Parking REIT, Inc. - FORM 10-K - March 30, 2020

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EX-4.4 - DESCRIPTION OF REGISTRANT'S SECURITIES - Parking REIT, Inc.exhibit44.htm
EX-32 - Parking REIT, Inc.exhibit32.htm
EX-31.2 - Parking REIT, Inc.exhibit312.htm
EX-31.1 - Parking REIT, Inc.exhibit311.htm
EX-21.1 - Parking REIT, Inc.exhibit21.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
(Mark one)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

Or

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

For the transition period from _________ to _________

Commission File Number: 000-55760


THE PARKING REIT, INC.
(Exact name of registrant as specified in its charter)

MARYLAND
  
47-3945882
(State or Other Jurisdiction of
  
(I.R.S. Employer
Incorporation or Organization)
  
Identification No.)

9130 WEST POST ROAD SUITE 200, LAS VEGAS, NV 89148
 (Address of Principal Executive Offices) (Zip Code)

Registrant’s Telephone Number, including Area Code: (702) 534-5577
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
N/A
N/A
N/A

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.0001 Par Value
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [  ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [  ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes [X] No [  ]

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

Large accelerated filer [  ]
Accelerated filer [  ]
Non-accelerated filer [  ]
 
Smaller reporting company [ X ]
Emerging growth company [ X ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [  ] No [X]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

There is no established market for the Registrant's shares of common stock. On May 28, 2019, the board of directors of the Registrant approved an estimated net asset value per share of the Registrant's common stock of $25.10. However, current market disruptions relating to COVID-19 have significantly and adversely impacted the market for a wide variety of real estate assets as well as the supply of debt financing for real estate assets. As a result, we believe that the value of our assets might have been impacted since the World Health Organization declared the outbreak of the COVID-19 pandemic on March 11, 2020. However, we cannot determine the ultimate impact, if any, on our estimate of net asset value per share as of the filing date of this report. There were approximately 6,001,300 shares of common stock held by non-affiliates at June 30, 2019, the last business day of the registrant's most recently completed second fiscal quarter.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class
    
Number of Shares Outstanding
As of March 30, 2020
Common Stock, $0.0001 Par Value
    
7,330,071


TABLE OF CONTENTS

     
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Special Note Regarding Forward-Looking Statements

Certain statements included in this annual report on Form 10-K (this “Annual Report”) that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.

The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs, which involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:

•
the fact that the Company has a limited operating history, as property operations began in 2016;
•
the fact that the Company has experienced net losses since inception and may continue to experience additional losses;
•
the performance of properties the Company has acquired or may acquire or loans the Company has made or may make that are secured by real property;
•
changes in economic conditions generally and the real estate and debt markets specifically;
•
legislative or regulatory changes, including changes to the laws governing the taxation of real estate investment trusts (“REITs”);
•
the outcome of pending litigation or investigations;
•
potential damage and costs arising from natural disasters, terrorism and other extraordinary events, including extraordinary events affecting parking facilities included in the Company’s portfolio;
•
risks inherent in the real estate business, including ability to secure leases or parking management contracts at favorable terms, tenant defaults, potential liability relating to environmental matters and the lack of liquidity of real estate investments;
•
competitive factors that may limit the Company’s ability to make investments or attract and retain tenants;
•
the Company’s ability to generate sufficient cash flows to pay distributions to the Company’s stockholders;
•
the Company’s failure to maintain status as a REIT;
•
the Company’s ability to successfully integrate pending transactions and implement an operating strategy;
•
the Company’s ability to list shares of common stock on a national securities exchange or complete another liquidity event;
•
the availability of capital and debt financing generally, and any failure to obtain debt financing at favorable terms or a failure to satisfy the conditions, covenants and requirements of that debt;
•
changes in interest rates;
•
changes to generally accepted accounting principles, or GAAP;
•
the impact on our business and those of our tenants from epidemics, pandemics or outbreaks of an illness, disease or virus (including COVID-19); and
•
potential adverse impacts from changes to the U.S. tax laws.

Any of the assumptions underlying the forward-looking statements included herein could be inaccurate, and undue reliance should not be placed upon any forward-looking statements included herein. All forward-looking statements are made as of the date of this Annual Report, and the risk that actual results will differ materially from the expectations expressed herein will increase with the passage of time. Except as otherwise required by the federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements made after the date of this Annual Report, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward-looking statements included in this Annual Report, the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Annual Report will be achieved.

This Annual Report may include market data and forecasts with respect to the REIT industry. Although the Company is responsible for all of the disclosure contained in this Annual Report, in some cases the Company relies on and refers to market data and certain industry forecasts that were obtained from third party surveys, market research, consultant surveys, publicly available information and industry publications and surveys that the Company believes to be reliable.


PART I

ITEM 1. BUSINESS

General

The Parking REIT, Inc., formerly known as MVP REIT II, Inc. (the “Company,” “we,” “us” or “our”), is a Maryland corporation formed on May 4, 2015 and has elected to be taxed, and has operated in a manner that will allow the Company to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2017; therefore, it is the Company’s intention to file its income tax return as a REIT for the year ended December 31, 2019.

The Company was formed to focus primarily on investments in parking facilities, including parking lots, parking garages and other parking structures throughout the United States. To a lesser extent, the Company may invest in parking properties that contain other sources of rental income, potentially including office, retail, storage, residential, billboards or cell towers.

The Company is the sole general partner of MVP REIT II Operating Partnership, LP, a Delaware limited partnership (the “Operating Partnership”). The Company owns substantially all of its assets and conducts substantially all of its operations through the Operating Partnership. The Company’s wholly owned subsidiary, MVP REIT II Holdings, LLC, is the sole limited partner of the Operating Partnership. The operating agreement provides that the Operating Partnership is operated in a manner that enables the Company to (1) satisfy the requirements to qualify and maintain qualification as a REIT for federal income tax purposes, (2) avoid any federal income or excise tax liability and (3) ensure that the Operating Partnership is not classified as a “publicly traded partnership” for purposes of Section 7704 of the Internal Revenue Code of 1986, as amended (the “Code”), which classification could result in the Operating Partnership being taxed as a corporation.

The Company utilizes an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) structure to enable the Company to acquire real property in exchange for limited partnership interests in the Operating Partnership from owners who desire to defer taxable gain that would otherwise normally be recognized by them upon the disposition of their real property or transfer of their real property to the Company in exchange for shares of the Company’s common stock or cash.

The Company’s former advisor is MVP Realty Advisors, LLC, dba The Parking REIT Advisors (the “former Advisor”), a Nevada limited liability company, which is owned 60% by Vestin Realty Mortgage II, Inc. (“VRM II”) and 40% by Vestin Realty Mortgage I, Inc. (“VRM I”). Prior to the Internalization (as defined below), the former Advisor was responsible for managing the Company’s affairs on a day-to-day basis and for identifying and making investments on the Company’s behalf pursuant to a second amended and restated advisory agreement among the Company, the Operating Partnership and the former Advisor (the “Amended and Restated Advisory Agreement”). VRM II and VRM I are Maryland corporations that trade on the OTC pink sheets and were managed by Vestin Mortgage, LLC, an affiliate of the former Advisor, prior to being internalized in January 2018.

As part of the Company’s initial capitalization, 8,000 shares of common stock were sold for $200,000 to an affiliate of the former Advisor.

Objectives

The Company’s primary objectives are to:

•
preserve capital;
•
generate current income; and
•
explore strategic alternatives to provide liquidity to stockholders, including sales of assets, potential liquidation of the Company, a sale of the Company or a portion thereof or a strategic business combination.


In mid-2019, the Company engaged financial and legal advisors and began to explore a broad range of potential strategic alternatives to provide liquidity to stockholders.  The Company is currently exploring certain strategic alternatives, including potential sales of assets, a potential sale of the Company or a portion thereof, a potential strategic business combination or a potential liquidation.  However, there can be no assurance that the Board’s exploration of potential strategic alternatives will result in any change of strategy or transaction being entered into or consummated or, if a transaction is undertaken, as to its terms, structure or  timing. In addition, the value received in any potential strategic alternative would likely be less than the net asset value (“NAV”) most recently estimated by the Company’s board of directors. Our assets have been valued based upon appraisal standards and the values of our assets using these methods are not required to reflect market value under those standards and will not necessarily result in a reflection of fair value under generally accepted accounting principles. Further, different parties using 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 determined by our board of directors. The estimated NAV per share is not a representation or indication that, among other things a stockholder would ultimately realize distributions per share equal to the estimated NAV per share upon liquidation of assets and settlement of our liabilities or upon a sale of our company or a third party would offer the estimated NAV per share in an arms-length transaction to purchase all or substantially all of our shares of common stock. For example, we expect to incur additional costs in connection with ongoing litigation, the SEC investigation discussed in Note P - Legal in Part II, Item 8 Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K and legal and consulting fees associated with pursuing any potential strategic alternatives, which in the aggregate may be material, none of which was taken in consideration when the board of directors determined the prior estimated NAV per share. Please see our Current Reports on Form 8-K filed with the SEC on May 28, 2019 for additional information regarding the NAV calculation, as well as “Item 1A. Risk Factors—Risks Related to an Investment in the Company–Stockholders should not rely on the estimated NAV per share as being an accurate measure of the current value of our shares of common stock” in this Annual Report on Form 10-K.

Prior Investment Strategy

The Company’s investment strategy has historically focused primarily on acquiring, owning and managing parking facilities, including parking lots, parking garages and other parking structures throughout the United States and Canada.  The Company historically focused primarily on investing in income-producing parking lots and garages with air rights in central business districts. In building its current portfolio, the Company sought geographically targeted investments that present key demand drivers, that were expected to generate cash flows and provide greater predictability during periods of economic uncertainty. Such targeted investments include, but are not limited to, parking facilities near one or more of the following demand drivers:

•
Downtown core
•
Government buildings and courthouses
•
Sporting venues
•
Hospitals
•
Hotels

However, as a result of the current COVID-19 pandemic, among other factors, such demand drivers have been and are expected to be significantly diminished for an indeterminate period of time. Many state and local governments are currently restricting public gatherings or requiring people to shelter in place, which has in some cases eliminated or severely reduced the demand for parking. For more information on the effect of COVID-19 on our business, see “Item 1A. Risk Factors—Risks Related to Our Business—Our business and those of our tenants may be adversely affected by epidemics, pandemics or other outbreaks.”

Prior Investment Criteria

The Company historically focused on acquiring properties that met the following criteria:

•
properties that were expected to generate current cash flow;
•
properties that were expected to be located in populated metropolitan areas; and
•
properties were expected to produce income within 12 months of the Company’s acquisition.

As noted above, the Company does not currently expect to make any additional acquisitions unless and until it is able to sell some of its existing assets, and then only after ensuring that it has sufficient liquidity resources.  In the unlikely event of a future acquisition, the Company would expect the foregoing criteria to serve as guidelines, however, Management and the Company’s board of directors may vary from these guidelines to acquire properties which they believe represent value opportunities.

Management Internalization

On March 29, 2019, the Company and the former Advisor entered into definitive agreements to internalize the Company’s management function effective April 1, 2019 (the “Internalization”). Since their formation, under the supervision of the board of directors (the “Board of Directors”), the former Advisor has been responsible for managing the operations of the Company and MVP REIT, Inc., a Maryland corporation (“MVP I”), which merged with a wholly owned indirect subsidiary of the Company in December 2017. As part of the Internalization, among other things, the Company agreed with the former Advisor to (i) terminate the Second Amended and Restated Advisory Agreement, dated as of May 26, 2017 and, for the avoidance of doubt, the Third Amended and Restated Advisory Agreement, dated as of September 21, 2018, which by its terms would have become effective only upon a listing of the Company’s common stock on a national securities exchange (collectively, the “Management Agreements”), each entered into among the Company, the former Advisor and MVP REIT II Operating Partnership, LP (the “Operating Partnership”); (ii) extend employment to the executives and other employees of the former Advisor; (iii) arrange for the former Advisor to continue to provide certain services with respect to outstanding indebtedness of the Company and its subsidiaries; and (iv) lease the employees of the former Advisor for a limited period of time prior to the time that such employees become employed by the Company.

Contribution Agreement

On March 29, 2019, the Company entered into a Contribution Agreement (the “Contribution Agreement”) with the former Advisor, Vestin Realty Mortgage I, Inc. (“VRTA”) (solely for purposes of Section 1.01(c) thereof), Vestin Realty Mortgage II, Inc. (“VRTB”) (solely for purposes of Section 1.01(c) thereof) and Shustek (solely for purposes of Section 4.03 thereof). In exchange for the Contribution, the Company agreed to issue to the former Advisor 1,600,000 shares of Common Stock as consideration (the “Internalization Consideration”), issuable in four equal installments. The first and second installments of 400,000 shares of Common Stock per installment were issued on April 1, 2019 and December 31, 2019, respectively. See Note S — Deferred Management Internalization in Part II, Item 8 Notes to the Consolidated Financial Statements of this Annual Report for additional information. The remaining installments will be issued on December 31, 2020 and December 31, 2021 (or if December 31st is not a business day, the day that is the last business day of such year). If requested by the Company in connection with any contemplated capital raise by the Company, the former Advisor has agreed not to sell, pledge or otherwise transfer or dispose of any of the Internalization Consideration for a period not to exceed the lock-up period that otherwise would apply to other stockholders of the Company in connection with such capital raise. See the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on April 3, 2019 for more information regarding the Management Internalization.

Concentration

The Company had fifteen parking tenants as of December 31, 2019 and 2018. One tenant, SP Plus Corporation (Nasdaq: SP) (“SP+”), represented 60.8% of the Company’s base parking rental revenue for the year ended December 31, 2019.

SP+ is one of the largest providers of parking management in the United States. As of December 31, 2019, SP+ managed approximately 3,100 locations in North America.

Below is a table that summarizes parking rent by tenant for the years ended December 31, 2019 and 2018:

   
For the Years Ended December 31,
  
Parking Tenant
  
2019
    
2018
  
SP +
    
60.8
%
    
57.3
%
Premier Parking
    
14.8
%
    
17.1
%
ISOM Mgmt
    
3.9
%
    
4.3
%
ABM
    
3.9
%
    
4.6
%
Interstate Parking
    
2.9
%
    
2.8
%
342 N. Rampart
    
2.9
%
    
2.6
%
Denison
    
2.7
%
    
2.5
%
Lanier
    
2.4
%
    
2.4
%
St. Louis Parking
    
2.0
%
    
2.2
%
Premium Parking
    
1.2
%
    
--
  
TNSH, LLC
    
1.1
%
    
0.6
%
Riverside Parking
    
0.9
%
    
1.0
%
BEST PARK
    
0.2
%
    
1.5
%
Denver School
    
0.2
%
    
0.2
%
Secure
    
0.1
%
    
0.1
%
PCAM, LLC
    
--
      
0.8
%
* During June 2018 Premier Parking acquired iPark Services. Subsequent to the acquisition Premier and iPark continue to operate under their original company names.


In addition, the Company had concentrations in various cities based on parking rental revenue for the years ended December 2019 and 2018, as well as concentrations in various cities based on the real estate the Company owned as of December 31, 2019 and 2018. The below tables summarize this information by city.

City Concentration for Parking Rental Revenue
  
   
For the Years Ended December 31,
  
   
2019
    
2018
  
Detroit
    
22.6
%
    
18.2
%
Houston
    
11.7
%
    
13.3
%
Cincinnati
    
9.3
%
    
9.2
%
Fort Worth
    
7.0
%
    
8.1
%
Indianapolis
    
6.1
%
    
6.5
%
Cleveland
    
5.8
%
    
5.3
%
St. Louis
    
5.0
%
    
5.4
%
Honolulu
    
4.3
%
    
2.6
%
Lubbock
    
3.9
%
    
4.2
%
Milwaukee
    
3.7
%
    
3.7
%
Minneapolis
    
3.6
%
    
4.3
%
Nashville
    
3.1
%
    
3.5
%
St Paul
    
2.9
%
    
2.7
%
New Orleans
    
2.9
%
    
2.7
%
San Jose
    
2.0
%
    
2.4
%
Bridgeport
    
1.9
%
    
2.3
%
Memphis
    
1.4
%
    
1.6
%
Louisville
    
0.9
%
    
1.0
%
Denver
    
0.7
%
    
0.8
%
Ft. Lauderdale
    
0.4
%
    
0.6
%
Wildwood
    
0.3
%
    
0.4
%
Clarksburg
    
0.3
%
    
0.3
%
Canton
    
0.2
%
    
0.3
%
Kansas City
    
--
      
0.6
%
Real Estate Investment Concentration by City
  
   
As of December 31,
  
     
2019
      
2018
  
Detroit
    
17.7
%
    
17.6
%
Houston
    
12.1
%
    
11.9
%
Fort Worth
    
8.8
%
    
8.8
%
Cincinnati
    
8.8
%
    
8.7
%
Honolulu
    
6.8
%
    
6.7
%
Cleveland
    
6.3
%
    
6.2
%
Indianapolis
    
5.8
%
    
5.8
%
St Louis
    
4.4
%
    
4.4
%
Minneapolis
    
4.3
%
    
4.4
%
Lubbock
    
4.3
%
    
3.5
%
Milwaukee
    
3.9
%
    
3.8
%
Nashville
    
3.7
%
    
3.7
%
St Paul
    
2.7
%
    
2.7
%
Bridgeport
    
2.6
%
    
2.6
%
New Orleans
    
2.6
%
    
2.6
%
Memphis
    
1.3
%
    
1.5
%
San Jose
    
1.1
%
    
1.2
%
Denver
    
1.0
%
    
1.0
%
Louisville
    
1.0
%
    
1.0
%
Wildwood
    
0.4
%
    
0.4
%
Clarksburg
    
0.2
%
    
0.2
%
Canton
    
0.2
%
    
0.2
%
Fort Lauderdale
    
--
      
1.1
%


Economic Dependency

Prior to the Internalization, under various agreements, the Company engaged the former Advisor and its affiliates to provide certain services that were essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company, asset acquisition and disposition services, the sale of shares of the Company’s securities available for issuance, as well as other administrative responsibilities for the Company, including accounting services and investor relations. In addition, the Sponsor paid selling commissions in connection with the sale of the Company’s shares in the Common Stock Offering and the former Advisor paid the Company’s organization and offering expenses.

As a result of these relationships, prior to the Internalization, the Company was wholly dependent upon the former Advisor and its affiliates.

Competition

The Company is unaware of any REITs in the United States that invest predominantly in parking facilities; nevertheless, the Company has significant competition with respect to the acquisition of real property. Competitors include other REITs, owners and managers of parking facilities, private investment funds, hedge funds and other investors, many of which have significantly greater resources. The Company may not be able to compete successfully for investments, particularly in light of the Company’s lack of liquidity available for investments which would preclude the Company from making any additional investments unless it sells some of its existing assets and enhances existing liquidity resources. In addition, the number of entities and the amount of funds competing for suitable investments may increase. If the Company pays higher prices for investments the returns will be lower, and the value of assets may not increase or may decrease significantly below the amount paid for such assets.

The Company’s parking facilities face intense competition, which may adversely affect rental and fee income. The Company believes that competition in parking facility operations is intense. The relatively low cost of entry has led to a strongly competitive, fragmented market consisting of competitors ranging from single facility operators to large regional and national multi-facility operators, including several public companies. In addition, the Company’s facilities compete with building owners that provide on-site paid parking. Many of the competitors have more experience in owning and operating parking facilities. Moreover, some of the competitors will have greater capital resources, greater cash reserves, less demanding rules governing distributions to stockholders and a greater ability to borrow funds. Competition for investments may reduce the number of suitable investment opportunities available, may increase acquisition costs and may reduce demand for parking facilities, all of which may adversely affect operating results.

In addition, the Company may compete against VRM I and VRM II, both of which are managed by affiliates of the Company’s Sponsor and the former Advisor, for the acquisition of investments to the extent that the Company is able to pursue acquisition in the future. The Company believes this potential conflict is mitigated, in part, by the Company's focus on parking facilities as its core investments, while the investment strategy of VRM I and VRM II focuses on acquiring office buildings and other commercial real estate and loans secured by commercial real estate.

Income Taxes

Commencing with the taxable year ended December 31, 2017, the Company believes it has been organized and has conducted its operations to qualify as a REIT under Sections 856 to 860 of the Code. A REIT is generally not subject to federal income tax on that portion of its REIT taxable income which is distributed to its stockholders provided that at least 90% of such taxable income is distributed and provided that certain other requirements are met. The Company’s REIT taxable income may substantially exceed or be less than the income calculated according to GAAP. In addition, the Company will be subject to corporate income tax to the extent that less than 100% of the net taxable income is distributed, including any net capital gain.

The Company uses a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolutions of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more likely than not of being realized upon ultimate settlement. The Company believes that its income tax filing positions and deductions would be sustained upon examination; thus, the Company has not recorded any uncertain tax positions as of December 31, 2019.


A full valuation allowance for deferred tax assets was provided since the Company believes that it is more likely than not that it will not realize the benefits of its deferred tax assets. A change in circumstances may cause the Company to change its judgment about whether deferred tax assets should be recorded, and further whether any such assets would more likely than not be realized. The Company would generally report any change in the valuation allowance through its income statement in the period in which such changes in circumstances occur. Because the Company is a REIT, it will generally not be subject to corporate level federal income taxes on earnings distributed to the Company’s stockholders and therefore may not realize any benefit from deferred tax assets arising during 2019 or any prior period in which a valid REIT election was in effect. The Company intends to distribute at least 100% of its taxable income annually and intends to do so for the tax year ended December 31, 2019 and in all future periods. The Company has placed a full valuation allowance on all of its deferred tax assets, and thus no asset is recorded on the Company’s balance sheet.

Regulations

The Company’s investments are subject to various federal, state, local and foreign laws, ordinances and regulations, including, among other things, zoning regulations, land use controls, environmental controls relating to air and water quality, noise pollution and indirect environmental impacts such as increased motor vehicle activity. The Company intends to obtain all permits and approvals necessary under current law to operate the Company’s investments.

Review of the Company’s Policies

The Company’s board of directors, including the independent directors, has reviewed the policies described in this Annual Report and determined that they are in the best interest of the Company’s stockholders because: (1) they increase the likelihood that the Company will be able implement and execute the Company’s business strategies; (2) the Company’s executive officers and directors have expertise with the type of real estate investments the Company seeks; and (3) borrowings should enable the Company to purchase assets and earn rental income more quickly, thereby increasing the likelihood of generating income for the Company’s stockholders and preserving stockholder capital.

Employees

The Company had approximately 16 employees as of December 31, 2019. Prior to July 1, 2019 the Company had no employees.

Available Information

The Company is subject to the reporting and information requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, as a result, files the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information with the SEC from time to time. The SEC maintains a website (http://www.sec.gov) that contains the Company’s annual, quarterly and current reports, proxy and information statements and other information the Company files electronically with the SEC from time to time. Access to these filings is free of charge and can be accessed on the Company’s website, www.theparkingreit.com. The information on, or accessible through, the Company’s website is not incorporated into and does not constitute a part of this Annual Report or any other report or document the Company files with or furnishes to the SEC from time to time.

ITEM 1A. RISK FACTORS

Risks Related to an Investment in the Company

There are a number of pending legal matters involving us and our affiliates, which could distract our officers from attending to the Company's business and could have a material adverse effect on the Company.

The pending investigations and legal proceedings involving us, and our affiliates could harm the reputation of the Company and may distract our management from attending to the Company's business. The adverse publicity arising out of the pendency of such investigations or proceedings could impair our ability to raise additional capital or pursue liquidity transactions as it could make the Company less attractive to potential counterparties. We maintain insurance in such amounts and with such coverage and deductibles as management believes is reasonable. However, there can be no assurance that our insurance will be sufficient to fully cover all potential liabilities from any such proceedings. Accordingly, our failure to successfully defend or settle such legal proceedings could result in liability that, to the extent not covered by insurance, could have an adverse effect on our business, financial condition, results of operations and cash flow. The loss of key personnel or circumstances causing such personnel to otherwise become unavailable to manage our business, would result in the loss of experience, skill, resources, relationships and contacts of individuals that we believe are important to our investment and operating strategies.


On March 12, 2019, stockholder SIPDA Revocable Trust (“SIPDA”) filed a purported class action complaint in the United States District Court for the District of Nevada, against the Company and certain of its current and former officers and directors. SIPDA filed an Amended Complaint on October 11, 2019. The Amended Complaint purports to assert class action claims on behalf of all public shareholders of the Company and MVP I between August 11, 2017 and April 1, 2019 in connection with the (i) August 2017 proxy statements filed with the SEC to obtain shareholder approval for the merger of the Company and MVP I (the “proxy statements”), and (ii) August 2018 proxy statement filed with the SEC to solicit proxies for the election of certain directors (the “2018 proxy statement”). The Amended Complaint alleges, among other things, that the 2017 proxy statements failed to disclose that two major reasons for the merger and certain charter amendments implemented in connection therewith were (i) to facilitate the execution of an amended advisory agreement that allegedly was designed to benefit Mr. Shustek financially in the event of an internalization and (ii) to give Mr. Shustek the ability to cause the Company to internalize based on terms set forth in the amended advisory agreement. The Amended Complaint further alleges, among other things, that the 2018 proxy statement failed to disclose the Company’s purported plan to internalize its management function.

The Amended Complaint alleges, among other things, (i) that all defendants violated Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, by disseminating proxy statements that allegedly contain false and misleading statements or omit to state material facts; (ii) that the director defendants violated Section 20(a) of the Exchange Act; and (iii) that the director defendants breached their fiduciary duties to the members of the class and to the Company.

The Amended Complaint seeks, among other things, unspecified damages; declaratory relief; and the payment of reasonable attorneys' fees, accountants' and experts' fees, costs and expenses.

On June 13, 2019, the court granted SIPDA’s motion for Appointment as Lead Plaintiff. The litigation is still at a preliminary stage. On January 9, 2020, the Company and the Board of Directors moved to dismiss the Amended Complaint.  The Company and the Board of Directors have reviewed the allegations in the Amended Complaint and believe the claims asserted against them in the Amended Complaint are without merit and intend to vigorously defend this action.

On May 31, 2019, and June 27, 2019, alleged stockholders filed class action lawsuits alleging direct and derivative claims against the Company, certain of our officers and directors, MVP Realty Advisors, Vestin Realty Mortgage I, and Vestin Realty Mortgage II in the Circuit Court for Baltimore City, captioned Arthur Magowski v. The Parking REIT, Inc., et. al, No. 24-C-19003125 (filed on May 31, 2019) (the “Magowski Complaint”) and Michelle Barene v. The Parking REIT, Inc., et. al, No. 24-C-19003527 (filed on June 27, 2019) (the “Barene Complaint”).

The Magowski Complaint asserts purportedly direct claims on behalf of all stockholders (other than the defendants and persons or entities related to or affiliated with any defendant) for breach of fiduciary duty and unjust enrichment arising from the Company’s decision to internalize its advisory function. In this Complaint, Plaintiff Magowski asserts that the stockholders have allegedly been directly injured by the internalization and related transactions. The Barene Complaint asserts both direct and derivative claims for breach of fiduciary duty arising from substantially similar allegations as those contained in the Magowski Complaint. The purportedly direct claims are asserted on behalf of the same class of stockholder as the purportedly direct claims in the Magowski Complaint, and the derivative claims in the Barene Complaint are asserted on behalf of the Company.

On September 12 and 16, 2019, the defendants filed motions to dismiss the Magowski and Barene complaints, respectively. The Magowski and Barene Complaints seek, among other things, damages; declaratory relief; equitable relief to reverse and enjoin the internalization transaction; and the payment of reasonable attorneys' fees, accountants' and experts' fees, costs and expenses. The actions are at a preliminary stage. The Company and the board of directors intend to vigorously defend against these lawsuits.

The Magowski Complaint also previewed that a stockholder demand would be made on the Board to take action with respect to claims belonging to the Company for the alleged injury to the Company. On June 19, 2019, Magowski submitted a formal demand letter to the Board asserting the same alleged wrongdoing as alleged in the Magowski Complaint and demanding that the Board investigate the alleged wrongdoing and take action to remedy the alleged injury to the Company. The demand includes that claims be initiated against the same defendants as are named in the Magowski Complaint. In response to this stockholder demand letter, on July 16, 2019, the Board established a demand review committee of one independent director to investigate the allegations of wrongdoing made in the letter and to make a recommendation to the Board for a response to the letter.  On September 27, 2019, the Board replaced the demand review committee with a special litigation committee. The special litigation committee is responsible for investigating the allegations of wrongdoing made in the letter and making a final determination regarding the allegations. The work of the special litigation committee is on-going.

The SEC is conducting an investigation relating to the Parking REIT. In June 2019, the SEC issued subpoenas to the Company and its chairman and chief executive officer Michael V. Shustek. In connection with each subpoena, the SEC stated that: “this investigation is a non-public, fact-finding inquiry. We are trying to determine whether there have been any violations of the federal securities laws. The investigation and the subpoena do not mean that we have concluded that the recipient of the subpoena or anyone else has violated the law. Also, the investigation does not mean that we have a negative opinion of any person, entity or security.” The Company has received additional requests for information and expects to receive more in the future. The Company and Mr. Shustek intend to cooperate fully with the SEC in this matter. However, the Company cannot predict the outcome or the duration of the SEC investigation or any other legal proceedings or any enforcement actions or other remedies, if any, that may be imposed on Mr. Shustek, the Company or any other entity arising out of the SEC investigation.

Our business and those of our tenants may be adversely affected by epidemics, pandemics or other outbreaks.
Epidemics, pandemics or other outbreaks of an illness, disease or virus (including COVID-19) that affect areas in which our tenants operate or in which our properties are located, and actions taken to contain or prevent their further spread, may have a material and adverse impact on general commercial activity, the financial condition, results of operations and liquidity of us and our tenants.  In particular, many of our properties are located near government buildings and sports centers, which depend in large part on customer traffic, and conditions that lead to a decline in customer traffic will have a material and adverse impact on those businesses.  Several such conditions already exist and may intensify.  Many state and local governments are currently restricting public gatherings or requiring people to shelter in place, which has in some cases eliminated or severely reduced the demand for parking.  Such events are adversely impacting and may continue to adversely impact our tenants’ sales and/or cause the temporary closure of our tenants’ businesses, which could significantly disrupt or cause a closure of their operations and, in turn, significantly impact or eliminate the rental revenue we generate from our leases with them. In particular, a majority of the Company’s property leases call for additional percentage rent, which will be adversely impacted by a decline in the demand for parking. We are in preliminary discussions with some of our tenants and currently expect to grant relief to some our tenants to defer rent payments as a result of their estimated lost revenues from the current COVID-19 pandemic; however, there can be no assurance we will reach an agreement with any tenant or if an agreement is reached, that any such tenant will be able to repay any such deferred rent in the future. Epidemics, pandemics or other outbreaks of an illness, disease or virus could also cause our employees and those of our tenants, vendors or other business on which we rely to avoid reporting for work at their respective places of employment, which could adversely affect our ability and their respective abilities to adequately manage our and their respective businesses. In addition, risks related to epidemics, pandemics or other outbreaks of an illness, disease or virus have begun (and may continue) to adversely affect the economies in impacted countries, including the United States, and the global financial markets, including the global debt and equity capital markets, which have begun (and may continue) to experience significant volatility, potentially leading to an economic downturn that could adversely affect our and our tenants’ respective businesses, financial condition, liquidity, results of operations and prospects.  The ultimate extent of the impact of any epidemic, pandemic or other outbreak of an illness, disease or virus on our business, financial condition, liquidity, results of operations and prospects will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemics, pandemics or other outbreaks of an illness, disease or virus and actions taken to contain or prevent their further spread, among others. These and other potential impacts of epidemics, pandemics or other outbreaks of an illness, disease or virus could therefore materially and adversely affect our business, financial condition, liquidity, results of operations and prospects.
The Company will need to improve cash flow from operations or through a sale of assets to avoid a future liquidity shortfall.
The Company has significantly limited liquidity.  Absent operational improvements or additional funds from an asset sale, the Company could face a liquidity shortfall in 2020. While the Company is actively focused on operational and other initiatives to increase cash flow, no assurances can be given that these initiatives will be successful.  The Company’s ability to generate sufficient cash flow from operations will depend on a range of economic, competitive and business factors, many of which are outside its control, including the impact of COVID-19.  As a result of current economic conditions, the Company’s cash flow from operations might be impacted. The Company is in preliminary discussions with its lenders, including Bank of America, to obtain waivers from certain liquidity requirements and defer payments due under its loans in light of the current economic conditions and the fact that the Company expects to allow tenants to defer rents under its leases with its tenants as a result of the current COVID-19 pandemic; however, there can be no assurance that the Company will reach any such agreement with its lenders. In particular, some of the Company’s loan agreements require that the Company maintain certain liquidity and net worth levels. For example, the loan with Bank of America for MVP Detroit garage requires the Company to maintain $2.3 million of unencumbered cash and cash equivalents at all times. As of the time of this filing, the Company was in compliance with this lender requirement; however, unless the Company sells some of its existing assets, it does not expect that it will be able to maintain such required minimum balances beyond the third quarter of 2020, if the Company does not receive a waiver for this requirement.  The Company may be unable to sell assets and may be unable to negotiate a waiver or amendment of the liquidity and net worth requirements, in which case, the Company could experience an event of technical default under its loan agreements, which, if uncured, could result in an acceleration of such indebtedness.

We have engaged financial and legal advisors and begun to explore a broad range of potential strategic alternatives to provide liquidity to stockholders; however, there can be no assurance that our exploration of potential strategic alternatives will result in any transaction being completed, and speculation and uncertainty regarding the outcome of our exploration of strategic alternatives may adversely affect our business.

In mid-2019, we engaged financial and legal advisors and began to explore a broad range of potential strategic alternatives to provide liquidity to stockholders. We are currently exploring certain strategic alternatives, including potential sales of assets, a potential sale of the Company or a portion thereof, a potential strategic business combination or a potential liquidation. The process of exploring and executing potential strategic alternatives may be time consuming and disruptive to our business operations, and if we are unable to effectively manage the process, our business, financial condition and results of operations could be adversely affected. Any potential transaction and the related valuation would be dependent upon a number of factors that may be beyond our control, including, among other factors, market conditions, industry trends, the interest of third parties in our business and the availability of financing to potential buyers on reasonable terms. There can be no assurance that the Board’s exploration of potential strategic alternatives will result in any change of strategy or transaction being entered into or consummated or, if a transaction is undertaken, as to its terms, structure or timing.

Shares of our common stock are illiquid. No public market currently exists for our shares, and our charter does not require us to liquidate our assets or list our shares on an exchange by any specified date, or at all. It will be difficult for stockholders to sell shares, and if stockholders are able to sell shares, it will likely be at a substantial discount.

There is no current public market for our shares, and our charter does not require us to liquidate our assets or list our shares on an exchange by any specified date, or at all. Our charter limits stockholders' ability to transfer or sell shares unless the prospective stockholder meets the applicable suitability and minimum purchase standards. Our charter also prohibits the ownership of more than 9.8% in value of the aggregate of our outstanding capital stock or more than 9.8% in value or number, whichever is more restrictive, of the aggregate of our outstanding common stock unless exempted prospectively or retroactively by our board of directors. These restrictions may inhibit large investors from desiring to purchase stockholders' shares. Moreover, our share repurchase program was suspended in May 2018, other than with respect to hardship repurchases in connection with a shareholders’ death, which were suspended by the board of directors on March 24, 2020. It will be difficult for stockholders to sell shares promptly or at all. If stockholders are able to sell shares, stockholders will likely have to sell them at a substantial discount to their purchase price. It is also likely that stockholders' shares would not be accepted as the primary collateral for a loan.

In addition, Nasdaq has informed us that (i) our common stock will not be approved for listing currently on the Nasdaq Global Market, and (ii) it is highly unlikely that our common stock would be approved for listing while the SEC investigation is ongoing. There can be no assurance that our common stock will ever be approved for listing on the Nasdaq Global Market or any other stock exchange, even if the SEC investigation referred to above is completed and no wrongdoing is found and no action is taken in connection therewith against us, Mr. Shustek or any other person. Accordingly, we are not pursuing a listing and do not anticipate the ability to list in the foreseeable future. Our board of directors is actively evaluating actions that could provide liquidity for our stockholders. However, our ability to achieve liquidity for our stockholders is subject to market conditions, legal requirements and loan covenants, and there can be no assurance that we will affect a liquidity event. If we do not successfully implement a liquidity event, our shares of common stock may continue to be illiquid and stockholders may, for an indefinite period of time, be unable to convert their investments to cash easily and could suffer losses on their investments.

We have a limited operating history which makes our future performance difficult to predict.

We were formed on May 4, 2015 and merged with MVP REIT, Inc., which was formed on April 3, 2012, on December 15, 2017. In addition, our management function was internalized effective April 1, 2019. Accordingly, we have a limited operating history, particularly as an internally managed company. Stockholders should not assume that our performance will be similar to the past performance of other real estate investment programs sponsored by an affiliate of the former Advisor. Our lack of an operating history increases the risk and uncertainty that stockholders face in making or holding an investment in our shares.

We have experienced net losses in the past, and we may experience additional net losses in the future.

Historically, we have experienced net losses (calculated in accordance with GAAP), and we may not be profitable or realize growth in the value of our investments. Many of our losses can be attributed to start-up costs, depreciation and amortization, as well as acquisition expenses incurred in connection with purchasing properties or making other investments. For a further discussion of our operational history and the factors affecting our net losses, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report and our accompanying consolidated financial statements and notes thereto.


Our cash distributions are not guaranteed and may fluctuate.

The Company's board of directors unanimously authorized a suspension of our cash distributions and stock dividends to holders of our common stock, effective as of March 22, 2018. In addition, on March 24, 2020, the Company’s board of directors unanimously authorized the suspension of the payment of distributions on the Series A Convertible Redeemable Preferred Stock and Series 1 Convertible Redeemable Preferred Stock, however such distributions will continue to accrue in accordance with the terms of the Series A Convertible Redeemable Preferred Stock and Series 1 Convertible Redeemable Preferred Stock.  Our board is focused on preserving capital in order to maintain sufficient liquidity to continue to operate the business and maintain compliance with debt covenants, including minimum liquidity covenants and to seek to provide liquidity to stockholders through potential strategic transactions. Our board will continue to evaluate our performance and expects to assess our distribution policy quarterly, although we do not currently expect to resume paying cash distributions in the near future. There can be no assurance that we will resume payment of distributions to common or preferred stockholders at any time in the future, or that any liquidity event will occur or when such event may occur. As the Company does not expect to have any REIT taxable income, the Company does not believe this policy will affect the Company’s ability to maintain its status as a REIT.

We depend on our management team. The loss of key personnel could have a material adverse effect upon our ability to conduct and manage our business.

Our ability to achieve our investment objectives and to pay distributions is dependent upon the performance of our management team in the identification and acquisition of investments, the determination of any financing arrangements, the management of our assets and operation of our day-to-day activities. The loss of services of one or more members of our key personnel or our inability to attract and retain highly qualified personnel, could adversely affect our business, diminish our investment opportunities and weaken our relationships with lenders, business partners, parking facility operators and managers and other industry personnel, which could materially and adversely affect our business, financial condition, results of operations and ability to make distributions to stockholders in the future and the value of our common stock. .  Furthermore, the loss of one or more of our key personnel may constitute an event of default under certain of our limited non-recourse property-level indebtedness, which could result in such indebtedness being accelerated.

Stockholders should not rely on the estimated NAV per share as being an accurate measure of the current value of our shares of common stock.

Our board of directors, including all of our independent directors, approves and establishes at least annually an estimated per share NAV of our common stock, which is based on an estimated market value of our assets less the estimated market value of our liabilities, divided by the number of shares of our common stock outstanding. The objective of our board of directors in determining the estimated NAV per share was to arrive at a value, based on the most recent data available, that it believed was reasonable based on methodologies that it deemed appropriate.  As with any valuation method, the methods used to determine the estimated NAV per share were based upon a number of assumptions, estimates, forecasts and judgments that over time may prove to be incorrect, incomplete, or may change materially. For example, current market disruptions relating to COVID-19 have significantly and adversely impacted the market for a wide variety of real estate assets, commercial businesses that are adjacent to parking structures and the supply of debt financing for real estate assets. Our business could be significantly and adversely affected by the COVID-19 pandemic and we expect to continue to experience adverse effects resulting therefrom, all of which is likely to cause the actual NAV and any amount that may be available to stockholders upon a liquidation to be significantly less than the NAV estimated in May 2019.

In the most recent estimation of NAV, our assets were valued based upon appraisal standards and the values of our assets using these methods are not required to reflect market value under those standards and will not necessarily result in a reflection of fair value under generally accepted accounting principles. Further, different parties using 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 determined by our board of directors. The estimated NAV per share is not a representation or indication that, among other things: a stockholder would be able to realize the estimated NAV per share if he or she attempts to sell shares; a stockholder would ultimately realize distributions per share equal to the estimated NAV per share; a third party would offer the estimated NAV per share in an arms-length transaction to purchase all or substantially all of our shares of common stock or the Employee Retirement Income Security Act of 1974, as amended, or ERISA, or other regulatory authorities (including state regulators), with respect to their respective requirements. For example, we expect to incur additional  costs in connection with ongoing litigation, the SEC investigation discussed in Note P - Legal in Part II, Item 8 Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K and legal and consulting fees associated with pursuing any potential strategic alternatives, which in the aggregate may be material, none of which was taken into consideration when the board of directors determined the prior estimated NAV per share. Further, the estimated NAV per share was calculated as of a specific time based on the shares then outstanding and the amount and value of our shares will fluctuate over time as a result of, among other things, future acquisitions or dispositions of assets, developments related to individual assets and changes in the real estate and capital markets and issuances and redemptions of shares of our common stock after that date that the estimated NAV per share was established. Since the date that the last estimated NAV per share was established, the Company has redeemed 30,858 shares under the Company’s Share Repurchase Program (related solely to hardship repurchases in connection with stockholder deaths) and on December 31, 2019, issued to the former Advisor the second tranche of 400,000 shares payable in respect of the Internalization. As discussed under Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Management Internalization and Note S – Deferred Management Internalization in Part II, Item 8 Notes to the Consolidated Financial Statements, the Company will issue the remaining 800,000 shares of common stock payable in respect of the Internalization in two 400,000 share tranches on December 31, 2020 and December 31, 2021, which will have a further dilutive impact on NAV per share.


We disclose funds from operations (“FFO”), a non-GAAP financial measure, in communications with investors, including documents filed with the SEC; however, FFO is not equivalent to our net income or loss as determined under GAAP, and our computation of FFO may not be comparable to other REITs.

Cash generated from operations is not equivalent to our net income from continuing operations as determined under GAAP. One non-GAAP supplemental performance measure that we consider due to the certain unique operating characteristics of real estate companies is known as FFO. The National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, promulgated this measure, which it believes more accurately reflects the operating performance of a REIT. As defined by NAREIT, FFO means net income computed in accordance with GAAP, excluding gains or losses from sales of property, plus depreciation and amortization on real property and after adjustments for unconsolidated partnerships and joint ventures in which we hold an interest. In addition, NAREIT has recently clarified its computation of FFO, which includes adding back real estate impairment charges for all periods presented; however, under GAAP, impairment charges reduce net income. While impairment charges are added back in the calculation of FFO, we caution that due to the fact that impairments to the value of any property are typically based on estimated future undiscounted cash flows compared to current carrying value, declines in the undiscounted cash flows which led to the impairment charges reflect declines in property operating performance which may be permanent.

The calculation of FFO may vary from entity to entity since capitalization and expense policies tend to vary from entity to entity. Items that are capitalized do not impact FFO, whereas items that are expensed reduce FFO. Consequently, our presentation of FFO may not be comparable to other similarly titled measures presented by other REITs. FFO does not represent cash flows from operations as defined by GAAP, it is not indicative of cash available to fund all cash flow needs nor is it indicative of liquidity, including our ability to pay distributions, and should not be considered as an alternative to net income, as determined in accordance with GAAP, for purposes of evaluating our operating performance. Management uses the calculation of FFO for multiple reasons. We use FFO to compare our operating performance to that of other REITs. Additionally, we compute FFO as part of our acquisition process to determine whether a proposed investment will satisfy our investment objectives.

The historical cost accounting rules used for real estate assets require, among other things, straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or is requested or required by lessees for operational purposes. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical cost accounting for depreciation may be less informative than FFO. We believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization, provides a more complete understanding of our operating performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses and interest costs.

However, FFO should not be construed to be equivalent to or a substitute for the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The method utilized to evaluate the performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non- GAAP FFO measures and the adjustments to GAAP in calculating FFO. Furthermore, FFO is 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 an indication of our performance, as an alternative to cash flows from operations calculated in accordance with GAAP, or indicative of funds available to fund our cash needs, including our ability to make distributions to our stockholders.

FFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. The exclusion of impairments limits the usefulness of FFO as a historical operating performance measure since an impairment indicates that the property’s operating performance may have been permanently affected. FFO is not a useful measure in evaluating NAV because impairments are considered in determining NAV but not in determining FFO.

We face risks associated with security breaches through cyber-attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology networks and related systems.

We face risks associated with security breaches, whether through cyber-attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization, and other significant disruptions of our information technology, or IT, networks and related systems. The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Our IT networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations, and, in some cases, may be critical to the operations of certain of our tenants. There can be no assurance that our efforts to maintain the security and integrity of these types of IT networks and related systems will be effective or that attempted security breaches or disruptions would not be successful or damaging. A security breach or other significant disruption involving our IT networks and related systems could adversely impact our financial condition, results of operations, cash flow and our ability to satisfy our debt service obligations and to pay distributions to our stockholders.


Risks Related to Our Investments

Our revenues are significantly influenced by demand for parking facilities generally, and a decrease in such demand would likely have a greater adverse effect on our revenues than if we owned a more diversified real estate portfolio.

The focus for our portfolio of investments and acquisitions is on parking facilities. A decrease in the demand for parking facilities, or other developments adversely affecting such sectors of the property market would likely have a more pronounced effect on our financial performance than if we owned a more diversified real estate portfolio. If adverse economic conditions reduce discretionary spending, business travel or other economic activity, such as sporting events and entertainment, that fuels demand for parking services, our revenues could be reduced. In addition, our parking facilities tend to be concentrated in urban areas. The recent COVID-19 pandemic has resulted in reduced discretionary spending, reduced travel and other activity.  Users of our parking facilities include workers who commute by car to their places of employment in these urban centers. The return on our investments may be materially adversely affected by restrictions requiring people to shelter in place in reaction to the COVID-19 outbreak and may continue to be materially adversely affected to the extent that economic conditions result in the elimination of jobs or the migration of jobs from the urban centers where our parking facilities are situated to other locations. We are in preliminary discussions with some of our tenants and currently expect to grant relief to some our tenants to defer rent payments as a result of their estimated lost revenues from the current COVID-19 pandemic; however, there can be no assurance we will reach an agreement with any tenant or if an agreement is reached, that any such tenant will be able to repay any such deferred rent in the future. Increased office vacancies in urban areas, movement toward home office alternatives or lower consumer spending could reduce consumer demand for parking, which could adversely impact our revenues and financial condition. Moreover, changing lifestyles and technology innovations also may decrease the need for parking spaces, thereby decreasing the demand for parking facilities. The need for parking spaces, for example, may decrease as the public increases its use of livery service companies and ride sharing companies or elects to take public transit for their transportation needs. Future technology innovations, such as driverless vehicles, also may decrease the need for parking spaces. It is also possible that cities could enact new or additional measures such as higher tolls, increased taxes and vehicle occupancy requirements in certain circumstances, to encourage car-pooling and the use of mass transit, all of which could adversely impact the demand for parking. Weather conditions, such as hurricanes, snow, flooding or severe weather storms, and other natural disasters and acts of terrorism could also disrupt our parking operations and further reduce the demand for parking.

Our parking facilities face intense competition, which may adversely affect rental and fee income.

We believe that competition in parking facility operations is intense. The relatively low cost of entry has led to a strongly competitive, highly fragmented market consisting of competitors ranging from single facility operators to large regional and national multi-facility operators, including several public companies. In addition, any parking facilities we acquire may compete with building owners that provide on-site paid parking. Many of the competitors have more experience than we do in owning and operating parking facilities. Moreover, some of our competitors will have greater capital resources, greater cash reserves, less demanding rules governing distributions to stockholders and a greater ability to borrow funds. Competition for investments may reduce the number of suitable investment opportunities available to us, may increase acquisition costs and may reduce demand for parking facilities, all of which may adversely affect our operating results. Additionally, an economic slowdown in a particular market could have a negative effect on our parking fee revenues.

If competitors build new facilities that compete with our facilities or offer space at rates below the rates we charge, our lessees may lose potential or existing customers and may be pressured to discount their rates to retain business, thereby causing them to reduce rents paid to us. As a result, our ability to make distributions to stockholders may be impaired. In addition, increased competition for customers may require us to make capital improvements to facilities that we would not otherwise make, which could reduce cash available for distribution to our stockholders.

Our leases expose us to certain risks.

We net lease our parking facilities to lessees that either offer parking services to the public or provide parking to their employees. We rely upon the lessee to manage and conduct the daily operations of the facilities. In addition, under a net lease arrangement, the lessee is generally responsible for taxes and fees at a leased location. The loss or renewal on less favorable terms of a substantial number of leases, or a breach, default or other failure to perform by a lessee under a lease, could have a material adverse effect on our business, financial condition and results of operations. A material reduction in the rental income associated with the leases (or an increase in anticipated expenses to the extent we are responsible for such expenses) also could have a material adverse effect on our business, financial condition and results of operations.


Our investments in real estate will be subject to the risks typically associated with real estate.

We invest directly in real estate. We will not know whether the values of properties that we own directly will remain at the levels existing on the dates of acquisition. If the values of properties we own decrease, our risk will increase because of the lower value of the real estate. In this manner, real estate values could impact the value of our real estate investments. Therefore, our investments will be subject to the risks typically associated with real estate.

The value of real estate may be adversely affected by a number of risks, including:

•
epidemics, pandemics or other outbreaks of an illness, disease or virus (including COVID-19);
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natural disasters such as hurricanes, earthquakes and floods;
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acts of war or terrorism, including the consequences of terrorist attacks;
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adverse changes in national and local economic and real estate conditions;
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an oversupply of (or a reduction in demand for) space in the areas where particular properties are located and the attractiveness of particular properties to prospective tenants;
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changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance therewith and the potential for liability under applicable laws;
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costs associated with real property taxes and changes in tax rates;
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costs of remediation and liabilities associated with environmental conditions affecting properties;
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costs associated with complying with the Americans with Disabilities Act, which may reduce the amount of cash available for distribution to our stockholders;
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our properties may be overly concentrated in certain geographic areas, and a worsening of economic or real estate conditions in the geographic area in which our investments may be concentrated could have an adverse effect on our business; and
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the potential for uninsured or underinsured property losses.

A small number of our parking tenants account for a significant percentage of our total rental revenues, and the failure of any of these tenants to meet their obligations to us could materially and adversely affect our business, financial condition and results of operations.

The successful performance of our investments is materially dependent on the financial stability of our parking tenants. We had 15 parking tenants as of December 31, 2019. Approximately 72.5% of our parking rental revenues for the year ended December 31, 2019 were generated by only two of those tenants, SP+ (60.8%) and iPark Services (11.7%). The inability of any of our significant lessees or parking managers to pay rent or fees, as applicable, or a decision by a significant lessee or parking manager to terminate a lease or management agreement prior to, or at the conclusion of, their term or any other loss of a significant lessee or parking manager (including due to a bankruptcy or insolvency) could materially and adversely affect our business, financial condition and results of operations if a suitable replacement lessee or manager is not secured in a timely manner. We are in preliminary discussions with some of our tenants and currently expect to grant relief to some our tenants to defer rent payments as a result of their estimated lost revenues from the current COVID-19 pandemic; however, there can be no assurance we will reach an agreement with any tenant or if an agreement is reached, that any such tenant will be able to repay any such deferred rent in the future. In the event of a payment default by one or more of our significant parking tenants, including SP+ and iPark Services, we may experience delays in enforcing our rights and may incur substantial costs in protecting our investments and re-leasing our parking facilities. Further, we cannot assure stockholders that we will be able to re-lease the parking facilities for the rent previously received, or at all, or that lease terminations will not cause us to sell the facilities at a loss. The result of any of the foregoing risks could materially and adversely affect our business, financial condition, results of operations.

Uninsured losses or premiums for insurance coverage relating to real property may adversely affect stockholder returns.

Our real properties may incur casualty losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Additionally, mortgage lenders sometimes require property owners to purchase specific coverage against terrorism as a condition for providing mortgage loans. These policies may not be available at a reasonable cost, if at all, which could inhibit our ability to finance or refinance real property we may hold. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. Changes in the cost or availability of insurance could expose us to uninsured casualty losses. In the event that any of our real property incurs a casualty loss which is not fully covered by insurance, the value of our assets will be reduced by any such uninsured loss. In addition, we cannot assure stockholders that funding will be available to us for repair or reconstruction of damaged real property in the future.


Our costs of complying with governmental laws and regulations related to environmental protection and human health and safety may be high.

All real property investments and the operations conducted in connection with such investments are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Some of these laws and regulations may impose joint and several liabilities on customers, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal.

Under various federal, state and local environmental laws, a current or previous owner or operator of real property may be liable for the cost of removing or remediating hazardous or toxic substances on such real property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such real property as collateral for future borrowings. For example, the presence of significant mold or other airborne contaminants at any of our real property investments could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants or to increase ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants or others if property damage or personal injury occurs.

Environmental laws also may impose restrictions on the manner in which real property may be used or businesses may be operated. Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require us to incur material expenditures. Future laws, ordinances or regulations may impose material environmental liability. Additionally, operations of our parking facilities and other tenant operations, the existing condition of land when we buy it, operations in the vicinity of our real property, such as the presence of underground storage tanks, oil leaks and other vehicle discharge, or activities of unrelated third parties may affect our real property. There are also various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply, and which may subject us to liability in the form of fines or damages for noncompliance. In connection with the acquisition and ownership of real property, we may be exposed to such costs in connection with such regulations. The cost of defending against environmental claims, of any damages or fines we must pay, of compliance with environmental regulatory requirements or of remediating any contaminated real property could materially adversely affect our business, lower the value of our assets or results of operations and, consequently, lower the amounts available for distribution to our stockholders.

Real property is an illiquid investment, and we may be unable to adjust our portfolio in response to changes in economic or other conditions or sell a property if or when we decide to do so.

Real property is an illiquid investment. We may be unable to adjust our portfolio in response to changes in economic or other conditions. In addition, the real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any real property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a real property. Also, we may acquire real properties that are subject to contractual “lock-out” provisions that could restrict our ability to dispose of the real property for a period of time, and a number of our assets are subject to loans that impose prepayment penalties or debt breakage costs that could significantly impair our ability to sell that asset or the net value realized from any such sale.

We may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure stockholders that we will have funds available to correct such defects or to make such improvements.

In acquiring a real property, we may agree to restrictions that prohibit the sale of that real property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that real property. Our real properties may also be subject to resale restrictions. All these provisions would restrict our ability to sell a property, which could reduce the amount of cash available for distribution to our stockholders.

Declines in the market values of our investments may adversely affect periodic reported results of operations and credit availability, which may reduce earnings and, in turn, cash available for distribution to our stockholders.

Some of our assets will be classified for accounting purposes as “available-for-sale.” These investments are carried at estimated fair value, and temporary changes in the market values of those assets will be directly charged or credited to stockholders’ equity without impacting net income on the income statement. Moreover, if we determine that a decline in the estimated fair value of an available-for-sale security falls below its amortized value and is not temporary, we will recognize a loss on that security on the income statement, which will reduce our earnings in the period recognized.


A decline in the market value of our assets may adversely affect us particularly in instances where we have borrowed money based on the market value of those assets. If the market value of those assets declines, the lender may require us to post additional collateral to support the loan. If we were unable to post the additional collateral, we may have to sell assets at a time when we might not otherwise choose to do so. A reduction in credit available may reduce our earnings and, in turn, cash available for distribution to stockholders.

Further, credit facility providers may require us to maintain a certain amount of cash reserves or to set aside unlevered assets sufficient to maintain a specified liquidity position, which would allow us to satisfy our collateral obligations. As a result, we may not be able to leverage our assets as fully as we would choose, which could reduce our return on equity. In the event that we are unable to meet these contractual obligations, our financial condition could deteriorate rapidly.

Market values of our investments may decline for a number of reasons, such as changes in prevailing market rates, increases in defaults, increases in voluntary prepayments for those investments that we have that are subject to prepayment risk, widening of credit spreads and downgrades of ratings of the securities by ratings agencies.

Risks Related to Our Financing Strategy

We may not be able to access financing sources on attractive terms or at all, which could adversely affect our ability to execute our business plan.

Our operating income has been, and we expect may continue to be, insufficient to cover our operating expenses and other liquidity needs.  In addition, we have and intend to continue to finance our assets with outside capital.  As a result of Nasdaq’s decision not to approve the listing of the Company’s common stock, our ability to raise equity capital will be limited in the future.  In addition, we currently have limited or no access to additional debt financing and, as a result, expect that we will be dependent on the sale of assets for liquidity. In the past we have used short-term financing to complete planned development projects, perform renovations to our properties, or to meet other liquidity needs, however we do not believe such financing is currently available to us.

We do not expect that we will be able to obtain additional financing on acceptable terms or at all.  Future access to sources of financing will depend upon a number of factors, over which we may have little or no control, including:

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general market conditions;
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a financing source’s view of the quality of our assets;
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a financing source’s perception of our financial condition and growth potential; and
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our current and potential future earnings and cash distributions.

In addition, our ability to sell assets may also be limited due to several factors, including general market conditions and limitations under our existing loan agreements, and as a result, we may receive less than the value at which those assets are carried on our consolidated financial statements or we may be unable to sell certain assets at all.

If we cannot obtain sufficient capital on acceptable terms, our businesses and our ability to operate could be materially adversely impacted.

In addition to customary representations, warranties, covenants, and indemnities, our existing loan agreements require us and/or our subsidiaries to comply with covenants involving, among other matters, limitations on incurrence of indebtedness, debt cancellation, property cash flow allocation, liens on properties and requirements to maintain minimum unrestricted cash balances. As noted above, unless we are able to sell assets, we may be unable to meet the minimum unrestricted cash balances in our loan agreements, which could result in events of default.  Our existing loan agreements contain covenants that may limit our ability to sell assets, including covenants that limit debt cancellation and assignment of debt in connection with the sale of an asset. In addition, certain of our assets are collateral under multiple loan agreements, which may limit our ability to sell such assets. We may enter into additional loan agreements that also may contain covenants, including those requiring us to comply with various financial covenants.

If we breach covenants under our loan agreements, we could be held in default under such loans, which could accelerate our repayment date and materially adversely affect our financial condition, results of operations and cash flows.

Our failure to comply with covenants in any of our loan agreements will likely constitute an event of default and, if not cured or waived, may result in:
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acceleration of all of our debt under such loan agreement (and any other debt containing a cross-default or cross-acceleration provision, including certain of our loan agreements) that we may be unable to repay from internal funds or to refinance on favorable terms, or at all;
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our inability to borrow any unused amounts under such loan agreement, even if we are current in payments on borrowings under such loan agreement; and/or
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the loss of some or all of our assets to foreclosure or sale.


Further, our loan agreements may contain cross default provisions, which could result in a default on our other outstanding debt.

Any such event of default, termination of commitments, acceleration of payments, or foreclosure of our assets could have a material adverse effect on our financial condition, results of operations and cash flows and ability to continue to operate or make distributions to our stockholders in the future. A default also could limit significantly our financing alternatives, which could cause us to curtail our investment activities and/or dispose of assets. A default could also make it difficult for us to satisfy the qualification requirements necessary to maintain our status as a REIT for U.S. federal income tax purposes. It is also possible that we could become involved in litigation related to matters concerning the loan, and such litigation could result in significant costs to us.

Instability in the debt markets and other factors may make it more difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire and the amount of cash distributions we can make to our stockholders.

If mortgage debt is unavailable on reasonable terms as a result of increased interest rates or other factors, we may not be able to finance the initial purchase of properties. In addition, if we place mortgage debt on properties, we run the risk of being unable to refinance such debt when the loans come due, or of being unable to refinance on favorable terms. If interest rates are higher when we refinance debt, our income could be reduced. We may be unable to refinance debt at appropriate times, which may require us to sell properties on terms that are not advantageous to us or could result in the foreclosure of such properties. For example, some of our loans are packed into commercial mortgage-backed securities, which place restrictions on our ability to restructure such loans without the consent of holders of the commercial mortgage-backed securities. Obtaining such consents may be time-consuming or may not be possible at all and could delay or prevent us from restructuring one or more loans. If any of these events occur, our cash flow would be reduced. This, in turn, would reduce cash available for distribution to stockholders and may hinder our ability to raise more capital by issuing securities or by borrowing more money.

Interest rates may increase, which could increase the amount of our debt payments and negatively impact our operating results.

Interest we pay on our debt obligations will reduce cash available for distributions. Increases in interest rates would increase our interest costs on our variable rate debt and increase the cost of refinancing existing debt and issuing new debt, which could limit our growth prospects, reduce our cash flows and our ability to make distributions to stockholders. If we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments at times which may not permit realization of the maximum return on such investments. The effect of prolonged interest rate increases could materially adversely impact our ability to make acquisitions and develop properties.

Failure to hedge effectively against interest rate changes may materially adversely affect our business, financial condition, results of operations and ability to make distributions to our stockholders.

We currently have, and may incur in the future, debt that bears interest at variable rates. An increase in interest rates would increase our interest costs to the extent we have not effectively hedged against such increase, which could adversely affect our cash flows and results of operations. Subject to our qualification and maintaining our qualification as a REIT for U.S. federal income tax purposes and our exemption from registration under the Investment Company Act of 1940, as amended (the “Investment Company Act”), we may manage and mitigate our exposure to interest rate risk attributable to variable-rate debt by using interest rate swap arrangements, interest rate cap agreements and other derivatives. The goal of any interest rate management strategy that we may adopt is to minimize or eliminate the effects of interest rate changes on the value of our assets, to improve risk-adjusted returns and, where possible, to lock in, on a long-term basis, a favorable spread between the yield on our assets and the cost of financing such assets. However, these derivatives themselves expose us to various risks, including the risk that: (i) counterparties may fail to honor their obligations under these arrangements; (ii) the credit quality of the counterparties owing money under these arrangements may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transactions; (iii) the duration of the hedging transactions may not match the duration of the related liability; (iv) these arrangements may not be effective in reducing our exposure to interest rate changes; and (v) these arrangements may actually result in higher interest rates than we would otherwise have. Moreover, no hedging activity can completely insulate us from the risks associated with changes in interest rates. Failure to hedge effectively against interest rate changes may materially adversely affect our business, financial condition, results of operations and ability to make distributions to our stockholders.


Certain loans are and may be secured by mortgages on our properties and if we default under our loans, we may lose properties through foreclosure.

We have obtained, and intend to continue to obtain, loans that are secured by mortgages on our properties, and we may obtain additional loans evidenced by promissory notes secured by mortgages on our properties. As a general policy, we will seek to obtain mortgages securing indebtedness which encumber only the particular property to which the indebtedness relates, but recourse on these loans may include all of our assets. If recourse on any loan incurred by us to acquire or refinance any particular property includes all of our assets, the equity in other properties could be reduced or eliminated through foreclosure on that loan. If a loan is secured by a mortgage on a single property, we could lose that property through foreclosure if we default on that loan. We may also give full or partial guarantees to lenders of mortgage debt to the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. Some of our loans contain cross collateralization or cross default provisions, and therefore, a default on a single property could affect multiple properties. In addition, for tax purposes, a foreclosure on any of our properties that is subject to a nonrecourse mortgage loan would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Code. Further, if we default under a loan, it is possible that we could become involved in litigation related to matters concerning the loan, and such litigation could result in significant costs to us which could affect distributions to stockholders or lower our working capital reserves or our overall value.

Risks Related to Conflicts of Interest

Our executive officers face conflicts of interest related to their positions and interests in our affiliates, which could hinder our ability to implement our business strategy and to generate returns to stockholders.

Our executive officers are also executive officers, directors, managers and key professionals of other affiliated entities. As a result, they owe duties to each of these entities, their members and limited partners and these investors, which duties may from time to time conflict with the duties that they owe to us. Their loyalties to these other entities and investors could result in action or inaction that is detrimental to our business, which could harm the implementation of our business strategy and our investment and leasing opportunities. Conflicts with our business and interests are most likely to arise from involvement in activities related to (a) allocation of new investments and management time and services between us and the other entities, (b) the timing and terms of the investment in or sale of an asset, (c) development of our properties by such affiliates, and (d) investments with such affiliates. The loyalties of these individuals to other entities and investors could result in action or inaction that is detrimental to our business, which could harm the implementation of our business strategy and our investment and leasing opportunities. If we do not successfully implement our business strategy, we may be unable to generate the cash needed to make distributions to stockholders and to maintain or increase the value of our assets.

Further, our directors and officers and any of their respective affiliates are not prohibited from engaging, directly or indirectly, in any business or from possessing interests in any other business venture or ventures, including businesses and ventures involved in the acquisition or sale of real estate investments or that otherwise compete with us.

The issuance of common stock as consideration in the Internalization has and will have a dilutive effect and we could incur other significant costs associated with the Internalization.

The issuances of shares of Common Stock as the consideration in connection with the Internalization had and will have a dilutive effect and will reduce the voting power and relative ownership percentage interests of holders of Common Stock prior to the Internalization.

In addition, following the Internalization, our direct expenses continue to include increased general and administrative costs. We also employ personnel and are subject to potential liabilities commonly faced by employers, such as workers disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances as well as incur the compensation and benefits costs of our officers and other employees and consultants. We have issued and may issue additional equity awards to officers, employees and consultants, which awards would decrease our net income and FFO and may further dilute a stockholder's investment.

Our independent board members reviewed and analyzed the estimated costs of Internalization and the anticipated and perceived benefits and savings associated therewith and compared them against the estimated costs of continuing to be externally managed. The costs of Internalization and cost savings estimates, however, were based upon certain assumptions, including regarding future growth, and may prove to be incorrect. If so, our income per share could be lower as a result of the Internalization than it otherwise would have been, potentially decreasing the amount of cash available to distribute to our stockholders and the value of our shares.


The Internalization was only recently completed. We could have difficulty integrating these functions as a stand-alone entity, which could result in our incurring excess costs and suffering deficiencies in our disclosure controls and procedures or our internal control over financial reporting. Such deficiencies could cause us to incur additional costs, and our management's attention could be diverted from most effectively managing our investments.

As noted above, the Internalization is already the subject of litigation. Although we believe that the related claims are without merit, we have been and may continue to be forced to spend significant amounts of money defending such claims or other claims, which would reduce the amount of cash available for us to acquire assets and to pay distributions.

Risks Related to Our Corporate Structure

Certain provisions of Maryland law could inhibit changes in control.

Certain provisions of the Maryland General Corporation Law (the “MGCL”) may have the effect of deterring a third party from making a proposal to acquire us or of inhibiting a change in control under circumstances that otherwise could provide the holders of our common stock with the opportunity to realize a premium over the then-prevailing market price of our common stock. Under the MGCL, certain “business combinations” (including a merger, consolidation, share exchange or, in certain circumstances, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and an interested stockholder (as defined in the statute) or an affiliate of such an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. Thereafter, any such business combination must be recommended by the board of directors of such corporation and approved by the affirmative vote of at least (1) 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation and (2) two-thirds of the votes entitled to be cast by holders of shares of voting stock of the corporation other than shares held by the interested stockholder with whom (or with whose affiliate) the business combination is to be effected or held by an affiliate or associate of the interested stockholder, unless, among other conditions, the corporation’s common stockholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its shares. These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by a board of directors prior to the time that the interested stockholder becomes an interested stockholder. Pursuant to the statute, our board of directors has by resolution exempted any business combination between us and any other person.

The MGCL provides that holders of “control shares” of our company (defined as shares of voting stock that, if aggregated with all other shares of capital stock owned or controlled by the acquirer, would entitle the acquirer to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of issued and outstanding “control shares”) have no voting rights except to the extent approved at a special meeting of stockholders by the affirmative vote of at least two-thirds of all of the votes entitled to be cast on the matter, excluding all interested shares. Our bylaws currently contain a provision exempting any and all acquisitions by any person of shares of our stock from this statute.

The “unsolicited takeover” provisions of the MGCL permit our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement takeover defenses if we have a class of equity securities registered under the Exchange Act and at least three independent directors (which we will have upon the completion of this offering). These provisions may have the effect of inhibiting a third party from acquiring us or of delaying, deferring or preventing a change in control of our company under the circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a premium over the then-current market price. Our charter contains a provision whereby we have elected to be subject to the provisions of Title 3, Subtitle 8 of the MGCL relating to the filling of vacancies on our board of directors. See “Certain Provisions of Maryland Law and of our Charter and Bylaws—Business Combinations” and “Certain Provisions of Maryland Law and of our Charter and Bylaws—Control Share Acquisitions.”

Our charter contains provisions that make removal of our directors difficult, which makes it more difficult for our stockholders to effect changes to our management and may prevent a change in control of our company that is in the best interests of our stockholders.

Our charter provides that a director may be removed only for cause and only by the affirmative vote of at least two-thirds of all the votes of stockholders entitled to be cast generally in the election of directors. Vacancies on our board of directors may be filled only by a majority of the remaining directors, even if the remaining directors do not constitute a quorum, and any individual elected to fill such a vacancy will serve for the remainder of the full term of the directorship in which the vacancy occurred and until his or her successor is duly elected and qualifies. These requirements make it more difficult for our stockholders to effect changes to our management by removing and replacing directors and may prevent a change in control of our company that is otherwise in the best interests of our stockholders.


Our rights and the rights of our stockholders to take action against our directors and officers are limited.

As permitted by Maryland law, our charter limits the liability of our directors and officers to us and our stockholders for money damages to the maximum extent permitted by Maryland law. Therefore, our directors and officers will be subject to monetary liability resulting only from:

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actual receipt of an improper benefit or profit in money, property or services; or
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active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to the cause of action adjudicated.

As a result, we and our stockholders have rights against our directors and officers that are more limited than might otherwise exist. Accordingly, in the event that actions taken by any of our directors or officers impede the performance of our company, stockholders and our ability to recover damages from such director or officer will be limited. In addition, our charter and our bylaws require us to indemnify our directors and officers for actions taken by them in those and certain other capacities to the maximum extent permitted by Maryland law.

Our bylaws designate the Circuit Court for Baltimore City, Maryland as the exclusive forum for certain actions and proceedings that may be initiated by our stockholders against us or any of our directors, officers or other employees.

Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that court does not have jurisdiction, the U.S. District Court for the District of Maryland, Baltimore Division, will be the sole and exclusive forum for (a) any Internal Corporate Claim, as such term is defined in the MGCL, (b) any derivative action or proceeding brought on our behalf, (c) any action asserting a claim of breach of any duty owed by any of our directors, officers or other employees to us or to our stockholders, (d) any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to any provision of the MGCL or our charter or bylaws or (e) any action asserting a claim against us or any of our directors, officers or other employees that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our stock will be deemed to have notice of and consented to the provisions of our charter and bylaws, including the exclusive forum provisions in our bylaws. This choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder believes is favorable for such disputes and may discourage lawsuits against us and any of our directors, officers or other employees. We believe that requiring these claims to be filed in a single court in Maryland is advisable because (i) litigating these claims in a single court avoids unnecessarily redundant, inconvenient, costly and time-consuming litigation in multiple forums and (ii) Maryland courts are authoritative on matters of Maryland law and Maryland judges have more experience in dealing with issues of Maryland corporate law than judges in any other state.

Our charter limits the number of shares a person may own, which may discourage a takeover that could otherwise result in a premium price to our stockholders.

Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary or appropriate to preserve our qualification as a REIT. To help us comply with the REIT ownership requirements of the Code, among other purposes, our charter generally prohibits a person from beneficially or constructively owning more than 9.8% in value of the aggregate of our outstanding shares of capital stock or more than 9.8% in value or number of shares, whichever is more restrictive, of the aggregate of our outstanding common stock, unless exempted, prospectively or retroactively, by our board of directors. The ownership limit may have the effect of precluding a change in control of us by a third party, even if such change in control would be in the interest of the stockholders (and even if such change in control would not reasonably jeopardize our REIT status). This restriction may have the effect of delaying, deferring or preventing a change in control of us, 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 our common stock. In addition, these provisions may also decrease a stockholder’s ability to sell their shares of our common stock.

Our charter permits our board of directors to issue stock with terms that may subordinate the rights of our stockholders or discourage a third party from acquiring us in a manner that could result in a premium price to our stockholders.

Our board of directors may classify or reclassify any unissued shares of common stock or preferred stock into other classes or series of stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of repurchase of any such classes or series of stock. Thus, our board of directors could authorize the issuance of shares of a class or series of preferred stock with priority as to distributions and amounts payable upon liquidation over the rights of our stockholders. Such preferred stock could also have the effect of delaying, deferring or preventing a change in control of us, 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 to our stockholders. However, the issuance of preferred stock must be approved by a majority of our independent directors not otherwise interested in the transaction, who will have access, at our expense, to our legal counsel or to independent legal counsel.

We are not and do not plan to be registered as an investment company under the Investment Company Act, and therefore we will not be subject to the requirements imposed and stockholder protections provided by the Investment Company Act; maintaining an exemption from registration may limit or otherwise affect our investment choices.

None of us, our Operating Partnership, or any of our subsidiaries is registered or intends to register as an investment company under the Investment Company Act. Our Operating Partnership’s and subsidiaries’ investments in real estate will represent the substantial majority of our total asset mix. In order for us not to be subject to regulation under the Investment Company Act, we engage, through our Operating Partnership and our wholly and majority-owned subsidiaries, primarily in the business of buying real estate. These investments must be made within a year after our public offering ends.

If we were obligated to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act that impose, among other things:

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limitations on capital structure;
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restrictions on specified investments;
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prohibitions on transactions with affiliates; and
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compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly increase our operating expenses.

Section 3(a)(1)(A) of the Investment Company Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. We are organized as a holding company that conducts its businesses primarily through our Operating Partnership and its subsidiaries. We believe none of us, our Operating Partnership or our subsidiaries will be considered an investment company under Section 3(a)(1)(A) of the Investment Company Act because none of us, our Operating Partnership or our subsidiaries will engage primarily or hold ourselves out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, through our Operating Partnership’s wholly owned or majority-owned subsidiaries, we and our Operating Partnership will be primarily engaged in the non-investment company businesses of these subsidiaries, namely the business of purchasing or otherwise acquiring real property.

Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, which we refer to herein as the 40% test. Excluded from the term “investment securities,” among other things, are (i) U.S. government securities and (ii) securities issued by majority-owned subsidiaries that are (a) not themselves investment companies and (b) not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act relating to private investment companies. We believe that we, our Operating Partnership and the subsidiaries of our Operating Partnership will each comply with the 40% test as we have invested in real property, rather than in securities, through our wholly and majority-owned subsidiaries. As our subsidiaries will be investing either solely or primarily in real property, they would be outside of the definition of “investment company” under Section 3(a)(1)(C) of the Investment Company Act. We are organized as a holding company that conducts its businesses primarily through our Operating Partnership, which in turn is a holding company conducting its business of investing in real property through wholly owned or majority-owned subsidiaries. We have monitored and will continue to monitor our holdings to ensure continuing and ongoing compliance with the 40% test.

Even if the value of investment securities held by one of our subsidiaries were to exceed 40% of the value of its total assets, we expect that subsidiary to be able to rely on the exception from the definition of an investment company under Section 3(c)(5)(C) of the Investment Company Act, which is available for entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” Section 3(c)(5)(C), as interpreted by the SEC staff, requires each of our subsidiaries relying on this exception to invest at least 55% of its portfolio in “mortgage and other liens on and interests in real estate,” which we refer to herein as qualifying real estate assets, and maintain at least 80% of its assets in qualifying real estate assets or other real estate-related assets. The remaining 20% of the portfolio can consist of miscellaneous assets.

For purposes of the exclusions provided by Sections 3(c)(5)(C), we will classify our investments based in large measure on no-action letters issued by the SEC staff and other SEC interpretive guidance and, in the absence of SEC guidance, on our view of what constitutes a qualifying real estate asset and a real estate related asset. Although we intend to monitor our portfolio periodically and prior to each investment acquisition and disposition, there can be no assurance that we will be able to maintain this exclusion for each of these subsidiaries. It is not certain whether or to what extent the SEC or its staff in the future may modify its interpretive guidance to narrow the ability of issuers to rely on the exemption from registration provided by Section 3(c)(5)(C). Any such future guidance may affect our ability to rely on this exception.


Although we intend to monitor our portfolio periodically and prior to each investment acquisition and disposition, there can be no assurance that we, our Operating Partnership or our subsidiaries will be able to maintain this exemption from registration for us and each of our subsidiaries. If the SEC or its staff does not agree with our determinations, we may be required to adjust our activities or those of our subsidiaries.

In the event that we, or our Operating Partnership, were to acquire assets that could make either entity fall within the definition of investment company under Section 3(a)(1)(C) of the Investment Company Act, we believe that we would still qualify for the exception from the definition of “investment company” provided by Section 3(c)(6). Although the SEC or its staff has issued little interpretive guidance with respect to Section 3(c)(6), we believe that we and our Operating Partnership may rely on Section 3(c)(6) if 55% of the assets of our Operating Partnership consist of, and at least 55% of the income of our Operating Partnership is derived from, qualifying real estate assets owned by wholly owned or majority-owned subsidiaries of our Operating Partnership.

Qualification for this exemption will limit our ability to make certain investments. To the extent that the SEC staff provides more specific guidance regarding any of the matters bearing upon such tests and/or exceptions, we may be required to adjust our strategy accordingly. Any additional guidance from the SEC staff could provide additional flexibility to us, or it could further inhibit our ability to pursue the strategies we have chosen.

Further, if we, our Operating Partnership or our subsidiaries are required to register as investment companies under the Investment Company Act, our investment options may be limited by various limitations, such as those mentioned above, and we or our subsidiaries would be subjected to a complex regulatory scheme, the costs of compliance with which can be high.

We are an “emerging growth company” under the federal securities laws and are to reduced public company reporting requirements.

In April 2012, President Obama signed into law the Jumpstart Our Business Startups Act, or the JOBS Act. We are an “emerging growth company,” as defined in the JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.”

We could remain an “emerging growth company” for up to five years, or until the earliest of (1) the last day of the first fiscal year in which our annual gross revenues equals or exceeds $1 billion, (2) December 31 of the fiscal year that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter and we have been publicly reporting for at least 12 months or (3) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.

Under the JOBS Act, emerging growth companies are not required to (1) provide an auditor’s attestation report on management’s assessment of the effectiveness of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, (2) comply with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer, (3) comply with any new audit rules adopted by the PCAOB after April 5, 2012, unless the SEC determines otherwise, (4) provide certain disclosure regarding executive compensation required of larger public companies or (5) hold stockholder advisory votes on executive compensation. Certain of these exemptions are inapplicable to us because of our structure as an externally managed REIT, and we have not made a decision as to whether to take advantage of any or all of the JOBS Act exemptions that applicable to us.

In addition, the JOBS Act provides that an “emerging growth company” can take advantage of an extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of such extended transition period. Since we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable to the financial statements of companies that comply with public company effective dates. If we were to subsequently elect to instead comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.

Stockholders have limited control over changes in our policies and operations, which increases the uncertainty and risks a stockholder may face.

Our board of directors determines our major policies, including our policies regarding investment strategies and approach, growth, REIT qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of the stockholders. Under the Maryland General Corporation Law (the “MGCL”) and our charter, our stockholders have a right to vote only on limited matters. Our board of directors’ broad discretion in setting policies and our stockholders’ inability to exert control over those policies increase the uncertainty and risks a stockholder may face.

Stockholders' interest in us could be diluted if we issue additional shares, which could reduce the overall value of their investment.

Stockholders do not have preemptive rights to any shares issued by us in the future and generally have no appraisal rights. Our charter currently has authorized 100,000,000 shares of capital stock. Of the total number of shares of capital stock authorized, 98,999,000 shares are classified as common stock, par value $0.0001 per share; and 1,000,000 shares are classified as preferred stock, par value $0.0001 per share, within which (i) 97,000 shares are classified and designated as Series 1 Convertible Redeemable Preferred Stock, and (ii) 50,000 shares are classified and designated as Series A Convertible Redeemable Preferred Stock, and 1,000 shares are classified as convertible stock, par value $0.0001 per share. Subject to any limitations set forth under Maryland law, a majority of our board of directors may amend our charter from time to time to increase or decrease the aggregate number of authorized shares of stock or the number of authorized shares of stock of any class or series, or classify or reclassify any unissued shares into other classes or series of stock without the necessity of obtaining stockholder approval. All of such shares may be issued in the discretion of our board of directors. A stockholder's interest in us may be diluted in the event that we (1) sell additional shares in the future, (2) sell securities that are convertible into shares of our common stock, (3) issue shares of our common stock in a private offering of securities to institutional investors, (4) issue shares of our common stock to the former Advisor, its successors or assigns, in payment of an outstanding fee obligation as set forth under our Amended and Restated Advisory Agreement or (5) issue shares of our common stock to sellers of properties acquired by us in connection with an exchange of limited partnership interests of our operating partnership. In connection with the Internalization, we issued the former Advisor 400,000 shares of Common Stock on April 1, 2019, and 400,000 shares of Common Stock on December 31, 2019 and are obligated to issue the former Advisor 400,000 additional shares of Common Stock on each of December 31, 2020 and 2021. We have the option to repurchase up to 1,100,000 of such shares at a price equal to $17.50 but there can be no assurance that we will do so. Because of these and other reasons described in this “Risk Factors” section, stockholders should not expect to be able to own a significant percentage of our shares. In addition, depending on the terms and pricing of any additional offerings and the value of our investments, stockholders also may experience dilution in the book value and fair mark value of, and the amount of distributions paid on, their shares.

Our charter also authorizes our board of directors, without stockholder approval, to designate and issue any classes or series of preferred stock (including equity or debt securities convertible into preferred stock) and to set or change the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions and qualifications or terms or conditions of redemption of each class or series of shares so issued. Because our board of directors has the power to establish the preferences and rights of each class or series of preferred stock, it may afford the holders of any series or class of preferred stock preferences, powers, and rights senior to the rights of holders of common stock or preferred stock.

Under this power, our board of directors has created the Series A preferred stock and the Series 1 preferred stock, each of which ranks senior to our common stock with respect to the payment of dividends and rights upon liquidation, dissolution or winding up. Specifically, payment of any distribution preferences on the Series A preferred stock, Series 1 preferred stock, or any future series of preferred stock would reduce the amount of funds available for the payment of distributions on our common stock. Further, holders of our preferred stock are entitled to receive a preference payment if we liquidate, dissolve, or wind up before any payment is made to the common stockholders, likely reducing the amount common stockholders would otherwise receive upon such an occurrence. Holders of our preferred stock will have the right to require us to convert their shares into shares of our common stock. The conversion of our preferred stock into common stock may further dilute the ownership interest of our common stockholders. Following a Listing Event (as defined below), we also have the right, but not the obligation, to redeem the Series A preferred stock and Series 1 preferred stock and pay the redemption payments in the form of shares of our common stock, which may further dilute the ownership interest of our common stockholders. Although the dollar amounts of such payments are unknown, the number of shares to be issued in connection with such payments may fluctuate based on the price of our common stock. If we elect to redeem any of our preferred stock with cash, the exercise of such rights may reduce the availability of our funds for investment purposes or to pay for distributions on our common stock. A Listing Event is defined in the Articles Supplementary for the Series A preferred stock and Series 1 preferred stock as a liquidity event involving the listing of our shares of common stock on national securities exchange or a merger or other transaction in which our stockholders will receive shares listed on a national securities exchange as consideration in exchange for their shares in us.

Any sales or perceived sales in the public market of shares of our common stock issuable upon the conversion or redemption of our preferred stock could adversely affect prevailing market prices of shares of our common stock. The issuance of common stock upon any conversion or redemption of our preferred stock also may have the effect of reducing our net income per share (or increasing our net loss per share). In addition, if a Listing Event occurs, the existence of our preferred stock may encourage short selling by market participants because the existence of redemption payments could depress the value or market price of shares of our common stock.


Federal Income Tax Risks

Failure to qualify or maintain our qualification as a REIT would have significant adverse consequences to us and the value of our common stock.

We elected to be taxed as a REIT commencing with our taxable year ended December 31, 2017. We believe that we have been organized in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code, and that our manner of operation enables us to meet the requirements for qualification and taxation as a REIT.  We have not requested and do not plan to request a ruling from the Internal Revenue Service, or IRS, that we qualify as a REIT and cannot assure you that we so qualify.  If we fail to qualify as a REIT or lose our REIT qualification, we will face serious tax consequences that would substantially reduce the funds available for distribution to our stockholders for each of the years involved because:

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we would not be allowed a deduction for distributions to our stockholders in computing our taxable income and would be subject to regular U.S. federal corporate income tax;

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we also could be subject to increased state and local taxes; and

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unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified.

Any such corporate tax liability could be substantial and would reduce our cash available for, among other things, our operations and distributions to our stockholders. In addition, if we fail to qualify or maintain our qualification as a REIT, we will not be required to make distributions to our stockholders. As a result of all these factors, our failure to qualify or maintain our qualification as a REIT also could impair our ability to expand our business and raise capital and could materially and adversely affect the value of our common stock.

Qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code for which there are only limited judicial and administrative interpretations.

The determination of various factual matters and circumstances not entirely within our control may affect our ability to maintain our qualification as a REIT. In order to maintain our qualification as a REIT, we must satisfy a number of requirements, including requirements regarding the ownership of our stock, requirements regarding the composition of our assets and a requirement that at least 75% and 95% of our gross income in any year must be derived from qualifying sources. Also, we must make distributions to our stockholders aggregating annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gains. In addition, legislation, new regulations, administrative interpretations or court decisions may materially adversely affect our investors, our ability to maintain our qualification as a REIT for federal income tax purposes or the desirability of an investment in a REIT relative to other investments.

Even if we maintain our qualification as a REIT for federal income tax purposes, we may be subject to some federal, state and local income, property and excise taxes on our income or property and, in certain cases, a 100% penalty tax, in the event we sell property as a dealer. In addition, any taxable REIT subsidiaries (each, a “TRS”) that we own will be subject to tax as regular corporations in the jurisdictions they operate.

Complying with REIT requirements may force us to liquidate, restructure or forego otherwise attractive investments.

To qualify as a REIT, we must ensure that we meet the REIT gross income tests annually and that, at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities, stock in REITs and other qualifying real estate assets, including certain mortgage loans and certain kinds of mortgage-backed securities and debt instruments of publicly offered REITs. The remainder of our investments in securities (other than government securities and REIT qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and securities that are qualifying real estate assets) can consist of the securities of any one issuer, and no more than 20% of the value of our total securities can be represented by securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate from our portfolio, or contribute to a TRS, otherwise attractive investments, and may be unable to pursue investments that would be otherwise advantageous to us in order to satisfy the income or asset requirements for qualifying as a REIT. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.


Liquidation of assets may jeopardize our REIT qualification or create additional tax liability for us.

To continue to qualify as a REIT, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate our investments to repay obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as dealer property or inventory.
 
Our ownership of TRSs is subject to certain restrictions, and we will be required to pay a 100% penalty tax on certain income or deductions if our transactions with our TRSs are not conducted on arm's length terms.
 
From time to time we may own interests in one or more TRSs.  A TRS is a corporation, other than a REIT, in which a REIT directly or indirectly holds stock and that has made a joint election with such REIT to be treated as a TRS. If a TRS owns more than 35% of the total voting power or value of the outstanding securities of another corporation, such other corporation will also be treated as a TRS. Other than some activities relating to lodging and health care facilities, a TRS may generally engage in any business, including activities that generate fee income that would be nonqualifying income for purposes of the REIT gross income tests or the provision of customary or non-customary services to tenants of its parent REIT. A TRS is subject to federal income tax as a regular C corporation. In addition, a 100% excise tax will be imposed on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis.

A REIT’s ownership of securities of a TRS is not subject to the 5% or 10% asset tests applicable to REITs. Not more than 20% of the value of a REIT’s total assets may be represented by securities of TRSs, and not more than 25% of the value of a REIT’s total assets may be represented by securities (including securities of TRSs), other than those securities includable in the 75% asset test. We anticipate that the aggregate value of the stock and securities of any TRSs that we own will be less than 20% of the value of our total assets, and together with any other nonqualifying assets that we own will be less than 25% of the value of our total assets, and we will monitor the value of these investments to ensure compliance with applicable ownership limitations. We expect to hold our interests in servicer advances in a TRS; therefore, in order to comply with the 20% TRS limit, investments in servicer advances may be limited. In addition, we intend to structure our transactions with any TRSs that we own to ensure that they are entered into on arm’s-length terms to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the above limitations or to avoid application of the 100% excise tax discussed above.

To maintain our REIT qualification, we may be forced to borrow funds during unfavorable market conditions, and the unavailability of such capital on favorable terms at the desired times, or at all, may cause us to curtail our investment activities and/or to dispose of assets at inopportune times, which could adversely affect our financial condition, results of operations, cash flow and value of our common stock.  

To qualify as a REIT, we generally must distribute to our stockholders at least 90% of our REIT taxable income each year (determined without regard to the dividends paid deduction and excluding net capital gains), and we will be subject to regular corporate income taxes to the extent that we distribute less than 100% of our REIT taxable income (determined without regard to the dividends paid deduction and including net capital gains) each year. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our net capital gains, and 100% of our undistributed income from prior years. To maintain our REIT qualification and avoid the payment of federal income and excise taxes, we may need to borrow funds to meet the REIT distribution requirements, even if the then-prevailing market conditions are not favorable for these borrowings. These borrowing needs could result from differences in timing between the actual receipt of income and inclusion of income for federal income tax purposes. For example, we may be required to accrue interest and discount income on mortgage loans, mortgage-based securities and other types of debt securities or interests in debt securities before we receive any payments of interest or principal on such assets. Our access to third-party sources of capital depends on a number of factors, including the market’s perception of our growth potential, our current debt levels, and our current and potential future earnings. We cannot assure you that we will have access to such capital on favorable terms at the desired times, or at all, which may cause us to curtail our investment activities and/or to dispose of assets at inopportune times, and could adversely affect our financial condition, results of operations, cash flow and the value of our common stock. Alternatively, we may make taxable in-kind distributions of our own stock, which may cause our stockholders to be required to pay income taxes with respect to such distributions in excess of any cash they receive, or we may be required to withhold taxes with respect to such distributions in excess of any cash our stockholders receive.


Dividends payable by REITs, including us, generally do not qualify for the reduced tax rates available for some dividends, which may negatively affect the value of our common stock.

“Qualified dividends” payable to U.S. stockholders that are individuals, trusts and estates are generally subject to tax at preferential rates, currently at a maximum federal rate of 20%. Dividends payable by REITs, however, generally are not eligible for the preferential tax rates applicable to qualified dividend income. Under the recently enacted Tax Cuts and Jobs Act, however, U.S. stockholders that are individuals, trusts and estates generally may deduct up to 20% of the ordinary dividends (e.g., dividends not designated as capital gain dividends or qualified dividend income) received from a REIT for taxable years beginning after December 31, 2017 and before January 1, 2026. Although this deduction reduces the effective U.S. federal income tax rate applicable to certain dividends paid by REITs (generally to 29.6% assuming the stockholder is subject to the 37% maximum rate), such tax rate is still higher than the tax rate applicable to corporate dividends that constitute qualified dividend income. Accordingly, investors who are individuals, trusts and estates may perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could materially and adversely affect the value of the stock of REITs, including the per share trading price of our common stock.

Complying with REIT requirements may limit our ability to hedge effectively.

The REIT provisions of the Internal Revenue Code may limit our ability to hedge our assets and operations. Under these provisions, any income that we generate from transactions intended to hedge our interest rate exposure or currency fluctuations will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if (A) the instrument hedges either (i) interest rate risk on liabilities used to carry or acquire real estate assets or (ii) currency fluctuations with respect to items of income that qualify for purposes of the REIT 75% or 95% gross income tests or assets that generate such income or (B) the transaction is entered into to hedge the income or loss from prior hedging transactions, where the property or indebtedness which was the subject of the prior hedging transaction was extinguished or disposed of, and, in any such case, such instrument is properly identified under applicable Treasury Regulations. Income from hedging transactions that do not meet these requirements will generally constitute nonqualifying income for purposes of both the REIT 75% and 95% gross income tests. As a result of these rules, we may have to limit our use of hedging techniques that might otherwise be advantageous.

The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans, that would be treated as sales for U.S. federal income tax purposes.

A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, but including mortgage loans, held as inventory or primarily for sale to customers in the ordinary course of business. We could be subject to this tax if we were to sell or securitize loans in a manner that was treated as a sale of the loans as inventory or primarily for sale to customers in the ordinary course of business for U.S. federal income tax purposes. Therefore, in order to avoid the prohibited transactions tax, we may choose not to engage in certain sales of loans, other than through a TRS, and we may be required to limit the structures we use for securitization transactions, even though such sales or structures might otherwise be beneficial for us.

In connection with our acquisition of certain assets, we may rely on legal opinions or advice rendered or given or statements by the issuers of such assets, and the inaccuracy of any conclusions of such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate-level tax.

When purchasing securities, we may rely on opinions or advice of counsel for the issuer of such securities, or statements made in related offering documents, for purposes of determining whether such securities represent debt or equity securities for U.S. federal income tax purposes, and also to what extent those securities constitute qualifying real estate assets for purposes of the REIT asset tests and produce income which qualifies under the 75% and 95% REIT gross income tests. In addition, when purchasing the equity tranche of a securitization, we may rely on opinions or advice of counsel regarding the qualification of the securitization for exemption from U.S. corporate income tax. The inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate-level tax.

Our leases must be respected as such for U.S. federal income tax purposes in order for us to qualify as a REIT.
 
In order for us to qualify as a REIT, at least 75% of our gross income each year must consist of real estate-related income, including rents from real property. Income from operation of our parking facilities will not be treated as rents from real property. Accordingly, we will lease our parking facilities to lessees that will operate the facilities. If such leases were recharacterized as management contracts for U.S. federal income tax purposes or otherwise as an arrangement other than a lease, we could fail to qualify as a REIT.
 

You may have current tax liability on distributions if you elect to reinvest in our shares.
 
Our stockholders who elect to participate in the Company's DRIP, if it is ever reactivated, and who are subject to U.S. federal income taxation laws, will incur a tax liability on an amount equal to the fair market value on the relevant distribution date of the shares of our common stock purchased with reinvested distributions, even though such stockholders have elected not to receive the cash distributions used to purchase those shares of common stock. As a result, if you are not a tax-exempt entity, you may have to use funds from other sources to pay your tax liability on the value of the common stock received.

If our operating partnership failed to qualify as a partnership for federal income tax purposes, we would cease to qualify as a REIT and suffer other adverse consequences.

We believe that our operating partnership will be treated as a partnership for federal income tax purposes. As a partnership, our operating partnership will not be subject to federal income tax on its income. Instead, each of its partners, including us, will be allocated, and may be required to pay tax with respect to, its share of our operating partnership’s income. We cannot assure you, however, that the IRS will not challenge the status of our operating partnership or any other subsidiary partnership in which we own an interest as a partnership for federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating our operating partnership or any such other subsidiary partnership as an entity taxable as a corporation for federal income tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, we would likely cease to qualify as a REIT. Also, the failure of our operating partnership or any subsidiary partnerships to qualify as a partnership could cause it to become subject to federal and state corporate income tax, which would reduce significantly the amount of cash available for debt service and for distribution to its partners, including us.

Recharacterization of sale-leaseback transactions may cause us to lose our REIT status.
 
We may purchase real property and lease it back to the sellers of such property. We cannot assure you that the IRS will not challenge any characterization of such a lease as a “true lease,” which would allow us to be treated as the owner of the property for federal income tax purposes. In the event that any such sale-leaseback transaction is challenged and recharacterized as a financing transaction or loan for federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed. If a sale-leaseback transaction were so recharacterized, we may fail to satisfy the REIT asset tests or the gross income tests and, consequently, lose our REIT status. Alternatively, the amount of our REIT taxable income could be recalculated, which may also cause us to fail to meet the distribution requirement for a taxable year.
  
Legislative or other actions affecting REITs could have a negative effect on our stockholders or us.
 
The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. Changes to the tax laws, with or without retroactive application, could materially and adversely affect our investors or us. We cannot predict how changes in the tax laws might affect our investors or us. New legislation, Treasury Regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify as a REIT or the federal income tax consequences of such qualification, or the federal income tax consequences of an investment in us. Also, the law relating to the tax treatment of other entities, or an investment in other entities, could change, making an investment in such other entities more attractive relative to an investment in a REIT.

The 2017 Tax Legislation has significantly changed the U.S. federal income taxation of U.S. businesses and their owners, including REITs and their stockholders. We are continuing to assess the potential impact of the 2017 Tax Legislation on us as related regulations are proposed and finalized. The legislation is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the Treasury and IRS, any of which could lessen or increase the impact of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities. While some of the changes made by the 2017 Tax Legislation may adversely affect us in one or more reporting periods and prospectively, other changes may be beneficial on a going forward basis. We continue to work with our tax advisors to determine the full impact that the 2017 Tax Legislation, as a whole, will have on us.

We and the operating partnership may inherit tax liabilities from the Merger or future acquisitions.

Pursuant to the Merger, we acquired all of the assets and liabilities, including any tax liabilities, of MVP I. If MVP I failed to qualify as a REIT for any of its taxable years, MVP I would be liable for (and we, as the surviving corporation in the Merger, would be obligated to pay) regular U.S. federal corporate income tax on its taxable income for such taxable years.  In addition, to qualify as a REIT, we would have been required to distribute any earnings and profits acquired from MVP I prior to the close of the taxable year in which the Merger occurred. No rulings from the IRS were requested and no opinion of counsel was rendered regarding the federal income tax treatment of the Merger. Accordingly, no assurance can be given that MVP I qualified as a REIT for federal income tax purposes, or that MVP I does not have any other tax liabilities.


In addition, if we acquire any asset from a subchapter C corporation (i.e., a corporation generally subject to full corporate-level tax) in a merger or other transaction in which we acquire a basis in the asset determined by reference either to the subchapter C corporation's basis in the asset or to another asset, we will pay tax, at the highest U.S. federal corporate income tax rate, on any built-in gain recognized on a taxable disposition of the asset during the 5-year period after its acquisition.

The stock ownership limit imposed by the Code for REITs and our charter may restrict our business combination opportunities.

To qualify as a REIT under the Code, not more than 50% in value of our outstanding stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of any taxable year after our first year in which we qualify as a REIT. Our charter, with certain exceptions, authorizes our board of directors to take the actions that are necessary or appropriate to preserve our qualification as a REIT. Unless an exemption is granted prospectively or retroactively by our board of directors, no person (as defined to include certain entities) may own more than 9.8% in value of the aggregate of our outstanding shares of capital stock or more than 9.8%, in value or in number of shares, whichever is more restrictive, of the aggregate of our outstanding shares of common stock. Generally, this limit can be waived and adjusted by the board of directors. In addition, our charter will generally prohibit beneficial or constructive ownership of shares of our capital stock by any person that owns, actually or constructively, an interest in any of our tenants that would cause us to own, actually or constructively, 10% or more of any of our tenants. Our board of directors may grant an exemption from the 9.8% ownership limit prospectively or retroactively in its sole discretion, subject to such conditions, representations and undertakings as required by our charter or as it may determine. These and other ownership limitations in our charter are common in REIT charters and are intended, among other purposes, to assist us in complying with the tax law requirements and to minimize administrative burdens. However, these ownership limits and the other restrictions on ownership and transfer in our charter might also delay or prevent a transaction or a change in our control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.

Non-U.S. investors may be subject to FIRPTA on the sale of common stock if we are unable to qualify as a domestically controlled REIT.

A non-U.S. person disposing of a U.S. real property interest, including shares of a U.S. corporation whose assets consist principally of U.S. real property interests, is generally subject to a tax under the Foreign Investment in Real Property Tax Act of 1980, or “FIRPTA,” on the gain recognized on the disposition. FIRPTA does not apply, however, to the disposition of stock in a REIT if the REIT is a “domestically controlled REIT.” A domestically controlled REIT is a REIT in which, at all times during a specified testing period, less than 50% in value of its shares is held directly or indirectly by non-U.S. holders. There can be no assurance that we will qualify as a domestically controlled REIT.

If we were to fail to so qualify, gain realized by a foreign investor on a sale of our common stock would be subject to FIRPTA unless our common stock was traded on an established securities market and the non-U.S. investor did not at any time during a specified testing period directly or indirectly own more than 10% of the value of our outstanding common stock. We are not currently traded on an established securities market, nor can we provide any assurance as to whether or when we will be traded on an established securities market.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

During January 2020, the Company moved its headquarters from 8880 West Sunset Road, Suite 240, Las Vegas, Nevada 89148 to 9130 West Post Road, Suite 200, Las Vegas, Nevada 89148.

As of December 31, 2019, the Company held 40 properties.


The following map and table set forth the property name, percentage owned, location and other information with respect to the parking lots and/or facilities that the Company had acquired as of December 31, 2019:


The location marks are based on dollar amounts the Company has invested in each property in relation to the total property investment held at the time of filing.

Property Name
Location
Acquisition Date
Property Type
  
# Spaces
    
Property Size (Acres)
    
Retail Sq. Ft
    
Investment Amount
    
% Owned
  
MVP Cleveland West 9th (1)
Cleveland, OH
5/11/2016
Lot
    
260
      
2.00
      
N/A
    
$
5,845,000
      
100
%
33740 Crown Colony (1)
Cleveland, OH
5/17/2016
Lot
    
82
      
0.54
      
N/A
    
$
3,049,000
      
100
%
MVP San Jose 88 Garage
San Jose, CA
6/15/2016
Garage
    
328
      
1.33
      
N/A
    
$
3,500,000
      
100
%
MCI 1372 Street
Canton, OH
7/8/2016
Lot
    
66
      
0.44
      
N/A
    
$
700,000
      
100
%
MVP Cincinnati Race Street Garage
Cincinnati, OH
7/8/2016
Garage
    
350
      
0.63
      
N/A
    
$
6,331,000
      
100
%
MVP St. Louis Washington
St Louis, MO
7/18/2016
Lot
    
63
      
0.39
      
N/A
    
$
2,957,000
      
100
%
MVP St. Paul Holiday Garage
St Paul, MN
8/12/2016
Garage
    
285
      
0.85
      
N/A
    
$
8,396,000
      
100
%
MVP Louisville Station Broadway
Louisville, KY
8/23/2016
Lot
    
165
      
1.25
      
N/A
    
$
3,107,000
      
100
%
White Front Garage Partners
Nashville, TN
9/30/2016
Garage
    
155
      
0.26
      
N/A
    
$
11,673,000
      
100
%
Cleveland Lincoln Garage Owners
Cleveland, OH
10/19/2016
Garage
    
536
      
1.14
      
45,272
    
$
10,649,000
      
100
%
MVP Houston Preston Lot
Houston, TX
11/22/2016
Lot
    
46
      
0.23
      
N/A
    
$
2,820,000
      
100
%
MVP Houston San Jacinto Lot
Houston, TX
11/22/2016
Lot
    
85
      
0.65
      
240
    
$
3,250,000
      
100
%
MVP Detroit Center Garage
Detroit, MI
1/10/2017
Garage
    
1,275
      
1.28
      
N/A
    
$
55,476,000
      
100
%
St. Louis Broadway
St Louis, MO
2/1/2017
Lot
    
161
      
0.96
      
N/A
    
$
2,400,000
      
100
%
St. Louis Seventh & Cerre
St Louis, MO
2/1/2017
Lot
    
174
      
1.06
      
N/A
    
$
3,300,000
      
100
%
MVP Preferred Parking (3)
Houston, TX
6/29/2017
Garage/Lot
    
528
      
0.98
      
784
    
$
21,210,000
      
100
%
MVP Raider Park Garage
Lubbock, TX
11/21/2017
Garage
    
1,495
      
2.15
      
20,536
    
$
13,517,000
      
100
%
MVP PF Memphis Poplar
Memphis, TN
12/15/2017
Lot
    
127
      
0.87
      
N/A
    
$
3,747,000
      
100
%
MVP PF St. Louis 2013
St Louis, MO
12/15/2017
Lot
    
183
      
1.22
      
N/A
    
$
5,145,000
      
100
%
Mabley Place Garage
Cincinnati, OH
12/15/2017
Garage
    
775
      
0.9
      
8,400
    
$
21,185,000
      
83
%
MVP Denver Sherman
Denver, CO
12/15/2017
Lot
    
28
      
0.14
      
N/A
    
$
705,000
      
100
%
MVP Fort Worth Taylor
Fort Worth, TX
12/15/2017
Garage
    
1,013
      
1.18
      
11,828
    
$
27,663,000
      
100
%
MVP Milwaukee Old World
Milwaukee, WI
12/15/2017
Lot
    
54
      
0.26
      
N/A
    
$
2,044,000
      
100
%
MVP Houston Saks Garage
Houston, TX
12/15/2017
Garage
    
265
      
0.36
      
5,000
    
$
10,423,000
      
100
%


MVP Milwaukee Wells
Milwaukee, WI
12/15/2017
Lot
    
148
      
1.07
      
N/A
    
$
5,083,000
      
100
%
MVP Wildwood NJ Lot 1 (2)
Wildwood, NJ
12/15/2017
Lot
    
29
      
0.26
      
N/A
    
$
545,000
      
100
%
MVP Wildwood NJ Lot 2 (2)
Wildwood, NJ
12/15/2017
Lot
    
45
      
0.31
      
N/A
    
$
686,000
      
100
%
MVP Indianapolis City Park
Indianapolis, IN
12/15/2017
Garage
    
370
      
0.47
      
N/A
    
$
10,934,000
      
100
%
MVP Indianapolis WA Street
Indianapolis, IN
12/15/2017
Lot
    
141
      
1.07
      
N/A
    
$
5,749,000
      
100
%
MVP Minneapolis Venture
Minneapolis, MN
12/15/2017
Lot
    
195
      
1.65
      
N/A
    
$
4,013,000
      
100
%
MVP Indianapolis Meridian
Indianapolis, IN
12/15/2017
Lot
    
36
      
0.24
      
N/A
    
$
1,601,000
      
100
%
MVP Milwaukee Clybourn
Milwaukee, WI
12/15/2017
Lot
    
15
      
0.06
      
N/A
    
$
262,000
      
100
%
MVP Milwaukee Arena Lot
Milwaukee, WI
12/15/2017
Lot
    
75
      
1.11
      
N/A
    
$
4,631,000
      
100
%
MVP Clarksburg Lot
Clarksburg, WV
12/15/2017
Lot
    
94
      
0.81
      
N/A
    
$
715,000
      
100
%
MVP Denver Sherman 1935
Denver, CO
12/15/2017
Lot
    
72
      
0.43
      
N/A
    
$
2,533,000
      
100
%
MVP Bridgeport Fairfield
Bridgeport, CT
12/15/2017
Garage
    
878
      
1.01
      
4,349
    
$
8,256,000
      
100
%
Minneapolis City Parking
Minneapolis, MN
12/15/2017
Lot
    
268
      
1.98
      
N/A
    
$
9,338,000
      
100
%
MVP New Orleans Rampart
New Orleans, LA
2/1/2018
Lot
    
78
      
0.44
      
N/A
    
$
8,105,000
      
100
%
MVP Hawaii Marks Garage
Honolulu, HI
6/21/2018
Garage
    
311
      
0.77
      
16,205
    
$
21,127,000
      
100
%

(1) These properties are held by West 9th St. Properties II, LLC.
(2) These properties are held by MVP Wildwood NJ Lot, LLC.
(3) MVP Preferred Parking holds two properties.

As of date of filing, all of the Company’s parking facilities were fully leased to parking operators.

ITEM 3. LEGAL PROCEEDINGS

See Note P — Legal in Part II, Item 8 Notes to the Consolidated Financial Statements of this Annual Report for a description of a purported class action lawsuit that was filed on March 12, 2019.

The nature of the Company’s business exposes its properties, the Company, its Operating Partnership and its other subsidiaries to the risk of claims and litigation in the normal course of business. Other than as noted above or routine litigation arising out of the ordinary course of business, the Company is not presently subject to any material litigation nor, to its knowledge, is any material litigation threatened against the Company.

ITEM 4. MINE SAFETY DISCLOSURES

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Stockholder Information

As of March 30, 2020, there were 3,808 holders of record of the Company’s common shares and 52 and 626 holders of record of the Company’s Series A and Series 1 preferred shares, respectively. The number of stockholders is based on the records of the Company’s transfer agent.

Market Information

The Company’s shares of common stock are not currently listed on a national securities exchange or any over-the-counter market and are not expected to be listed in the future. The charter does not require the board of directors to pursue a liquidity event, however, as noted above, in mid-2019, the Company engaged financial and legal advisors and began to explore a broad range of potential strategic alternatives, including potential sales of assets, a potential sale of the Company or a portion thereof, a potential strategic business combination or a potential liquidation. There can be no assurance that the Company will cause a liquidity event to occur in the near future or at all.


In order for members of FINRA and their associated persons to have participated in the offering and sale of the Company’s common shares or to participate in any future offering of common shares, the Company is required pursuant to FINRA Rule 5110 to disclose in each Annual Report distributed to stockholders a per share estimated value of the Company’s common shares, the method by which it was developed and the date of the data used to develop the estimated value. In addition, the Company must prepare annual statements of estimated share values to assist fiduciaries of retirement plans subject to the annual reporting requirements of ERISA in the preparation of their reports relating to an investment in the Company’s common shares. On May 28, 2019 the Company announced an estimated per common share net asset value (“NAV”) of approximately $174.1 million or $25.10 per common share as of May 28, 2019. The estimated per common share NAV was based on the estimated value of the Company’s assets less the estimated value of the Company’s liabilities, divided by the approximate number of shares outstanding, calculated as of May 29, 2019. However, the estimated NAV per share as of May 28, 2019, did not take into consideration the dilutive effect of the 1.2 million shares of common stock that, at that date, had yet to be issued to the former Advisor in connection with the Internalization. In addition, as set forth above, there is no public trading market for the shares at this time and stockholders would likely receive substantially less than $25.10 per share if a market did exist. Please see our Current Reports on Form 8-K filed with the SEC on May 28, 2019 for additional information regarding the NAV calculation, as well as “Item 1A. Risk Factors—Risks Related to an Investment in the Company–Stockholders should not rely on the estimated NAV per share as being an accurate measure of the current value of our shares of common stock” in this Annual Report on Form 10-K.

Distribution Reinvestment Plan

On March 22, 2018 the Company suspended the payment of distributions on its common stock. There can be no assurance that cash distributions to the Company’s common stockholders will be resumed in the future. The actual amount and timing of distributions, if any, will be determined by the Company’s board of directors in its discretion and typically will depend on the amount of funds available for distribution, which is impacted by current and projected cash requirements, tax considerations and other factors. As a result, the Company’s distribution rate and payment frequency may vary from time to time. However, to qualify as a REIT for federal income tax purposes, the Company must make distributions equal to at least 90% of its REIT taxable income each year (which is computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). In addition, the Company will be subject to corporate income tax to the extent the Company distributes less than 100% of the net taxable income including any net capital gain.

The Company is not currently and may not in the future generate sufficient cash flow from operations to fully fund distributions. All or a portion of the distributions may be paid from other sources, such as cash flows from equity offerings, financing activities, borrowings, or by way of waiver or deferral of fees, to the extent that such other sources are then available. The Company has not established any limit on the extent to which distributions could be funded from these other sources. Accordingly, the amount of distributions paid may not reflect current cash flow from operations and distributions may include a return of capital, (rather than a return on capital). If the Company pays distributions from sources other than cash flow from operations, the funds available to the Company for investments would be reduced and the share value may be diluted. The level of distributions will be determined by the board of directors and depend on several factors including current and projected liquidity requirements, anticipated operating cash flows and tax considerations, and other relevant items deemed applicable by the board of directors.

The Company has issued a total of 83,437 shares of common stock under the DRIP as of December 31, 2019.

Share Repurchase Program

On May 29, 2018, the Company’s Board of Directors suspended the Share Repurchase Program, other than for hardship repurchases in connection with a shareholder’s death. Repurchase requests made in connection with the death of a stockholder were repurchased at a price per share equal to 100% of the amount the stockholder paid for each share, or once the Company had established an estimated NAV per share, 100% of such amount as determined by the Company’s board of directors, subject to any special distributions previously made to the Company’s stockholders. The Company repurchased 9,896 shares of common stock pursuant to the hardship exception under this program during the year ended December 31, 2019.

On May 28, 2019, the Company established an estimated NAV equal to $25.10 per common share.

As of the date of this filing, 45,944 shares have been redeemed of which 30,858 shares were hardship repurchases.

Since inception, there have been 30,858 hardship repurchases in connection with a shareholder’s death through March 30, 2020. On March 24, 2020, the Board of Directors suspended all repurchases, even in the case of a shareholder’s death.

Recent Sales of Unregistered Securities

The Company did not sell any securities that were not registered under the Securities Act for the year ended December 31, 2019, other than any sales that have been previously reported by the Company in a quarterly report on 10-Q or current report on Form 8-K.

Use of Offering Proceeds

As of March 30, 2020, the Company had 7,330,071 shares of common stock issued and outstanding, 2,862 shares of preferred Series A stock outstanding and 39,811 shares of preferred Series 1 stock outstanding for total gross proceeds of approximately $197.2 million, less offering costs.

The following is a table of summary of offering proceeds from inception through December 31, 2019:

Type
  
Number of Shares Preferred
    
Number of Shares Common
    
Value
  
Issuance of common stock
    
--
      
3,251,238
    
$
75,281,000
  
Redeemed shares
    
--
      
(43,203
)
    
(1,057,000
)
DRIP shares
    
--
      
83,437
      
2,086,000
  
Issuance of Series A preferred stock
    
2,862
      
--
      
2,544,000
  
Issuance of Series 1 preferred stock
    
39,811
      
--
      
35,981,000
  
Dividend shares
    
--
      
153,826
      
3,845,000
  
Distributions
    
--
      
--
      
(10,305,000
)
Deferred offering costs
    
--
      
--
      
(1,086,000
)
Contribution from advisor
    
--
      
--
      
1,147,000
  
Shares added for merger
    
--
      
3,887,513
      
85,701,000
  
  Total
    
42,673
      
7,332,811
    
$
194,137,000
  

From October 22, 2015 through December 31, 2019, the Company incurred organization and offering costs in connection with the issuance and distribution of the registered securities of approximately $1.1 million, which were paid to unrelated parties by the Sponsor. From October 22, 2015 through December 31, 2019, the net proceeds to the Company from its offerings, after deducting the total expenses and deferred offering costs incurred and paid by the Company as described above, were approximately $194.1 million. A majority of these proceeds were used, along with other sources of debt financing, to make investments in parking facilities, of which the Company’s portion of the total purchase price for these parking facilities was approximately $320.0 million, which includes its $2.8 million investment in the DST. In addition, a portion of these proceeds were used to make cash distributions of approximately $1.8 million to the Company's stockholders. The ratio of the costs of raising capital to the capital raised is approximately 0.6%.

ITEM 6. SELECTED FINANCIAL DATA

Item not required for Smaller Reporting Company.


ITEM 7.        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations is based on, and should be read in conjunction with the consolidated financial statements and the notes thereto contained elsewhere in this Annual Report on Form 10-K. Also see “Forward Looking Statements” preceding Part I.

Overview

Commencing with its taxable year ended December 31, 2017, the Company has operated in a manner to qualify as a REIT. The Company was formed to focus primarily on investments in parking facilities, including parking lots, parking garages and other parking structures throughout the United States and Canada. To a lesser extent, the Company may also invest in parking properties that contain other sources of rental income, potentially including office, retail, storage, residential, billboard or cell towers. As of December 31, 2019, the Company held 40 properties in various cities, all of which are parking facilities. See note C – Commitments and Contingencies in Part II, Item 8 Financial Statements of this Annual Report for additional information.

The Company was incorporated in Maryland on May 4, 2015 and is the sole member of the Operating Partnership. The Company owns substantially all of its assets and conduct its operations through the Operating Partnership.

Prior to the management Internalization effective on April 1, 2019, the Company was externally managed by MVP Realty Advisors, LLC, dba The Parking REIT Advisors (the “former Advisor”), a Nevada limited liability company. As a result of the management Internalization, the Company will no longer incur an asset management fee equal to 1.1% of the cost of all assets held by the Company, effective April 1, 2019. See Part I, Item 1 Business of this Annual Report for additional information.

The Company has elected to be taxed as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with our taxable year ended December 31, 2017.

Objectives

The Company’s primary objectives are to:

•
preserve capital;
•
generate current income; and
•
explore strategic alternatives to provide liquidity to stockholders.

In mid-2019, the Company engaged financial and legal advisors and began to explore a broad range of potential strategic alternatives to provide liquidity to stockholders. The Company is currently exploring certain strategic alternatives, including potential sales of assets, a potential sale of the Company or a portion thereof, a potential strategic business combination or a potential liquidation. However, there can be no assurance that the Board’s exploration of potential strategic alternatives will result in any change of strategy or transaction being entered into or consummated or, if a transaction is undertaken, as to its terms, structure or timing. In addition, the value received in any potential strategic alternative would likely be less than the NAV most recently estimated by the Company’s board of directors. Our assets have been valued based upon appraisal standards and the values of our assets using these methods are not required to reflect market value under those standards and will not necessarily result in a reflection of fair value under generally accepted accounting principles. Further, different parties using 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 determined by our board of directors. The estimated NAV per share is not a representation or indication that, among other things a stockholder would ultimately realize distributions per share equal to the estimated NAV per share upon liquidation of assets and settlement of our liabilities or upon a sale of our company or a third party would offer the estimated NAV per share in an arms-length transaction to purchase all or substantially all of our shares of common stock. For example, we expect to incur additional costs in connection with ongoing litigation, the SEC investigation discussed in Note P - Legal in Part II, Item 8 Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K and legal and consulting fees associated with pursuing any potential strategic alternatives, which in the aggregate may be material, none of which was taken in consideration when the board of directors determined the prior estimated NAV per share. Please see our Current Reports on Form 8-K filed with the SEC on May 28, 2019 for additional information regarding the NAV calculation, as well as “Item 1A. Risk Factors—Risks Related to an Investment in the Company–Stockholders should not rely on the estimated NAV per share as being an accurate measure of the current value of our shares of common stock” in this Annual Report on Form 10-K.

Prior Investment Strategy

The Company’s investment strategy has historically focused primarily on acquiring, owning and managing parking facilities, including parking lots, parking garages and other parking structures throughout the United States and Canada.  The Company historically focused primarily on investing in income-producing parking lots and garages with air rights in central business districts. In building its current portfolio, the Company sought geographically targeted investments that present key demand drivers, that were expected to generate cash flows and provide greater predictability during periods of economic uncertainty. Such targeted investments include, but are not limited to, parking facilities near one or more of the following demand drivers:

•
Downtown core
•
Government buildings and courthouses
•
Sporting venues
•
Hospitals
•
Hotels

However, as a result of the current COVID-19 pandemic, among other factors, such demand drivers have been and are expected to be significantly diminished for an indeterminate period of time. Many state and local governments are currently restricting public gatherings or requiring people to shelter in place, which has in some cases eliminated or severely reduced the demand for parking. For more information on the effect of COVID-19 on our business, see “Item 1A. Risk Factors—Risks Related to Our Business—Our business and those of our tenants may be adversely affected by epidemics, pandemics or other outbreaks.”

Prior Investment Criteria

The Company historically focused on acquiring properties that met the following criteria:

•
properties that were expected to generate current cash flow;
•
properties that were expected to be located in populated metropolitan areas; and
•
properties were expected to produce income within 12 months of the Company’s acquisition.

As noted above, the Company does not currently expect to make any additional acquisitions unless and until it is able to sell some of its existing assets, and then only after ensuring that it has sufficient liquidity resources.  In the event of a future acquisition, the Company would expect the foregoing criteria to serve as guidelines, however, Management and the Company’s board of directors may vary from these guidelines to acquire properties which they believe represent value opportunities.

The following table is a summary of the dispositions for the year ended December 31, 2019:

Property
Location
Date Sold
Property Type
  
# Spaces
    
Size / Acreage
    
Retail Sq. Ft.
    
Property Sale Price
  
MVP PF Ft Lauderdale 2013, LLC
Ft Lauderdale, FL
9/23/2019
Lot
    
66
      
0.75
      
4,000
    
$
6,100,000
  
MVP PF Memphis Court, LLC
Memphis, TN
10/29/2019
Lot
    
37
      
0.41
      
N/A
    
$
675,000
  

Management Internalization

On March 29, 2019, the Company and the former Advisor entered into definitive agreements to internalize the Company’s management function effective April 1, 2019 (the “Internalization”). Under the supervision of the board of directors (the “Board of Directors”), the former Advisor had been responsible for managing the operations of the Company and MVP I, which merged with a wholly owned indirect subsidiary of the Company in December 2017, since their respective formations. As part of the Internalization, among other things, the Company agreed with the former Advisor to (i) terminate the Second Amended and Restated Advisory Agreement, dated as of May 26, 2017 and, for the avoidance of doubt, the Third Amended and Restated Advisory Agreement, dated as of September 21, 2018, which by its terms would have become effective only upon a listing of the Company’s common stock on a national securities exchange (collectively, the “Management Agreements”), each entered into among the Company, the former Advisor and MVP REIT II Operating Partnership, LP (the “Operating Partnership”); (ii) extend employment to the executives and other employees of the former Advisor; (iii) arrange for the former Advisor to continue to provide certain services with respect to outstanding indebtedness of the Company and its subsidiaries; and (iv) lease the employees of the former Advisor for a limited period of time prior to the time that such employees become employed by the Company.

Contribution Agreement

On March 29, 2019, the Company entered into a Contribution Agreement (the “Contribution Agreement”) with the former Advisor, Vestin Realty Mortgage I, Inc. (“VRTA”) (solely for purposes of Section 1.01(c) thereof), Vestin Realty Mortgage II, Inc. (“VRTB”) (solely for purposes of Section 1.01(c) thereof) and Shustek (solely for purposes of Section 4.03 thereof). In exchange for the Contribution, the Company agreed to issue to the former Advisor 1,600,000 shares of Common Stock as consideration (the “Consideration”), issuable in four equal installments. The first and second installments of 400,000 shares of Common Stock per installment were issued on the April 1, 2019 and December 31, 2019, respectively. See Note S — Deferred Management Internalization in Part II, Item 8 Notes to the Consolidated Financial Statements of this Annual Report for additional information. The remaining installments will be issued on December 31, 2020 and December 31, 2021 (or if December 31st is not a business day, the day that is the last business day of such year). If requested by the Company in connection with any contemplated capital raise by the Company, the former Advisor has agreed not to sell, pledge or otherwise transfer or dispose of any of the Internalization Consideration for a period not to exceed the lock-up period that otherwise would apply to other stockholders of the Company in connection with such capital raise. See the Company’s Current Report on Form 8-K filed with the SEC on April 3, 2019 for more information regarding the Management Internalization.

Results of Operations for the year ended December 31, 2019 compared to the year ended December 31, 2018.

   
For the Years Ended December 31
  
 
  
2019
    
2018
  
Revenues
            
Base rent income
  
$
20,151,000
    
$
19,534,000
  
Management agreement
    
--
      
--
  
Percentage rent income
    
2,643,000
      
2,566,000
  
Total revenues
  
$
22,794,000
    
$
22,100,000
  

Rental revenue

The increase of approximately $0.7 million in rental revenues is mainly attributable to increases in percentage rent from certain properties and increases in base rent due to the acquisition of a property in June 2018 of which 2019 contained a full year of base rent from this property. Additionally, gross increases in rent revenue were partially offset due to properties sold in 2018 resulting in the net increase in rent revenue of approximately $0.7 million.

On December 5, 2018 the operating lease of MVP PF St. Louis 2013, LLC (“MVP St. Louis”) by SP+ expired. Upon the expiration of the operating lease, MVP St. Louis entered into a new modified triple net (“Mod NNN”) operating lease with SP+. The term of the lease is 5 years with the option of one five-year extension. SP+ will pay annual rent of $450,000. In addition, the lease provides percentage rent with MVP St. Louis receiving 70% of gross receipts over $650,000 per lease year. The tenant is responsible for paying property taxes up to $60,000.

On January 31, 2019 the operating lease of MVP PF Ft. Lauderdale 2013, LLC (“MVP Ft. Lauderdale”) by SP+ expired. Upon the expiration of the operating lease, MVP Ft. Lauderdale entered into a new double net (“NN”) operating lease with Lanier Parking Solutions (“Lanier”). The term of the lease was 5 years. Lanier was paying annual rent of $70,000. In addition, the lease provided percentage rent with MVP Ft. Lauderdale receiving 70% of gross receipts over $140,000 per lease year. Subsequently, on September 23, 2019 the Company, through an entity wholly owned by the Company, sold the surface parking lot and office building in Ft. Lauderdale for cash consideration of $6.1 million to 625 SE 3rd Avenue, LLC, a third-party buyer.

On February 28, 2019 the operating lease of MVP PF Memphis Court 2013, LLC (“MVP Memphis Court”) by SP+ was cancelled. Upon the cancellation of the operating lease, MVP Memphis Court entered into a triple net (“NNN”) lease agreement with Premium Parking of Memphis, LLC (“Premium Parking”). The term of the lease was 5 years. Under the terms of the lease agreement, Premium Parking paid annual rent of $3,000. In addition, the lease provided percentage rent with MVP Memphis Court receiving 60% of gross receipts over $3,000 per lease year. The lease also provided that should monthly gross receipts exceed $4,500 for six consecutive months during the term, monthly base rent shall adjust for the remainder of the term to $2,500 (“Adjusted Minimum Monthly Rent”), plus percentage rent of 65% of gross receipts in excess of the Adjusted Minimum Monthly Rent.  This property was sold to an unrelated third-party buyer for cash consideration of $675,000 on October 29, 2019.

On February 28, 2019 the operating lease of MVP PF Memphis Poplar 2013, LLC (“MVP Memphis Poplar”) by Best Park, Inc. expired. Upon the expiration of the operating lease MVP Memphis Poplar entered into a Mod NNN lease agreement with Premium Parking of Memphis, LLC (“Premium Parking”). The term of the lease is 5 years. Premium Parking will pay annual rent of $320,000. In addition, the lease provides percentage rent with MVP Memphis Poplar receiving 65% of gross receipts over $390,000 per lease year. The tenant is responsible for paying property taxes up to $40,000.

For additional information see Note D – Investments in Real Estate, Note I – Acquisitions, Note K - Disposition of Investments in Real Estate in the notes to the consolidated financial statements included in Part II, Item 8 - Notes to the Consolidated Financial Statements of this Annual Report.

During the years ended December 31, 2019 and 2018 the Company received percentage rent on the following properties:

   
For the Years Ended December 31
  
 
  
2019
    
2018
  
Percentage rent income
            
MVP PF Ft. Lauderdale (a)
  
$
32,000
      
--
  
MVP St Louis 2013 (b)
    
57,000
    
$
166,000
  
Mabley Place Garage
    
316,000
      
309,000
  
MVP Ft Worth Taylor (c)
    
8,000
      
22,000
  
MVP St Louis Convention (d)
    
--
      
63,000
  
MVP St Louis Lucas (d)
    
--
      
65,000
  
MVP Indianapolis Washington
    
116,000
      
115,000
  
MVP Indianapolis Meridian Lot
    
9,000
      
9,000
  
MVP Milwaukee Arena (e)
    
173,000
      
130,000
  
MVP Denver 1935 Sherman
    
9,000
      
16,000
  
MVP Cleveland West 9th (f)
    
11,000
      
--
  
MVP San Jose 88 Garage (g)
    
--
      
24,000
  
MVP St Paul Holiday
    
82,000
      
76,000
  
MVP Louisville Station Broadway
    
--
      
6,000
  
White Front Garage
    
--
      
2,000
  
MVP Houston Preston
    
17,000
      
4,000
  
MVP Houston San Jacinto
    
57,000
      
47,000
  
MVP Detroit Center Garage (h)
    
1,574,000
      
1,489,000
  
MVP Raider Park Garage
    
62,000
      
14,000
  
St. Louis Broadway
    
31,000
      
--
  
MVP New Orleans Rampart
    
89,000
      
9,000
  
 Total revenues
  
$
2,643,000
    
$
2,566,000
  

a)
New lease terms with addition of percentage rent.
b)
New lease terms with increase to monthly base rent and higher break point for percentage rent.
c)
Timing of tenant’s collections.
d)
Property sold during June 2018.
e)
The new Fiserv Forum Arena became fully operational in late August 2018, which had a positive impact on operations, a trend expected to continue.
f)
Increased volume in area due to additional multi-tenant apartment complex and decrease in competing surface lots.
g)
Due to construction on the property the new revenue control system experienced some technical difficulties which have been repaired and are not anticipated to impede percentage rent in the future.
h)
Heavy snow in the first quarter had impact on transient parking offset by increase in collections by tenant on monthly parking contracts.

   
For the Years Ended December 31
  
 
  
2019
    
2018
  
Operating expenses
            
Property taxes
  
$
3,023,000
    
$
2,918,000
  
Property operating expense
    
1,701,000
      
1,404,000
  
Asset management expense – related party
    
854,000
      
2,000,000
  
General and administrative
    
5,601,000
      
3,620,000
  
Professional fees
    
8,528,000
      
3,625,000
  
Management internalization
    
32,004,000
      
618,000
  
Acquisition expenses
    
251,000
      
412,000
  
Acquisition expenses – related party
    
--
      
--
  
Depreciation and amortization
    
5,172,000
      
4,938,000
  
Impairment on investment in real estate
    
1,452,000
      
600,000
  
Total operating expenses
    
58,586,000
      
20,135,000
  
Income (loss) from operations
  
$
(35,792,000
)
  
$
1,965,000
  

To the extent that the Company continues to acquire new properties, the Company expects to see operations and maintenance and depreciation expenses increase.

General economic conditions and our business may be significantly adversely affected by the COVID-19 pandemic and we expect to continue to experience possible adverse effects resulting therefrom. Many state and local governments are currently restricting public gatherings or requiring people to shelter in place, which has in some cases eliminated or severely reduced the demand for parking. Such events are adversely impacting and may continue to adversely impact our tenants’ sales and/or cause the temporary closure of our tenants’ businesses, which could significantly disrupt or cause a closure of their operations and, in turn, significantly impact or eliminate the rental revenue we generate from our leases with them. In particular, a majority of the Company’s property leases call for additional percentage rent, which will be adversely impacted by a decline in the demand for parking.  We are in preliminary discussions with some of our tenants and currently expect to grant relief to some our tenants to defer rent payments as a result of their estimated lost revenues from the current COVID-19 pandemic; however, there can be no assurance we will reach an agreement with any tenant or if an agreement is reached, that any such tenant will be able to repay any such deferred rent in the future. For more information on the effect of COVID-19 on our business, see “Item 1A. Risk Factors—Risks Related to Our Business—Our business and those of our tenants may be adversely affected by epidemics, pandemics or other outbreaks” and Note U — Subsequent Events in Part II, Item 8 Financial Statements.

Property taxes

The increase in property taxes in 2019 compared to 2018 is attributable primarily to the increase of assessed property values or increased tax rates which resulted in an increase in property tax expense in certain municipalities and the acquisition of a property in June 2018.

Property operating expense

The increase in property operating expense in 2019 compared to 2018 is attributable primarily to a full year of operations for properties acquired in the prior year, which accounted for higher operating expenses. Additionally, there was an increase in general liability insurance expense, HOA fees and legal expenses for the year ended December 31, 2019 compared to the same period in 2018.

Asset management expense – related party

The decrease in asset management expense is due to the Internalization, as a result of which the Company no longer incurred an asset management expense beginning April 1, 2019.

See Note E — Related Party Transactions and Arrangements in Part II, Item 8 Notes to the Consolidated Financial Statements of this Annual Report for additional information.

General and administrative

Approximately $2.0 million of the increase in general and administrative expenses was attributable to an increase in directors and officers liability insurance. Additionally, due to the Internalization, the Company is now responsible for additional expenses previously paid by the former Advisor, including payroll for certain employees, rent, office equipment, utilities and other expenses.

Asset management expense, general and administrative expenses and professional fees, in aggregate, were approximately $15.0 million and $9.9 million during the years ended December 31, 2019 and 2018, respectively.

Professional fees

The increase in professional fees was primarily due to legal expenses incurred relating to lawsuits filed in 2019 and the SEC investigation, which was initiated in June of 2019. Additionally, professional fees increased in 2019 as a result of legal and consulting fees incurred by the Company in connection with its exploration of potential strategic alternatives to provide liquidity to stockholders, beginning in mid-2019.  We expect to continue to incur legal fees related to the pending lawsuits and SEC investigation and additional legal and consulting fees in connection with our exploration of potential strategic alternatives to provide liquidity to stockholders.

See Note P – Legal in Part II, Item 8 Notes to the Consolidated Financial Statements of this Annual Report for additional information.

Management internalization

The Company was externally managed by the former Advisor prior to the management internalization that became effective on April 1, 2019. These expenses include (i) the Internalization Consideration to be paid in aggregate to the former Advisor and (ii) professional fees incurred to complete the Internalization of the Company’s management. See Note A — Organization and Business Operations and Note S – Deferred Management Internalization in Part II, Item 8 Notes to the Consolidated Financial Statements of this Annual Report for additional information.

Acquisition expenses

Acquisition expenses related to purchased properties are capitalized with the investment in real estate. Acquisition expenses incurred during the year ended December 31, 2019 relate solely to dead deals. The decrease in cost for the year ended December 31, 2019 compared to the year ended December 3, 2018 of approximately $0.2 million is a result of reduced acquisition activity.

Depreciation and amortization expenses

The increase in depreciation and amortization expenses was due to the properties acquired during 2018 and assets placed in service following the completion of construction projects or general improvements on properties already held.

Impairment

During the year ended December 31, 2019, the Company recorded asset impairment charges totaling approximately $1,452,000. These impairment charges consisted of $558,000 associated with the Memphis Court lot, $344,000 associated with the San Jose 88 garage, $50,000 associated with the St. Louis Washington lot and $500,000 associated with the Minneapolis City lot. These charges were recorded to write down the carrying value of these assets to their current appraised values net of estimated closing costs. The Company recorded impairment charges totaling approximately $600,000 for the year ended December 31, 2018. See Note B — Summary of Significant Accounting Policies in Part II, Item 8 Notes to the Consolidated Financial Statements of this Annual Report for additional information.

   
For the Years Ended December 31
  
 
  
2019
    
2018
  
Other income (expense)
            
Interest expense
  
$
(9,513,000
)
    
(9,449,000
)
Gain from sale of investment in real estate
    
2,509,000
      
2,276,000
  
Other income
    
82,000
      
81,000
  
Income from DST
    
218,000
      
205,000
  
Total other expense
  
$
(6,704,000
)
  
$
(6,887,000
)

Interest expense

The increase in interest expense of approximately $0.1 million for the year ended December 31, 2019, as compared to the same period in 2018, is primarily attributable to the Company’s increased use of debt on properties throughout the year.

To maximize the use of cash, the Company will continue to look for opportunities to utilize debt financing in future acquisitions, including use of long-term debt. The interest expense will vary based on the amount of the Company’s borrowings and current interest rates at the time of financing. The Company will seek to secure appropriate leverage with the lowest interest rate available. The terms of the loans will vary depending on the quality of the applicable property, the credit worthiness of the tenant and the amount of income the property is able to generate through parking leases. There is no assurance, however, that the Company will be able to secure additional financing on favorable terms or at all.

Interest expense recorded for the year ended December 31, 2019 and 2018 includes amortization of loan issuance costs. Total amortization of loan issuance cost for the years ended December 31, 2019 and 2018 was approximately $0.9 million and $1.7 million, respectively.

For additional information see Note L – Notes Payable in Part II, Item 8 Notes to the Consolidated Financial Statements of this Annual Report for additional information.

Gain from sale of investment in real estate

During September 2019, the Company sold the surface parking lot and office building in Ft. Lauderdale, Florida for $6.1 million, which resulted in a gain from sale of investments in real estate of approximately $2.3 million.

On October 29, 2019, the Company sold a surface parking lot in Memphis, Tennessee for cash consideration of $675,000, which resulted in a gain on sale of investments in real estate of approximately $0.2 million.

During August 2018, the Company sold two surface lots in Kansas City for $4.0 million, which resulted in a gain from sale of investments in real estate of approximately $1.0 million.

During June 2018, the Company sold two surface lots in St. Louis for $8.5 million, which resulted in a gain from sale of investments in real estate of approximately $1.0 million.

In May 2018, the Company entered into agreements with the Redevelopment Agency for the City of Milwaukee ("RACM") and the Milwaukee Symphony ("Symphony"), regarding the MVP Milwaukee Wells surface parking lot (the "Lot"), wherein we acquired a parcel of land from RACM for $388,545 and sold a portion of the Lot to the Symphony for $200,000. These transactions resulted in an addition of approximately 5,000 square feet to the Lot and will allow us to add an additional 53 parking spaces.

On October 5, 2018, The Parking REIT, Inc., through an entity wholly owned by the Company, completed a partial sale of 36,155 square feet of land adjoining a surface parking lot in Minneapolis for cash consideration of $3.0 million to Camber Lodging, LLC and Amber Lodging, LLC, for a proposed hotel development. The Company originally purchased the approximately 108,000 square foot parcel in January 2016 for $6.1 million.  The partial sale resulted in a gain of approximately $0.3 million.

Other income

During January 2019, the Company received a rebate of approximately $31,000 from Hawaii Energy for the completion of a project to replace and improve the lighting of the property located in Hawaii

During August 2019, the Company received $50,000 from Inner Fire Fitness, LLC for the early termination of the retail lease at Mabley Place Garage.

During May 2018, the Company received a rebate of approximately $5,000 for the completion of a project to replace and improve the lighting of Cleveland Lincoln Garage. In addition, the Company also received $50,000 from PCAM, LLC for the early termination of the lease of MVP Milwaukee Wells.

During August 2018, the Company received a rebate of approximately $7,000 for the completion of a project to replace and improve the lighting of MVP Indianapolis City Park.

Income from DST

During the year ended December 31, 2019, the Company recorded a one-time accrual of $18,000 for income from DST.


Rental Income and Property Gross Revenues

Since a majority of the Company’s property leases call for additional percentage rent, the Company monitors the gross revenue generated by each property on a monthly basis. The higher the property’s gross revenue the higher the Company’s potential percentage rent. The graph below shows the comparison of the Company’s quarterly rental income to the gross revenue generated by the properties.  As noted above, as a result of current economic conditions, the Company expects that the amount of percentage rent to be earned in the current and future periods will be significantly reduced.


Non-GAAP Financial Measures

Funds from Operations and Modified Funds from Operations

The Company believes that historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient. Additionally, publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start-up entities may also experience significant acquisition activity during their initial years, the Company believes that non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases.

In order to provide a more complete understanding of the operating performance of a REIT, NAREIT promulgated a measure known as FFO. FFO is defined as net income or loss computed in accordance with GAAP, excluding extraordinary items, as defined by GAAP, and gains and losses from sales of depreciable operating property, adding back asset impairment write-downs, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships and joint ventures. Because FFO calculations exclude such items as depreciation and amortization of real estate assets and gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs. As a result, the Company believes that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of the Company’s performance relative to the Company’s competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities. It should be noted, however, that other REITs may not define FFO in accordance with the current NAREIT definition or may interpret the current NAREIT definition differently than the Company does, making comparisons less meaningful.

The Investment Program Association (“IPA”) issued Practice Guideline 2010-01 (the “IPA MFFO Guideline”) on November 2, 2010, which extended financial measures to include modified funds from operations (“MFFO”). In computing MFFO, FFO is adjusted for certain non-operating cash items such as acquisition fees and expenses and certain non-cash items such as straight-line rent, amortization of in-place lease valuations, amortization of discounts and premiums on debt investments, nonrecurring impairments of real estate-related investments, mark-to-market adjustments included in net income (loss), and nonrecurring gains or losses included in net income (loss) 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. Management is responsible for managing interest rate, hedge and foreign exchange risk. To achieve the Company’s objectives, the Company may borrow at fixed rates or variable rates. In order to mitigate the Company’s interest rate risk on certain financial instruments, if any, the Company may enter into interest rate cap agreements and in order to mitigate the Company’s risk to foreign currency exposure, if any, the Company may enter into foreign currency hedges. The Company views fair value adjustments of derivatives, impairment charges and gains and losses from dispositions of assets as non-recurring items or items which are unrealized and may not ultimately be realized, and which are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. Additionally, the Company believes it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations, assessments regarding general market conditions, and the specific performance of properties owned, which can change over time.

No less frequently than annually, the Company evaluates events and changes in circumstances that could indicate that the carrying amounts of real estate and related intangible assets may not be recoverable. When indicators of potential impairment are present, the Company assesses whether the carrying value of the assets will be recovered through the future undiscounted operating cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) expected from the use of the assets and the eventual disposition. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of MFFO as described above, investors are cautioned that because impairments are based on estimated future undiscounted cash flows and the relatively limited term of the Company’s operations, it could be difficult to recover any impairment charges through operational net revenues or cash flows prior to any liquidity event. The Company adopted the IPA MFFO Guideline as management believes that MFFO is a helpful indicator of the Company’s on-going portfolio performance. More specifically, MFFO isolates the financial results of the REIT’s operations. MFFO, however, is not considered an appropriate measure of historical earnings as it excludes certain significant costs that are otherwise included in reported earnings in accordance with GAAP. Further, since the measure is based on historical financial information, MFFO for the period presented may not be indicative of future results or the Company’s future ability to pay the Company’s dividends. By providing FFO and MFFO, the Company presents information that assists investors in aligning their analysis with management’s analysis of long-term operating activities. MFFO also allows for a comparison of the performance of the Company’s portfolio with other REITs that are not currently engaging in acquisitions, as well as a comparison of the Company’s performance with that of other non-traded REITs, as MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and the Company believes it is often used by analysts and investors for comparison purposes. As explained below, management’s evaluation of the Company’s operating performance excludes items considered in the calculation of MFFO based on the following economic considerations:

•
Straight-line rent. Most of the Company’s leases provide for periodic minimum rent payment increases throughout the term of the lease. In accordance with GAAP, these periodic minimum rent payment increases during the term of a lease are recorded to rental revenue on a straight-line basis in order to reconcile the difference between accrual and cash basis accounting. As straight-line rent is a GAAP non-cash adjustment and is included in historical earnings, it is added back to FFO to arrive at MFFO as a means of determining operating results of the Company’s portfolio.
•
Amortization of in-place lease valuation. As this item is a cash flow adjustment made to net income in calculating the cash flows provided by (used in) operating activities, it is added back to FFO to arrive at MFFO as a means of determining operating results of the Company’s portfolio.
•
Acquisition-related costs. The Company was organized primarily with the purpose of acquiring or investing in income-producing real property in order to generate operational income and cash flow that will allow us to provide regular cash distributions to the Company’s stockholders. In the process, the Company incurs non-reimbursable affiliated and non-affiliated acquisition-related costs, which, in accordance with GAAP, are expensed as incurred and are included in the determination of income (loss) from operations and net income (loss). These costs have historically been funded with cash proceeds from the sale of common or preferred stock or included as a component of the amount borrowed to acquire such real estate. If the Company acquires a property in the future, such costs will be paid from additional debt, operational earnings or cash flow, net proceeds from the sale of properties, or ancillary cash flows. In evaluating the performance of the Company’s portfolio over time, management employs business models and analyses that differentiate the costs to acquire investments from the investments’ revenues and expenses. Acquisition-related costs may negatively affect the Company’s operating results, cash flows from operating activities and cash available to fund distributions during periods in which properties are acquired, as the proceeds to fund these costs would otherwise be invested in other real estate related assets. By excluding acquisition-related costs, MFFO may not provide an accurate indicator of the Company’s operating performance during periods in which acquisitions are made. However, it can provide an indication of the Company’s on-going ability to generate cash flow from operations and continue as a going concern after the Company ceases to acquire properties on a frequent and regular basis, which can be compared to the MFFO of other non-listed REITs that have completed their acquisition activity and have similar operating characteristics to the Company. Management believes that excluding these costs from MFFO provides investors with supplemental performance information that is consistent with the performance models and analysis used by management.

For all of these reasons, the Company believes the non-GAAP measures of FFO and MFFO, in addition to income (loss) from operations, net income (loss) and cash flows from operating activities, as defined by GAAP, are helpful supplemental performance measures and useful to investors in evaluating the performance of the Company’s real estate portfolio. However, a material limitation associated with FFO and MFFO is that they are not indicative of the Company’s cash available to fund distributions since other uses of cash, such as capital expenditures at the Company’s properties and principal payments of debt, are not deducted when calculating FFO and MFFO. Additionally, MFFO has limitations as a performance measure in an offering such as the Company’s where the price of a share of common stock is a stated value. The use of MFFO as a measure of long-term operating performance on value is also limited if the Company does not continue to operate under the Company’s current business plan as noted above. MFFO is useful in assisting management and investors in assessing the Company’s ongoing ability to generate cash flow from operations and continue as a going concern in future operating periods, and, after the sale of the Company’s common stock and acquisition stages are complete and NAV is disclosed. However, MFFO is not a useful measure in evaluating NAV because impairments are considered in determining NAV but not in determining MFFO. Therefore, FFO and MFFO should not be viewed as a more prominent measure of performance than income (loss) from operations, net income (loss) or cash flows from operating activities and each should be reviewed in connection with GAAP measurements.

None of the SEC, NAREIT or any other organization has opined on the acceptability of the adjustments contemplated to adjust FFO in order to calculate MFFO and its use as a non-GAAP performance measure. In the future, the SEC or NAREIT may decide to standardize the allowable exclusions across the REIT industry, and the Company may have to adjust the calculation and characterization of this non-GAAP measure.

The Company’s calculation of FFO and MFFO attributable to common shareholders is presented in the following table for the years ended December 31, 2019 and 2018:

   
For the Years Ended December 31,
  
   
2019
    
2018
  
Net loss attributable to The Parking REIT, Inc. common shareholders
  
$
(45,558,000
)
  
$
(7,773,000
)
Add (Subtract):
                
(Gain) on Sale of investment in real estate
    
(2,509,000
)
    
(2,276,000
)
Provision for impairment of investment in real estate
    
1,452,000
      
600,000
  
Depreciation and Amortization of real estate assets
    
5,172,000
      
4,938,000
  
FFO
  
$
(41,443,000
)
  
$
(4,511,000
)
Add:
                
Acquisition fees and expenses
    
251,000
      
412,000
  
Loan defeasance costs
    
--
      
643,000
  
Loan fee costs due to loan defeasance
    
--
      
210,000
  
Subtract:
                
(Increase) in Deferred Rental Assets
    
(31,000
)
    
(70,000
)
MFFO attributable to The Parking REIT, Inc. shareholders
  
$
(41,223,000
)
  
$
(3,316,000
)
Distributions paid to Common Shareholders
  
$
--
    
$
807,000
  

Liquidity and Capital Resources

The Company commenced operations on December 30, 2015.

The Company’s principal demand for funds historically was for the acquisition of real estate assets, the payment of operating expenses, capital expenditures, principal and interest on the Company’s outstanding indebtedness and the payment of distributions to the Company’s stockholders. The cash required for acquisitions and investments in real estate has, to date, been funded primarily from the sale of shares of the Company’s common stock and preferred stock, including those shares offered for sale through the Company’s distribution reinvestment plan, dispositions of properties in the Company’s portfolio and through third party financing and the assumption of debt on acquired properties.

On December 31, 2016, the Company ceased all selling efforts for its initial public offering of shares of its common stock at $25.00 per share, pursuant to a registration statement on Form S-11 (No. 333-205893). The Company accepted additional subscriptions through March 31, 2017, the last day of the initial public offering, and raised approximately $61.3 million in the initial public offering before payment of deferred offering costs of approximately $1.1 million, contribution from an affiliate of the former Advisor of approximately $1.1 million and cash distributions of approximately $1.8 million.

The Company raised approximately $2.5 million, net of offering costs, in funds from the private placements of Series A Convertible Redeemable Preferred Stock and approximately $36.0 million, net of offering costs, in funds from the private placements of Series 1 Convertible Redeemable Preferred Stock.

As disclosed in Note P - Legal in Part II, Item 8 Notes to the Consolidated Financial Statements of this Annual Report, Nasdaq has informed the Company that (i) the Company’s common stock will not be approved for listing currently on the Nasdaq Global Market, and (ii) it is highly unlikely that the Company’s common stock would be approved for listing while the SEC investigation is ongoing. There can be no assurance that the Company’s common stock will ever be approved for listing on the Nasdaq Global Market or any other stock exchange, even if the SEC investigation referred to above is completed and no wrongdoing is found and no action is taken in connection therewith against the Company, Mr. Shustek or any other person. As a result of this Nasdaq decision, the Company has determined not to proceed with the registration and sale of the Company’s common stock as contemplated by the Registration Statement (File No. 333-205893) on Form S-11 filed with the U.S. Securities and Exchange Commission on October 5, 2018 and such Registration Statement was withdrawn on August 29, 2019.

As of December 31, 2019, the Company’s debt consisted of approximately $121.4 million in fixed rate debt and $39.5 million in variable rate debt, net of loan issuance costs and the Company’s cash and cash equivalents and restricted cash were approximately $11.6 million ($3.9 million of which was restricted cash).

The Company currently has little cash available for acquisitions and no ability to raise new debt or equity financing, and, accordingly, the Company’s only source of near-term liquidity is from operating activities or the sale of assets. In order to enhance liquidity, the Company’s board of directors is exploring certain strategic alternatives, including sales of assets, a sale of the Company or a portion thereof or a strategic business combination.  For addition information see Note B - Liquidity Matters.

Sources and Uses of Cash

The following table summarizes our cash flows for the years ended December 31, 2019 and 2018:

   
For the Years Ended December 31,
  
   
2019
    
2018
  
Net cash used in operating activities
  
$
(1,767,000
)
  
$
(1,671,000
)
Net cash provided by (used in) investing activities
    
2,811,000
      
(24,460,000
)
Net cash provided by financing activities
    
1,165,000
      
18,836,000
  

Comparison of the year ended December 31, 2019, to the year ended December 31, 2018

The Company’s cash and cash equivalents and restricted cash were approximately $11.6 million as of December 31, 2019, which was an increase of approximately $2.2 million from the balance at December 31, 2018.

Cash flows from operating activities

Net cash used in operating activities for the year ended December 31, 2019 was approximately $1.8 million, compared to approximately $1.7 million for the same period in 2018. The increase in cash used was primarily due to an increase in cash used to fund an increase in prepaid expenses including approximately $1.1 million of prepaid directors and officers insurance premiums, other assets and accounts receivable primarily offset by an increase in accounts payable.

Cash flows from investing activities

Net cash provided by investing activities for the year ended December 31, 2019 was approximately $2.8 million, compared to approximately $24.5 million of net cash used, to acquire investments, for the same period in 2018. The reduction in cash used was due primarily to the fact that no investments were acquired during the year ended December 31, 2019, with the exception of a small tract of land adjacent to our Raider Park garage for $41,000, and two assets were sold in 2019.

For additional information see Note K – Disposition of Investments in Real Estate in Part II, Item 8 Notes to the Consolidated Financial Statements of this Annual Report for additional information.

Cash flows from financing activities

Net cash provided by financing activities for the year ended December 31, 2019 was approximately $1.2 million compared to approximately $18.8 million during the same period in 2018. The decrease in cash provided by financing activities was primarily due to the fact that no preferred stock or other equity was issued during the year ended December 31, 2019 compared to approximately $9.1 million of preferred stock issued during the same period in 2018 and a decrease in net proceeds from long term debt and lines of credit of approximately $8.7 million during the year ended December 31, 2019 compared to the same period in 2018.


Company Indebtedness

On February 8, 2019, subsidiaries of the Company, consisting of MVP PF St. Louis 2013, LLC (“MVP St. Louis”), and MVP PF Memphis Poplar 2013 (“MVP Memphis Poplar”), LLC entered into a loan agreement, dated as of February 8, 2019, with LoanCore Capital Credit REIT LLC (“LoanCore”). Under the terms of the Loan Agreement, LoanCore agreed to loan MVP St. Louis and MVP Memphis Poplar $5.5 million to repay and discharge the outstanding KeyBank loan agreement. The loan is secured by a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing on each of the properties owned by MVP St. Louis and MVP Memphis Poplar.

The loan with Bank of America for the MVP Detroit garage requires the Company to maintain $2.3 million in liquidity at all times, which is defined as unencumbered cash and cash equivalents. As of the date of this filing, the Company was in compliance with this lender requirement.  However, if the Company is unable to sell assets it may be unable to meet this requirement beyond the third quarter of 2020, which could result in an event of default and acceleration of such loan if the lender is unwilling to waive the requirement. The Company is in preliminary discussions with its lenders, including Bank of America, to obtain waivers from certain liquidity requirements and defer payments due under its loans in light of the current economic conditions and the fact that the Company expects to allow tenants to defer rents under its leases with its tenants as a result of the current COVID-19 pandemic; however, there can be no assurance that the Company will reach any such agreement with its lenders.

The Company’s secured mortgage debt of approximately $53.7 million and $58.6 million as of December 31, 2019 and 2018, respectively, require Mr. Shustek and the former Advisor to continue to provide guarantees. In connection with the Contribution Agreement and the Internalization, Mr. Shustek and the former Advisor will continue to provide such guarantees. For additional information regarding the Company’s indebtedness, please see Note L – Notes Payable in Part II, Item 8 Notes to the Consolidated Financial Statements of this Annual Report for additional information.

The Company may establish capital reserves with respect to particular investments. The Company also may, but is not required to, establish reserves out of cash flow generated by investments or out of net sale proceeds in non-liquidating sale transactions. Working capital reserves are typically utilized to fund tenant improvements, leasing commissions and major capital expenditures. The Company’s lenders also may require working capital reserves.

To the extent that the working capital reserve is insufficient to satisfy the Company’s cash requirements, additional funds may be provided from cash generated from operations or through short-term borrowing, if such borrowing becomes available in the future. In addition, subject to certain exceptions and limitations, the Company may incur indebtedness in connection with the acquisition of any real estate asset to the extent such indebtedness becomes available to the Company in the future, refinance the debt thereon, arrange for the leveraging of any previously unencumbered property or reinvest the proceeds of financing or refinancing in additional properties.

Management Compensation Summary

The following table summarizes all compensation and fees incurred by us and paid or payable to the former Advisor and its affiliates in connection with the Company’s organization operations for the years ended December 31, 2019 and 2018.

   
For the Years Ended December 31,
  
   
2019
    
2018
  
Asset Management Fees
    
854,000
      
2,000,000
  
Total
  
$
854,000
    
$
2,000,000
  

Distributions and Stock Dividends

On March 22, 2018 the Company suspended the payment of distributions on its common stock. There can be no assurance that cash distributions to the Company’s common stockholders will be resumed in the future. The actual amount and timing of distributions, if any, will be determined by the Company’s board of directors in its discretion and typically will depend on the amount of funds available for distribution, which is impacted by current and projected cash requirements, tax considerations and other factors. As a result, the Company’s distribution rate and payment frequency may vary from time to time. However, to qualify as a REIT for federal income tax purposes, the Company must make distributions equal to at least 90% of its REIT taxable income each year (which is computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). In addition, the Company will be subject to corporate income tax to the extent the Company distributes less than 100% of the net taxable income including any net capital gain.


The Company is not currently and may not in the future generate sufficient cash flow from operations to fully fund distributions. The Company does not currently anticipate that it will be able to resume the payment of distributions.  However, if distributions do resume, all or a portion of the distributions may be paid from other sources, such as cash flows from equity offerings, financing activities, borrowings, or by way of waiver or deferral of fees. The Company has not established any limit on the extent to which distributions could be funded from these other sources. Accordingly, the amount of distributions paid may not reflect current cash flow from operations and distributions may include a return of capital, (rather than a return on capital). If the Company pays distributions from sources other than cash flow from operations, the funds available to the Company for investments would be reduced and the share value may be diluted. The level of distributions will be determined by the board of directors and depend on several factors including current and projected liquidity requirements, anticipated operating cash flows and tax considerations, and other relevant items deemed applicable by the board of directors.

Common Stock

From inception through December 31, 2019, the Company had paid approximately $1.8 million in cash, issued 83,437 shares of its common stock as DRIP and issued 153,826 shares of its common stock in distributions to the Company’s stockholders. All of the cash distributions were paid from offering proceeds and constituted a return of capital. On March 22, 2018 the Company suspended payment of distributions and as such there are currently no distributions to invest in the DRIP.

The Company’s total distributions paid for the period presented, the sources of such distributions, the cash flows provided by (used in) operations and the number of shares of common stock issued pursuant to the Company’s DRIP are detailed below.

To date, all distributions were paid from offering proceeds and therefore represent a return of capital.

   
Distributions Paid in Cash
    
Distributions Paid through DRIP
    
Total
Distributions Paid
    
Cash Flows provided by (used in) Operations (GAAP basis)
  
1st Quarter, 2019
  
$
--
    
$
--
    
$
--
    
$
(1,272,000
)
2nd Quarter, 2019
    
--
      
--
      
--
      
(942,000
)
3rd Quarter, 2019
    
--
      
--
      
--
      
(989,000
)
4th Quarter, 2019
    
--
      
--
      
--
      
1,436,000
  
Total 2019
  
$
--
    
$
--
    
$
--
    
$
(1,767,000
)

   
Distributions Paid in Cash
    
Distributions Paid through DRIP
    
Total
Distributions Paid
    
Cash Flows Generated from (used in) Operations (GAAP basis)
  
1st Quarter, 2018
  
$
806,000
    
$
418,000
    
$
1,224,000
    
$
(1,015,000
)
2nd Quarter, 2018
    
--
      
--
      
--
      
(506,000
)
3rd Quarter, 2018
    
--
      
--
      
--
      
663,000
  
4th Quarter, 2018
    
--
      
--
      
--
      
(813,000
)
Total 2018
  
$
806,000
    
$
418,000
    
$
1,224,000
    
$
(1,671,000
)

Preferred Series A Stock

The Company offered up to $50 million in shares of the Company’s Series A Convertible Redeemable Preferred Stock (“Series A”), par value $0.0001 per share, together with warrants to acquire the Company’s common stock, in a Regulation D 506(c) private placement to accredited investors. In connection with the private placement, on October 27, 2016, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 50,000 shares of Series A Convertible Redeemable Preferred Stock. The Company commenced the private placement of the Shares to accredited investors on November 1, 2016 and closed the offering on March 24, 2017. The Company raised approximately $2.5 million, net of offering costs, in the Series A private placements.

The offering price was $1,000 per share. In addition, each investor in the Series A received, for every $1,000 in shares subscribed by such investor, 30 detachable warrants to purchase shares of the Company’s common stock if the Company’s common stock is listed on a national securities exchange. The warrants’ exercise price is equal to 110% of the volume weighted average closing stock price of the Company’s common stock over a specified period as determined in accordance with the terms of the warrant; however, in no event shall the exercise price be less than $25 per share. As of March 5, 2019, there were 84,510 detachable warrants that may be exercised after the 90th day following the occurrence of a listing event. These warrants will expire five years from the 90th day after the occurrence of a listing event.

For additional information see Note R — Preferred Stock and Warrants in Part II, Item 8 Financial Statements of this Annual Report for a discussion of the various related party transactions, agreements and fees.


From initial issuance through December 31, 2019, the Company had declared distributions of approximately $561,000 of which approximately $543,000 had been paid to Series A stockholders.

   
Total Series A
Distributions Paid
    
Cash Flows provided by (used in) Operations (GAAP basis)
  
1st Quarter, 2019
  
$
54,000
    
$
(1,272,000
)
2nd Quarter, 2019
    
54,000
      
(942,000
)
3rd Quarter, 2019
    
54,000
      
(989,000
)
4th Quarter, 2019
    
54,000
      
1,436,000
  
Total 2019
  
$
216,000
    
$
(1,767,000
)

   
Total Series A
Distributions Paid
    
Cash Flows Generated from (used in) Operations (GAAP basis)
  
1st Quarter, 2018
  
$
41,000
    
$
(1,015,000
)
2nd Quarter, 2018
    
51,000
      
(506,000
)
3rd Quarter, 2018
    
54,000
      
663,000
  
4th Quarter, 2018
    
54,000
      
(813,000
)
Total 2018
  
$
200,000
    
$
(1,671,000
)

On March 24, 2020, the Company’s board of directors unanimously authorized the suspension of the payment of distributions on the Series A, however, such distributions will continue to accrue in accordance with the terms of the Series A.

Preferred Series 1 Stock

On March 29, 2017, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 97,000 shares of its authorized capital stock as shares of Series 1 Convertible Redeemable Preferred Stock (“Series 1”), par value $0.0001 per share. On April 7, 2017, the Company commenced the Regulation D 506(b) private placement of shares of Series 1, together with warrants to acquire the Company’s common stock, to accredited investors. On January 31, 2018, the Company closed this offering. As of March 5, 2019, the Company had raised approximately $36.0 million, net of offering costs, in the Series 1 private placements and had 39,811 shares of Series 1 issued and outstanding.

The offering price is $1,000 per share. In addition, each investor in the Series 1 will receive, for every $1,000 in shares subscribed by such investor, 35 detachable warrants to purchase shares of the Company’s common stock if the Company’s common stock is listed on a national securities exchange. The warrants’ exercise price is equal to 110% of the volume weighted average closing stock price of the Company’s common stock over a specified period as determined in accordance with the terms of the warrant; however, in no event shall the exercise price be less than $25 per share. As of March 5, 2019, there were 1,382,675 detachable warrants that may be exercised after the 90th day following the occurrence of a listing event. These warrants will expire five years from the 90th day after the occurrence of a listing event.

For additional information see Note R — Preferred Stock and Warrants in Part II, Item 8 Financial Statements of this Annual Report for a discussion of the various related party transactions, agreements and fees.

From issuance date through December 31, 2019, the Company had declared distributions of approximately $5.9 million of which approximately $5.7 million had been paid to Series 1 stockholders.

   
Total Series 1
Distributions Paid
    
Cash Flows provided by (used in) Operations (GAAP basis)
  
1st Quarter, 2019
  
$
697,000
    
$
(1,272,000
)
2nd Quarter, 2019
    
695,000
      
(942,000
)
3rd Quarter, 2019
    
696,000
      
(989,000
)
4th Quarter, 2019
    
696,000
      
1,436,000
  
Total 2019
  
$
2,784,000
    
$
(1,767,000
)


   
Total Series 1
Distributions Paid
    
Cash Flows Provided by (used in) Operations (GAAP basis)
  
1st Quarter, 2018
  
$
477,000
    
$
(1,015,000
)
2nd Quarter, 2018
    
639,000
      
(506,000
)
3rd Quarter, 2018
    
697,000
      
663,000
  
4th Quarter, 2018
    
697,000
      
(813,000
)
Total 2018
  
$
2,510,000
    
$
(1,671,000
)

On March 24, 2020, the Company’s board of directors unanimously authorized the suspension of the payment of distributions on the Series 1, however, such distributions will continue to accrue in accordance with the terms of the Series 1.

Related-Party Transactions and Arrangements

The Company had entered into agreements with affiliates of its Sponsor, whereby the Company paid certain fees or reimbursements to the former Advisor or its affiliates prior to the Internalization. For additional information see Note E — Related Party Transactions and Arrangements in Part II, Item 8 Financial Statements of this Annual Report for a discussion of the various related party transactions, agreements and fees.

Inflation

The Company expects to include provisions in its tenant leases designed to protect the Company from the impact of inflation. These provisions will include reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements, or in some cases annual reimbursement of operating expenses above a certain allowance. Due to the generally long-term nature of these leases, annual rent increases may not be sufficient to cover inflation and rent may be below market.

Income Taxes

Commencing with the taxable year ended December 31, 2017, the Company believes it has been organized and conducts operations to qualify as a REIT under Sections 856 to 860 of the Code. A REIT is generally not subject to federal income tax on that portion of its REIT taxable income, which is distributed to its stockholders, provided that at least 90% of such taxable income is distributed and provided that certain other requirements are met. The Company’s REIT taxable income may substantially exceed or be less than the income calculated according to GAAP. In addition, the Company will be subject to corporate income tax to the extent that less than 100% of the net taxable income is distributed, including any net capital gain.

The Company uses a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolutions of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more likely than not of being realized upon ultimate settlement. The Company believes that its income tax filing positions and deductions would be sustained upon examination; thus, the Company has not recorded any uncertain tax positions as of December 31, 2019.

A full valuation allowance for deferred tax assets was provided since the Company believes that it is more likely than not that it will not realize the benefits of its deferred tax assets. A change in circumstances may cause the Company to change its judgment about whether deferred tax assets should be recorded, and further whether any such assets would more likely than not be realized. The Company would generally report any change in the valuation allowance through its income statement in the period in which such changes in circumstances occur. Because the Company is a REIT, it will generally not be subject to corporate level federal income taxes on earnings distributed to the Company’s stockholders and therefore may not realize any benefit from deferred tax assets arising during 2019 or any prior period in which a valid REIT election was in effect. The Company intends to distribute at least 100% of its taxable income annually and intends to do so for the tax year ended December 31, 2019 and in all future periods. The Company has placed a full valuation allowance on all of its deferred tax assets, and thus no asset is recorded on the Company’s balance sheet.

REIT Compliance

The Company elected to be treated as a REIT for federal income tax purposes for the year ended December 31, 2017, and has continued to operate in a manner to qualify as a REIT for federal income tax purposes for the years ended December 31, 2018 and December 31, 2019 and therefore the Company generally will not be subject to federal income tax on income that the Company distributes to its stockholders. If the Company fails to qualify as a REIT in any taxable year, including and after the taxable year in which the Company initially elects to be taxed as a REIT, the Company will be subject to federal income tax on the taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which qualification is denied. Failing to qualify as a REIT could materially and adversely affect the Company’s net income.

To qualify as a REIT for tax purposes, the Company is required to distribute at least 90% of its REIT taxable income to the Company’s stockholders. The Company must also meet certain asset and income tests, as well as other requirements. The Company will monitor the business and transactions that may potentially impact the Company’s REIT status. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax on the taxable income at regular corporate rates.


Off-Balance Sheet Arrangements

Series A Preferred Stock

Each investor in the Series A received, for every $1,000 in shares subscribed by such investor, detachable warrants to purchase 30 shares of the Company’s common stock if the Company’s common stock is listed on a national securities exchange. The warrants’ exercise price is equal to 110% of the volume weighted average closing stock price of the Company’s common stock over a specified period as determined in accordance with the terms of the warrant; however, in no event shall the exercise price be less than $25 per share. As of December 31, 2019, there were detachable warrants that may be exercised for 84,510 shares of the Company’s common stock after the 90th day following the occurrence of a listing event. These potential warrants will expire five years from the 90th day after the occurrence of a listing event. If all the potential warrants outstanding at December 31, 2019 became exercisable because of a listing event and were exercised at the minimum price of $25 per share, the Company would issue an additional 84,510 shares of common stock and would receive gross proceeds of approximately $2.1 million.

For additional information see “— Liquidity and Capital Resources” and “—Preferred Series A Stock” above and Note R — Preferred Stock and Warrants in Part II, Item 8 Notes to the Consolidated Financial Statements of this Annual Report for additional information.

Series 1 Preferred Stock

Each investor in the Series 1 received, for every $1,000 in shares subscribed by such investor, detachable warrants to purchase 35 shares of the Company’s common stock if the Company’s common stock is listed on a national securities exchange. The warrants’ exercise price is equal to 110% of the volume weighted average closing stock price of the Company’s common stock over a specified period as determined in accordance with the terms of the warrant; however, in no event shall the exercise price be less than $25 per share. As of December 31, 2019, there were detachable warrants that may be exercised for approximately 1,382,675 shares of the Company’s common stock after the 90th day following the occurrence of a listing event. These potential warrants will expire five years from the 90th day after the occurrence of a listing event. If all the potential warrants outstanding at December 31, 2019 became exercisable because of a listing event and were exercised at the minimum price of $25 per share, the Company would issue an additional 1,382,675 shares of common stock and would receive gross proceeds of approximately $34.6 million.

For additional information see “— Liquidity and Capital Resources” and “—Preferred Series A Stock” above and Note R — Preferred Stock and Warrants in Part II, Item 8 Notes to the Consolidated Financial Statements of this Annual Report for additional information.

Critical Accounting Policies

The Company’s accounting policies have been established in conformity with GAAP. The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If management’s judgment or interpretation of the facts and circumstances relating to various transactions is different, it is possible that different accounting policies will be applied, or different amounts of assets, liabilities, revenues and expenses will be recorded, resulting in a different presentation of the financial statements or different amounts reported in the financial statements.

Additionally, other companies may utilize different estimates that may impact comparability of the Company’s results of operations to those of companies in similar businesses. Below is a discussion of the accounting policies that management considers to be most critical once the Company commences significant operations. These policies require complex judgment in their application or estimates about matters that are inherently uncertain.

Real Estate Investments

Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, five years for fixtures and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.

The Company is required to make subjective assessments as to the useful lives of the Company’s properties for purposes of determining the amount of depreciation to record on an annual basis with respect to the Company’s investments in real estate. These assessments have a direct impact on the Company’s net income because if the Company were to shorten the expected useful lives of the Company’s investments in real estate, the Company would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.


Purchase Price Allocation

The Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values. Tangible assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. The Company utilizes various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Amounts allocated to land, land improvements, buildings and fixtures are based on cost segregation studies performed by independent third parties or on the Company’s analysis of comparable properties in the Company’s portfolio. Identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates, the value of in-place leases, and the value of customer relationships, as applicable.

The aggregate value of intangible assets related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant. Factors considered by the Company in its analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, considering current market conditions and costs to execute similar leases. In estimating carrying costs, the Company will include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period. Estimates of costs to execute similar leases including leasing commissions, legal and other related expenses are also utilized. Above-market and below-market in-place lease values for owned properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease intangibles are amortized as a decrease to rental income over the remaining term of the lease. The capitalized below-market lease values will be amortized as an increase to rental income over the remaining term and any fixed rate renewal periods provided within the respective leases. In determining the amortization period for below-market lease intangibles, the Company initially will consider, and periodically evaluate on a quarterly basis, the likelihood that a lessee will execute the renewal option. The likelihood that a lessee will execute the renewal option is determined by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located.

The aggregate value of intangible assets related to customer relationship, as applicable, is measured based on the Company’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the tenant. Characteristics considered by the Company in determining these values include the nature and extent of the Company’s existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals, among other factors.

The value of in-place leases is amortized to expense over the initial term of the respective leases. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event, does the amortization period for intangible assets exceed the remaining depreciable life of the building. If a tenant terminates its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.

In making estimates of fair values for purposes of allocating purchase price, the Company will utilize several sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company will also consider information obtained about each property as a result of the pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.

Deferred Costs

Deferred costs may consist of deferred financing costs, deferred offering costs and deferred leasing costs. Deferred financing costs represent commitment fees, legal fees and other costs associated with obtaining commitments for financing. These costs are amortized over the terms of the respective financing agreements using the effective interest method. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financial transactions that do not close are expensed in the period in which it is determined that the financing will not close.


Contractual Obligations

As of December 31, 2019, our contractual obligations consisted of the mortgage notes secured by our acquired properties:

Contractual Obligations
  
Total
    
Less than 1 year
    
1-3 years
    
3-5 years
    
More than 5 years
  
Long-term debt obligations
  
$
160,948,000
    
$
50,183,000
    
$
4,310,000
    
$
17,781,000
    
$
88,674,000
  
Lines of credit:
    
--
      
--
      
--
      
--
      
--
  
Interest
    
--
      
--
      
--
      
--
      
--
  
Principal
    
--
      
--
      
--
      
--
      
--
  
Total
  
$
160,948,000
    
$
50,183,000
    
$
4,310,000
    
$
17,781,000
    
$
88,674,000
  

The Contractual obligations table amount does not reflect the unamortized loan issuance costs of approximately $1.8 million for notes payable as of December 31, 2019.

On March 29, 2019, the Company entered into a Contribution Agreement (the “Contribution Agreement”) with the former Advisor, Vestin Realty Mortgage I, Inc. (“VRTA”) (solely for purposes of Section 1.01(c) thereof), Vestin Realty Mortgage II, Inc. (“VRTB”) (solely for purposes of Section 1.01(c) thereof) and Shustek (solely for purposes of Section 4.03 thereof). In exchange for the Contribution, the Company agreed to issue to the former Advisor 1,600,000 shares of Common Stock as consideration (the “Consideration”), issuable in four equal installments. The first and second installments of 400,000 shares of Common Stock per installment were issued on the April 1, 2019 and December 31, 2019, respectively. As of December 31, 2019, The Company is obligated to issue 800,000 more shares of Common Stock, 400,000 each on December 31, 2020 and 2021, respectively. See Note S — Deferred Management Internalization in Part II, Item 8 Notes to the Consolidated Financial Statements of this Annual Report for additional information.

Subsequent Events

See Note U — Subsequent Events in Part II, Item 8 Financial Statements of this Annual Report for a discussion of the various subsequent events.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing the Company’s business plan, the Company expects that the primary market risk to which the Company will be exposed is interest rate risk. Our primary interest rate exposure will be the one-month LIBOR.

As of December 31, 2019, the Company’s debt consisted of approximately $121.4 million in fixed rate debt and $39.5 million in variable rate debt, net of loan issuance costs. Our variable interest rate debt is related to the LoanCore loan, where the floating rate loan is set at one-month LIBOR plus 3.65%, LIBOR can’t go below 1.95% and the Company has purchased a rate cap that caps LIBOR at 3.50%. Changes in interest rates have different impacts on the fixed rate and variable rate debt. A change in interest rates on fixed rate debt impacts its fair value but has no impact on interest incurred or cash flows. A change in interest rates on variable rate debt could impact the interest incurred and cash flows and its fair value. Assuming no increase in the level of our variable debt, if interest rates increased by 1.0%, or 100 basis points, our cash flow would decrease by approximately $0.4 million per year. At December 31, 2019 LIBOR was approximately 2.52%. Assuming no increase in the level of variable rate debt, if LIBOR were reduced to 1.95%, our cash flow would increase by approximately $0.2 million per year.

The following tables summarizes gross annual debt maturities, average interest rates and estimated fair values on the Company’s outstanding debt as of December 31, 2019:

   
For the Years Ending December 31
                    
   
2020
    
2021
    
2022
    
2023
    
2024
    
Thereafter
    
Total
    
Fair Value
  
Fixed rate debt
  
$
50,183,000
    
$
2,058,000
    
$
2,252,000
    
$
2,498,000
    
$
15,283,000
    
$
88,674,000
    
$
160,948,000
    
$
149,943,000
  
                                                                 
Average interest rate
    
5.87
%
    
4.87
%
    
4.88
%
    
4.89
%
    
4.77
%
    
5.00
%
                

ITEM 8. FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

 
Page
 
 
52
   

53
54
55
56
58


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 

To the Board of Directors and Shareholders of
The Parking REIT, Inc.
 

Opinion on the Financial Statements
 
We have audited the accompanying consolidated balance sheets of The Parking REIT, Inc. and Subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, changes in equity, and cash flows for each of the two years in the period ended December 31, 2019, and the related notes and schedules (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, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, 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.
 

/s/ RBSM LLP

We have served as the Company’s auditor since 2015.
 
New York, New York
March 30, 2020


THE PARKING REIT, INC.
CONSOLIDATED BALANCE SHEETS

   
As of December 31,
  
   
2019
    
2018
  
ASSETS
  
Investments in real estate
            
Land and improvements
  
$
136,607,000
    
$
142,607,000
  
Buildings and improvements
    
170,276,000
      
170,206,000
  
Construction in progress
    
714,000
      
1,872,000
  
Intangible assets
    
2,288,000
      
2,288,000
  
     
309,885,000
      
316,973,000
  
Accumulated depreciation
    
(12,049,000
)
    
(7,110,000
)
Total investments in real estate, net
    
297,836,000
      
309,863,000
  
                 
Fixed Assets, net of accumulated depreciation of $42,000 and $21,000 as of December 31, 2019 and 2018, respectively
    
21,000
      
42,000
  
Assets held for sale, net of accumulated depreciation of $212,000
    
3,288,000
      
--
  
Cash
    
7,707,000
      
5,106,000
  
Cash – restricted
    
3,937,000
      
4,329,000
  
Prepaid expenses
    
1,679,000
      
616,000
  
Accounts receivable
    
929,000
      
712,000
  
Investment in DST
    
2,836,000
      
2,821,000
  
Accounts receivable related parties
    
--
      
3,000
  
Other assets
    
111,000
      
79,000
  
Total assets
  
$
318,344,000
    
$
323,571,000
  
LIABILITIES AND EQUITY
  
Liabilities
                
Notes payable, net of unamortized loan issuance costs of approximately $1.8 million and $2.4 million as of December 31, 2019 and 2018, respectively
  
$
159,120,000
    
$
155,961,000
  
Accounts payable and accrued liabilities
    
10,883,000
      
4,605,000
  
Accounts payable and accrued liabilities – related party
    
--
      
653,000
  
Deferred management internalization
    
17,800,000
      
--
  
Security deposits
    
138,000
      
139,000
  
Due to related parties
    
54,000
      
--
  
Deferred revenue
    
104,000
      
93,000
  
Total liabilities
    
188,099,000
      
161,451,000
  
Commitments and contingencies
    
--
      
--
  
Equity
                
The Parking REIT, Inc. Stockholders’ Equity
                
Preferred stock Series A, $0.0001 par value, 50,000 shares authorized, 2,862 shares issued and outstanding (stated liquidation value of $2,862,000 as of December 31, 2019 and 2018)
    
--
      
--
  
Preferred stock Series 1, $0.0001 par value, 97,000 shares authorized, 39,811 shares issued and outstanding (stated liquidation value of $39,811,000 as of December 31, 2019 and 2018)
    
--
      
--
  
Non-voting, non-participating convertible stock, $0.0001 par value, 1,000 shares authorized, no shares issued and outstanding
    
--
      
--
  
Common stock, $0.0001 par value, 98,999,000 shares authorized, 7,332,811 and 6,542,797 shares issued and outstanding as of December 31, 2019 and 2018, respectively
    
--
      
--
  
Additional paid-in capital
    
194,137,000
      
183,382,000
  
Accumulated deficit
    
(66,511,000
)
    
(23,953,000
)
Total The Parking REIT, Inc. Shareholders’ Equity
    
127,626,000
      
159,429,000
  
Non-controlling interest
    
2,619,000
      
2,691,000
  
Total equity
    
130,245,000
      
162,120,000
  
Total liabilities and equity
  
$
318,344,000
    
$
323,571,000
  
The accompanying notes are an integral part of these consolidated financial statements.

THE PARKING REIT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

   
For the Years Ended December 31,
  
   
2019
    
2018
  
Revenues
            
Base rent income
  
$
20,151,000
    
$
19,534,000
  
Percentage rent income
    
2,643,000
      
2,566,000
  
Total revenues
    
22,794,000
      
22,100,000
  
                 
Operating expenses
                
Property taxes
    
3,023,000
      
2,918,000
  
Property operating expense
    
1,701,000
      
1,404,000
  
Asset management fee – related party
    
854,000
      
2,000,000
  
General and administrative
    
5,601,000
      
3,620,000
  
Professional fees
    
8,528,000
      
4,243,000
  
Management internalization
    
32,004,000
      
--
  
Acquisition expenses
    
251,000
      
412,000
  
Provision for impairment of investments in real estate
    
1,452,000
      
600,000
  
Depreciation and amortization
    
5,172,000
      
4,938,000
  
Total operating expenses
    
58,586,000
      
20,135,000
  
                 
Income (loss) from operations
    
(35,792,000
)
    
1,965,000
  
                 
Other income (expense)
                
Interest expense
    
(9,513,000
)
    
(9,449,000
)
Gain on sale of investments in real estate
    
2,509,000
      
2,276,000
  
Other Income
    
82,000
      
81,000
  
Income from DST
    
218,000
      
205,000
  
Total other expense
    
(6,704,000
)
    
(6,887,000
)
                 
Net loss
    
(42,496,000
)
    
(4,922,000
)
Net income attributable to non-controlling interest
    
62,000
      
41,000
  
Net loss attributable to The Parking REIT, Inc.’s stockholders
  
$
(42,558,000
)
  
$
(4,963,000
)
                 
Preferred stock distributions declared - Series A
    
(216,000
)
    
(205,000
)
Preferred stock distributions declared - Series 1
    
(2,784,000
)
    
(2,605,000
)
Net loss attributable to The Parking REIT, Inc.’s common stockholders
    
(45,558,000
)
    
(7,773,000
)
                 
Basic and diluted loss per weighted average common share:
                
Net loss per share attributable to The Parking REIT, Inc.’s common stockholders - basic and diluted
  
$
(6.66
)
  
$
(1.19
)
Distributions declared per common share
  
$
--
    
$
0.12
  
Weighted average common shares outstanding, basic and diluted
    
6,836,693
      
6,550,099
  

The accompanying notes are an integral part of these consolidated financial statements.


THE PARKING REIT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

   
Preferred stock
    
Common stock
                          
   
Number of Shares
    
Par Value
    
Number of Shares
    
Par Value
    
Additional Paid-in Capital
    
Accumulated Deficit
    
Non-controlling interest
    
Total
  
Balance, December 31, 2017
    
32,651
      
--
      
6,532,000
      
--
      
177,598,000
      
(18,173,000
)
    
2,751,000
      
162,176,000
  
Distributions to non-controlling interest
    
--
      
--
      
--
      
--
      
--
      
--
      
(101,000
)
    
(101,000
)
Issuance of common stock – DRIP
    
--
      
--
      
11,326
      
--
      
307,000
      
--
      
--
      
307,000
  
Issuance of preferred Series 1
    
10,022
      
--
      
--
      
--
      
9,089,000
      
--
      
--
      
9,089,000
  
Redeemed Shares
    
--
      
--
      
(33,217
)
    
--
      
(812,000
)
    
--
      
--
      
(812,000
)
Distributions - Common
    
--
      
--
      
--
      
--
      
(807,000
)
    
--
      
--
      
(807,000
)
Distributions – Series A
    
--
      
--
      
--
      
--
      
(205,000
)
    
--
      
--
      
(205,000
)
Distributions – Series 1
    
--
      
--
      
--
      
--
      
(2,605,000
)
    
--
      
--
      
(2,605,000
)
Stock dividend
    
--
      
--
      
32,679
      
--
      
817,000
      
(817,000
)
    
--
      
--
  
Net income (loss)
    
--
      
--
      
--
      
--
      
--
      
(4,963,000
)
    
41,000
      
(4,922,000
)
Balance, December 31, 2018
    
42,673
    
$
--
      
6,542,797
    
$
--
    
$
183,382,000
    
$
(23,953,000
)
  
$
2,691,000
    
$
162,120,000
  
                                                                 
Distributions to non-controlling interest
    
--
      
--
      
--
      
--
      
--
      
--
      
(134,000
)
    
(134,000
)
Issuance of common stock
    
--
      
--
      
800,000
      
--
      
14,000,000
      
--
      
--
      
14,000,000
  
Redeemed Shares
    
--
      
--
      
(9,986
)
    
--
      
(245,000
)
    
--
      
--
      
(245,000
)
Distributions – Series A
    
--
      
--
      
--
      
--
      
(216,000
)
    
--
      
--
      
(216,000
)
Distributions – Series 1
    
--
      
--
      
--
      
--
      
(2,784,000
)
    
--
      
--
      
(2,784,000
)
Net income (loss)
    
--
      
--
      
--
      
--
      
--
      
(42,558,000
)
    
62,000
      
(42,496,000
)
Balance, December 31, 2019
    
42,673
    
$
--
      
7,332,811
    
$
--
    
$
194,137,000
    
$
(66,511,000
)
  
$
2,619,000
    
$
130,245,000
  

The accompanying notes are an integral part of these consolidated financial statements.
THE PARKING REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
   
For the Years Ended December 31
  
   
2019
    
2018
  
Cash flows from operating activities:
            
Net Loss
  
$
(42,496,000
)
  
$
(4,922,000
)
Adjustments to reconcile net loss to net cash used in operating activities:
                
Depreciation and amortization expense
    
5,172,000
      
4,938,000
  
Gain from acquisition of real estate
    
(2,509,000
)
    
(2,276,000
)
Management internalization
    
31,800,000
      
--
  
Income from DST
    
(218,000
)
    
(205,000
)
Impairment on real estate
    
1,452,000
      
600,000
  
Amortization of loan costs
    
902,000
      
1,658,000
  
Changes in operating assets and liabilities
                
Due to/from related parties
    
57,000
      
(388,000
)
Accounts payable
    
6,286,000
      
1,343,000
  
Accounts payable – related party
    
(653,000
)
    
--
  
Loan Fees
    
(287,000
)
    
(1,750,000
)
Deferred revenue
    
40,000
      
198,000
  
Other assets
    
(32,000
)
    
(69,000
)
Security deposits
    
(1,000
)
    
(63,000
)
Accounts receivable
    
(217,000
)
    
(303,000
)
Prepaid expenses
    
(1,063,000
)
    
(432,000
)
Net cash used in operating activities
    
(1,767,000
)
    
(1,671,000
)
Cash flows from investing activities:
            
--
  
Purchase of investment in real estate
    
--
      
(28,939,000
)
Building and land improvements
    
(1,696,000
)
    
(6,405,000
)
Fixed Asset Purchase
    
(41,000
)
    
(63,000
)
Distributions from Investments
    
203,000
      
205,000
  
Proceeds from sale of investments in real estate
    
4,345,000
      
10,067,000
  
Payment of deposit for purchase of investment in real estate or debt
    
(97,000
)
    
(4,003,000
)
Return of deposit for purchase of investment in real estate or debt
    
--
      
1,788,000
  
Deposits applied to purchase of investment in real estate or debt
    
97,000
      
2,890,000
  
Net cash provided by (used in) investing activities
    
2,811,000
      
(24,460,000
)
Cash flows from financing activities
                
Proceeds from notes payable
    
11,181,000
      
45,843,000
  
Payments on notes payable
    
(6,637,000
)
    
(2,013,000
)
Proceeds from line of credit
    
--
      
29,500,000
  
Payments on line of credit
    
--
      
(59,360,000
)
Distribution to non-controlling interest
    
(118,000
)
    
(101,000
)
Proceeds from issuance of preferred stock
    
--
      
9,089,000
  
Redeemed shares
    
(245,000
)
    
(812,000
)
Dividends paid to stockholders
    
(3,016,000
)
    
(3,310,000
)
Net cash provided by financing activities
    
1,165,000
      
18,836,000
  
Net change in cash, cash equivalents and restricted cash
    
2,209,000
      
(7,295,000
)
Cash, cash equivalents and restricted cash, beginning of period
    
9,435,000
      
16,730,000
  
Cash, cash equivalents and restricted cash, end of period
  
$
11,644,000
    
$
9,435,000
  

The accompanying notes are an integral part of these consolidated financial statements.
THE PARKING REIT, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Continued)

   
For the Years Ended December 31,
  
   
2019
    
2018
  
Reconciliation of Cash, Cash Equivalents and Restricted Cash:
            
Cash, cash equivalents at beginning of period
  
$
5,106,000
    
$
8,501,000
  
Restricted cash at beginning of period
    
4,329,000
      
8,229,000
  
Cash, cash equivalents and restricted at beginning of period
  
$
9,435,000
    
$
16,730,000
  
                 
Cash and cash equivalents at end of period
  
$
7,707,000
      
5,106,000
  
Restricted cash at end of period
    
3,937,000
      
4,329,000
  
Cash, cash equivalents and restricted at end of period
  
$
11,644,000
      
9,435,000
  
                 
Supplemental disclosures of cash flow information:
                
Interest Paid
  
$
8,611,000
    
$
7.791,000
  
Non-cash investing and financing activities:
                
Distributions - DRIP
  
$
--
    
$
307,000
  
Dividend shares
  
$
--
    
$
817,000
  
Dividends declared not yet paid
  
$
250,000
    
$
250,000
  
Payment of deposit for purchase of investment in real estate or debt
  
$
(97,000
)
  
$
(4,003,000
)
Return of deposit for purchase of investment in real estate or debt
  
$
--
    
$
1,788,000
  
Deposits applied to purchase of investment in real estate or debt
  
$
97,000
    
$
2,890,000
  
Issuance of common stock – internalization
  
$
14,000,000
    
$
--
  
Deferred management internalization
  
$
24,800,000
    
$
--
  
Payments on note payable through sale of investment in real estate
  
$
(2,000,000
)
  
$
(11,092,000
)
Proceeds from line of credit through sale of investment in real estate
  
$
--
    
$
7,103,000
  

The accompanying notes are an integral part of these consolidated financial statements

THE PARKING REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019

Note A — Organization and Business Operations

The Parking REIT, Inc., formerly known as MVP REIT II, Inc. (the “Company,” “we,” “us” or “our”), is a Maryland corporation formed on May 4, 2015 and has elected to be taxed, and has operated in a manner that will allow the Company to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2017. The Company intends to continue operating as a REIT for the taxable year ended December 31, 2019.

The Company was formed to focus primarily on investments in parking facilities, including parking lots, parking garages and other parking structures throughout the United States and Canada. To a lesser extent, the Company may also invest in parking properties that contain other sources of rental income, potentially including office, retail, storage, residential, billboard or cell towers.

The Company is the sole general partner of MVP REIT II Operating Partnership, LP, a Delaware limited partnership (the “Operating Partnership”). The Company owns substantially all of its assets and conducts substantially all of its operations through the Operating Partnership. The Company’s wholly owned subsidiary, MVP REIT II Holdings, LLC, is the sole limited partner of the Operating Partnership. The operating agreement provides that the Operating Partnership is operated in a manner that enables the Company to (1) satisfy the requirements to qualify and maintain qualification as a REIT for federal income tax purposes, (2) avoid any federal income or excise tax liability and (3) ensure that the Operating Partnership is not classified as a “publicly traded partnership” for purposes of Section 7704 of the Internal Revenue Code of 1986, as amended (the “Code”), which classification could result in the Operating Partnership being taxed as a corporation.

The Company utilizes an Umbrella Partnership Real Estate Investment Trust (“UPREIT”) structure to enable the Company to acquire real property in exchange for limited partnership interests in the Operating Partnership from owners who desire to defer taxable gain that would otherwise normally be recognized by them upon the disposition of their real property or transfer of their real property to the Company in exchange for shares of the Company’s common stock or cash.

The Company’s former advisor is MVP Realty Advisors, LLC, dba The Parking REIT Advisors (the “former Advisor”), a Nevada limited liability company, which is owned 60% by Vestin Realty Mortgage II, Inc. (“VRM II”) and 40% by Vestin Realty Mortgage I, Inc. (“VRM I”). Prior to the Internalization (as defined below), the former Advisor was responsible for managing the Company’s affairs on a day-to-day basis and for identifying and making investments on the Company’s behalf pursuant to a second amended and restated advisory agreement among the Company, the Operating Partnership and the former Advisor (the “Amended and Restated Advisory Agreement”), which became effective upon consummation of the Merger (as such term is defined below). VRM II and VRM I are Maryland corporations that trade on the OTC pink sheets and were managed by Vestin Mortgage, LLC, an affiliate of the former Advisor, prior to being internalized in January 2018.

As part of the Company’s initial capitalization, 8,000 shares of common stock were sold for $200,000 to an affiliate of the former Advisor (as defined below).

Merger of MVP REIT with Merger Sub, LLC

On May 26, 2017, the Company, MVP REIT, Inc., a Maryland corporation (“MVP I”), MVP Merger Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company (“Merger Sub”), and the former Advisor entered into an agreement and plan of merger (the “Merger Agreement”), pursuant to which MVP I would merge with and into Merger Sub (the “Merger”). On December 15, 2017, the Merger was consummated. Following the Merger, the Company contributed 100% of its equity interests in Merger Sub to the Operating Partnership.

At the effective time of the Merger, each share of MVP I common stock, par value $0.001 per share, that was issued and outstanding immediately prior to the Merger (the “MVP I Common Stock”), was converted into the right to receive 0.365 shares of Company common stock. A total of approximately 3.9 million shares of Company common stock were issued to former MVP I stockholders, and former MVP I stockholders, immediately following the Merger, owned approximately 59.7% of the Company's common stock. The Company was subsequently renamed “The Parking REIT, Inc.”

Capitalization

As of December 31, 2019, the Company had 7,332,811 shares of common stock issued and outstanding. On December 31, 2016, the Company ceased all selling efforts for the initial public offering of its common stock (the “Common Stock Offering”). The Company accepted additional subscriptions through March 31, 2017, the last day of the Common Stock Offering. In connection with its formation, the Company sold 8,000 shares of common stock to MVP Capital Partners II, LLC (the “Sponsor”) for $200,000.

On October 27, 2016, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 50,000 shares of Series A Convertible Redeemable Preferred Stock, par value $0.0001 per share (the “Series A”). The Company commenced a private placement of the shares of Series A, together with warrants to acquire the Company’s common stock, to accredited investors on November 1, 2016 and closed the offering on March 24, 2017. The Company raised approximately $2.5 million, net of offering costs, in the Series A private placement and had 2,862 Series A shares issued and outstanding as of December 31, 2019.

On March 29, 2017, the Company filed with the State Department of Assessments and Taxation of Maryland, Articles Supplementary to the charter of the Company classifying and designating 97,000 shares of its authorized capital stock as shares of Series 1 Convertible Redeemable Preferred Stock par value $0.0001 per share (the “Series 1”). On April 7, 2017, the Company commenced a private placement of shares of Series 1, together with warrants to acquire the Company’s common stock to accredited investors and closed the offering on January 31, 2018. The Company raised approximately $36.0 million, net of offering costs, in the Series 1 private placements and had 39,811 Series 1 shares issued and outstanding as of December 31, 2019.

Note B — Summary of Significant Accounting Policies

Basis of Accounting

The consolidated financial statements of the Company are prepared on the accrual basis of accounting and in accordance with principles generally accepted in the United States of America (“GAAP”) for financial information as contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), and in conjunction with rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. In the opinion of management, all normal recurring adjustments considered necessary to give a fair presentation of operating results for the periods presented have been included.

Liquidity Matters

The Company has incurred net losses since its inception and anticipates net losses and negative operating cash flows for the near future. For the year ended December 31, 2019, the Company had a net loss of $42.6 million which included $31.8 million of non-cash consideration by issuance of its common shares to the former Advisor in connection with the Internalization. See Note S – Deferred Management Internalization of this Annual Report for additional information. At December 31, 2019, the Company had $11.6 million in cash, cash equivalents and restricted cash. In connection with preparing the consolidated financial statements for the year ended December 31, 2019, management evaluated the extent of the COVID-19 pandemic impact on the Company’s business and its future liquidity for the next twelve months through March 31, 2021.

Management has implemented the following plan to address the Company’s liquidity over the next twelve months plus a day from the filing of this Annual Report:

•
The Company has received unsolicited offers, from third parties, to purchase properties and executed a PSA for the sale of the San Jose garage on February 25, 2020 from a third-party buyer. The buyer’s earnest money deposit became nonrefundable on March 27, 2020. See Note J – Assets Held for Sale of this Annual Report for additional information. In addition, the Company received an unsolicited, executed letter of intent from a third party to purchase two properties in March 2020.
•
On March 24, 2020, the Company’s board of directors unanimously authorized the suspension of the payment of distributions on the Preferred Stock Series A, however, such distributions will continue to accrue in accordance with the terms of the Preferred Stock Series A to preserve funds for operations.

•
On March 24, 2020, the Company’s board of directors unanimously authorized the suspension of the payment of distributions on the Preferred Stock Series 1, however, such distributions will continue to accrue in accordance with the terms of the Preferred Stock Series 1 to preserve funds for operations.
•
The Company is in preliminary discussions with its lenders, including Bank of America, to obtain waivers from certain liquidity requirements and defer payments due under its loans in light of the current economic conditions. However, there can be no assurance that the Company will reach any such agreement with its lenders.
•
The Company expects to allow its tenants to defer their base rent payments due to the Company under its leases with its tenants, in order to assist tenants with the impact of the current COVID-19 pandemic.
•
The Company intends to apply for available SBA loans, for companies with 500 or less employees, under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) signed by President Trump on March 27, 2020.

Based on the Company’s current business plan, the Company believes its existing cash, projected cash collections and cash inflows will be sufficient to meet its anticipated cash requirements for at least twelve months after the December 31, 2019 financial statements are issued.

Consolidation

The Company’s consolidated financial statements include its accounts, the accounts of the Company’s assets that were sold during 2019 and 2018 (as applicable), the accounts of its subsidiaries, Operating Partnership and all of the following subsidiaries. All intercompany profits and losses, balances and transactions are eliminated in consolidation. The following list includes the subsidiaries that are included in the Company’s consolidated financial statements, not the number of properties owned by the Company at December 31, 2019 and 2018.

MVP PF Ft. Lauderdale 2013, LLC
Minneapolis City Parking, LLC
MVP St. Paul Holiday Garage, LLC
MVP PF Memphis Poplar 2013, LLC
MVP Minneapolis Venture, LLC
MVP Louisville Station Broadway, LLC
MVP PF Memphis Court 2013, LLC
MVP Indianapolis Meridian Lot, LLC
White Front Garage Partners, LLC
MVP PF St. Louis 2013, LLC
MVP Milwaukee Clybourn, LLC
Cleveland Lincoln Garage, LLC
Mabley Place Garage, LLC
MVP Milwaukee Arena Lot, LLC
MVP Houston Preston, LLC
MVP Denver Sherman, LLC
MVP Clarksburg Lot, LLC
MVP Houston San Jacinto Lot, LLC
MVP Fort Worth Taylor, LLC
MVP Denver Sherman 1935, LLC
MVP Detroit Center Garage, LLC
MVP Milwaukee Old World, LLC
MVP Bridgeport Fairfield Garage, LLC
St. Louis Broadway, LLC
MVP Houston Saks Garage, LLC
West 9th Street Properties II, LLC
St. Louis Seventh & Cerre, LLC
MVP Milwaukee Wells, LLC
MVP San Jose 88 Garage, LLC
MVP Preferred Parking, LLC
MVP Wildwood NJ Lot, LLC
MCI 1372 Street, LLC
MVP Raider Park Garage, LLC
MVP Indianapolis City Park, LLC
MVP Cincinnati Race Street, LLC
MVP New Orleans Rampart, LLC
MVP Indianapolis WA Street Lot, LLC
MVP St. Louis Washington, LLC
MVP Hawaii Marks Garage, LLC

Under GAAP, the Company’s consolidated financial statements will also include the accounts of its consolidated subsidiaries and joint ventures in which the Company is the primary beneficiary, or in which the Company has a controlling interest. In determining whether the Company has a controlling interest in a joint venture and the requirement to consolidate the accounts of that entity, the Company’s management considers factors such as an entity’s purpose and design and the Company’s ability to direct the activities of the entity that most significantly impacts the entity’s economic performance, ownership interest, board representation, management representation, authority to make decisions and contractual and substantive participating rights of the partners/members as well as whether the entity is a variable interest entity in which it will absorb the majority of the entity’s expected losses, if they occur, or receive the majority of the expected residual returns, if they occur, or both.

Equity investments in which the Company exercises significant influence but does not control and is not the primary beneficiary are accounted for using the equity method. The Company's share of its equity method investees' earnings or losses is included in other income in the accompanying condensed consolidated statements of operations. Investments in which the Company is not able to exercise significant influence over the investee are accounted for under the cost method.


Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management makes significant estimates regarding revenue recognition, purchase price allocations to record investments in real estate, and derivative financial instruments and hedging activities, as applicable.

Concentration

The Company had fifteen parking tenants as of December 31, 2019 and 2018. One tenant, SP Plus Corporation (Nasdaq: SP) (“SP+”), represented 60.8% of the Company’s base parking rental revenue for the year ended December 31, 2019.

SP+ is one of the largest providers of parking management in the United States. As of December 31, 2019, SP+ managed approximately 3,100 locations in North America.

Below is a table that summarizes parking rent by tenant:

   
For the Years Ended December 31,
  
Parking Tenant
  
2019
    
2018
  
SP +
    
60.8
%
    
57.3
%
Premier Parking
    
14.8
%
    
17.1
%
ISOM Mgmt
    
3.9
%
    
4.3
%
ABM
    
3.9
%
    
4.6
%
Interstate Parking
    
2.9
%
    
2.8
%
342 N. Rampart
    
2.9
%
    
2.6
%
Denison
    
2.7
%
    
2.5
%
Lanier
    
2.4
%
    
2.4
%
St. Louis Parking
    
2.0
%
    
2.2
%
Premium Parking
    
1.2
%
    
--
  
TNSH, LLC
    
1.1
%
    
0.6
%
Riverside Parking
    
0.9
%
    
1.0
%
BEST PARK
    
0.2
%
    
1.5
%
Denver School
    
0.2
%
    
0.2
%
Secure
    
0.1
%
    
0.1
%
PCAM, LLC
    
--
      
0.8
%
* During June 2018 Premier Parking acquired iPark Services. Subsequent to the acquisition Premier and iPark continue to operate under their original company names.


In addition, the Company had concentrations in various cities based on parking rental revenue for the years ended December 31, 2019 and 2018, as well as concentrations in various cities based on the real estate the Company owned as of December 31, 2019 and 2018. The below tables summarize this information by city.

City Concentration for Parking Rental Revenue
  
   
For the Years Ended December 31,
  
   
2019
    
2018
  
Detroit
    
22.6
%
    
18.2
%
Houston
    
11.7
%
    
13.3
%
Cincinnati
    
9.3
%
    
9.2
%
Fort Worth
    
7.0
%
    
8.1
%
Indianapolis
    
6.1
%
    
6.5
%
Cleveland
    
5.8
%
    
5.3
%
St. Louis
    
5.0
%
    
5.4
%
Honolulu
    
4.3
%
    
2.6
%
Lubbock
    
3.9
%
    
4.2
%
Milwaukee
    
3.7
%
    
3.7
%
Minneapolis
    
3.6
%
    
4.3
%
Nashville
    
3.1
%
    
3.5
%
St Paul
    
2.9
%
    
2.7
%
New Orleans
    
2.9
%
    
2.7
%
San Jose
    
2.0
%
    
2.4
%
Bridgeport
    
1.9
%
    
2.3
%
Memphis
    
1.4
%
    
1.6
%
Louisville
    
0.9
%
    
1.0
%
Denver
    
0.7
%
    
0.8
%
Ft. Lauderdale
    
0.4
%
    
0.6
%
Wildwood
    
0.3
%
    
0.4
%
Clarksburg
    
0.3
%
    
0.3
%
Canton
    
0.2
%
    
0.3
%
Kansas City
    
--
      
0.6
%

Real Estate Investment Concentration by City
  
   
As of December 31,
  
   
2019
    
2018
  
Detroit
    
17.7
%
    
17.6
%
Houston
    
12.1
%
    
11.9
%
Fort Worth
    
8.8
%
    
8.8
%
Cincinnati
    
8.8
%
    
8.7
%
Honolulu
    
6.8
%
    
6.7
%
Cleveland
    
6.3
%
    
6.2
%
Indianapolis
    
5.8
%
    
5.8
%
St Louis
    
4.4
%
    
4.4
%
Minneapolis
    
4.3
%
    
4.4
%
Lubbock
    
4.3
%
    
3.5
%
Milwaukee
    
3.9
%
    
3.8
%
Nashville
    
3.7
%
    
3.7
%
St Paul
    
2.7
%
    
2.7
%
Bridgeport
    
2.6
%
    
2.6
%
New Orleans
    
2.6
%
    
2.6
%
Memphis
    
1.3
%
    
1.5
%
San Jose
    
1.1
%
    
1.2
%
Denver
    
1.0
%
    
1.0
%
Louisville
    
1.0
%
    
1.0
%
Wildwood
    
0.4
%
    
0.4
%
Clarksburg
    
0.2
%
    
0.2
%
Canton
    
0.2
%
    
0.2
%
Fort Lauderdale
    
--
      
1.1
%


Acquisitions

The Company records the acquired tangible and intangible assets and assumed liabilities of acquisitions of all operating properties and those development and redevelopment opportunities that meet the accounting criteria to be accounted for as business combinations at fair value at the acquisition date. The Company assesses and considers fair value based on estimated cash flow projections that utilize available market information and discount and/or capitalization rates that the Company deems appropriate. Estimates of future cash flows are based on several factors including historical operating results, known and anticipated trends, and market and economic conditions. The acquired assets and assumed liabilities for an operating property acquisition generally include but are not limited to: land, buildings and improvements, construction in progress and identified tangible and intangible assets and liabilities associated with in-place leases, including tenant improvements, leasing costs, value of above-market and below-market operating leases and ground leases, acquired in-place lease values and tenant relationships, if any. Costs directly associated with all operating property acquisitions and those development and redevelopment acquisitions that meet the accounting criteria to be accounted for as business combinations are expensed as incurred within operating expenses in the consolidated statement of operations.

Impairment of Long-Lived Assets

When circumstances indicate the carrying value of a property may not be recoverable, the Company reviews the asset for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists, due to the inability to recover the carrying value of a property, the property is written down to fair value and an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net income.

The Company recorded impairment charges of approximately $1.5 million for the year ended December 31, 2019. These impairment charges consisted of $558,000 associated with the Memphis Court lot, $344,000 associated with the San Jose 88 garage, $50,000 associated with the St. Louis Washington lot and $500,000 associated with the Minneapolis City lot. These charges were recorded to write down the carrying value of these assets to their current appraised values net of estimated closing costs. The appraisals were performed by independent third-party appraisers primarily using the income approach based on the contracted rent to be received from the operator (i.e. leased fee for St. Louis and San Jose) and the fee simple method for Memphis Court. The Company recorded impairment charges of $600,000 for the year ended December 31, 2018.  The impairment charges consisted of $400,000 associated with the Wildwood NJ Lot and $200,000 associated with the Memphis Court lot. The estimated fair values, as they relate to property carrying values were primarily based upon estimated sales prices from third-party offers or indicative bids.

Cash

The Company maintains a significant portion of its cash deposits at KeyBank, which are held by the Company’s subsidiaries allowing the Company to maximize FDIC insurance coverage. The balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) under the same ownership category of $250,000. As of December 31, 2019, and 2018, the Company had approximately $2.7 million and $0.5 million, respectively, in excess of the federally insured limits. As of December 31, 2019, the Company has not experienced any losses on cash deposits.

Restricted Cash

Restricted cash primarily consists of escrowed tenant improvement funds, real estate taxes, capital improvement funds, insurance premiums and other amounts required to be escrowed pursuant to loan agreements.


Revenue Recognition

The Company's revenues, which are derived primarily from rental income, include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease. Since many of the Company's leases will provide for rental increases at specified intervals, straight-line basis accounting requires the Company to record a receivable, and include in revenues, unbilled rent receivables that the Company will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. Percentage rents will be recorded when earned and certain thresholds have been met.

The Company will continually review receivables related to rent and unbilled rent receivables and determine collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. If the collectability of a receivable is in doubt, the Company will record an increase in the Company's allowance for uncollectible accounts or record a direct write-off of the receivable after exhaustive efforts at collection.

Advertising Costs

Advertising costs incurred in the normal course of operations are expensed as incurred. During the years ended December 31, 2019 and 2018, the Company had no advertising costs.

Investments in Real Estate and Fixed Assets

Investments in real estate and fixed assets are stated at cost less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which are primarily 3 to 40 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income (expense).

The Company periodically evaluates whether events and circumstances have occurred that may warrant revision of the estimated useful lives of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment. The Company uses an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.

Purchase Price Allocation

The Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets acquired based on their respective fair values. Tangible assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. The Company utilizes various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Amounts allocated to land, land improvements, buildings and fixtures are based on cost segregation studies performed by independent third parties or on the Company's analysis of comparable properties in the Company's portfolio. Identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates, the value of in-place leases, and the value of customer relationships, as applicable. The aggregate value of intangible assets related to in-place leases is primarily the difference between the property valued with existing in-place leases adjusted to market rental rates and the property valued as if vacant. Factors considered by the Company in its analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, considering current market conditions and costs to execute similar leases. In estimating carrying costs, the Company will include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up period. Estimates of costs to execute similar leases including leasing commissions, legal and other related expenses are also utilized.

Above-market and below-market in-place lease values for owned properties are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease intangibles are amortized as a decrease to rental income over the remaining term of the lease.

The capitalized below-market lease values will be amortized as an increase to rental income over the remaining term and any fixed rate renewal periods provided within the respective leases. In determining the amortization period for below-market lease intangibles, the Company initially will consider, and periodically evaluate on a quarterly basis, the likelihood that a lessee will execute the renewal option. The likelihood that a lessee will execute the renewal option is determined by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located.

The aggregate value of intangible assets related to customer relationship, as applicable, is measured based on the Company's evaluation of the specific characteristics of each tenant’s lease and the Company's overall relationship with the tenant. Characteristics considered by the Company in determining these values include the nature and extent of its existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals, among other factors.

The value of in-place leases is amortized to expense over the initial term of the respective leases. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building. If a tenant terminates its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.

In making estimates of fair values for purposes of allocating purchase price, the Company will utilize several sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company will also consider information obtained about each property as a result of the Company's pre-acquisition due diligence, as well as subsequent marketing and leasing activities, in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.

Organization, Offering and Related Costs

Certain organization and offering costs will be incurred by the former Advisor. Pursuant to the terms of the Amended and Restated Advisory Agreement, the Company will not reimburse the Advisor for these out of pocket costs and future organization and offering costs it may incur. Such costs shall include legal, accounting, printing and other offering expenses, including marketing, and direct expenses of the former Advisor’s employees and employees of the former Advisor’s affiliates and others.

All direct offering costs incurred and or paid by the Company that are directly attributable to a proposed or actual offering, including sales commissions, if any, were charged against the gross proceeds of the Common Stock Offering and recorded as an offset to additional paid-in-capital. All indirect costs will be expensed as incurred.

Stock-Based Compensation

The Company has a stock-based incentive award plan, which is accounted for under the guidance for share based payments. The expense for such awards will be included in general and administrative expenses and is recognized over the vesting period or when the requirements for exercise of the award have been met (See Note G — Stock-Based Compensation).

Income Taxes

Commencing with its taxable year ended December 31, 2017, the Company has operated in a manner to qualify as a REIT under Sections 856 to 860 of the Code. A REIT is generally not subject to federal income tax on that portion of its REIT taxable income, which is distributed to its stockholders, provided that at least 90% of such taxable income is distributed and provided that certain other requirements are met. The Company’s REIT taxable income may substantially exceed or be less than the income calculated according to GAAP. In addition, the Company will be subjected to corporate income tax to the extent that less than 100% of the net taxable income is distributed, including any net capital gain.


The Company uses a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolutions of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more likely than not of being realized upon ultimate settlement. The Company believes that its income tax filing positions and deductions would be sustained upon examination; thus, the Company has not recorded any uncertain tax positions as of December 31, 2019.

A full valuation allowance for deferred tax assets was provided since the Company believes that it is more likely than not that it will not realize the benefits of its deferred tax assets. A change in circumstances may cause the Company to change its judgment about whether deferred tax assets should be recorded, and further whether any such assets would more likely than not be realized. The Company would generally report any change in the valuation allowance through its income statement in the period in which such changes in circumstances occur. Because the Company is a REIT, it will generally not be subject to corporate level federal income taxes on earnings distributed to its stockholders and therefore may not realize any benefit from deferred tax assets arising during 2019 or any prior period in which a valid REIT election was in effect. The Company intends to distribute at least 100% of its taxable income annually and intends to do so for the tax year ended December 31, 2019 and in all future periods. The Company has placed a full valuation allowance on all of its deferred tax assets, and thus no asset is recorded on the Company’s balance sheet.

Per Share Data

The Company calculates basic income (loss) per share by dividing net income (loss) for the period by weighted-average shares of its common stock outstanding for the respective period. Diluted income per share considers the effect of dilutive instruments, such as stock options and convertible stock, but uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted-average number of shares outstanding. The Company had no outstanding common share equivalents during the years ended December 31, 2019 and 2018.

There is a potential for dilution from the Company’s Series A Convertible Redeemable Preferred Stock which may be converted into the Company’s common stock at any time. As of December 31, 2019, there were 2,862 shares of the Series A Convertible Redeemable Preferred Stock issued and outstanding. As of filing date, the Company has not received any requests to convert.

There is a potential for dilution from the Company’s Series 1 Convertible Redeemable Preferred Stock which may be converted upon a holder’s election into the Company’s common stock at any time. As of December 31, 2019, there were 39,811 shares of the Series 1 Convertible Redeemable Preferred Stock issued and outstanding. As of filing date, the Company has not received any requests to convert.

Each share of Series A preferred stock and Series 1 preferred stock will convert into the number of shares of the Company’s common stock determined by dividing (i) the stated value per Series A share or Series 1 share of $1,000 (as may be adjusted pursuant to the applicable articles supplementary) plus any accrued but unpaid dividends to, but not including, the conversion date by (ii) the conversion price. The conversion price is equal to the net asset value per share of the Company’s common stock; provided that if a “Listing Event” (as defined in the applicable articles supplementary) occurs, the conversion price will be 100% of the volume weighted average price per share of the Company’s common stock for the 20 trading days prior to the delivery date of the conversion notice. The Company will have the right (but not the obligation) to redeem any Series A or Series 1 shares that are subject to a conversion notice on the terms set forth in the applicable articles supplementary.

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.


Accounting and Auditing Standards Applicable to “Emerging Growth Companies”

The Company is an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as the Company remains an “emerging growth company,” which may be up to five fiscal years, the Company is not required to (1) comply with any new or revised financial accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies, (2) provide an auditor’s attestation report on management’s assessment of the effectiveness of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, (3) comply with any new requirements adopted by the Public Company Accounting Oversight Board (the “PCAOB”), requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer or (4) comply with any new audit rules adopted by the PCAOB after April 5, 2012, unless the SEC determines otherwise. The Company intends to take advantage of such extended transition period. Since the Company will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, the Company’s financial statements may not be comparable to the financial statements of companies that comply with public company effective dates. If the Company were to subsequently elect to instead comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.

Non-controlling Interests

The FASB issued authoritative guidance for non-controlling interests in December 2007, which establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance clarifies that a non-controlling interest in a subsidiary, which is sometimes referred to as an unconsolidated investment, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, the guidance requires consolidated net income to be reported at amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest.

Note C — Commitments and Contingencies

Environmental Matters

Investments in real property create the potential for environmental liability on the part of the owner or operator of such real property. If hazardous substances are discovered on or emanating from a property, the owner or operator of the property may be held strictly liable for all costs and liabilities relating to such hazardous substances. The Company has obtained a Phase I environmental study (which involves inspection without soil sampling or ground water analysis) conducted by independent environmental consultants on each of the properties and, in certain instances, has conducted additional investigation, including a Phase II environmental assessment. Furthermore, the Company has adopted a policy of conducting a Phase I environmental study on each property acquired and any additional investigation as warranted.

During the Company’s predecessor’s due diligence of a property purchased on December 15, 2017 (originally purchased by predecessor on March 31, 2015) and located in Milwaukee, it was discovered that the soil and ground water at the subject property had been impacted by the site’s historical use as a printing press as well as neighboring property uses. As a result, the Company retained a local environmental engineer to seek a closure letter or similar certificate of no further action from the State of Wisconsin due to the Company’s use of the property as a parking lot. As of December 31, 2019, management has not received the closure letter, however the Company does not anticipate a material adverse effect related to this environmental matter.

The Company believes that it complies, in all material respects, with all federal, state and local ordinances and regulations regarding hazardous or toxic substances. Furthermore, as of December 31, 2019, the Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition that it believes will have a material adverse effect on the results of operations. The Company, however, cannot predict the impact of any unforeseen environmental contingencies or new or changed laws or regulations on properties in which the Company holds an interest, or on properties that may be acquired directly or indirectly in the future.


Note D – Investments in Real Estate

2019

As of December 31, 2019, the Company had the following Investments in Real Estate that were consolidated on the Company’s balance sheet:

Property Name
Location
Date Acquired
Property Type
  
# Spaces
    
Property Size (Acres)
    
Retail Sq. Ft
    
Investment Amount
  
Parking Tenant
MVP Cleveland West 9th (1)
Cleveland, OH
5/11/2016
Lot
    
260
      
2
      
N/A
    
$
5,845,000
  
SP +
33740 Crown Colony (1)
Cleveland, OH
5/17/2016
Lot
    
82
      
0.54
      
N/A
    
$
3,050,000
  
SP +
MCI 1372 Street
Canton, OH
7/8/2016
Lot
    
66
      
0.44
      
N/A
    
$
700,000
  
ABM
MVP Cincinnati Race Street Garage
Cincinnati, OH
7/8/2016
Garage
    
350
      
0.63
      
N/A
    
$
6,331,000
  
SP +
MVP St. Louis Washington
St Louis, MO
7/18/2016
Lot
    
63
      
0.39
      
N/A
    
$
2,957,000
  
SP +
MVP St. Paul Holiday Garage
St Paul, MN
8/12/2016
Garage
    
285
      
0.85
      
N/A
    
$
8,396,000
  
Interstate Parking
MVP Louisville Station Broadway
Louisville, KY
8/23/2016
Lot
    
165
      
1.25
      
N/A
    
$
3,107,000
  
Riverside Parking
White Front Garage Partners
Nashville, TN
9/30/2016
Garage
    
155
      
0.26
      
N/A
    
$
11,673,000
  
Premier / iPark
Cleveland Lincoln Garage Owners
Cleveland, OH
10/19/2016
Garage
    
536
      
1.14
      
45,272
    
$
10,649,000
  
SP +
MVP Houston Preston Lot
Houston, TX
11/22/2016
Lot
    
46
      
0.23
      
N/A
    
$
2,820,000
  
Premier / iPark
MVP Houston San Jacinto Lot
Houston, TX
11/22/2016
Lot
    
85
      
0.65
      
240
    
$
3,250,000
  
Premier / iPark
MVP Detroit Center Garage
Detroit, MI
2/1/2017
Garage
    
1,275
      
1.28
      
N/A
    
$
55,476,000
  
SP +
St. Louis Broadway
St Louis, MO
5/6/2017
Lot
    
161
      
0.96
      
N/A
    
$
2,400,000
  
St. Louis Parking
St. Louis Seventh & Cerre
St Louis, MO
5/6/2017
Lot
    
174
      
1.06
      
N/A
    
$
3,300,000
  
St. Louis Parking
MVP Preferred Parking (4)
Houston, TX
8/1/2017
Garage/Lot
    
528
      
0.98
      
784
    
$
21,210,000
  
Premier / iPark
MVP Raider Park Garage
Lubbock, TX
11/21/2017
Garage
    
1,495
      
2.15
      
20,536
    
$
13,517,000
  
ISOM Management
MVP PF Memphis Poplar
Memphis, TN
12/15/2017
Lot
    
127
      
0.87
      
N/A
    
$
3,747,000
  
Best Park
MVP PF St. Louis
St Louis, MO
12/15/2017
Lot
    
183
      
1.22
      
N/A
    
$
5,145,000
  
SP +
Mabley Place Garage (2)
Cincinnati, OH
12/15/2017
Garage
    
775
      
0.9
      
8,400
    
$
21,185,000
  
SP +
MVP Denver Sherman
Denver, CO
12/15/2017
Lot
    
28
      
0.14
      
N/A
    
$
705,000
  
Denver School
MVP Fort Worth Taylor
Fort Worth, TX
12/15/2017
Garage
    
1,013
      
1.18
      
11,828
    
$
27,663,000
  
SP +
MVP Milwaukee Old World
Milwaukee, WI
12/15/2017
Lot
    
54
      
0.26
      
N/A
    
$
2,044,000
  
SP +
MVP Houston Saks Garage
Houston, TX
12/15/2017
Garage
    
265
      
0.36
      
5,000
    
$
10,423,000
  
Premier / iPark
MVP Milwaukee Wells
Milwaukee, WI
12/15/2017
Lot
    
148
      
1.07
      
N/A
    
$
5,083,000
  
Symphony
MVP Wildwood NJ Lot 1 (3)
Wildwood, NJ
12/15/2017
Lot
    
29
      
0.26
      
N/A
    
$
545,000
  
SP +
MVP Wildwood NJ Lot 2 (3)
Wildwood, NJ
12/15/2017
Lot
    
45
      
0.31
      
N/A
    
$
686,000
  
SP+
MVP Indianapolis City Park
Indianapolis, IN
12/15/2017
Garage
    
370
      
0.47
      
N/A
    
$
10,934,000
  
ABM
MVP Indianapolis WA Street
Indianapolis, IN
12/15/2017
Lot
    
141
      
1.07
      
N/A
    
$
5,749,000
  
Denison
MVP Minneapolis Venture
Minneapolis, MN
12/15/2017
Lot
    
195
      
1.65
      
N/A
    
$
4,013,000
  
N/A
Minneapolis City Parking
Minneapolis, MN
12/15/2017
Lot
    
268
      
1.98
      
N/A
    
$
9,338,000
  
SP +
MVP Indianapolis Meridian
Indianapolis, IN
12/15/2017
Lot
    
36
      
0.24
      
N/A
    
$
1,601,000
  
Denison
MVP Milwaukee Clybourn
Milwaukee, WI
12/15/2017
Lot
    
15
      
0.06
      
N/A
    
$
262,000
  
Secure
MVP Milwaukee Arena Lot
Milwaukee, WI
12/15/2017
Lot
    
75
      
1.11
      
N/A
    
$
4,631,000
  
SP +
MVP Clarksburg Lot
Clarksburg, WV
12/15/2017
Lot
    
94
      
0.81
      
N/A
    
$
715,000
  
ABM

MVP Denver Sherman 1935
Denver, CO
12/15/2017
Lot
    
72
      
0.43
      
N/A
    
$
2,533,000
  
SP +
MVP Bridgeport Fairfield
Bridgeport, CT
12/15/2017
Garage
    
878
      
1.01
      
4,349
    
$
8,256,000
  
SP +
MVP New Orleans Rampart
New Orleans, LA
2/1/2018
Lot
    
78
      
0.44
      
N/A
    
$
8,105,000
  
342 N. Rampart
MVP Hawaii Marks Garage
Honolulu, HI
6/21/2018
Garage
    
311
      
0.77
      
16,205
      
21,127,000
  
SP +
Construction in progress
                              
$
714,000
    
Total Investment in real estate and fixed assets
                            
$
309,885,000
    

(1)
These properties are held by West 9th St. Properties II, LLC.
(2)
The Company holds an 83.3% undivided interest in the Mabley Place Garage pursuant to a tenancy-in-common agreement and is the Managing Co-Owner of the property.
(3)
These properties are held by MVP Wildwood NJ Lot, LLC.
(4)
MVP Preferred Parking, LLC holds a Garage and a Parking Lot.

2018

As of December 31, 2018, the Company had the following Investments in Real Estate that were consolidated on the Company’s balance sheet:

Property Name
Location
Date Acquired
Property Type
  
# Spaces
    
Property Size (Acres)
    
Retail Sq. Ft
    
Investment Amount
  
Parking Tenant
MVP Cleveland West 9th (1)
Cleveland, OH
5/11/2016
Lot
    
260
      
2
      
N/A
    
$
5,845,000
  
SP +
33740 Crown Colony (1)
Cleveland, OH
5/17/2016
Lot
    
82
      
0.54
      
N/A
    
$
3,050,000
  
SP +
MVP San Jose 88 Garage
San Jose, CA
6/15/2016
Garage
    
328
      
1.33
      
N/A
    
$
3,844,000
  
Lanier
MCI 1372 Street
Canton, OH
7/8/2016
Lot
    
66
      
0.44
      
N/A
    
$
700,000
  
ABM
MVP Cincinnati Race Street Garage
Cincinnati, OH
7/8/2016
Garage
    
350
      
0.63
      
N/A
    
$
6,300,000
  
SP +
MVP St. Louis Washington
St Louis, MO
7/18/2016
Lot
    
63
      
0.39
      
N/A
    
$
3,007,000
  
SP +
MVP St. Paul Holiday Garage
St Paul, MN
8/12/2016
Garage
    
285
      
0.85
      
N/A
    
$
8,396,000
  
Interstate Parking
MVP Louisville Station Broadway
Louisville, KY
8/23/2016
Lot
    
165
      
1.25
      
N/A
    
$
3,107,000
  
Riverside Parking
White Front Garage Partners
Nashville, TN
9/30/2016
Garage
    
155
      
0.26
      
N/A
    
$
11,672,000
  
Premier Parking
Cleveland Lincoln Garage Owners
Cleveland, OH
10/19/2016
Garage
    
536
      
1.14
      
45,272
    
$
10,541,000
  
SP +
MVP Houston Preston Lot
Houston, TX
11/22/2016
Lot
    
46
      
0.23
      
N/A
    
$
2,820,000
  
iPark Services
MVP Houston San Jacinto Lot
Houston, TX
11/22/2016
Lot
    
85
      
0.65
      
240
    
$
3,250,000
  
iPark Services
MVP Detroit Center Garage
Detroit, MI
2/1/2017
Garage
    
1,275
      
1.28
      
N/A
    
$
55,476,000
  
SP +
St. Louis Broadway
St Louis, MO
5/6/2017
Lot
    
161
      
0.96
      
N/A
    
$
2,400,000
  
St. Louis Parking
St. Louis Seventh & Cerre
St Louis, MO
5/6/2017
Lot
    
174
      
1.06
      
N/A
    
$
3,300,000
  
St. Louis Parking
MVP Preferred Parking (4)
Houston, TX
8/1/2017
Garage/Lot
    
528
      
0.98
      
784
    
$
21,115,000
  
iPark Services
MVP Raider Park Garage
Lubbock, TX
11/21/2017
Garage
    
1,495
      
2.15
      
20,536
    
$
11,029,000
  
ISOM Management
MVP PF Ft. Lauderdale
Ft. Lauderdale, FL
12/15/2017
Lot
    
66
      
0.75
      
4,017
    
$
3,423,000
  
SP +
MVP PF Memphis Court
Memphis, TN
12/15/2017
Lot
    
37
      
0.41
      
N/A
    
$
1,008,000
  
SP +
MVP PF Memphis Poplar
Memphis, TN
12/15/2017
Lot
    
127
      
0.87
      
N/A
    
$
3,735,000
  
Best Park
MVP PF St. Louis
St Louis, MO
12/15/2017
Lot
    
183
      
1.22
      
N/A
    
$
5,145,000
  
SP +
Mabley Place Garage (2)
Cincinnati, OH
12/15/2017
Garage
    
775
      
0.9
      
8,400
    
$
21,185,000
  
SP +
MVP Denver Sherman
Denver, CO
12/15/2017
Lot
    
28
      
0.14
      
N/A
    
$
705,000
  
Denver School

MVP Fort Worth Taylor
Fort Worth, TX
12/15/2017
Garage
    
1,013
      
1.18
      
11,828
    
$
27,663,000
    
SP +
  
MVP Milwaukee Old World
Milwaukee, WI
12/15/2017
Lot
    
54
      
0.26
      
N/A
    
$
2,044,000
    
SP +
  
MVP Houston Saks Garage
Houston, TX
12/15/2017
Garage
    
265
      
0.36
      
5,000
    
$
10,391,000
    
iPark Services
  
MVP Milwaukee Wells
Milwaukee, WI
12/15/2017
Lot
    
148
      
1.07
      
N/A
    
$
5,083,000
    
Symphony
  
MVP Wildwood NJ Lot 1 (3)
Wildwood, NJ
12/15/2017
Lot
    
29
      
0.26
      
N/A
    
$
545,000
    
SP +
  
MVP Wildwood NJ Lot 2 (3)
Wildwood, NJ
12/15/2017
Lot
    
45
      
0.31
      
N/A
    
$
686,000
    
SP+
  
MVP Indianapolis City Park
Indianapolis, IN
12/15/2017
Garage
    
370
      
0.47
      
N/A
    
$
10,934,000
    
ABM
  
MVP Indianapolis WA Street
Indianapolis, IN
12/15/2017
Lot
    
141
      
1.07
      
N/A
    
$
5,749,000
    
Denison
  
MVP Minneapolis Venture
Minneapolis, MN
12/15/2017
Lot
    
195
      
1.65
      
N/A
    
$
4,012,000
      
N/A
  
Minneapolis City Parking
Minneapolis, MN
12/15/2017
Lot
    
268
      
1.98
      
N/A
    
$
9,838,000
    
SP +
  
MVP Indianapolis Meridian
Indianapolis, IN
12/15/2017
Lot
    
36
      
0.24
      
N/A
    
$
1,601,000
    
Denison
  
MVP Milwaukee Clybourn
Milwaukee, WI
12/15/2017
Lot
    
15
      
0.06
      
N/A
    
$
262,000
    
Secure
  
MVP Milwaukee Arena Lot
Milwaukee, WI
12/15/2017
Lot
    
75
      
1.11
      
N/A
    
$
4,631,000
    
SP +
  
MVP Clarksburg Lot
Clarksburg, WV
12/15/2017
Lot
    
94
      
0.81
      
N/A
    
$
715,000
    
ABM
  
MVP Denver Sherman 1935
Denver, CO
12/15/2017
Lot
    
72
      
0.43
      
N/A
    
$
2,533,000
    
SP +
  
MVP Bridgeport Fairfield
Bridgeport, CT
12/15/2017
Garage
    
878
      
1.01
      
4,349
    
$
8,256,000
    
SP +
  
MVP New Orleans Rampart
New Orleans, LA
2/1/2018
Lot
    
78
      
0.44
      
N/A
    
$
8,105,000
    
342 N. Rampart
  
MVP Hawaii Marks Garage
Honolulu, HI
6/21/2018
Garage
    
311
      
0.77
      
16,205
      
21,000,000
    
SP +
  
Construction in progress
                              
$
1,872,000
          
Total Investment in real estate and fixed assets
                            
$
316,973,000
          

(1)
These properties are held by West 9th St. Properties II, LLC.
(2)
The Company owns an 83.3% undivided interest in the Mabley Place Garage pursuant to a tenancy-in-common agreement and is the Managing Co-Owner of the property.
(3)
These properties are owned by MVP Wildwood NJ Lot, LLC.
(4)
MVP Preferred Parking, LLC owns a Garage and a Parking Lot.

Note E — Related Party Transactions and Arrangements

2019

The transactions described in this Note were approved by a majority of the Company’s board of directors (including a majority of the independent directors) not otherwise interested in such transactions as fair and reasonable to the Company and on terms and conditions no less favorable to the Company than those available from unaffiliated third parties.

Prior to the Internalization, the former Advisor had the option to request reimbursement of certain payroll expenses for salaries and benefits paid to non-executive officers. As of December 31, 2019, all reimbursable expenses had been paid.

Ownership of Company Stock

As of December 31, 2019, the Sponsor owned 9,107 shares, VRM II owned 844,960 shares and VRM I owned 456,834 shares of the Company’s outstanding common stock. During the year ended December 31, 2018, VRM II and VRM I received approximately $33,000 and $19,000 in distributions in accordance with the Company’s distribution reinvestment program (“DRIP”). No DRIP distributions were received by either entity during the year ended December 31, 2019 due to the suspension of the DRIP program.

Ownership of the Former Advisor

VRM I and VRM II own 40% and 60%, respectively, of the former Advisor. Neither VRM I nor VRM II paid any up-front consideration for these ownership interests, but each agreed to be responsible for its proportionate share of future expenses of the former Advisor.


Fees Paid in Connection with the Operations of the Company

Prior to the Internalization (as defined below), the former Advisor or its affiliates received an asset management fee at a rate equal to 1.1% of the cost of all assets held by the Company, or the Company’s proportionate share thereof in the case of an investment made through a joint venture or other co-ownership arrangement. Pursuant to the Amended and Restated Advisory Agreement, the asset management fee could not exceed $2 million per annum until the earlier of such time, if ever, that (i) the Company holds assets with an appraised value equal to or in excess of $500,000,000 or (ii) the Company reports AFFO equal to or greater than $0.3125 per share of common stock (an amount intended to reflect a 5% or greater annualized return on $25.00 per share of common stock) for two consecutive quarters, on a fully diluted basis. All amounts of the asset management fee in excess of $2 million per annum, plus interest thereon at a rate of 3.5% per annum, would be due and payable by the Company no later than ninety (90) days after the condition for payment is satisfied. For the years ended December 31, 2019 and 2018, asset management fees of approximately $0.9 and $2.0 million, respectively, had been earned by the former Advisor. From and after May 29, 2018 (or the Valuation Date), the asset management fee was to be calculated based on the lower of the value of the Company’s assets and their historical cost. The Company ceased payment of asset management fees effective April 1, 2019, as a result of the Internalization (as defined below).

The Company was to reimburse the former Advisor or its affiliates for costs of providing administrative services, subject to the limitation that it will not reimburse the former Advisor for any amount by which the Company’s operating expenses, at the end of the four preceding fiscal quarters (commencing after the quarter in which the Company made its first investment), exceed the greater of (a) 2.0% of average invested assets and (b) 25.0% of net income in connection with the selection or acquisition of an investment, whether or not the Company ultimately acquires, unless the excess amount is approved by a majority of the Company’s independent directors. The Company was not to reimburse the former Advisor for personnel costs in connection with services for which the former Advisor received a separate fee, such as an acquisition fee, disposition fee or debt financing fee, or for the salaries and benefits paid to the Company’s executive officers. In addition, the Company was not to reimburse the former Advisor for rent or depreciation, utilities, capital equipment or other costs of its own administrative items. During the year ended December 31, 2019, approximately $1.4 million, in operating expenses were incurred by the former Advisor, on behalf of the Company, reimbursable to the former Advisor of which has been reimbursed.

On March 29, 2019, the Company and the former Advisor entered into definitive agreements to internalize the Company’s management function effective April 1, 2019 (the “Internalization”). Since their formation, under the supervision of the board of directors (the “Board of Directors”), the former Advisor has been responsible for managing the operations of the Company and MVP I, which merged with a wholly owned indirect subsidiary of the Company in December 2017. As part of the Internalization, among other things, the Company agreed with the former Advisor to (i) terminate the Second Amended and Restated Advisory Agreement, dated as of May 26, 2017 and, for the avoidance of doubt, the Third Amended and Restated Advisory Agreement, dated as of September 21, 2018, which by its terms would have become effective only upon a listing of the Company’s common stock on a national securities exchange (collectively, the “Management Agreements”), each entered into among the Company, the former Advisor and MVP REIT II Operating Partnership, LP (the “Operating Partnership”); (ii) extend employment to the executives and other employees of the former Advisor; (iii) arrange for the former Advisor to continue to provide certain services with respect to outstanding indebtedness of the Company and its subsidiaries; and (iv) lease the employees of the former Advisor for a limited period of time prior to the time that such employees become employed by the Company. As part of those same agreements, the Company agreed to issue to the former Advisor over a period of more than two and a half years, 1,600,000 shares of the Company’s common stock as consideration under the terms of the Contribution Agreement, issuable in four equal installments. The first installment of 400,000 shares of Common Stock was issued on April 1, 2019 and the second on December 31, 2019. The remaining installments will be issued on December 31, 2020 and December 31, 2021 (or if December 31st is not a business day, the day that is the last business day of such year). See Note S — Deferred Management Internalization below in for additional information.

2018

The transactions described in this Note were approved by a majority of the Company’s board of directors (including a majority of the independent directors) not otherwise interested in such transactions as fair and reasonable to the Company and on terms and conditions no less favorable to the Company than those available from unaffiliated third parties.

The former Advisor had the option to request reimbursement of certain payroll expenses for salaries and benefits paid to non-executive officers. As of December 31, 2018, the former Advisor was due approximately $0.2 million in reimbursable expenses, of which has been paid as of the date of this filing.

Ownership of Company Stock

As of December 31, 2018, the Sponsor owned 9,107 shares, VRM II owned 364,960 shares and VRM I owned 136,834 shares of the Company’s outstanding common stock. During the years ended December 31, 2018 and 2017, VRM II received approximately $50,550 and $19,750, respectively, in distributions in accordance with the Company’s DRIP program. During the year ended December 31, 2018, VRM I received approximately $18,700 in both cash and DRIP distributions. VRM I did not own shares of the Company’s stock in 2017.

Ownership of the former Advisor

VRM I and VRM II own 40% and 60%, respectively, of the former Advisor. Neither VRM I nor VRM II paid any up-front consideration for these ownership interests, but each agreed to be responsible for its proportionate share of future expenses of the former Advisor.

Fees Paid in Connection with the Offering – Common Stock

Various affiliates of the Company were involved in the Common Stock offering and the Company’s operations including MVP American Securities, LLC (“AMS”), which was a broker-dealer and member of the Financial Industry Regulatory Authority, Inc. AMS is owned by MS MVP Holdings, LLC, which is owned and managed by Mr. Shustek.

The Company’s Sponsor or its affiliates paid selling commissions of up to 6.5% of gross offering proceeds from the sale of shares in the Common Stock Offering without any right to seek reimbursement from the Company.

The Company’s sponsor or its affiliates also paid non-affiliated selling agents a one-time fee separately negotiated with each selling agent for due diligence expenses, subject to the total underwriting compensation limitation set forth below. Such due diligence expenses were approximately 1.25% to 2.00% of total offering proceeds. Such commissions and fees were paid by the Company’s sponsor or its affiliates (other than the Company) without any right to seek reimbursement from the Company.

Fees Paid in Connection with the Offering – Preferred Stock

In connection with the private placement of the Series A and Series 1 preferred stock, the Company paid selling commissions of up to 6.0% of gross offering proceeds from the sale of shares in the private placements, including sales by affiliated and non-affiliated selling agents. During the years ended December 31, 2018 and 2017, the Company paid approximately $0.8 and $2.4 million, respectively, in selling commissions, of which $0.2 and $0.6 million, respectively, were paid to affiliated selling agents.

The Company paid non-affiliated selling agents a one-time fee separately negotiated with each selling agent for due diligence expenses of up to 2.0% of gross offering proceeds. The Company also paid a dealer manager fee to AMS of up to 2.0% of gross offering proceeds from the sale of the shares in the private placements as compensation for acting as dealer manager. During the years ended December 31, 2018 and 2017, the Company paid approximately $0.2 and $0.6 million, respectively, to AMS as compensation.

Fees Paid in Connection with the Operations of the Company

The former Advisor or its affiliates receives an asset management fee at a rate equal to 1.1% of the cost of all assets held by the Company, or the Company’s proportionate share thereof in the case of an investment made through a joint venture or other co-ownership arrangement. Pursuant to the Amended and Restated Advisory Agreement, the asset management fee may not exceed $2 million per annum until the earlier of such time, if ever, that (i) the Company holds assets with an appraised value equal to or in excess of $500,000,000 or (ii) the Company reports AFFO equal to or greater than $0.3125 per share of common stock (an amount intended to reflect a 5% or greater annualized return on $25.00 per share of common stock) for two consecutive quarters, on a fully diluted basis. All amounts of the asset management fee in excess of $2 million per annum, plus interest thereon at a rate of 3.5% per annum, will be due and payable by the Company no later than ninety (90) days after the condition for payment is satisfied.  As of December 31, 2018, approximately $1.6 million was paid and $0.4 was due to the former Advisor and subsequently paid prior to the filing. From and after May 29, 2018 (or the Valuation Date), the asset management fee shall be calculated based on the lower of the value of the Company’s assets and their historical cost. As of December 31, 2018, the Company has subordinated approximately $1.4 million in asset management fees which will be accrued and paid once the above criteria are met.

Prior to the Merger, the Company was to determine the Company’s NAV on a date not later than the Valuation Date. Following the Valuation Date, the asset management fee was based on the value of the Company’s assets rather than their historical cost. Asset management fees for the year ended December 31, 2017 were approximately $1.3 million.

The Company was to reimburse the former Advisor or its affiliates for costs of providing administrative services, subject to the limitation that it will not reimburse the former Advisor for any amount by which the Company’s operating expenses, at the end of the four preceding fiscal quarters (commencing after the quarter in which the Company made its first investment), exceed the greater of (a) 2.0% of average invested assets and (b) 25.0% of net income in connection with the selection or acquisition of an investment, whether or not the Company ultimately acquires, unless the excess amount is approved by a majority of the Company’s independent directors. The Company was not to reimburse the former Advisor for personnel costs in connection with services for which the former Advisor received a separate fee, such as an acquisition fee, disposition fee or debt financing fee, or for the salaries and benefits paid to the Company’s executive officers. In addition, the Company was not to reimburse the former Advisor for rent or depreciation, utilities, capital equipment or other costs of its own administrative items. During the year ended December 31, 2018, approximately $2.7 million in operating expenses were incurred by the Company reimbursable to the former Advisor. During the year ended December 31, 2018, approximately $2.5 million had been reimbursed to the former Advisor. For the year ended December 31, 2017, the former Advisor was due approximately $0.2 million in reimbursable expenses. These reimbursable expenses were paid as of June 21, 2018, the date of the Company’s 2017 annual filing.

On September 21, 2018, we entered into a Third Amended and Restated Advisory Agreement with the former Advisor. The Third Amended Advisory Agreement will become effective and replace the existing advisory agreement upon the listing of the shares of our common stock on any national exchange, unless an internalization transaction is completed before listing.

For more information, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview”. The Third Amended and Restated Advisory Agreement is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on September 26, 2018.

Note F — Economic Dependency

Under various agreements, the Company has engaged or will engage the former Advisor and its affiliates to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company, asset acquisition and disposition services, the sale of shares of the Company’s securities available for issuance, as well as other administrative responsibilities for the Company, including accounting services and investor relations. In addition, the Sponsor paid selling commissions in connection with the sale of the Company’s shares in the Common Stock Offering and the former Advisor paid the Company’s organization and offering expenses.

As a result of these relationships, the Company is dependent upon the former Advisor and its affiliates. If these companies are unable to provide the Company with the respective services, the Company may be required to find alternative providers of these services.

Note G — Stock-Based Compensation

Long-Term Incentive Plan

The Company’s board of directors has adopted a long-term incentive plan which the Company may use to attract and retain qualified directors, officers, employees and consultants. The Company’s long-term incentive plan will offer these individuals an opportunity to participate in the Company’s growth through awards in the form of, or based on, the Company’s common stock. The Company currently anticipates that it will not issue awards under the Company’s long-term incentive plan, although it may do so in the future, including possible equity grants to the Company’s independent directors as a form of compensation.

The long-term incentive plan authorizes the granting of restricted stock, stock options, stock appreciation rights, restricted or deferred stock units, dividend equivalents, other stock-based awards and cash-based awards to directors, officers, employees and consultants of the Company and the Company’s affiliates selected by the board of directors for participation in the Company’s long-term incentive plan. Stock options granted under the long-term incentive plan will not exceed an amount equal to 10% of the outstanding shares of the Company’s common stock on the date of grant of any such stock options. Stock options may not have an exercise price that is less than the fair market value of a share of the Company’s common stock on the date of grant.

The Company’s board of directors or a committee appointed by its board of directors will administer the long-term incentive plan, with sole authority to determine all of the terms and conditions of the awards, including whether the grant, vesting or settlement of awards may be subject to the attainment of one or more performance goals. No awards will be granted under the long-term incentive plan if the grant or vesting of the awards would jeopardize the Company’s status as a REIT under the Code or otherwise violate the ownership and transfer restrictions imposed under its charter. Unless otherwise determined by the Company’s board of directors, no award granted under the long-term incentive plan will be transferable except through the laws of descent and distribution.

The Company has authorized and reserved an aggregate maximum number of 500,000 common shares for issuance under the long-term incentive plan. In the event of a transaction between the Company and its stockholders that causes the per-share value of the Company’s common stock to change (including, without limitation, any stock dividend, stock split, spin-off, rights offering or large nonrecurring cash dividend), the share authorization limits under the long-term incentive plan will be adjusted proportionately and the board of directors will make such adjustments to the long-term incentive plan and awards as it deems necessary, in its sole discretion, to prevent dilution or enlargement of rights immediately resulting from such transaction. In the event of a stock split, a stock dividend or a combination or consolidation of the outstanding shares of common stock into a lesser number of shares, the authorization limits under the long-term incentive plan will automatically be adjusted proportionately and the shares then subject to each award will automatically be adjusted proportionately without any change in the aggregate purchase price.

The Company’s board of directors may in its sole discretion at any time determine that all or a portion of a participant’s awards will become fully vested. The board may discriminate among participants or among awards in exercising such discretion. The long-term incentive plan will automatically expire on the tenth anniversary of the date on which it is approved by the board of directors and stockholders, unless extended or earlier terminated by the board of directors. The Company’s board of directors may terminate the long-term incentive plan at any time. The expiration or other termination of the long-term incentive plan will not, without the participant’s consent, have an adverse impact on any award that is outstanding at the time the long-term incentive plan expires or is terminated. The board of directors may amend the long-term incentive plan at any time, but no amendment will adversely affect any award without the participant’s consent and no amendment to the long-term incentive plan will be effective without the approval of the Company’s stockholders if such approval is required by any law, regulation or rule applicable to the long-term incentive plan. During the years ended December 31, 2019 and 2018, no grants were made under the long-term incentive plan.

Note H – Recent Accounting Pronouncements

In May 2014, Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), an updated standard on revenue recognition. The standard creates a five-step model for revenue recognition that requires companies to exercise judgment when considering contract terms and relevant facts and circumstances. The standard requires expanded disclosure surrounding revenue recognition. Early application is not permitted. The standard was initially to be effective for fiscal periods beginning after December 15, 2016 and allows for either full retrospective or modified retrospective adoption. In July 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, Deferral of Effective Date, which delays the effective date of ASU 2014-09 by one year to fiscal periods beginning after December 15, 2017. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations and the effective date is the same as requirements in ASU 2015-14. The Company adopted ASU 2014-09 using the modified retrospective transition method in the first quarter of 2018 and such adoption did not have a material impact on the Company’s consolidated financial statements. The adoption of this standard did not require any adjustments to the opening balance of retained earnings as of January 1, 2018.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value with changes in fair value recognized in net income. The ASU also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The requirement to disclose the method(s) and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet has been eliminated by this ASU. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted ASU 2016-01 in the first quarter of 2018 and such adoption did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases – (Topic 842). This update will require lessees to recognize all leases with terms greater than 12 months on their balance sheet as lease liabilities with a corresponding right-of-use asset. This update maintains the dual model for lease accounting, requiring leases to be classified as either operating or finance, with lease classification determined in a manner similar to existing lease guidance. The basic principle is that leases of all types convey the right to direct the use and obtain substantially all the economic benefits of an identified asset, meaning they create an asset and liability for lessees. Lessees will classify leases as either finance leases (comparable to current capital leases) or operating leases (comparable to current operating leases). Costs for a finance lease will be split between amortization and interest expense, with a single lease expense reported for operating leases. This update also will require both qualitative and quantitative disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; however, early adoption is permitted. The Company has determined that the provisions of ASU 2016-02 may result in an increase in assets to recognize the present value of the lease obligations with a corresponding increase in liabilities for leases in the future however the Company was not a lessee on any lease agreements at December 31, 2018. During the first quarter 2019, the Company adopted ASU 2016-02 and such adoption did not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments in this ASU replace the current incurred loss impairment methodology 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. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. During the first quarter 2020, the Company adopted ASU 2016-13 and such adoption did not have a material impact on the Company’s consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash. The new guidance requires that the reconciliation of the beginning-of-period and end-of-period amounts shown in the statements of cash flows include restricted cash and restricted cash equivalents. If restricted cash is presented separately from cash and cash equivalents on the balance sheet, companies will be required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet. Companies will also need to disclose information about the nature of the restrictions. The standard permits the use of either the retrospective or cumulative effect transition method. This update will become effective for the Company for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2016-18 in the first quarter of 2018 and such adoption had no material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. This update is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. This update will become effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those years. The Company adopted ASU 2016-18 beginning in the first quarter of 2018. The effect of ASU 2017-01 on the Company’s consolidated financial statements is dependent upon the value and quantity of acquisitions during the year.

In May 2017, the FASB issued Accounting Standards Update ASU 2017-09, Compensation-Stock Compensation: Scope of Stock Compensation Modification Accounting. The ASU was issued to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The update is effective for annual periods beginning after December 15, 2017, and interim periods thereafter. Early adoption is permitted, including adoption in any interim period. The Company adopted ASU 2017-09 in the first quarter of 2018 and such adoption did not have a material impact on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The objective of ASU 2017-12 is to expand hedge accounting for both financial (interest rate) and commodity risks and create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes. ASU 2017-12 will be effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods in the year of adoption. Early adoption is permitted for any interim or annual period. During the first quarter 2019, the Company adopted ASU 2017-12 and such adoption did not have a material impact on the Company's consolidated financial statements.

Note I – Acquisitions

2019

There were no acquisitions for the year ended December 31, 2019.

2018

The following table is a summary of the acquisitions for the year ended December 31, 2018.

Property
Location
Date Acquired
Property Type
  
# Spaces
    
Size / Acreage
    
Retail Sq. Ft.
    
Property Purchase Price
  
MVP New Orleans Rampart, LLC
New Orleans, LA
2/1/2018
Lot
    
78
      
0.44
      
N/A
    
$
8,105,000
  
MVP Hawaii Marks Garage, LLC
Honolulu, HI
6/21/2018
Garage
    
311
      
0.77
      
16,205
    
$
20,834,000
  

The following table is a summary of the allocated acquisition value of all properties acquired by the Company for the year ended December 31, 2018.

   
Assets
  
   
Land and Improvements
    
Building and improvements
    
Total assets acquired
  
MVP New Orleans
  
$
8,105,000
    
$
--
    
$
8,105,000
*
MVP Hawaii Marks Garage
  
$
9,118,000
    
$
11,716,000
    
$
20,834,000
*
   
$
17,223,000
    
$
11,716,000
    
$
28,939,000
  

*Includes acquisition and closing costs

The following table presents the results of operations of the acquired properties for the year ended December 31, 2018:

   
For the Year Ended December 31, 2018
  
   
Total Revenues
    
Net Income
  
2018 acquisitions
  
$
1,241,000
    
$
745,000
  

Pro forma results of the Company

The following table of pro forma consolidated results of operations of the Company for the year ended December 31, 2018 and assumes that the acquisitions were completed as of January 1, 2018.

       
   
For the year ended December 31, 2018
  
Revenues from continuing operations
  
$
22,593,000
  
Net income (loss) from continuing operations
  
$
(4,508,000
)
Net income (loss) from continuing operations per share – basic
  
$
(0.69
)
Net income (loss) from continuing operations per share – diluted
  
$
(0.69
)


Note J — Assets held for sale

2019

Effective April 17, 2019, the Company entered into a purchase sales agreement (“PSA”) with an unrelated third party to sell MVP San Jose 88 Garage, LLC, which is wholly owned by the Company and is listed as held for sale. This multi-level parking garage located in San Jose, California was originally acquired by the Company on June 15, 2016. On May 14, 2019 the unrelated third party cancelled the PSA. The Company executed a new PSA for this property with another unrelated third party on February 25, 2020.  Such third party has made a deposit that became nonrefundable on March 27, 2020.

The following is summary of San Jose 88 Garage, LLC net assets held for sale as of December 31, 2019:
   
December 31, 2019
    
December 31, 2018
  
Assets:
            
Prepaid expenses
  
$
42,000
    
$
8,000
  
Property and equipment, net of accumulated depreciation
    
3,288,000
      
3,844,000
  
       Total assets
  
$
3,330,000
    
$
3,852,000
  
Liabilities:
                
Notes payable
  
$
2,500,000
    
$
2,500,000
  
Accounts payable and accrued liabilities
    
47,000
      
195,000
  
     Total liabilities
    
2,547,000
      
2,695,000
  
Net assets held for sale
  
$
783,000
    
$
1,157,000
  

The following is a summary of the results of operations related to MVP San Jose 88 Garage for the years ended December 31, 2019 and 2018:

       
   
2019
    
2018
  
Revenue
  
$
450,000
    
$
474,000
  
Expenses *
    
842,000
      
419,000
  
Income/(loss) from assets held for sale, net of income taxes
  
$
(392,000
)
  
$
55,000
  
*Includes $343,000 impairment for the year ended December 31, 2019.

2018

During the year ended December 31, 2018, the Company had an 87.09% ownership interest in one property that was listed as held for sale, with a carrying value of approximately $6.1 million. This property was accounted for at the fair value based on an appraisal. During June 2016, Minneapolis Venture entered into a PSA to sell the 10th Street lot “as is” to a third party for approximately $6.1 million. During October 2016, the PSA was cancelled. During February 2017, the Company entered into a letter of intent to sell a portion of the property (approximately 2.2 acres) to an unrelated third party for $3.0 million. During October 2018, the Company completed the partial sale for cash consideration of $3.0 million.

The remaining portion of the property was reported as held for use at December 31, 2018.


Note K – Disposition of Investments in Real Estate

2019

Ft Lauderdale

On September 23, 2019 the Company, through an entity wholly owned by the Company, sold a surface parking lot and office building in Ft. Lauderdale for cash consideration of $6.1 million to Fort Lauderdale Properties Management, LLC, a third-party buyer. The Company used $2.0 million of the proceeds to pay off the existing promissory note secured by the MVP PF Ft. Lauderdale 2013, LLC. The property was originally purchased in July 2013 by MVP REIT, Inc., and the property was later acquired by The Parking REIT, Inc. for approximately $3.4 million based upon original purchase price and the allocation of the merger consideration for the merger of MVP REIT, Inc. and MVP REIT II, Inc. in December 2017.  The gain on sale is approximately $2.3 million.

The following is a summary of the results of operations related to the surface parking lot in Ft. Lauderdale for the years ended December 31, 2019 and 2018:

   
For the Years Ended December 13,
  
   
2019
    
2018
  
Revenue
  
$
136,000
    
$
130,000
  
Expenses
    
(116,000
)
    
(167,000
)
Income (loss) from disposed assets, net of income taxes
  
$
20,000
    
$
(37,000
)

Memphis Court

On October 29, 2019, the Company, through an entity wholly owned by the Company, sold a surface parking lot and office building in Memphis for cash consideration of $675,000 to KNM Development Group, LLC, a third-party buyer.  The property was originally purchased in August 2013 by MVP REIT, Inc., and the property was later acquired by The Parking REIT, Inc. for approximately $1.0 million based upon the original purchase price and the allocation of the merger consideration for the merger of MVP REIT, Inc. and MVP REIT II, Inc. in December 2017.  The gain on sale is approximately $0.2.

   
For the Years Ended December 31,
  
   
2019
    
2018
  
Revenue
  
$
4,000
    
$
12,000
  
Expenses *
    
563,000
      
3,000
  
Income/(loss) from assets held for sale, net of income taxes
  
$
(559,000
)
  
$
9,000
  
*Includes $558,000 impairment for the year ended December 31, 2019.

2018

In May 2018, the Company entered into agreements with the Redevelopment Agency for the City of Milwaukee (“RACM”) and the Milwaukee Symphony (“Symphony”), regarding the MVP Milwaukee Wells surface parking lot (the “Lot”), wherein we acquired a parcel of land from RACM for $388,545 and sold a portion of the Lot to the Symphony for $200,000. These transactions resulted in an addition of approximately 5,000 square feet to the Lot and will allow us to add an additional 53 parking spaces.

On June 14, 2018, the Company, through entities wholly owned by the Company, sold two surface parking lots in St. Louis for $8.5 million to the Land Clearance For Redevelopment Authority of the City of St. Louis, a public body corporate and politic of the State of Missouri. Additionally, the purchaser agreed to pay 50% of the premium associated with defeasance of two CMBS loans which were cross-collateralized. The loans encumbered the following properties: MVP St. Louis Convention Plaza, MVP St. Louis Lucas, MVP KC Cherry Lot, MVP Indianapolis City Park Garage, and MVP Indianapolis Washington Street Lot. Subsequent to the defeasance of the loan that encumbered MVP Indianapolis City Park Garage and MVP Indianapolis Washington Street Lot, the Company added the two Indianapolis properties to the KeyBank Borrowing Base revolving credit facility, drawing approximately $8.7 million, of which approximately $1.6 million was used to pay down the KeyBank Working Capital revolving credit facility.

The following is a summary of the results of operations related to the two surface parking lots in St. Louis for the year ended December 31, 2018:

       
   
For the Year Ended December 31, 2018
  
Revenue
  
$
312,000
  
Expenses
    
(52,000
)
Income from disposed assets, net of income taxes
  
$
260,000
  

On August 8, 2018 the Company, through entities wholly owned by the Company, sold two surface parking lots in Kansas City for cash consideration of $4.0 million to Block 66, LLC, a third-party buyer. Approximately $2.9 million of the proceeds were used to pay down the KeyBank Working Capital revolving credit facility. The properties were originally purchased in August 2013 and October 2015 by MVP I, for a combined total of $2.1 million. The properties were later acquired by The Parking REIT, Inc. for approximately $2.8 million based upon the allocation of the merger consideration for the merger of MVP I and the Company in December 2017.

The following is a summary of the results of operations related to the two surface parking lots in Kansas City for the year ended December 31, 2018:

       
   
For the Year Ended December 31, 2018
  
Revenue
  
$
107,000
  
Expenses
    
(24,000
)
Income from disposed assets, net of income taxes
  
$
83,000
  

On October 5, 2018, The Parking REIT, Inc., through an entity wholly owned by the Company, completed a partial sale of 36,155 square feet of land adjoining a surface parking lot in Minneapolis for cash consideration of $3.0 million to Camber Lodging, LLC and Amber Lodging, LLC, for a proposed hotel development. The Company originally purchased the approximately 108,000 square foot parcel in January 2016 for $6.1 million.

The following is a summary of the results of operations related to the sold portion of the surface parking lot in Minneapolis for the year ended December 31, 2018:

       
   
For the Year Ended December 31, 2018
  
Revenue
  
$
--
  
Expenses
    
(270,000
)
Gain/(Loss) from disposed assets, net of income taxes
  
$
(270,000
)


Note L — Notes Payable

2019

As of December 31, 2019, the principal balances on notes payable are as follows:

Property
  
Original Debt Amount
    
Monthly Payment
    
Balance as of 12/31/2019
  
Lender
Term
  
Interest Rate
  
Loan Maturity
MVP San Jose 88 Garage, LLC (5)
  
$
1,645,000
    
Interest Only
    
$
2,500,000
  
Multiple
1 Year
    
7.50
%
6/30/2020
MVP Cincinnati Race Street, LLC
  
$
2,550,000
    
Interest Only
    
$
2,550,000
  
Multiple
1 Year
    
7.50
%
4/19/2020
MVP Wildwood NJ Lot, LLC
  
$
1,000,000
    
Interest Only
    
$
1,000,000
  
Tigges Construction Co.
1 Year
    
7.50
%
4/29/2020
The Parking REIT D&O Insurance
  
$
1,681,000
    
$
171,000
    
$
679,000
  
MetaBank
1 Year
    
3.60
%
4/30/2020
Minneapolis Venture
  
$
2,000,000
    
Interest Only
    
$
2,000,000
  
Multiple
1 Year
    
8.00
%
10/22/2020
MVP Raider Park Garage, LLC (4)
  
$
7,400,000
    
Interest Only
    
$
7,400,000
  
LoanCore
2 Year
  
Variable
  
12/9/2020
MVP New Orleans Rampart, LLC (4)
  
$
5,300,000
    
Interest Only
    
$
5,300,000
  
LoanCore
2 Year
  
Variable
  
12/9/2020
MVP Hawaii Marks Garage, LLC (4)
  
$
13,500,000
    
Interest Only
    
$
13,500,000
  
LoanCore
2 Year
  
Variable
  
12/9/2020
MVP Milwaukee Wells, LLC (4)
  
$
2,700,000
    
Interest Only
    
$
2,700,000
  
LoanCore
2 Year
  
Variable
  
12/9/2020
MVP Indianapolis City Park, LLC (4)
  
$
7,200,000
    
Interest Only
    
$
7,200,000
  
LoanCore
2 Year
  
Variable
  
12/9/2020
MVP Indianapolis WA Street, LLC (4)
  
$
3,400,000
    
Interest Only
    
$
3,400,000
  
LoanCore
2 Year
  
Variable
  
12/9/2020
MVP Memphis Poplar (3)
  
$
1,800,000
    
Interest Only
    
$
1,800,000
  
LoanCore
5 Year
    
5.38
%
3/6/2024
MVP St. Louis (3)
  
$
3,700,000
    
Interest Only
    
$
3,700,000
  
LoanCore
5 Year
    
5.38
%
3/6/2024
Mabley Place Garage, LLC
  
$
9,000,000
    
$
44,000
    
$
8,188,000
  
Barclays
10 year
    
4.25
%
12/6/2024
MVP Houston Saks Garage, LLC
  
$
3,650,000
    
$
20,000
    
$
3,262,000
  
Barclays Bank PLC
10 year
    
4.25
%
8/6/2025
Minneapolis City Parking, LLC
  
$
5,250,000
    
$
29,000
    
$
4,797,000
  
American National Insurance, of NY
10 year
    
4.50
%
5/1/2026
MVP Bridgeport Fairfield Garage, LLC
  
$
4,400,000
    
$
23,000
    
$
4,025,000
  
FBL Financial Group, Inc.
10 year
    
4.00
%
8/1/2026
West 9th Properties II, LLC
  
$
5,300,000
    
$
30,000
    
$
4,909,000
  
American National Insurance Co.
10 year
    
4.50
%
11/1/2026
MVP Fort Worth Taylor, LLC
  
$
13,150,000
    
$
73,000
    
$
12,208,000
  
American National Insurance, of NY
10 year
    
4.50
%
12/1/2026
MVP Detroit Center Garage, LLC
  
$
31,500,000
    
$
194,000
    
$
29,717,000
  
Bank of America
10 year
    
5.52
%
2/1/2027
MVP St. Louis Washington, LLC (1)
  
$
1,380,000
    
$
8,000
    
$
1,362,000
  
KeyBank
10 year *
    
4.90
%
5/1/2027
St. Paul Holiday Garage, LLC (1)
  
$
4,132,000
    
$
24,000
    
$
4,078,000
  
KeyBank
10 year *
    
4.90
%
5/1/2027
Cleveland Lincoln Garage, LLC (1)
  
$
3,999,000
    
$
23,000
    
$
3,946,000
  
KeyBank
10 year *
    
4.90
%
5/1/2027
MVP Denver Sherman, LLC (1)
  
$
286,000
    
$
2,000
    
$
282,000
  
KeyBank
10 year *
    
4.90
%
5/1/2027
MVP Milwaukee Arena Lot, LLC (1)
  
$
2,142,000
    
$
12,000
    
$
2,114,000
  
KeyBank
10 year *
    
4.90
%
5/1/2027
MVP Denver Sherman 1935, LLC (1)
  
$
762,000
    
$
4,000
    
$
752,000
  
KeyBank
10 year *
    
4.90
%
5/1/2027
MVP Louisville Broadway Station, LLC (2)
  
$
1,682,000
    
Interest Only
    
$
1,682,000
  
Cantor Commercial Real Estate
10 year **
    
5.03
%
5/6/2027
MVP Whitefront Garage, LLC (2)
  
$
6,454,000
    
Interest Only
    
$
6,454,000
  
Cantor Commercial Real Estate
10 year **
    
5.03
%
5/6/2027
MVP Houston Preston Lot, LLC (2)
  
$
1,627,000
    
Interest Only
    
$
1,627,000
  
Cantor Commercial Real Estate
10 year **
    
5.03
%
5/6/2027
MVP Houston San Jacinto Lot, LLC (2)
  
$
1,820,000
    
Interest Only
    
$
1,820,000
  
Cantor Commercial Real Estate
10 year **
    
5.03
%
5/6/2027
St. Louis Broadway, LLC (2)
  
$
1,671,000
    
Interest Only
    
$
1,671,000
  
Cantor Commercial Real Estate
10 year **
    
5.03
%
5/6/2027
St. Louis Seventh & Cerre, LLC (2)
  
$
2,057,000
    
Interest Only
    
$
2,057,000
  
Cantor Commercial Real Estate
10 year **
    
5.03
%
5/6/2027
MVP Indianapolis Meridian Lot, LLC (2)
  
$
938,000
    
Interest Only
    
$
938,000
  
Cantor Commercial Real Estate
10 year **
    
5.03
%
5/6/2027
MVP Preferred Parking, LLC
  
$
11,330,000
    
Interest Only
    
$
11,330,000
  
Key Bank
10 year **
    
5.02
%
8/1/2027
Less unamortized loan issuance costs
                  
$ 
(1,828,000
)
                 
                   
$
159,120,000
                   


(1)
The Company issued a promissory note to KeyBank for $12.7 million secured by a pool of properties, including (i) MVP Denver Sherman, LLC, (ii) MVP Denver Sherman 1935, LLC, (iii) MVP Milwaukee Arena, LLC, (iv) MVP St. Louis Washington, LLC, (v) St. Paul Holiday Garage, LLC and (vi) Cleveland Lincoln Garage Owners, LLC.
(2)
The Company issued a promissory note to Cantor Commercial Real Estate Lending, L.P. (“CCRE”) for $16.25 million secured by a pool of properties, including (i) MVP Indianapolis Meridian Lot, LLC, (ii) MVP Louisville Station Broadway, LLC, (iii) MVP White Front Garage Partners, LLC, (iv) MVP Houston Preston Lot, LLC, (v) MVP Houston San Jacinto Lot, LLC, (vi) St. Louis Broadway Group, LLC, and (vii) St. Louis Seventh & Cerre, LLC.
(3)
On February 8, 2019, subsidiaries of the Company, consisting of MVP PF St. Louis 2013, LLC (“MVP St. Louis”), and MVP PF Memphis Poplar 2013 (“MVP Memphis Poplar”), LLC entered into a loan agreement, dated as of February 8, 2019, with LoanCore Capital Credit REIT LLC (“LoanCore”). Under the terms of the Loan Agreement, LoanCore agreed to loan MVP St. Louis and MVP Memphis Poplar $5.5 million to repay and discharge the outstanding KeyBank loan agreement. The loan is secured by a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing on each of the properties owned by MVP St. Louis and MVP Memphis Poplar.
(4)
On November 30, 2018, subsidiaries of the Company, consisting of MVP Hawaii Marks Garage, LLC, MVP Indianapolis City Park Garage, LLC, MVP Indianapolis Washington Street Lot, LLC, MVP New Orleans Rampart, LLC, MVP Raider Park Garage, LLC, and MVP Milwaukee Wells LLC (the “Borrowers”) entered into a loan agreement, dated as of November 30, 2018 (the “Loan Agreement”), with LoanCore Capital Credit REIT LLC (the “LoanCore”). Under the terms of the Loan Agreement, LoanCore agreed to loan the Borrowers $39.5 million to repay and discharge the outstanding KeyBank Revolving Credit Facility. The loan is secured by a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing on each of the properties owned by the Borrowers (the “Properties”). The loan bears interest at a floating rate equal to the sum of one-month LIBOR plus 3.65%, subject to a LIBOR minimum of 1.95%. Additionally, the Borrowers were required to purchase an Interest Rate Protection Agreement which caps its maximum LIBOR at 3.50% for the duration of the loan. Payments are interest-only for the duration of the loan, with the $39.5 million principal repayment due in a balloon payment due on December 9, 2020, with an option to extend the term until December 9, 2021 subject to certain conditions and payment obligations. The Borrowers have the right to prepay all or any part of the loan, subject to payment of any applicable Spread Maintenance Premium and Exit Fee (as defined in the Loan Agreement). The loan is also subject to mandatory prepayment upon certain events of Insured Casualty or Condemnation (as defined in the Loan Agreement). The Borrowers made customary representations and warranties to LoanCore and agreed to maintain certain covenants under the Loan Agreement, including but not limited to, covenants involving their existence; property taxes and other charges; access to properties, repairs, maintenance and alterations; performance of other agreements; environmental matters; title to properties; leases; estoppel statements; management of the Properties; special purpose bankruptcy remote entity status; change in business or operation of the Properties; debt cancellation; affiliate transactions; indebtedness of the Borrowers limited to Permitted Indebtedness (as defined in the Loan Agreement); ground lease reserve relating to MVP New Orleans’ Property; property cash flow allocation; liens on the Properties; ERISA matters; approval of major contracts; payments upon a sale of a Property; and insurance, notice and reporting obligations as set forth in the loan agreement. The Loan Agreement contains customary events of default and indemnification obligations. The loan proceeds were used to repay and discharge the KeyBank Credit Agreement, dated as of December 29, 2017, as amended, per the terms outlined in the third amendment to the Credit Agreement dated September 28, 2018, as previously filed on Form 8-K on October 2, 2018 and incorporated herein by reference.
(5)
Loan in the amount of $2,500,000 was originated on June 5, 2018 of which $1,645,000 was funded.  Remaining balance available of $855,000 was funded on December 11, 2018.

 * 2 Year Interest Only
** 10 Year Interest Only


The following table shows notes payable paid in full during the year ended December 31, 2019.

Property
  
Original Debt Amount
    
Monthly Payment
    
Balance as of 12/31/2019
  
Lender
Term
  
Interest Rate
  
Loan Maturity
MVP PF Ft. Lauderdale 2013, LLC
  
$
2,000,000
      
--
      
--
  
Multiple
1 Year
    
8.00
%
6/24/2020
MVP PF Ft. Lauderdale 2013, LLC (1)
  
$
4,300,000
    
$
25,000
      
--
  
Key Bank
5 Year
    
4.94
%
2/1/2019
The Parking REIT D&O Insurance
  
$
390,000
    
$
29,000
      
--
  
First Insurance Funding
1 Year
    
3.70
%
4/30/2019

(1)
Secured by four properties, including (i) MVP PF Ft. Lauderdale 2013, LLC, (ii) MVP PF Memphis Court 2013, LLC, (iii) MVP PF Memphis Poplar 2013, LLC and (iv) MVP PF St. Louis 2013, LLC

Total interest expense incurred for the years ended December 31, 2019, was approximately $8.6 million. Total loan amortization cost for the year months ended December 31, 2019, was approximately $0.9 million.

As of December 31, 2019, future principal payments on notes payable are as follows:

2020
  
$
50,183,000
  
2021
    
2,058,000
  
2022
    
2,252,000
  
2023
    
2,498,000
  
2024
    
15,283,000
  
Thereafter
    
88,674,000
  
Less unamortized loan issuance costs
    
(1,828,000
)
Total
  
$
159,120,000
  

2018

As of December 31, 2018, the principal balances on notes payable are as follows:

Property
  
Original Debt Amount
    
Monthly Payment
    
Balance as of 12/31/2018
  
Lender
Term
  
Interest Rate
  
Loan Maturity
MVP PF Ft. Lauderdale 2013, LLC (3)
  
$
4,300,000
    
$
25,000
    
$
3,830,000
  
KeyBank
5 Year
    
4.94
%
2/1/2019
MVP Cincinnati Race Street, LLC
  
$
2,550,000
    
Interest Only
    
$
2,550,000
  
Multiple
1 Year
    
7.50
%
3/25/2019
MVP Wildwood NJ Lot, LLC
  
$
1,000,000
    
Interest Only
    
$
1,000,000
  
Tigges Construction Co.
1 Year
    
7.50
%
4/1/2019
The Parking REIT D&O Insurance
  
$
390,000
    
$
28,000
    
$
30,000
  
First Insurance Funding
1 Year
    
3.70
%
4/30/2019
MVP San Jose 88 Garage, LLC(5)
  
$
1,645,000
    
Interest Only
    
$
2,500,000
  
Multiple
1 Year
    
7.50
%
6/3/2019
MVP Raider Park Garage, LLC (4)
  
$
7,400,000
    
Interest Only
    
$
7,400,000
  
LoanCore
2 Year
  
Variable
  
12/9/2020
MVP New Orleans Rampart, LLC (4)
  
$
5,300,000
    
Interest Only
    
$
5,300,000
  
LoanCore
2 Year
  
Variable
  
12/9/2020
MVP Hawaii Marks Garage, LLC (4)
  
$
13,500,000
    
Interest Only
    
$
13,500,000
  
LoanCore
2 Year
  
Variable
  
12/9/2020
MVP Milwaukee Wells, LLC (4)
  
$
2,700,000
    
Interest Only
    
$
2,700,000
  
LoanCore
2 Year
  
Variable
  
12/9/2020
MVP Indianapolis City Park, LLC (4)
  
$
7,200,000
    
Interest Only
    
$
7,200,000
  
LoanCore
2 Year
  
Variable
  
12/9/2020
MVP Indianapolis WA Street, LLC (4)
  
$
3,400,000
    
Interest Only
    
$
3,400,000
  
LoanCore
2 Year
  
Variable
  
12/9/2020
Mabley Place Garage, LLC
  
$
9,000,000
    
$
44,000
    
$
8,362,000
  
Barclays
10 year
    
4.25
%
12/6/2024


MVP Houston Saks Garage, LLC
  
$
3,650,000
    
$
20,000
    
$
3,357,000
  
Barclays Bank PLC
10 year
    
4.25
%
8/6/2025
Minneapolis City Parking, LLC
  
$
5,250,000
    
$
29,000
    
$
4,928,000
  
American National Insurance, of NY
10 year
    
4.50
%
5/1/2026
MVP Bridgeport Fairfield Garage, LLC
  
$
4,400,000
    
$
23,000
    
$
4,140,000
  
FBL Financial Group, Inc.
10 year
    
4.00
%
8/1/2026
West 9th Properties II, LLC
  
$
5,300,000
    
$
30,000
    
$
5,039,000
  
American National Insurance Co.
10 year
    
4.50
%
11/1/2026
MVP Fort Worth Taylor, LLC
  
$
13,150,000
    
$
73,000
    
$
12,528,000
  
American National Insurance, of NY
10 year
    
4.50
%
12/1/2026
MVP Detroit Center Garage, LLC
  
$
31,500,000
    
$
194,000
    
$
30,360,000
  
Bank of America
10 year
    
5.52
%
2/1/2027
MVP St Louis Washington, LLC (1)
  
$
1,380,000
    
Interest Only
    
$
1,380,000
  
KeyBank
10 year *
    
4.90
%
5/1/2027
St Paul Holiday Garage, LLC (1)
  
$
4,132,000
    
Interest Only
    
$
4,132,000
  
KeyBank
10 year *
    
4.90
%
5/1/2027
Cleveland Lincoln Garage, LLC (1)
  
$
3,999,000
    
Interest Only
    
$
3,999,000
  
KeyBank
10 year *
    
4.90
%
5/1/2027
MVP Denver Sherman, LLC (1)
  
$
286,000
    
Interest Only
    
$
286,000
  
KeyBank
10 year *
    
4.90
%
5/1/2027
MVP Milwaukee Arena Lot, LLC (1)
  
$
2,142,000
    
Interest Only
    
$
2,142,000
  
KeyBank
10 year *
    
4.90
%
5/1/2027
MVP Denver Sherman 1935, LLC (1)
  
$
762,000
    
Interest Only
    
$
762,000
  
KeyBank
10 year *
    
4.90
%
5/1/2027
MVP Louisville Broadway Station, LLC (2)
  
$
1,682,000
    
Interest Only
    
$
1,682,000
  
Cantor Commercial Real Estate
10 year **
    
5.03
%
5/6/2027
MVP Whitefront Garage, LLC (2)
  
$
6,454,000
    
Interest Only
    
$
6,454,000
  
Cantor Commercial Real Estate
10 year **
    
5.03
%
5/6/2027
MVP Houston Preston Lot, LLC (2)
  
$
1,627,000
    
Interest Only
    
$
1,627,000
  
Cantor Commercial Real Estate
10 year **
    
5.03
%
5/6/2027
MVP Houston San Jacinto Lot, LLC (2)
  
$
1,820,000
    
Interest Only
    
$
1,820,000
  
Cantor Commercial Real Estate
10 year **
    
5.03
%
5/6/2027
St. Louis Broadway, LLC (2)
  
$
1,671,000
    
Interest Only
    
$
1,671,000
  
Cantor Commercial Real Estate
10 year **
    
5.03
%
5/6/2027
St. Louis Seventh & Cerre, LLC (2)
  
$
2,057,000
    
Interest Only
    
$
2,057,000
  
Cantor Commercial Real Estate
10 year **
    
5.03
%
5/6/2027
MVP Indianapolis Meridian Lot, LLC (2)
  
$
938,000
    
Interest Only
    
$
938,000
  
Cantor Commercial Real Estate
10 year **
    
5.03
%
5/6/2027
MVP Preferred Parking, LLC
  
$
11,330,000
    
Interest Only
    
$
11,330,000
  
Key Bank
10 year **
    
5.02
%
8/1/2027
Less unamortized loan issuance costs
                  
$ 
(2,443,000
)
 
 
        
    
                   
$
155,961,000
                   


(1)
The Company issued a promissory note to KeyBank for $12.7 million secured by a pool of properties, including (i) MVP Denver Sherman, LLC, (ii) MVP Denver Sherman 1935, LLC, (iii) MVP Milwaukee Arena, LLC, (iv) MVP St. Louis Washington, LLC, (v) St Paul Holiday Garage, LLC and (vi) Cleveland Lincoln Garage Owners, LLC.
(2)
The Company issued a promissory note to Cantor Commercial Real Estate Lending, L.P. (“CCRE”) for $16.25 million secured by a pool of properties, including (i) MVP Indianapolis Meridian Lot, LLC, (ii) MVP Louisville Station Broadway, LLC, (iii) MVP White Front Garage Partners, LLC, (iv) MVP Houston Preston Lot, LLC, (v) MVP Houston San Jacinto Lot, LLC, (vi) St. Louis Broadway Group, LLC, and (vii) St. Louis Seventh & Cerre, LLC.
(3)
Secured by four properties, including (i) MVP PF Ft. Lauderdale 2013, LLC, (ii) MVP PF Memphis Court 2013, LLC, (iii) MVP PF Memphis Poplar 2013, LLC and (iv) MVP PF St. Louis 2013, LLC).

(4)
On November 30, 2018, subsidiaries of the Company, consisting of MVP Hawaii Marks Garage, LLC, MVP Indianapolis City Park Garage, LLC, MVP Indianapolis Washington Street Lot, LLC, MVP New Orleans Rampart, LLC, MVP Raider Park Garage, LLC, and MVP Milwaukee Wells LLC (the “Borrowers”) entered into a loan agreement, dated as of November 30, 2018 (the “Loan Agreement”), with LoanCore Capital Credit REIT LLC (the “LoanCore”). Under the terms of the Loan Agreement, LoanCore agreed to loan the Borrowers $39.5 million to repay and discharge the outstanding KeyBank Revolving Credit Facility. The loan is secured by a Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing on each of the properties owned by the Borrowers (the “Properties”). The loan bears interest at a floating rate equal to the sum of one-month LIBOR plus 3.65%, subject to a LIBOR minimum of 1.95%. Additionally, the Borrowers were required to purchase an Interest Rate Protection Agreement which caps its maximum LIBOR at 3.50% for the duration of the loan. Payments are interest-only for the duration of the loan, with the $39.5 million principal repayment due in a balloon payment due on December 9, 2020, with an option to extend the term until December 9, 2021 subject to certain conditions and payment obligations. The Borrowers have the right to prepay all or any part of the loan, subject to payment of any applicable Spread Maintenance Premium and Exit Fee (as defined in the Loan Agreement). The loan is also subject to mandatory prepayment upon certain events of Insured Casualty or Condemnation (as defined in the Loan Agreement). The Borrowers made customary representations and warranties to LoanCore and agreed to maintain certain covenants under the Loan Agreement, including but not limited to, covenants involving their existence; property taxes and other charges; access to properties, repairs, maintenance and alterations; performance of other agreements; environmental matters; title to properties; leases; estoppel statements; management of the Properties; special purpose bankruptcy remote entity status; change in business or operation of the Properties; debt cancellation; affiliate transactions; indebtedness of the Borrowers limited to Permitted Indebtedness (as defined in the Loan Agreement); ground lease reserve relating to MVP New Orleans’ Property; property cash flow allocation; liens on the Properties; ERISA matters; approval of major contracts; payments upon a sale of a Property; and insurance, notice and reporting obligations as set forth in the loan agreement. The Loan Agreement contains customary events of default and indemnification obligations. The loan proceeds were used to repay and discharge the KeyBank Credit Agreement, dated as of December 29, 2017, as amended, per the terms outlined in the third amendment to the Credit Agreement dated September 28, 2018, as previously filed on Form 8-K on October 2, 2018 and incorporated herein by reference.
(5)
Loan in the amount of $2,500,000 was originated on June 5, 2018 of which $1,645,000 was funded.  Remaining balance available of $855,000 was funded on December 11, 2018.

 * 2 Year Interest Only
** 10 Year Interest Only

The following table shows notes payable that had been paid in full during the year ended December 31, 2018.

Property
  
Original Debt Amount
    
Monthly Payment
    
Balance as of 12/31/2018
  
Lender
Term
  
Interest Rate
  
Loan Maturity
St. Louis Lucas (1)(3)
  
$
3,490,000
    
$
20,000
      
--
  
Key Bank
10 year
    
4.59
%
2/1/2026
Indianapolis Garage (2)(3)
  
$
8,200,000
    
$
46,000
      
--
  
Key Bank
10 year
    
4.59
%
2/1/2026

(1)
Secured by three properties, including (i) MVP St. Louis Convention, (ii) MVP St. Louis Lucas and (iii) MVP KC Cherry.
(2)
Secured by two properties, including (i) MVP Indianapolis City Park and (ii) MVP Indianapolis Washington Street.
(3)
Loans were defeased through the sale of St Louis Lucas and Indianapolis Garage loans. MVP Indianapolis City Park and MVP Indianapolis Washington Street were added to the KeyBank Borrowing Base revolving credit facility, drawing approximately $8.7 million, of which approximately $1.6 million was used to pay down the KeyBank Working Capital revolving credit facility.

Total interest expense incurred for the year ended December 31, 2018, was approximately $7.8 million. Total loan amortization cost for the year ended December 31, 2018, was approximately $1.7 million.


As of December 31, 2018, future principal payments on the notes payable are as follows:

2019
  
$
11,691,000
  
2020
    
41,454,000
  
2021
    
2,058,000
  
2022
    
2,252,000
  
2023
    
2,499,000
  
Thereafter
    
98,450,000
  
Less unamortized loan issuance costs
    
(2,443,000
)
Total
  
$
155,961,000
  

Note M — Fair Value

A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability in an orderly transaction. The hierarchy for inputs used in measuring fair value are as follows:

1.
Level 1 – Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
2.
Level 2 – Inputs include quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations whose inputs are observable.
3.
Level 3 – Model-derived valuations with unobservable inputs.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

The Company's financial instruments include cash and cash equivalents, restricted cash, accounts payable and accrued expenses. Due to their short maturities, the carrying amounts of these assets and liabilities approximate fair value.

Assets and liabilities measured at fair value Level 3 on a non-recurring basis may include Assets Held for Sale.

Note N – Investment In DST

On May 31, 2017, the Company, through a wholly owned subsidiary of its Operating Partnership, purchased a 51.0% beneficial interest in MVP St. Louis Cardinal Lot, DST, a Delaware Statutory Trust (“MVP St. Louis”), for approximately $2.8 million. MVP St. Louis is the owner of a 2.56-acre, 376-vehicle commercial parking lot located at 500 South Broadway, St. Louis, Missouri 63103, known as the Cardinal Lot (the “Property”), which is adjacent to Busch Stadium, the home of the St. Louis Cardinals major league baseball team. The Property was purchased by MVP St. Louis from an unaffiliated seller for a purchase price of $11,350,000, plus payment of closing costs, financing costs, and related transactional costs.

Concurrently with the acquisition of the Property, MVP St. Louis obtained a first mortgage loan from Cantor Commercial Real Estate Lending, L.P (“St. Louis Lender”), in the principal amount of $6,000,000, with a 10-year, interest-only term at a fixed interest rate of 5.25%, resulting in an annual debt service payment of $315,000 (the “St. Louis Loan”). MVP St. Louis used the Company’s investment to fund a portion of the purchase price for the Property. The remaining equity portion was funded through short-term investments by VRM II, an affiliate of the former Advisor, pending the private placements of additional beneficial interest in MVP St. Louis exempt from registration under the Securities Act. VRM II and Michael V. Shustek, the Company’s Chairman and Chief Executive Officer, provided non-recourse carveout guaranties of the loan and environmental indemnities of St. Louis Lender.


Also, concurrently with the acquisition of the Property, MVP St. Louis, as landlord, entered into a 10-year master lease (the “St. Louis Master Lease”), with MVP St. Louis Cardinal Lot Master Tenant, LLC, an affiliate of MVP Realty, as tenant, (the “St. Louis Master Tenant”). St. Louis Master Tenant, in turn, concurrently entered into a 10-year sublease with Premier Parking of Missouri, LLC. The St. Louis Master Lease provides for annual rent payable monthly to MVP St. Louis, consisting of base rent in an amount to pay debt service on the St. Louis Loan, stated rent of $414,000 and potential bonus rent equal to a share of the revenues payable under the sublease in excess of a threshold. The Company will be entitled to its proportionate share of the rent payments based on its ownership interest. Under the St. Louis Master Lease, MVP St. Louis is responsible for capital expenditures and the St. Louis Master Tenant is responsible for taxes, insurance and operating expenses. For the years ended December 31, 2019 and 2018, income earned was $218,000 and $205,000, respectively.  For the years ended December 31, 2019 and 2018, distributions received were $203,000 and $205,000, respectively.

The Company conducted an analysis and concluded that the 51% investment in the DST should not be consolidated. As a DST, the entity is subject to the Variable Interest Entity (“VIE”) Model under ASC 810-10.

As stated in ASC 810: “A controlling financial interest in the VIE model requires both of the following:

a. The power to direct the activities that most significantly impact the VIE’s economic performance
b. The obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.”

As a VIE, the DST is governed in a manner similar to a limited partnership (i.e., there are trustees and there is no board) and the Company, as a beneficial owner, lacks the power though voting rights or otherwise to direct the activities of the DST that most significantly impact the entity’s economic performance. Specifically, the beneficial interest owners do not have the rights set forth in ASC 810-10-15-14(b)(1)(ii) – the beneficial owners can only remove the trustees if the trustees have engaged in fraud or gross negligence with respect to the trust and the beneficial owners have no substantive participating rights over the trustees.

The former Advisor was the advisor to the Company. The Company is controlled by its independent board of directors and its shareholders. In addition, the former Advisor is the 100% direct/indirect owner of the MVP Parking DST, LLC (“DST Sponsor”), the MVP St. Louis Cardinal Lot Signature Trustee, LLC (“Signature Trustee”) and MVP St. Louis Cardinal Lot Master Tenant, LLC (the “Master Tenant”), who have no direct or indirect ownership in the Company. The Signature Trustee and the Master Tenant can direct the most significant activities of the DST.

The former Advisor controls and consolidates the Signature Trustee, the Master Tenant, and the DST Sponsor. The Company concluded the Master Tenant/property management agreement exposes the Master Tenant to funding operating losses of the Property. As such, that agreement should be considered a variable interest in DST (ASC 810-10-55-37 and 810-10-55-37C). Accordingly, the former Advisor has a variable interest in the DST (through the master tenant/property manager) and has power over the significant activities of the DST (through the Signature Trustee and the master tenant/property manager). Accordingly, the Company believes that the Master Tenant is the primary beneficiary of the DST, which is ultimately owned and controlled by the former Advisor. In addition, the Company does not have the power to direct or change the activities of the Trust and shares income and losses pari passu with the other owners. As such, the Company accounts for its investment under the equity method and does not consolidate its investment in the DST.


Summarized Balance Sheets—Unconsolidated Real Estate Affiliates—Equity Method Investments

   
December 31, 2019
    
December 31, 2018
  
   
(Unaudited)
    
(Unaudited)
  
ASSETS
  
Investments in real estate and fixed assets
  
$
11,512,000
    
$
11,512,000
  
Cash
    
28,000
      
32,000
  
Cash – restricted
    
24,000
      
15,000
  
Accounts receivable
    
--
      
141,000
  
Prepaid expenses
    
10,000
      
8,000
  
Total assets
  
$
11,574,000
    
$
11,708,000
  
LIABILITIES AND EQUITY
  
Liabilities
                
Notes payable, net of unamortized loan issuance costs of approximately $62,000 and $65,000 as of December 31, 2019 and 2018, respectively
  
$
5,954,000
    
$
5,945,000
  
Accounts payable and accrued liabilities
    
93,000
      
63,000
  
Due to related party
    
57,000
      
181,000
  
Total liabilities
    
6,104,000
      
6,189,000
  
Equity
                
Member’s equity
    
6,129,000
      
6,129,000
  
  Offering costs
    
(574,000
)
    
(574,000
)
  Accumulated earnings
    
952,000
      
606,000
  
  Distributions to members
    
(1,037,000
)
    
(642,000
)
Total equity
    
5,470,000
      
5,519,000
  
Total liabilities and equity
  
$
11,574,000
    
$
11,708,000
  

Summarized Statements of Operations—Unconsolidated Real Estate Affiliates—Equity Method Investments

   
For the Year Ended
December 31, 2019
    
For the Year Ended
December 31, 2018
  
Revenue
  
$
738,000
    
$
729,000
  
Expenses
    
(392,000
)
    
(348,000
)
  Net income
  
$
346,000
    
$
381,000
  

Note O — Investment in Equity Method Investee

2019

During the year ended December 31, 2019, the Company did not have any investments in an equity method investee.

2018

The Company did not have any investment in an equity method investee for the year ended December 31, 2018.

Prior to the Merger, the Company held an investment in an equity method investee in the following companies. Upon completion of the Merger on December 15, 2017 these properties were fully consolidated with the Company.


Note P — Legal

Federal Action

On March 12, 2019, stockholder SIPDA Revocable Trust (“SIPDA”) filed a purported class action complaint in the United States District Court for the District of Nevada, against the Company and certain of its current and former officers and directors. SIPDA filed an Amended Complaint on October 11, 2019. The Amended Complaint purports to assert class action claims on behalf of all public shareholders of the Company and MVP I between August 11, 2017 and April 1, 2019 in connection with the (i) August 2017 proxy statements filed with the SEC to obtain shareholder approval for the merger of the Company and MVP I (the “proxy statements”), and (ii) August 2018 proxy statement filed with the SEC to solicit proxies for the election of certain directors (the “2018 proxy statement”). The Amended Complaint alleges, among other things, that the 2017 proxy statements failed to disclose that two major reasons for the merger and certain charter amendments implemented in connection therewith were (i) to facilitate the execution of an amended advisory agreement that allegedly was designed to benefit Mr. Shustek financially in the event of an internalization and (ii) to give Mr. Shustek the ability to cause the Company to internalize based on terms set forth in the amended advisory agreement. The Amended Complaint further alleges, among other things, that the 2018 proxy statement failed to disclose the Company’s purported plan to internalize its management function.

The Amended Complaint alleges, among other things, (i) that all defendants violated Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder, by disseminating proxy statements that allegedly contain false and misleading statements or omit to state material facts; (ii) that the director defendants violated Section 20(a) of the Exchange Act; and (iii) that the director defendants breached their fiduciary duties to the members of the class and to the Company.

The Amended Complaint seeks, among other things, unspecified damages; declaratory relief; and the payment of reasonable attorneys' fees, accountants' and experts' fees, costs and expenses.

On June 13, 2019, the court granted SIPDA’s motion for Appointment as Lead Plaintiff. The litigation is still at a preliminary stage.   On January 9, 2020, the Company and the Board of Directors moved to dismiss the Amended Complaint.  The Company and the Board of Directors have reviewed the allegations in the Amended Complaint and believe the claims asserted against them in the Amended Complaint are without merit and intend to vigorously defend this action.

Maryland Actions

On May 31, 2019, and June 27, 2019, alleged stockholders filed class action lawsuits alleging direct and derivative claims against the Company, certain of our officers and directors, MVP Realty Advisors, Vestin Realty Mortgage I, and Vestin Realty Mortgage II in the Circuit Court for Baltimore City, captioned Arthur Magowski v. The Parking REIT, Inc., et. al, No. 24-C-19003125 (filed on May 31, 2019) (the “Magowski Complaint”) and Michelle Barene v. The Parking REIT, Inc., et. al, No. 24-C-19003527 (filed on June 27, 2019) (the “Barene Complaint”).

The Magowski Complaint asserts purportedly direct claims on behalf of all stockholders (other than the defendants and persons or entities related to or affiliated with any defendant) for breach of fiduciary duty and unjust enrichment arising from the Company’s decision to internalize its advisory function. In this Complaint, Plaintiff Magowski asserts that the stockholders have allegedly been directly injured by the internalization and related transactions. The Barene Complaint asserts both direct and derivative claims for breach of fiduciary duty arising from substantially similar allegations as those contained in the Magowski Complaint. The purportedly direct claims are asserted on behalf of the same class of stockholder as the purportedly direct claims in the Magowski Complaint, and the derivative claims in the Barene Complaint are asserted on behalf of the Company.

On September 12 and 16, 2019, the defendants filed motions to dismiss the Magowski and Barene complaints, respectively. The Magowski and Barene Complaints seek, among other things, damages; declaratory relief; equitable relief to reverse and enjoin the internalization transaction; and the payment of reasonable attorneys' fees, accountants' and experts' fees, costs and expenses. The actions are at a preliminary stage. The Company and the board of directors intend to vigorously defend against these lawsuits.


The Magowski Complaint also previewed that a stockholder demand would be made on the Board to take action with respect to claims belonging to the Company for the alleged injury to the Company. On June 19, 2019, Magowski submitted a formal demand letter to the Board asserting the same alleged wrongdoing as alleged in the Magowski Complaint and demanding that the Board investigate the alleged wrongdoing and take action to remedy the alleged injury to the Company. The demand includes that claims be initiated against the same defendants as are named in the Magowski Complaint. In response to this stockholder demand letter, on July 16, 2019, the Board established a demand review committee of one independent director to investigate the allegations of wrongdoing made in the letter and to make a recommendation to the Board for a response to the letter.  On September 27, 2019, the Board replaced the demand review committee with a special litigation committee. The special litigation committee is responsible for investigating the allegations of wrongdoing made in the letter and making a final determination regarding the response for the Company to the demand. The work of the special litigation committee is on-going.

SEC Investigation

The Securities and Exchange Commission (“SEC”) is conducting an investigation relating to the Parking REIT. In June 2019, the SEC issued subpoenas to the Company and its chairman and chief executive officer Michael V. Shustek. In connection with each subpoena, the SEC stated that: “this investigation is a non-public, fact-finding inquiry. We are trying to determine whether there have been any violations of the federal securities laws. The investigation and the subpoena do not mean that we have concluded that the recipient of the subpoena or anyone else has violated the law. Also, the investigation does not mean that we have a negative opinion of any person, entity or security.” The Company has received additional requests for information and expects to receive more in the future. The Company and Mr. Shustek intend to cooperate fully with the SEC in this matter. However, the Company cannot predict the outcome or the duration of the SEC investigation or any other legal proceedings or any enforcement actions or other remedies, if any, that may be imposed on Mr. Shustek, the Company or any other entity arising out of the SEC investigation.

Nasdaq Notification Regarding Company’s Common Stock

Further, Nasdaq has informed the Company that (i) the Company’s common stock will not be approved for listing currently on the Nasdaq Global Market, and (ii) it is highly unlikely that the Company’s common stock would be approved for listing while the SEC investigation is ongoing. There can be no assurance that the Company’s common stock will ever be approved for listing on the Nasdaq Global Market or any other stock exchange, even if the SEC investigation referred to above is completed and no wrongdoing is found and no action is taken in connection therewith against the Company, Mr. Shustek or any other person.

Note Q — Income Taxes and Critical Accounting Policy

Income Taxes and Distributions

As a REIT, the Company generally will not be subject to federal income tax on taxable income distributed to the stockholders. In 2019, the Company has no distributable taxable income. In addition, the Company does not have any subsidiaries elected to be treated as TRSs pursuant to the Code to participate in services that would otherwise be considered impermissible for REITs and are subject to federal and state income tax at regular corporate tax rates.

Tax Treatment of Distributions

For federal income tax purposes, distributions to stockholders are characterized as ordinary income, capital gain distributions, or nontaxable distributions. Nontaxable distributions will reduce U.S. stockholders' basis (but not below zero) in their shares. The income tax treatment for distributions reportable for the years ended December 31, 2019 and 2018 is as follows:

   
2019
    
2018
  
Return of Capital - Preferred
  
$
3,001,000
    
$
2,709,000
  
Capital Gain
    
--
      
--
  
Return of Capital - Common
    
--
      
1,224,000
  
 
  
$
3,001,000
    
$
3,933,000
  


Note R —Preferred Stock and Warrants

The Company reviewed the relevant ASC’s, specifically ASC 480 – Distinguishing Liabilities from Equity and ASC 815 – Derivatives and Hedging, in connection with the presentation of the Series A and Series 1 preferred stock. Below is a summary of the Company’s preferred stock offerings.

Series A Preferred Stock

On November 1, 2016, the Company commenced an offering of up to $50 million in shares of the Company’s Series A Convertible Redeemable Preferred Stock (“Series A”), par value $0.0001 per share, together with warrants to acquire the Company’s common stock, in a Regulation D 506(c) private placement to accredited investors. In connection with the private placement, on October 27, 2016, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 50,000 shares of Series A Convertible Redeemable Preferred Stock. The Company closed the offering on March 24, 2017 and raised approximately $2.5 million, net of offering costs, in the Series A private placements.

The holders of the Series A Preferred Stock are entitled to receive, when and as authorized by the board of directors and declared by the Company out of funds legally available for the payment of dividends, cash dividends at the rate of 5.75% per annum of the initial stated value of $1,000 per share. Since a Listing Event, as defined in the charter, did not occur by March 31, 2018, the cash dividend rate has been increased to 7.50%, until a Listing Event at which time, the annual dividend rate will be reduced to 5.75% of the Stated Value. Based on the number of Series A shares outstanding at December 31, 2019, the increased dividend rate costs the Company approximately $13,000 more per quarter in Series A dividends.

Subject to the Company’s redemption rights as described below, each Series A share will be convertible into shares of the Company’s common stock, at the election of the holder thereof by written notice to the Company (each, a “Series A Conversion Notice”) containing the information required by the charter, at any time beginning upon the earlier of (i) 90 days after the occurrence of a Listing Event or (ii) the second anniversary of the final closing of the Series A offering (whether or not a Listing Event has occurred). Each Series A share will convert into a number of shares of the Company’s common stock determined by dividing (i) the sum of (A) 100% of the Stated Value, initially $1,000, plus (B) any accrued but unpaid dividends to, but not including, the date of conversion, by (ii) the conversion price for each share of the Company’s common stock (the “Series A Conversion Price”) determined as follows:

•
Provided there has been a Listing Event, if a Series A Conversion Notice with respect to any Series A share is received on or prior to the day immediately preceding the first anniversary of the issuance of such share, the Series A Conversion Price will be equal to 110% of the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the delivery date of the Series A Conversion Notice.
•
Provided there has been a Listing Event, if a Series A Conversion Notice with respect to any Series A share is received after the first anniversary of the issuance of such share, the Series A Conversion Price will be equal to the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the delivery date of the Series A Conversion Notice.
•
If a Series A Conversion Notice with respect to any Series A share is received on or after the second anniversary of the final closing of the Series A offering, and at the time of receipt of such Series A Conversion Notice, a Listing Event has not occurred, the Series A Conversion Price will be equal to 100% of the Company’s net asset value per share.

If the Amended Charter (as hereinafter defined) becomes effective, the date by which holders of Series A must provide notice of conversion will be changed from the day immediately preceding the first anniversary of the issuance of such share to December 31, 2017. This change will conform the terms of the Series A with the terms of the Series 1 with respect to conversions.


At any time, from time to time, after the 20th trading day after the date of a Listing Event, the Company (or its successor) will have the right (but not the obligation) to redeem, in whole or in part, the Series A at the redemption price equal to 100% of the Stated Value, initially $1,000 per share, plus any accrued but unpaid dividends if any, to and including the date fixed for redemption. If the Company (or its successor) chooses to redeem any Shares, the Company (or its successor) has the right, in its sole discretion, to pay the redemption price in cash or in equal value of common stock of the Company (or its successor), based on the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the redemption, in exchange for the Series A. The Company (or its successor) also will have the right (but not the obligation) to redeem all or any portion of the Series A subject to a Series A Conversion Notice for a cash payment to the holder thereof equal to the applicable redemption price, by delivering a redemption notice to the holder of such Shares on or prior to the 10th trading day prior to the close of trading on the applicable Conversion Date.

Each investor in the Series A received, for every $1,000 in shares subscribed by such investor, detachable warrants to purchase 30 shares of the Company’s common stock if the Company’s common stock is listed on a national securities exchange. The warrants’ exercise price is equal to 110% of the volume weighted average closing stock price of the Company’s common stock over a specified period as determined in accordance with the terms of the warrant; however, in no event shall the exercise price be less than $25 per share. As of December 31, 2019, there were detachable warrants that may be exercised for 84,510 shares of the Company’s common stock after the 90th day following the occurrence of a listing event. These potential warrants will expire five years from the 90th day after the occurrence of a listing event. If all the potential warrants outstanding at December 31, 2019 became exercisable because of a listing event and were exercised at the minimum price of $25 per share, gross proceeds to the Company would be approximately $2.1 million and the Company would as a result issue an additional 84,510 shares of common stock. As of the date of this filing the Company had an estimated fair market value of potential warrants that was immaterial.

On March 24, 2020, the Company’s board of directors unanimously authorized the suspension of the payment of distributions on the Series A, however, such distributions will continue to accrue in accordance with the terms of the Series A.


Series 1 Preferred Stock

On March 29, 2017, the Company filed with the State Department of Assessments and Taxation of Maryland Articles Supplementary to the charter of the Company classifying and designating 97,000 shares of its authorized capital stock as shares of Series 1 Convertible Redeemable Preferred Stock (“Series 1”), par value $0.0001 per share. On April 7, 2017, the Company commenced the Regulation D 506(b) private placement of shares of Series 1, together with warrants to acquire the Company’s common stock, to accredited investors. On January 31, 2018 the Company closed this offering.

The holders of the Series 1 Preferred Stock are entitled to receive, when and as authorized by the Company’s board of directors and declared by us out of legally available funds, cumulative, cash dividends on each Share at an annual rate of 5.50% of the Stated Value pari passu with the dividend preference of the Series A Preferred Stock and in preference to any payment of any dividend on the Company’s common stock; provided, however, that Qualified Purchasers (who purchased $1.0 million or more in a single closing) are entitled to receive, when and as authorized by the Company’s board of directors and declared by us out of legally available funds, cumulative, cash dividends on each Series 1 share held by such Qualified Purchaser at an annual rate of 5.75% of the Stated Value (instead of the annual rate of 5.50% for all other holders of the Series 1 shares) until April 7, 2018, at which time, the annual dividend rate will be reduced to 5.50% of Stated Value; provided further, however, that since a Listing Event has not occurred by April 7, 2018, the annual dividend rate on all Series 1 shares (without regard to Qualified Purchaser status) has been increased to 7.00% of the Stated Value until the occurrence of a Listing Event, at which time, the annual dividend rate will be reduced to 5.50% of the Stated Value. Based on the number of Series 1 shares outstanding at December 31, 2019, the increased dividend rate costs the Company approximately $150,000 more per quarter in Series 1 dividends.

Subject to the Company’s redemption rights as described below, each Series 1 share will be convertible into shares of the Company’s common stock, at the election of the holder thereof by written notice to the Company (each, a “Series 1 Conversion Notice”) containing the information required by the charter, at any time beginning upon the earlier of (i) 45 days after the occurrence of a Listing Event or (ii) April 7, 2019 (whether or not a Listing Event has occurred). Each Series 1 share will convert into a number of shares of the Company’s common stock determined by dividing (i) the sum of (A) 100% of the Stated Value, initially $1,000, plus (B) any accrued but unpaid dividends to, but not including, the date of conversion, by (ii) the conversion price for each share of the Company’s common stock (the “Series 1 Conversion Price”) determined as follows:


•
Provided there has been a Listing Event, if a Series 1 Conversion Notice is received prior to December 1, 2017, the Series 1 Conversion Price will be equal to 110% of the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the delivery date of the Series 1 Conversion Notice.
•
Provided there has been a Listing Event, if a Series 1 Conversion Notice is received on or after December 1, 2017, the Series 1 Conversion Price will be equal to the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the delivery date of the Series 1 Conversion Notice.
•
If a Series 1 Conversion Notice is received on or after April 7, 2019, and at the time of receipt of such Series 1 Conversion Notice, a Listing Event has not occurred, the Series 1 Conversion Price for such Share will be equal to 100% of the Company’s net asset value per share, or NAV per share.

At any time, from time to time, on and after the later of (i) the 20th trading day after the date of a Listing Event, if any, or (ii) April 7, 2018, the Company (or its successor) will have the right (but not the obligation) to redeem, in whole or in part, the Series 1 Preferred Stock at the redemption price equal to 100% of the Stated Value, initially $1,000 per share, plus any accrued but unpaid dividends if any, to and including the date fixed for redemption. In case of any redemption of less than all of the shares by the Company, the shares to be redeemed will be selected either pro rata or in such other manner as the board of directors may determine. If the Company (or its successor) chooses to redeem any shares, the Company (or its successor) has the right, in its sole discretion, to pay the redemption price in cash or in equal value of common stock of the Company (or its successor), based on the volume weighted average price per share of the common stock of the Company (or its successor) for the 20 trading days prior to the redemption, in exchange for the shares. The Company (or its successor) also will have the right (but not the obligation) to redeem all or any portion of the Series 1 Preferred Stock subject to a Series 1 Conversion Notice for a cash payment to the holder thereof equal to the applicable redemption price, by delivering a Redemption Notice to the holder of such Shares on or prior to the 10th trading day prior to the close of trading on the Conversion Date for such Shares.

Each investor in the Series 1 received, for every $1,000 in shares subscribed by such investor, detachable warrants to purchase 35 shares of the Company’s common stock if the Company’s common stock is listed on a national securities exchange. The warrants’ exercise price is equal to 110% of the volume weighted average closing stock price of the Company’s common stock over a specified period as determined in accordance with the terms of the warrant; however, in no event shall the exercise price be less than $25 per share. As of December 31, 2019, there were detachable warrants that may be exercised for 1,382,675 shares of the Company’s common stock after the 90th day following the occurrence of a listing event. These potential warrants will expire five years from the 90th day after the occurrence of a listing event. If all the potential warrants outstanding at December 31, 2019 became exercisable because of a listing event and were exercised at the minimum price of $25 per share, gross proceeds to the Company would be approximately $34.6 million and as a result the Company would issue an additional 1,382,675 shares of common stock. As of the date of this filing the Company had an estimated fair market value of potential warrants that was immaterial.

On March 24, 2020, the Company’s board of directors unanimously authorized the suspension of the payment of distributions on the Series 1, however, such distributions will continue to accrue in accordance with the terms of the Series 1.

Note S — Deferred Management Internalization

Management Internalization

On March 29, 2019, the Company and the former Advisor entered into definitive agreements to internalize the Company’s management function effective April 1, 2019 (the “Internalization”). Since their formation, under the supervision of the board of directors (the “Board of Directors”), the former Advisor has been responsible for managing the operations of the Company and MVP I, which merged with a wholly owned indirect subsidiary of the Company in December 2017. As part of the Internalization, among other things, the Company agreed with the former Advisor to (i) terminate the Second Amended and Restated Advisory Agreement, dated as of May 26, 2017 and, for the avoidance of doubt, the Third Amended and Restated Advisory Agreement, dated as of September 21, 2018, which by its terms would have become effective only upon a listing of the Company’s common stock on a national securities exchange (collectively, the “Management Agreements”), each entered into among the Company, the former Advisor and MVP REIT II Operating Partnership, LP (the “Operating Partnership”); (ii) extend employment to the executives and other employees of the former Advisor; (iii) arrange for the former Advisor to continue to provide certain services with respect to outstanding indebtedness of the Company and its subsidiaries; and (iv) lease the employees of the former Advisor for a limited period of time prior to the time that such employees become employed by the Company.


Contribution Agreement

On March 29, 2019, the Company entered into a Contribution Agreement (the “Contribution Agreement”) with the former Advisor, Vestin Realty Mortgage I, Inc. (“VRTA”) (solely for purposes of Section 1.01(c) thereof), Vestin Realty Mortgage II, Inc. (“VRTB”) (solely for purposes of Section 1.01(c) thereof) and Shustek (solely for purposes of Section 4.03 thereof). In exchange for the Contribution, the Company agreed to issue to the former Advisor 1,600,000 shares of Common Stock as consideration (the “Internalization Consideration”), issuable in four equal installments. The first and second installments of 400,000 shares of Common Stock per installment were issued on April 1, 2019 and December 31, 2019, respectively. The remaining installments will be issued on December 31, 2020 and December 31, 2021 (or if December 31st is not a business day, the day that is the last business day of such year). If requested by the Company in connection with any contemplated capital raise by the Company, the former Advisor has agreed not to sell, pledge or otherwise transfer or dispose of any of the Internalization Consideration for a period not to exceed the lock-up period that otherwise would apply to other stockholders of the Company in connection with such capital raise. See the Current Report on Form 8-K filed with the SEC on April 3, 2019 and Contribution Agreement in Part I, Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information regarding the Management Internalization.

The Internalization transaction closed on April 1, 2019, and the following table shows the Internalization Consideration to be paid in aggregate to the former Advisor. The first and second installment of 400,000 shares of Common Stock per installment were issued to the former Advisor on April 1, 2019 and December 31, 2019, respectively.

   
Number of shares
          
Internalization Contribution
  
 Internalization consideration in common stock at $17.50
    
1,100,000
      
(1
)
  
$
19,250,000
  
 Internalization consideration in common stock at $25.10
    
500,000
      
(2
)
    
12,550,000
  
 Total internalization consideration
    
1,600,000
            
$
31,800,000
  
                         
Internalization consideration issued April 1, 2019 at $17.50
    
(400,000
)
            
(7,000,000
)
Shares issued December 31, 2019 at $17.50
    
(400,000
)
            
(7,000,000
)
Deferred management internalization at December 31, 2019
    
800,000
            
$
17,800,000
  

1) The Company has the right to purchase 1,100,000 of these shares at $17.50 per share which potentially limits the cost to the Company.
2) $25.10 is the Company's stated NAV as of May 28, 2019.

Note T— Employee Benefit Plan

Effective July 1, 2019, the Company began participating in a multi-employer 401(k) Safe Harbor Plan (the “Plan”), which is a defined contribution plan covering all eligible employees. Under the provisions of the Plan, participants may direct the Company to defer a portion of their compensation to the Plan, subject to Internal Revenue Code limitations. The Company provides for an employer matching contribution equal to 100% of the first 3% of eligible compensation and 50% of the next 2% of eligible compensation contributed by each employee, which is funded in cash. All contributions vest immediately.

Total expense recorded for the matching 401(k) contribution in the year ended December 31, 2019 was approximately $12,000. There was no similar expense for the year ended December 31, 2018.

Note U — Subsequent Events

On March 24, 2020, the Company’s board of directors unanimously authorized the suspension of the payment of distributions on the Series A and Series 1, however, such distributions will continue to accrue in accordance with the terms of the Series A and Series 1.


The recent COVID-19 pandemic has resulted in reduced discretionary spending, reduced travel and other activity.  In particular, many of the Company’s properties are located near government buildings and sports centers, which depend in large part on customer traffic, and conditions that lead to a decline in customer traffic will have a material and adverse impact on those businesses. Many state and local governments are currently restricting public gatherings or requiring people to shelter in place, which has in some cases eliminated or severely reduced the demand for parking.  Such events are adversely impacting and may continue to adversely impact the Company’s tenants’ sales and/or cause the temporary closure of the Company’s tenants’ businesses, which could significantly disrupt or cause a closure of their operations and, in turn, may impact or eliminate the rental revenue the Company generates from its leases with them. The Company’s rental revenue and the return on its investments may be materially adversely affected by restrictions requiring people to shelter in place in reaction to the COVID-19 outbreak and may continue to be materially adversely affected to the extent that economic conditions result in the elimination of jobs or the migration of jobs from the urban centers where the Company’s parking facilities are situated to other locations. In particular, a majority of the Company’s property leases call for additional percentage rent, which will be adversely impacted by a decline in the demand for parking. The Company is in preliminary discussions with some of its tenants and currently expects to grant relief to some of its tenants to defer rent payments as a result of their estimated lost revenues from the current COVID-19 pandemic; however, there can be no assurance the Company will reach an agreement with any tenant or if an agreement is reached, that any such tenant will be able to repay any such deferred rent in the future. The extent of the impact of COVID-19 on the Company’s financial and operational performance will depend on certain developments, including the duration and spread of the outbreak and its impact on the Company’s tenants, all of which are uncertain and cannot be predicted. The extent to which COVID-19 may impact the Company’s financial condition or results of operations cannot be determined at this time.


SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
           
Initial Cost
    
Cost Capitalized Subsequent to Acquisition
    
Gross Carrying Amount at December 31, 2019
                    
 
 
Description
 
 
ST
  
Encumbrance
    
Land
    
Buildings and Improvements
    
Improvements
    
Carrying Costs
    
Land
    
Building and Improvements
    
Total
    
Accumulated Depreciation (1)
    
Date Acquired
    
Life on which depr in latest statement is computed
  
West 9th Street (2)
OH
  
$
4,909,000
    
$
5,675,000
    
$
--
    
$
170,000
    
$
--
    
$
5,845,000
    
$
--
    
$
5,845,000
    
$
24,000
      
2016
      
15
  
Crown Colony (2)
OH
    
--
      
3,030,000
      
--
      
18,000
      
--
      
3,048,000
      
--
      
3,048,000
      
4,000
      
2016
      
15
  
San Jose(4)
CA
    
2,500,000
      
1,073,000
      
2,503,000
      
268,000
      
--
      
977,000
      
2,523,000
      
3,500,000
      
212,000
      
2016
      
39,15
  
MCI 1372 Street
OH
    
--
      
700,000
      
--
      
--
      
--
      
700,000
      
--
      
700,000
      
--
      
2016
      
N/A
  
Cincinnati Race Street
OH
    
2,550,000
      
2,142,000
      
2,358,000
      
1,832,000
      
--
      
2,142,000
      
4,190,000
      
6,332,000
      
411,000
      
2016
      
39,15
  
St Louis Washington
MO
    
1,362,000
      
3,000,000
      
--
      
7,000
      
--
      
2,957,000
      
--
      
2,957,000
      
1,000
      
2016
      
15
  
St Paul Holiday Garage
MN
    
4,077,000
      
1,673,000
      
6,527,000
      
196,000
      
--
      
1,673,000
      
6,723,000
      
8,396,000
      
593,000
      
2016
      
39,15
  
Louisville Station
KY
    
1,682,000
      
3,050,000
      
--
      
--
      
--
      
3,107,000
      
--
      
3,107,000
      
10,000
      
2016
      
15
  
Whitefront Garage
TN
    
6,454,000
      
3,116,000
      
8,380,000
      
--
      
--
      
3,116,000
      
8,556,000
      
11,672,000
      
727,000
      
2016
      
39,15
  
Cleveland Lincoln Garage
OH
    
3,946,000
      
2,195,000
      
5,122,000
      
3,332,000
      
--
      
2,195,000
      
8,454,000
      
10,649,000
      
664,000
      
2016
      
39,15
  
Houston Preston
TX
    
1,627,000
      
2,800,000
      
--
      
--
      
--
      
2,820,000
      
--
      
2,820,000
      
3,000
      
2016
      
15
  
Houston San Jacinto
TX
    
1,820,000
      
3,200,000
      
--
      
--
      
--
      
3,250,000
      
--
      
3,250,000
      
8,000
      
2016
      
15
  
MVP Detroit Center Garage
MI
    
29,717,000
      
7,000,000
      
48,000,000
      
477,000
      
--
      
7,000,000
      
48,476,000
      
55,476,000
      
3,699,000
      
2017
      
39,15
  
St. Louis Broadway
MO
    
1,671,000
      
2,400,000
      
--
      
--
      
--
      
2,400,000
      
--
      
2,400,000
      
--
      
2017
      
N/A
  
St. Louis Seventh & Cerre
MO
    
2,057,000
      
3,300,000
      
--
      
--
      
--
      
3,300,000
      
--
      
3,300,000
      
--
      
2017
      
N/A
  
MVP Preferred Parking
TX
    
11,330,000
      
15,800,000
      
4,700,000
      
710,000
      
--
      
15,800,000
      
5,410,000
      
21,210,000
      
362,000
      
2017
      
39,15
  
MVP Raider Park Garage
TX
    
7,400,000
      
1,960,000
      
9,040,000
      
2,517,000
      
--
      
2,006,000
      
11,511,000
      
13,517,000
      
534,000
      
2017
      
39,15
  
MVP PF Memphis Poplar 2013
TN
    
1,800,000
      
3,735,000
      
--
      
13,000
      
--
      
3,748,000
      
--
      
3,748,000
      
83,000
      
2017
      
15
  
MVP PF St. Louis 2013
MO
    
3,700,000
      
5,145,000
      
--
      
--
      
--
      
5,145,000
      
--
      
5,145,000
      
118,000
      
2017
      
15
  
Mabley Place Garage
OH
    
8,188,000
      
1,585,000
      
19,557,000
      
43,000
      
--
      
1,592,000
      
19,593,000
      
21,185,000
      
1,168,000
      
2017
      
39,15
  
MVP Denver Sherman
CO
    
282,000
      
705,000
      
--
      
--
      
--
      
705,000
      
--
      
705,000
      
--
      
2017
      
N/A
  
MVP Fort Worth Taylor
TX
    
12,208,000
      
2,845,000
      
24,813,000
      
5,000
      
--
      
2,845,000
      
24,818,000
      
27,663,000
      
1,397,000
      
2017
      
39,15
  
MVP Milwaukee Old World
WI
    
--
      
2,044,000
      
--
      
--
      
--
      
2,044,000
      
--
      
2,044,000
      
46,000
      
2017
      
15
  
MVP Houston Saks Garage
TX
    
3,262,000
      
4,931,000
      
5,460,000
      
37,000
      
--
      
4,931,000
      
5,492,000
      
10,423,000
      
341,000
      
2017
      
39,15
  
MVP Milwaukee Wells
WI
    
2,700,000
      
4,873,000
      
--
      
--
      
--
      
5,083,000
      
--
      
5,083,000
      
57,000
      
2017
      
15
  
MVP Wildwood NJ Lot
NJ
    
1,000,000
      
1,631,000
      
--
      
--
      
--
      
1,231,000
      
--
      
1,231,000
      
--
      
2017
      
N/A
  
MVP Indianapolis City Park
IN
    
7,200,000
      
2,055,000
      
8,764,000
      
114,000
      
--
      
2,056,000
      
8,878,000
      
10,934,000
      
612,000
      
2017
      
39,15
  
MVP Indianapolis WA Street Lot
IN
    
3,400,000
      
5,749,000
      
--
      
--
      
--
      
5,749,000
      
--
      
5,749,000
      
45,000
      
2017
      
15
  
MVP Minneapolis Venture
MN
    
2,000,000
      
6,543,000
      
--
      
--
      
--
      
4,012,000
      
--
      
4,012,000
      
--
      
2017
      
N/A
  
MVP Indianapolis Meridian Lot
IN
    
938,000
      
1,601,000
      
--
      
--
      
--
      
1,601,000
      
--
      
1,601,000
      
10,000
      
2017
      
15
  
MVP Milwaukee Clybourn
WI
    
--
      
262,000
      
--
      
--
      
--
      
262,000
      
--
      
262,000
      
5,000
      
2017
      
15
  
MVP Milwaukee Arena
WI
    
2,114,000
      
4,632,000
      
--
      
--
      
--
      
4,631,000
      
--
      
4,631,000
      
--
      
2017
      
N/A
  
MVP Clarksburg Lot
WV
    
--
      
715,000
      
--
      
--
      
--
      
715,000
      
--
      
715,000
      
10,000
      
2017
      
15
  
MVP Denver Sherman 1935
CO
    
752,000
      
2,534,000
      
--
      
--
      
--
      
2,533,000
      
--
      
2,533,000
      
--
      
2017
      
N/A
  
MVP Bridgeport Fairfield Garage
CT
    
4,025,000
      
498,000
      
7,758,000
      
--
      
--
      
498,000
      
7,758,000
      
8,256,000
      
465,000
      
2017
      
39,15
  
Minneapolis City Parking
MN
    
4,797,000
      
9,838,000
      
--
      
--
      
--
      
9,338,000
      
--
      
9,338,000
      
178,000
      
2017
      
15
  
MVP New Orleans Rampart
LA
    
5,300,000
      
8,105,000
      
--
      
--
      
--
      
8,105,000
      
--
      
8,105,000
      
--
      
2018
      
N/A
  
MVP Hawaii Marks
HI
    
13,500,000
      
9,118,000
      
11,716,000
      
294,000
      
--
      
9,118,000
      
12,010,000
      
21,128,000
      
475,000
      
2018
      
39,15
  
      
$
160,268,000
    
$
141,258,000
    
$
164,698,000
    
$
10,033,000
    
$
--
    
$
138,278,000
    
$
174,392,000(3
)
  
$
312,670,000(4
)
  
$
12,262,000
                  
(1)
The initial costs of buildings are depreciated over 39 years using a straight-line method of accounting; improvements capitalized subsequent to acquisition are depreciated over the shorter of the lease term or useful life, generally ranging from one to 20 years.
(2)
These properties are held by West 9th St. Properties II, LLC
(3)
This amount does not include CIP of approximately $0.7 million.
(4)
San Jose is listed as Held for Sale and includes approximately $0.2 million of accumulated depreciation.
(5)

The aggregate gross cost of property included above for federal income tax purposes approximated $300.4 million as of December 31, 2019.

The following table reconciles the historical cost of total real estate held for investment for the years ended December 31, 2019 and 2018.

   
2019
    
2018
  
Total real estate held for investment, inception (prior)
  
$
315,101,000
    
$
287,052,000
  
Additions during period:
                
    Acquisitions
    
--
      
33,166,000
  
    Improvements
    
2,895,000
      
5,068,000
  
Deductions during period:
                
    Dispositions
    
(3,874,000
)
    
--
  
    Impairments
    
(1,452,000
)
    
(10,185,000
)
Total real estate held for investment, end of year (1)
  
$
312,670,000
    
$
315,101,000
  

(1)
This amount does not include investments in software and construction in progress totaling approximately $0.7 million as of December 31, 2019 and approximately $1.9 million as of December 31, 2018.

The following table reconciles the accumulated depreciation for the years ended December 31, 2019 and 2018.

   
2019
    
2018
  
Accumulated depreciation, inception (prior)
  
$
7,110,000
    
$
2,231,000
  
Deductions during period:
    
--
      
(38,000
)
Depreciation and amortization of real estate
    
5,152,000
      
4,917,000
  
Accumulated depreciation, end of year (1)
  
$
12,262,000
    
$
7,110,000
  

(1)
San Jose is listed as Held for Sale and includes approximately $0.2 million of accumulated depreciation.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is processed, recorded, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures as of December 31, 2019, the end of the period covered by this report. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded, as of that time, the disclosure controls and procedures were effective at the reasonable assurance level.

(b) Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting during the year ended 2019, that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.

During the Company's two most recent fiscal years ended December 31, 2019 and 2018 and the period from January 1, 2020 through March 30, 2020, the Company did not consult with RBSM on (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that may be rendered on the Company's consolidated financial statements, and RBSM did not provide either a written report or oral advice to the Company that was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue; or (ii) any matter that was the subject of any disagreement, as defined in Item 304 (a)(1)(iv) of Regulation S-K and the related instructions, or a reportable event within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for our Company, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes those policies and procedures that: pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our Company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of our Company are being made only in accordance with authorizations of management and directors of our Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our Company's assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, 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. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management has conducted an assessment, including testing, of the effectiveness of our internal control over financial reporting as of December 31, 2019. In making its assessment of internal control over financial reporting, management used the criteria in Internal Control -- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management, with the participation of the Chief Executive and Chief Financial Officers, concluded that, as of December 31, 2019, the Company’s internal control over financial reporting was effective at a reasonable assurance level based on those criteria.

Auditor Attestation

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this annual report.

Changes in Internal Control Over Financial Reporting

There has not been any change in our internal control over financial reporting during the three months ended December 31, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The Company will rely on the former Advisor to manage the day-to-day activities and to implement the Company’s investment strategy, subject to the supervision of the Company’s board of directors. The former Advisor performs its duties and responsibilities as the Company’s fiduciary pursuant to an Amended and Restated Advisory Agreement. The former Advisor is managed by Michael V. Shustek.

Directors and Executive Officers

The following table sets forth the names and ages as of March 30, 2020 and positions of the individuals who serve as our directors and executive officers as of March 30, 2020:

Name
Age
Title
Michael V. Shustek
61
Chief Executive Officer and Director
J. Kevin Bland
56
Chief Financial Officer
Dan Huberty
51
President& Chief Operating Officer
John E. Dawson (1)
62
Independent Director
Robert J. Aalberts
68
Independent Director
Nicholas Nilsen (1)
83
Independent Director
Shawn Nelson
53
Independent Director

(1)
Member of the audit committee

The following table sets forth the names and ages as of March 30, 2020 and positions of the individuals who serve as directors, executive officers and certain significant employees of the former Advisor or our affiliates:

Name
Age
Title
     
Michael V. Shustek
61
Chief Executive Officer
J. Kevin Bland
56
Chief Financial Officer


Michael V. Shustek is Chief Executive Officer of the Company since its inception and currently also serves as Chairman of the board.  He has also served as Chief Executive Officer and a director of MVP I (prior to the Merger), Chairman of the Board of Directors, Chief Executive Officer and a director of Vestin Group since April 1999 and a director and CEO of VRM II and VRM I since January 2006.

In July 2012, Mr. Shustek became a principal of AMS. During January 2014, Mr. Shustek became the sole owner of AMS. Mr. Shustek has held several securities licenses.  In 2003, Mr. Shustek became the Chief Executive Officer of Vestin Originations, Inc. In 1997, Mr. Shustek was involved in the initial founding of Nevada First Bank, with the largest initial capital base of any new state charter in Nevada’s history at that time.

Mr. Shustek received a Bachelor of Science degree in Finance at the University of Nevada, Las Vegas.

J. Kevin Bland is Chief Financial Officer and is a certified public accountant. He has over 25 years of experience as a financial professional and executive. Mr. Bland served as Chief Financial Officer of UMTH General Services, L.P. from June 2008 to November 2018. From 2007 to 2008 Mr. Bland served as Vice President, Controller and Principal Accounting Officer of Pizza Inn, Inc. (Nasdaq: RAVE). Mr. Bland spent three years with Metromedia Restaurant Group as Vice President, Controller from 2005 to 2007 and Accounting Manager from 2001 to 2002. From 2003 to 2005, Mr. Bland was Company Controller of Sendera Investment Group, LLC, a real estate investment firm, and Controller of a homebuilding and land division with Lennar Corporation in Dallas, Texas from 2002 to 2003. Mr. Bland began his career with Ernst & Young in 1989. Mr. Bland earned a Bachelor of Business Administration degree in accounting from The University of Texas at Austin in 1985 and an MBA from Texas Christian University in 1989.

Dan Huberty is President and Chief Operating Officer. Prior to joining the Company as Vice President of Parking Operations, Mr. Huberty spent nearly 25 years in various roles in and supporting the parking industry. Most recently, Mr. Huberty served as an Executive Vice President of SP Plus, where he oversaw the southern division of the company. He was named to this position after successfully overseeing the transition of his team through the integration of Central Parking and Standard Parking. SP Plus's clients included some of the nation's largest owners and operators of mixed-use projects, office buildings, hotels, stadiums and arenas, as well as, airports, hospitals and municipalities.

Prior to his role with SP Plus, he served as a Vice President for Clean Energy Fuels, the largest provider of Compressed Natural Gas in the Country focusing on the parking industry, from June 2009 through September 2011. However, the majority of his career was spent with ABM Industries. During his nearly 17 years with ABM, Mr. Huberty served in various roles starting as a Facility Manager, working his way up to Regional Manager, Regional Vice President, and finally Vice President of Sales for ABM's Parking Division. Mr. Huberty earned his BBA from Cleveland State University in 1991, and his MBA from the University of Phoenix in 1998.

Mr. Huberty is active in political affairs, serving as a State Representative for Texas House District 127, representing a constituency of more than 160,000 residents. Elected in 2010, he travels to the Capitol in Austin, Texas, every other year to represent them during the legislative session. Mr. Huberty also served as a Trustee for the Humble Independent School District from 2006 to 2010.

Mr. Huberty serves on the Board for the Be an Angel Fund, which is a non-profit board that supports profoundly deaf and handicapped children in Texas. Mr. Huberty is also a Board Member of the Lake Houston Chamber of Commerce in Harris County Texas, which has over 1,500 members focusing on growing the North East Region of Harris County. Mr. Huberty also served as a Trustee for the Humble Independent School District which has 42,000 students, from 2006 to 2010, serving as its President from 2009-2010.

Independent Directors of the Company

John E. Dawson is one of our independent directors. He has also been a director of MVP REIT, Inc. since its inception. He was a director of Vestin Group from March 2000 to December 2005, was a director of VRM II from March 2007 until he resigned in November 2013 and was a director for VRM I from March 2007 until January 2008.  Mr. Dawson is a practicing Lawyer in Las Vegas, Nevada.  Prior to founding Dawson and Lordahl PLLC in 2019, he worked at both very large and small law firms for the prior 30 years, practicing primarily in the areas of tax, business and estate planning.  Mr. Dawson received his bachelor’s degree from Weber State and his Juris Doctor from Brigham Young University.  Mr. Dawson received his Master of Law (L.L.M.) in Taxation from the University of San Diego in 1993. Mr. Dawson was admitted to the Nevada Bar in 1988 and the Utah Bar in 1989.

Robert J. Aalberts served as an independent director of MVP I, and was a director of Vestin Group, Inc., from April 1999 to December 2005. He was a director for VRM I from January 2006 until he resigned in January 2008 and for VRM II from January 2006 until he resigned in November 2013.  Most recently, Professor Aalberts was Clinical Professor of Business Law in the Smeal College of Business at Pennsylvania State University in University Park, PA from 2014 to June 2017. Prior to his position at Penn State, Professor Aalberts held the Ernst Lied Professor of Legal Studies professorship in the Lee College of Business at the University of Nevada, Las Vegas from 1991 to 2014. Before UNLV, Professor Aalberts was an Associate Professor of Business Law at Louisiana State University in Shreveport, LA from 1984 to 1991. From 1982 through 1984, he served as an attorney for the Gulf Oil Company in its New Orleans office, specializing in contract negotiations and mineral law. Professor Aalberts has co-authored books relating to the regulatory environment and the law and business of real estate; including Real Estate Law (2015), now in its 9th edition, published by the Cengage Book Company. He is also the author of numerous legal articles dealing with various aspects of real estate, business and the practice of law. From 1992 to 2016, Professor Aalberts was the Editor-in-chief of the Real Estate Law Journal published by the Thomson-West Publishing Company. Professor Aalberts received his Juris Doctor degree from Loyola University in New Orleans, Louisiana, a Master of Arts from the University of Missouri, Columbia, and a Bachelor of Arts degree in Social Sciences and Geography from Bemidji State University in Minnesota. He was admitted to the State Bar of Louisiana in 1982 (currently inactive status).

Nicholas Nilsen served as an independent director of MVP I. He has been involved in the financial industry for more than four decades. He has been in retirement during the past five years. Most recently, Mr. Nilsen served as a Senior Vice President of PNC Financial, a bank holding company, where he served from 1960 to 2000. He began his long career with PNC Financial as a stock analyst. Later, he managed corporate and Taft-Hartley pension plans for the bank. Mr. Nilsen served as an executive investment officer at the time of his retirement from PNC Financial. Mr. Nilsen is a CFA charter holder. Mr. Nilsen received a bachelor’s degree from Denison University and a Master of Business Administration from Northwestern University.

Shawn Nelson served as an independent director of MVP I. Effective January 7, 2019, Mr. Nelson became the Chief Assistant District Attorney of Orange County, California. Mr. Nelson had served as a member of the Orange County Board of Supervisors in Orange County, California, since June 2010, serving as chairman in 2013 and 2014. Mr. Nelson currently serves on the board of the Southern California Regional Rail Authority (Metrolink) and was the former Chairman. He is a director of the Orange County Transportation Authority having served as the chair in 2014 and is a director of the South Coast Air Quality Management District, Southern California Association of Governments, Transportation Corridor Agency, Foothill/Eastern, Southern California Water Committee, Orange County Council of Governments and Orange County Housing Authority Board of Commissioners. From 1994 to 2010, Mr. Nelson was the managing partner of the law firm of Rizio & Nelson. From 1992 to 1994, he was the Leasing Director/Project Manager of S&P Company. Prior to that, from 1989 to 1992 Mr. Nelson served as the Leasing Director/Acquisitions Analyst for IDM Corp and from 1988 to 1989 he served as a Construction Superintendent for Pulte Homes. Mr. Nelson has a Bachelor of Science degree in business with a certificate in real property development from the University of Southern California and a Juris Doctor Degree from Western State University College of Law.

CORPORATE GOVERNANCE

Board of Directors

The Company operates under the direction of the Company’s board of directors, the members of which are accountable to the Company and the stockholders as fiduciaries. The board of directors is responsible for directing the management of the Company’s business and affairs.


The Company has a total of five directors, four of whom are independent, the former Advisor, the Sponsor and their respective affiliates as determined in accordance with the North American Securities Administrators Association’s Statement of Policy Regarding Real Estate Investment Trusts, as revised and adopted on May 7, 2007 (the “NASAA REIT Guidelines”). The NASAA REIT Guidelines require the Company’s charter to define an independent director as a director who is not and has not for the last two years been associated, directly or indirectly, with the Sponsor or the former Advisor. A director is deemed to be associated with the Sponsor or the former Advisor if he or she owns any interest in, is employed by, is an officer or director of, or has any material business or professional relationship with the Sponsor, the former Advisor or any of their affiliates, performs services (other than as a director) for the Company, or serves as a director or trustee for more than three REITs sponsored by the Sponsor or advised by the former Advisor. A business or professional relationship will be deemed material per se if the gross revenue derived by the director from the Sponsor, the former Advisor or any of their affiliates exceeds five percent of (1) the director’s annual gross revenue derived from all sources during either of the last two years or (2) the director’s net worth on a fair market value basis. An indirect relationship is defined to include circumstances in which the director’s spouse, parents, children, siblings, mothers- or fathers-in-law, sons- or daughters-in-law or brothers- or sisters-in-law is or has been associated with the Company, the Sponsor, the former Advisor or any of its affiliates. The Company’s board of directors has determined that each of John Dawson, Robert J. Aalberts, Nicholas Nilsen and Shawn Nelson qualifies as an independent director under the NASAA REIT Guidelines.

The Company refers to the directors who are not independent as the “affiliated directors.” Currently, the only affiliated director is Michael V. Shustek.

The Company’s charter provides that the number of directors is currently five, which number may be increased or decreased as set forth in the bylaws. The Company’s charter also provides that a majority of the directors must be independent directors and that at least one of the independent directors must have at least three years of relevant real estate experience. The independent directors will nominate replacements for vacancies among the independent directors.

The Company’s board of directors is elected by the Company’s common stockholders on an annual basis. Any director may resign at any time and may be removed with or without cause by the stockholders upon the affirmative vote of stockholders entitled to cast at least a majority of all the votes entitled to be cast generally in the election of directors. The notice of any special meeting called to remove a director will indicate that the purpose, or one of the purposes, of the meeting is to determine if the director will be removed.

At such time as the Company is subject to Subtitle 8 of the MGCL, the Company has elected to provide that a vacancy following the removal of a director or a vacancy created by an increase in the number of directors or the death, resignation, adjudicated incompetence or other incapacity of a director may be filled only by a vote of a majority of the remaining directors and for the remainder of the full term of the directorship in which the vacancy occurred and, in the case of an independent director, the director must also be nominated by the remaining independent directors.

Responsibilities of Directors

The responsibilities of the members of the board of directors include:

•
approving and overseeing the Company’s overall investment strategy, which will consist of elements such as investment selection criteria, diversification strategies and asset disposition strategies;
•
approving and overseeing the Company’s debt financing strategies;
•
approving joint ventures and other such relationships with third parties;
•
approving a potential liquidity transaction;
•
determining the Company’s distribution policy and authorizing distributions from time to time; and
•
approving amounts available for repurchases of shares of the Company’s common stock.

The directors are accountable to the Company and the Company’s stockholders as fiduciaries. This means that the directors must perform their duties in good faith and in a manner each director believes to be in the Company’s best interests. Further, the Company’s directors must act with such care as an ordinarily prudent person in a like position would use under similar circumstances, including exercising reasonable inquiry when taking actions. Our directors and executive officers will serve until their successors are elected and qualify. The directors are not required to devote all of their time to the Company’s business and are only required to devote such time to the Company’s affairs as their duties require. The directors meet quarterly or more frequently as necessary.

The Company will follow investment guidelines adopted by the Company’s board of directors and the investment and borrowing policies described in this Annual Report unless they are modified by our directors. The Company’s board of directors may establish further written policies on investments and borrowings and shall monitor our administrative procedures, investment operations and performance to ensure that the policies are fulfilled and are in the best interests of our stockholders. Any change in our investment objectives as set forth in the Company’s charter must be approved by the stockholders.

In order to reduce or eliminate and address certain potential conflicts of interest, the Company’s charter requires that a majority of the Company’s board of directors (including a majority of the independent directors) not otherwise interested in the transaction approve any transaction with any of the Company’s directors, the Sponsor, the former Advisor, or any of their affiliates. The independent directors will also be responsible for reviewing from time to time but at least annually (1) the performance of the former Advisor and determining that the compensation to be paid to the former Advisor is reasonable in relation to the nature and quality of services performed; (2) that the Company’s total fees and expenses are otherwise reasonable in light of the Company’s investment performance, net assets, net income, the fees and expenses of other comparable unaffiliated REITs and other factors deemed relevant by our independent directors; and (3) that the provisions of the Amended and Restated Advisory Agreement are being carried out. Each such determination shall be reflected in the applicable board minutes.

Board Committees

The board of directors has delegated various responsibilities and authority to three standing committees and one special committee. Each committee regularly reports on its activities to the full board of directors. The Audit Committee, the Compensation Committee, the Nominating and Governance Committee and the Special Committee are composed entirely of independent directors. The table below sets forth the current membership of the three standing committees of the board of directors.

Name
  
Audit
  
Compensation
  
Nominating and Corporate Governance
John Dawson
  
Chair
        
Robert J. Aalberts
          
Chair
Nicholas Nilsen
  
X
  
Chair
  
X
Shawn Nelson
      
X
  
X

Audit Committee

The Audit Committee meets on a regular basis, at least quarterly and more frequently as necessary. The Audit Committee’s primary function is to assist the board of directors in fulfilling its oversight responsibilities by reviewing the financial information to be provided to the stockholders and others, the system of internal controls which management has established and the audit and financial reporting process. The Audit Committee is comprised of two directors, all of whom are independent directors, one of which have been deemed as Audit Committee financial experts. The Company’s Audit Committee consists of John Dawson and Nicholas Nilsen. The board of directors also determined that Mr. Nilsen met the Audit Committee financial expert requirements. For the years ended December 31, 2019 and 2018, the Audit Committee held 4 and 20 meetings, respectively. Mr. Dawson serves as chair of the Audit Committee.

Compensation Committee

The Company’s board of directors maintains a separately designated standing compensation committee (the “Compensation Committee”). The Compensation Committee establishes and oversees our executive and director compensation. The Compensation Committee consists of two independent directors: Nicholas Nilsen and Shawn Nelson. The Compensation Committee establishes and oversees director compensation. For the years ended December 31, 2019 and 2018, the Compensation Committee held three meetings and one meeting, respectively.


The Company’s independent directors receive certain compensation from the Company, which is described in more detail under “Item 11. Executive Compensation.”

Nominating and Corporate Governance Committee

The Nominating and Governance Committee is responsible for establishing the requisite qualifications for directors, identifying and recommending the nomination of individuals qualified to serve as directors and recommending directors for each board committee. The Nominating and Governance Committee also establishes corporate governance practices in compliance with applicable regulatory requirements and consistent with the highest standards and recommends to the board of directors the corporate governance guidelines applicable to the Company. The Company’s Nominating and Corporate Governance Committee consists of Robert Aalberts as Nominating and Corporate Governance Committee Chair, with Shawn Nelson and Nicholas Nilsen as committee members. For the years ended December 31, 2019 and 2018, the Nominating and Corporate Governance Committee held 2 meetings and no meetings, respectively.

Special Committees

On July 16, 2019, the Board established a demand review committee of two independent directors to investigate the allegations of wrongdoing made in the Magowski Complaint and to make a recommendation to the Board for a response to the stockholder demand letter. On September 27, 2019, the Board replaced the demand review committee with a special litigation committee of one independent director. The special litigation committee is responsible for investigating the allegations of wrongdoing made in the letter and making a final determination regarding the response for the Company to the demand. The work of the special litigation committee is on-going.

Code of Ethics

The Company has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”), which contains general guidelines for conducting the Company’s business and is designed to help directors, employees and independent consultants resolve ethical issues in an increasingly complex business environment. The Code of Ethics applies to all of the Company’s officers, including the Company’s principal executive officer, principal financial officer, principal accounting officer, controller and persons performing similar functions, as well as all members of the Company’s board of directors. The Code of Ethics covers topics including, but not limited to, conflicts of interest, record keeping and reporting, payments to foreign and U.S. government personnel and compliance with laws, rules and regulations. The Company will provide to any person without charge a copy of the Company’s Code of Ethics, including any amendments or waivers, upon written request delivered to the Company’s principal executive office at the address listed on the cover page of this Annual Report.

Board Meetings and Annual Stockholder Meeting

The board of directors held 23 meetings and nineteen meetings during the fiscal years ended December 31, 2019 and 2018, respectively. Each director attended at least 75% of his board and committee meetings in 2019 and 2018. Although the Company does not have a formal policy regarding attendance by members of the Company’s board of directors at the Company’s Annual Meeting of Stockholders, the Company encourages all of our directors to attend.

Communication with Directors

The Company has established procedures for stockholders or other interested parties to communicate directly with the Company’s board of directors. Such parties can contact the board by mail at: John Dawson, Chairman of The Parking REIT Audit Committee, c/o Corporate Secretary, 9130 W. Post Rd Suite 200, Las Vegas, NV 89148.

The chairman of the Audit Committee will receive all communications made by these means and will distribute such communications to such member or members of the Company’s board of directors as he or she deems appropriate, depending on the facts and circumstances outlined in the communication received. For example, if any questions regarding accounting, internal controls and auditing matters are received, they will be forwarded by the co-chairmen of the Audit Committee to the members of the Audit Committee for review.


ITEM 11. EXECUTIVE COMPENSATION

Executive Officers

Prior to the Internalization, effective April 1, 2019, and during the fiscal year ended December 31, 2018, the Company had no employees. Each of the Company’s executive officers was employed or compensated by the former Advisor. Although the Company reimbursed the former Advisor for certain expenses incurred in connection with providing these services to the Company, prior to the Internalization, the Company did not pay any compensation directly to the Company’s executive officers. Consequently, with respect to the fiscal year ended December 31, 2018 and through March 31, 2019, we did not have a compensation policy or program for our executive officers.

In connection with the Internalization, effective April 1, 2019, the Company entered into employment agreements (collectively, the “Employment Agreements”) with Michael V. Shustek, Chief Executive Officer (the “CEO”); Daniel Huberty, President and Chief Operating Officer (the “COO”); and James Kevin Bland, Chief Financial Officer (the “CFO” and together with the CEO and COO, the “Executives” or the “Named Executive Officers”).  As of March 30, 2020, the Company had 16 employees.

As part of the Company’s transition to self-management, the Compensation Committee retained FTI Consulting as an independent compensation consultant to advise the Compensation Committee with respect to the terms of the Employment Agreements.

Employment Agreements

Following is a brief summary and discussion of the terms of the Employment Agreements.

Term.  Each of the Employment Agreements provides for a three-year initial term that will commence on June 30, 2019 and ends on the third anniversary of such date.  Thereafter, the employment term extends automatically for successive one-year periods unless either the Executive or the Company provides notice of non-renewal to the other party at least ninety (90) days before the end of the then-existing term.

Duties.  The Employment Agreements provide that the CEO, the COO and the CFO will perform duties and provide services to us that are customarily associated with the duties, authorities and responsibilities of persons in similar positions as well as such other duties as may be assigned from time to time. The Employment Agreements also provide that the Executives generally will devote substantially all of their business time and attention to the business and affairs of the Company, except that the Executives may engage in certain outside activities that do not materially interfere with the performance of their duties.

Compensation. The Employment Agreements provide that the CEO, the COO and the CFO will receive an annual initial base salary of $550,000, $300,000 and $250,000, respectively.  The CEO, COO and CFO will be eligible to receive a target annual incentive award of not more than $250,000, $153,000 and $50,000, respectively, and each will be eligible to receive an annual target equity award of not more than $1,000,000, $153,000 and $130,000 in the form of restricted shares of common stock, respectively.  Each annual equity award shall vest equally in annual installments over a three-year period.  The amounts and conditions for the payment and vesting (as applicable) of each target annual incentive award and each annual target equity award will be determined by the Compensation Committee.  The Company at its discretion may pay any target annual incentive awards payable to the COO or the CFO in cash or shares of common stock.  Each of the Executives will be eligible to participate in employee benefit programs made available to the Company’s employees from time to time and to receive certain other perquisites, each as set forth in their respective Employment Agreements.

Severance Payments.  The CEO Employment Agreement provides that, subject to the execution of a release and other conditions set forth in the CEO Employment Agreement, upon a “qualifying termination” (as defined in the CEO Employment Agreement), the CEO will be entitled to severance based on a multiple of the total of the CEO’s then-current annual base salary plus the amount of the last annual incentive award earned by the CEO in the year prior to termination (referred to herein as “total cash compensation”).  If the qualifying termination results from the death or disability of the CEO, the CEO will be entitled to severance equal to one times (1x) his total cash compensation.  If the CEO is terminated by the Company without “cause” (as defined in the CEO Employment Agreement), or the CEO quits for “good reason” (as defined in the CEO Employment Agreement) or the Company elects not to renew the term of the CEO employment agreement, then the CEO will be entitled to severance equal to two times (2x) his total cash compensation.   In the event that any qualifying termination occurs on or within 12 months after a change in control of the Company, the CEO will be entitled to severance equal to three times (3x) his total cash compensation.

The COO and CFO Employment Agreements provide that, subject to the execution of  a release and other conditions set forth in the Employment Agreements, the COO and CFO will be entitled to receive severance based on a multiple of the sum of their annual base salary and target annual incentive award (referred to herein as “total cash compensation”).  If the COO is terminated due to his death or disability or if the COO Employment Agreement is not renewed by the Company during the first five years of the term of such agreement, then the COO will be entitled to severance equal to one times (1x) his total cash compensation.  Such severance is not payable if the COO Employment Agreement is not renewed by the Company after the first five years of the term.  If the COO is terminated without “cause” or the COO quits for “good reason,” (each as defined in the COO Employment Agreement) he will be entitled to severance equal to two times (2x) his total cash compensation.  If the CFO is terminated due to his death or disability, he is terminated by the Company without “cause” or he quits for “good reason,” (each as defined in the CFO Employment Agreement) then the CFO will be entitled to severance equal to one times (1x) his total cash compensation.  If the CFO is terminated without “cause” or quits for “good reason”, in each case, on or within 12 months after a change in control of the Company, then the CFO will be entitled to severance equal to one and one-half times (1.5x) his total cash compensation.

Upon termination where severance is due and payable, the Employment Agreements also provide that the Executives will be entitled to receive (i) unpaid base salary earned through the termination date; (ii) any restricted shares of common stock that have vested as of the termination date; (iii) all other equity-based awards held by Executive (which, to the extent subject to time-based vesting, will vest in full at the termination date); (iv) health insurance coverage, including through COBRA, for an 18 month period following the termination date (other than, with respect to the COO and CFO in the event of a termination due to death, disability or non-renewal); and (v) reimbursements of unpaid business expenses.

Non-Competition, Non-Solicitation and Confidentiality.  Each Employment Agreement provides that for a two-year period following the termination of the Executive’s employment with us, the Executive will not solicit our employees or consultants or any of our customers, vendors or other parties doing business with us.  Pursuant to the Contribution Agreement (as defined below), the CEO has agreed not to compete with us for a period of three years after the Effective Date. (as defined below) Pursuant to the COO and CFO Employment Agreements, each of the COO and CFO has agreed not to compete with us for a period of two years following the termination of their employment with us. Each Employment Agreement also contains covenants relating to the treatment of confidential information, Company property and certain other matters.

Savings and Health and Welfare Benefits

The CEO, the COO and the CFO are eligible to participate in the broad-based 401(k) retirement savings plan generally applicable to our employees, which includes an opportunity to receive employer matching contributions. We do not currently provide for pension plans, supplemental retirement plans or deferred compensation plans for our officers.

The CEO, the COO and the CFO are also eligible to participate in the health, life insurance, disability benefits and other welfare programs that are provided generally to our employees.

Perquisites and Other Personal Benefits

We do not currently provide our officers with any material perquisites or other personal benefits.

Summary Compensation Table

Prior to the Internalization, effective April 1, 2019, the Company had no employees. Each of the Company’s Named Executive Officers was employed or compensated by the former Advisor, and the Company did not pay any compensation directly to the Named Executive Officers. Consequently, with respect to the fiscal year ended December 31, 2018 and through March 31, 2019, we did not have a compensation policy or program for our Named Executive Officers and no amounts were paid to them by the Company to the executive officers.


Accordingly, the following Summary Compensation Table shows compensation (rounded to the nearest thousand) paid or accrued by us for services rendered from April 1, 2019 through December 30, 2019 to the Named Executive Officers.

Name and
Principal Position
Fiscal Year
  
Salary
($)
    
Bonus
($)
    
Stock
Awards ($)
    
Option
Awards
($)
    
Non-Equity Incentive Plan Compensation
($)
    
Change in
Pension Value
And Nonqualified
Deferred Compensation
Earnings
($)
    
All Other
Compensation ($) (1)
    
Total ($)
  
Michael V. Shustek
2019
  
$
275,000
      
-
      
-
      
-
      
-
      
-
      
-
    
$
275,000
  
   Chief Executive Officer
2018
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
                                                                   
                                                                   
Daniel Huberty
2019
  
$
150,000
      
-
      
-
      
-
      
-
      
-
      
-
    
$
150,000
  
   President and Chief
2018
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
   Operating Officer
                                                                  
                                                                   
James Kevin Bland
2019
  
$
125,000
    
$
90,000
      
-
      
-
      
-
      
-
      
-
    
$
215,000
  
    Chief Financial Officer
2018
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
                                                                   

Independent Directors

Under the Company’s independent director compensation program in effect during 2018, the Company paid each independent director an annual retainer of $30,000 (to be prorated for a partial term), with an additional $5,000 annual retainer (to be prorated for a partial term) paid to the Audit Committee chairperson. Each independent director also will receive $500 for each meeting of the board of directors attended in-person or by telephone. Special Committee members were paid an additional $35,000 for the Chair and $30,000 for the remaining members in connection with the Internalization. These committees were disbanded in 2018.

On April 13, 2019, the Board of Directors voted to change the compensation structure of independent directors. Effective June 5, 2019, the date of the Company’s annual shareholder meeting, each independent director will receive an annual retainer of $70,000, pro-rated for any director with service less than a full year. There will be no additional meeting fees paid. An additional $20,000 in cash will also be paid to the Lead Independent Director and an additional $15,000 in cash will be paid to the chairman of the Audit Committee. Once the Company’s stock begins trading, each independent director will receive his or her compensation in stock until he or she holds shares of the Company's stock equal to $105,000 (i.e., three times the anticipated cash portion of his or her annual retainer), and once the threshold is met, each independent director will receive his or her annual retainer half in shares of stock and half in cash.

Until the Company’s stock begins trading one half of the retainer that would otherwise have been paid in shares of stock will be accrued in a bookkeeping account for the benefit of the applicable Director, to be issued to the Director in shares when the Company’s stock begins trading. If the Company’s stock does not begin trading before June 1, 2020 all amounts accrued for issuance as stock pursuant to the compensation plan will instead be paid in cash on such date.


All directors receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attending meetings of the board of directors. If a director is also one of our officers, we will not pay any compensation to such person for services rendered as a director. The following table sets forth information with respect to our independent director compensation during the fiscal year ended December 31, 2019:

Name
  
Fees Earned or Paid in Cash
    
Stock
Awards ($)
    
Option
Awards ($)
    
Non-Equity Incentive Plan Compensation ($)
    
Change in Pension Value and Nonqualified Deferred Compensation Earnings
    
All Other Compensation ($)
    
Total ($)
  
David Chavez (1)
  
$
11,250
    
$
--
    
$
--
    
$
--
    
$
--
    
$
--
    
$
11,250
  
John Dawson
    
60,333
      
--
      
--
      
--
      
--
      
--
      
60,333
  
Robert J. Aalberts
    
56,292
      
--
      
--
      
--
      
--
      
--
      
56,292
  
Nicholas Nilsen
    
39,167
      
--
      
--
      
--
      
--
      
--
      
39,167
  
Shawn Nelson
    
63,821
      
--
      
--
      
--
      
--
      
--
      
63,821
  
William Wells (1)
    
11,250
      
--
      
--
      
--
      
--
      
--
      
11,250
  
Total
  
$
242,113
    
$
--
    
$
--
    
$
--
    
$
--
    
$
--
    
$
242,113
  
(1)
The Nominating Committee did not re-nominate Mr. Wells and Mr. Chavez in June 2019. These directors served out their terms which ended on June 5, 2019.
Compensation Committee Interlocks and Insider Participation

Other than Michael V. Shustek, no member of the Company’s board of directors served as an officer, and no member of the Company’s board of directors served as an employee, of the Company or any of its subsidiaries during the year ended December 31, 2019. In addition, during the year ended December 31, 2019, none of the Company’s executive officers served as a member of the Compensation Committee (or other committee of the Company’s board of directors performing equivalent functions or, in the absence of any such committee, our entire board of directors) of any entity that has one or more executive officers serving as a member of the Company’s board of directors or Compensation Committee.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Security Ownership

Shown below is certain information As of March 30, 2020, with respect to beneficial ownership, as that term is defined in Rule 13d-3 under the Exchange Act, of shares of common stock by the only persons or entities known to us to be a beneficial owner of more than 5% of the outstanding shares of common stock. Unless otherwise noted, the percentage ownership is calculated based on 7,330,071shares of our common stock outstanding As of March 30, 2020.

Name and Address of Beneficial Owner
  
Amount and Nature of Beneficial Ownership
  
Percent of Class
Vestin Realty Mortgage II, Inc.
9130 W. Post Rd Suite 130
Las Vegas, NV 89148
  
Sole voting and investment power of 844,960 shares
  
11.52%
Vestin Realty Mortgage I, Inc.
9130 W Post Rd Suite 130
Las Vegas, NV 89148
  
Sole voting and investment power of 456,834 shares
  
6.23%

The following table sets forth the total number and percentage of common stock beneficially owned as of March 30, 2020, by:
•
Each director;
•
Our chief executive officer and the officers of our manager who function as the equivalent of our executive officers; and
•
All executive officers and directors as a group.


Unless otherwise noted, the percentage ownership is calculated based on 7,330,071shares of our total outstanding common stock and 42,672 shares of our total outstanding preferred stock as of March 30, 2020:

      
Common Shares
Beneficially Owned
    
Preferred Shares
Beneficially Owned
  
Beneficial Owner
Address
  
Number
    
Percent
    
Number
    
Percent
  
Michael V. Shustek
9130 W. Post Rd Suite 200,
 Las Vegas, NV 89148
    
13,423
    
<1%
      
--
      
--
  
Dan Huberty
9130 W. Post Rd Suite 200,
 Las Vegas, NV 89148
    
3,599
    
<1%
      
--
      
--
  
John E. Dawson
8925 W. Post Rd Suite 210,
 Las Vegas, NV 89148
    
2,570
    
<1%
      
*54
    
<1%
  
Robert J. Aalberts
311 Vallarte Dr.
Henderson NV 89014
    
--
      
--
      
--
      
--
  
Nicholas Nilsen
3074 Soft Horizon Way
Las Vegas, NV 89135
    
2,141
    
<1%
      
--
      
--
  
Shawn Nelson
Hall of Administration
333 W. Santa Ana Blvd.
Santa Ana, CA 92701
    
--
      
--
      
--
      
--
  
All directors and officers
      
21,733
    
<1%
      
54
    
<1%
  

*Mr. Dawson received 1,750 warrants with his purchase of 54 shares of preferred stock. The warrants may be exercised after the 90th day following the occurrence of a Listing Event, at an exercise price, per share, equal to 110% of the volume weighted average closing price during the 20 trading days ending on the 90th day after the occurrence of such Listing Event; however, in no event shall the exercise price of the warrants be less than $25 per share.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Conflicts of Interests

The Company is subject to various conflicts of interest arising out of the Company’s relationship with the former Advisor and other affiliates, including (1) conflicts related to the compensation arrangements between the former Advisor, certain affiliates and the Company, (2) conflicts with respect to the allocation of the time of the former Advisor and its key personnel and (3) conflicts with respect to the allocation of investment opportunities. The Company’s independent directors have an obligation to function on the Company’s behalf in all situations in which a conflict of interest may arise and will have a fiduciary obligation to act on behalf of the stockholders.

Please refer to Note E – Related Party Transactions and Arrangements in Part II, Item 8 Financial Statements of this Annual Report for information regarding our related party transactions, which are incorporated herein by reference. Please also see “Risk Factors–Risks Related to Conflict of Interests.” in Part I, Item 1A “Risk Factors” of this Annual Report.

Certain Conflict Mitigation Measures

In order to reduce or mitigate certain potential conflicts of interests, the Company has adopted the procedures set forth below, which includes procedures imposed by the NASAA REIT Guidelines. The Company will no longer be subject to the requirements imposed by the NASAA REIT Guidelines if and when the Company lists its shares on a national securities exchange.


Independent Directors

The NASAA REIT Guidelines require the Company’s charter to define an independent director as a director who is not and has not for the last two years been associated, directly or indirectly, with the Sponsor or the former Advisor. A director is deemed to be associated with the Sponsor or the former Advisor if he or she owns any interest in, is employed by, is an officer or director of, or has any material business or professional relationship with the Sponsor, the former Advisor or any of their affiliates, performs services (other than as a director) for us, or serves as a director or trustee for more than three REITs sponsored by the Sponsor or advised by the former Advisor. A business or professional relationship will be deemed material per se if the gross revenue derived by the director from the Sponsor, the former Advisor or any of their affiliates exceeds five percent of (1) the director’s annual gross revenue derived from all sources during either of the last two years or (2) the director’s net worth on a fair market value basis. An indirect relationship is defined to include circumstances in which the director’s spouse, parents, children, siblings, mothers- or fathers-in-law, sons- or daughters-in-law or brothers- or sisters-in-law is or has been associated with the Company, the Sponsor, the former Advisor or any of its affiliates.

A majority of the Company’s board of directors, including a majority of the independent directors, must determine the method used by the former Advisor for the allocation of the acquisition of investments by two or more affiliated programs seeking to acquire similar types of assets is fair and reasonable to us. The Company’s independent directors, acting as a group, will resolve potential conflicts of interest whenever they determine that the exercise of independent judgment by the full board of directors or the former Advisor or its affiliates could reasonably be compromised. However, the independent directors may not take any action which, under Maryland law, must be taken by the entire board of directors or which is otherwise not within their authority. The independent directors, as a group, are authorized to retain their own legal and financial advisors. Among the matters we expect the independent directors to review and act upon are:

•
transactions with affiliates, including our directors and officers;
•
awards under our equity incentive plan; and
•
pursuit of a potential liquidity event.

Those conflict of interest matters that cannot be delegated to the independent directors, as a group, under Maryland law must be acted upon by both the board of directors and the independent directors.

The Company’s Acquisitions

The Company will not purchase or lease assets in which the Sponsor, the former Advisor, any of the Company’s directors or any of their affiliates has an interest without a determination by a majority of the Company’s directors (including a majority of the independent directors) not otherwise interested in the transaction that such transaction is fair and reasonable to us and at a price to us no greater than the cost of the asset to the Sponsor, the former Advisor, the director or the affiliated seller or lessor, unless there is substantial justification for the excess amount and such excess is reasonable. In no event may the Company acquire any such asset at an amount in excess of its current appraised value.

The consideration the Company pays for real property will ordinarily be based on the fair market value of the property as determined by a majority of the members of the board of directors or the members of a duly authorized committee of the board. In cases in which a majority of the Company’s independent directors so determine, and in all cases in which real property is acquired from the Sponsor, the former Advisor, any of the Company’s directors or any of their affiliates, the fair market value shall be determined by an independent expert selected by the Company’s independent directors not otherwise interested in the transaction.

Loans

The Company will not make any loans to the Sponsor, the former Advisor or the Company’s directors or officers or any of their affiliates (other than mortgage loans complying with the limitations set forth in Section V.K.3 of the NASAA REIT Guidelines or loans to wholly owned subsidiaries). In addition, the Company will not borrow from these affiliates unless a majority of the Company’s board of directors (including a majority of the independent directors) not otherwise interested in the transaction approves the transaction as being fair, competitive and commercially reasonable and no less favorable to us than comparable loans between unaffiliated parties. These restrictions on loans will only apply to advances of cash that are commonly viewed as loans, as determined by the Company’s board of directors.

Other Transactions Involving Affiliates

A majority of the Company’s directors, including a majority of the independent directors not otherwise interested in the transaction, must conclude that all other transactions between the Company and the Sponsor, the former Advisor, any of the Company’s directors or any of their affiliates are fair and reasonable to the Company and on terms and conditions not less favorable to the Company than those available from unaffiliated third parties. To the extent that the Company contemplates any transactions with affiliates, members of the Company’s board of directors who serve on the board of the affiliated entity will be deemed “interested directors” and will not participate in approving or making other substantive decisions with respect to such related party transactions.

Issuance of Options and Warrants to Certain Affiliates

Until the Company’s shares of common stock are listed on a national securities exchange, the Company will not issue options or warrants to purchase our common stock to the former Advisor, the Sponsor, any of the Company’s directors or any of their affiliates, except on the same terms as such options or warrants, if any, are sold to the general public. We may issue options or warrants to persons other than the former Advisor, the Sponsor, the Company’s directors and their affiliates prior to listing the Company’s common stock on a national securities exchange, but not at an exercise price less than the fair market value of the underlying securities on the date of grant and not for consideration (which may include services) that in the judgment of the Company’s board of directors has a market value less than the value of such option or warrant on the date of grant. Any options or warrants we issue to the former Advisor, the Sponsor or any of their affiliates shall not exceed an amount equal to 10% of the outstanding shares of the Company’s common stock on the date of grant.

Reports to Stockholders

The Company will prepare an annual report and deliver it to the Company’s common stockholders within 120 days after the end of each fiscal year. The Company’s directors are required to take reasonable steps to ensure that the annual report complies with the Company’s charter provisions as applicable. Among the matters that must be included in the annual report or included in a proxy statement delivered with the annual report are:

•
financial statements prepared in accordance with GAAP that are audited and reported on by independent certified public accountants;
•
the ratio of the costs of raising capital during the year to the capital raised;
•
the aggregate amount of advisory fees and the aggregate amount of other fees paid to the former Advisor and any affiliates of the former Advisor by the Company or third parties doing business with the Company during the year;
•
the Company’s total operating expenses for the year stated as a percentage of the Company’s average invested assets and as a percentage of the Company’s net income;
•
a report from the independent directors that the Company’s policies are in the best interests of the Company’s stockholders and the basis for such determination; and
•
a separately stated, full disclosure of all material terms, factors and circumstances surrounding any and all transactions involving us and the former Advisor, a director or any affiliate thereof during the year, which disclosure has been examined and commented upon in the report by the independent directors regarding the fairness of such transactions.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES; AUDIT COMMITTEE REPORT

Principal Accounting Fees and Services

For the years ended December 31, 2019 and 2018 RBSM LLP (“RBSM”), our independent public accounting firm, billed the Company approximately $405,000 and $520,000, respectively, for their professional services.

For the year ended December 31, 2018, RSM US LLP (“RSM”), our former independent public accounting firm, billed the Company approximately $443,000 for their professional services.


For the year ended December 31, 2019 and 2018, Armanino, LLP (“Armanino”) HCVT LLP (“HCVT”), our independent accounting firm, billed the Company approximately $98,000 and $219,000, respectively, for their professional services.

   
RBSM 12/31/2019
    
RBSM 12/31/2018
    
RSM 12/31/2019
    
RSM 12/31/2018
    
Armanino 12/31/2019
    
HCVT 12/31/2018
  
Audit Fees
  
$
405,000
    
$
495,000
    
$
--
    
$
343,000
    
$
--
    
$
--
  
Audit Related Fees
  
$
--
    
$
--
    
$
--
    
$
--
    
$
--
    
$
--
  
Tax Fees
  
$
--
    
$
--
    
$
--
    
$
--
    
$
98,000
    
$
219,000
  
All Other Fees
  
$
--
    
$
25,000
    
$
--
    
$
100,000
    
$
--
    
$
--
  
Total
  
$
405,000
    
$
520,000
    
$
--
    
$
443,000
    
$
98,000
    
$
219,000
  

Audit fees. Consists of fees billed for the audit of the Company’s annual financial statements, review of the Company’s Form 10-K, review of the Company’s interim financial statements included in the Company’s Form 10-Q and services that are normally provided by the accountant in connection with year-end statutory and regulatory filings or engagements.

Audit-related fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under “Audit Fees,” such as acquisition audit, audit of the Company’s financial statements, review of our Form 8-K, review of the Company’s registration statement on Form S-11 and Form S-4 filings.

Tax fees. Consists of professional services rendered by a company aligned with the Company’s principal accountant for tax compliance, tax advice and tax planning.

Other fees. The services provided by the Company’s accountants within this category consisted of advice and other services.

Pre-Approval Policy

The Audit Committee has direct responsibility to review and approve the engagement of the independent auditors to perform audit services or any permissible non-audit services. All audit and non-audit services to be provided by the independent auditors must be approved in advance by the Audit Committee. The Audit Committee may not engage the independent auditors to perform specific non-audit services proscribed by law or regulation. All services performed by our independent auditors under engagements entered into were approved by the Company’s Audit Committee, pursuant to the Company’s pre-approval policy, and none was approved pursuant to the de minimis exception to the rules and regulations of the Exchange Act, Section 10A(i)(1)(B), on pre-approval.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following are filed as part of this Report:

1. Financial Statements

The list of the financial statements contained herein are contained in Part II, Item 8. Financial Statements on this Annual Report, which is hereby incorporated by reference.

2. Financial Statement Schedules

Schedule III – Combined Real Estate and Accumulated Depreciation

3. Exhibits

Reference is made to the Exhibit Index appearing immediately before the signature page to this report for a list of exhibits filed as part of this report.

ITEM 16. Summary

None.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
The Parking REIT, Inc.
     
 
By:
/s/ Michael V. Shustek
   
Michael V. Shustek
   
Chief Executive Officer
 
Date:
March 30, 2020
     
 
By:
/s/ J. Kevin Bland
   
J. Kevin Bland
   
Chief Financial Officer
 
Date:
March 30, 2020

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
  
Capacity
  
Date
         
/s/ Michael V. Shustek
  
Chief Executive Officer and Director
  
March 30, 2020
Michael V. Shustek
  
(Principal Executive Officer)
    
         
/s/ J. Kevin Bland
  
Chief Financial Officer
  
March 30, 2020
J. Kevin Bland
  
(Principal Financial and Accounting Officer)
    
         
/s/ John E. Dawson
  
Director
  
March 30, 2020
John E. Dawson
        
         
/s/ Robert J. Aalberts
  
Director
  
March 30, 2020
Robert J. Aalberts
        
         
/s/ Nicholas Nilsen
  
Director
  
March 30, 2020
Nicholas Nilsen
        
         
/s/ Shawn Nelson
  
Director
  
March 30, 2020
Shawn Nelson
        


EXHIBIT INDEX

 
 
 
 
 
 
 
 
 
 
4.4
  
Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
 
 
 
 
 
 
 
 
 
 
 
 
 
21.1(*)
  
  Subsidiaries of the Registrant.
23.1(*)
  
Consent of Independent Registered Public Accounting Firm
31.1(*)
  
Certification of Chief Executive Officer pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002.
31.2(*)
  
Certification of Chief Financial Officer pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes-Oxley Act of 2002.
32(*)
  
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101(*)
  
The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, formatted in XBRL (extensible Business Reporting Language (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statement of Stockholder’s Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Financial Statements. As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
     
 *
Filed concurrently herewith.


Parking REIT, Inc. Reports