756 9,682 8,528
Real estate taxes 267 357 597 707
General and administrative costs 672 592 1,315 1,278
Depreciation and amortization 1,114 1,214 2,294 2,482
Total expenses 7,156 6,919 13,888 12,995
Interest expense (1,333) (709) (2,571) (1,370)
Gain on forgiveness of debt 899 1,131
Earnings from investments in unconsolidated affiliated real estate entities (1,002) 75 (2,180) (99)
Other income/(expense), net 242 (30) 317 (88)
Net (loss)/income (1,283) 1,302 (3,990) 310
Less: net loss/(income) attributable to noncontrolling interests
Net (loss)/income applicable to Company’s common shares $ (1,283) $ 1,302 $ (3,990) $ 310
Net loss per Company's common share, basic $ (0.10) $ 0.10 $ (0.31) $ 0.02
Net loss per Company's common share, diluted $ (0.10) $ 0.10 $ (0.31) $ 0.02
Weighted average number of common shares outstanding, basic 12,973 13,084 12,998 13,107
Weighted average number of common shares outstanding, diluted 12,973 13,084 12,998 13,107
v3.23.2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Income Statement [Abstract]        
Net (loss)/income $ (1,283) $ 1,302 $ (3,990) $ 310
Other comprehensive income/(loss):        
Holding gain/(loss) on marketable securities, available for sale 24 (44) 24 (76)
Comprehensive (loss)/income (1,259) 1,258 (3,966) 234
Less: Comprehensive loss/(income) attributable to noncontrolling interests
Comprehensive (loss)/income attributable to the Company’s common shares $ (1,259) $ 1,258 $ (3,966) $ 234
v3.23.2
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
Common Stock [Member]
Additional Paid-in Capital [Member]
AOCI Attributable to Parent [Member]
Retained Earnings [Member]
Noncontrolling Interest [Member]
Total
Beginning balance, value at Dec. 31, 2021 $ 131 $ 112,581 $ (107) $ (44,603) $ 12,092 $ 80,094
Beginning balance, shares at Dec. 31, 2021 13,152          
Net loss 310 310
Other comprehensive income (76) (76)
Redemption and cancellation of shares $ (1) (742) (743)
Redemption and cancellation of shares, shares (83)          
Ending balance, value at Jun. 30, 2022 $ 130 111,839 (183) (44,293) 12,092 79,585
Ending balance, shares at Jun. 30, 2022 13,069          
Beginning balance, value at Mar. 31, 2022 $ 131 112,330 (139) (45,595) 12,092 78,819
Beginning balance, shares at Mar. 31, 2022 13,121          
Net loss 1,302 1,302
Other comprehensive income (44) (44)
Redemption and cancellation of shares $ (1) (491) (492)
Redemption and cancellation of shares, shares (52)          
Ending balance, value at Jun. 30, 2022 $ 130 111,839 (183) (44,293) 12,092 79,585
Ending balance, shares at Jun. 30, 2022 13,069          
Beginning balance, value at Dec. 31, 2022 $ 130 111,585 (250) (44,818) 12,092 78,739
Beginning balance, shares at Dec. 31, 2022 13,043          
Net loss (3,990) (3,990)
Other comprehensive income 24 24
Distributions declared [1] (1,945) (1,945)
Redemption and cancellation of shares $ (1) (864) (865)
Redemption and cancellation of shares, shares (86)          
Ending balance, value at Jun. 30, 2023 $ 129 110,721 (226) (50,753) 12,092 71,963
Ending balance, shares at Jun. 30, 2023 12,957          
Beginning balance, value at Mar. 31, 2023 $ 130 111,336 (250) (48,500) 12,092 74,808
Beginning balance, shares at Mar. 31, 2023 13,017          
Net loss (1,283) (1,283)
Other comprehensive income 24 24
Distributions declared [2] (970) (970)
Redemption and cancellation of shares $ (1) (615) (616)
Redemption and cancellation of shares, shares (60)          
Ending balance, value at Jun. 30, 2023 $ 129 $ 110,721 $ (226) $ (50,753) $ 12,092 $ 71,963
Ending balance, shares at Jun. 30, 2023 12,957          
[1] Distributions per share were $0.150.
[2] Distributions per share were $0.075.
v3.23.2
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net (loss)/income $ (3,990) $ 310
Adjustments to reconcile net (loss)/income to net cash provided by operating activities:    
Loss from investments in unconsolidated affiliated real estate entities 2,180 99
Depreciation and amortization 2,294 2,482
Amortization of deferred financing costs 107 119
Gain on forgiveness of debt (1,131)
Other non-cash adjustments 31 132
Changes in assets and liabilities:    
Increase in accounts receivable and other assets (1,077) (1,982)
Increase in accounts payable and other accrued expenses 399 1,141
Increase in due to related parties 94 1
Net cash provided by operating activities 38 1,171
CASH FLOWS FROM INVESTING ACTIVITIES:    
Purchase of investment property (307) (134)
Purchase of marketable securities (10,373) (1)
Proceeds from sale of marketable securities 4,403
Distributions from unconsolidated affiliated real estate entity 1,225
Investments in unconsolidated affiliated real estate entities (1,002) (293)
Net cash (used in)/provided by investing activities (7,279) 797
CASH FLOWS FROM FINANCING ACTIVITIES:    
Redemption and cancellation of common shares (865) (743)
Distributions paid to Company’s common stockholders (975)
Net cash used in financing activities (1,840) (743)
Change in cash and cash equivalents (9,081) 1,225
Cash and cash equivalents, beginning of year 18,391 16,639
Cash and cash equivalents, end of period 9,310 17,864
Supplemental cash flow information for the periods indicated is as follows:    
Cash paid for interest 2,419 1,209
Distributions declared, but not paid 970
Holding gain/loss on marketable securities, available for sale $ 24 $ 76
v3.23.2
Business and Structure
6 Months Ended
Jun. 30, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Business and Structure

 

1. Business and Structure

 

Lightstone Value Plus REIT III, Inc. (“Lightstone REIT III”), which was formerly known as Lightstone Value Plus Real Estate Investment Trust III, Inc., before September 16, 2021, is a Maryland corporation, formed on October 5, 2012, which elected to qualify as a real estate investment trust (“REIT”) for 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 June 30, 2023, 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 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 and operated commercial hospitality properties, principally consisting of limited-service-hotels all located in the United States. However, its commercial holdings may also consist of full-service hotels, and to a lesser extent, retail (primarily multi-tenanted shopping centers), industrial and office properties. 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 June 30, 2023, the Company (i) majority owned and consolidated the operating results and financial condition of eight limited-service hotels containing a total of 872 rooms, (ii) held an unconsolidated 50.0% membership interest in LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”) and (iii) held an unconsolidated 25.0% membership interest in Bedford Avenue Holdings LLC (the “Williamsburg Moxy Hotel Joint Venture”). 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.

 

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 $2 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. The 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 a majority owner of the equity interests of the Lightstone Group, LLC. The Lightstone Group, LLC served as the Company’s sponsor (the “Sponsor”) during its 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 the Company’s board of directors (the “Board of Directors”), the Advisor has primary responsibility for making investment decisions on behalf of the Company and managing its day-to-day operations. Through his ownership and control of the Lightstone Group, LLC, Mr. Lichtenstein is the indirect owner and manager of Lightstone SLP 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 for $12.1 million in connection with the Offering. Mr. Lichtenstein also acts as the Company’s Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT III or the Operating Partnership.

 

The Company has no employees. The Company’s Advisor and its affiliates perform a full range of real estate services for it, including asset management, accounting, legal, and property management, as well as investor relations services.

 

The Company is dependent on the Advisor and its affiliates for services that are essential to it, including asset management and acquisition, disposition and financing activities, and other general administrative responsibilities. 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 also uses other unaffiliated third-party property managers, principally for the management of its hospitality properties.

 

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 market for its Common Shares until they are listed for trading.

 

On January 17, 2023, the Company’s stockholders approved an amendment and restatement to the Company’s charter pursuant to which the Company is no longer required to either (a) amend its charter to extend the deadline to begin the process of achieving a liquidity event, or (b) hold a stockholders meeting to vote on a proposal for an orderly liquidation of its portfolio.

 

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 limited partner units into cash or, at the Company’s option, an equal number of its Common Shares.

 

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 for consideration of $12.1 million. The Subordinated Participation Interests were each purchased for $50 in consideration and may be entitled to receive liquidation distributions upon the liquidation of Lightstone REIT III.

 

As the majority owner of the Special Limited Partner, Mr. Lichtenstein is the beneficial owner of a 99% interest in such Subordinated Participation Interests and will thus receive an indirect benefit from any distributions made in respect thereof.

 

These Subordinated Participation Interests entitle the Special Limited Partner to a portion of any regular and liquidation distributions that the Company makes to its stockholders, but only after its stockholders have received a stated preferred return. From the Company’s inception through June 30, 2023, no distributions have been declared or paid on the Subordinated Participation Interests.

 

Related Parties

 

The Company’s Sponsor, Advisor and its affiliates, 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. Certain of these entities are entitled to compensation and reimbursement for services and costs incurred related to the investment, management and disposition of our assets during the Company’s acquisition, operational and liquidation stages. The compensation levels during the acquisition and operational stages are 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. See Note 7 – Related Party Transactions for additional information.

v3.23.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2023
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

 

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 June 30, 2023, Lightstone REIT III had a 99% general partnership interest in the common units of the Operating Partnership. All inter-company balances and transactions have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on applicable accounting principles generally accepted in the United States of America (“GAAP”), and entities deemed to be variable interest entities (“VIE”) in which the Company is the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which the Company has control, substantive participating rights or both under the respective ownership agreement. For entities in which the Company has less than a controlling interest or entities which it is not deemed to be the primary beneficiary, it accounts for the investment using the equity method of accounting.

 

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, 2022. 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.

 

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, 2022 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 has elected to be taxed as a REIT commencing with the taxable year ended December 31, 2009. If the Company qualifies as a REIT, it generally will not be subject to U.S. federal income tax on its taxable income or capital gain that it distributes to its stockholders. To maintain its REIT qualification, the Company must meet a number of organizational and operational requirements, including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed at the regular corporate rate, and it may be precluded from qualifying for treatment as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders.

 

To maintain its qualification as a REIT, the Company may engage in certain activities through taxable REIT subsidiaries (“TRSs”). As such, it may be subject to U.S. federal and state income and franchise taxes from these activities.

 

As of June 30, 2023 and December 31, 2022, the Company had no material uncertain income tax positions.

 

Revenues

 

The following table represents the total revenues from hotel operations on a disaggregated basis:

 

                               
    For the
Three Months Ended
June 30,
    For the
Six Months Ended
June 30,
 
Revenues   2023     2022     2023     2022  
Room   $ 7,726     $ 7,791     $ 13,856     $ 13,389  
Food, beverage and other     240       195       476       342  
Total revenues   $ 7,966     $ 7,986     $ 14,332     $ 13,731  

 

Gain on Forgiveness of Debt

 

During the three and six months ended June 30, 2022, notice was received from the U.S. Small Business Administration that $0.9 million and $1.1 million, respectively, of the Company’s Paycheck Protection loans and related accrued interest had been legally forgiven and therefore, it recognized a gain on forgiveness of debt for those amounts during the periods.

 

Recently Adopted Accounting Standards

 

In June 2016, the Financial Accounting Standards Board issued an accounting standards update, “Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments,” which changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The updated standard replaces the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For trade receivables and held to maturity debt securities, entities are required to use a new forward looking expected loss model that generally will result in the earlier recognition of allowances for losses. The Company has adopted this standard noting that it did not have a material impact on the Company’s financial statements or related disclosures.

 

Adverse Developments Affecting the Financial Services Industry and Concentration of Risk

 

As of June 30, 2023 and December 31, 2022, the Company had cash deposited in certain financial institutions in excess of federally insured levels. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk in cash and cash equivalents. However, in March and April 2023, certain U.S. government banking regulators took steps to intervene in the operations of certain financial institutions due to liquidity concerns, which caused general heightened uncertainties in financial markets. While these events have not had a material direct impact on the Company’s operations, if further liquidity and financial stability concerns arise with respect to banks and financial institutions, either nationally or in specific regions, the Company’s ability to access cash or enter into new financing arrangements may be threatened, which could have a material adverse effect on its business, financial condition and results of operations.

 

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.

 

v3.23.2
Investments in Unconsolidated Affiliated Real Estate Entities
6 Months Ended
Jun. 30, 2023
Equity Method Investments and Joint Ventures [Abstract]  
Investments in Unconsolidated Affiliated Real Estate Entities

 

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 %     June 30,
2023
    December 31,
2022
 
LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”)   March 27, 2018   50.00%     $ 9,520     $ 9,604  
Bedford Avenue Holdings LLC (the “Williamsburg Moxy Hotel Joint Venture”)   August 5, 2021   25.00%       11,057       12,151  
Total investments in unconsolidated affiliated real estate entities             $ 20,577     $ 21,755  

 

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 $60.0 million, which consisted of $25.0 million of cash and $35.0 million of proceeds from a five-year term non-recourse mortgage loan, collateralized by the Hilton Garden Inn – Long Island City, from a financial institution (the “Hilton Garden Inn Mortgage”), excluding closing and other related transaction costs. The Company paid $12.9 million for a 50.0% membership interest in the Hilton Garden Inn Joint Venture.

 

Except as discussed below, the Hilton Garden Inn Mortgage bore interest at LIBOR plus 3.15%, subject to a 5.03% floor, initially provided for monthly interest-only payments for the first 30 months of its term with principal and interest payments pursuant to a 25-year amortization schedule thereafter, and the remaining unpaid balance due in full at its maturity on March 27, 2023.

 

On June 2, 2020, the Hilton Garden Inn Mortgage was amended to provide for the deferral of the six monthly debt service payments aggregating $0.9 million for the period from April 1, 2020 through September 30, 2020 until March 27, 2023.

 

On March 27, 2023, the Hilton Garden Inn Joint Venture and the lender amended the Hilton Garden Inn Mortgage to extend the maturity date for 90 days, through June 25, 2023, to provide additional time to finalize the terms of a long-term extension. Subsequently, 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% (8.39% as of June 30, 2023), 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 $3.0 million of principal, subject to the satisfaction of certain conditions, and (iv) certain changes to its financial covenants. Additionally, the Hilton Garden Inn Joint Venture will fund $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.

 

The Company and Lightstone REIT II each have a 50.0% co-managing membership interest in the Hilton Garden Inn Joint Venture. The Company accounts for its membership interest in the Hilton Garden Inn Joint Venture in accordance with the equity method of accounting because it exerts significant influence over but does not control the Hilton Garden Inn Joint Venture. All capital contributions and distributions of earnings from the Hilton Garden Inn Joint Venture are made on a pro rata basis in proportion to each member’s equity interest percentage. Any distributions in excess of earnings from the Hilton Garden Inn Joint Venture are made to the members pursuant to the terms of the Hilton Garden Inn Joint Venture’s operating agreement. The Company commenced recording its allocated portion of profit/loss and cash distributions beginning as of March 27, 2018 with respect to its membership interest of 50.0% in the Hilton Garden Inn Joint Venture.

 

The Hilton Garden Inn Joint Venture is currently in compliance with respect to all of its financial debt covenants.

 

Subsequent to the Company’s acquisition of its 50.0% membership interest in the Hilton Garden Joint Venture through June 30, 2023, it has made an aggregate of $3.2 million of additional capital contributions (of which $0.4 million was made during the six months ended June 30, 2023) and received aggregate distributions of $4.0 million.

 

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
June 30,
2023
    For the
Three Months Ended
June 30,
2022
    For the
Six Months Ended
June 30,
2023
    For the
Six Months Ended
June 30,
2022
 
Revenues   $ 3,115     $ 2,910     $ 5,144     $ 5,078  
                                 
Property operating expenses     1,907       1,518       3,414       2,946  
General and administrative costs     106       6       132       16  
Depreciation and amortization     596       606       1,205       1,226  
Operating income     506       780       393       890  
Interest expense     (825 )     (448 )     (1,451 )     (875 )
Net (loss)/income   $ (319 )   $ 332     $ (1,058 )   $ 15  
Company’s share of net (loss)/income (50.00%)   $ (159 )   $ 166     $ (529 )   $ 8  

 

The following table represents the condensed balance sheets for the Hilton Garden Inn Joint Venture as of the dates indicated:

 

               
    As of     As of  
    June 30,
2023
    December 31,
2022
 
Investment property, net   $ 49,131     $ 50,254  
Cash     1,042       1,231  
Other assets     1,677       1,276  
Total assets   $ 51,850     $ 52,761  
                 
Mortgage payable, net   $ 32,231     $ 32,233  
Other liabilities     1,178       1,920  
Members’ capital     18,441       18,608  
Total liabilities and members’ capital   $ 51,850     $ 52,761  

 

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 REIT also sponsored by the Company’s Sponsor and a related party, 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 $7.9 million. Subsequent to its acquisition, the Company has made additional capital contributions to the Williamsburg Moxy Hotel Joint Venture of $5.3 million through June 30, 2023 (of which $0.6 million was made during the six months ended June 30, 2023).

 

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, 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 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.

 

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 $0.5 million and $2.2 million during the three and six months ended June 30, 2023, respectively and $357 and $419 during the three and six months ended June 30, 2022, respectively. Pre-opening costs generally consist of non-recurring personnel, marketing and other costs.

 

An adjacent land owner has filed a claim questioning the Williamsburg Moxy Hotel Joint Venture’s right to develop and construct the Williamsburg Moxy Hotel without his consent. The Williamsburg Moxy Hotel Joint Venture is currently responding to this claim and management believes it will, in due course, be recognized that the adjacent owner waived his right to object in 2017 when he signed a waiver, consent and subordination allowing the future development of our property as it exists today. While this matter is currently pending in the court system, the continued use of the property will ultimately be determined by the government of New York City and management has a number of avenues that it believes are viable paths to unfettered certificates of occupancy. While any dispute has an element of uncertainty, management currently believes that the likelihood of an unfavorable outcome with respect to any of the aforementioned proceedings is remote. No provision for loss has been recorded in connection therewith. See Note 9 for additional information.

 

Moxy Construction Loan

 

On August 5, 2021, the Williamsburg Moxy Hotel Joint Venture entered into a recourse construction loan facility for up to $77.0 million (the “Moxy Construction Loan”) to fund the development, construction and certain pre-opening costs associated with the Williamsburg Moxy Hotel. The Moxy Construction Loan is scheduled to initially mature on February 5, 2024, with two, six-month extension options, subject to the satisfaction of certain conditions. The Moxy Construction Loan bears interest at LIBOR plus 9.00%, subject to a 9.50% floor, with monthly interest-only payments based on a rate of 7.50% and the excess added to the outstanding loan balance due at maturity. LIBOR as of June 30, 2023 and December 31, 2022 was 5.22% and 4.39%, respectively. Additionally, the Moxy Construction Loan provides for a replacement benchmark rate based on SOFR in connection with the phase-out of LIBOR after June 30, 2023. The Moxy Construction Loan is collateralized by the Williamsburg Moxy Hotel.

 

As of June 30, 2023 and December 31, 2022, the outstanding principal balance of the Moxy Construction Loan was $78.4 million (including $4.0 million of interest capitalized to principal) which is presented, net of deferred financing fees of $1.0 million and $65.6 million (including $1.7 million of interest capitalized to principal) which is presented, net of deferred financing fees of $2.0 million, respectively, on the condensed balance sheets and is classified as mortgage payable, net. As of June 30, 2023, the remaining availability under the facility was up to $2.6 million and its interest rate was 14.22%.

 

In connection with the Moxy Construction Loan, the Williamsburg Moxy Hotel Joint Venture has provided certain completion and carry cost guarantees. Furthermore, in connection with the Moxy Construction Loan, the Williamsburg Moxy Hotel Joint Venture paid $3.7 million of loan fees and expenses and accrued $0.8 million of loan exit fees which are due at the initial maturity date and are included in other liabilities on the condensed balance sheets as of both June 30, 2023 and December 31, 2022.

 

The Williamsburg Moxy Hotel Joint Venture currently intends to refinance the Moxy Construction Loan on or before its initial maturity date of February 5, 2024; however, there can be no assurances that it will be successful in such endeavors. If the Williamsburg Moxy Hotel Joint Venture is unable to refinance the Moxy Construction Loan on or before its initial maturity date, it will then seek to exercise the first of its two six-month extension options.

 

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
June 30,
2023
    For the
Three Months Ended
June 30,
2022
    For the
Six Months Ended
June 30,
2023
    For the
Six Months Ended
June 30,
2022
 
Revenues   $ 7,106     $ -     $ 8,059     $ -  
                                 
Property operating expenses     5,905       -       7,245       -  
Pre-opening costs     493       357       2,228       419  
General and administrative costs     47       7       79       7  
Depreciation and amortization     869       -       1,140       -  
Operating loss     (208 )     (364 )     (2,633 )     (426 )
Interest expense     (3,162 )     -       (3,970 )     -  
Net loss   $ (3,370 )   $ (364 )   $ (6,603 )   $ (426 )
Company’s share of net loss (25.00%)   $ (843 )   $ (91 )   $ (1,651 )   $ (107 )

 

The following table represents the condensed balance sheets for the Williamsburg Moxy Hotel Joint Venture as of the dates indicated:

 

               
    As of     As of  
    June 30,
2023
    December 31,
2022
 
Investment property, net   $ 123,859     $ 114,615  
Cash     1,630       752  
Other assets     3,285       2,346  
Total assets   $ 128,774     $ 117,713  
                 
Mortgage payable, net   $ 77,403     $ 63,631  
Other liabilities     7,731       6,064  
Members’ capital     43,640       48,018  
Total liabilities and members’ capital   $ 128,774     $ 117,713  

 

v3.23.2
Marketable Securities and Fair Value Measurements
6 Months Ended
Jun. 30, 2023
Investments, Debt and Equity Securities [Abstract]  
Marketable Securities and Fair Value Measurements

 

4. Marketable Securities and Fair Value Measurements

 

Marketable Securities

 

The following is a summary of the Company’s available for sale securities as of the dates indicated:

 

                               
    As of June 30, 2023  
    Adjusted
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Fair
Value
 
Marketable Securities:                                
Equity securities:                                
Preferred Equity Securities   $ 4,417     $ 2     $ (47 )   $ 4,372  
Mutual Funds     4,416       -       -       4,416  
      8,833       2       (47 )     8,788  
Debt securities:                                
Corporate Bonds     746       -       (226 )     520  
Total   $ 9,579     $ 2     $ (273 )   $ 9,308  

 

    As of December 31, 2022  
    Adjusted
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Fair
Value
 
Marketable Securities:                                
Equity securities:                                
Preferred Equity Securities   $ 961     $ -     $ (45 )   $ 916  
Mutual Funds     222       -       (5 )     217  
      1,183       -       (50 )     1,133  
Debt securities:                                
Corporate Bonds     746       -       (263 )     483  
United States Treasury Bills     1,685       13       -       1,698  
      2,431       13       (263 )     2,181  
Total   $ 3,614     $ 13     $ (313 )   $ 3,314  

 

The Company may be exposed to credit losses through its available-for-sale debt securities. Unrealized losses or impairments resulting from the amortized cost basis of any available-for-sale debt security exceeding its fair value are evaluated for identification of credit and non-credit related factors. Any difference between the fair value of the debt security and the amortized cost basis not attributable to credit related factors are reported in other comprehensive income. A credit-related impairment is recognized as an allowance on the balance sheet with a corresponding adjustment to earnings. When evaluating the investments for impairment at each reporting period, the Company reviews factors such as the extent of the unrealized loss, current and future economic market conditions and the economic and financial condition of the issuer and any changes thereto. As of June 30, 2023, 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.

 

As of June 30, 2023 and December 31, 2022, the Company’s mutual funds and United States Treasury Bills were classified as Level 1 assets and the Company’s preferred equity securities and corporate bonds were classified as Level 2 assets. There were no transfers between the level classifications during the six months ended June 30, 2023 and 2022.

 

The fair values of the Company’s investments in mutual funds and United States Treasury Bills 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 following table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:

 

       
    As of
June 30,
2023
 
Due in 1 year   $ -  
Due in 1 year through 5 years     -  
Due in 5 year through 10 years     -  
Due after 10 years     520  
Total   $ 520  

 

The Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized at fair value.

 

v3.23.2
Mortgages payable, net
6 Months Ended
Jun. 30, 2023
Debt Disclosure [Abstract]  
Mortgages payable, net

 

5. Mortgages payable, net

 

Mortgages payable, net consists of the following:

 

                                     
        Weighted
Average
Interest Rate
               
Description   Interest
Rate
  for the
Six Months Ended
June 30,
2023
  Maturity
Date
  Amount
Due at
Maturity
    As of
June 30,
2023
    As of
December 31,
2022
 
Revolving Credit Facility   AMERIBOR + 3.15%
(floor of 4.00%)
  7.87%   July 2024   $ 34,573     $ 34,573     $ 34,573  
                                     
Home2 Suites Tukwila Loan   LIBOR + 3.50%
(floor of 3.75%)
  8.40%   December 2026     15,006       16,210       16,210  
                                     
Home2 Suites Salt Lake City Loan   LIBOR + 3.50%
(floor of 3.75%)
  8.40%   December 2026     9,757       10,540       10,540  
                                     
Total mortgages payable       8.10%       $ 59,336       61,323       61,323  
                                     
Less: Deferred financing costs                         (402 )     (509 )
                                     
Total mortgage payable, net                       $ 60,921     $ 60,814  

 

LIBOR as of June 30, 2023 and December 31, 2022 was 5.22% and 4.39%, respectively. AMERIBOR as of June 30, 2023 and December 31, 2022 was 5.17% and 4.64%, respectively.

 

Revolving Credit Facility

 

The Company, through certain subsidiaries, has a non-recourse revolving credit facility (the “Revolving Credit Facility”) with a financial institution. The Revolving Credit Facility provides the Company with a line of credit of up to $60.0 million pursuant to which it may designate properties as collateral that allow borrowings up to a 65.0% 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.

 

As a result of the impact of the COVID-19 pandemic on the operating results and financial condition of the Company’s hotels designated as collateral under the Revolving Credit Facility, its terms were amended by the lender in June 2020 to provide for a reduced interest rate, the deferral of interest payments and a waiver and/or modification of financial covenants during certain prescribed periods during 2020 and 2021.

 

Subsequently, on March 31, 2021, the Revolving Credit Facility was further amended providing for (i) the Company to make another principal paydown of $3.8 million, (ii) the Company to fund an additional $0.7 million into the cash collateral reserve account; (iii) a waiver of all financial covenants for quarter-end periods through September 30, 2021 with a phased-in gradual return to the full financial covenant requirements over the quarter-end periods beginning December 31, 2021 through March 31, 2023; (iv) two one-year extension options, subject to certain conditions, including the lender’s approval (including the first extension option which was exercised on July 13, 2022); and (v) certain limitations and restrictions on asset sales and additional borrowings related to the pledged collateral.

 

Except as discussed above, the Revolving Credit Facility, which was scheduled to mature on July 13, 2022, bore interest at LIBOR plus 3.15%, subject to a 4.00% floor. However, on both July 13, 2022 and July 13, 2023, the maturity dates of the Revolving Credit Facility were further extended to July 13, 2023 and July 13, 2024, respectively, subject to the conditions of the two one-year extension options. In connection with the extension of the Revolving Credit Facility on July 13, 2022, the interest rate was prospectively changed to AMERIBOR plus 3.15%, subject to a 4.00% floor.

 

Additionally, in connection with the extension of the Revolving Credit facility on July 13, 2023, the Company was required to deposit $1.4 million into a cash collateral reserve account to achieve compliance with one of the Revolving Credit Facility’s financial debt covenants as of March 31, 2023. As of June 30, 2023, the Company did not achieve compliance with this financial debt covenant and is required to make a principal paydown of $2.3 million to achieve compliance with this covenant. The paydown will consist of the $1.4 million previously deposited into the cash collateral reserve account on July 13, 2023 and an additional payment of $0.9 million.

 

As of both June 30, 2023 and December 31, 2022, the Revolving Credit Facility had an outstanding principal balance of $34.6 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 June 30, 2023. 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.

 

Home2 Suites Financings

 

On December 6, 2021, the Company entered into a non-recourse loan facility providing for up to $19.1 million (the “Home2 Suites – Tukwila Loan”). At closing, the Company initially received $16.2 million and the remaining $2.9 million is available to be drawn upon subject to satisfaction of certain conditions. The Home2 Suites – Tukwila Loan is scheduled to mature on December 6, 2026, bears interest at LIBOR plus 3.50%, subject to a 3.75% floor, and requires monthly interest-only payments through December 2023 and subsequently, monthly payments of interest and principal of $0.1 million through its maturity date. Additionally, the Home2 Suites – Tukwila Loan provided for a replacement benchmark rate of AMERIBOR plus 3.50%, subject to a floor of 3.75%, in connection with the phase-out of LIBOR after June 30, 2023. The Home2 Suites Tukwila Loan is cross-collateralized by the Home2 Suites – Tukwila and the Home2 Suites – Salt Lake City.

 

On December 6, 2021, the Company entered into a non-recourse loan facility providing for up to $12.5 million (the “Home2 Suites – Salt Lake City Loan”). At closing, the Company initially received $10.5 million, and the remaining $2.0 million is available to be drawn upon subject to the satisfaction of certain conditions. The Home2 Suites – Salt Lake City Loan is scheduled to mature on December 6, 2026, bears interest at LIBOR plus 3.50%, subject to a 3.75% floor, and requires monthly interest-only payments through December 2023 and subsequently, monthly payments of interest and principal of $0.1 million through its maturity date. Additionally, the Home2 Suites – Salt lake City Loan provided for a replacement benchmark rate of AMERIBOR plus 3.50%, subject to a floor of 3.75%, in connection with the phase-out of LIBOR after June 30, 2023. The Home2 Suites Salt Lake City Loan is cross-collateralized by the Home2 Suites – Salt Lake City and the Home2 Suites – Tukwila.

 

Principal Maturities

 

The following table sets forth the aggregate estimated contractual principal maturities of the Company’s mortgages payable, including balloon payments due at maturity, as of June 30, 2023:

 

                                                         
    2023     2024     2025     2026     2027     Thereafter     Total  
Principal maturities   $ -     $ 35,229     $ 684     $ 25,410     $ -     $ -     $ 61,323  
                                                         
Less: Deferred financing costs                                                     (402 )
                                                         
Total principal maturities, net                                                   $ 60,921  

 

Certain of the Company’s debt agreements also contain clauses providing for prepayment penalties. As of June 30, 2023, the Company did not meet one of the financial debt covenants with respect to the Revolving Credit Facility (see “Revolving Credit Facility” above). As of June 30, 2023, the Company was in compliance with respect to its remaining financial debt covenants.

v3.23.2
Company’s Stockholder’s Equity
6 Months Ended
Jun. 30, 2023
Equity [Abstract]  
Company’s Stockholder’s Equity

 

6. Company’s Stockholder’s Equity

 

Distributions on Common Shares

 

On May 11, 2023, the Board of Directors authorized and the Company declared a Common Share distribution of $0.075 per share for the quarterly period ending June 30, 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. On July 15, 2023, the distribution for the three-month period ending June 30, 2023 of $1.0 million was paid in cash.

 

On August 14, 2023, the Board of Directors authorized and the Company declared a Common Share distribution of $0.075 per share for the quarterly period ending September 30, 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 will be paid on or about the 15th day of the month following the quarter-end to stockholders of record at the close of business on the last day of the quarter end.

 

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 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 six months ended June 30, 2023, the Company repurchased 86,223 Common Shares at a weighted average price per share of $10.03. For the six months ended June 30, 2022, the Company repurchased 83,226 Common Shares at a weighted average price per share of $8.93.

 

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.

v3.23.2
Related Party Transactions
6 Months Ended
Jun. 30, 2023
Related Party Transactions [Abstract]  
Related Party Transactions

 

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 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. Additionally, the Company’s ability to secure financing and its real estate operations are dependent upon its Advisor and its affiliates to perform such services as provided in these agreements. Amounts the Company owes to the Advisor and its affiliated entities are principally for asset management fees, and are classified as due to related parties on the consolidated balance sheets.

 

The following table represents the fees incurred associated with the payments to the Company’s Advisor for the periods indicated:

 

                       
    For the
Three Months Ended
June 30,
    For the
Six Months Ended
June 30,
 
    2023     2022     2023     2022  
Asset management fees (general and administrative costs)   $ 360     $ 301     $ 677     $ 603  

 

The advisory agreement has a one-year term and is renewable for an unlimited number of successive one-year periods upon the mutual consent of the Advisor and the Company’s independent directors. Payments to the Advisor or its affiliates may include asset acquisition fees and the reimbursement of acquisition-related expenses, development fees and the reimbursement of development-related costs, financing coordination fees, asset management fees or asset management participation, and construction management fees. The Company may also reimburse the Advisor and its affiliates for actual expenses it incurs for administrative and other services provided for it. Upon the liquidation of the Company’s assets, it may pay the Advisor or its affiliates a disposition commission.

 

v3.23.2
Financial Instruments
6 Months Ended
Jun. 30, 2023
Investments, All Other Investments [Abstract]  
Financial Instruments

 

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 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.

v3.23.2
Commitments and Contingencies
6 Months Ended
Jun. 30, 2023
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

 

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 10 years however, the agreements can be cancelled for any reason by the Company after giving 60 days’ notice after the one year anniversary of the commencement of the respective agreement.

 

The Management Agreements provide for the payment of a base management fee equal to 3% to 3.5% of gross revenues, as defined, and an incentive management fee based on the operating results of the hotel, as defined. The base management fee and incentive management fee, if any, are recorded as a component of property operating expenses in the consolidated statements of operations.

 

Franchise Agreements

 

As of June 30, 2023, 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 2.0% to 2.5% of gross room sales. The franchise fee and marketing fund charge are recorded as a component of property operating expenses in the consolidated statements of operations.

 

The franchise agreements are generally for initial terms ranging from 15 years to 20 years, expiring between 2028 and 2034.

 

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 3 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.

v3.23.2
Summary of Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2023
Accounting Policies [Abstract]  
Principles of Consolidation and Basis of Presentation

Principles of Consolidation and Basis of Presentation

 

The consolidated financial statements include the accounts of Lightstone REIT III and the Operating Partnership and its subsidiaries (over which Lightstone REIT III exercises financial and operating control). As of June 30, 2023, Lightstone REIT III had a 99% general partnership interest in the common units of the Operating Partnership. All inter-company balances and transactions have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on applicable accounting principles generally accepted in the United States of America (“GAAP”), and entities deemed to be variable interest entities (“VIE”) in which the Company is the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which the Company has control, substantive participating rights or both under the respective ownership agreement. For entities in which the Company has less than a controlling interest or entities which it is not deemed to be the primary beneficiary, it accounts for the investment using the equity method of accounting.

 

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, 2022. 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.

 

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, 2022 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

Income Taxes

 

The Company has elected to be taxed as a REIT commencing with the taxable year ended December 31, 2009. If the Company qualifies as a REIT, it generally will not be subject to U.S. federal income tax on its taxable income or capital gain that it distributes to its stockholders. To maintain its REIT qualification, the Company must meet a number of organizational and operational requirements, including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify for certain statutory relief provisions, its income for that year will be taxed at the regular corporate rate, and it may be precluded from qualifying for treatment as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to stockholders.

 

To maintain its qualification as a REIT, the Company may engage in certain activities through taxable REIT subsidiaries (“TRSs”). As such, it may be subject to U.S. federal and state income and franchise taxes from these activities.

 

As of June 30, 2023 and December 31, 2022, the Company had no material uncertain income tax positions.

 

Revenues

Revenues

 

The following table represents the total revenues from hotel operations on a disaggregated basis:

 

                               
    For the
Three Months Ended
June 30,
    For the
Six Months Ended
June 30,
 
Revenues   2023     2022     2023     2022  
Room   $ 7,726     $ 7,791     $ 13,856     $ 13,389  
Food, beverage and other     240       195       476       342  
Total revenues   $ 7,966     $ 7,986     $ 14,332     $ 13,731  

 

Gain on Forgiveness of Debt

Gain on Forgiveness of Debt

 

During the three and six months ended June 30, 2022, notice was received from the U.S. Small Business Administration that $0.9 million and $1.1 million, respectively, of the Company’s Paycheck Protection loans and related accrued interest had been legally forgiven and therefore, it recognized a gain on forgiveness of debt for those amounts during the periods.

 

Recently Adopted Accounting Standards

Recently Adopted Accounting Standards

 

In June 2016, the Financial Accounting Standards Board issued an accounting standards update, “Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments,” which changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The updated standard replaces the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. For trade receivables and held to maturity debt securities, entities are required to use a new forward looking expected loss model that generally will result in the earlier recognition of allowances for losses. The Company has adopted this standard noting that it did not have a material impact on the Company’s financial statements or related disclosures.

 

Adverse Developments Affecting the Financial Services Industry and Concentration of Risk

Adverse Developments Affecting the Financial Services Industry and Concentration of Risk

 

As of June 30, 2023 and December 31, 2022, the Company had cash deposited in certain financial institutions in excess of federally insured levels. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk in cash and cash equivalents. However, in March and April 2023, certain U.S. government banking regulators took steps to intervene in the operations of certain financial institutions due to liquidity concerns, which caused general heightened uncertainties in financial markets. While these events have not had a material direct impact on the Company’s operations, if further liquidity and financial stability concerns arise with respect to banks and financial institutions, either nationally or in specific regions, the Company’s ability to access cash or enter into new financing arrangements may be threatened, which could have a material adverse effect on its business, financial condition and results of operations.

 

Current Environment

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.

 

v3.23.2
Summary of Significant Accounting Policies (Tables)
6 Months Ended
Jun. 30, 2023
Accounting Policies [Abstract]  
Schedule of revenues from hotel operations
                               
    For the
Three Months Ended
June 30,
    For the
Six Months Ended
June 30,
 
Revenues   2023     2022     2023     2022  
Room   $ 7,726     $ 7,791     $ 13,856     $ 13,389  
Food, beverage and other     240       195       476       342  
Total revenues   $ 7,966     $ 7,986     $ 14,332     $ 13,731  
v3.23.2
Investments in Unconsolidated Affiliated Real Estate Entities (Tables)
6 Months Ended
Jun. 30, 2023
Restructuring Cost and Reserve [Line Items]  
Schedule of investments in the unconsolidated affiliated real estate
                         
              As of  
Entity   Date of
Ownership
  Ownership %     June 30,
2023
    December 31,
2022
 
LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”)   March 27, 2018   50.00%     $ 9,520     $ 9,604  
Bedford Avenue Holdings LLC (the “Williamsburg Moxy Hotel Joint Venture”)   August 5, 2021   25.00%       11,057       12,151  
Total investments in unconsolidated affiliated real estate entities             $ 20,577     $ 21,755  
Hilton Garden Inn Joint Venture [Member]  
Restructuring Cost and Reserve [Line Items]  
Schedule of condensed statement of operations
                                 
    For the
Three Months Ended
June 30,
2023
    For the
Three Months Ended
June 30,
2022
    For the
Six Months Ended
June 30,
2023
    For the
Six Months Ended
June 30,
2022
 
Revenues   $ 3,115     $ 2,910     $ 5,144     $ 5,078  
                                 
Property operating expenses     1,907       1,518       3,414       2,946  
General and administrative costs     106       6       132       16  
Depreciation and amortization     596       606       1,205       1,226  
Operating income     506       780       393       890  
Interest expense     (825 )     (448 )     (1,451 )     (875 )
Net (loss)/income   $ (319 )   $ 332     $ (1,058 )   $ 15  
Company’s share of net (loss)/income (50.00%)   $ (159 )   $ 166     $ (529 )   $ 8  
Schedule of condensed balance sheet
               
    As of     As of  
    June 30,
2023
    December 31,
2022
 
Investment property, net   $ 49,131     $ 50,254  
Cash     1,042       1,231  
Other assets     1,677       1,276  
Total assets   $ 51,850     $ 52,761  
                 
Mortgage payable, net   $ 32,231     $ 32,233  
Other liabilities     1,178       1,920  
Members’ capital     18,441       18,608  
Total liabilities and members’ capital   $ 51,850     $ 52,761  
Williamsburg Moxy Hotel Joint Venture [Member]  
Restructuring Cost and Reserve [Line Items]  
Schedule of investments in the unconsolidated affiliated real estate
                                 
    For the
Three Months Ended
June 30,
2023
    For the
Three Months Ended
June 30,
2022
    For the
Six Months Ended
June 30,
2023
    For the
Six Months Ended
June 30,
2022
 
Revenues   $ 7,106     $ -     $ 8,059     $ -  
                                 
Property operating expenses     5,905       -       7,245       -  
Pre-opening costs     493       357       2,228       419  
General and administrative costs     47       7       79       7  
Depreciation and amortization     869       -       1,140       -  
Operating loss     (208 )     (364 )     (2,633 )     (426 )
Interest expense     (3,162 )     -       (3,970 )     -  
Net loss   $ (3,370 )   $ (364 )   $ (6,603 )   $ (426 )
Company’s share of net loss (25.00%)   $ (843 )   $ (91 )   $ (1,651 )   $ (107 )
Schedule of condensed balance sheet
               
    As of     As of  
    June 30,
2023
    December 31,
2022
 
Investment property, net   $ 123,859     $ 114,615  
Cash     1,630       752  
Other assets     3,285       2,346  
Total assets   $ 128,774     $ 117,713  
                 
Mortgage payable, net   $ 77,403     $ 63,631  
Other liabilities     7,731       6,064  
Members’ capital     43,640       48,018  
Total liabilities and members’ capital   $ 128,774     $ 117,713  
v3.23.2
Marketable Securities and Fair Value Measurements (Tables)
6 Months Ended
Jun. 30, 2023
Investments, Debt and Equity Securities [Abstract]  
Schedule of available-for-sale securities reconciliation
                               
    As of June 30, 2023  
    Adjusted
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Fair
Value
 
Marketable Securities:                                
Equity securities:                                
Preferred Equity Securities   $ 4,417     $ 2     $ (47 )   $ 4,372  
Mutual Funds     4,416       -       -       4,416  
      8,833       2       (47 )     8,788  
Debt securities:                                
Corporate Bonds     746       -       (226 )     520  
Total   $ 9,579     $ 2     $ (273 )   $ 9,308  

 

    As of December 31, 2022  
    Adjusted
Cost
    Gross
Unrealized
Gains
    Gross
Unrealized
Losses
    Fair
Value
 
Marketable Securities:                                
Equity securities:                                
Preferred Equity Securities   $ 961     $ -     $ (45 )   $ 916  
Mutual Funds     222       -       (5 )     217  
      1,183       -       (50 )     1,133  
Debt securities:                                
Corporate Bonds     746       -       (263 )     483  
United States Treasury Bills     1,685       13       -       1,698  
      2,431       13       (263 )     2,181  
Total   $ 3,614     $ 13     $ (313 )   $ 3,314  
Schedule of available-for-sale securities
       
    As of
June 30,
2023
 
Due in 1 year   $ -  
Due in 1 year through 5 years     -  
Due in 5 year through 10 years     -  
Due after 10 years     520  
Total   $ 520  
v3.23.2
Mortgages payable, net (Tables)
6 Months Ended
Jun. 30, 2023
Debt Disclosure [Abstract]  
Schedule of mortgages payable, net
                                     
        Weighted
Average
Interest Rate
               
Description   Interest
Rate
  for the
Six Months Ended
June 30,
2023
  Maturity
Date
  Amount
Due at
Maturity
    As of
June 30,
2023
    As of
December 31,
2022
 
Revolving Credit Facility   AMERIBOR + 3.15%
(floor of 4.00%)
  7.87%   July 2024   $ 34,573     $ 34,573     $ 34,573  
                                     
Home2 Suites Tukwila Loan   LIBOR + 3.50%
(floor of 3.75%)
  8.40%   December 2026     15,006       16,210       16,210  
                                     
Home2 Suites Salt Lake City Loan   LIBOR + 3.50%
(floor of 3.75%)
  8.40%   December 2026     9,757       10,540       10,540  
                                     
Total mortgages payable       8.10%       $ 59,336       61,323       61,323  
                                     
Less: Deferred financing costs                         (402 )     (509 )
                                     
Total mortgage payable, net                       $ 60,921     $ 60,814  
Schedule of principal maturities
                                                         
    2023     2024     2025     2026     2027     Thereafter     Total  
Principal maturities   $ -     $ 35,229     $ 684     $ 25,410     $ -     $ -     $ 61,323  
                                                         
Less: Deferred financing costs                                                     (402 )
                                                         
Total principal maturities, net                                                   $ 60,921  
v3.23.2
Related Party Transactions (Tables)
6 Months Ended
Jun. 30, 2023
Related Party Transactions [Abstract]  
Schedule of fees payments to company's advisor
                       
    For the
Three Months Ended
June 30,
    For the
Six Months Ended
June 30,
 
    2023     2022     2023     2022  
Asset management fees (general and administrative costs)   $ 360     $ 301     $ 677     $ 603  
v3.23.2
Business and Structure (Details Narrative) - USD ($)
$ / shares in Units, $ in Thousands
1 Months Ended 6 Months Ended
Dec. 11, 2014
Jul. 16, 2014
Dec. 24, 2012
Jun. 30, 2023
Dec. 31, 2022
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]          
Common stock, shares, issued       13,000,000.0 13,000,000.0
Lichtenstein [Member]          
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]          
Common stock, shares, issued 222,222        
Lightstone Value Plus REIT III LLC [Member]          
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]          
Issuance of common shares, shares     20,000    
Issuance of common shares, value     $ 200    
Shares issued, price per share     $ 10.00    
Company Owned By David Lichtenstein [Member]          
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]          
Shares reserved for issuance, price per share $ 9.00        
General Partner [Member]          
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]          
Contribution from advisor   $ 2      
Number of limited partner units issued to advisor $ 2,000        
Limited Partner [Member]          
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]          
Partners' capital account, units, contributed       242  
Partners' capital account, contributions       $ 12,100  
Lightstone REIT III [Member]          
Consolidation, Less than Wholly Owned Subsidiary, Parent Ownership Interest, Effects of Changes, Net [Line Items]          
General partner ownership interest       99.00%  
v3.23.2
Summary of Significant Accounting Policies (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Product Information [Line Items]        
Total revenues $ 7,966 $ 7,986 $ 14,332 $ 13,731
Room [Member]        
Product Information [Line Items]        
Total revenues 7,726 7,791 13,856 13,389
Food and Beverage [Member]        
Product Information [Line Items]        
Total revenues $ 240 $ 195 $ 476 $ 342
v3.23.2
Summary of Significant Accounting Policies (Details Narrative) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Dec. 31, 2022
Uncertain income tax positions   $ 0   $ 0
Proceed from loans $ 900   $ 1,100  
Lightstone REIT III [Member]        
General partnership interest   99.00%    
v3.23.2
Investments in Unconsolidated Affiliated Real Estate Entities (Details) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2023
Dec. 31, 2022
Schedule of Equity Method Investments [Line Items]    
Total investments in unconsolidated affiliated real estate entities $ 20,577 $ 21,755
LVP LIC Hotel JV LLC [Member]    
Schedule of Equity Method Investments [Line Items]    
Date of ownership Mar. 27, 2018  
Ownership Percentage 50.00%  
Total investments in unconsolidated affiliated real estate entities $ 9,520 9,604
Bedford Avenue Holdings LLC [Member]    
Schedule of Equity Method Investments [Line Items]    
Date of ownership Aug. 05, 2021  
Ownership Percentage 25.00%  
Total investments in unconsolidated affiliated real estate entities $ 11,057 $ 12,151
v3.23.2
Investments in Unconsolidated Affiliated Real Estate Entities (Details 1) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Restructuring Cost and Reserve [Line Items]        
Revenues $ 7,966 $ 7,986 $ 14,332 $ 13,731
Net (loss)/income 1,283 (1,302) 3,990 (310)
Hilton Garden Inn Joint Venture [Member]        
Restructuring Cost and Reserve [Line Items]        
Revenues 3,115 2,910 5,144 5,078
Property operating expenses 1,907 1,518 3,414 2,946
General and administrative costs 106 6 132 16
Depreciation and amortization 596 606 1,205 1,226
Operating income (506) (780) (393) (890)
Interest expense (825) (448) (1,451) (875)
Net (loss)/income (319) 332 (1,058) 15
Company’s share of net (loss)/income (50.00%) $ (159) $ 166 $ (529) $ 8
v3.23.2
Investments in Unconsolidated Affiliated Real Estate Entities (Details 2) - Hilton Garden Inn Joint Venture [Member] - USD ($)
$ in Thousands
Jun. 30, 2023
Dec. 31, 2022
Restructuring Cost and Reserve [Line Items]    
Investment property, net $ 49,131 $ 50,254
Cash 1,042 1,231
Other assets 1,677 1,276
Total assets 51,850 52,761
Mortgage payable, net 32,231 32,233
Other liabilities 1,178 1,920
Members’ capital 18,441 18,608
Total liabilities and members’ capital $ 51,850 $ 52,761
v3.23.2
Investments in Unconsolidated Affiliated Real Estate Entities (Details 3) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Restructuring Cost and Reserve [Line Items]        
Revenues $ 7,966 $ 7,986 $ 14,332 $ 13,731
Pre-opening costs 500   2,200  
Depreciation and amortization 1,114 1,214 2,294 2,482
Net loss 1,283 (1,302) 3,990 (310)
Williamsburg Moxy Hotel Joint Venture [Member]        
Restructuring Cost and Reserve [Line Items]        
Revenues 7,106 8,059
Property operating expenses 5,905 7,245
Pre-opening costs 493 357 2,228 419
General and administrative costs 47 7 79 7
Depreciation and amortization 869 1,140
Operating loss (208) (364) (2,633) (426)
Interest expense (3,162) (3,970)
Net loss (3,370) (364) (6,603) (426)
Company’s share of net loss (25.00%) $ (843) $ (91) $ (1,651) $ (107)
v3.23.2
Investments in Unconsolidated Affiliated Real Estate Entities (Details 4) - Williamsburg Moxy Hotel Joint Venture [Member] - USD ($)
$ in Thousands
Jun. 30, 2023
Dec. 31, 2022
Restructuring Cost and Reserve [Line Items]    
Investment property, net $ 123,859 $ 114,615
Cash 1,630 752
Other assets 3,285 2,346
Total assets 128,774 117,713
Mortgage payable, net 77,403 63,631
Other liabilities 7,731 6,064
Members’ capital 43,640 48,018
Total liabilities and members’ capital $ 128,774 $ 117,713
v3.23.2
Investments in Unconsolidated Affiliated Real Estate Entities (Details Narrative) - USD ($)
$ in Thousands
1 Months Ended 3 Months Ended 6 Months Ended
Aug. 05, 2021
Mar. 27, 2018
Mar. 27, 2018
Jun. 30, 2023
Jun. 30, 2023
Sep. 30, 2020
Dec. 31, 2022
Restructuring Cost and Reserve [Line Items]              
Pre-opening costs       $ 500 $ 2,200    
Accrued loan fees and expenses       $ 3,700 $ 3,700   $ 800
LIBOR [Member]              
Restructuring Cost and Reserve [Line Items]              
Interest rate       5.22% 5.22%   4.39%
Williamsburg Moxy Hotel [Member]              
Restructuring Cost and Reserve [Line Items]              
Aggregate consideration amount $ 7,900            
Additional paid in capital $ 5,300       $ 600    
Moxy Construction Loan [Member]              
Restructuring Cost and Reserve [Line Items]              
Debt instrument, interest rate, basis for effective rate LIBOR plus 9.00%, subject to a 9.50% floor            
Outstanding principal amount $ 77,000     $ 78,400 $ 78,400   $ 65,600
Interest rate       14.22% 14.22%    
Amount after interest capitalized       $ 4 $ 4   1,700
Deferred financing fees       1,000 1,000   $ 2,000
Remaining balance       $ 2,600 $ 2,600    
Hilton Garden Inn [Member]              
Restructuring Cost and Reserve [Line Items]              
Aggregate purchase price     $ 60,000        
Acquisition cash     25,000        
Proceeds from issuance of debt     35,000        
Offering funds used in acquisition     $ 12,900        
Debt instrument, interest rate, basis for effective rate     LIBOR plus 3.15%, subject to a 5.03% floor        
Proceeds from mortgage           $ 900  
Membership interest   50.00% 50.00%        
Membership intersts       50.00% 50.00%    
Aggregate amount         $ 3,200    
Aggregate distributions recieved       $ 4,000 $ 4,000    
Hilton Garden Inn [Member] | Reportable Legal Entities [Member]              
Restructuring Cost and Reserve [Line Items]              
Business acquisition percent age of voting interest acquired   50.00%          
v3.23.2
Marketable Securities and Fair Value Measurements (Details) - USD ($)
$ in Thousands
6 Months Ended 12 Months Ended
Jun. 30, 2023
Dec. 31, 2022
Marketable Securities [Line Items]    
Debt securities, Adjusted Cost   $ 2,431
Debt securities, Gross Unrealized Gains   13
Debt securities, Gross Unrealized Losses   (263)
Debt securities, Fair Value   2,181
Total, Adjusted Cost $ 9,579 3,614
Total, Gross Unrealized Gains 2 13
Total, Gross Unrealized Losses (273) (313)
Total, Fair Value 9,308 3,314
Equity Securities [Member]    
Marketable Securities [Line Items]    
Equity securities, Adjusted Cost 8,833 1,183
Equity securities, Gross Unrealized Gains 2
Equity securities, Gross Unrealized Losses (47) (50)
Equity securities, Fair Value 8,788 1,133
Preferred Equity Securities [Member]    
Marketable Securities [Line Items]    
Equity securities, Adjusted Cost 4,417 961
Equity securities, Gross Unrealized Gains 2
Equity securities, Gross Unrealized Losses (47) (45)
Equity securities, Fair Value 4,372 916
Mutual Fund [Member]    
Marketable Securities [Line Items]    
Equity securities, Adjusted Cost 4,416 222
Equity securities, Gross Unrealized Gains
Equity securities, Gross Unrealized Losses (5)
Equity securities, Fair Value 4,416 217
Corporate Bonds [Member]    
Marketable Securities [Line Items]    
Debt securities, Adjusted Cost 746 746
Debt securities, Gross Unrealized Gains
Debt securities, Gross Unrealized Losses (226) (263)
Debt securities, Fair Value $ 520 483
US Treasury Bill Securities [Member]    
Marketable Securities [Line Items]    
Debt securities, Adjusted Cost   1,685
Debt securities, Gross Unrealized Gains   13
Debt securities, Gross Unrealized Losses  
Debt securities, Fair Value   $ 1,698
v3.23.2
Marketable Securities and Fair Value Measurements (Details 1)
$ in Thousands
Jun. 30, 2023
USD ($)
Investments, Debt and Equity Securities [Abstract]  
Due in 1 year
Due in 1 year through 5 years
Due in 5 year through 10 years
Due after 10 years 520
Total $ 520
v3.23.2
Mortgages payable, net (Details) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2023
Dec. 31, 2022
Line of Credit Facility [Line Items]    
Weighted Average Interest Rate 8.10%  
Amount Due at Maturity $ 59,336  
Total mortgages payable 61,323 $ 61,323
Less: Deferred financing costs (402) (509)
Total mortgages payable, net $ 60,921 60,814
Revolving Credit Facility [Member]    
Line of Credit Facility [Line Items]    
Interest Rate AMERIBOR + 3.15% (floor of 4.00%)  
Weighted Average Interest Rate 7.87%  
Maturity Date July 2024  
Amount Due at Maturity $ 34,573  
Total mortgages payable $ 34,573 34,573
Home 2 Suites Tukwila Loan [Member]    
Line of Credit Facility [Line Items]    
Interest Rate LIBOR + 3.50% (floor of 3.75%)  
Weighted Average Interest Rate 8.40%  
Maturity Date December 2026  
Amount Due at Maturity $ 15,006  
Total mortgages payable $ 16,210 16,210
Home 2 Suites Salt Lake City Loan [Member]    
Line of Credit Facility [Line Items]    
Interest Rate LIBOR + 3.50% (floor of 3.75%)  
Weighted Average Interest Rate 8.40%  
Maturity Date December 2026  
Amount Due at Maturity $ 9,757  
Total mortgages payable $ 10,540 $ 10,540
v3.23.2
Mortgages payable, net (Details 1) - USD ($)
$ in Thousands
Jun. 30, 2023
Dec. 31, 2022
Debt Disclosure [Abstract]    
2023  
2024 35,229  
2025 684  
2026 25,410  
2027  
Thereafter  
Principal maturities 61,323 $ 61,323
Less: Deferred financing costs (402) (509)
Total mortgages payable, net $ 60,921 $ 60,814
v3.23.2
Mortgages payable, net (Details Narrative) - USD ($)
$ in Thousands
5 Months Ended 6 Months Ended
Dec. 06, 2021
Jun. 13, 2023
Jun. 13, 2022
Jun. 30, 2023
Jun. 30, 2022
Dec. 31, 2022
Mar. 31, 2021
Debt Instrument [Line Items]              
Prinipal paydown       $ 2,300      
Revolving Credit Facility [Member]              
Debt Instrument [Line Items]              
Line of credit facility, maximum borrowing capacity       $ 60,000      
Line of credit facility current borrowing capacity percentage       65.00%      
Principal amount       $ 34,600   $ 34,600 $ 3,800
Cash collateral             $ 700
Cash collateral reserves       $ 1,400      
Home 2 Tukwila Loan [Member]              
Debt Instrument [Line Items]              
Principal amount $ 100            
Non resource loan 19,100            
Closing amount 16,200            
Avaliable amount to be drawn 2,900            
Home 2 Salt Lake City Loan [Member]              
Debt Instrument [Line Items]              
Principal amount 100            
Non resource loan 12,500            
Closing amount 10,500            
Avaliable amount to be drawn $ 2,000            
LIBOR [Member]              
Debt Instrument [Line Items]              
Interest rate       5.22%   4.39%  
LIBOR [Member] | Revolving Credit Facility [Member]              
Debt Instrument [Line Items]              
Spread on variable rate   3.15% 3.15%        
Floor rate   4.00% 4.00%        
LIBOR [Member] | Home 2 Tukwila Loan [Member]              
Debt Instrument [Line Items]              
Spread on variable rate 3.50%            
Floor rate 3.75%            
LIBOR [Member] | Home 2 Salt Lake City Loan [Member]              
Debt Instrument [Line Items]              
Spread on variable rate 3.50%            
Floor rate 3.75%            
AMERIBOR [Member]              
Debt Instrument [Line Items]              
Interest rate       5.17%   4.64%  
AMERIBOR [Member] | Revolving Credit Facility [Member]              
Debt Instrument [Line Items]              
Spread on variable rate         3.15%    
Floor rate         4.00%    
AMERIBOR [Member] | Home 2 Suites Tukwila Loan [Member]              
Debt Instrument [Line Items]              
Spread on variable rate 3.50%            
Floor rate 3.75%            
AMERIBOR [Member] | Home 2 Suites Salt Lake City Loan [Member]              
Debt Instrument [Line Items]              
Spread on variable rate 3.75%            
Floor rate 3.50%            
v3.23.2
Company’s Stockholder’s Equity (Details Narrative) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 6 Months Ended
Sep. 30, 2023
Jun. 30, 2023
Jun. 30, 2022
Subsequent Event [Line Items]      
Common share distribution per share   $ 0.075  
Annual distributions paid per share   $ 0.30  
Annualized Distribution Rate   3.00%  
Share Price   $ 10.00  
Distribution paid in cash   $ 1,000  
Share redemption program, annual limitation, percentage of weighted average shares outstanding   0.50%  
Repurchase of shares   86,223 83,226
Weighted average price per share   $ 10.03 $ 8.93
Subsequent Event [Member]      
Subsequent Event [Line Items]      
Common share distribution per share $ 0.075    
Annual distributions paid per share $ 0.30    
Annualized Distribution Rate 3.00%    
Share Price $ 10.00    
v3.23.2
Related Party Transactions (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Advisor [Member]        
Related Party Transaction [Line Items]        
Asset management fees (general and administrative costs) $ 360 $ 301 $ 677 $ 603
v3.23.2
Commitments and Contingencies (Details Narrative)
6 Months Ended
Jun. 30, 2023
Maximum [Member]  
Loss Contingencies [Line Items]  
Management agreement term 10 years
Property management fee, percent fee 3.50%
Franchise fee percentage 5.50%
Marketing fund charge percent 2.50%
Franchise agreement term 20 years
Minimum [Member]  
Loss Contingencies [Line Items]  
Management agreement term 60 days
Property management fee, percent fee 3.00%
Franchise fee percentage 3.00%
Marketing fund charge percent 2.00%
Franchise agreement term 15 years

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