EDGAR 10-K Filing

Company CIK: 1296884
Filing Year: 2022
Filename: 1296884_10-K_2022_0001829126-22-006631.json

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ITEM 1. BUSINESS
ITEM
1. BUSINESS:
General
Description of Business
Structure
The
Lightstone REIT I is a Maryland corporation, formed on June 8, 2004, which has elected to be taxed, and qualify as a real estate
investment trust for U.S. federal income tax purposes (“REIT”). The Lightstone REIT I was formed primarily for the
purpose of engaging in the business of investing in and owning commercial and residential real estate properties and making other
real estate-related investments located throughout the United States.
The
Lightstone REIT I is structured as an umbrella partnership real estate investment trust, (“UPREIT”), and substantially
all of its current and future business is and will be conducted through Lightstone Value Plus REIT, L.P. (the “Operating
Partnership”), a Delaware limited partnership formed on July 12, 2004. As of December 31, 2021, we held a 98% general partnership
interest in our Operating Partnership’s common units.
The
Lightstone REIT I and the Operating Partnership and its subsidiaries are collectively referred to as the “Company”
and the use of “we,” “our,” “us” or similar pronouns in this annual report refers to the Lightstone
REIT I, 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, residential, and hospitality properties and make real estate-related
investments, principally in the United States. Our real estate investments are held by us alone or jointly with other parties.
We also originate or acquire mortgage loans secured by real estate. Although most of our investments are of these types, we may
invest in whatever types of real estate or real estate-related investments that we believe are in our best interests. Since its
inception, we have owned and managed various commercial and residential properties located throughout the United States. We evaluate
all of our real estate investments as one operating segment.
As
of December 31, 2021, we have ownership interests in (i) two consolidated operating properties, (ii) two consolidated development
properties and (iii) seven unconsolidated operating properties. With respect to our consolidated operating properties, we wholly
own the St. Augustine Outlet Center, a retail property containing 0.3 million square feet of gross leasable area, and have a majority
ownership interest of 59.2% in Gantry Park Landing, a multi-family residential property containing 199 apartment units. With respect
to our consolidated development properties, we wholly own two projects consisting of the Lower East Side Moxy Hotel and the Exterior
Street Project. We also hold a 2.5% ownership interest in seven hotel properties through a joint venture (the “Joint Venture”)
which we account for using a measurement alternative under which the Joint Venture is measured at cost, adjusted for observable
price changes and impairments, if any. The Joint Venture is between us and the operating partnership of Lightstone Value Plus
REIT II, Inc., a REIT also sponsored by our Sponsor, which has a 97.5% ownership interest in the Joint Venture. Furthermore, we
have other real estate-related investments, including preferred contributions that were made pursuant to agreements with various
related party entities (the “Preferred Investments”) and nonrecourse promissory notes made to unaffiliated third-parties.
Our real estate investments have been and are expected to continue to be held by the Company alone or jointly with other parties.
Our
advisor is Lightstone Value Plus REIT, LLC (the “Advisor”), which is majority owned by David Lichtenstein. On July
6, 2004, the Advisor contributed $2,000 to the Operating Partnership in exchange for 200 limited partner common units (“Common
Units”) in the Operating Partnership. Our Advisor also owns 20,000 shares of our common stock (“Common Shares”)
which were issued on July 6, 2004 for $200,000, or $10.00 per share. Mr. Lichtenstein also is the majority owner of the equity
interests of The Lightstone Group, LLC. The Lightstone Group, LLC served as the sponsor (the “Sponsor”) during our
initial public offering (the “Offering”), which terminated on October 10, 2008. Our Advisor, together with our board
of directors (the “Board of Directors”) and pursuant to the terms of an advisory agreement, has the 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, LLC, a Delaware limited liability
company, which owns an aggregate of $30.0 million of special general partner interests (“SLP Units”) in the Operating
Partnership which were purchased, at a cost of $100,000 per unit, in connection with our Offering. Mr. Lichtenstein also acts
as our Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control the Lightstone REIT I
or the Operating Partnership.
We
do not have any employees. The Advisor receives compensation and fees for services related to the investment and management of
our assets.
Our
Advisor has affiliates which may manage and develop certain of our properties. However, we also contract with other unaffiliated
third-party property managers.
Our
Common Shares are not currently listed on a national securities exchange. We may seek to list our stock 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 shares at this time. We do not anticipate that there would be any market for our shares of common
stock until they are listed for trading.
Noncontrolling
Interests
Partners
of Operating Partnership
On
July 6, 2004, the Advisor contributed $2,000 to the Operating Partnership in exchange for 200 Common Units. The Advisor has
the right to convert the Common Units into cash or, at the option of the Company, an equal number of Common Shares.
In
connection with the Offering, Lightstone SLP, LLC, an affiliate of the Advisor, purchased an aggregate of $30.0 million of SLP
Units in the Operating Partnership at a cost of $100,000 per unit. As the majority owner of the SLP Units, Mr. Lichtenstein is
the beneficial owner of a 99% interest in such SLP Units and thus receives an indirect benefit from any distributions made in
respect thereof. These SLP Units may be entitled to a portion of any regular and liquidation distributions that we make to our
stockholders, but only after our stockholders have received a stated preferred return.
In
addition, an aggregate of 497,209 Common Units were issued to other unrelated parties during the years ended December 31,
2008 and 2009 and remain outstanding as of December 31, 2021.
Other
Noncontrolling Interests in Consolidated Subsidiaries
As
of December 31, 2021, the other noncontrolling interests in consolidated subsidiaries include ownership interests in (i) Pro-DFJV
Holdings LLC (“PRO”) held by the Company’s Sponsor, (ii) 50-01 2nd St. Associates LLC (the “2nd Street
Joint Venture”), held by the Company’s Sponsor and other affiliates and (iii) various joint ventures held by
affiliates of our Sponsor that have originated promissory notes to unaffiliated third parties. PRO’s holdings principally
consist of Marco OP Units and Marco II OP Units. The 2nd Street Joint Venture owns Gantry Park Landing.
Related
Party
Our
Advisor and its affiliates, and Lightstone SLP, LLC are related parties of the Company. Certain of these entities are entitled
to compensation for services related to the investment, management and disposition of our assets. The compensation is based on
the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees
and expense reimbursements as outlined in each of the respective agreements.
Primary
Investment Objectives
Our
primary objective is to achieve capital appreciation with a secondary objective of income without subjecting principal to undue
risk.
Acquisition
and Investment Policies
We
have, to date, acquired and/or developed residential, commercial and hospitality properties principally, all of which are located
in the United States and also made other real estate-related investments. Our acquisitions have included both portfolios and individual
properties. Our current operating properties consist of one retail property (the St. Augustine Outlet Center) and one multi-family
residential property (Gantry Park Landing). We have also acquired various parcels of land and air rights related to the development
and construction of real estate properties. Additionally, we have made preferred investments in related parties and originated
nonrecourse loans to unaffiliated third-party borrowers.
We
may acquire the following types of real estate interests:
● Fee
interests in market-rate, middle market multifamily properties at a discount to replacement
cost located either in emerging markets or near major metropolitan areas. We will attempt
to identify those sub-markets with job growth opportunities and demand demographics which
support potential long-term value appreciation for multifamily properties.
● Fee
interests in well-located, multi-tenant, community, power and lifestyle shopping centers
and malls located in highly trafficked retail corridors, in selected high-barrier to
entry markets and submarkets. We will attempt to identify those sub-markets with constraints
on the amount of additional property supply will make future competition less likely.
● Fee
interests in improved, multi-tenant, industrial properties located near major transportation
arteries and distribution corridors with limited management responsibilities.
● Fee
interests in improved, multi-tenant, office properties located near major transportation
arteries in urban and suburban areas.
● Fee
interests in lodging properties located near major transportation arteries in urban and
suburban areas.
All
of the properties are owned by subsidiary limited partnerships or limited liability companies. These subsidiaries are single-purpose
entities that we created to own a single property, and each have no assets other than the property it owns. These entities represent
a useful means of shielding our Operating Partnership from liability under state laws and will make the underlying properties
easier to transfer. However, tax law disregards single-member LLCs and so it will be as if the Operating Partnership owns the
underlying properties for tax purposes. Use of single-purpose entities in this manner is customary for REITs. Our independent
directors are not required to approve all transactions involving the creation of subsidiary limited liability companies and limited
partnerships that we use for investment in properties on our behalf. These subsidiary arrangements are intended to ensure that
no environmental or other liabilities associated with any particular property can be attributed against other properties that
the Operating Partnership or we will own. The limited liability aspect of a subsidiary’s form will shield parent and affiliated
(but not subsidiary) companies, including the Operating Partnership and us, from liability assessed against it. No additional
fees are imposed upon the REIT by the subsidiary companies’ managers and these subsidiaries are not affected our stockholders’
voting rights.
We
have not and do not intend to make significant investments in single family residential properties; leisure home sites; farms;
ranches; timberlands; unimproved properties not intended to be developed; or mining properties.
Not
more than 10% of our total assets may be invested in unimproved real property. For purposes of this paragraph, “unimproved
real properties” does not include properties acquired for the purpose of producing rental or other operating income, properties
under construction and properties for which development or construction is planned within one year. Additionally, we do not invest
in contracts for the sale of real estate unless in recordable form and appropriately recorded.
Although
we are not limited as to the geographic area where we may conduct our operations, we have invested and may continue to invest
in properties located near the existing operations of our Sponsor, in order to achieve economies of scale where possible.
Financing
Strategy and Policies
We
utilize leverage when acquiring and developing our properties. The number of different properties we acquire are affected by numerous
factors, including, the amount of funds available to us. When interest rates on loans are high or financing is otherwise unavailable
on terms that are satisfactory to us, we may purchase certain properties for cash with the intention of obtaining a loan for a
portion of the purchase price or development costs at a later time. However, 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.
Our
charter provides that the aggregate amount of borrowing, both secured and unsecured, may not exceed 300% of net assets in the
absence of a satisfactory showing that a higher level is appropriate, the approval of the Board of Directors and disclosure to
stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash
reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over
such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in
our next quarterly report to stockholders, along with justification for such excess. As of December 31, 2021, our total borrowings
represented 59% of net assets.
We
have financed our property acquisitions and development activities through a variety of means, including but not limited to individual
non-recourse mortgages and through the exchange of an interest in the property for limited partnership units of the Operating
Partnership. Generally, though not exclusively, we intend to seek to finance our investments with debt which will be on a non-recourse
basis. However, we may, secure recourse financing or provide a guarantee to lenders, if we believe this may result in more favorable
terms.
Tax
Status
We
elected to be taxed and qualify as a REIT, commencing with the taxable year ended December 31, 2005. If we remain qualified as
a REIT, we generally will not be subject to U.S. federal income tax on our net taxable income that we distribute currently to
our stockholders. To maintain our REIT qualification under the Internal Revenue Code of 1986, as amended, or the Code, we must
meet a number of organizational and operational requirements, including a requirement that we annually distribute to our stockholders
at least 90% of our REIT taxable income (which does not equal net income, as calculated in accordance with generally accepted
accounting principles in the United States of America, or GAAP), determined without regard to the deduction for dividends paid
and excluding any net capital gain. If we fail to remain qualified for taxation as a REIT in any subsequent year and do not qualify
for certain statutory relief provisions, our income for that year will be taxed at regular corporate rates, and we may be precluded
from qualifying for treatment as a REIT for the four-year period following our failure to qualify as a REIT. Such an event could
materially adversely affect our net income and net cash available for distribution to our stockholders. Additionally, even if
we qualify as a REIT for U.S. federal income tax purposes, we may still be subject to some U.S. federal, state and local taxes
on our income and property and to U.S. federal income taxes and excise taxes on our undistributed income.
To
maintain our qualification as a REIT, we engage in certain activities such as providing real estate-related services through wholly-owned
taxable REIT subsidiaries (“TRSs”). As such, we are subject to U.S. federal and state income and franchise taxes from
these activities.
As
of December 31, 2021 and 2020, we had no material uncertain income tax positions. Additionally, even if we continue to qualify
as a REIT for U.S. federal income tax purposes, we may still be subject to some U.S. federal, state and local taxes on our income
and property and to U.S. federal income taxes and excise taxes on our undistributed income, if any.
Competition
The
commercial, multifamily residential and hospitality real estate markets are highly competitive. We compete in markets with other
owners and operators of such properties. The development of new properties intensifies the competition among owners and operators
of these types of real estate in many market areas in which we either operate or intend to operate. We compete based on a number
of factors that include location, rental rates, security, suitability of the property’s design to prospective tenants’
needs and the manner in which the property is operated and marketed. The number of competing properties in a particular market
could have a material effect on our occupancy levels, rental rates and on the operating expenses of certain of our properties.
In
addition, we compete with other entities engaged in real estate investment activities to locate suitable properties to acquire
and/or develop and also to locate tenants and purchasers for our properties. These competitors include other REITs, specialty
finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors,
investment banking firms, lenders, governmental bodies and other entities. There also may be other REITs with asset acquisition
objectives similar to ours that may be organized in the future. Some of these competitors, including larger REITs, have substantially
greater marketing and financial resources than we have and generally may be able to accept more risk than we can prudently manage,
including risks with respect to the creditworthiness of tenants. In addition, these same entities seek financing through similar
channels to those sought by us. Therefore, we compete for institutional investors in a market where funds for real estate investment
may decrease.
Competition
from these and other third party real estate investors may limit the number of suitable investment opportunities available to
us. It may also result in higher prices, lower yields and a narrower spread of yields over our borrowing costs, making it more
difficult for us to acquire new investments on attractive terms.
We
believe that our Sponsor’s experience, coupled with our financing, professionalism, diversity of investments and reputation
in the industry enable us to compete with the other real estate investment companies.
Because
we are organized as an UPREIT, we believe we are well positioned within the industries in which we operate to offer existing property
owners the potential opportunity to contribute their properties to us in tax-deferred transactions using our operating partnership
units as transactional currency. As a result, we may have a competitive advantage over certain of our competitors that are structured
as traditional REITs and non-REITs in pursuing acquisitions with tax-sensitive sellers.
COVID-19
Pandemic
The
World Health Organization declared COVID-19 a global pandemic on March 11, 2020 and since that time many of the previously imposed
restrictions and other measures which were instituted in response have been subsequently reduced or lifted. However, the COVID-19
pandemic remains highly unpredictable and dynamic and its duration and extent continue to be dependent on various developments,
such as the emergence of variants to the virus that may cause additional strains of COVID-19, the administration and ultimate
effectiveness of vaccines, and the eventual timeline to achieve a sufficient level of herd immunity among the general population.
Accordingly, the COVID-19 pandemic may continue to have negative effects on the health of the U.S. economy for the foreseeable
future.
As
a result of previously imposed restrictions, we temporarily closed our St. Augustine Outlet Center from March 20, 2020 through
May 7, 2020. During the COVID-19 pandemic, the property’s occupancy declined and because of limited leasing success, we
began exploring various strategic alternatives for our St. Augustine Outlet Center and as a result determined during the third
quarter of 2021 that we would no longer pursue leasing of space to tenants and therefore, entered into lease termination agreements
with certain tenants and also provided notice to our other tenants that we would not renew their leases at scheduled expiration.
As a result of this change in leasing strategy and resulting decrease in the fair value of the St. Augustine Outlet Center, we
recorded a non-cash impairment charge of $11.3 million during the third quarter of 2021. See Note 8 of the Notes to Consolidated
Financial Statements for additional information.
Additionally,
as a result of the COVID-19 pandemic, during 2020 we saw deterioration in both the occupancy and rental rates for Gantry Park
Landing, which is located on Long Island, New York, as the luxury rental market in the greater New York City metropolitan area
was negatively impacted. However, both occupancy and rental rates have improved considerably throughout 2021 and have returned
to pre-COVID-19 levels.
To-date,
the COVID-19 pandemic has not had any significant impact on our development projects. Furthermore, our other real estate-related
investments (both our preferred investments in related parties and nonrecourse loans made to unaffiliated third-party borrowers)
also relate to various development projects which are at different stages in their respective development process. These investments,
which are subject to similar restrictions and other measures, have also not yet been significantly impacted by the COVID-19 pandemic.
The
overall extent to which our business may be affected by the ongoing COVID-19 pandemic will largely depend on both current and
future developments, all of which are highly uncertain and cannot be reasonably predicted.
If
our operating properties, development projects and real estate-related investments are negatively impacted for an extended period
because (i) occupancy levels and rental rates further decline, (ii) tenants are unable to pay their rent, (iii) borrowers are
unable to pay scheduled debt service on notes receivable, (iv) development activities are delayed and/or (v) various related party
entities are unable to pay monthly preferred distributions on our preferred investments in related parties, our business and financial
results could be materially and adversely impacted.
Environmental
As
an owner of real estate, we are subject to various environmental laws of federal, state and local governments. Compliance with
existing laws has not had a material adverse effect on our financial condition or results of operations, and management does not
believe it will have such an impact in the future. However, we cannot predict the impact of unforeseen environmental contingencies
or new or changed laws or regulations on properties in which we hold an interest, or on properties that may be acquired or developed
in the future.
Employees
We
do not have employees. We entered into an advisory agreement with our Advisor on April 22, 2005, pursuant to which our Advisor
supervises and manages our day-to-day operations and selects our real estate and real estate related investments, subject to oversight
by the Board of Directors. We pay our Advisor fees for services related to the investment and management of our assets, and we
reimburse our Advisor for certain expenses incurred on our behalf.
Available
Information
We
electronically file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments
to those reports, and proxy statements, with the United States Securities and Exchange Commission (the “SEC”). Stockholders
may obtain copies of our filings with the SEC, free of charge, from the website maintained by the SEC at http://www.sec.gov, or
at the SEC’s Public Reference Room at 100 F. Street, N.E., Washington, D.C. 20549. The public may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our office is located at 1985 Cedar Bridge Avenue,
Lakewood, NJ 08701. Our telephone number is (732) 367-0129. Our website is www.lightstonecapitalmarkets.com.

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ITEM 1A. RISK FACTORS

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM
1B. UNRESOLVED STAFF COMMENTS:
None
applicable.

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ITEM 2. PROPERTIES
ITEM
2. PROPERTIES:
Operating
Properties
St.
Augustine Outlet Center
We
wholly own the St. Augustine Outlet Center, a retail property containing 0.3 million square feet of gross leasable area located
in St. Augustine, Florida. The St. Augustine Outlet Center was built in 1998 and subsequently acquired by us in 2006 and renovated
and expanded in 2008. During the COVID-19 pandemic, the property’s occupancy declined and because of limited leasing success,
we began exploring various strategic alternatives for our St. Augustine Outlet Center and as a result determined during the third
quarter of 2021 that we would no longer pursue leasing of space to tenants and therefore, entered into lease termination agreements
with certain tenants and also provided notice to our other tenants that we would not renew their leases at scheduled expiration.
As of December 31, 2021, the property was 67% occupied. However, because of the aforementioned lease terminations and scheduled
expirations, substantially all of the tenants vacated during January 2022. See Note 8 of the Notes to the Consolidated Financial
Statements for additional information.
Gantry
Park Landing
We
have a 59.2% membership interest in a joint venture which developed, constructed and owns Gantry Park Landing, a multi-family
apartment building located in Queens, New York. The following table contains certain information for Gantry Park Landing as of
December 31, 2021.
Location Year
Built Leaseable
Units Percentage
Occupied
as of
December 31,
Annualized
Revenues
based on rents at
December 31,
Annualized
Revenues
per unit at
December 31,
Gantry
Park Landing (Multi-Family Apartment Building) Queens, New York 99.0 % $ 9.5 million $ 48,265
Annualized
revenue is defined as the minimum monthly payments due as of December 31, 2021 annualized.
Development
Properties
Lower
East Side Moxy Hotel
On
December 3, 2018, we acquired three adjacent parcels of land located at 147-151 Bowery, New York, New York on which we are developing
a 296-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”), which is currently under construction and expected
to open during the fourth quarter of 2022.
Exterior
Street Project
On
February 27, 2019, we, initially acquired two adjacent parcels of land located at 355 and 399 Exterior Street, New York, New York
and subsequently acquired an additional adjacent parcel in September 2021 on which we are currently developing a multi-family
residential property (the “Exterior Street Project”).
The
following is a summary of the amounts incurred and capitalized to construction in progress for our development projects as of
December 31, 2021 (dollars in thousands):
Development
Project
Lower
East Side Moxy Hotel $ 146,747
Exterior
Street Project 87,467
Total $ 234,214

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ITEM 3. LEGAL PROCEEDINGS
ITEM
3. LEGAL PROCEEDINGS:
From
time to time in the ordinary course of business, we may become subject to legal proceedings, claims or disputes.
As
of the date hereof, we are not a party to any material pending legal proceedings of which the outcome is probable or reasonably
possible to have a material adverse effect on our results of operations or financial condition, which would require accrual or
disclosure of the contingency and possible range of loss.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
PART II.

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES:
Shareholder
Information
As
of March 15, 2022, we had 22.1 million common shares outstanding, held by a total of 5,963 stockholders. The number of stockholders
is based on the records of DST Systems Inc., which serves as our registrar and transfer agent.
Market
Information
The
Company’s common stock is not currently listed on a national securities exchange. The Company may seek to list its common
stock for trading on a national securities exchange only if a majority of its independent directors believe listing would be in
the best interest of its stockholders. The Company does not intend to list its shares at this time. The Company does not anticipate
that there would be any market for its shares of common stock until they are listed for trading.
Estimated
Net Asset Value (“NAV”) and NAV per Share of Common Stock (“NAV per Share”)
On
December 16, 2021, our board of directors determined and approved our estimated NAV of $313.8 million and resulting estimated
NAV per Share of $11.75, after allocations of value to special general partner interests, or SLP Units, in our Operating Partnership,
held by Lightstone SLP, LLC, an affiliate of our Advisor, assuming a liquidation event, both as of September 30, 2021. From our
inception through the termination of our initial public offering on October 10, 2008, Lightstone SLP, LLC, an affiliate of our
Advisor, contributed cash of $30.0 million in exchange for 300 SLP Units, at a cost of $100,000 per unit.
The
estimated NAV of our shares was calculated as of a particular point in time. The estimated NAV of our shares will fluctuate over
time in response to developments related to individual assets in the portfolio and the management of those assets and in response
to the real estate and finance markets. There is no assurance of the extent to which the current estimated valuation should be
relied upon for any purpose after its effective date regardless that it may be published on any statement issued by us or otherwise.
Process
and Methodology
Our
Advisor, along with any necessary material assistance or confirmation of a third-party valuation expert or service, is responsible
for calculating our estimated NAV and resulting NAV per Share, which we currently expect will be done on an annual basis unless
our Common Shares are approved for listing on a national securities exchange. Our board of directors will review and approve each
estimate of NAV and resulting NAV per Share.
Our
estimated NAV and resulting NAV per Share as of September 30, 2021 were calculated with the assistance of both our Advisor and
Robert A. Stanger & Co, Inc. (“Stanger”), an independent third-party valuation firm engaged by us to assist with
the valuation of our assets, liabilities and any allocations of value to SLP Units. Our Advisor recommended and our board of directors
established the estimated NAV per Share as of September 30, 2021 based upon the analysis and reports provided by our Advisor and
Stanger. The process for estimating the value of our assets, liabilities and allocations of value to SLP Units, is performed in
accordance with the provisions of the Investment Program Association Practice Guideline 2013-01, “Valuations of Publicly
Registered Non-Listed REITs.” We believe that our valuations were developed in a manner reasonably designed to ensure their
reliability.
The
engagement of Stanger with respect to our estimated NAV and resulting NAV per Share as of September 30, 2021 was approved by our
board of directors, including all of our independent directors. Stanger has extensive experience in conducting asset valuations,
including valuations of commercial real estate, debt, properties and real estate-related investments.
With
respect to our estimated NAV and resulting NAV per Share as of September 30, 2021, Stanger prepared appraisal reports (the “Stanger
Appraisal Reports”), summarizing key inputs and assumptions, for three of our properties (the “Stanger Appraised Properties”),
all of which we wholly own and consolidate, consisting of (i) the St. Augustine Outlet Center and (ii) the Lower East Side Moxy
Hotel and the Exterior Street Project (collectively, the “Development Properties”).
Stanger
also prepared a NAV report (the “September 2021 NAV Report”) which estimates our NAV per Share as of September 30,
2021. The September 2021 NAV Report relied upon (i) the Stanger Appraisal Reports for the Stanger Appraised Properties, (ii) an
appraisal report prepared by another independent third-party valuation firm for Gantry Park Landing, our 59.2% majority-owned
and consolidated multi-family residential property, (iii) Stanger’s estimated value of our outstanding indebtedness, (iv)
our Advisor’s value opinion with respect to our 2.5% non-managing ownership interest in an unconsolidated joint venture
(the “Joint Venture”), assuming a liquidation pursuant to the terms of the Joint Venture’s operating agreement,
and our other investments in related parties, (v) Stanger’s estimate of the allocation of value to the SLP Units, and (vi)
our Advisor’s estimate of the value of our cash and cash equivalents, marketable securities, restricted escrows, other assets,
other liabilities and other non-controlling interests, to calculate estimated NAV per Share, all as of September 30, 2021.
The
table below sets forth the calculation of our estimated NAV and resulting NAV per Share as of September 30, 2021, as well as the
comparable calculation as of September 30, 2020. Certain amounts are reflected net of noncontrolling interests, as applicable.
Dollar and share amounts are presented in thousands, except per share data.
As
of
September 30,
As
of
September 30,
Value Per
Share Value Per
Share
Net
Assets:
Real
Estate Properties $ 329,755 $ 14.53 $ 287,124 $ 12.60
Non-Real
Estate Assets:
Cash
and cash equivalents 32,245
56,521
Investments
in related parties 15,541
15,657
Marketable
securities, available for sale 53,071
36,192
Restricted
escrows 1,601
2,419
Notes
receivable, net 32,468
51,258
Other
assets 1,840
1,337
Total
non-real estate assets 136,766 6.02 163,384 7.17
Total
Assets 466,521 20.55 450,508 19.77
Liabilities:
Mortgage
notes payable (131,811 )
(140,441 )
Notes
payable -
-
Other
liabilities (20,268 )
(13,282 )
Total
liabilities (152,079 ) (6.70 ) (153,723 ) (6.75 )
Other
noncontrolling interests (617 ) (0.03 ) (617 ) (0.02 )
Net
Asset Value before Allocations to SLP Units 313,825 13.82 296,168 13.00
Allocations
to SLP Units (47,040 ) (2.07 ) (41,499 ) (1.82 )
Net
Asset Value $ 266,785 $ 11.75 $ 254,669 $ 11.18
Shares
of Common Stock Outstanding(1) 22,702
22,784
Note:
(1) Includes
0.5 million shares of our common stock assuming the conversion of an equal number of common units of limited partnership interest
in our Operating Partnership (“common units”).
Use
of Independent Valuation Firm:
As
discussed above, our Advisor is responsible for calculating our NAV. In connection with determining our NAV, our Advisor may rely
on the material assistance or confirmation of a third-party valuation expert or service. In this regard, Stanger was selected
by our board of directors to assist our Advisor in the calculation of our estimated NAV and resulting NAV per Share as of September
30, 2021. Stanger’s service included appraising the Stanger Appraised Properties and preparing the September 2021 NAV Report.
Stanger is engaged in the business of appraising commercial real estate properties and is not affiliated with us or our Advisor.
The compensation we paid to Stanger was based on the scope of work and not on the appraised values of our real estate properties.
The appraisals were performed in accordance with the Code of Ethics and the Uniform Standards of Professional Appraisal Practice,
or USPAP, the real estate appraisal industry standards created by The Appraisal Foundation. The Stanger Appraisal Reports were
reviewed, approved, and signed by an individual with the professional designation of MAI licensed in the state where each real
property is located. The use of the reports is subject to the requirements of the Appraisal Institute relating to review by its
duly authorized representatives. In preparing its reports, Stanger did not, and was not requested to; solicit third-party indications
of interest for our common stock in connection with possible purchases thereof or the acquisition of all or any part of us.
Stanger
collected reasonably available material information that it deemed relevant in appraising our real estate properties. Stanger
relied in part on property-level information provided by our Advisor, including (i) property historical and projected operating
revenues and expenses; (ii) property lease agreements and/or lease abstracts; and (iii) information regarding recent or planned
capital expenditures.
In
conducting their investigation and analyses, Stanger took into account customary and accepted financial and commercial procedures
and considerations as they deemed relevant. Although Stanger reviewed information supplied or otherwise made available by us or
the Advisor for reasonableness, they assumed and relied upon the accuracy and completeness of all such information and of all
information supplied or otherwise made available to them by any other party and did not independently verify any such information.
Stanger has assumed that any operating or financial forecasts and other information and data provided to or otherwise reviewed
by or discussed with Stanger were reasonably prepared in good faith on bases reflecting the best currently available estimates
and judgments of our management, our board of directors, and/or our Advisor. Stanger relied on us to advise them promptly if any
information previously provided became inaccurate or was required to be updated during the period of their review.
In
performing its analyses, Stanger made numerous other assumptions as of various points in time with respect to industry performance,
general business, economic, and regulatory conditions, and other matters, many of which are beyond their control and our control.
Stanger also made assumptions with respect to certain factual matters. For example, unless specifically informed to the contrary,
Stanger assumed that we have clear and marketable title to each real estate property appraised, that no title defects exist, that
any improvements were made in accordance with law, that no hazardous materials are present or were present previously, that no
significant deed restrictions exist, and that no changes to zoning ordinances or regulations governing use, density, or shape
are pending or being considered. Furthermore, Stanger’s analyses, opinions, and conclusions were necessarily based upon
market, economic, financial, and other circumstances and conditions existing as of or prior to the date of the Stanger Appraisal
Reports, and any material change in such circumstances and conditions may affect Stanger’s analyses and conclusions. The
Stanger Appraisal Reports contain other assumptions, qualifications, and limitations that qualify the analyses, opinions, and
conclusions set forth therein. Furthermore, the prices at which our real estate properties may actually be sold could differ from
Stanger’s analyses.
Stanger
is actively engaged in the business of appraising commercial real estate properties similar to those owned by us in connection
with public security offerings, private placements, business combinations, and similar transactions. We do not believe that there
are any material conflicts of interest between Stanger, on the one hand, and us, our Sponsor, our Advisor, and our affiliates,
on the other hand. Our Advisor engaged Stanger on behalf of our board of directors to deliver their reports to assist in the NAV
calculation as of September 30, 2021 and Stanger received compensation for those efforts. In addition, we agreed to indemnify
Stanger against certain liabilities arising out of this engagement. In the two years prior to the date of this filing, Stanger
was previously engaged by us for appraisal and valuation services in connection with our financial reporting requirements. Stanger
has received usual and customary fees in connection with those services. Stanger may from time to time in the future perform other
services for us and our Sponsor or other affiliates of the Sponsor, so long as such other services do not adversely affect the
independence of Stanger as certified in the applicable Appraisal Reports. During the past two years Stanger has also been engaged
to provide appraisal services to another non-traded REIT sponsored by our Sponsor for which it was paid usual and customary fees.
Although
Stanger considered any comments received from us and our Advisor relating to their reports, the final appraised values of the
Stanger Appraised Properties were determined by Stanger. The reports are addressed to our board of directors to assist our board
of directors in calculating our estimated NAV per Share as of September 30, 2021. The reports are not addressed to the public,
may not be relied upon by any other person to establish our estimated NAV per Share, and do not constitute a recommendation to
any person to purchase or sell any shares of our common stock.
Our
goal in calculating our estimated NAV is to arrive at values that are reasonable and supportable using what we deem to be appropriate
valuation methodologies and assumptions. The reports, including the analysis, opinions, and conclusions set forth in such reports,
are qualified by the assumptions, qualifications, and limitations set forth in the respective reports. The following is a summary
of our valuation methodologies used to value our assets and liabilities by key component:
Real
estate properties:
As
of September 30, 2021, we have ownership interests in four consolidated properties (collectively, the “Real Estate Properties”).
As
described above, we engaged Stanger to provide an appraisal of the Stanger Appraised Properties consisting of three of our four
consolidated properties in which we held ownership interests as of September 30, 2021. The Stanger Appraised Properties consist
of the St. Augustine Outlet Center and the Development Properties. We also engaged another independent third-party valuation firm
to provide an appraisal report for Gantry Park Landing. In preparing their appraisal reports, the scope of the work performed
by Stanger and the other independent third-party valuation firm included the following procedures, as well other factors:
● A
review of all property level information provided by our Advisor;
● A
review of the historical performance of our real estate investments and business plans
related to operations of the investments;
● A
review of the data models prepared by the Advisor supporting the valuation for each investment;
and
● A
review of the applicable markets by means of publications and other resources to measure
current market conditions, supply and demand factors, and growth patterns.
Stanger
and the other independent third-party valuation firm employed the income approach and/or the sales comparison approach to estimate
the value of the appraised properties. The income approach involves an economic analysis of the property based on its potential
to provide future net annual income. As part of the valuation, a discounted cash flow analysis (“DCF Analysis”) and/or
direct capitalization analysis was used in the income approach to determine the value of our interest in the portfolio. The indicated
value by the income approach represents the amount an investor may pay for the expectation of receiving the net cash flow from
the property.
The
direct capitalization analysis is based upon the net operating income of the property capitalized at an appropriate capitalization
rate for the property based upon property characteristics and competitive position and market conditions at the date of the appraisal.
In
applying the DCF Analysis, pro forma statements of operations for the property including revenues and expenses are analyzed and
projected over a multi-year period. The property is assumed to be sold at the end of the multi-year holding period. The reversion
value of the property which can be realized upon sale at the end of the holding period is calculated based on the capitalization
of the estimated net operating income of the property in the year of sale, utilizing a capitalization rate deemed appropriate
in light of the age, anticipated functional and economic obsolescence and competitive position of the property at the time of
sale. Net proceeds to owners are determined by deducting appropriate costs of sale. The discount rate selected for the DCF Analysis
is based upon estimated target rates of return for buyers of similar properties.
The
sales comparison approach utilizes indices of value derived from actual or proposed sales of comparable properties to estimate
the value of the subject property. The appraiser analyzed such comparable sale data as was available to develop a market value
conclusion for the subject property.
Stanger
prepared the Stanger Appraisal Reports and the other independent third-party valuation firm prepared an appraisal report for Gantry
Park Landing, summarizing key inputs and assumptions, for each of the appraised properties using financial information provided
by us and our Advisor. From such review, Stanger and the other independent third-party valuation firm selected the appropriate
cash flow discount rate, residual discount rate, and terminal capitalization rate in the DCF Analysis, if applicable, the appropriate
capitalization rate in the direct capitalization analysis and the appropriate price per unit in the sales comparison analysis.
As for those properties consolidated on our financials, and for which we do not own 100% of the ownership interest, the property
value was adjusted to reflect our ownership interest in such property after consideration of the distribution priorities associated
with such property.
The
estimated values for our investments in real estate may or may not represent current market values and do not equal the book values
of our real estate investments in accordance with U.S. GAAP. Our consolidated investments in real estate are currently carried
in our consolidated financial statements at their amortized cost basis, adjusted for any loss impairments and bargain purchase
gains recognized to date. Our unconsolidated investments in real estate are currently accounted for under the cost method of accounting
in our consolidated financial statements.
St.
Augustine Outlet Center
As
of September 30, 2021, our wholly owned St. Augustine Outlet Center, a retail property, was valued at $24.9 million, based on
a sales comparison approach.
Gantry
Park Landing
As
of September 30, 2021, our 59.2% ownership interest in Gantry Park Landing, a multi-family residential property, was valued at
$75.5 million. The following summarizes the key assumptions that were used in the discounted cash flow model to estimate the value
of Gantry Park Landing as of September 30, 2021:
Gantry
Park
Landing
Weighted-average:
Exit
capitalization rate 4.25 %
Discount
rate 5.25 %
Annual
market rent growth rate 2.95 %
Annual
net operating income growth rate 2.88 %
Holding
period (in years) 11.0
While
we believe that the assumptions made by the other independent third-party appraisal firm for Gantry Park Landing are reasonable,
a change in these assumptions would impact the calculation of the estimated value included in our Real Estate Properties. The
table below represents the estimated increase or decrease to our estimated NAV per Share resulting from a 25-basis point increase
and decrease in the capitalization rate and discount rate for Gantry Park Landing. The table is presented to provide a hypothetical
illustration of the possible results if only one change in assumptions was made, with all other factors remaining constant. Further,
each of these assumptions could change by more or less than 25 basis points or not at all.
Change
in NAV per Share
Increase of Decrease of
basis points
basis points
Exit
capitalization rate $ (0.19 ) $ 0.22
Discount
rate $ (0.07 ) $ 0.07
Development
Properties
As
of September 30, 2021, we wholly own and consolidate the Development Properties consisting of the following:
Lower
East Side Moxy Hotel
As
of September 30, 2021, we wholly own and consolidate the Lower East Side Moxy Hotel, a development project which when completed
will consist of a 296-room Marriott-branded hotel located at 147-151 Bowery, New York, New York As of September 30, 2021, because
the Lower East Side Moxy Hotel was under development, Stanger deemed it appropriate to determine its fair value of $132.7 million
as of that date based on the estimated fair value of the underlying land of $58.7 million (using a sales comparison approach)
plus other development costs incurred of $74.0 million.
Exterior
Street Project
As
of September 30, 2021, we wholly own and consolidate the Exterior Street Project, a multi-family development project located at
355 and 399 Exterior Street, New York, New York. As of September 30, 2021, because the Exterior Street Project was under development,
Stanger deemed it appropriate to determine its fair value of $96.6 million as of that date based on the aggregate estimated fair
value of the underlying land of $70.1 million (using a sales comparison approach) plus other development costs incurred of $26.5
million.
The
aggregate fair value of our Real Estate Properties of $329.8 million compared to their aggregate carrying value of $275.7 million,
both as of September 30, 2021, equates to an increase in value of 19.6%.
Cash
and cash equivalents: The estimated values of our cash and cash equivalents approximate their carrying values due to their
short maturities.
Investments
in related parties: As of September 30, 2021, we had various investments in related parties, which were classified as
investments in related parties in our consolidated balance sheets, as follows:
● As
of September 30, 2021, we have a 2.5% non-managing ownership interest in the Joint Venture,
which owns seven hospitality properties. The Joint Venture is between us and the operating
partnership of Lightstone Value Plus REIT II, Inc. (“Lightstone REIT II”),
a real estate investment trust also sponsored by our Sponsor, which has a 97.5% managing
ownership interest in the Joint Venture. We do not consolidate our ownership interest
in the Joint Venture but rather account for it under the cost method of accounting. As
of September 30, 2021, our Advisor estimated the fair value of our ownership interest
in the Joint Venture was $1.0 million based on a hypothetical liquidation of the estimated
value of the Joint Venture’s net assets, which approximated our carrying value.
● We
have entered into agreements with various related party entities pursuant to which we
have made aggregate outstanding contributions of $14.5 million to affiliates of our Sponsor
which have either developed or are developing various residential and hospitality projects
located in the New York City and Miami metropolitan areas. These contributions were made
pursuant to instruments (the “Preferred Investments”) that entitle us to
monthly preferred distributions at 12% per annum and are classified as held-to-maturity
securities and are recorded at cost. As of September 30, 2021, the aggregate estimated
value of our Preferred Investments of $14.5 million approximated their carrying values
based on market rates for similar instruments.
Marketable
securities, available for sale: The estimated values of our marketable securities, available for sale, are based on Level
1 and Level 2 inputs. Level 1 inputs are inputs that are observable, either directly or indirectly, such as quoted prices in active
markets for identical assets or liabilities. Level 2 inputs are inputs 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. All of our marketable
securities measured using Level 2 inputs were valued based on a market approach using readily available quoted market prices for
similar assets.
Restricted
escrows: The estimated values of our restricted escrows approximate their carrying values due to their short maturities.
Notes
receivable, net: The estimated values of our notes receivable generally approximate their carrying values as of September
30, 2020 based on current market rates for similar instruments.
Other
assets: Our other assets consist of tenant accounts receivable and prepaid expenses and other assets. The estimated values
of these items approximate their carrying values due to their short maturities. Certain other items, primarily straight-line rent
receivable, intangibles and deferred costs, have been eliminated for the purpose of the valuation because those items are already
considered in our valuation of the respective investments in real estate properties or financial instruments.
Mortgage
notes payable: We have mortgage notes payable that bear interest at both variable and fixed rates. The estimated values
of our variable-rate mortgage loans were generally deemed to approximate their carrying values because their interest rates move
in conjunction with changes to market interest rates. The estimated values for our fixed-rate mortgage loans were estimated using
a discounted cash flow analysis, which used inputs based on the remaining loan terms and estimated current market interest rates
for mortgage loans with similar characteristics, including remaining loan term and loan-to-value ratios. The market interest rates
for our fixed-rate mortgage loans were generally determined based on market rates for available comparable debt. The estimated
market interest rates for our fixed-rate mortgage loans ranged from 2.35% to 2.85% as of September 30, 2021.
Other
liabilities: Our other liabilities consist of our accounts payable and accrued expenses, amounts due to our Sponsor, tenant
allowances and deposits payable, distributions payable and deferred rental income. The carrying values of these items were considered
to equal their fair value due to their short maturities. Certain other items, primarily intangibles, have been eliminated for
the purpose of the valuation because those items are already considered in our valuation of the respective Real Estate Properties
or financial instruments.
Other
noncontrolling interests: Our other noncontrolling interests consist of accrued distributions on common units and SLP
Units.
Allocations
of value to SLP units: The carrying value of the SLP Units held by Lightstone SLP, LLC, an affiliate of our Advisor, are
classified in noncontrolling interests on our consolidated balance sheet. The IPA’s Practice Guideline 2013-01 provides
for adjustments to the NAV for preferred securities, special interests and incentive fees based on the aggregate NAV of the company
and payable to the sponsor in a hypothetical liquidation of the company as of the valuation date in accordance with the provisions
of the partnership or advisory agreements and the terms of the preferred securities. Because certain distributions related to
our SLP Units are only payable to their holder in a liquidation event, we believe they should be valued for our NAV in accordance
with these provisions.
Our
operating agreement provides for distributions to be made during our liquidating stage to our stockholders and the holder of the
SLP Units at certain prescribed thresholds. In connection with our initial public offering of common stock, Lightstone SLP, LLC
purchased an aggregate of $30.0 million of SLP Units. In the calculation of our estimated NAV, a $47.0 million allocation of value
was made to the SLP Units representing the amount of estimated distributions which would have been payable to the holder of the
SLP Units, assuming a liquidation event as of September 30, 2021.
Historical
Estimated NAV and NAV per Share
Additional
information on our historical reported estimated NAV and NAV per Share for the preceding year may be found in the following referenced
filing:
As
of September 30, 2020 - Current Report on Form 8-K filed on December 14, 2020
Limitations
and Risks
As
with any valuation methodology, the methodology used to determine our estimated NAV and resulting estimated NAV per Share is based
upon a number of estimates and assumptions that may prove later not to be accurate or complete. Further, different participants
with different property-specific and general real estate and capital market assumptions, estimates, judgments and standards could
derive a different estimated NAV per Share, which could be significantly different from the estimated NAV per Share approved by
our board of directors. The estimated NAV per Share approved by our board of directors does not represent the fair value of our
assets and liabilities in accordance with GAAP, and such estimated NAV per Share is not a representation, warranty or guarantee
that:
● A
stockholder would be able to resell his or her shares at the estimated NAV per Share;
● A
stockholder would ultimately realize distributions per share of common stock equal to
the estimated NAV per Share upon liquidation of our assets and settlement of our liabilities
or a sale of the Company;
● Our
shares of common stock would trade at the estimated NAV per Share on a national securities
exchange;
● An
independent third-party appraiser or other third-party valuation firm would agree with
the estimated NAV per Share; or
● The
methodology used to estimate our NAV per Share would be acceptable to FINRA or under
the Employee Retirement Income Security Act with respect to their respective requirements.
The
Internal Revenue Service and the Department of Labor do not provide any guidance on the methodology an issuer must use to determine
its estimated NAV per share. FINRA guidance provides that NAV valuations be derived from a methodology that conforms to standard
industry practice.
As
with any valuation methodology, our methodology is based upon a number of estimates and assumptions that may not be accurate or
complete. Different parties with different assumptions and estimates could derive different estimated NAVs and resulting NAVs
per share, and these differences could be significant. The estimated NAV per Share is not audited and does not represent the fair
value of our assets less our liabilities in accordance with GAAP, nor do they represent an actual liquidation value of our assets
and liabilities or the amount shares of our common stock would trade at on a national securities exchange. As of the date of this
filing, although we have not sought stockholder approval to adopt a plan of liquidation of the Company, certain distributions
may be payable to Lightstone SLP, LLC for its SLP Units in connection with a liquidation event. Accordingly, our estimated NAV
reflects any allocations of value to the SLP Units representing the amount that would be payable to Lightstone SLP, LLC in connection
with a liquidation event pursuant to the guidelines for estimating NAV contained in IPA Practice Guideline 2013-01, “Valuation
of Publicly Registered Non-Listed REITs.” Our estimated NAV per Share is based on the estimated value of our assets less
the estimated value of our liabilities and other non-controlling interests less any allocations to the SLP Units divided by the
number of our diluted shares of common stock outstanding, all as of the date indicated. Our estimated NAV per Share does not reflect
a discount for the fact we are externally managed, nor does it reflect a real estate portfolio premium/discount versus the sum
of the individual property values. Our estimated NAV per Share does not take into account estimated disposition costs or fees
or penalties, if any, that may apply upon the prepayment of certain of our debt obligations or the impact of restrictions on the
assumption of certain debt. Our estimated NAV per Share will fluctuate over time as a result of, among other things, future acquisitions
or dispositions of assets, developments related to individual assets and the management of those assets and changes in the real
estate and capital markets. Different parties using different assumptions and estimates could derive different NAVs and resulting
estimated NAVs per share, and these differences could be significant. Markets for real estate and real estate-related investments
can fluctuate and values are expected to change in the future. We currently expect that our Advisor will estimate our NAV on at
least an annual basis. Our board of directors will review and approve each estimate of NAV and resulting estimated NAV per Share.
The
following factors may cause a stockholder not to ultimately realize distributions per share of common stock equal to the estimated
NAV per Share upon liquidation:
● The
methodology used to determine estimated NAV per Share includes a number of estimates
and assumptions that may not prove to be accurate or complete as compared to the actual
amounts received in the liquidation;
● In
a liquidation, certain assets may not be liquidated at their estimated values because
of transfer fees and disposition fees, which are not reflected in the estimated NAV calculation;
● In
a liquidation, debt obligations may have to be prepaid and the costs of any prepayment
penalties may reduce the liquidation amounts. Prepayment penalties are not included in
determining the estimated value of liabilities in determining estimated NAV;
● In
a liquidation, the real estate assets may derive a portfolio premium which premium is
not considered in determining estimated NAV;
● In
a liquidation, the potential buyers of the assets may use different estimates and assumptions
than those used in determining estimated NAV;
● If
the liquidation occurs through a listing of the common stock on a national securities
exchange, the capital markets may value the Company’s net assets at a different
amount than the estimated NAV. Such valuation would likely be based upon customary REIT
valuation methodology including funds from operation (“FFO”) multiples of
other comparable REITs, FFO coverage of dividends and adjusted FFO payout of the Company’s
anticipated dividend; and
● If
the liquidation occurs through a merger of the Company with another REIT, the amount
realized for the common stock may not equal the estimated NAV per Share because of many
factors including the aggregate consideration received, the make-up of the consideration
(e.g., cash, stock or both), the performance of any stock received as part of the consideration
during the merger process and thereafter, the reception of the merger in the market and
whether the market believes the pricing of the merger was fair to both parties.
Share
Repurchase Program
Our
share repurchase program (the “SRP”) may provide our stockholders with limited, interim liquidity by enabling them
to sell their shares of common stock back to us, subject to restrictions.
On
March 25, 2020, our board of directors amended the SRP to remove stockholder notice requirements and also approved the suspension
of all redemptions effective immediately.
Effective
March 15, 2021 and May 14, 2021, the Board of Directors partially reopened the SRP to allow, subject to various conditions as
set forth below, for redemptions submitted in connection with a stockholder’s death and hardship, respectively, and set
the price for all such purchases to our current NAV per Share, as determined by the Company’s board of directors and reported
by the Company from time to time. Deaths that occurred subsequent to January 1, 2020 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.
At
the above noted dates, 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 are expected to be processed on a quarterly basis and would be subject to pro ration if either type of redemption
requests exceeded the annual limitation.
For
the year ended December 31, 2021, we repurchased 143,918 shares of common stock for $11.18 per share, pursuant to the SRP. For
the period from January 1 through March 24, 2020, we repurchased 287,987 shares of common stock for $10.87 per share, pursuant
to the SRP.
On
March 18, 2022, the Board of Directors approved an increase to the annual threshold for death redemptions from up to 0.5% to 1.0%.
Tender Offer
We
commenced a tender offer on June 15, 2020, pursuant to which we offered to acquire up to 225,000 of our shares of common stock
at a purchase price of $5.00 per share, or $1.1 million in the aggregate (the “2020 Tender Offer”). Pursuant to the
terms of the 2020 Tender Offer, which expired on July 24, 2020, we repurchased 0.1 million shares of our common stock for an aggregate
of $0.3 million in August 2020.
Dividend
Reinvestment Program
Our
distribution reinvestment program (“DRIP”) provides our shareholders with an opportunity to purchase additional shares
of our common stock at a discount by reinvesting distributions. Under our distribution reinvestment program, a shareholder may
acquire, from time to time, additional shares of our common stock by reinvesting cash distributions payable by us to such shareholder,
without incurring any brokerage commission, fees or service charges.
The
DRIP had been suspended since 2015 until our DRIP Registration Statement on Form S-3D was filed and became effective as amended
and restated, under the Securities Act of 1933 on October 25, 2018.
Pursuant
to the DRIP following its reactivation, our stockholders who elect to participate may invest all or a portion of the cash distributions
that we pay them on shares of our common stock in additional shares of our common stock without paying any fees or commissions.
The purchase price for shares under the DRIP will be equal to 95% of our current NAV per Share, as determined by the our board
of directors and reported by us from time to time. On December 16, 2021, our board of directors determined our NAV per Share of
$11.75, as of September 30, 2021, which resulted in a purchase price for shares under the DRIP of $11.16 per share. As of December
31, 2021, 9.9 million shares remain available for issuance under our DRIP.
Our
board of directors reserves the right to terminate the DRIP for any reason without cause by providing written notice of the termination
to all participants.
Distributions
Distributions
on Common Shares
Our
board of directors commenced declaring and we began paying regular quarterly distributions on our Common Shares at the pro rata
equivalent of an annual distribution of $0.70 per share, or an annualized rate of 7.0% assuming a purchase price of $10.00 per
share, beginning February 1, 2006. Subsequently, our board of directors has declared regular quarterly distributions at the annualized
rate of 7.0% assuming a purchase price of $10.00 per share, with the exception of the three-month period ended June 30, 2010.
The distributions for the three-month period ended June 30, 2010 were at an aggregate annualized rate of 8% based on the share
price of $10.00. Through December 31, 2021, we have paid aggregate distribution in the amount of $263.3 million, which includes
cash distributions paid to stockholders and common stock issued under our DRIP.
Total
distributions declared during both of the years ended December 31, 2021 and 2020 were $15.6 million.
On
March 18, 2022, our board of directors authorized and declared a Common Share distribution of $0.175 per share for the quarterly
period ending March 31, 2021. The quarterly distribution is the pro rata equivalent of an annual distribution of $0.70 per share,
or an annualized rate of 7.0% assuming a purchase price of $10.00 per share. The distribution will be paid on or about the 15th
day of the month following the quarter-end to stockholders of record at the close of business on the last day of the quarter-end.
The stockholders have an option to elect the receipt of shares under the Company’s DRIP.
Distributions
on SLP Units
From
our inception through March 31, 2010, cumulative distributions declared to Lightstone SLP, LLC were $4.9 million, all of which
had been paid as of April 2010. For the three months ended June 30, 2010, the Operating Partnership did not declare a distribution
related to the SLP Units as the distribution to the stockholders was less than 7% for this period. On August 30, 2010, the Company
declared additional distributions to the stockholders to bring the annualized distribution to at least 7%. As such, the Company
as of August 30, 2010 recommenced declaring distributions to Lightstone SLP, LLC at the 7% annualized rate, except for the three
months ended June 30, 2010 which was at an 8% annualized rate which represents the same rate paid to the stockholders.
During
each of the years ended December 31, 2021 and 2020, distributions of $2.1 million were declared and distributions of $2.1 million
were paid related to the SLP Units and are part of noncontrolling interests. Since inception through December 31, 2021, cumulative
distributions declared were $29.7 million, of which $29.2 million have been paid. Such distributions, paid currently at a 7% annualized
rate of return to Lightstone SLP, LLC through December 31, 2021, with the exception of the distribution related to the three months
ended June 30, 2010, which was paid at an 8% annualized rate will always be subordinated until stockholders receive a stated preferred
return, as described below.
Additionally,
on March 18, 2022, our board of directors declared a quarterly distribution for the quarterly period ending March 31, 2022 on
the SLP Units at an annualized rate of 7.0%. Any future distributions on the SLP Units will always be subordinated until stockholders
receive a stated preferred return.
Recent
Sales of Unregistered Securities
During
the period covered by this Form 10-K, we did not sell any equity securities that were not registered under the Securities Act
of 1933.

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ITEM 6. SELECTED FINANCIAL DATA

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
You
should read the following discussion and analysis together with our consolidated financial statements and notes thereto included
in this Annual Report on Form 10-K. The following information contains forward-looking statements, which are subject to risks
and uncertainties. Should one or more of these risks or uncertainties materialize, actual results may differ materially from those
expressed or implied by the forward-looking statements. Please see “Special Note Regarding Forward-Looking Statements”
above for a description of these risks and uncertainties. Dollar amounts are presented in thousands, except per share data and
where indicated in millions.
Overview
Lightstone
Value Plus REIT I, Inc. (the “Lightstone REIT I”), (together with the Operating Partnership (as defined below), the
“Company”, also referred to as “we”, “our” or “us” herein) has and expects to
continue to acquire and operate or develop in the future, commercial, residential and hospitality properties and/or make real
estate-related investments, principally in the United States. Our acquisitions and investments are, principally conducted through
the Operating Partnership, and may include both portfolios and individual properties.
As
of December 31, 2021, we have ownership interests in (i) two consolidated operating properties, (ii) two consolidated development
properties and (iii) seven unconsolidated operating properties. With respect to our consolidated operating properties, we wholly
own the St. Augustine Outlet Center, a retail property containing 0.3 million square feet of gross leasable area, and have a majority
ownership interest of 59.2% in Gantry Park Landing, a multi-family residential property containing 199 apartment units. With respect
to our consolidated development properties, we wholly own two projects consisting of the Lower East Side Moxy Hotel and the Exterior
Street Project. We also hold a 2.5% ownership interest in seven hotel properties through a joint venture (the “Joint Venture”)
which we account for using a measurement alternative under which the Joint Venture is measured at cost, adjusted for observable
price changes and impairments, if any. The Joint Venture is between us and the operating partnership of Lightstone Value Plus
REIT II, Inc., a real estate investment trust also sponsored by our Sponsor, which has a 97.5% ownership interest in the Joint
Venture. Furthermore, we have other real estate-related investments, including preferred contributions that were made pursuant
to agreements with various related party entities (the “Preferred Investments”) and nonrecourse promissory notes made
to unaffiliated third-parties. Our real estate investments have been and are expected to continue to be held by the Company alone
or jointly with other parties.
We
do not have employees. We entered into an advisory agreement pursuant to which the Advisor supervises and manages our day-to-day
operations and selects our real estate and real estate related investments, subject to oversight by our board of directors (the
“Board of Directors”). We pay the Advisor fees for services related to the investment and management of our assets,
and we will reimburse the Advisor for certain expenses incurred on our behalf.	
To
maintain our qualification as a REIT, we engage in certain activities through taxable REIT subsidiaries (“TRSs”).
As such, we may still be subject to U.S. federal and state income and franchise taxes from these activities.
Acquisitions
and Investment Strategy
We
have, to date, acquired and/or developed residential, commercial and hospitality properties principally, all of which are located
in the United States and also made other real estate-related investments. Our acquisitions have included both portfolios and individual
properties. Our current operating properties consist of one retail property (the St. Augustine Outlet Center) and one multi-family
residential property (Gantry Park Landing). We have also acquired various parcels of land and air rights related to the development
and construction of real estate properties. Additionally, we have made preferred investments in related parties and originated
nonrecourse loans to unaffiliated third-party borrowers.
Investments
in real estate are generally made through the purchase of all or part of a fee simple ownership, or all or part of a leasehold
interest. We may also purchase limited partnership interests, limited liability company interests and other equity securities.
We may also enter into joint ventures with related parties for the acquisition, development or improvement of properties as well
as general partnerships, co-tenancies and other participations with real estate developers, owners and others for the purpose
of developing, owning and operating real properties. We will not enter into a joint venture to make an investment that we would
not be permitted to make on our own. Not more than 10% of our total assets will be invested in unimproved real property. For purposes
of this paragraph, “unimproved real properties” does not include properties acquired for the purpose of producing
rental or other operating income, properties under construction and properties for which development or construction is planned
within one year.
Current
Environment
Our
operating results are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced
by market and other challenges. Additionally, our business and financial performance may be adversely affected by current and
future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility,
political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and
regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, and recession.
COVID-19
Pandemic
The
World Health Organization declared COVID-19 a global pandemic on March 11, 2020 and since that time many of the previously imposed
restrictions and other measures which were instituted in response have been subsequently reduced or lifted. However, the COVID-19
pandemic remains highly unpredictable and dynamic and its duration and extent continue to be dependent on various developments,
such as the emergence of variants to the virus that may cause additional strains of COVID-19, the administration and ultimate
effectiveness of vaccines, and the eventual timeline to achieve a sufficient level of herd immunity among the general population.
Accordingly, the COVID-19 pandemic may continue to have negative effects on the health of the U.S. economy for the foreseeable
future.
As
a result of previously imposed restrictions, we temporarily closed our St. Augustine Outlet Center from March 20, 2020 through
May 7, 2020. During the COVID-19 pandemic, the property’s occupancy declined and because of limited leasing success, we
began exploring various strategic alternatives for our St. Augustine Outlet Center and as a result determined during the third
quarter of 2021 that we would no longer pursue leasing of space to tenants and therefore, entered into lease termination agreements
with certain tenants and also provided notice to our other tenants that we would not renew their leases at scheduled expiration.
As a result of this change in leasing strategy and resulting decrease in the fair value of the St. Augustine Outlet Center, we
recorded a non-cash impairment charge of $11.3 million during the third quarter of 2021. See Note 8 of the Notes to Consolidated
Financial Statements for additional information.
Additionally,
as a result of the COVID-19 pandemic, during 2020 we saw deterioration in both the occupancy and rental rates for Gantry Park
Landing, which is located on Long Island, New York, as the luxury rental market in the greater New York City metropolitan area
was negatively impacted. However, both occupancy and rental rates have improved considerably throughout 2021 and have returned
to pre-COVID-19 levels.
To-date,
the COVID-19 pandemic has not had any significant impact on our development projects. Furthermore, our other real estate-related
investments (both our preferred investments in related parties and nonrecourse loans made to unaffiliated third-party borrowers)
also relate to various development projects which are at different stages in their respective development process. These investments,
which are subject to similar restrictions and other measures, have also not yet been significantly impacted by the COVID-19 pandemic.
The
overall extent to which our business may be affected by the ongoing COVID-19 pandemic will largely depend on both current and
future developments, all of which are highly uncertain and cannot be reasonably predicted.
If
our operating properties, development projects and real estate-related investments are negatively impacted for an extended period
because (i) occupancy levels and rental rates further decline, (ii) tenants are unable to pay their rent, (iii) borrowers are
unable to pay scheduled debt service on notes receivable, (iv) development activities are delayed and/or (v) various related party
entities are unable to pay monthly preferred distributions on our preferred investments in related parties, our business and financial
results could be materially and adversely impacted.
We
are not currently aware of any other material trends or uncertainties, favorable or unfavorable, that may be reasonably anticipated
to have a material impact on either capital resources or the revenues or income to be derived from our operations, other than
those referred to above or throughout this Form 10-K. The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires the Company’s management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities
and the reported amounts of revenues and expenses during a reporting period.
Critical
Accounting Estimates and Policies
General
Our
consolidated financial statements, included in this annual report, include our accounts, the Operating Partnership and its subsidiaries (over
which we exercise financial and operating control). All inter-company balances and transactions have been eliminated in consolidation.
The
discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and
judgments about the effects of matters or future events that are inherently uncertain. These estimates and judgments may affect
the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.
On
an ongoing basis, we evaluate our estimates, including contingencies and litigation. We base these estimates on historical experience
and on various other assumptions that we believe to be reasonable in the circumstances. These estimates form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.
To
assist in understanding our results of operations and financial position, we have identified our critical accounting policies
and discussed them below. These accounting policies are most important to the portrayal of our results and financial position,
either because of the significance of the financial statement items to which they relate or because they require our management’s
most difficult, subjective or complex judgments.
Revenue
Recognition
Our
revenue, which is comprised largely of rental income, includes rents that tenants pay in accordance with the terms of their respective
leases reported on a straight-line basis over the initial term of the lease. Since our leases may provide for rental increases
at specified intervals, straight-line basis accounting requires us to record as an asset, and include in revenue, unbilled rent
that we only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease.
In
addition, we will defer the recognition of contingent rental income, such as percentage rents, until the specific target which
triggers the contingent rental income is achieved. Cost recoveries from tenants will be included in tenant recovery income in
the period the related costs are incurred.
Investments
in Real Estate
We
generally record investments in real estate at cost and capitalize improvements and replacements when they extend the useful life
or improve the efficiency of the asset. We expense costs of ordinary repairs and maintenance as incurred. We compute depreciation
using the straight-line method over the estimated useful lives of the applicable real estate asset. We generally use estimated
useful lives of up to thirty-nine years for buildings and improvements, five to ten years for furniture and fixtures
and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.
We
make subjective assessments as to the useful lives of our properties for purposes of determining the amount of depreciation to
record on an annual basis with respect to our investments in real estate. These assessments have a direct impact on our net income
because, if we were to shorten the expected useful lives of our investments in real estate, we would depreciate these investments
over fewer years, resulting in more depreciation expense and lower net income on an annual basis.
We
record assets and groups of assets and liabilities which comprise disposal groups as “held for sale” when all of the
following criteria are met: a decision has been made to sell, the assets are available for sale immediately, the assets are being
actively marketed at a reasonable price in relation to the current fair value, a sale has been or is expected to be concluded
within twelve months of the balance sheet date, and significant changes to the plan to sell are not expected. The assets and disposal
groups held for sale are valued at the lower of book value or fair value less disposal costs. For sales of real estate or assets
classified as held for sale, we evaluate whether a disposal transaction meets the criteria of a strategic shift and will have
a major effect on our operations and financial results to determine if the results of operations and gains on sale of real estate
will be presented as part of our continuing operations or as discontinued operations in our consolidated statements of operations.
If the disposal represents a strategic shift, it will be classified as discontinued operations for all periods presented; if not,
it will be presented in continuing operations.
We
evaluate the recoverability of our investments in real estate assets at the lowest identifiable level, the individual property
level. An impairment loss is recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair
value.
We
evaluate the long-lived assets for potential impairment whenever events or changes in circumstances indicate that the undiscounted
projected cash flows are less than the carrying amount for a particular property. No single indicator would necessarily result
in us preparing an estimate to determine if a long-lived asset’s future undiscounted cash flows are less than its book value.
We use judgment to determine if the severity of any single indicator, or the fact there are a number of indicators of less severity
that when combined, would result in an indication that a long-lived asset requires an estimate of the undiscounted cash flows
to determine if an impairment has occurred. Relevant facts and circumstances include, among others, significant underperformance
relative to historical or projected future operating results and significant negative industry or economic trends. The estimated
cash flows used for the impairment analysis are subjective and require us to use our judgment and the determination of estimated
fair value are based on our plans for the respective assets and our views of market and economic conditions. The estimates consider
matters such as future operating income, market and other applicable trends and residual value, as well as the effects of demand,
competition, and recent sales data for comparable properties. Changes in estimated future cash flows due to changes in our plans
or views of market and economic conditions could result in recognition of impairment losses, which, under the applicable accounting
guidance, may be substantial.
Accounting
for Asset Acquisitions
The
cost of the acquisition in an asset acquisition is allocated to the acquired tangible assets, consisting of land, building and
tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market
leases for acquired in-place leases and the value of tenant relationships, and certain liabilities such as assumed debt and contingent
liabilities on the basis of their relative fair values. Fees incurred related to asset acquisitions are capitalized as part of
the cost of the investment.
Accounting
for Development Projects
We
incur a variety of costs in the development of a property. The costs of land and building under development include specifically
identifiable costs. The capitalized costs include, but are not limited to, pre-construction costs essential to the development
of the property, development costs, construction costs, interest costs, real estate taxes and other costs incurred during the
period of development. We cease capitalization when the development project is substantially complete and placed in service,
which may occur in phases. Determination of when a development project is substantially complete and capitalization must cease
involves a degree of judgment.
Once
a development project is placed in service, which may occur in phases or for an entire building or project, the costs capitalized
to that development project are transferred to land and improvements, buildings and improvements, and furniture and fixtures on
our consolidated balance sheets at the historical cost of the property.
Notes
Receivable and Preferred Investments
Notes
receivable and preferred investments that we intend to hold to maturity are carried at cost, net of any unamortized origination
costs, fees, discounts, premiums and unfunded commitments.
Investment
income will be recognized on an accrual basis and any related premium, discount, origination costs and fees are amortized over
the life of the investment using the effective interest method. The amortization is reflected as an adjustment to investment income
in the Company’s statements of operations.
Income
recognition is suspended when, in the opinion of management, a full recovery of income and principal becomes doubtful. When the
ultimate collectability of the principal is in doubt, all payments are applied to principal under the cost recovery method. When
the ultimate collectability of the principal is not in doubt, contractual interest is recorded as investment income when received,
under the cash basis method, until an accrual is resumed when the instrument becomes contractually current and performance is
demonstrated to be resumed.
Credit
Losses and Impairment on Notes Receivable
Notes
receivable are considered impaired when, based on current information and events, it is probable that we will not be able to collect
principal and interest amounts due according to the contractual terms. We assess the credit quality of our notes receivable and
adequacy of reserves on a quarterly basis, or more frequently as necessary. Significant judgment of management is required in
this analysis. We consider the estimated net recoverable value of the notes receivable as well as other factors, including but
not limited to the fair value of any collateral, the amount and the status of any senior debt, the quality and financial condition
of the borrower and the competitive situation of the area where the underlying collateral is located. Because this determination
is based on projections of future economic events, which are inherently subjective, the amount ultimately realized may differ
materially from the carrying value as of the balance sheet date. If upon completion of the assessment, the estimated fair value
of the underlying collateral is less than the net carrying value of the notes receivable, a reserve is recorded with a corresponding
charge to investment income. The reserve for each note receivable is maintained at a level that is determined to be adequate by
management to absorb probable losses.
Credit
Losses and Impairment on Preferred Investments
Preferred
investments that are accounted for as held to maturity are assessed for impairment at the individual investment level when there
is a decline in fair value below the amortized cost basis that is deemed to be other than temporary. In making the determination
of an other-than-temporary impairment assessment, the Company considers all available information relevant to the collectability
of the investment, including information about past events, current conditions, and reasonable and supportable forecasts when
developing the estimate of cash flows expected to be collected. This information includes the remaining redemption terms of the
investment, financial condition of the issuer, expected defaults and the value of any underlying collateral. In assessing whether
the entire amortized cost basis of the investment will be recovered, the Company compares the present value of cash flows expected
to be collected from the investment with the amortized cost basis and records an impairment based on the amount by which the present
value of cash flows expected to be collected is less than the amortized cost basis of the investment.
Treatment
of Management Compensation, Expense Reimbursements and Operating Partnership Participation Interest
Management
of our operations is outsourced to our Advisor and certain other affiliates of our Sponsor. Fees related to each of these services
are accounted for based on the nature of such service and the relevant accounting literature. Such fees include acquisition fees
associated with the purchase of interests in affiliated real estate entities; asset management fees paid to our Advisor and property
management fees paid to our Property Manager, which manage certain of the properties we acquire, or to other unaffiliated third-party
property managers, principally for the management of our hospitality properties. These fees are expensed or capitalized to the
basis of acquired assets, as appropriate.
Our
Property Manager may also perform fee-based construction management services for both our re-development activities and tenant
construction projects. These fees are considered incremental to the construction effort and will be capitalized to the associated
real estate project as incurred. Costs incurred for tenant construction will be depreciated over the shorter of their useful
life or the term of the related lease. Costs related to redevelopment activities will be depreciated over the estimated useful
life of the associated project.
Leasing
activity at certain of our properties has also been outsourced to our Property Manager. Any corresponding leasing fees we pay
are capitalized and amortized over the life of the related lease.
Expense
reimbursements made to both our Advisor and Property Manager will be expensed or capitalized to the basis of acquired assets,
as appropriate.
Through
March 31, 2009, Lightstone SLP, LLC, an affiliate of the Advisor, purchased an aggregate of $30.0 million of SLP Units in the
Operating Partnership at a cost of $100,000 per unit and none thereafter.
Income
Taxes
We
elected to be taxed and qualify as a REIT commencing with the taxable year ended December 31, 2005. If we remain qualified as
a REIT, we generally will not be subject to U.S. federal income tax on our net taxable income that we distribute currently to
our stockholders. To maintain our REIT qualification under the Internal Revenue Code of 1986, as amended, or the Code, we must
meet a number of organizational and operational requirements, including a requirement that we annually distribute to our stockholders
at least 90% of our REIT taxable income (which does not equal net income, as calculated in accordance with generally accepted
accounting principles in the United States of America, or GAAP), determined without regard to the deduction for dividends paid
and excluding any net capital gain. If we fail to remain qualified for taxation as a REIT in any subsequent year and do not qualify
for certain statutory relief provisions, our income for that year will be taxed at regular corporate rates, and we may be precluded
from qualifying for treatment as a REIT for the four-year period following our failure to qualify as a REIT. Such an event could
materially adversely affect our net income and net cash available for distribution to our stockholders.
To
maintain our qualification as a REIT, we engage in certain activities through taxable REIT subsidiaries (“TRSs”).
As such, we may still be subject to U.S. federal and state income and franchise taxes from these activities.
As
of December 31, 2021 and 2020, we had no material uncertain income tax positions. Additionally, even if we continue to qualify
as a REIT for U.S. federal income tax purposes, we may still be subject to some U.S. federal, state and local taxes on our income
and property and to U.S. federal income taxes and excise taxes on our undistributed income.
Results
of Operations
Disposition
of the Santa Clara Data Center
On
January 10, 2019, we acquired a parcel of land located at 2175 Martin Avenue, Santa Clara, California (the “Martin Avenue
Land”) from an unaffiliated third party for $10.6 million. Subsequently, we completed certain activities associated with
the potential development and construction of a data center on the Martin Avenue Land (the “Santa Clara Data Center”).
On
July 7, 2021, we disposed of the Santa Clara Data Center to an unrelated third party for a contractual sales price of $13.9 million.
In connection with the disposition of the Santa Clara Data Center, we recognized a gain on sale of investment property of $0.2
million during the third quarter of 2021.
The
disposition of the Santa Clara Data Center did not qualify to be reported as discontinued operations since it did not represent
a strategic shift that had a major effect on our operations and financial results. Accordingly, the operating results of the Santa
Clara Data Center are reflected in our results from continuing operations for all periods presented through its date of disposition.
Investment
Impairment - St. Augustine Outlet Center
During
the COVID-19 pandemic, St. Augustine Outlet Center’s occupancy declined and because of limited leasing success, we began
been exploring various strategic alternatives for the property and as a result determined during the third quarter of 2021 that
we would no longer pursue leasing of space to tenants and therefore, entered into lease termination agreements with certain tenants
and also provided notice to its other tenants that it would not renew their leases at scheduled expiration. As a result of this
change in leasing strategy and resulting decrease in the fair value of the St. Augustine Outlet Center, we recorded a non-cash
impairment charge of $11.3 million during the third quarter of 2021 to reduce the carrying value of the St. Augustine Outlet Center
to its estimated fair value of $23.3 million as of September 30, 2021. In estimating the fair value of the St. Augustine Outlet
Center, we used management’s internal analysis prepared with consideration of local market conditions.
We
believe the reduced carrying value of the St. Augustine Outlet Center is currently recoverable. However, if market conditions
worsen unexpectedly or if changes in its strategy significantly affect any key assumptions used in determining the property’s
estimated fair value, we may need to take additional impairment charges in future periods.
For
the Year Ended December 31, 2021 vs. December 31, 2020
Consolidated
Revenues
Our
revenues are comprised of rental income and tenant recovery income. Total revenues decreased by $0.9 million to $10.4 million
for the year ended December 31, 2021 compared to $11.3 million for the same period in 2020. This decrease was primarily attributable
to reduced occupancy and rental rates for Gantry Park Landing during the 2021 period resulting from the COVID-19 pandemic.
Property
operating expenses
Property
operating expenses increased by $0.2 million to $4.2 million for the year ended December 31, 2021 compared to $4.0 million for
the same period in 2020. The increase in property operating expenses is primarily a result of lease termination fees incurred
for the St. Augustine Outlet Center. See “Investment Impairment - St. Augustine Outlet Center” above.
Real
estate taxes
Real
estate taxes decreased by $0.3 million to $0.3 million for the year ended December 31, 2021 compared to $0.6 million for the same
period in 2020. The decrease reflects lower real estate taxes resulting from the sale of the Santa Clara Data Center and certain
land parcels adjacent to the St. Augustine Outlet Center.
General
and administrative expenses
General
and administrative expenses decreased by $0.5 million to $2.6 million for the year ended December 31, 2021 compared to $3.1 million
for the same period in 2020 principally due to lower bad debt expense in 2021.
Impairment
charge
During
the third quarter of 2021, we recorded a non-cash impairment charge of $11.3 million to reduce the carrying value of our St. Augustine
Outlet Center to its estimated fair value as of September 30, 2021. See “Investment Impairment - St. Augustine Outlet Center”
above.
Depreciation
and amortization
Depreciation
and amortization increased by $1.5 million to $5.5 million for the year ended December 31, 2021 compared to $4.0 million for the
same period in 2020. The increase in depreciation and amortization reflects changes to the estimated remaining useful lives of
certain tenant-related building improvements resulting from lease terminations for the St. Augustine Outlet Center. See “Investment
Impairment - St. Augustine Outlet Center” above.
Interest
and dividend income
Interest
and dividend income increased by $0.8 million to $13.8 million for the year ended December 31, 2021 compared to $13.0 million
for the same period in 2020. The increase primarily reflects higher interest income earned on our notes receivable of $0.3 million
and higher interest and dividend income earned on our available cash and investments in marketable securities of $0.7 million,
partially offset by lower investment income of $0.2 million from our Preferred Investments.
Interest
expense
Interest
expense, including amortization of deferred financing costs, decreased by $0.4 million to $2.6 million for the year ended December
31, 2021 compared to $3.0 million for the same period in 2020. During the year ended December 31, 2021 and 2020, $8.2 million
and $7.8 million, respectively, of interest was capitalized to construction in progress for our development projects.
Gain
on disposition of real estate, net
Our
gain on disposition of real estate, net of $3.9 million during the year ended December 31, 2021 primarily is attributable to a
second quarter gain of $3.6 million recognized in connection with the disposition of a parcel of land adjacent to St. Augustine
Outlet Center and a third quarter gain of $0.2 million recognized in connection with the disposition of the Santa Clara Data Center.
Our
gain on disposition of real estate, net of $1.6 million during the year ended December 31, 2020 consists of a second quarter gain
of $1.6 million recognized in connection with the disposition of a parcel of land adjacent to the St. Augustine Outlet Center.
Unrealized
gain/(loss) on marketable equity securities
During
the year ended December 31, 2021, we recorded unrealized gains on marketable equity securities of $16.5 million and during the
year ended December 31, 2020, we recorded unrealized losses on marketable equity securities of $12.2 million. These unrealized
gains and losses represented the change in the fair value of our marketable equity securities during those periods.
Gain/(loss)
on sale and redemption of marketable securities
During
the year ended December 31, 2021, we recorded a gain on the sale of marketable securities of $5.9 million and during the year
ended December 31, 2020, we recorded a loss on the sale of marketable securities of $0.2 million. These gains and losses represented
the difference between the sales price and carrying value of our marketable securities sold during those periods.
Noncontrolling
interests
The
net earnings allocated to noncontrolling interests relates to (i) parties of the Company that hold units in the Operating Partnership,
(ii) the interest in PRO-DFJV Holdings LLC (“PRO”) held by our Sponsor, (iii) the ownership interests in 50-01 2nd
St. Associates LLC (the “2nd Street Joint Venture”) held by our Sponsor and other affiliates and (iv) the ownership
interest in various joint ventures held by affiliates of our Sponsor that have originated nonrecourse loans to unaffiliated third-party
borrowers.
Financial
Condition, Liquidity and Capital Resources
Overview:
As
of December 31, 2021, we had $39.4 million of cash on hand, $3.2 million of restricted cash and $62.8 million of marketable securities.
We also have the ability to make draws from a line of credit up to $20.0 million, subject to certain conditions (see “Notes
Payable - Line of Credit”). We currently believe that these items along with rental income from our operating properties;
interest and dividend income earned on our marketable securities, notes receivable and preferred investments; as well as proceeds
received from the repayment of the notes receivable and redemptions of the preferred investments will be sufficient to satisfy
our expected cash requirements primarily consisting our anticipated operating expenses, scheduled debt service, capital expenditures
(including certain of our development activities) and distributions to our shareholders, if any, required to maintain our status
as a REIT for the foreseeable future. However, we may also obtain additional funds through selective asset dispositions, joint
venture arrangements, new borrowings and refinancing of existing debt.
We
currently have two development projects (see “Development Activities”). With respect to our Lower East Side Moxy Hotel,
which is currently under construction and expected to open during the fourth quarter of 2022, we have obtained construction financings
and the remaining costs associated with the construction of the Lower East Side Moxy Hotel are expected to be funded from the
remaining availability under such construction financings. See “Development Activities - Lower East Side Moxy Hotel”
for additional information. Our Exterior Street Project is currently under development and we expect to seek construction financing
to fund a substantial portion of its future development and construction costs. See “Development Activities - Exterior
Street Project” for additional information.
Our
borrowings consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. We typically
have obtained level payment financing, meaning that the amount of debt service payable would be substantially the same each year.
As such, most of the mortgages on our properties provide for a so-called “balloon” payment and are at a fixed interest
rate.
Additionally,
in order to leverage our investments in marketable securities and seek a higher rate of return, we have access to borrowings under
a margin loan and line of credit collateralized by the securities held with the financial institution that provided the margin
loan and line of credit as well as a portion of our Marco OP Units. These loans are due on demand and any outstanding balance
must be paid upon the liquidation of securities.
Our
charter provides that the aggregate amount of borrowing, both secured and unsecured, may not exceed 300% of net assets in the
absence of a satisfactory showing that a higher level is appropriate, the approval of the Board of Directors and disclosure to
stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash
reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over
such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in
our next quarterly report to stockholders, along with justification for such excess. As of December 31, 2021, our total borrowings
of $171.8 million represented 53% of net assets.
Any
future properties that we may acquire or investments we may make may be funded through a combination of borrowings, proceeds generated
from the sale and redemption of our marketable securities, available for sale, proceeds received from the selective disposition
of our properties and proceeds received from the redemption of our preferred investments in related parties. These borrowings
may consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. Such mortgages may
be put in place either at the time we acquire a property or subsequent to our purchasing a property for cash. In addition, we
may acquire properties that are subject to existing indebtedness where we choose to assume the existing mortgages. Generally,
though not exclusively, we intend to seek to encumber our properties with debt, which will be on a non-recourse basis. This means
that a lender’s rights on default will generally be limited to foreclosing on the property. However, we may, at our discretion,
secure recourse financing or provide a guarantee to lenders if we believe this may result in more favorable terms. When we give
a guaranty for a property owning entity, we will be responsible to the lender for the satisfaction of the indebtedness if it is
not paid by the property owning entity.
We
may also obtain lines of credit to be used to acquire properties or real estate-related assets. These lines of credit will be
at prevailing market terms and will be repaid from proceeds from the sale or refinancing of properties, working capital or permanent
financing. Our Sponsor or its affiliates may guarantee the lines of credit although they will not be obligated to do so. We expect
that such properties may be purchased by our Sponsor’s affiliates on our behalf, in our name, in order to minimize the imposition
of a transfer tax upon a transfer of such properties to us.
We have
various agreements, including an advisory agreement, with the Advisor to pay certain fees in exchange for services performed by
the Advisor and/or its affiliated entities. Additionally, our ability to secure financing and our real estate operations are dependent
upon our Advisor and its affiliates to perform such services as provided in these agreements.
In
addition to meeting working capital needs and distributions, if any, to our stockholders, our capital resources are used to make
certain payments to our Advisor and our Property Manager, including payments related to asset acquisition fees, development fees
and leasing commissions, asset management fees, the reimbursement of acquisition related expenses to our Advisor and property
management fees. We also reimburse our Advisor and its affiliates for actual expenses it incurs for administrative and other services
provided to us. Additionally, the Operating Partnership may be required to make distributions to Lightstone SLP, LLC, an affiliate
of the Advisor.
The
advisory agreement has a one-year term and is renewable for an unlimited number of successive one-year periods upon the mutual
consent of the Advisor and our independent directors.
The
following table represents the fees incurred associated with the payments to our Advisor and its affiliates:
For
the
Year Ended
December 31,
December 31,
Asset
management fees (general and administrative costs) $ 849 $ 919
Property
management fees (property operating expenses)
Development
fees and cost reimbursement(1) 3,595 1,337
Total $ 4,806 $ 2,644
(1) Development
fees and development costs that we reimburse our Advisor for are capitalized and are
included in the carrying value of the associated development project and classified as
construction in progress on the consolidated balance sheets. As of December 31, 2021,
we owed the Advisor and its affiliated entities $0.7 million for development fees, which
is included in accounts payable, accrued expenses and other liabilities on the consolidated
balance sheets. See Note 3 of the Notes to Consolidated Financial Statements for additional
information.
Additionally,
we may be required to make distributions on the special general partner interests (“SLP Units”) in the Operating Partnership
held by Lightstone SLP, LLC, an affiliate of the Advisor. In connection with the Company’s initial public offering, Lightstone
SLP, LLC purchased an aggregate of $30.0 million of SLP Units. These SLP Units, the purchase price of which will be repaid only
after stockholders receive a stated preferred return and their net investment, entitle Lightstone SLP, LLC to a portion of any
regular distributions made by the Operating Partnership.
During
both the of the years ended December 31, 2021 and 2020, distributions of $2.1 million were declared and paid on the SLP units.
Our
charter states that our operating expenses, excluding offering costs, property operating expenses and real estate taxes, as well
as acquisition fees and non-cash related items (“Qualified Operating Expenses”) are to be less than the greater of
2% of our average invested net assets or 25% of net income. For the year ended December 31, 2021, our Qualified Operating Expenses
were less than the greater of 2% of our average invested net assets or 25% of net income.
In
addition, our charter states that our acquisition fees and expenses shall not exceed 6% of the contractual purchase price or in
the case of a mortgage, 6% of funds advanced unless approved by a majority of the independent directors. For the year ended December
31, 2021, the acquisition fees and acquisition expenses were less than 6% of each of the contract prices.
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:
Year
Ended
December 31,
Year
Ended
December 31,
Cash
flows provided by operating activities $ 10,001 $ 10,144
Cash
flows provided by/(used in) investing activities 49,161 (54,493 )
Cash
flows (used in)/provided by financing activities (63,411 ) 11,390
Net
change in cash, cash equivalents and restricted cash (4,249 ) (32,959 )
Cash,
cash equivalents and restricted cash, beginning of year 46,841 79,800
Cash,
cash equivalents and restricted cash, end of year $ 42,592 $ 46,841
Operating
activities
The
net cash provided by operating activities of $10.0 million for the year ended December 31, 2021 consists of the following:
● cash
inflows of $9.8 million from our net income after adjustment for non-cash items; and
● cash
inflows of $0.2 million associated with the net changes in operating assets and liabilities.
Investing
activities
The
net cash provided by investing activities of $49.2 million for the year ended December 31, 2021 consists primarily of the following:
● purchases
of investment property of $59.5 million;
● net
proceeds from the sale of marketable securities of $5.2 million
● proceeds
from notes receivable of $83.2 million; and
● proceeds
from the sale of investment property of $20.2 million.
Financing
activities
The
net cash used in financing activities of $63.4 million for the year ended December 31, 2021 is primarily related to the following:
● debt
principal payments of $89.1 million;
● proceeds
from mortgage financing of $67.3 million;
● payment
of loan fees and expenses of $6.1 million;
● redemption
and cancellation of common shares of $1.6 million;
● distributions
to our noncontrolling interests of $18.8 million; and
● distributions
to our common shareholders of $15.3 million.
Development
Activities
Lower
East Side Moxy Hotel
On
December 3, 2018, we, through a subsidiary of the Operating Partnership, acquired three adjacent parcels of land located at 147-151
Bowery, New York, New York from unaffiliated third parties for aggregate consideration of $56.5 million, excluding closing and
other acquisition related costs. Additionally, on December 6, 2018, we, though a subsidiary of the Operating Partnership, acquired
certain air rights located at 329 Broome Street, New York, New York from an unaffiliated third party for $2.4 million, excluding
closing and other acquisition related costs. We are using the land and air rights in connection with the development and construction
of a 296-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”). On June 3, 2021, the Company entered into a
development agreement (the “Development Agreement”) with an affiliate of the Advisor (the “Moxy Lower East Side
Developer”) pursuant to which the Lower East Side Moxy Developer will be paid a development fee equal to 3% of hard and
soft costs incurred in connection with the development and construction of the Lower East Side Moxy Hotel. Additionally on June
3, 2021, the Company obtained construction financing for the Lower East Side Moxy Hotel. The Lower East Side Moxy Hotel is currently
under construction and expected to open during the fourth quarter of 2022.
Previously
on December 3, 2018, we had entered into a mortgage loan which was collateralized by the Lower East Side Moxy Hotel (the “Lower
East Side Moxy Mortgage”) for $35.6 million. The Lower East Side Moxy Mortgage had an initial term of two years, bore interest
at the London Interbank Offered Rate (“LIBOR”) + 4.25%, subject to a 6.63% floor, and required monthly interest-only
payments through its stated maturity with the entire unpaid balance due upon maturity. In November 2020 the maturity date of Lower
East Side Moxy Mortgage was extended to March 3, 2021 and in March 2021 it was further extended until June 3, 2021, on which date
it was then repaid in full as discussed below.
On
June 3, 2021, we, through a wholly owned subsidiary, closed on a recourse construction loan facility (the “Moxy Senior Loan”)
providing for up to $90.0 million of funds for the development and construction of the Lower East Side Moxy Hotel. At closing,
$35.6 million of proceeds were initially advanced under the Moxy Senior Loan, which were used to repay in full the Lower East
Side Moxy Mortgage. The Moxy Senior Loan bears interest at LIBOR + 7.50%, subject to an 8.00% floor, and initially matures on
June 3, 2024, with two one-year extension options, subject to the satisfaction of certain conditions. The Moxy Senior Loan is
collateralized by the Lower East Side Moxy Hotel. As of December 31, 2021, the outstanding principal balance of the Moxy Senior
Loan was $35.6 million and the remaining availability under the facility was up to $54.4 million.
Simultaneously
on June 3, 2021, we, through the same wholly owned subsidiary, also entered into a mezzanine construction loan facility (the “Moxy
Junior Loan” and together with the Moxy Senior Loan, the “Moxy Construction Loans”) providing for up to $40.0
million of additional funds for the development and construction of the Lower East Side Moxy Hotel. The Moxy Junior Loan bears
interest at LIBOR + 13.50%, subject to a 14.00% floor, and initially matures on June 3, 2024, with two one-year extension options
subject to the satisfaction of certain conditions. The Moxy Junior Loan is subordinate to the Moxy Senior loan but also collateralized
by the Lower East Side Moxy Hotel. We provided a principal guarantee of up to $7.0 million with respect to the Moxy Junior Loan.
As of December 31, 2021, the outstanding principal balance of the Moxy Junior Loan was $24.6 million and the remaining availability
under the facility was up to $15.4 million.
Future
draws to cover the costs associated with the development and construction of the Lower East Side Moxy Hotel will first be advanced
under the Moxy Junior Loan until it has been fully funded and thereafter, funds will be advanced under the remaining availability
of the Moxy Senior Loan.
In
connection with the Moxy Construction Loans, we provided certain completion and carry cost guarantees. We also entered into an
interest rate cap agreement pursuant to which the LIBOR rate will be capped at 3.00% on the Moxy Senior Loan through June 3, 2024
at a cost of $0.2 million. Furthermore, in connection with the Moxy Construction Loans, we paid $5.3 million of loan fees and
expenses and accrued $1.1 million of loan exit fees which are due at the initial maturity date and are included in accounts payable,
accrued expenses and other liabilities on the consolidated balance sheets as of December 31, 2021.
Exterior
Street Project
On
February 27, 2019, we, through subsidiaries of the Operating Partnership, acquired two adjacent parcels of land located at 355
and 399 Exterior Street, New York, New York from unaffiliated third parties for an aggregate purchase price of $59.0 million,
excluding closing and other acquisition related costs. In September 2021, we subsequently acquired an additional adjacent parcel
of land at cost from an affiliate of our Advisor for $1.0 million in order to achieve certain zoning compliance. We are using
the land parcels for the development of a multi-family residential property (the “Exterior Street Project”).
On
March 29, 2019, we entered into a $35.0 million loan (the “Exterior Street Loan”) which commencing on October 10,
2020 bears interest at LIBOR + 2.25% through its scheduled maturity date. The Exterior Street Loan requires monthly interest-only
payments with the outstanding principal balance due in full at its maturity date. The Exterior Street Loan was initially scheduled
to mature on April 9, 2021 but during April 2021, its maturity date was further extended to April 9, 2022. Additionally, on December
21, 2021, the loan agreement was amended to provide an additional six-month extension and an additional $7.0 million loan (the
“Exterior Street Supplemental Loan” and collectively with the Exterior Street Loan, the “Exterior Street Loans”)
which bears interest at LIBOR + 2.50% and requires monthly interest-only payments through its maturity date. The Exterior Street
Loans are scheduled to mature on April 9, 2022, with a six-month extension option, subject to certain conditions and are collateralized
by the Exterior Street Project.
The
following is a summary of the amounts incurred and capitalized to development projects on the consolidated balance sheet for the
Lower East Side Moxy Hotel and the Exterior Street Project as of December 31, 2021:
Development
Project
Lower
East Side Moxy Hotel $ 146,747
Exterior
Street Project 87,467
Total $ 234,214
To-date
the ongoing COVID-19 pandemic as well as other economic conditions and uncertainties have not had a significant impact on our
development activities associated with either the Lower East Side Moxy Hotel or the Exterior Street Project. As discussed above,
we have already obtained construction financing for the Lower East Side Moxy Hotel and it is currently under construction and
expected to open during the fourth quarter of 2022. However, with respect to our Exterior Street Project which is currently under
development, we currently expect to seek construction financing to fund a substantial portion of its future development and construction
costs. The ongoing COVID-19 pandemic as well as other economic conditions and uncertainties may (i) affect our ability to obtain
construction financing, and/or (ii) cause delays or increase costs associated with building materials or construction services
necessary for construction, which could adversely impact our ability to either ultimately commence and/or complete construction
as planned, on budget or at all for the Exterior Street Project.
Although
we currently believe our capital resources are sufficient to fund our expected development activities for the next 12 months,
there can be no assurance we will be successful in obtaining construction financing at favorable terms, if at all.
Preferred
Investments
We
have Preferred Investments that entitle us to monthly preferred distributions. The Preferred Investments are classified as held-to-maturity
securities, recorded at cost and included in investments in related parties on the consolidated balance sheets. The fair value
of these investments approximated their carrying values based on market rates for similar instruments. During the year ended December
31, 2020, we redeemed $11.0 million of the 40 East End Avenue Preferred Investment and the entire remaining Miami Moxy Preferred
Investment of $9.0 million.
The
Preferred Investments are summarized as follows:
Preferred
Investment Balance Investment
Income(1)
Dividend As
of
December 31, As
of
December 31, For
the
Year Ended
December 31,
Preferred
Investments Rate 2020
East End Avenue 12 % $ 6,000 $ 6,000 $ 730 $ 886
East
11th Street 12 % 8,500 8,500 1,034 1,040
Miami
Moxy 12 % - - -
Total
Preferred Investments
$ 14,500 $ 14,500 $ 1,764 $ 1,971
Note:
(1) Included
in interest and dividend income on the statements of operations.
Notes
Receivable
We
formed certain joint ventures (collectively, the “NR Joint Ventures”) between wholly-owned subsidiaries of the Operating
Partnership (collectively, the “NR Subsidiaries”) and affiliates of the Sponsor (the “NR Affiliates”)
which have originated nonrecourse loans (collectively, the “Joint Venture Promissory Notes”) to unaffiliated third-party
borrowers (collectively, the “Joint Venture Borrowers”).
We
determined that the NR Joint Ventures are VIEs and the NR Subsidiaries are the primary beneficiaries. Since the NR Subsidiaries
are the primary beneficiaries, beginning on the applicable date of formation, we consolidated the operating results and financial
condition of the NR Joint Ventures and accounted for the respective ownership interests of the NR Affiliates as noncontrolling
interests.
The
Joint Venture Promissory Notes generally provide for monthly interest at a prescribed variable rate, subject to a floor. In connection
with the initial funding of the Joint Venture Promissory Notes, the NR Joint Ventures receive origination fees (ranging from 1.00%
to 1.50%) based on the principal commitment under the loan and retain a portion of the loan proceeds to establish a reserve for
interest and other items (the “Loan Reserves”). The Joint Venture Promissory Notes are recorded in notes receivable,
net on the consolidated balance sheets.
The
Joint Venture Promissory Notes generally have an initial term of one or two years and may provide for additional one-year extension
options subject to satisfaction of certain conditions, including the funding of additional Loan Reserves and payment of extension
fees. The Joint Venture Promissory Notes are collateralized by either the membership interests of the Joint Venture Borrowers
in the borrowing entity or the underlying real property being developed by the Joint Venture Borrower.
The
Joint Venture Promissory Notes are recorded in notes receivable, net on the consolidated balance sheets. The origination fees
received are presented in the consolidated balance sheets as a direct deduction from the carrying value of the Joint
Venture Promissory Notes and are amortized into interest income, using a straight-line method that approximates the effective
interest method, over the initial term of the Joint Venture Promissory Notes. The Loan Reserves are presented in
the consolidated balance sheets as a direct deduction from the carrying value of the Joint Venture Promissory Notes and
are applied against the monthly interest due over the initial term.
The
Notes Receivable are summarized as follows:
As
of
December 31, 2021
Company’s Loan
Contractual
Unamortized
Joint Ownership Commitment Origination Origination Maturity Interest
Outstanding
Origination Carrying Unfunded
Venture/Lender Percentage Amount Fee Date Date Rate
Principal Reserves Fee Value Commitment
LSC 1543 7th LLC (1) 50 % 20,000 1.00 % August
27, 2019 February
28, 2022 Libor
plus 5.40% (Floor of 7.90%)
$ 17,500 $ - $ (33 ) $ 17,467 $ -
LSC 11640 Mayfield LLC (2) 50 % 18,000 1.50 % March
4, 2020 March
1, 2022 Libor
plus 11.00% (Floor of 13.00%)
10,040 (629 ) (24 ) 9,387 6,960
Total
$ 27,540 $ (629 ) $ (57 ) $ 26,854 $ 6,960
As
of
December 31, 2020
Company’s Loan
Contractual
Unamortized
Joint Ownership Commitment Origination Origination Maturity Interest Outstanding
Origination Carrying Unfunded
Venture/Lender Percentage Amount Fee Date Date Rate Principal Reserves Fee Value Commitment
LSC
162nd Capital I LLC (3) 45.45 % $ 4,234 1.50 % February
5, 2019 September
11, 2021 LIBOR +
7.50% (Floor of 11%) $ 4,076 $ (338 ) $ (33 ) $ 3,705 $ -
LSC
162nd Capital II LLC (3) 45.45 % 9,166 1.50 % February 5, 2019 September 11, 2021 LIBOR + 7.50% (Floor
of 11%) 8,824 (732 ) (71 ) 8,021 -
LSC
1543 7th LLC 50 % 20,000 1.00 % August 27, 2019 August 26, 2021 LIBOR + 5.40% (Floor
of 7.90%) 20,000 - (33 ) 19,967 -
LSC
1650 Lincoln LLC (3) 50 % 24,000 1.00 % August 27, 2019 August 26, 2021 LIBOR + 5.40% (Floor
of 7.90%) 24,000 - (40 ) 23,960 -
LSC
11640 Mayfield LLC 50 % 18,000 1.50 % March 4, 2020 March 1, 2022 LIBOR + 10.50% (Floor
of 12.50%) 10,750 (2,369 ) (158 ) 8,223 7,250
LSC
87 Newkirk LLC (4) 50 % 42,700 1.25 % July
2, 2020 December
1, 2021 LIBOR
+ 6.00% (Floor of 7.00%) 42,700 (1,597 ) (355 ) 40,748 -
Total
$ 110,350 $ (5,036 ) $ (690 ) $ 104,624 $ 7,250
Notes:
(1) Repaid
in full during March 2022.
(2) Repaid
in full during February 2022.
(3) Repaid
in full during December 2021.
(4) Repaid
in full during April 2021.
The
following summarizes the interest earned (included in interest and dividend income on the consolidated statements of operations)
for each of the Joint Venture Promissory Notes during the periods indicated:
For the For the
Year Ended Year Ended
December 31, December 31,
Joint
Venture/Lender
LSC
162nd Capital I LLC $ 491 $ 641
LSC
162nd Capital II LLC 1,063 1,387
LSC
1543 7th LLC 1,802 1,770
LSC
1650 Lincoln LLC 2,317 2,124
LSC
11640 Mayfield LLC 1,875 1,243
LSC
87 Newkirk LLC 1,585 1,625
Total $ 9,133 $ 8,790
Stockholder’s
Equity
Share
Repurchase Program
Our
share repurchase program (the “SRP”) may provide our stockholders with limited, interim liquidity by enabling them
to sell their shares of common stock back to us, subject to restrictions.
On
March 25, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension
of all redemptions effective immediately.
Effective
March 15, 2021 and May 14, 2021, the Board of Directors partially reopened the SRP to allow, subject to various conditions as
set forth below, for redemptions submitted in connection with a stockholder’s death and hardship, respectively, and set
the price for all such purchases to our current NAV per Share, as determined by the Board of Directors and reported by the Company
from time to time. Deaths that occurred subsequent to January 1, 2020 were eligible for consideration, subject to certain conditions.
Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received
by us within one year of the stockholder’s date of death for consideration.
At
the above noted dates, 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 pro ration if either type of redemption
requests exceeded the annual limitation.
For
the year ended December 31, 2021, we repurchased 143,918 shares of common stock for $11.18 per share, pursuant to the SRP. For
the period from January 1 through March 24, 2020, we repurchased 287,987 shares of common stock for $10.87 per share, pursuant
to the SRP.
On
March 18, 2022, The Board of Directors approved an increase to the annual threshold for death redemptions from up to 0.5% to 1.0%.
Tender Offer
We
commenced a tender offer on June 15, 2020, pursuant to which we offered to acquire up to 225,000 of our shares of common stock
at a purchase price of $5.00 per share, or $1.1 million in the aggregate (the “2020 Tender Offer”). Pursuant to the
terms of the 2020 Tender Offer, which expired on July 24, 2020, we repurchased 0.1 million shares of our common stock for an aggregate
of $0.3 million in August 2020.
Distribution
Reinvestment Program (“DRIP”)
Our
distribution reinvestment program (“DRIP”) provides our shareholders with an opportunity to purchase additional shares
of our common stock at a discount by reinvesting distributions. Under our distribution reinvestment program, a shareholder may
acquire, from time to time, additional shares of our common stock by reinvesting cash distributions payable by us to such shareholder,
without incurring any brokerage commission, fees or service charges.
The
DRIP had been suspended since 2015 until our DRIP Registration Statement on Form S-3D was filed and became effective as amended
and restated, under the Securities Act of 1933 on October 25, 2018.
Pursuant
to the DRIP following its reactivation, our stockholders who elect to participate may invest all or a portion of the cash distributions
that we pay them on shares of our common stock in additional shares of our common stock without paying any fees or commissions.
The purchase price for shares under the DRIP will be equal to 95% of our current NAV per Share, as determined by the Board of
Directors and reported by us from time to time. On December 16, 2021, the Board of Directors determined our NAV per Share of $11.75,
as of September 30, 2021, which resulted in a purchase price for shares under the DRIP of $11.16 per share. As of December 31,
2021, 9.9 million shares remain available for issuance under our DRIP.
The
Board of Directors reserves the right to terminate the DRIP for any reason without cause by providing written notice of termination
of the DRIP to all participants.
Distributions
Declared by the Board of Directors
Common
Shares
During
the years ended December 31, 2021 and 2020, distributions on our Common Shares were declared quarterly, for each calendar quarter
end, at the pro rata equivalent of an annual distribution of $0.70 per share, or an annualized rate of 7.0% assuming a purchase
price of $10.00 per share, to stockholders of record at the close of business on the last day of the quarter-end. All distributions
were paid on or about the 15th day of the month following the quarter-end.
Total
distributions declared during both of the years ended December 31, 2021 and 2020 were $15.6 million.
On
March 18, 2022, the Board of Directors authorized and declared a Common Share distribution of $0.175 per share for the quarterly
period ending March 31, 2022. The quarterly distribution is the pro rata equivalent of an annual distribution of $0.70 per share,
or an annualized rate of 7.0% assuming a purchase price of $10.00 per share. The distribution will be paid on or about the 15th
day of the month following the quarter-end to stockholders of record at the close of business on the last day of the quarter-end.
The stockholders have an option to elect the receipt of shares under the Company’s DRIP.
SLP
Units
For
both of the years ended December 31, 2021 and 2020, total distributions declared and paid on the SLP Units were $2.1 million.
Additionally, on March 18, 2022, the Board of Directors declared a quarterly distribution for the quarterly period ending March
31, 2022 on the SLP Units at an annualized rate of 7.0%. Any future distributions on the SLP Units will always be subordinated
until stockholders receive a stated preferred return.
Contractual
Obligations
The
following is a summary of our contractual obligations outstanding over the next five years and thereafter as of December 31, 2021.
Contractual
Obligations 2025 Thereafter Total
Mortgage
Payable $ 43,389 $ 1,454 $ 126,910 $ - $ - $ - $ 171,753
Interest
Payments1 9,786 9,446 6,169 - - - 25,401
Total
Contractual Obligations $ 53,175 $ 10,900 $ 133,079 $ - $ - $ - $ 197,154
1) These
amounts represent future interest payments related to mortgage payable obligations based
on the fixed and variable interest rates specified in the associated debt agreement.
All variable rate debt agreements are based on the one month LIBOR rate. For purposes
of calculating future interest amounts on variable interest rate debt the one month LIBOR
rate as of December 31, 2021 was used.
Notes
Payable
Margin
Loan
We
have access to a margin loan (the “Margin Loan”) from a financial institution that holds custody of certain of our
marketable securities. The Margin Loan, which is due on demand, bears interest at LIBOR + 0.85% (0.95% as of December 31, 2021)
and is collateralized by the marketable securities in our account. The amounts available to us under the Margin Loan are at the
discretion of the financial institution and not limited to the amount of collateral in our account. There were no amounts outstanding
under the Margin Loan as of December 31, 2021 and 2020.
Line
of Credit
We
have a non-revolving credit facility (the “Line of Credit”) with a financial institution that provides for borrowings
up to a maximum of $20.0 million, subject to a 55% loan-to-value ratio based on the fair value of the underlying collateral, matures
on November 30, 2022 and bears interest at LIBOR + 1.35% (1.45% as of December 31, 2021). The Line of Credit is collateralized
by an aggregate of 209,243 of Marco OP Units and Marco II OP Units and was guaranteed by PRO. As of December 31, 2021, the amount
of borrowings available to be drawn under the Line of Credit was $18.4 million. No amounts were outstanding under the Line of
Credit as of both December 31, 2021 and 2020.
LIBOR
The
Moxy Construction Loans, Exterior Street Loans, Margin Loan and Line of Credit are indexed to LIBOR. In late 2021, it was announced
LIBOR interest rates will cease publication altogether by June 30, 2023. We have and intend continue to incorporate relatively
standardized replacement rate provisions into our LIBOR-indexed debt documents, including a spread adjustment mechanism designed
to equate to the current LIBOR “all in” rate. There is significant uncertainty with respect to the implementation
of the phase out and what alternative indexes will be adopted which will ultimately be determined by the market as a whole. It
therefore remains uncertain how such changes will be implemented and the effects such changes would have on us and the financial
markets generally.
Debt
Maturities
The
Exterior Street Loans (outstanding principal balance of $42.0 million as of December 31, 2021) mature on April 9, 2022. We currently
intend to extend or refinance the Exterior Street Loans on or before their maturity date.
However,
if we are unable to extend or refinance any of our maturing indebtedness at favorable terms, we will look to repay the then outstanding
balance with available cash and/or proceeds from selective asset sales. We have no additional significant maturities of mortgage
debt over the next 12 months.
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.
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 and
are no longer incurring a significant amount of acquisition fees or other related costs, 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.
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 acquisition activities and other 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 after the period in which we are acquiring properties and 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.
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
Years Ended
December 31,
December 31,
Net
income/(loss) $ 23,963 $ (1,087 )
FFO
adjustments:
Depreciation
and amortization 5,523 3,956
Gain
on disposal of real estate, net (3,947 ) (1,562 )
Impairment
charge 11,341 -
FFO 36,880 1,307
MFFO
adjustments:
Other
adjustments:
Acquisition
and other transaction related costs expensed(1) - -
Noncash
adjustments:
Amortization
of above or below market leases and liabilities(2) - -
Mark
to market adjustments(3) (16,650 ) 12,204
Loss
on debt extinguishment(4) -
(Gain)/loss
on sale of marketable securities(4) (5,882 )
MFFO 14,451 13,741
Straight-line
rent(5)
MFFO
- IPA recommended format $ 14,456 $ 13,845
Net
income/(loss) $ 23,963 $ (1,087 )
Less:
income attributable to noncontrolling interests (4,880 ) (3,202 )
Net
income/(loss) applicable to Company’s common shares $ 19,083 $ (4,289 )
Net
income/(loss) per common share, basic and diluted $ 0.86 $ (0.19 )
FFO $ 36,880 $ 1,307
Less:
FFO attributable to noncontrolling interests (5,799 ) (1,697 )
FFO
attributable to Company’s common shares $ 31,081 $ (390 )
FFO
per common share, basic and diluted $ 1.40 $ (0.02 )
MFFO
- IPA recommended format $ 14,456 $ 13,845
Less:
MFFO attributable to noncontrolling interests (4,755 ) (3,634 )
MFFO
attributable to Company’s common shares $ 9,701 $ 10,211
Weighted
average number of common shares outstanding, basic and diluted 22,254 22,337
Notes:
(1) The
purchase of properties, and the corresponding expenses associated with that process,
is a key operational feature of our business plan to generate operational income and
cash flows in order to make distributions to investors. In evaluating investments in
real estate, management differentiates the costs to acquire the investment from the operations
derived from the investment. Such information would be comparable only for non-listed
REITs that have completed their acquisition activity and have other similar operating
characteristics. By excluding expensed acquisition costs, management believes MFFO provides
useful supplemental information that is comparable for each type of real estate investment
and is consistent with management’s analysis of the investing and operating performance
of our properties. Acquisition fees and expenses include payments to our advisor or third
parties. Acquisition fees and expenses under GAAP are considered operating expenses and
as expenses included in the determination of net income and income from continuing operations,
both of which are performance measures under GAAP. Such fees and expenses are paid in
cash, and therefore such funds will not be available to distribute to investors. Such
fees and expenses negatively impact our operating performance during the period in which
properties are being acquired. Therefore, MFFO may not be an accurate indicator of our
operating performance, especially during periods in which properties are being acquired.
All paid and accrued acquisition fees and expenses will have negative effects on returns
to investors, the potential for future distributions, and cash flows generated by us,
unless earnings from operations or net sales proceeds from the disposition of properties
are generated to cover the purchase price of the property, these fees and expenses and
other costs related to the property. Acquisition fees and expenses will not be paid or
reimbursed, as applicable, to our advisor even if there are no further proceeds from
the sale of shares in our offering, and therefore such fees and expenses would need to
be paid from either additional debt, operational earnings or cash flows, net proceeds
from the sale of properties or from ancillary cash flows.
(2) Under
GAAP, certain intangibles are accounted for at cost and reviewed at least annually for
impairment, and certain intangibles are assumed to diminish predictably in value over
time and amortized, similar to depreciation and amortization of other real estate related
assets that are excluded from FFO. However, because real estate values and market lease
rates historically rise or fall with market conditions, management believes that by excluding
charges relating to amortization of these intangibles, MFFO provides useful supplemental
information on the performance of the real estate.
(3) 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. 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.
(4) 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.
(5) Under
GAAP, rental receipts are allocated to periods using various methodologies. This may
result in income recognition that is significantly different than underlying contract
terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis
to a cash basis of disclosing the rent and lease payments), MFFO provides useful supplemental
information on the realized economic impact of lease terms and debt investments, providing
insight on the contractual cash flows of such lease terms and debt investments, and aligns
results with management’s analysis of operating performance.
The
table below presents our cumulative distributions paid and cumulative FFO:
From
inception through
December 31,
FFO
attributable to Company’s common shares $ 266,732
Distributions
Paid $ 263,308
For
the year ended December 31, 2021, we paid cash distributions of $15.3 million. Cash flow from operations was $10.0 million and
FFO attributable to Company’s common shares for the year ended December 31, 2021 was $31.1 million. For the year ended December
31, 2020, we paid cash distributions of $15.4 million. Cash flow from operations was $10.1 million and FFO attributable to Company’s
common shares for the year ended December 31, 2020 was negative $0.4 million.
New
Accounting Pronouncements
See
Note 2 to the Notes to Consolidated Financial Statements for further information concerning accounting standards that we have
not yet been required to adopt and may be applicable to our future operations.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
Lightstone
Value Plus REIT I, Inc. and Subsidiaries
(a Maryland
corporation)
Index
Page
Report
of Independent Registered Public Accounting Firm
Financial
Statements:
Consolidated
Balance Sheets as of December 31, 2021 and 2020
Consolidated
Statements of Operations for the years ended December 31, 2021 and 2020
Consolidated
Statements of Comprehensive Income for the years ended December 31, 2021 and 2020
Consolidated
Statements of Stockholders’ Equity for the years ended December 31, 2021 and 2020
Consolidated
Statements of Cash Flows for the years ended December 31, 2021 and 2020
Notes
to Consolidated Financial Statements
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
Lightstone
Value Plus REIT I, Inc.
Opinion
on the Financial Statements
We have audited the accompanying consolidated balance sheets of Lightstone Value Plus REIT I, Inc. and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical
Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Investment Property -Impairment of Investment Property
As of December 31, 2021, the Company had investment property, net of accumulated depreciation, of approximately $81.6 million. As more fully described in Note 2 to the financial statements, the Company reviews its investment properties for impairment at the lowest identifiable level, the individual property level, whenever events or change in circumstances indicate that the carrying value of a particular property may not be recoverable. When such conditions exist, the Company performs a recoverability analysis to determine if the estimated undiscounted projected cash flows from operations and the estimated proceeds from the ultimate disposition of an investment property exceed the property’s carrying values. The Company estimates undiscounted cash flows of an investment property using observable and unobservable inputs such as historical and projected cash flows, net operating income, current market and other applicable trends, estimated capitalization rates, and residual values. In the event the analysis indicates that a potential impairment exists, the Company will perform an additional analysis to assess the recoverability of the carrying value of the real estate.
We identified the investment property impairment evaluation as a critical audit matter due to estimation uncertainty in determining the undiscounted cash flows of an investment property. In particular, the impairment evaluation for investment property is sensitive to significant assumptions such as forecasted cash flows and net operating income, estimated capitalization rates, and residual values, all of which can be affected by expectations about future market or economic conditions, demand, and competition. This in turn led to a high degree of auditor judgment and subjectivity and significant audit effort was required in performing procedures to evaluate management's investment property impairment evaluation.
Addressing the matter involved performing procedures and evaluating audit evidence, in connection with forming our overall opinion on the financial statements. We obtained an understanding and evaluated the design of controls over the Company’s impairment evaluation. Our procedures included, among others, assessing the methodologies applied, evaluating the significant assumptions discussed above and testing the completeness and accuracy of the underlying data used by management in its analysis. In addition, we performed sensitivity analysis over significant estimates and assumptions including future operating income and residual values. We tested estimated undiscounted cash flows by comparing them to historical operating results by property and the reasonableness of key inputs including forecasted net operating income, capitalization rates, and assumed hold periods. We held discussions with management about the current status of each property and management’s judgments to understand the probability of future events that could affect the holding period and other cash flow assumptions for the properties. We compared anticipated sales values and capitalization rates with comparable observable market data, which involved the use of our valuation specialists. When assessing the assumptions related to estimated undiscounted cash flows, we evaluated whether the assumptions used were reasonable considering the past and current performance of the property and considered whether they were consistent with evidence obtained in other areas of the audit.
/s/
EisnerAmper LLP
We
have served as the Company’s auditor since 2010.
EISNERAMPER
LLP
New
York, New York
March
23, 2022
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Amounts
in thousands, except per share data)
As
of
December 31,
As
of
December 31,
Assets
Investment
property:
Land
and improvements $ 27,301 $ 30,143
Building
and improvements 88,830 101,492
Furniture
and fixtures 2,479 2,453
Construction
in progress
Gross
investment property 118,620 134,096
Less
accumulated depreciation (37,019 ) (33,038 )
Net
investment property 81,601 101,058
Development
projects 234,214 186,188
Investments
in related parties 15,509 15,590
Cash
and cash equivalents 39,405 44,446
Marketable
securities 62,814 46,071
Restricted
cash 3,187 2,395
Notes
receivable, net 26,854 104,624
Prepaid
expenses and other assets 2,068 1,869
Total
Assets $ 465,652 $ 502,241
Liabilities
and Stockholders’ Equity
Mortgages
payable, net $ 165,570 $ 192,385
Accounts
payable, accrued expenses and other liabilities 11,082 8,641
Due
to related parties
Tenant
allowances and deposits payable
Distributions
payable 3,885 3,905
Deferred
rental income
Total
Liabilities 181,427 206,058
Commitments
and contingencies
Stockholders’
equity:
Company’s
Stockholders Equity:
Preferred
shares, $0.01 par value, 10.0 million shares authorized, none issued and outstanding - -
Common
stock, $0.01 par value; 60.0 million shares authorized, 22.2 million and 22.3 million shares issued and outstanding, respectively
Additional
paid-in-capital 168,363 169,649
Accumulated
other comprehensive (loss)/income (40 )
Accumulated
surplus 93,134 89,639
Total
Company’s stockholders’ equity 261,679 259,889
Noncontrolling
interests 22,546 36,294
Total
Stockholders’ Equity 284,225 296,183
Total
Liabilities and Stockholders’ Equity $ 465,652 $ 502,241
The
accompanying notes are an integral part of these consolidated financial statements.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Amounts
in thousands, except per share data)
For
the
Years Ended
December 31,
Revenues:
Rental
income $ 10,214 $ 10,972
Tenant
recovery income
Total
revenues 10,353 11,260
Expenses:
Property
operating expenses 4,159 3,967
Real
estate taxes
General
and administrative costs 2,580 3,144
Impairment
charge 11,341 -
Depreciation
and amortization 5,523 3,956
Total
operating expenses 23,915 11,622
Operating
loss (13,562 ) (362 )
Interest
and dividend income 13,754 13,008
Interest
expense (2,565 ) (2,978 )
Gain
on disposition of real estate, net 3,947 1,562
Gain/(loss)
on sale of marketable securities 5,882 (230 )
Unrealized
gain/(loss) on marketable equity securities 16,481 (12,204 )
Other
income, net
Net
income/(loss) 23,963 (1,087 )
Less:
net income attributable to noncontrolling interests (4,880 ) (3,202 )
Net
income/(loss) attributable to Company’s common shares $ 19,083 $ (4,289 )
Basic
and diluted net income/(loss) per Company’s common share:
Net
income/(loss) per Company’s common shares, basic and diluted $ 0.86 $ (0.19 )
Weighted
average number of common shares outstanding, basic and diluted 22,254 22,337
The
accompanying notes are an integral part of these consolidated financial statements.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
(Amounts
in thousands)
For
the
Years Ended
December 31,
Net income/(loss) $ 23,963 $ (1,087 )
Other comprehensive loss:
Holding gain/(loss)
on available for sale debt securities 5,455 (21 )
Reclassification
adjustment for gain included in net income (5,882 ) -
Other comprehensive
loss: (427 ) (21 )
Comprehensive income/(loss) 23,536 (1,108 )
Less: Comprehensive
income attributable to noncontrolling interests (4,871 ) (3,211 )
Comprehensive
income/(loss) attributable to the Company’s common shares $ 18,665 $ (4,319 )
The
accompanying notes are an integral part of these consolidated financial statements.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts
in thousands)
Accumulated
Additional Other
Total
Common Paid-In Comprehensive Accumulated Noncontrolling Total
Shares Amount Capital Income Surplus Interests Equity
BALANCE,
December 31, 2019 22,608 $ 226 $ 172,749 $ 408 $ 109,559 $ 28,831 $ 311,773
Net
loss - - - - (4,289 ) 3,202 (1,087 )
Other
comprehensive loss - - - (30 ) - (21 )
Distributions
declared (a) - - - - (15,631 ) - (15,631 )
Distributions
paid to noncontrolling interests - - - - - (18,078 ) (18,078 )
Contributions
received from noncontrolling interests - - - - - 22,330 22,330
Redemption,
cancellation and tender of shares (343 ) (3 ) (3,429 ) - - - (3,432 )
Shares
issued from distribution reinvestment program - - - -
BALANCE,
December 31, 2020 22,294 $ 223 $ 169,649 $ 378 $ 89,639 $ 36,294 $ 296,183
Net
income - - - - 19,083 4,880 23,963
Other
comprehensive loss - - - (418 ) - (9 ) (427 )
Distributions
declared (a) - - - - (15,588 ) - (15,588 )
Distributions
paid to noncontrolling interests - - - - - (18,805 ) (18,805 )
Contributions
received from noncontrolling interests - - - - -
Redemption
and cancellation of shares (144 ) (1 ) (1,610 ) - - - (1,611 )
Shares
issued from distribution reinvestment program - - - -
BALANCE,
December 31, 2021 22,181 $ 222 $ 168,363 $ (40 ) $ 93,134 $ 22,546 $ 284,225
(a) Distributions
per share were $0.70.
The
accompanying notes are an integral part of these consolidated financial statements.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Amounts
in thousands)
For
the
Years Ended
December 31,
CASH
FLOWS FROM OPERATING ACTIVITIES:
Net
income/(loss) $ 23,963 $ (1,087 )
Adjustments
to reconcile net income/(loss) to net cash provided by operating activities:
Depreciation
and amortization 5,523 3,956
Unrealized
(gain)/loss on marketable equity securities (16,481 ) 12,204
(Gain)/loss
on sale of marketable securities (5,882 )
Amortization
of deferred financing costs
Noncash
interest income (5,387 ) (5,422 )
Gain
on disposition of real estate (3,947 ) (1,562 )
Other
non-cash adjustments
Impairment
charge 11,341 -
Changes
in assets and liabilities:
(Increase)/decrease
in prepaid expenses and other assets (298 )
Increase/(decrease)
in tenant allowances and deposits payable (419 )
Increase
in accounts payable, accrued expenses and other liabilities 1,350
Decrease
in due to related parties (33 ) (3 )
Decrease
in deferred rental income (205 ) (125 )
Net
cash provided by operating activities 10,001 10,144
CASH
FLOWS FROM INVESTING ACTIVITIES:
Purchase
of investment property (59,465 ) (29,442 )
Purchase
of marketable securities (8,434 ) (8,048 )
Proceeds
from sale of marketable securities 13,627 4,260
Proceeds
from disposition of real estate 20,197 2,082
Investment
in joint venture (78 ) (129 )
Proceeds
from joint venture
Funding
of notes receivable - (43,979 )
Proceeds
from notes receivable 83,156
Proceeds
from investments in related parties - 20,000
Net
cash provided by/(used in) investing activities 49,161 (54,493 )
CASH
FLOWS FROM FINANCING ACTIVITIES:
Proceeds
from mortgage financing 67,302 27,839
Mortgage
principal payments (89,085 ) (1,260 )
Payment
of loan fees and expenses (6,114 ) (651 )
Redemption,
cancellation and tender of common shares (1,611 ) (3,432 )
Contributions
received from noncontrolling interests 22,330
Distributions
paid to noncontrolling interests (18,805 ) (18,078 )
Distributions
paid to Company’s common stockholders (15,284 ) (15,358 )
Net
cash (used in)/provided by financing activities (63,411 ) 11,390
Net
change in cash, cash equivalents and restricted cash (4,249 ) (32,959 )
Cash,
cash equivalents and restricted cash, beginning of year 46,841 79,800
Cash,
cash equivalents and restricted cash, end of period $ 42,592 $ 46,841
See Note 2 for supplemental cash flow information.
The
accompanying notes are an integral part of these consolidated financial statement
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
1. Structure
Lightstone
Value Plus REIT I, Inc., which was formerly known as Lightstone Value Plus Real Estate Investment Trust, Inc. before September
16, 2021, a Maryland corporation (“Lightstone REIT I”), formed on June 8, 2004, which has elected to be taxed and
qualify as a real estate investment trust for U.S. federal income tax purposes (“REIT”). The Lightstone REIT I was
formed primarily for the purpose of engaging in the business of investing in and owning commercial and residential real estate
properties located throughout the United States.
The
Lightstone REIT I is structured as an umbrella partnership real estate investment trust, or UPREIT, and substantially all of the
Company’s current and future business is and will be conducted through Lightstone Value Plus REIT, L.P. (the “Operating
Partnership”), a Delaware limited partnership formed on July 12, 2004. As of December 31, 2021, the Company held a 98% general
partnership interest in the Company’s Operating Partnership’s common units (“Common Units”).
The
Lightstone REIT I and the Operating Partnership and its subsidiaries are collectively referred to as the “Company”
and the use of “we,” “our,” “us” or similar pronouns refers to the Lightstone REIT I, its
Operating Partnership or the Company as required by the context in which such pronoun is used.
Through
its Operating Partnership, the Company owns, operates and develops commercial, residential, and hospitality properties and makes
real estate-related investments, principally in the United States. The Company’s real estate investments are held alone
or jointly with other parties. The Company also originates or acquires mortgage loans secured by real estate. Although most of
its investments are of these types, the Company may invest in whatever types of real estate or real estate-related investments
that it believes is in its best interests.
Since
its inception, the Company has owned and managed various commercial and residential properties located throughout the United States.
The Company evaluates all of its real estate investments as one operating segment. As of December 31, 2021, the Company has ownership
interests in (i) two consolidated operating properties, (ii) two consolidated development properties and (iii) seven unconsolidated
operating properties. With respect to its consolidated operating properties, the Company wholly owns the St. Augustine Outlet
Center, a retail property containing 0.3 million square feet of gross leasable area, and has a majority ownership interest of
59.2% in Gantry Park Landing, a multi-family residential property containing 199 apartment units. With respect to its consolidated
development properties, the Company wholly owns two projects consisting of the Lower East Side Moxy Hotel and the Exterior Street
Project. The Company also holds a 2.5% ownership interest in seven hotel properties through a joint venture (the “Joint
Venture”) which the Company accounts for using a measurement alternative under which the Joint Venture is measured at cost,
adjusted for observable price changes and impairments, if any. The Joint Venture is between the Company and the operating partnership
of Lightstone Value Plus REIT II, Inc., a REIT also sponsored by the Company’s Sponsor, which has a 97.5% ownership interest
in the Joint Venture. Furthermore, the Company has other real estate-related investments, including preferred investments in related
parties and nonrecourse loans made to unaffiliated third-party borrowers.
The
Company’s advisor is Lightstone Value Plus REIT, LLC (the “Advisor”), which is majority owned by David Lichtenstein.
On July 6, 2004, the Advisor contributed $2 to the Operating Partnership in exchange for 200 Common Units. The Company’s
Advisor also owns 20,000 shares of the Company’s common stock (“Common Shares”) which were issued on July 6,
2004 for $200, or $10.00 per share. Mr. Lichtenstein also is the majority owner of the equity interests of The Lightstone Group,
LLC. The Lightstone Group, LLC served as the sponsor (the “Sponsor”) during the Company’s initial public offering
(the “Offering”), which terminated on October 10, 2008. The Company’s Advisor, together with its board of directors
(the “Board of Directors”), is primarily responsible for making investment decisions on the Company’s behalf
and managing its day-to-day operations. Through his ownership and control of The Lightstone Group, LLC, Mr. Lichtenstein is the
indirect owner and manager of Lightstone SLP, LLC, a Delaware limited liability company, which owns an aggregate of $30.0 million
of special general partner interests (“SLP Units”) in the Operating Partnership which were purchased, at a cost of
$100,000 per unit, in connection with the Company’s Offering. Mr. Lichtenstein also acts as the Company’s Chairman
and Chief Executive Officer. As a result, he exerts influence over but does not control the Lightstone REIT I or the Operating
Partnership.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The
Company does not have any employees. The Advisor receives compensation and fees for services related to the investment and management
of the Company’s assets.
The
Company’s Advisor has affiliates which may manage and develop certain of its properties. However, the Company also contracts
with other unaffiliated third-party property managers.
The
Company’s Common Shares are not currently listed on a national securities exchange. The Company may seek to list its stock
for trading on a national securities exchange only if a majority of independent directors believe listing would be in the best
interest of its stockholders. The Company does not intend to list its shares at this time. The Company does not anticipate that
there would be any market for its shares of common stock until they are listed for trading.
Related
Parties:
The
Advisor and its affiliates, and Lightstone SLP, LLC are related parties of the Company. Certain of these entities are entitled
to compensation for services related to the investment, management and disposition of the Company’s assets. The compensation
is based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other
such fees and expense reimbursements as outlined in each of the respective agreements. See Note 12 for additional information.
Noncontrolling
Interests
Partners
of Operating Partnership
On
July 6, 2004, the Advisor contributed $2 to the Operating Partnership in exchange for 200 Common Units in the Operating Partnership.
The Advisor has the right to convert the Common Units into cash or, at the option of the Company, an equal number of shares of
Common Shares.
In
connection with the Offering, Lightstone SLP, LLC, an affiliate of the Advisor, purchased an aggregate of $30.0 million of SLP
Units. As the majority owner of the SLP Units, Mr. Lichtenstein is the beneficial owner of a 99% interest in such SLP Units and
thus receives an indirect benefit from any distributions made in respect thereof. These SLP Units may be entitled to a portion
of any regular and liquidation distributions that the Company makes to its stockholders, but only after the Company’s stockholders
have received a stated preferred return.
In
addition, an aggregate 497,209 Common Units were issued to other unrelated parties during the years ended December 31, 2008 and
2009 and remain outstanding as of December 31, 2021.
Other
Noncontrolling Interests in Consolidated Subsidiaries
Other
noncontrolling interests in consolidated subsidiaries include ownership interests in (i) Pro-DFJV Holdings LLC (“PRO”)
held by the Company’s Sponsor (see Note 11), (ii) 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”),
held by the Company’s Sponsor and other affiliates (see Note 11) and (iii) various joint ventures held by affiliates
of the Sponsor that have originated promissory notes to unaffiliated third parties (see Note 5). PRO’s holdings principally
consist of Marco OP Units and Marco II OP Units (see Note 6). The 2nd Street Joint Venture owns Gantry Park Landing, a multi-family
apartment building located in Queens, New York.
See
Note 11 for further discussion of noncontrolling interests.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
COVID-19
Pandemic
The
World Health Organization declared COVID-19 a global pandemic on March 11, 2020 and since that time many of the previously imposed
restrictions and other measures which were instituted in response have been subsequently reduced or lifted. However, the COVID-19
pandemic remains highly unpredictable and dynamic and its duration and extent continue to be dependent on various developments,
such as the emergence of variants to the virus that may cause additional strains of COVID-19, the administration and ultimate
effectiveness of vaccines, and the eventual timeline to achieve a sufficient level of herd immunity among the general population.
Accordingly, the COVID-19 pandemic may continue to have negative effects on the health of the U.S. economy for the foreseeable
future.
As
a result of previously imposed restrictions, the Company temporarily closed its St. Augustine Outlet Center from March 20, 2020
through May 7, 2020. During the COVID-19 pandemic, the property’s occupancy declined and because of limited leasing success,
the Company began exploring various strategic alternatives for its St. Augustine Outlet Center and as a result determined during
the third quarter of 2021 that it would no longer pursue leasing of space to tenants and therefore, entered into lease termination
agreements with certain tenants and also provided notice to its other tenants that it would not renew their leases at scheduled
expiration. As a result of this change in leasing strategy and resulting decrease in the fair value of the St. Augustine Outlet
Center, the Company recorded a non-cash impairment charge of $11.3 million during the third quarter of 2021. See Note 8 for additional
information.
Additionally,
as a result of the COVID-19 pandemic, during 2020 the Company saw deterioration in both the occupancy and rental rates for Gantry
Park Landing, which is located on Long Island, New York, as the luxury rental market in the greater New York City metropolitan
area was negatively impacted. However, both occupancy and rental rates have improved considerably throughout 2021 and have returned
to pre-COVID-19 levels.
To-date,
the COVID-19 pandemic has not had any significant impact on the Company’s development projects. Furthermore, the Company’s
other real estate-related investments (both its preferred investments in related parties and nonrecourse loans made to unaffiliated
third-party borrowers) also relate to various development projects which are at different stages in their respective development
process. These investments, which are subject to similar restrictions and other measures, have also not yet been significantly
impacted by the COVID-19 pandemic.
The
overall extent to which the Company’s business may be affected by the ongoing COVID-19 pandemic will largely depend on both
current and future developments, all of which are highly uncertain and cannot be reasonably predicted.
If
the Company’s operating properties, development projects and real estate-related investments are negatively impacted for
an extended period because (i) occupancy levels and rental rates decline, (ii) tenants are unable to pay their rent, (iii) borrowers
are unable to pay scheduled debt service on notes receivable, (iv) development activities are delayed and/or (v) various related
party entities are unable to pay monthly preferred distributions on the Company’s preferred investments in related parties,
the Company’s business and financial results could be materially and adversely impacted.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
2. Summary
of Significant Accounting Policies
Principles
of Consolidation and Basis of Presentation
The
consolidated financial statements include the accounts of Lightstone REIT I and the Operating Partnership and its subsidiaries
(over which the Company exercises financial and operating control). As of December 31, 2021, Lightstone REIT I had a 98% general
partnership interest in the Operating Partnership. All inter-company balances and transactions have been eliminated in consolidation.
The
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“GAAP”). GAAP requires the Company’s management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of real
estate and real estate-related investments, depreciable lives, and revenue recognition. Application of these assumptions requires
the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.
Investments
in entities where the Company has the ability to exercise significant influence, but does not exercise financial and operating
control, and is not considered to be the primary beneficiary of a variable interest entity will be accounted for using the equity
method. Investments in entities where the Company has virtually no influence are recorded initially at cost, as investments in
unconsolidated joint ventures, and subsequently adjusted for cash contributions and distributions.
Cash,
Cash Equivalents and Restricted Cash
The
Company considers all highly liquid investments with an original maturity of three months or less when made to be cash equivalents.
As
required by the Company’s lenders, restricted cash is held in escrow accounts for anticipated capital expenditures, real
estate taxes, and other reserves for certain of its consolidated properties. Capital reserves are typically utilized for non-operating
expenses such as tenant improvements, leasing commissions, and major capital expenditures. Alternatively, a lender may require
its own formula for an escrow of capital reserves. Restricted cash may also include certain funds temporarily placed in escrow
with qualified intermediaries to facilitate potential like-kind exchange transactions in accordance with Section 1031 of the Internal
Revenue Code of 1986, as amended.
The
following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in the statements
of cash flows for the periods presented:
Schedule of Company’s cash, cash equivalents
December
31,
Cash
and cash equivalents $ 39,405 $ 44,446
Restricted
cash 3,187 2,395
Total
cash, cash equivalents and restricted cash $ 42,592 $ 46,841
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Supplemental
cash flow information for the periods indicated is as follows:
Summary of supplemental cash flow information
For
the
Years Ended
December 31,
December 31,
Cash
paid for interest $ 9,395 $ 8,860
Distributions
declared but not paid $ 3,885 $ 3,905
Accrued
development costs $ 4,602 $ 3,995
Amortization
of deferred financing costs included in development projects $ 1,399 $ 1,151
Holding
gain/loss on available for sale debt securities $ 427 $ 21
Value
of shares issued from distribution reinvestment program $ 324 $ 329
Accrued
loan exit fee included in deferred financing costs $ 1,100 $ -
Marketable
Securities
Marketable
securities consist of equity and debt securities that are designated as available-for-sale. Marketable debt securities are recorded
at fair value and unrealized holding gains or losses are reported as a component of accumulated other comprehensive income. The
Company’s marketable equity securities are recorded at fair value and unrealized holding gains and losses are recognized
on the consolidated statements of operations.
Realized
gains or losses resulting from the sale of these securities are determined based on the specific identification of the securities
sold. An impairment charge is recognized when the decline in the fair value of a debt security below the amortized cost basis
is determined to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment
charge, including the duration and severity of any decline in fair value below our amortized cost basis, any adverse changes in
the financial condition of the issuers and our intent and ability to hold the investment for a period of time sufficient to allow
for any anticipated recovery in market value. The Board of Directors has authorized the Company from time to time to invest the
Company’s available cash in marketable securities of real estate related companies. The Board of Directors has approved
investments of marketable securities of real estate companies up to 30% of the Company’s total assets to be made at the
Company’s discretion, subject to compliance with any REIT or other restrictions.
Revenue
Recognition
Minimum
rents are recognized on a straight-line accrual basis, over the terms of the related leases. The capitalized above-market lease
values and the capitalized below-market lease values are amortized as an adjustment to rental income over the initial lease term,
including any below-market renewal periods taken into account. Percentage rents, which are based on commercial tenants’
sales, are recognized once the sales reported by such tenants exceed any applicable breakpoints as specified in the tenants’
leases. Recoveries from commercial tenants for real estate taxes, insurance and other operating expenses, and from residential
tenants for utility costs, are recognized as revenues in the period that the applicable costs are incurred.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Consolidated
VIEs
The
Company consolidates certain joint ventures which have originated nonrecourse loans to unaffiliated third-party borrowers
(see Note 5) which are variable interest entities, or VIEs, for which the Company is the primary beneficiary. Generally, a VIE
is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or the equity
investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support.
A limited partnership, or legal entities such as an LLC, are considered a VIE when the majority of the limited partners unrelated
to the general partner possess neither the right to remove the general partner without cause, nor certain rights to participate
in the decisions that most significantly affect the financial results of the partnership. In determining whether the Company is
the primary beneficiary of a VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which
activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount
and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; and
the similarity with and significance to our business activities and the business activities of the other investors. Significant
judgments related to these determinations include estimates about the current and future fair values and performance of real estate
held by these VIEs and general market conditions.
Investments
in Real Estate
Accounting
for Asset Acquisitions
The
cost of the real estate assets acquired in an asset acquisition is allocated to the acquired tangible assets, consisting of land,
building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and
below-market leases for acquired in-place leases and the value of tenant relationships, based in each case on their relative fair
values. Fees incurred related to asset acquisitions are capitalized as part of the cost of the investment.
Accounting
for Business Combinations
Upon
the acquisition of real estate operating properties that meet the definition of a business, the Company estimates the fair value
of acquired tangible assets and identified intangible assets and liabilities and assumed debt at the date of acquisition, based
on evaluation of information and estimates available at that date. Based on these estimates, the Company evaluates the existence
of goodwill or a gain from a bargain purchase and allocates the initial purchase price to the applicable assets, liabilities and
noncontrolling interests, if any. As final information regarding fair value of the assets acquired, liabilities assumed and noncontrolling
interests is received and estimates are refined, appropriate adjustments are made to the purchase price allocation. The allocations
are finalized as soon as all the information necessary is available.
Accounting
for Development Projects
The
Company incurs a variety of costs in the development of a property. The costs of land and building under development include specifically
identifiable costs. The capitalized costs include, but are not limited to, pre-construction costs essential to the development
of the property, development costs, construction costs, interest costs, real estate taxes and other costs incurred during the
period of development. The Company ceases capitalization when the development project is substantially complete and placed
in service, which may occur in phases. Determination of when a development project is substantially complete and capitalization
must cease involves a degree of judgment.
Once
a development project is placed in service, which may occur in phases or for an entire building or project, the costs capitalized
to that development project are transferred to land and improvements, buildings and improvements, and furniture and fixtures on
the Company’s consolidated balance sheets at the historical cost of the property.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Impairment
Evaluation
The
Company evaluates the recoverability of its investments in real estate assets at the lowest identifiable level, the individual
property level. An impairment loss is recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds
its fair value.
The
Company evaluates the long-lived assets for potential impairment whenever events or changes in circumstances indicate that the
undiscounted projected cash flows are less than the carrying amount for a particular property. No single indicator would necessarily
result in the Company preparing an estimate to determine if a long-lived asset’s future undiscounted cash flows are less
than its book value. The Company uses judgment to determine if the severity of any single indicator, or the fact there are a number
of indicators of less severity that when combined, would result in an indication that a long-lived asset requires an estimate
of the undiscounted cash flows to determine if an impairment has occurred. Relevant facts and circumstances include, among others,
significant underperformance relative to historical or projected future operating results and significant negative industry or
economic trends. The estimated cash flows used for the impairment analysis are subjective and require the Company to use its judgment
and the determination of estimated fair value are based on the Company’s plans for the respective assets and the Company’s
views of market and economic conditions. The estimates consider matters such as future operating income, market and other applicable
trends and residual value, as well as the effects of demand, competition, and recent sales data for comparable properties. Changes
in estimated future cash flows due to changes in the Company’s plans or views of market and economic conditions could result
in recognition of impairment losses, which, under the applicable accounting guidance, may be substantial.
Notes
Receivable and Preferred Investments
Notes
receivable and preferred investments that we intend to hold to maturity are carried at cost, net of any unamortized origination
costs, fees, discounts, premiums and unfunded commitments.
Investment
income will be recognized on an accrual basis and any related premium, discount, origination costs and fees are amortized over
the life of the investment using the effective interest method. The amortization is reflected as an adjustment to investment income
in the Company’s statements of operations.
Income
recognition is suspended when, in the opinion of management, a full recovery of income and principal becomes doubtful. When the
ultimate collectability of the principal is in doubt, all payments are applied to principal under the cost recovery method. When
the ultimate collectability of the principal is not in doubt, contractual interest is recorded as investment income when received,
under the cash basis method, until an accrual is resumed when the instrument becomes contractually current and performance is
demonstrated to be resumed.
Credit
Losses and Impairment on Notes Receivable
Notes
receivable are considered impaired when, based on current information and events, it is probable that we will not be able to collect
principal and interest amounts due according to the contractual terms. We assess the credit quality of our notes receivable and
adequacy of reserves on a quarterly basis, or more frequently as necessary. Significant judgment of management is required in
this analysis. We consider the estimated net recoverable value of the notes receivable as well as other factors, including but
not limited to the fair value of any collateral, the amount and the status of any senior debt, the quality and financial condition
of the borrower and the competitive situation of the area where the underlying collateral is located. Because this determination
is based on projections of future economic events, which are inherently subjective, the amount ultimately realized may differ
materially from the carrying value as of the balance sheet date. If upon completion of the assessment, the estimated fair value
of the underlying collateral is less than the net carrying value of the notes receivable, a reserve is recorded with a corresponding
charge to investment income. The reserve for each note receivable is maintained at a level that is determined to be adequate by
management to absorb probable losses.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Credit
Losses and Impairment on Preferred Investments
Preferred
investments that are accounted for as held to maturity are assessed for impairment at the individual investment level when there
is a decline in fair value below the amortized cost basis that is deemed to be other than temporary. In making the determination
of an other-than-temporary impairment assessment, the Company considers all available information relevant to the collectability
of the investment, including information about past events, current conditions, and reasonable and supportable forecasts when
developing the estimate of cash flows expected to be collected. This information includes the remaining redemption terms of the
investment, financial condition of the issuer, expected defaults and the value of any underlying collateral. In assessing whether
the entire amortized cost basis of the investment will be recovered, the Company compares the present value of cash flows expected
to be collected from the investment with the amortized cost basis and records an impairment based on the amount by which the present
value of cash flows expected to be collected is less than the amortized cost basis of the investment.
Depreciation
and Amortization
Depreciation expense is computed based on the straight-line method over the estimated useful life of the applicable real estate asset. The Company generally uses estimated useful lives of up to 39 years for buildings and improvements and five to 10 years for furniture and fixtures. Expenditures for tenant improvements and construction allowances paid to commercial tenants are capitalized and amortized over the initial term of each lease or the estimated useful life, if shorter. Expenditures for ordinary maintenance and repairs are charged to expense as incurred.
Leases
The
Company’s retail property (St. Augustine Outlet Center) and its multi-family residential property (Gantry Park Landing)
are both leased to tenants under operating leases. Substantially all of our multi-family residential property leases have initial
terms of 12 months or less. Our remaining retail space leases expire from 2022 through 2024.
Deferred
Costs
The
Company capitalizes initial direct costs associated with financing activities. The costs are capitalized upon the execution of
the loan, presented in the consolidated balance sheets as a direct deduction from the carrying value of the corresponding loan
and amortized over the initial term of the corresponding loan. Amortization of deferred loan costs begin in the period during
which the loan is originated using the effective interest method over the term of the loan. The Company capitalizes initial direct
costs associated with leasing activities. The costs are capitalized upon the execution of the lease and amortized over the initial
term of the corresponding lease.
Income
Taxes
The
Company has elected to be taxed as a REIT commencing with the taxable year ended December 31, 2005. If the Company qualifies as
a REIT, it generally will not be subject to U.S. federal income tax on its taxable income or capital gain that it distributes
to its stockholders. To maintain its REIT qualification, the Company must meet a number of organizational and operational requirements,
including a requirement that it annually distribute to its stockholders at least 90% of its REIT taxable income (which does not
equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding
any net capital gain. If the Company fails to remain qualified for taxation as a REIT in any subsequent year and does not qualify
for certain statutory relief provisions, its income for that year will be taxed at the regular corporate rate, and it may be precluded
from qualifying for treatment as a REIT for the four-year period following its failure to qualify as a REIT. Such an event could
materially adversely affect the Company’s net income and net cash available for distribution to stockholders.
To
maintain its qualification as a REIT, the Company engages in certain activities through wholly-owned taxable REIT subsidiaries
(“TRSs”). As such, the Company is subject to U.S. federal and state income and franchise taxes from these activities.
As
of December 31, 2021 and 2020, the Company had no material uncertain income tax positions. Additionally, even if the Company continues
to qualify as a REIT, it may still be subject to some U.S. federal, state and local taxes on our income and property and to U.S.
federal income taxes and excise taxes on its undistributed income.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Fair
Value of Financial Instruments
The
carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, prepaid expenses
and other assets, accounts payable, accrued expenses and other liabilities, due to related parties, tenant allowances and deposits
payable and deferred rental income approximate their fair values because of the short maturity of these instruments. The carrying
amounts of the notes receivable approximate their fair values because the interest rates are variable and reflective of market
rates.
The
estimated fair value (in millions) of the Company’s mortgage debt is summarized as follows:
Schedule of mortgage debt
As
of
December 31,
As
of
December 31,
Carrying
Amount Estimated
Fair Value Carrying
Amount Estimated
Fair Value
Mortgages
payable $ 171.8 $ 174.4 $ 193.5 $ 198.0
The
fair value of the mortgages payable was determined by discounting the future contractual interest and principal payments by estimated
current market interest rates.
Accounting
for Derivative Financial Investments and Hedging Activities.
The
Company may enter into derivative financial instrument transactions in order to mitigate interest rate risk on a related financial
instrument. The Company may designate these derivative financial instruments as hedges and apply hedge accounting. The Company
records all derivative instruments at fair value on the consolidated balance sheets and changes in the fair value of the instruments
are recorded in the consolidated statements of operations.
Stock-Based
Compensation
The
Company had a stock-based incentive award plan for the independent directors of its Board pursuant to which awards were granted
at fair market value as of the date of grant. This plan expired in April 2015. For the years ended December 31, 2021 and 2020,
the Company had no compensation costs related to the incentive award plan.
Concentration
of Risk
The
Company maintains its cash and cash equivalents in bank deposit accounts, which, at times, may exceed federally insured limits.
The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit
risk on its cash and cash equivalents.
Net
Earnings per Share
Basic
net earnings per share is calculated by dividing net income attributable to common shareholders by the weighted-average number
of shares of common stock outstanding during the applicable period. Dilutive income per share includes the potentially dilutive
effect, if any, which would occur if our outstanding options to purchase our common stock were exercised. For all periods presented
dilutive net income per share is equivalent to basic net income per share.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
New
Accounting Pronouncements
In
June 2016, the FASB issued an accounting standards update which replaces the incurred loss impairment methodology currently
in use with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and
supportable information to inform credit loss estimates. The new guidance is effective for fiscal years beginning after December 15,
2022, including interim periods within those fiscal years. The Company expects that the adoption of this standard will not have
a material effect on its consolidated financial position, results of operations or cash flows.
The
Company has reviewed and determined that other recently issued accounting pronouncements will not have a material impact
on its financial position, results of operations and cash flows, or do not apply to its current operations.
Reclassifications
Certain
prior period amounts may have been reclassified to conform to the current year presentation.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
3. Development
Projects
Lower
East Side Moxy Hotel
On
December 3, 2018, the Company, through a subsidiary of the Operating Partnership, acquired three adjacent parcels of land
located at 147-151 Bowery, New York, New York from unaffiliated third parties for aggregate consideration of $56.5 million, excluding
closing and other acquisition related costs. Additionally, on December 6, 2018, the Company, though a subsidiary of the Operating
Partnership, acquired certain air rights located at 329 Broome Street, New York, New York from an unaffiliated third party
for $2.4 million, excluding closing and other acquisition related costs. The Company is using the land and air rights for the
development and construction of a 296-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”). On June 3, 2021,
the Company entered into a development agreement (the “Development Agreement”) with an affiliate of the Advisor (the
“Moxy Lower East Side Developer”) pursuant to which the Lower East Side Moxy Developer will be paid a development
fee equal to 3% of hard and soft costs incurred in connection with the development and construction of the Lower East Side Moxy
Hotel. Additionally on June 3, 2021, the Company obtained construction financing for the Lower East Side Moxy Hotel. The Lower
East Side Moxy Hotel is currently under construction and expected to open during the fourth quarter of 2022. See Notes 7
and 12 for additional information.
Exterior
Street Project
On
February 27, 2019, the Company, through subsidiaries of the Operating Partnership, acquired two adjacent parcels of land located
at 355 and 399 Exterior Street, New York, New York from unaffiliated third parties for an aggregate purchase price of $59.0 million,
excluding closing and other acquisition related costs. In September 2021, the Company subsequently acquired an additional adjacent
parcel of land at cost from an affiliate of its Advisor for $1.0 million in order to achieve certain zoning compliance. The Company
is using the land parcels for the development of a multi-family residential property (the “Exterior Street Project”).
Santa
Clara Data Center
On
January 10, 2019, the Company acquired a parcel of land located at 2175 Martin Avenue, Santa Clara, California (the “Martin
Avenue Land”) from an unaffiliated third party for $10.6 million. Subsequently, the Company completed certain activities
associated with the potential development and construction of a data center on the Martin Avenue Land (the “Santa Clara
Data Center”).
On
July 7, 2021, the Company disposed of the Santa Clara Data Center to an unrelated third party for a contractual sales price of
$13.9 million. In connection with the disposition of the Santa Clara Data Center, the Company recognized a gain of $0.2 million
during the third quarter of 2021, which is included in gain on disposition of real estate, net on the consolidated statements
of operations.
The
disposition of the Santa Clara Data Center did not qualify to be reported as discontinued operations since it did not represent
a strategic shift that had a major effect on the Company’s operations and financial results. Accordingly, the operating
results of the Santa Clara Data Center are reflected in the Company’s results from continuing operations for all periods
presented through its date of disposition.
The
following is a summary of the amounts incurred and capitalized to each of the Company’s development projects as of the dates
indicated and the amounts of interest capitalized to each of the Company’s development projects for the periods indicated:
Schedule of development projects
Amounts
Capitalized to
Construction in Progress Capitalized
Interest
As
of
December 31, As
of
December 31, Year
Ended
December 31,
Development
Project 2020
Lower
East Side Moxy Hotel $ 146,747 $ 98,608 $ 6,251 $ 4,425
Exterior
Street Project 87,467 74,230 1,986 3,080
Santa
Clara Data Center - 13,350 -
Total $ 234,214 $ 186,188 $ 8,237 $ 7,800
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
4. Investments
in Related Parties
Preferred
Investments
The
Company has entered into agreements with various related party entities that provide for it to make preferred contributions pursuant
to certain instruments (the “Preferred Investments”) that entitle it to certain prescribed monthly preferred distributions
(see below for additional information). The Preferred Investments had an aggregate balance of $14.5 million as of December 31,
2021 and 2020, and are classified as held-to-maturity securities, recorded at cost and included in investments in related parties
on the consolidated balance sheets. The fair value of these investments approximated their carrying values based on market rates
for similar instruments. During the year ended December 31, 2020, the Company redeemed $11.0 million of the 40 East End Avenue
Preferred Investment and the entire remaining Miami Moxy Preferred Investment of $9.0 million. Additionally, during the years
ended December 31, 2021 and 2020, the Company recognized investment income of $1.8 million and $2.0 million, respectively.
The
Preferred Investments are summarized as follows:
Schedule of Preferred Investments
Preferred Investment Balance Investment Income(1)
Dividend As of
December 31, As of
December 31, For the
Year Ended
December 31,
Preferred Investments Rate 2020
40 East End Avenue 12 % $ 6,000 $ 6,000 $ 730 $ 886
East 11th Street 12 % 8,500 8,500 1,034 1,040
Miami Moxy 12 % - - -
Total Preferred Investments
$ 14,500 $ 14,500 $ 1,764 $ 1,971
Note:
(1) Included
in interest and dividend income on the statements of operations.
East End Avenue Preferred Investment
In
May 2015, the Company entered into an agreement pursuant to which it made aggregate contributions of $30.0 million in 40 East
End Ave. Pref Member LLC (the “40 East End Ave. Joint Venture”), a related party entity. The 40 East End Ave. Joint
Venture is a joint venture between an affiliate of our Sponsor and Lightstone Value Plus REIT IV, Inc. (“Lightstone REIT
IV”), a related-party REIT also sponsored by the Company’s Sponsor, which developed and constructed a luxury residential
condominium project consisting of 29 units (the “40 East End Avenue Project”) located at the corner of 81st Street
and East End Avenue in the Upper East Side neighborhood of New York City. The 40 East End Avenue Project received its final temporary
certificates of occupancy, or TCO, in March 2020 and through December 31, 2021, fifteen of the condominium units had been sold.
Contributions
were made pursuant to an instrument, the “40 East End Avenue Preferred Investment,” that is entitled to monthly preferred
distributions, initially at a rate of 8% per annum which increased to 12% per annum upon procurement of construction financing
in March 2017, and is redeemable by the Company beginning on April 27, 2022. During the fourth quarter of 2019, the Company redeemed
$13.0 million of the 40 East End Avenue Preferred Investment. In February 2020, the Company redeemed an additional $11.0 million
of the 40 East End Avenue Preferred Investment which reduced the remaining outstanding balance to $6.0 million.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
East
11th Street Preferred Investment
On
April 21, 2016, the Company entered into an agreement, as amended, with various related party entities pursuant to which it to
made aggregate contributions of $57.5 million in an affiliate of its Sponsor (the “East 11th Street Developer”)
which developed and constructed a Marriott Moxy Hotel located at 112-120 East 11th Street in New York, New York. Contributions
were made pursuant to an instrument, the “East 11th Street Preferred Investment,” that entitled us to monthly
preferred distributions at a rate of 12% per annum. Upon the consummation of certain capital transactions, the Company may redeem
its investment in the East 11th Street Preferred Investment. Additionally, the East 11th Street Developer may redeem
the Company’s investment at any time or upon the consummation of any capital transaction. Any redemption by the Company
or the East 11th Street Developer under the East 11th Street Preferred Investment will be made at an amount equal to
the amount invested by the Company plus a 12.0% annual cumulative, pre-tax, non-compounded return on the aggregate amount invested
by the Company. During 2019 and 2018, the Company redeemed $34.5 million and $14.5 million, respectively of the East 11th Street
Preferred Investment which reduced the remaining outstanding balance to $8.5 million.
Miami
Moxy Preferred Investment
On
September 30, 2016, the Company entered into an agreement with various related party entities pursuant to which it made aggregate
contributions of $20.0 million in an affiliate of its Sponsor (the “Miami Moxy Developer”), which owns parcels of
land located at 915 through 955 Washington Avenue in Miami Beach, Florida, on which it constructed a 205-room Marriott Moxy hotel
(the “Miami Moxy”). Contributions were made pursuant to an instrument, the “Miami Moxy Preferred Investment,”
that entitled the Company to monthly preferred distributions at a rate of 12% per annum. During the fourth quarter of 2019, the
Company redeemed $11.0 million of the Miami Moxy Preferred Investment and during the first quarter of 2020, the Company redeemed
the entire remaining Miami Moxy Preferred Investment of $9.0 million.
The
Joint Venture
During
2015, the Company formed the Joint Venture with Lightstone REIT II. The Company has a 2.5% membership interest in the Joint Venture
and Lightstone REIT II holds the remaining 97.5% membership interest. The Joint Venture previously acquired our membership interests
in a portfolio of 11 hotels in a series of transactions completed during 2015. The Joint Venture holds ownership interests in
seven hotels as of December 31, 2021.
The
Company accounts for its 2.5% membership interest in the Joint Venture using a measurement alternative under which the Joint Venture
is measured at cost, adjusted for observable price changes and impairments, if any, and as of December 31, 2021 and 2020, the
carrying value of its investment was $1.0 million and $1.1 million, respectively, which is included in investments in related
parties on the consolidated balance sheets.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
5. Notes
Receivable
The
Company has formed certain joint ventures (collectively, the “NR Joint Ventures”) between wholly-owned subsidiaries
of the Operating Partnership (collectively, the “NR Subsidiaries”) and affiliates of the Sponsor (the “NR Affiliates”)
which have originated nonrecourse loans (collectively, the “Joint Venture Promissory Notes”) to unaffiliated third-party
borrowers (collectively, the “Joint Venture Borrowers”).
The
NR Subsidiaries and NR Affiliates have varying ownership interests in the NR Joint Ventures and certain other wholly-owned subsidiaries
of the Operating Partnership serve as the manager and are the sole decision-maker for each of the NR Joint Ventures.
The
Company has determined that the NR Joint Ventures are VIEs and the NR Subsidiaries are the primary beneficiaries. Since the NR
Subsidiaries are the primary beneficiaries, beginning on the applicable date of formation, the Company has consolidated the operating
results and financial condition of the NR Joint Ventures and accounted for the respective ownership interests of the NR Affiliates
as noncontrolling interests.
The
Joint Venture Promissory Notes generally provide for monthly interest at a prescribed variable rate, subject to a floor. In connection
with the initial funding of the Joint Venture Promissory Notes, the NR Joint Ventures receive origination fees (ranging from 1.00%
to 1.50%) based on the principal commitment under the loan and retain a portion of the loan proceeds to establish a reserve for
interest and other items (the “Loan Reserves”). The Joint Venture Promissory Notes are recorded in notes receivable,
net on the consolidated balance sheets.
The
Joint Venture Promissory Notes generally have an initial term of one or two years and may provide for additional extension options
subject to satisfaction of certain conditions, including the funding of additional Loan Reserves and payment of extension fees.
The Joint Venture Promissory Notes are collateralized by either the membership interests of the Joint Venture Borrowers in the
borrowing entity or the underlying real property being developed by the Joint Venture Borrower.
Origination
fees are presented in the consolidated balance sheets as a direct deduction from the carrying value of the Joint Venture
Promissory Notes and are amortized into interest income, using a straight-line method that approximates the effective interest
method, over the initial term of the Joint Venture Promissory Notes. The Loan Reserves are presented in the consolidated
balance sheets as a direct deduction from the carrying value of the Joint Venture Promissory Notes and are applied
against the monthly interest due over the term.
During
the year ended December 31, 2021, both the NR Subsidiaries and the NR Affiliates made aggregate contributions to the NR Joint
Ventures of $0.2 million. Additionally, during the year ended December 31, 2021, the NR Joint Ventures made aggregate distributions
of $16.3 million to both the NR Subsidiaries and NR Affiliates, based on their respective membership interests. During the year
ended December 31, 2020, both the NR Subsidiaries and the NR Affiliates made aggregate contributions to the NR Joint Ventures
of $22.3 million, principally to fund their respective shares of the Joint Venture Promissory Notes that were originated. Additionally,
during the year ended December 31, 2020, the NR Joint Ventures made aggregate distributions of $15.0 million to both the NR Subsidiaries
and NR Affiliates, based on their respective membership interests.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The
Notes Receivable are summarized as follows:
Summary of Notes Receivable
As
of
December 31, 2021
Company’s Loan
Contractual
Unamortized
Joint Ownership Commitment Origination Origination Maturity Interest Outstanding
Origination Carrying Unfunded
Venture/Lender Percentage Amount Fee Date Date Rate Principal Reserves Fee Value Commitment
LSC
1543 7th LLC (1) 50 % 20,000 1.00 % August
27, 2019 February
28, 2022 Libor plus
5.40% (Floor of 7.90%) $ 17,500 $ - $ (33 ) $ 17,467 $ -
LSC
11640 Mayfield LLC (2) 50 % 18,000 1.50 % March 4, 2020 March 1, 2022 Libor plus 11.00%
(Floor of 13.00%) 10,040 (629 ) (24 ) 9,387 6,960
Total
$ 27,540 $ (629 ) $ (57 ) $ 26,854 $ 6,960
As
of
December 31, 2020
Company’s Loan
Contractual
Unamortized
Joint Ownership Commitment Origination Origination Maturity Interest Outstanding
Origination Carrying Unfunded
Venture/Lender Percentage Amount Fee Date Date Rate Principal Reserves Fee Value Commitment
LSC
162nd Capital I LLC (3) 45.45 % $ 4,234 1.50 % February
5, 2019 September
11, 2021 LIBOR +
7.50% (Floor of 11%) $ 4,076 $ (338 ) $ (33 ) $ 3,705 $ -
LSC
162nd Capital II LLC (3) 45.45 % 9,166 1.50 % February 5, 2019 September 11, 2021 LIBOR + 7.50% (Floor
of 11%) 8,824 (732 ) (71 ) 8,021 -
LSC
1543 7th LLC 50 % 20,000 1.00 % August 27, 2019 August 26, 2021 LIBOR + 5.40% (Floor
of 7.90%) 20,000 - (33 ) 19,967 -
LSC
1650 Lincoln LLC (3) 50 % 24,000 1.00 % August 27, 2019 August 26, 2021 LIBOR + 5.40% (Floor
of 7.90%) 24,000 - (40 ) 23,960 -
LSC
11640 Mayfield LLC 50 % 18,000 1.50 % March 4, 2020 March 1, 2022 LIBOR + 10.50% (Floor
of 12.50%) 10,750 (2,369 ) (158 ) 8,223 7,250
LSC
87 Newkirk LLC (4) 50 % 42,700 1.25 % July 2, 2020 December 1, 2021 LIBOR + 6.00% (Floor
of 7.00%) 42,700 (1,597 ) (355 ) 40,748 -
Total
$ 110,350 $ (5,036 ) $ (690 ) $ 104,624 $ 7,250
Notes:
(1) Repaid
in full during March 2022.
(2) Repaid
in full during February 2022.
(3) Repaid
in full during December 2021.
(4) Repaid
in full during April 2021.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The
following summarizes the interest earned (included in interest and dividend income on the consolidated statements of operations)
for each of the Joint Venture Promissory Notes during the periods indicated:
Summarizes the interest earned for each of the Joint Venture Promissory Notes
For the
Year Ended For the
Year Ended
December 31, December 31,
Joint
Venture/Lender
LSC
162nd Capital I LLC $ 491 $ 641
LSC
162nd Capital II LLC 1,063 1,387
LSC
1543 7th LLC 1,802 1,770
LSC
1650 Lincoln LLC 2,317 2,124
LSC
11640 Mayfield LLC 1,875 1,243
LSC
87 Newkirk LLC 1,585 1,625
Total $ 9,133 $ 8,790
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
6. Marketable
Securities, Fair Value Measurements and Notes Payable
Marketable
Securities:
The
following is a summary of the Company’s available for sale securities as of the dates indicated:
Summary of available for sale securities and other investments
As
of
December 31,
Adjusted
Cost Gross
Unrealized Gains Gross
Unrealized Losses Fair
Value
Marketable
Securities:
Equity
securities:
Common
and Preferred Equity Securities $ 24,932 $ 2,541 $ (135 ) $ 27,338
Marco
OP Units and Marco II OP Units 19,227 14,204 - 33,431
44,159 16,745 (135 ) 60,769
Debt
securities:
Corporate
Bonds 2,073 - (28 ) 2,045
Total $ 46,232 $ 16,745 $ (163 ) $ 62,814
As
of
December 31,
Adjusted
Cost Gross
Unrealized Gains Gross
Unrealized Losses Fair
Value
Marketable
Securities:
Equity
securities:
Common
and Preferred Equity Securities $ 9,386 $ 2,054 $ (575 ) $ 10,865
Marco
OP Units and Marco II OP Units 19,227 - (1,383 ) 17,844
28,613 2,054 (1,958 ) 28,709
Debt
securities:
Corporate
Bonds 16,964 (148 ) 17,362
Total $ 45,577 $ 2,600 $ (2,106 ) $ 46,071
As
of both December 31, 2021 and 2020, the Company held an aggregate of 209,243 Marco OP Units and Marco II OP Units, of which 89,695
were owned by PRO. The Marco OP Units and the Marco II OP Units are both exchangeable for a similar number of common operating
partnership units (“Simon OP Units”) of Simon Property Group, L.P., (“Simon OP”), the operating partnership
of Simon Property Group, Inc. (“Simon Inc.”), a public REIT that is an owner and operator of shopping malls and outlet
centers. Subject to the various conditions, the Company may elect to exchange the Marco OP Units and/or the Marco II OP Units
to Simon OP Units which must be immediately delivered to Simon Inc. in exchange for cash or similar number of shares of Simon
Inc.’s common stock (“Simon Stock”). Accordingly, the Marco OP Units and Marco II OP Units are valued based
on the closing price of Simon Stock, which was $159.77 per share and $85.28 per share as of December 31, 2021 and 2020, respectively.
Additionally, the closing price of Simon Stock was $148.96 per share as of December 31, 2019.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Beginning
with the onset of the COVID-19 pandemic in March 2020, financial markets have experienced significant volatility resulting in
swings in market interest rates and market prices of certain equity securities. Primarily because of this volatility, particularly
due to the above noted changes in the closing prices of Simon Stock, the Company incurred an unrealized gain of $16.5 million
for the year ended December 31, 2021 and an unrealized loss of $12.2 million for the year ended December 31, 2020. These
unrealized gains and losses incurred on the Company’s marketable equity securities are included in its consolidated statements
of operations.
Additionally,
as of December 31, 2021 and 2020, certain of the Company’s marketable debt securities had gross unrealized losses of $28
and $148. However, the Company does not consider these declines in market value to be other than temporary in nature. When evaluating
the debt investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to
which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s
intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s
amortized cost basis. During the years ended December 31, 2021 and 2020, the Company did not recognize any other-than-temporary
impairment charges. As of both December 31, 2021 and 2020, the Company does not consider any of its investments to be other-than-temporarily
impaired.
The
Company may sell certain of its investments prior to their stated maturities for strategic purposes, in anticipation of credit
deterioration, or for duration management.
Fair
Value Measurements
Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on
the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize
the use of unobservable inputs.
The
standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and
the last unobservable, that may be used to measure fair value:
● Level
1 - Quoted prices in active markets for identical assets or liabilities.
● Level
2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
● Level
3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
of the assets or liabilities.
Marketable
securities, available for sale, measured at fair value on a recurring basis as of the dates indicated are as follows:
Schedule of Marketable securities measured at fair value on a recurring basis
Fair
Value Measurement Using
As
of December 31, 2021 Level
Level
Level
Total
Marketable
Securities:
Common
and Preferred Equity Securities $ 6,825 $ 20,513 $ - $ 27,338
Marco
OP and OP II Units - 33,431 - 33,431
Corporate
Bonds - 2,045 - 2,045
Total $ 6,825 $ 55,989 $ - $ 62,814
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Fair
Value Measurement Using
As
of December 31, 2020 Level
Level
Level
Total
Marketable
Securities:
Common
and Preferred Equity Securities $ 10,865 $ - $ - $ 10,865
Marco
OP and OP II Units - 17,844 - 17,844
Corporate
Bonds - 17,362 - 17,362
Total $ 10,865 $ 35,206 $ - $ 46,071
The
fair values of the Company’s common equity securities are measured using readily quoted prices for these investments which
are listed for trade on active markets. The fair values of the Company’s preferred equity securities and corporate bonds
are measured using readily available quoted prices for these securities; however, the markets for these securities are not active.
Additionally, as noted and disclosed above, the Company’s Marco OP and OP II units are both ultimately exchangeable for
cash or similar number of shares of Simon Stock, therefore the Company uses the quoted market price of Simon Stock to measure
the fair value of the Company’s Marco OP and OP II units.
Nonrecurring
Fair Value Measurements
During
the third quarter of 2021, the Company recorded a non-cash impairment charge of $11.3 million to reduce the carrying value of
the St. Augustine Outlet Center to its estimated fair value of $23.3 million as of September 30, 2021. In estimating the fair
value of the St. Augustine Outlet Center, the Company used management’s internal comparable sales analysis prepared with
consideration of local market conditions, which was considered a Level 3 under the fair value hierarchy described above.
The carrying value of the St. Augustine Outlet Center is included in investment property on the consolidated balance sheets. See
Note 8.
The
Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized
at fair value.
Notes
Payable
Margin
Loan
The
Company has access to a margin loan (the “Margin Loan”) from a financial institution that holds custody of certain
of the Company’s marketable securities. The Margin Loan, which is due on demand, bears interest at LIBOR + 0.85% (0.95%
as of December 31, 2021) and is collateralized by the marketable securities in the Company’s account. The amounts available
to the Company under the Margin Loan are at the discretion of the financial institution and not limited to the amount of collateral
in its account. There were no amounts outstanding under this Margin Loan as of December 31, 2021 and 2020.
Line
of Credit
The
Company has a non-revolving credit facility (the “Line of Credit”) that provides for borrowings up to a maximum of
$20.0 million, subject to a 55% loan-to-value ratio based on the fair value of the underlying collateral, matures on November
30, 2022 and bears interest at LIBOR + 1.35% (1.45% as of December 31, 2021). The Line of Credit is collateralized by an aggregate
of 209,243 of Marco OP Units and Marco II OP Units and is guaranteed by PRO. As of December 31, 2021, the amount of borrowings
available to be drawn under the Line of Credit was $18.4 million. No amounts were outstanding under the Line of Credit as of both
December 31, 2021 and 2020.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
7. Mortgages
Payable
Mortgages
payable, net consists of the following:
Schedule of Mortgages Payable
Property/Investment Interest
Rate Weighted
Average
Interest Rate as of
December 31,
Maturity
Date Amount
Due at
Maturity As
of
December 31,
As
of
December 31,
Gantry
Park Landing 4.48% 4.48 % November 2024 $ 65,317 $ 69,540 $ 70,868
Lower
East Side Moxy Hotel Repaid in full during June 2021
- - 35,168
Lower
East Side Moxy Hotel Senior LIBOR + 7.25% (floor of 7.75%) 7.75 % June 2024 35,610 35,610 -
Lower
East Side Moxy Hotel Junior LIBOR + 13.50% (floor of 14.00%) 14.00 % June 2024 24,603 24,603 -
Exterior
Street Project LIBOR + 2.25% 2.34 % April 2022 35,000 35,000 35,000
Exterior
Street Project Supplemental LIBOR + 2.50% 2.60 % April 2022 7,000 7,000 -
Santa
Monica Notes Receivable Repaid in full during December 2021
- - 25,000
Newkirk Note Receivable Repaid in full
during April 2021
- - 27,500
Total
mortgages payable
6.01 %
$ 167,530 171,753 193,536
Less:
Deferred financing costs
(6,183 ) (1,151 )
Total
mortgages payable, net
$ 165,570 $ 192,385
LIBOR
as of December 31, 2021 and 2020 was 0.10% and 0.14%, respectively. The Company’s mortgages are secured by the indicated
real estate/investment and are non-recourse to the Company, unless otherwise indicated.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The
following table shows the Company’s contractually scheduled principal maturities during the next five years and thereafter:
Scheduled of Contractually Principal Maturities During Next Five Years
2025
Thereafter Total
Principal
maturities $ 43,389 $ 1,454 $ 126,910 $ -
$ - $ - $ 171,753
Less:
Deferred financing costs
(6,183)
Total
principal maturities, net
$ 165,570
On
June 3, 2021, the Company, through a wholly owned subsidiary, closed on a recourse construction loan facility (the “Moxy
Senior Loan”) providing for up to $90.0 million of funds for the development and construction of the Lower East Side Moxy
Hotel. At closing, $35.6 million of proceeds were initially advanced under the Moxy Senior Loan, which were used to repay in full
the Lower East Side Moxy Mortgage. The Moxy Senior Loan bears interest at LIBOR + 7.50%, subject to an 8.00% floor, and initially
matures on June 3, 2024, with two one-year extension options, subject to the satisfaction of certain conditions. The Moxy Senior
Loan is collateralized by the Lower East Side Moxy Hotel. As of December 31, 2021, the outstanding principal balance of the Moxy
Senior Loan was $35.6 million and the remaining availability under the facility was up to $54.4 million.
Simultaneously
on June 3, 2021, the Company, through the same wholly owned subsidiary, also entered into a mezzanine construction loan facility
(the “Moxy Junior Loan” and together with the Moxy Senior Loan, the “Moxy Construction Loans”) providing
for up to $40.0 million of additional funds for the development and construction of the Lower East Side Moxy Hotel. The Moxy Junior
Loan bears interest at LIBOR + 13.50%, subject to a 14.00% floor, and initially matures on June 3, 2024, with two one-year extension
options, subject to the satisfaction of certain conditions. The Moxy Junior Loan is subordinate to the Moxy Senior Loan but also
collateralized by the Lower East Side Moxy Hotel. The Company has provided a principal guarantee of up to $7.0 million with respect
to the Moxy Junior Loan. As of December 31, 2021, the outstanding principal balance of the Moxy Junior Loan was $24.6 million
and the remaining availability under the facility was up to $15.4 million.
Future
draws to cover the costs associated with the development and construction of the Lower East Side Moxy Hotel will first be advanced
under the Moxy Junior Loan until it has been fully funded and thereafter, funds will be advanced under the remaining availability
of the Moxy Senior Loan.
In
connection with the Moxy Construction Loans, the Company has provided certain completion and carry cost guarantees. The Company
has also entered into an interest rate cap agreement pursuant to which the LIBOR rate will be capped at 3.00% on the Moxy Senior
Loan through June 3, 2024 at a cost of $0.2 million. Furthermore, in connection with the Moxy Construction Loans, the Company
paid $5.3 million of loan fees and expenses and accrued $1.1 million of loan exit fees which are due at the initial maturity date
and are included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheets as of December
31, 2021.
On
July 22, 2020, the Company, through the 87 Newkirk Joint Venture, entered into a $27.5 million loan (the “87 Newkirk Loan”)
which bore interest at LIBOR + 3.80%, subject to a 4.80% floor. The 87 Newkirk Loan required monthly interest-only payments with
the outstanding principal balance due in full at its maturity date and was collateralized by a nonrecourse loan originated by
the 87 Newkirk Joint Venture (the “87 Newkirk Note Receivable” - see Note 5). On April 5, 2021, the 87 Newkirk Joint
Venture repaid the 87 Newkirk Loan in full using a portion of the proceeds it received from the repayment in full of the 87 Newkirk
Note Receivable.
On
November 12, 2019, the Company, through LSC 1543 7th LLC and LSC 1650 Lincoln LLC (collectively, the “Santa Monica Joint
Ventures”), entered into a $25.0 million loan (the “Santa Monica Loan”) which bore interest at LIBOR + 3.75%,
subject to a 5.50% floor. The Santa Monica Loan required monthly interest-only payments and was cross-collateralized by two nonrecourse
loans originated by the Santa Monica Joint Ventures (the “Santa Monica Note Receivables” - see Note 5). During December
2021, the Santa Monica Joint Ventures repaid the Santa Monica Loan in full using a portion of the proceeds it received from the
repayment in full of the Santa Monica Notes Receivable.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
On
March 29, 2019, the Company entered into a $35.0 million loan (the “Exterior Street Loan”) which, commencing on October
10, 2020, bears interest at LIBOR + 2.25% through its scheduled maturity date. The Exterior Street Loan requires monthly interest-only
payments with the outstanding principal balance due in full at its maturity date. The Exterior Street Loan was initially scheduled
to mature on April 9, 2021 but during April 2021, its maturity date was further extended to April 9, 2022. Additionally, on December
21, 2021, the loan agreement was amended to provide an additional six-month extension and an additional $7.0 million loan (the
“Exterior Street Supplemental Loan” and collectively with the Exterior Street Loan, the “Exterior Street Loans”)
which bears interest at LIBOR + 2.50% and requires monthly interest-only payments through its maturity date. The Exterior Street
Loans are scheduled to mature on April 9, 2022, with a six-month extension option, subject to certain conditions and are collateralized
by the Exterior Street Project.
On
November 19, 2014, the 2nd Street Joint Venture entered into a $74.5 million mortgage loan (the “Gantry
Park Mortgage Loan”). The Gantry Park Mortgage Loan has a 10-year term with a maturity date of November 19, 2024, bears
interest at 4.48%, and required monthly interest-only payments for the first three years and monthly principal and interest payments
pursuant to a 30-year amortization schedule thereafter. The Gantry Park Mortgage Loan is collateralized by Gantry Park Landing.
Certain
of the Company’s debt agreements require the maintenance of certain ratios, including debt service coverage. As of December
31, 2021, the Company was in compliance with all of its financial debt covenants. Additionally, certain of our mortgages payable
also contain clauses providing for prepayment penalties.
Debt
Maturities
The
Exterior Street Loans (outstanding aggregate principal balance of $42.0 million as of December 31, 2021) mature on April 9,
2022. The Company currently intends to seek to extend or refinance the Exterior Street Loans on or before their maturity date.
However,
if the Company is unable to extend or refinance its maturing indebtedness at favorable terms, it will look to repay the then outstanding
balance with available cash and/or proceeds from selective asset sales. The Company has no additional significant maturities of
mortgage debt over the next 12 months.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
8. St.
Augustine Outlet Center
Investment
Impairment
During
the COVID-19 pandemic, the St. Augustine Outlet Center’s occupancy declined and because of limited leasing success, the
Company began been exploring various strategic alternatives for the property and as a result determined during the third quarter
of 2021 that it would no longer pursue leasing of space to tenants and therefore, entered into lease termination agreements with
certain tenants and also provided notice to its other tenants that it would not renew their leases at scheduled expiration. As
a result of this change in leasing strategy and resulting decrease in the fair value of the St. Augustine Outlet Center, the Company
recorded a non-cash impairment charge of $11.3 million during the third quarter of 2021 to reduce the carrying value of the St.
Augustine Outlet Center to its estimated fair value of $23.3 million as of September 30, 2021. In estimating the fair value of
the St. Augustine Outlet Center, the Company used management’s internal analysis prepared with consideration of local market
conditions.
The
Company believes the carrying value of the St. Augustine Outlet Center, as of December 31, 2021, is recoverable. However, if market
conditions worsen unexpectedly or if changes in its strategy significantly affect any key assumptions used in determining the
property’s estimated fair value, the Company may need to take additional impairment charges in future periods.
Land
Parcel Sales
On
May 25, 2021, the Company completed the disposition of a parcel of land adjacent to the St. Augustine Outlet Center to an
unrelated third party for a contractual sales price of $6.8 million and recognized a gain of $3.6 million during the second quarter
of 2021, which is included in gain on disposition of real estate, net on the consolidated statements of operations.
On
April 6, 2020, the Company completed the disposition of a parcel of land adjacent to the St. Augustine Outlet Center to an
unrelated third party for a contractual sales price of $2.1 million and recognized a gain on of $1.6 million during the second
quarter of 2020, which is included in gain on disposition of real estate, net on the consolidated statements of operations.
9. Distributions
Payable
On
November 8, 2021 and November 6, 2020 the Board of Directors authorized and the Company declared distributions of $0.175 per share
for the quarterly periods ending December 31, 2021 and 2020. The quarterly distributions are the pro rata equivalent of annual
distributions of $0.70 per share, or an annualized rate of 7.0% assuming a purchase price of $10.00 per share. The distributions
will be paid on or about the 15th day of the month following the quarter-end to stockholders of record at the close of business
on the last day of the quarter-end. The stockholders had an option to elect the receipt of shares under the Company’s DRIP
at a discounted price of $11.16 and $10.62 per share, equal to 95% of the Company’s most recently published estimated net
asset value per share as of September 30, 2021 and 2020, respectively. The distributions payable as of December 31, 2021 and 2020
were paid in January 2022 and 2021, respectively.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
10. Company’s
Stockholder’s Equity
Preferred
Shares
Shares
of preferred stock may be issued in the future in one or more series as authorized by the Board of Directors. Prior to the issuance
of shares of any series, the Board of Directors is required by the Company’s charter to fix the number of shares to be included
in each series and the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends
or other distributions, qualifications and terms or conditions of redemption for each series. Because the Board of Directors has
the power to establish the preferences, powers and rights of each series of preferred stock, it may provide the holders of any
series of preferred stock with preferences, powers and rights, voting or otherwise, senior to the rights of holders of our common
stock. The issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of the Company,
including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that
might provide a premium price for holders of the Company’s common stock. As of December 31, 2021 and 2020, the Company had
no outstanding preferred shares.
Common
Shares
All
of the common stock offered by the Company will be duly authorized, fully paid and nonassessable. Subject to the preferential
rights of any other class or series of stock and to the provisions of its charter regarding the restriction on the ownership and
transfer of shares of our stock, holders of the Company’s common stock will be entitled to receive distributions if authorized
by the Board of Directors and to share ratably in the Company’s assets available for distribution to the stockholders in
the event of a liquidation, dissolution or winding-up.
Each
outstanding share of the Company’s common stock entitles the holder to one vote on all matters submitted to a vote of stockholders,
including the election of directors. There is no cumulative voting in the election of directors, which means that the holders
of a majority of the outstanding common stock can elect all of the directors then standing for election, and the holders of the
remaining common stock will not be able to elect any directors.
Holders
of the Company’s common stock have no conversion, sinking fund, redemption or exchange rights, and have no preemptive rights
to subscribe for any of its securities. Maryland law provides that a stockholder has appraisal rights in connection with some
transactions. However, the Company’ charter provides that the holders of its stock do not have appraisal rights unless a
majority of the Board of Directors determines that such rights shall apply. Shares of the Company’s common stock have equal
dividend, distribution, liquidation and other rights.
Under
its charter, the Company cannot make some material changes to its business form or operations without the approval of stockholders
holding at least a majority of the shares of our stock entitled to vote on the matter. These include (1) amendment of its charter,
(2) its liquidation or dissolution, (3) its reorganization, and (4) its merger, consolidation or the sale or other disposition
of its assets. Share exchanges in which the Company is the acquirer, however, do not require stockholder approval.
Distributions,
Share Repurchase Program and Tender Offer
The
Board of Directors commenced declaring and the Company began paying regular quarterly distributions on its Common Shares at the
pro rata equivalent of an annual distribution of $0.70 per share, or an annualized rate of 7.0% assuming a purchase price of $10.00
per share, beginning February 1, 2006. Subsequently, the Board of Directors has declared regular quarterly distributions at the
annualized rate of rate of 7.0% assuming a purchase price of $10.00 per share, with the exception of the three-month period ended
June 30, 2010. The distributions for the three-month period ended June 30, 2010 were at an aggregate annualized rate of 8% based
on the share price of $10.00.
Total
distributions declared during both of the years ended December 31, 2021 and 2020 were $15.6 million.
On
March 18, 2022, the Board of Directors authorized and the Company declared a distribution of $0.175 per share for the quarterly
period ending March 31, 2022. The quarterly distribution is the pro rata equivalent of an annual distribution of $0.70 per share,
or an annualized rate of 7.0% assuming a purchase price of $10.00 per share. The distribution will be paid on or about the 15th
day of the month following the quarter-end to stockholders of record at the close of business on the last day of the quarter-end.
The stockholders have an option to elect the receipt of shares under the Company’s distribution reinvestment program (the
“DRIP”).
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
The
Company’s stockholders have the option to elect the receipt of shares in lieu of cash under the Company’s DRIP. The
Company’s DRIP Registration Statement on Form S-3D was filed and became effective under the Securities Act of 1933 on October
25, 2018. The purchase price for shares under the DRIP will be equal to 95% of our current NAV per Share, as determined by the
Board of Directors and reported by the Company from time to time. On December 16, 2021, the Board of Directors determined our
NAV per Share of $11.75, as of September 30, 2021, which resulted in a purchase price for shares under the DRIP of $11.16 per
share. As of December 31, 2021, 9.9 million shares remain available for issuance under our DRIP.
Future
distributions, if any, declared will be at the discretion of the Board of Directors based on their analysis of the Company’s
performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider
various factors in its determination, including but not limited to, the sources and availability of capital, operating and interest
expenses, the Company’s ability to refinance near-term debt, as well as the IRS’s annual distribution requirement
that REITs distribute no less than 90% of their taxable income. The Company cannot assure that any future distributions will be
made or that it will maintain any particular level of distributions that it has previously established or may establish.
Share
Repurchase Program
The
Company’s share repurchase program (the “SRP”) may provide its stockholders with limited, interim liquidity
by enabling them to sell their shares of common stock back to the Company, subject to restrictions.
On
March 25, 2020, the Board of Directors amended the SRP to remove stockholder notice requirements and also approved the suspension
of all redemptions effective immediately.
Effective
March 18, 2021 and May 14, 2021, the Board of Directors partially reopened the SRP to allow, subject to various conditions as
set forth below, for redemptions submitted in connection with a stockholder’s death and hardship, respectively, and set
the price for all such purchases to our current NAV per Share of Common Stock (“NAV per Share”), as determined by
the Board of Directors and reported by the Company from time to time. Deaths that occurred subsequent to January 1, 2020 were
eligible for consideration, subject to certain conditions. Beginning January 1, 2022, requests for redemptions in connection with
a stockholder’s death must be submitted and received by the Company within one year of the stockholder’s date of death
for consideration.
At
the above noted dates, 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 pro ration if either
type of redemption requests exceeded the annual limitation.
For
the year ended December 31, 2021, the Company repurchased 143,918 shares of common stock for $11.18 per share, pursuant
to its share repurchase program. For the period from January 1 through March 24, 2020, the Company repurchased 287,987 shares
of common stock for $10.87 per share, pursuant to the share repurchase program.
On
March 18, 2022, the Board of Directors approved an increase to the annual threshold for death redemptions from up to 0.5% to 1.0%.
Tender Offer
The
Company commenced a tender offer on June 15, 2020, pursuant to which the Company offered to acquire up to 225,000 of its shares
of common stock at a purchase price of $5.00 per share, or $1.1 million in the aggregate (the “2020 Tender Offer”).
Pursuant to the terms of the 2020 Tender Offer, which expired on July 24, 2020, the Company repurchased 0.1 million shares of
its common stock for an aggregate of $0.3 million in August 2020.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
11. Noncontrolling
Interests
The
Company’s noncontrolling interests consist of (i) parties of the Company that hold units in the Operating Partnership, and
(ii) certain interests in consolidated subsidiaries. The units held by noncontrolling interests in the Operating Partnership include
SLP Units and Common Units. The noncontrolling interests in consolidated subsidiaries include ownership interests in (i) PRO held
by the Company’s Sponsor and (ii) 50-01 2nd St Associates LLC (the “2nd Street Joint Venture”)
held by the Company’s Sponsor and other affiliates and (iii) various joint ventures held by affiliates of our Sponsor
that have originated promissory notes to unaffiliated third parties (see Note 5). PRO’s holdings principally consist
of Marco OP Units and Marco II OP Units (see Note 6). The 2nd Street Joint Venture owns Gantry Park Landing, a multi-family apartment
building located in Queens, New York. See below for additional information.
Share
Description
See
Note 12 for discussion of rights related to SLP Units. The Common Units of the Operating Partnership have similar rights as those
of the Company’s stockholders including distribution rights.
Distributions
During
the years ended December 31, 2021 and 2020, the Company paid distributions to noncontrolling interests of $18.8 million and $18.1
million, respectively. As of December 31, 2021 and 2020, the total distributions declared and not paid to noncontrolling interests
was $0.6 million (paid on or about January 15, 2022) and $0.6 million (paid on or about January 15, 2021), respectively.
Noncontrolling
Interest of Subsidiary within the Operating Partnership
During
2009, the Operating Partnership acquired certain membership interests in Prime Outlets Acquisition Company (“POAC”)
and Mill Run, LLC (“Mill Run”), which were subsequently contributed to PRO in exchange for a 99.99% managing membership
interest in PRO. In addition, the Company contributed $2,900 for a 0.01% non-managing membership interest in PRO. Because the
Operating Partnership is the managing member with control, PRO is consolidated into the results and financial position of the
Company. In connection with the acquisitions of the memberships interests in POAC and Mill Run, the Advisor accepted a 19.17%
profit membership interest in PRO in lieu of an acquisition fee and assigned its rights to receive distributions to the Sponsor,
who assigned the same to David Lichtenstein. Distributions are split between the three members in proportion to their respective
profit interests. PRO subsequently disposed of all of its membership interests in POAC and Mill Run in August 2010 and its current
holdings primarily consist of Marco OP Units and Marco II OP Units (see Note 6).
On
September 19, 2018, the Company’s Sponsor transferred 9.14% of its profit membership interest in PRO to the Operating Partnership.
As of both December 31, 2021 and 2020, the Sponsor had a 10.03% profit membership interest in PRO, which is accounted for as a
noncontrolling interest.
Consolidated
Joint Venture
In
August 2011, the Operating Partnership and the Sponsor and other related parties formed the 2nd Street Joint Venture, which owns
Gantry Park Landing, a multi-family apartment building located in Queens, New York. The Operating Partnership has a 59.2% membership
interest in the 2nd Street Joint Venture (the “2nd Street JV Interest”). The 2nd Street JV Interest is a managing
membership interest. The Sponsor and other related parties have an aggregate 40.8% non-managing membership interest with certain
consent rights with respect to major decisions. Contributions are allocated in accordance with each investor’s ownership
percentage. Profit and cash distributions are allocated in accordance with each investor’s ownership percentage. As the
Operating Partnership through the 2nd Street Joint Venture Interest has the power to direct the activities of the 2nd
Street Joint Venture that most significantly impact the performance, the Company consolidates the operating results and
financial condition of the 2nd Street Joint Venture and accounts for the ownership interests of the Sponsor and other
related parties as noncontrolling interests.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
12. Related
Party Transactions
The
Company has agreements with the Advisor and its affiliates to pay certain fees, as follows, in exchange for services performed
by these entities and other related parties. The Company’s ability to secure financing and subsequent real estate operations
are dependent upon its Advisor and their affiliates to perform such services as provided in these agreements.
Fees
Amount
Acquisition
Fee
The
Advisor is paid an acquisition fee equal to 2.75% of the gross contractual purchase price (including any mortgage assumed)
of each property purchased. The Advisor is also reimbursed for expenses that it incurs in connection with the purchase of
a property. The acquisition fee and acquisition-related expenses for any particular property, including amounts payable to
related parties, will not exceed, in the aggregate 5% of the gross contractual purchase price (including mortgage assumed)
of the property.
Property
Management - Residential/Retail
The
property managers are paid a monthly management fee of up to 5% of the gross revenues from residential and retail properties.
The Company pays the property managers a separate fee for (i) the development of, (ii) the one-time initial rent-up or (iii)
the leasing-up of newly constructed properties in an amount not to exceed the fee customarily charged in arm’s length
transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey
of brokers and agents in such area.
Property
Management - Office/Industrial
The
property managers are paid monthly property management and leasing fees of up to 4.5%
of gross revenues from office and industrial properties. In addition, the Company pays
the property managers a separate fee for the one-time initial rent-up or leasing-up of
newly constructed properties in an amount not to exceed the fee customarily charged in
arm’s length transactions by others rendering similar services in the same geographic
area for similar properties as determined by a survey of brokers and agents in such area.
Asset
Management Fee
The
Advisor or its affiliates are paid an asset management fee of 0.55% of the Company’s
average invested assets, as defined, payable quarterly in an amount equal to 0.1375 of
1% of average invested assets as of the last day of the immediately preceding quarter.
Reimbursement
of Other expenses
For
any year in which the Company qualifies as a REIT, the Advisor must reimburse the Company for the amounts, if any, by which
the total operating expenses, the sum of the advisor asset management fee plus other operating expenses paid during the previous
fiscal year exceed the greater of 2% of average invested assets, as defined, for that fiscal year, or, 25% of net income,
as defined, for that fiscal year. Items such as property operating expenses, depreciation and amortization expenses, interest
payments, taxes, non-cash expenditures, the special liquidation distribution, the special termination distribution, organization
and offering expenses, and acquisition fees and expenses are excluded from the definition of total operating expenses, which
otherwise includes the aggregate expense of any kind paid or incurred by the Company.
The
Advisor or its affiliates are reimbursed for expenses that may include costs of goods and services, administrative services
and non-supervisory services performed directly for the Company by independent parties.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Lightstone
SLP, LLC, an affiliate of the Company’s Sponsor, has purchased SLP Units in the Operating Partnership. These SLP Units,
the purchase price of which will be repaid only after stockholders receive a stated preferred return and their net investment,
entitle Lightstone SLP, LLC to a portion of any regular distributions made by the Operating Partnership. From our inception through
March 31, 2010, cumulative distributions declared to Lightstone SLP, LLC were $4.9 million, all of which had been paid as of April
2010. For the three months ended June 30, 2010, the Operating Partnership did not declare a distribution related to the SLP Units
as the distribution to the stockholders was less than 7% for this period. On August 30, 2010, the Company declared additional
distributions to the stockholders to bring the annualized distribution to at least 7%. As such, the Company as of August 30, 2010
recommenced declaring distributions to Lightstone SLP, LLC at the 7% annualized rate, except for the three months ended June 30,
2010 which was at an 8% annualized rate which represents the same rate paid to the stockholders.
During
each of the years ended December 31, 2021 and 2020, distributions of $2.1 million were declared and distributions of $2.1 million
were paid related to the SLP Units and are part of noncontrolling interests. Such distributions, paid currently at a 7% annualized
rate of return to Lightstone SLP, LLC through December 31, 2021, with the exception of the distribution related to the three months
ended June 30, 2010, which was paid at an 8% annualized rate will always be subordinated until stockholders receive a stated preferred
return, as described below.
Additionally,
on March 18, 2022, the Board of Directors declared a quarterly distribution for the quarterly period ending March 31, 2022 on
the SLP Units at an annualized rate of 7.0%. Any future distributions on the SLP Units will always be subordinated until stockholders
receive a stated preferred return.
The
SLP Units also entitle Lightstone SLP, LLC to a portion of any liquidating distributions made by the Operating Partnership. The
value of such distributions will depend upon the net sale proceeds upon the liquidation of the Lightstone REIT I and, therefore,
cannot be determined at the present time. Liquidating distributions to Lightstone SLP, LLC will always be subordinated until stockholders
receive a distribution equal to their initial investment plus a stated preferred return, as described below:
Operating
Stage Distributions
Amount
of Distribution
7%
Stockholder Return Threshold
Once
a cumulative non-compounded return of 7% per year on their net investment is realized by stockholders, Lightstone SLP, LLC
is eligible to receive available distributions from the Operating Partnership until it has received an amount equal to a cumulative
non-compounded return of 7% per year on the purchase price of the special general partner interests. “Net investment”
refers to $10 per share, less a pro rata share of any proceeds received from the sale or refinancing of the Company’s
assets.
12%
Stockholder Return Threshold
Once
a cumulative non-compounded return of 12% per year is realized by stockholders on their net investment (including amounts
equaling a 7% return on their net investment as described above), 70% of the aggregate amount of any additional distributions
from the Operating Partnership will be payable to the stockholders, and 30% of such amount will be payable to Lightstone SLP,
LLC.
Returns
in Excess of 12%
After
the 12% return threshold is realized by stockholders and Lightstone SLP, LLC, 60% of any remaining distributions from the
Operating Partnership will be distributable to stockholders, and 40% of such amount will be payable to Lightstone SLP, LLC.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
Liquidating
Stage Distributions
Amount
of Distribution
7%
Stockholder Return Threshold
Once
stockholders have received liquidation distributions, and a cumulative non-compounded 7% return per year on their initial
net investment, Lightstone SLP, LLC will receive available distributions until it has received an amount equal to its initial
purchase price of the special general partner interests plus a cumulative non-compounded return of 7% per year.
12%
Stockholder Return Threshold
Once
stockholders have received liquidation distributions [in an amount equal to their net investment] plus a cumulative non-compounded
return of 12% per year on their initial net investment (including amounts equaling a 7% return on their net investment as
described above), 70% of the aggregate amount of any additional distributions from the Operating Partnership will be payable
to the stockholders, and 30% of such amount will be payable to Lightstone SLP, LLC.
Returns
in Excess of 12%
After
stockholders and Lightstone LP, LLC have received liquidation distributions [in an amount equal to their net investment] plus
a cumulative non-compounded return of 12% per year on their initial net investment, 60% of any remaining distributions from
the Operating Partnership will be distributable to stockholders, and 40% of such amount will be payable to Lightstone SLP,
LLC.
The
following table represents the fees incurred associated with the payments to the Company’s Advisor and its affiliates for
the period indicated
Summary of Amount recorded in pursuant to related party arrangement
For
the
Year Ended
December 31,
December 31,
Asset
management fees (general and administrative costs) $ 849 $ 919
Property
management fees (property operating expenses)
Development
fees and cost reimbursement(1) 3,595 1,337
Total $ 4,806 $ 2,644
(1) Development
fees and the reimbursement of development-related costs that the Company pays to the
Advisor and its affiliates are capitalized and are included in the carrying value of
the associated development project which are classified as development projects on the
consolidated balance sheets. As of December 31, 2021, the Company owed the Advisor and
its affiliated entities $0.7 million for development fees, which is included in accounts
payable, accrued expenses and other liabilities on the consolidated balance sheets.
See
Notes 3, 4 and 5 for other related party transactions.
LIGHTSTONE
VALUE PLUS REIT I, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)
13. Commitments
and Contingencies
Legal
Proceedings
From
time to time in the ordinary course of business, the Lightstone REIT I may become subject to legal proceedings, claims or disputes.
As
of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably
possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or
disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related
to legal proceedings in which the potential loss is deemed to be remote.
Tax
Protection Agreements
On
December 8, 2009, the Company, the Operating Partnership and PRO, (collectively, the LVP Parties”) entered into a definitive
agreement (the “Contribution Agreement”) with Simon Inc. and certain of its affiliates (collectively, “Simon”)
providing for the disposition of a substantial portion of the Company’s portfolio of retail properties at that time to Simon,
including (i) the St. Augustine Outlet Center, which is wholly owned, (ii) a 40.0% aggregate interest in its investment in POAC,
which included POAC’s properties (the “POAC Properties”), Grand Prairie Holdings LLC (“GPH”) and
Livermore Holdings LLC (“LVH”) and (iii) a 36.8% aggregate interest in Mill Run, which included Mill Run’s properties
(the “Mill Run Properties”). On June 28, 2010, the Contribution Agreement was amended to remove the previously contemplated
dispositions of the St. Augustine Outlet Center, GPH and LVH. The transactions contemplated by the Contribution Agreement are
referred to herein as the “POAC/Mill Run Transaction.” On August 30, 2010, the LVP Parties completed POAC/Mill Run
Transaction and contemporaneously entered into a tax matters agreement with Simon. Additionally, the Company was advised by an
independent law firm that it was “more likely than not” that the POAC/Mill Run Transaction did not give rise to current
taxable income or loss. Pursuant to the terms of the tax matters agreement, Simon generally could not have engaged in a transaction
that would have resulted in the recognition of the “built-in gain” with respect to POAC and Mill Run at the time of
the closing for specified periods of up to eight years following the closing date. Simon has a number of obligations with respect
to the allocation of partnership liabilities to the LVP Parties. For example, Simon agreed to maintain certain of the outstanding
mortgage loans that were secured by POAC Properties and Mill Run Properties until their respective maturities, and the LVP Parties
provided and had the opportunity to continue to provide guaranties of collection with respect to a revolving credit facility (or
indebtedness incurred to refinance the revolving credit facility) for at least four years following the closing of the POAC/Mill
Run Transaction. The LVP Parties were also given the opportunity to enter into agreements to make specified capital contributions
to Simon OP in the event that it defaults on certain of its indebtedness. If Simon breached its obligations under the tax matters
agreement, Simon was required to indemnify the LVP Parties for certain taxes that they were deemed to incur, including taxes relating
to the recognition of “built-in gains” with respect to POAC Properties and Mill Run Properties, and gains recognized
as a result of a reduction in the allocation of partnership liabilities. These indemnification payments would have been “grossed
up” such that the amount of the payments would have equaled, on an after-tax basis, to the tax liability deemed incurred
because of the breach.
On
December 9, 2011 and December 4, 2012, GPH, LVH and certain of their subsidiaries (collectively, the “Holding Entities”)
completed the disposition of their ownership interests in two outlet centers and a parcel of land (collectively, the “Outlet
Centers Transactions”) to Simon. In connection with the closing of the Outlet Centers Transactions, the Holdings Entities,
the Company, the Operating Partnership, PRO and certain affiliates of the Sponsor (collectively, the “Outlet Centers Parties”)
entered into a tax matters agreement with Simon pursuant to which Simon generally may not engage in a transaction that could result
in the recognition of the “built-in gain” with respect to the two outlets centers at the time of the closing for specified
periods of up to eight years following the closing date. Simon had a number of obligations with respect to the allocation of partnership
liabilities to the Outlet Centers Parties. For example, Simon agreed to maintain a debt level of no less than the cash portion
of the proceeds from the Outlet Centers Transaction until at least the fourth anniversary of the closing, and the Outlet Centers
Parties provided and had the opportunity to continue to provide guaranties of collection with respect to a revolving credit facility
(or indebtedness incurred to refinance the revolving credit facility) for at least four years following the closing of the Outlet
Centers Transactions. The Outlet Centers Parties were also given the opportunity to enter into agreements to make specified capital
contributions to Simon OP in the event that it defaults on certain of its indebtedness. If Simon breaches its obligations under
the tax matters agreement, Simon will be required to indemnify the Outlet Centers Parties for certain taxes that they are deemed
to incur, including taxes relating to the recognition of “built-in gains” with respect to the two outlet centers,
and gains recognized as a result of a reduction in the allocation of partnership liabilities. These indemnification payments will
be “grossed up” such that the amount of the payments will equal, on an after-tax basis, the tax liability deemed incurred
because of the breach.
PART II.
CONTINUED:

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE:
None

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A.
CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures. As of December 31, 2021, we conducted an evaluation under the supervision and with the participation
of the Advisor’s management, including our Chairman and Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,”
as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means
controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company
in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange
Act is accumulated and communicated to the company’s management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based
on this evaluation, our Chairman and Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2021 that
our disclosure controls and procedures were adequate and effective.
Management’s
Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal
control system is a process designed by, or under the supervision of, our Chairman and Chief Executive Officer and Chief Financial
Officer and effected by our Board, management and other personnel to provide reasonable assurance regarding the reliability of
our financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally
accepted accounting principles.
Our
internal control over financial reporting includes policies and procedures that:
● pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and disposition of assets;
● provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with the
authorization of our management and directors; and
● provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on our financial statements.
Because
of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management
assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment,
they used the control criteria framework of the Committee of Sponsoring Organizations, or COSO, of the Treadway Commission published
in its report entitled Internal Control-Integrated Framework (2013). Based on this evaluation, our management has
concluded that our internal control over financial reporting was effective as of December 31, 2021.
This
annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent
registered public accounting firm.
Changes
in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting during
the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM
9B. OTHER INFORMATION:
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The
following table presents certain information as of March 15, 2022 concerning each of our directors serving in such capacity:
Name
Age
Principal
Occupation and Positions Held
Year
Term of
Office Will Expire
Served
as a
Director Since
David Lichtenstein
Chief Executive Officer,
President and Chairman of the Board of Directors
George R. Whittemore
Director
Alan Retkinski
Director
Howard E. Friedman
Director
David
Lichtenstein is the Chairman of our Board of Directors and our Chief Executive Officer, and is the Chief Executive Officer
of our Advisor. Mr. Lichtenstein founded both American Shelter Corporation and The Lightstone Group. From 1988 to the present,
Mr. Lichtenstein has served as Chairman of the Board of Directors and Chief Executive Officer of The Lightstone Group, directing
all aspects of the acquisition, financing and management of a diverse portfolio of multi-family, lodging, retail and industrial
properties located in 20 states, and Puerto Rico. From April 2008 to present, Mr. Lichtenstein has served as the Chairman of the
board of directors and Chief Executive Officer of Lightstone Value Plus REIT II, Inc. (“Lightstone REIT II”) and Lightstone
Value Plus REIT II LLC, its advisor. From October 2012 to the present, Mr. Lichtenstein has served as the Chairman of the board
of directors of Lightstone Value Plus REIT III, Inc. (“Lightstone REIT III”) and from April 2013 to the present, as
the Chief Executive Officer of Lightstone REIT III and of Lightstone Value Plus REIT III LLC. From September 2014 to the present,
Mr. Lichtenstein has served as Chairman of the Board of Directors and Chief Executive Officer of Lightstone Value Plus REIT III,
(“Lightstone REIT IV”), and as Chief Executive Officer of Lightstone Real Estate Income LLC, its advisor. From October
2014 to the present, Mr. Lichtenstein has served as Chairman of the Board of Directors and Chief Executive Officer of Lightstone
Enterprises Limited (“Lightstone Enterprises”). On August 31, 2021, Mr. Lichtenstein was appointed Chairman Emeritus
of the Board of Directors of Lightstone Value Plus REIT V, Inc. (“Lightstone V”) and previously served as the Chairman
of the Board of Directors of Lightstone REIT V from September 2017 through August 31, 2021. Additionally, Mr. Lichtenstein is
Chairman and Chief Executive Officer of the Lightstone REIT V’s advisor. From July 2015 to the present, Mr. Lichtenstein
has served as a member of the Board of Directors of the New York City Economic Development Corporation. Mr. Lichtenstein is a
member of the International Council of Shopping Centers and the National Association of Real Estate Investment Trusts, Inc., and
industry trade group, as well as, a member of the Board of Directors of Touro College and New York Medical College. Mr. Lichtenstein
has been selected to serve as a director due to his extensive experience and networking relationships in the real estate industry,
along with his experience in acquiring and financing real estate properties.
George
R. Whittemore is one of our independent directors. From April 2008 to the present, Mr. Whittemore has served as a member
of the board of directors of Lightstone REIT II and from December 2013 to present, has served as a member of the board of directors
of Lightstone REIT III. Mr. Whittemore also presently serves as a Director and Chairman of the Audit Committee of Village Bank
Financial Corporation in Richmond, Virginia, a publicly traded company. Mr. Whittemore previously served as a Director of Condor
Hospitality, Inc. in Norfolk, Nebraska, a publicly traded company, from November 1994 to March 2016. Mr. Whittemore previously
served as a Director and Chairman of the Audit Committee of Prime Group Realty Trust from July 2005 until December 2012. Mr. Whittemore
previously served as President and Chief Executive Officer of Condor Hospitality Trust, Inc. from November 2001 until August 2004
and as Senior Vice President and Director of both Anderson & Strudwick, Incorporated, a brokerage firm based in Richmond,
Virginia, and Anderson & Strudwick Investment Corporation, from October 1996 until October 2001. Mr. Whittemore has also served
as a Director, President and Managing Officer of Pioneer Federal Savings Bank and its parent, Pioneer Financial Corporation, from
September 1982 until August 1994, and as President of Mills Value Adviser, Inc., a registered investment advisor. Mr. Whittemore
is a graduate of the University of Richmond. Mr. Whittemore has been selected to serve as an independent director due to his extensive
experience in accounting, banking, finance and real estate.
Alan
Retkinski is one of our independent directors. Since 2004, Mr. Retkinski has been the president of Lexington Realty International,
a national multi-faceted real estate brokerage firm specializing in investment sales, retail leasing, lease preparation/negotiating
and management. Mr. Retkinski has been selected to serve as an independent director due to his extensive experience in real estate
transactions.
Howard
E. Friedman is our is one of our independent directors. Mr. Friedman is the Founding Partner of Lanx Management
LLC, a hedge “fund of funds” founded in 2001. Mr. Friedman co-founded Watermark Press, Inc. in 1989 and
served as its Publisher and Chief Executive Officer until 1998 when it was sold to Cendent Corp. Mr. Friedman is a director
of Sinclair Broadcast Group, Inc. (NASDAQ: SBGI), where he has served since January 2015. Mr. Friedman also serves on
the Compensation Committee and as the chair of the Nominating and Corporate Governance Committee of Sinclair Broadcast Group,
Inc. From 2006 to 2010, Mr. Friedman served as President and then Chairman of the Board of the American Israel Public Affairs
Committee (AIPAC). From 2010 to 2012, he served as the President of the American Israel Educational Foundation, the charitable
arm of AIPAC. He is the past Chair of the Board of The Associated: Jewish Community Federation of Baltimore. From 2004 to 2017,
Mr. Friedman served on the advisory board of Johns Hopkins Bloomberg School of Public Health. He currently serves as the
Honorary Chairman of the Board of the Union of Orthodox Jewish Congregations of America. In addition, Mr. Friedman serves
on the boards of Touro College and University System, Talmudical Academy, and the Simon Wiesenthal Center. Mr. Friedman has
been selected to serve as an independent director due to his extensive skills in finance, management and investment matters.
Executive
Officers:
The
following table presents certain information as of March 15, 2022 concerning each of our executive officers serving in such capacities:
Name
Age
Principal
Occupation and Positions Held
David Lichtenstein
Chief Executive Officer and Chairman
of the Board of Directors
Mitchell Hochberg
President
Joseph Teichman
General Counsel
Seth Molod
Chief Financial Officer and Treasurer
David
Lichtenstein for biographical information about Mr. Lichtenstein, see “Management - Directors.”
Mitchell
Hochberg is our President and Chief Operating Officer and has also served as President and Chief Operating Officer of
Lightstone REIT II since December 2013. Mr. Hochberg also serves as the President and Chief Operating Officer of our sponsor.
From April 2013 to the present, Mr. Hochberg has served as President and Chief Operating Officer of Lightstone REIT III and its
advisor. From September 2014 to the present, Mr. Hochberg has served as President and Chief Operating Officer of Lightstone REIT
IV and its advisor. From October 2014 to the present, Mr. Hochberg has served as President of Lightstone Enterprises. Mr. Hochberg
was appointed Chief Executive Officer of Behringer Harvard Opportunity REIT I, Inc. (“BH OPP I”) and Lightstone REIT
V effective as of September 28, 2017, and on August 31, 2021, was appointed Chairman of the Board of Directors of Lightstone REIT
V. Prior to joining The Lightstone Group in August 2012, Mr. Hochberg served as principal of Madden Real Estate Ventures, a real
estate investment, development and advisory firm specializing in hospitality and residential projects from 2007 to August 2012
when it combined with our sponsor. Mr. Hochberg held the position of President and Chief Operating Officer of Ian Schrager Company,
a developer and manager of innovative luxury hotels and residential projects in the United States from early 2006 to early 2007
and prior to that Mr. Hochberg founded Spectrum Communities, a developer of luxury residential neighborhoods in the Northeast
in 1985 where for 20 years he served as its President and Chief Executive Officer. Mr. Hochberg served on the board of directors
of Belmond Ltd from 2009 to April 2019. Additionally, through October 2014 Mr. Hochberg served on the board of directors and as
Chairman of the board of directors of Orleans Homebuilders, Inc. Mr. Hochberg received his law degree from Columbia University
School of Law where he was a Harlan Fiske Stone Scholar and graduated magna cum laude from New York University College of Business
and Public Administration with a Bachelor of Science degree in accounting and finance.
Joseph
E. Teichman is our General Counsel and also serves as General Counsel of Lightstone REIT II, Lightstone REIT III and Lightstone
REIT IV and their respective advisors. Mr. Teichman also serves as Executive Vice President and General Counsel of our Advisor
and Sponsor. From October 2014 to the present, Mr. Teichman has served as Secretary and a Director of Lightstone Enterprises.
Prior to joining us in January 2007, Mr. Teichman practiced law at the law firm of Paul, Weiss, Rifkind, Wharton & Garrison
LLP in New York, NY from September 2001 to January 2007. Mr. Teichman earned his J.D. from the University of Pennsylvania Law
School in May 2001. Mr. Teichman earned a B.A. from Beth Medrash Govoha, Lakewood, NJ. Mr. Teichman is licensed to practice law
in New York and New Jersey. Mr. Teichman is also a member of the Board of Directors of Yeshiva Orchos Chaim, Lakewood, NJ and
was appointed to the Ocean County College Board of Trustees in February 2016.
Seth
Molod is our Chief Financial Officer and Treasurer and also serves as Chief Financial Officer and Treasurer of Lightstone
REIT II, Lightstone REIT III, Lightstone REIT IV and Lightstone REIT V. Mr. Molod also serves as the Executive Vice President
and Chief Financial Officer of our Sponsor and as the Chief Financial Officer of our Advisor and the advisors of Lightstone REIT
II, Lightstone REIT III, Lightstone REIT IV and Lightstone REIT V. Prior to joining the Lightstone Group in August of 2018, Mr. Molod
served as an Audit Partner, Chair of Real Estate Services and on the Executive Committee of Berdon LLP, a full service accounting,
tax, financial and management advisory firm (“Berdon”). Mr. Molod joined Berdon in 1989. He has extensive experience
advising some of the nation’s most prominent real estate owners, developers, managers, and investors in both commercial
and residential projects. Mr. Molod has worked with many privately held real estate companies as well as institutional investors,
REITs, and other public companies. Mr. Molod is a licensed certified public accountant in New Jersey and New York and a member
of the American Institute of Certified Public Accountants. Mr. Molod holds a Bachelor of Business Administration degree in
Accounting from Muhlenberg College.
Section
16 (a) Beneficial Ownership Reporting Compliance
Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires each director, officer and individual beneficially owning more than
10% of our common stock to file initial statements of beneficial ownership (Form 3) and statements of changes in beneficial
ownership (Forms 4 and 5) of our common stock with the Securities Exchange Commission (“SEC”). Officers,
directors and greater than 10% beneficial owners are required by SEC rules to furnish us with copies of all such forms they file.
Based solely on a review of the copies of such forms furnished to us during and with respect to the fiscal year ended December
31, 2021, or written representations that no additional forms were required, we believe that all of our officers and directors
and persons that beneficially own more than 10% of the outstanding shares of our common stock complied with these filing requirements
in 2021.
Information
Regarding Audit Committee
Our
board of directors (the “Board”) established an audit committee in April 2005. The charter of audit committee is available
at www.lightstonecapitalmarkets.com/sec-filings or in print to any shareholder who requests it c/o Lightstone Value Plus
REIT, 1985 Cedar Bridge Avenue, Lakewood, NJ 08701. Our audit committee consists of George R. Whittemore, Alan Retkinski and Howard
E. Friedman, each of whom is “independent” within the meaning of the NYSE listing standards. The Board determined
that Mr. Whittemore is qualified as an audit committee financial expert as defined in Item 401 (h) of Regulation S-K. For more
information regarding the relevant professional experience of Mr. Whittemore, Mr. Retkinski and Mr. Friedman, see “Directors”.
Code
of Conduct and Ethics
We
have adopted a Code of Conduct and Ethics that applies to all of our executive officers and directors, including but not limited
to, our principal executive officer and principal financial officer. Our Code of Conduct and Ethics can be found at www.lightstonecapitalmarkets.com/sec-filings.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM
11. EXECUTIVE COMPENSATION
Compensation
of Executive Officers
We
currently have no employees. Our Advisor performs our day-to-day management functions. Our executive officers are all employees
of the Advisor. We do not pay any of these individuals for serving in their respective positions.
Compensation
of Board
We pay each of our independent directors an annual fee of $40 (payable in quarterly installments) and are responsible for reimbursement of their out-of-pocket expenses, as incurred. We also pay our audit committee chair an additional aggregate annual fee of $10 (payable in quarterly installments).

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Executive
Officers:
The
following table presents certain information as of March 15, 2022 concerning each of our directors and executive officers serving
in such capacities:
Name
and Business Address (where required) of Beneficial Owner Number
of Shares of Common Stock of the Company Beneficially Owned Percent
of
All Common
Shares of the
Company
David
Lichtenstein 20,000 0.09 %
George
R. Whittemore - -
Alan
Retkinski - -
Howard
E. Friedman - -
Mitchell
Hochberg - -
Joseph
Teichman - -
Seth
Molod - -
Our directors
and executive officers as a group (7 persons) 20,000 0.09 %

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our
advisor is Lightstone Value Plus REIT, LLC (the “Advisor”), which is majority owned by David Lichtenstein. On July
6, 2004, the Advisor contributed $2,000 to the Operating Partnership in exchange for 200 limited partner common units (“Common
Units”) in the Operating Partnership. Our Advisor also owns 20,000 shares of our common stock (“Common Shares”)
which were issued on July 6, 2004 for $200,000, or $10.00 per share. Mr. Lichtenstein also is the majority owner of the equity
interests of The Lightstone Group, LLC. The Lightstone Group, LLC served as the sponsor (the “Sponsor”) during our
initial public offering (the “Offering”), which terminated on October 10, 2008. Our Advisor, together with our board
of directors (the “Board of Directors”), is primarily responsible 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, LLC, a Delaware limited liability company, which owns an aggregate of $30.0 million of special
general partner interests (“SLP Units”) in the Operating Partnership which were purchased, at a cost of $100,000 per
unit, in connection with our Offering. Mr. Lichtenstein also acts as our Chairman and Chief Executive Officer. As a result, he
exerts influence over but does not control the Lightstone REIT I or the Operating Partnership.
On
April 22, 2005, we entered into agreements with our Advisor and its affiliates to pay certain fees, as described below, in exchange
for services performed by these and other affiliated entities. As the indirect owner of those entities, Mr. Lichtenstein benefits
from fees and other compensation that they receive pursuant to these agreements.
Property
Managers
Our
property managers manage certain of the properties we have acquired and may manage additional properties we acquire. We also use
other unaffiliated third-party property managers, principally for the management of our hospitality properties.
We
have agreed to pay our property managers a monthly management fee of up to 5% of the gross revenues from our residential and retail
properties. In addition, for the management and leasing of our office and industrial properties, we pay to our property managers,
property management and leasing fees of up to 4.5% of gross revenues from our office and industrial properties. We may pay our
property managers a separate fee for (i) the development of, (ii) the one-time initial rent-up or (iii) leasing-up of newly constructed
properties in an amount not to exceed the fee customarily charged in arm’s length transactions by others rendering similar
services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area. Our
Property Manager will also be paid a monthly fee for any extra services equal to no more than that which would be payable to an
unrelated party providing the services. During both of the years ended December 31, 2021 and 2020, we incurred property management
fees of $0.4 million.
Advisor
We
have agreed to pay our Advisor an acquisition fee equal to 2.75% of the gross contractual purchase price (including any mortgage
indebtedness assumed) of each property we purchase and reimburse our Advisor for expenses that it incurs in connection with the
purchase of a property. We anticipate that acquisition expenses will typically be between 1% and 1.5% of a property’s purchase
price, and acquisition fees and expenses are capped at 5% of the gross contract purchase price of a property. The Advisor is also
paid an advisor asset management fee of 0.55% of our average invested assets and we reimburse some expenses of the Advisor. Additionally,
development fees and the reimbursement of development-related costs that we pay to our Advisor and its affiliates are capitalized
and are included in the carrying value of the associated development project and classified as development projects on the consolidated
balance sheets. We have recorded the following amounts related to the Advisor for the years indicated:
(in
thousands)
Asset
management fees $ 849 $ 919
Development
fees and cost reimbursement 3,595 1,337
Total $ 4,444 $ 2,256
Sponsor
On
April 22, 2005, the Operating Partnership entered into an agreement with Lightstone SLP, LLC pursuant to which the Operating Partnership
has issued special general partner interests to Lightstone SLP, LLC in an amount equal to all expenses, dealer manager fees and
selling commissions that we incurred in connection with our organization and the Offering. Through December 31, 2021, Lightstone
SLP, LLC had contributed $30.0 million to the Operating Partnership in exchange for special general partner interests. As the
sole member of our Sponsor, which wholly owns Lightstone SLP, LLC, Mr. Lichtenstein is the indirect, beneficial owner of such
special general partner interests and will thus receive an indirect benefit from any distributions made in respect thereof.
These
special general partner interests entitle Lightstone SLP, LLC to a portion of any regular and liquidation distributions that we
make to stockholders, but only after stockholders have received a stated preferred return. Although the actual amounts are dependent
upon results of operations and, therefore, cannot be determined at the present time, distributions to Lightstone SLP, LLC, as
holder of the special general partner interests, could be substantial.
Acquisitions
and Investments in Entities Affiliated with Sponsor
Preferred
Investments
We
have entered into several agreements with various related party entities that provide for us to make preferred contributions pursuant
to certain instruments (the “Preferred Investments”) that entitle us to certain prescribed monthly preferred distributions.
The Preferred Investments had an aggregate balance of $14.5 million as of December 31, 2021 and 2020, and are classified as held-to-maturity
securities, recorded at cost and included in investments in related parties on the consolidated balance sheets. The fair value
of these investments approximated their carrying values based on market rates for similar instruments. During the year ended December
31, 2021, we redeemed $11.0 million of the 40 East End Avenue Preferred Investment and the entire remaining Miami Moxy Preferred
Investment of $9.0 million. Additionally, during the years ended December 31, 2021 and 2020, we recognized investment income of
$1.8 million and $2.0 million, respectively, which is included in interest and dividend income on the consolidated statements
of operations.
The
Preferred Investments are summarized as follows:
Preferred
Investment Balance Investment
Income(1)
Dividend As
of
December 31, As
of
December 31, For
the
Year Ended
December 31,
Preferred
Investments Rate 2020
East End Avenue 12 % $ 6,000 $ 6,000 $ 730 $ 886
East
11th Street 12 % 8,500 8,500 1,034 1,040
Miami
Moxy 12 % - - -
Total
Preferred Investments
$ 14,500 $ 14,500 $ 1,764 $ 1,971
Note:
(1) Included
in interest and dividend income on the statements of operations.
East End Avenue Preferred Investment
In
May 2015, we entered into an agreement pursuant to which it made aggregate contributions of $30.0 million in 40 East End Ave.
Pref Member LLC (the “40 East End Ave. Joint Venture”), a related party entity. The 40 East End Ave. Joint Venture
is a joint venture between an affiliate of our Sponsor and Lightstone Value Plus REIT IV, Inc. (“Lightstone REIT IV”),
a related-party REIT also sponsored by the our Sponsor, which developed and constructed a luxury residential condominium project
consisting of 29 units (the “40 East End Avenue Project”) located at the corner of 81st Street and East End Avenue
in the Upper East Side neighborhood of New York City. The 40 East End Avenue Project received its final temporary certificates
of occupancy, or TCO, in March 2020 and through December 31, 2021, fifteen of the condominium units had been sold.
Contributions
were made pursuant to an instrument, the “40 East Side Avenue Preferred Investment,” that is entitled to monthly preferred
distributions, initially at a rate of 8% per annum which increased to 12% per annum upon procurement of construction financing
in March 2017, and is redeemable by us beginning on April 27, 2022. During the fourth quarter of 2019, we redeemed $13.0 million
of the 40 East End Avenue Preferred Investment. During 2020, we redeemed an additional $11.0 million of the 40 East End Avenue
Preferred Investment which reduced the remaining outstanding balance to $6.0 million.
East
11th Street Preferred Investment
On
April 21, 2016, we entered into an agreement, as amended, with various related party entities pursuant to which it to made aggregate
contributions of $57.5 million in an affiliate of our Sponsor (the “East 11th Street Developer”) which
developed and constructed a Marriott Moxy Hotel located at 112-120 East 11th Street in New York, New York. Contributions
were made pursuant to an instrument, the “East 11th Street Preferred Investment,” that entitled us to monthly
preferred distributions at a rate of 12% per annum. We may redeem our investment in the East 11th Street Preferred Investment
upon the consummation of certain capital transactions. Additionally, the East 11th Street Developer may redeem our investment
at any time or upon the consummation of any capital transaction. Any redemption by us or the East 11th Street Developer under
the East 11th Street Preferred Investment will be made at an amount equal to the amount we have invested plus a 12.0% annual
cumulative, pre-tax, non-compounded return on the aggregate amount we have invested. During 2019 and 2018, we redeemed $34.5 million
and $14.5 million, respectively of the East 11th Street Preferred Investment which reduced the remaining outstanding balance
to $8.5 million.
Miami
Moxy Preferred Investment
On
September 30, 2016, we entered into an agreement with various related party entities pursuant to which it made aggregate contributions
of $20.0 million in an affiliate of its Sponsor (the “Miami Moxy Developer”), which owns parcels of land located at
915 through 955 Washington Avenue in Miami Beach, Florida, on which it constructed a 205-room Marriott Moxy hotel (the “Miami
Moxy”). Contributions were made pursuant to an instrument, the “Miami Moxy Preferred Investment,” that entitled
us to monthly preferred distributions at a rate of 12% per annum. During the fourth quarter of 2019, we redeemed $11.0 million
of the Miami Moxy Preferred Investment and during the first quarter of 2020, we redeemed the entire remaining Miami Moxy Preferred
Investment of $9.0 million.
Consolidated
Joint Venture
In
August 2011, the Operating Partnership and its Sponsor formed the 2nd Street Joint Venture, which owns Gantry Park Landing, a
multi-family apartment building located in Queens, New York. The Operating Partnership has a 59.2% membership interest in the
2nd Street Joint Venture (the “2nd Street JV Interest”). The 2nd Street JV Interest is a managing membership interest.
The Sponsor and other related parties have an aggregate 40.8% non-managing membership interest with certain consent rights with
respect to major decisions. Contributions are allocated in accordance with each investor’s ownership percentage. Profit
and cash distributions are allocated in accordance with each investor’s ownership percentage. As the Operating Partnership
through the 2nd Street Joint Venture Interest has the power to direct the activities of the 2nd Street Joint
Venture that most significantly impact the performance, we consolidate the operating results and financial condition of the 2nd
Street Joint Venture and has accounts for the ownership interests of the Sponsor and other related parties as noncontrolling
interests.
The
Joint Venture
During
2015, the Company formed a joint venture (the “Joint Venture”) with Lightstone Value Plus REIT II, Inc. (“Lightstone
REIT II”), a related party real estate investment trust also sponsored by the Company’s Sponsor. We have a 2.5%
membership interest in the Joint Venture and Lightstone REIT II holds the remaining 97.5% membership interest. The Joint Venture
previously acquired our membership interests in a portfolio of 11 hotels in a series of transactions completed during 2015. The
Joint Venture holds ownership interests in seven hotels as of December 31, 2021.
We
account for our 2.5% membership interest in the Joint Venture using a measurement alternative under which the Joint Venture is
measured at cost, adjusted for observable price changes and impairments, if any, and as of December 31, 2021 and 2020, the carrying
value of our investment was $1.0 million and $1.1 million, respectively, which is included in investments in related parties
on the consolidated balance sheets.
Notes
Receivable
We
formed certain joint ventures (collectively, the “NR Joint Ventures”) between wholly-owned subsidiaries of the Operating
Partnership (collectively, the “NR Subsidiaries”) and affiliates of the Sponsor (the “NR Affiliates”)
which have originated nonrecourse loans (collectively, the “Joint Venture Promissory Notes”) to unaffiliated third-party
borrowers (collectively, the “Joint Venture Borrowers”).
The
NR Subsidiaries and NR Affiliates have varying ownership interests in the NR Joint Ventures and certain other wholly-owned subsidiaries
of the Operating Partnership serve as the manager and are the sole decision-maker for each of the NR Joint Ventures.
We
determined that the NR Joint Ventures are VIEs and the NR Subsidiaries are the primary beneficiaries. Since the NR Subsidiaries
are the primary beneficiaries, beginning on the applicable date of formation, we have consolidated the operating results and financial
condition of the NR Joint Ventures and accounted for the respective ownership interests of the NR Affiliates as noncontrolling
interests.
The
Joint Venture Promissory Notes generally provide for monthly interest at a prescribed variable rate, subject to a floor. In connection
with the initial funding of the Joint Venture Promissory Notes, the NR Joint Ventures receive origination fees (ranging from 1.00%
to 1.50%) based on the principal commitment under the loan and retain a portion of the loan proceeds to establish a reserve for
interest and other items (the “Loan Reserves”). The Joint Venture Promissory Notes are recorded in notes receivable,
net on the consolidated balance sheets.
The
Joint Venture Promissory Notes generally have an initial term of one or two years and may provide for additional one-year extension
options subject to satisfaction of certain conditions, including the funding of additional Loan Reserves and payment of extension
fees. The Joint Venture Promissory Notes are collateralized by either the membership interests of the Joint Venture Borrowers
in the borrowing entity or the underlying real property being developed by the Joint Venture Borrower.
Origination
fees are presented in the consolidated balance sheets as a direct deduction from the carrying value of the Joint Venture
Promissory Notes and are amortized into interest income, using a straight-line method that approximates the effective interest
method, over the initial term of the Joint Venture Promissory Notes. The Loan Reserves are presented in the consolidated
balance sheets as a direct deduction from the carrying value of the Joint Venture Promissory Notes and are applied
against the monthly interest due over the initial term.
The
Notes Receivable are summarized as follows:
As
of
December 31, 2021
Company’s Loan
Contractual
Unamortized
Joint Ownership Commitment Origination Origination Maturity Interest
Outstanding
Origination Carrying
Unfunded
Venture/Lender Percentage Amount Fee Date Date Rate
Principal Reserves Fee Value Commitment
LSC
1543 7th LLC (1) 50 % 20,000 1.00 % August
27, 2019 February
28, 2022 Libor plus
5.40% (Floor of 7.90%)
17,500 - (33 ) 17,467 -
LSC
11640 Mayfield LLC (2) 50 % 18,000 1.50 % March
4, 2020 March
1, 2022 Libor
plus 11.00% (Floor of 13.00%)
10,040 (629 ) (24 ) 9,387 6,960
Total
$ 27,540 $ (629 ) $ (57 ) $ 26,854 $ 6,960
As
of
December 31, 2020
Company’s Loan
Contractual
Unamortized
Joint Ownership Commitment Origination Origination Maturity Interest Outstanding
Origination
Carrying Unfunded
Venture/Lender Percentage Amount Fee Date Date Rate Principal Reserves Fee Value Commitment
LSC
162nd Capital I LLC (3) 45.45 % $ 4,234 1.50 % February
5, 2019 September
11, 2021 LIBOR +
7.50% (Floor of 11%) $ 4,076 $ (338 ) $ (33 ) $ 3,705 $ -
LSC
162nd Capital II LLC (3) 45.45 % 9,166 1.50 % February 5, 2019 September 11, 2021 LIBOR + 7.50% (Floor
of 11%) 8,824 (732 ) (71 ) 8,021 -
LSC
1543 7th LLC 50 % 20,000 1.00 % August 27, 2019 August 26, 2021 LIBOR + 5.40% (Floor
of 7.90%) 20,000 - (33 ) 19,967 -
LSC
1650 Lincoln LLC (3) 50 % 24,000 1.00 % August 27, 2019 August 26, 2021 LIBOR + 5.40% (Floor
of 7.90%) 24,000 - (40 ) 23,960 -
LSC
11640 Mayfield LLC 50 % 18,000 1.50 % March 4, 2020 March 1, 2022 LIBOR + 10.50% (Floor
of 12.50%) 10,750 (2,369 ) (158 ) 8,223 7,250
LSC
87 Newkirk LLC (4) 50 % 42,700 1.25 % July
2, 2020 December
1, 2021 LIBOR
+ 6.00% (Floor of 7.00%) 42,700 (1,597 ) (355 ) 40,748 -
Total
$ 110,350 $ (5,036 ) $ (690 ) $ 104,624 $ 7,250
Notes:
(1) Repaid
in full during March 2022.
(2) Repaid
in full during February 2022.
(3) Repaid
in full during December 2021.
(4) Repaid
in full during April 2021.
The
following summarizes the interest earned (included in interest and dividend income on the consolidated statements of operations)
for each of the Joint Venture Promissory Notes during the periods indicated:
For the For the
Year Ended Year Ended
December 31, December 31,
Joint
Venture/Lender
LSC
162nd Capital I LLC $ 491 $ 641
LSC
162nd Capital II LLC 1,063 1,387
LSC
1543 7th LLC 1,802 1,770
LSC
1650 Lincoln LLC 2,317 2,124
LSC
11640 Mayfield LLC 1,875 1,243
LSC
87 Newkirk LLC 1,585 1,625
Total $ 9,133 $ 8,790

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Independent
Registered Public Accounting Firm
Our
independent public accounting firm is EisnerAmper LLP, New York, New York, Auditor ID 274.
Audit
and Non-Audit Fees
The
following table presents the aggregate fees billed to the Company for the years indicated by the Company’s principal accounting
firm:
(in
thousands)
Audit
Fees (a) $ 276 $ 286
Tax
Fees (b)
Total
Fees $ 425 $ 436
a) Fees
for audit services consisted of the audit of the Company’s annual consolidated financial statements, interim reviews
of the Company’s quarterly consolidated financial statements and services normally provided in connection with statutory
and regulatory filings including registration statement consents.
b) Fees
for tax services.
In
considering the nature of the services provided by the independent auditor, the audit committee determined that such services
are compatible with the provision of independent audit services. The audit committee discussed these services with the independent
auditor and the Company’s management to determine that they are permitted under the rules and regulations concerning auditor
independence promulgated by the SEC to implement the related requirements of the Sarbanes-Oxley Act of 2002, as well as the American
Institute of Certified Public Accountants.
AUDIT
COMMITTEE REPORT
To
the Directors of Lightstone Value Plus REIT I, Inc.:
We
have reviewed and discussed with management Lightstone Value Plus REIT I, Inc.’s audited consolidated financial statements
as of and for the year ended December 31, 2021.
We
have discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standard No. 16,
“Communication with Audit Committees,” as amended, as adopted by the Public Company Accounting Oversight Board.
We
have received and reviewed the written disclosures and the letter from the independent auditors required by the Public Company
Accounting Oversight Board Rule 3526, Communication with Audit Committees Concerning Independence and have discussed with the
auditors the auditors’ independence.
Based
on the reviews and discussions referred to above, we recommend to the Board that the consolidated financial statements referred
to above be included in Lightstone Value Plus REIT I, Inc.’s Annual Report on consolidated Form 10-K for the year ended
December 31, 2021.
Audit
Committee
George
R. Whittemore
Alan
Retkinski
Howard
E. Friedman
INDEPENDENT
DIRECTORS’ REPORT
To
the Stockholders of Lightstone Value Plus REIT I, Inc.:
We
have reviewed the Company’s policies and determined that they are in the best interest of the Company’s stockholders.
Set forth below is a discussion of the basis for that determination.
General
The
Company’s primary objective is to achieve capital appreciation with a secondary objective of income without subjecting principal
to undue risk. The Company intends to achieve this goal primarily through acquisitions and development of real estate properties
and other real estate-related investments.
The
Company, to date, has acquired and developed residential and commercial properties principally, all of which are located in the
United States and made real estate-related investments. The Company’s acquisitions have included both portfolios and individual
properties. The Company current operating properties consist of one retail outlet shopping center) and one multi-family residential
apartment building. The Company also has acquired various parcels of land and air rights related to the development and construction
of real estate properties. Additionally, the Company has made certain preferred equity investments in related parties and originated
notes receivables through joint venture arrangements.
The
following is descriptive of the Company’s:
Acquisition
and investment policies:
● Reflecting
a flexible operating style, the Company’s portfolio is likely to be diverse and include properties of different types
(such as retail, lodging, office, industrial and residential properties); both passive and active investments; real estate-related
investments (such as preferred equity investments) and joint venture transactions. The portfolio is likely to be determined
largely by the purchase opportunities that the market offers, whether on an upward or downward trend. This is in contrast
to those funds that are more likely to hold investments of a single type, usually as outlined in their charters.
● The
Company may invest in properties that are not sold through conventional marketing and auction processes. The Company’s
investments may be at a dollar cost level lower than levels that attract those funds that hold investments of a single type.
● The
Company may be more likely to make investments that are in need of rehabilitation, redirection, remarketing and/or additional
capital investment.
● The
Company may place major emphasis on a bargain element in its purchases, and often on the individual circumstances and motivations
of the sellers. The Company will search for bargains that become available due to circumstances that occur when real estate
cannot support the mortgages securing the property.
● The
Company intends to pursue returns in excess of the returns targeted by real estate investors who target a single type of property
investment.
Financing
Policies
The
Company utilizes leverage to acquire and develop properties. The number of different properties the Company acquires and develops
is affected by numerous factors, including, the amount of funds available to us. When interest rates on loans are high or financing
is otherwise unavailable on terms that are satisfactory to the Company, the Company may purchase or develop certain properties
for cash with the intention of obtaining a loan for a portion of the purchase price or development costs at a later time. There
is no limitation on the amount the Company may invest in any single property or on the amount the Company can borrow for any property.
The
Company currently intends to limit its 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 the Company’s
stockholders. The Company may also incur short-term indebtedness, having a maturity of two years or less. By operating on a leveraged
basis, the Company may have more funds available for investment in properties. This may allow the Company to make more investments
than would otherwise be possible, resulting in a more diversified portfolio. Although the Company’s liability for the repayment
of indebtedness is expected to be limited to the value of the property securing the liability and the rents or profits derived
therefrom, the Company’s use of leveraging increases the risk of default on the mortgage payments and a resulting foreclosure
of a particular property. To the extent that the Company does not obtain loans on the Company’s properties, the Company’s
ability to acquire or develop additional properties may be restricted. The Company will endeavor to obtain financing on the most
favorable terms available.
Policy
on Sale or Disposition of Properties
The
Company’s Board will determine whether a particular property should be sold or otherwise disposed of after considering the
relevant factors, including performance or projected performance of the property and market conditions, with a view toward achieving
its principal investment objectives.
The
Company may, sell properties at any time and if so, may invest the proceeds from any sale, financing, refinancing or other disposition
of its properties into acquiring or developing additional properties. Alternatively, the Company may use these proceeds to fund
maintenance or repair of existing properties or to increase reserves for such purposes. The Company may choose to reinvest the
proceeds from the sale, financing and refinancing of its properties to increase its real estate assets and its net income. Notwithstanding
this policy, the Board, in its discretion, may distribute all or part of the proceeds from the sale, financing, refinancing or
other disposition of all or any of the Company’s properties to the Company’s stockholders. In determining whether
to distribute these proceeds to stockholders, the Board will consider, among other factors, the desirability of properties available
for purchase, real estate market conditions and compliance with the applicable requirements under federal income tax laws.
When
the Company sells a property, it intends to obtain an all-cash sale price. However, the Company may take a purchase money obligation
secured by a mortgage on the property as partial payment, and there are no limitations or restrictions on the Company’s
ability to take such purchase money obligations. The terms of payment to the Company will be affected by custom in the area in
which the property being sold is located and the then prevailing economic conditions. If the Company receives notes and other
property instead of cash from sales, these proceeds, other than any interest payable on these proceeds, will not be available
for distributions until and to the extent the notes or other property are actually paid, sold, refinanced or otherwise disposed.
Therefore, the distribution of the proceeds of a sale to the stockholders may be delayed until that time. In these cases, the
Company will receive payments in cash and other property in the year of sale in an amount less than the selling price and subsequent
payments will be spread over a number of years.
Independent
Directors
George
R. Whittemore
Alan Retkinski
Howard
E. Friedman
PART
IV.

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:
LIGHTSTONE
VALUE PLUS REIT I, INC.
Annual
Report on Form 10-K
For
the fiscal year ended December 31, 2021
EXHIBIT
INDEX
The
following exhibits are filed as part of this Annual Report on Form 10-K or incorporated by reference herein:
EXHIBIT
NO.
DESCRIPTION
3.1(1)
Amended
and Restated Charter of Lightstone Value Plus REIT I, Inc.
3.2(2)
Amended
and Restated Bylaws of Lightstone Value Plus REIT I, Inc.
3.3(5)
Articles of Amendment of Lightstone Value Plus REIT I, Inc.
4.1(3)
Amended and Restated Agreement of Limited Partnership of Lightstone Value Plus REIT LP
4.2(4)
Description of Shares
10.2(2)
Advisory
Agreement by and among Lightstone Value Plus REIT I, Inc., Lightstone Value Plus REIT LP and Lightstone Value Plus REIT LLC.
10.3(2)
Management
Agreement, by and among Lightstone Value Plus REIT I, Inc., Lightstone Value Plus REIT LP and Lightstone Value Plus REIT Management
LLC.
10.4(2)
Form
of the Company’s Stock Option Plan.
10.5(2)
Form
of Indemnification Agreement by and between The Lightstone Group and the directors and executive officers of Lightstone Value
Plus REIT I, Inc.
21.1*
Subsidiaries of the Registrant
23.1*
Consent of EisnerAmper LLP
31.1*
Certification Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*
Certification Pursuant to Rule 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*
Certification Pursuant to Rule 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1*
Consent of Robert A. Stanger & Co., Inc
101*
XBRL
(eXtensible Business Reporting Language). The following financial information from Lightstone Value Plus REIT I, Inc. on Form
10-K for the year ended December 31, 2021, filed with the SEC on March 23, 2022, 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. As provided in Rule 406T of Regulation S-T, this information in furnished and not filed for purpose of
Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
* Filed
herewith.
(1) Incorporated
by reference from Lightstone Value Plus REIT I, Inc.’s Amended Registration Statement on Form S-11/A (File No. 333-166930),
filed with the Securities and Exchange Commission on October 19, 2010.
(2) Incorporated
by reference from Lightstone Value Plus REIT I, Inc.’s Registration Statement on Form S-11 (File No. 333-166930), filed
with the Securities and Exchange Commission on May 18, 2010.
(3) Incorporated
by reference from Lightstone Value Plus REIT I, Inc.’s Post-Effective Amendment
No. 1 to its Registration Statement on Form S-11 (File No. 333-117367), filed with the
Securities and Exchange Commission on May 23, 2005.
(4) Previously filed as an exhibit to the Annual Report on Form 10-K that we filed with the Securities and Exchange Commission on March 19, 2021
(5) Previously filed as an exhibit to the Current Report on Form 8-K that we filed with the Securities and Exchange Commission on September 21, 2021.