UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

(Mark One)

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

 

For the quarterly period ended March 31, 2021

 

OR

 

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

 

For the transition period from                      to

 

Commission file number 000-55619

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Maryland		46-1140492
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

 

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

 

(732) 367-0129

(Registrant’s Telephone Number, Including Area Code)

 

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

 

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

 

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

 

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

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☑	Smaller reporting company	☑
		Emerging growth company	☑

 

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

 

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

 

As of May 10, 2021, there were approximately 13.2 million outstanding shares of common stock of Lightstone Value Plus Real Estate Investment Trust III, Inc., including shares issued pursuant to the dividend reinvestment plan.

 

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES

 

INDEX

 

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020	1
	Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020	2
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2021 and 2020	3
	Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020	4
	Consolidated Statements of Cash Flows for the Three Months ended March 31, 2021, and 2020	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 4.	Controls and Procedures	30
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	31
Item 5.	Other Information	31
Item 6.	Exhibits	31

 

 

PART I. FINANCIAL INFORMATION:

 

ITEM 1. FINANCIAL STATEMENTS:

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		March 31, 2021				December 31, 2020
		(unaudited)
Assets
Investment property:
Land and improvements		$	21,662,328			$	21,662,328
Building and improvements			91,775,860				91,764,252
Furniture and fixtures			16,217,882				16,214,763
Construction in progress			38,516				10,900
Gross investment property			129,694,586				129,652,243
Less accumulated depreciation			(23,847,507	)			(22,588,429	)
Net investment property			105,847,079				107,063,814
Investments in unconsolidated affiliated real estate entities			10,416,310				10,663,655
Cash and cash equivalents			25,577,902				26,998,685
Marketable securities, available for sale			1,811,361				3,226,853
Restricted cash			3,196,223				2,972,561
Accounts receivable and other assets			1,572,357				1,352,047
Total Assets		$	148,421,232			$	152,277,615
Liabilities and Stockholders’ Equity
Accounts payable and other accrued expenses		$	2,667,422			$	2,442,210
Mortgages payable, net			60,797,067				64,754,449
Notes payable			3,319,180				1,450,230
Due to related parties			292,621				292,447
Total liabilities			67,076,290				68,939,336
Commitments and Contingencies
Stockholders’ Equity:
Company’s stockholders’ equity:
Preferred stock, $0.01 par value; 50.0 million shares authorized, none issued and outstanding			-				-
Common stock, $0.01 par value; 200.0 million shares authorized, 13.2 million shares issued and outstanding			132,298				132,298
Additional paid-in-capital			113,205,240				113,205,240
Accumulated other comprehensive loss			(114,151	)			(221,217	)
Accumulated deficit			(43,970,499	)			(41,870,122	)
Total Company stockholders’ equity			69,252,888				71,246,199
Noncontrolling interests			12,092,054				12,092,080
Total Stockholders’ Equity			81,344,942				83,338,279
Total Liabilities and Stockholders’ Equity		$	148,421,232			$	152,277,615

 

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

 

 

PART I. FINANCIAL INFORMATION, CONTINUED:  

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		For the Three Months Ended March 31,
		2021				2020
Revenues		$	3,710,545			$	5,276,400
Expenses:
Property operating expenses			2,665,481				4,009,180
Real estate taxes			369,300				376,117
General and administrative costs			633,610				698,698
Depreciation and amortization			1,275,148				1,272,082
Total operating expenses			4,943,539				6,356,077
Operating loss			(1,232,994	)			(1,079,677	)
Interest expense			(670,165	)			(839,827	)
Loss from investments in unconsolidated affiliated real estate entities			(247,344	)			(612,813	)
Gain on disposition of investment in unconsolidated affiliated real estate entity			-				7,876,639
Other income, net			50,099				96,790
Net (loss)/income			(2,100,404	)			5,441,112
Less: net loss/(income) attributable to noncontrolling interests			27				(82	)
Net (loss)/income applicable to Company’s common shares		$	(2,100,377	)		$	5,441,030
Net (loss)/income per Company’s common shares, basic and diluted		$	(0.16	)		$	0.41
Weighted average number of common shares outstanding, basic and diluted			13,229,791				13,244,817

 

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

 

 

PART I. FINANCIAL INFORMATION, CONTINUED:  

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

		For the Three Months Ended March 31,
		2021				2020
Net (loss)/income		$	(2,100,404	)		$	5,441,112
Other comprehensive income/(loss):
Holding gain/(loss) on marketable securities, available for sale			84,562				(504,887	)
Reclassification adjustment for loss included in net loss			22,505				-
Other comprehensive income/(loss)			107,067				(504,887	)
Comprehensive (loss)/income			(1,993,337	)			4,936,225
Less: Comprehensive income attributable to noncontrolling interests			(26	)			(74	)
Comprehensive (loss)/income attributable to the Company’s common shares		$	(1,993,363	)		$	4,936,151

 

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

 

 

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED.

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

		Common Shares								Additional				Accumulated Other								Total
		Common Shares				Amount				Paid-In Capital				Comprehensive Loss				Accumulated Deficit				Noncontrolling Interests				Total Equity
BALANCE, December 31, 2019			13,310,227			$	133,102			$	114,002,133			$	(78,676	)		$	(38,983,377	)		$	12,092,112			$	87,165,294
Net income			-				-				-				-				5,441,030				82				5,441,112
Other comprehensive loss			-				-				-				(504,879	)			-				(8	)			(504,887	)
Redemption and cancellation of shares			(80,436	)			(804	)			(796,893	)			-				-				-				(797,697	)
BALANCE, March 31, 2020			13,229,791			$	132,298			$	113,205,240			$	(583,555	)		$	(33,542,347	)		$	12,092,186			$	91,303,822

 

		Common Shares								Additional				Accumulated Other								Total
		Common Shares				Amount				Paid-In Capital				Comprehensive Loss				Accumulated Deficit				Noncontrolling Interests				Total Equity
BALANCE, December 31, 2020			13,229,791			$	132,298			$	113,205,240			$	(221,217	)		$	(41,870,122	)		$	12,092,080			$	83,338,279
Net loss			-				-				-				-				(2,100,377	)			(27	)			(2,100,404	)
Other comprehensive income			-				-				-				107,066				-				1				107,067
BALANCE, March 31, 2021			13,229,791			$	132,298			$	113,205,240			$	(114,151	)		$	(43,970,499	)		$	12,092,054			$	81,344,942

 

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

 

 

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For the Three Months Ended March 31,
		2021				2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/income		$	(2,100,404	)		$	5,441,112
Adjustments to reconcile net (loss)/income to net cash used in operating activities:
Loss from investments in unconsolidated affiliated real estate entities			247,344				612,813
Depreciation and amortization			1,275,148				1,272,082
Amortization of deferred financing costs			29,996				45,232
Gain on disposition of investment in unconsolidated affiliated entity			-				(7,876,639	)
Other non-cash adjustments			26,491				19,529
Changes in assets and liabilities:
Increase in accounts receivable and other assets			(240,147	)			(196,874	)
Increase/(decrease) in accounts payable and other accrued expenses			225,212				(157,311	)
Increase/(decrease) in due to related parties			174				(72,078	)
Net cash used in operating activities			(536,186	)			(912,134	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment property			(42,344	)			(139,630	)
Purchase of marketable securities			(163	)			(28,686	)
Proceeds from sale of marketable securities			1,500,000				-
Distribution from unconsolidated affiliated real estate entity			-				44,000
Proceeds from disposition of unconsolidated affiliated real estate entity			-				21,869,246
Net cash provided by investing activities			1,457,493				21,744,930
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgages payable			(3,971,878	)			(121,089	)
Proceeds received from notes payable			1,868,950				-
Payment of loan fees and expenses			(15,500	)			-
Redemption and cancellation of common shares			-				(797,697	)
Net cash used in financing activities			(2,118,428	)			(918,786	)
Net change in cash, cash equivalents and restricted cash			(1,197,121	)			19,914,010
Cash, cash equivalents and restricted cash, beginning of year			29,971,246				13,543,193
Cash, cash equivalents and restricted cash, end of period		$	28,774,125			$	33,457,203
Supplemental cash flow information for the periods indicated is as follows:
Cash paid for interest		$	595,794			$	803,508
Investment property acquired but not paid		$	-			$	5,650
Holding gain/loss on marketable securities, available for sale		$	107,067			$	504,887
The following is a summary of the Company’s cash, cash equivalents and restricted cash total as presented in our statements of cash flows for the periods presented:
Cash and cash equivalents		$	25,577,902			$	25,759,893
Restricted cash			3,196,223				7,697,310
Total cash, cash equivalents and restricted cash		$	28,774,125			$	33,457,203

 

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

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

1.

Structure

 

Lightstone Value Plus Real Estate Investment Trust III, Inc. (“Lightstone REIT III”), is a Maryland corporation, formed on October 5, 2012, which elected to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2015.

 

The Lightstone REIT III is structured as an umbrella partnership REIT, or UPREIT, and substantially all of its current and future business will be conducted through Lightstone Value Plus REIT III LP, a Delaware limited partnership (the “Operating Partnership”). As of March 31, 2021, Lightstone REIT III held an approximately 99% general partnership interest in the Operating Partnership’s common units.

 

Lightstone REIT III and the Operating Partnership and its subsidiaries are collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns refers to Lightstone REIT III, its Operating Partnership or the Company as required by the context in which such pronoun is used.

 

The Company has and will continue to seek to acquire a diverse portfolio of real estate assets and real estate-related investments, including hotels, other commercial and/or residential properties, primarily located in the United States. All such properties may be acquired and operated by the Company alone or jointly with another party. The Company may also originate or acquire mortgage loans secured by real estate. Although the Company expects that most of its investments will be of these types, it may make other investments. In fact, it may invest in whatever types of real estate-related investments that it believes are in its best interests.

 

The Company currently has one operating segment. As of March 31, 2021, the Company (i) majority owned and consolidated the operating results and financial condition of eight limited service hotels containing a total of 872 rooms and an unconsolidated 50.0% membership interest in LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”). The Company accounts for its unconsolidated membership interest in the Hilton Garden Inn Joint Venture under the equity method of accounting.

 

The Company’s advisor is Lightstone Value Plus REIT III LLC (the “Advisor”), which is majority owned by David Lichtenstein. On July 16, 2014, the Advisor contributed $2,000 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. The Advisor also owns 20,000 shares of our common stock (“Common Shares”) which were issued on December 24, 2012 for $200,000, or $10.00 per share. Mr. Lichtenstein also is a majority owner of the equity interests of the Lightstone Group, LLC. The Lightstone Group, LLC served as the Company’s sponsor (the “Sponsor”) during its initial public offering (the “Offering”) which terminated on March 31, 2017. Mr. Lichtenstein owns 222,222 Common Shares which were issued on December 11, 2014 for $2.0 million, or $9.00 per share. Pursuant to the terms of an advisory agreement and subject to the oversight of the Company’s board of directors (the “Board of Directors”), the Advisor has primary responsibility for making investment decisions on behalf of the Company and managing its day-to-day operations. Through his ownership and control of the Lightstone Group, LLC, Mr. Lichtenstein is the indirect owner and manager of Lightstone SLP III LLC, a Delaware limited liability company (the “Special Limited Partner”), which owns 242 subordinated participation interests (“Subordinated Participation Interests”) in the Operating Partnership which were acquired for $12.1 million in connection with the Offering. Mr. Lichtenstein also acts as the Company’s Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT III or the Operating Partnership.

 

The Company does not have any employees. The Advisor receives compensation and fees for services related to the investment and management of the Company’s assets.

 

The Company’s Advisor has certain affiliates which may which may manage the properties the Company acquires. However, the Company also contracts with other unaffiliated third-party property managers, principally for the management of its hospitality properties.

 

The Company’s Common Shares are not currently listed on a national securities exchange. The Company may seek to list its Common Shares for trading on a national securities exchange only if a majority of its independent directors believe listing would be in the best interest of its stockholders. The Company does not intend to list its Common Shares at this time. The Company does not anticipate that there would be any market for its Common Shares until they are listed for trading. In the event the Company does not begin the process of achieving a liquidity event prior to March 31, 2025, which is the eighth anniversary of the termination of its Offering, its charter requires either (a) an amendment to its charter to extend the deadline to begin the process of achieving a liquidity event, or (b) the holding of a stockholders meeting to vote on a proposal for an orderly liquidation of its portfolio.

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

Noncontrolling Interests – Partners of the Operating Partnership

 

Limited Partner

 

On July 16, 2014, the Advisor contributed $2,000 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. The Advisor has the right to convert limited partner units into cash or, at the Company’s option, an equal number of its Common Shares.

 

Special Limited Partner

 

In connection with the Company’s Offering, which terminated on March 31, 2017, the Special Limited Partner purchased from the Operating Partnership an aggregate of approximately 242 Subordinated Participation Interests for consideration of $12.1 million. The Subordinated Participation Interests were each purchased for $50,000 in consideration and may be entitled to receive liquidation distributions upon the liquidation of Lightstone REIT III.

 

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

 

These Subordinated Participation Interests entitle the Special Limited Partner to a portion of any regular and liquidation distributions that the Company makes to its stockholders, but only after its stockholders have received a stated preferred return. From the Company’s inception through March 31, 2021, no distributions have been declared or paid on the Subordinated Participation Interests.

 

The Advisor and its affiliates and the Special Limited Partner are related parties of the Company. Certain of these entities are entitled to compensation for services related to the investment, management and disposition of our assets during the Company’s acquisition, operational and liquidation stages. The compensation levels during the acquisition and operational stages are based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements.

 

2.	Summary of Significant Accounting Policies

  

The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of the Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The unaudited interim financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair statement of the results for the periods presented. The accompanying unaudited consolidated financial statements of the Lightstone Value Plus Real Estate Investment Trust III, Inc. and its Subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

 

GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of real estate and depreciable lives. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.

 

The consolidated balance sheet as of December 31, 2020 included herein has been derived from the consolidated balance sheet included in the Company’s Annual Report on Form 10-K.

 

The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.

 

To qualify or maintain our qualification as a REIT, we engage in certain activities through wholly-owned taxable REIT subsidiaries (“TRS”). As such, we are subject to U.S. federal and state income and franchise taxes from these activities.

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

Revenue

 

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

 

		For the Three Months Ended March 31,
Revenues		2021				2020
Room		$	3,584,760			$	5,046,817
Food, beverage and other			125,785				229,583
Total revenues		$	3,710,545			$	5,276,400

 

Principles of Consolidation and Basis of Presentation

 

The consolidated financial statements include the accounts of Lightstone REIT III and the Operating Partnership and its subsidiaries (over which the Company exercises financial and operating control). As of March 31, 2021, Lightstone REIT III had an approximate 99% general partnership interest in the common units of the Operating Partnership. All inter-company accounts and transactions have been eliminated in consolidation.

 

COVID-19 Pandemic Operations and Liquidity Update

 

On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic leading many countries, including the United States, particularly at the individual state level, to subsequently impose various degrees of restrictions and other measures, including, but not limited to, mandatory temporary closures, quarantine guidelines, limitations on travel, and “shelter in place” rules in an effort to reduce its duration and the severity of its spread. Although the COVID-19 pandemic has continued to evolve, most of these previously imposed restrictions and other measures have now been reduced and/or lifted. However, the COVID-19 pandemic remains highly unpredictable and dynamic and its duration and extent is likely dependent on numerous developments such as the regulatory approval, mass production, administration and ultimate effectiveness of vaccines, as well as the timeline to achieve a level of sufficient herd immunity amongst the general population. Accordingly, the COVID-19 pandemic may continue to have negative effects on the overall health of the U.S. economy for the foreseeable future. 

 

The extent to which the Company’s business may be affected by the ongoing COVID-19 pandemic will largely depend on both current and future developments, all of which are highly uncertain and cannot be reasonably predicted. As a result of the COVID-19 pandemic, room demand for the Company’s consolidated and unconsolidated hotels began to significantly decline in March 2020 and while there has been slight sequential improvement since then; room demand continues to be substantially below historical levels. Since March 2020, the COVID-19 pandemic has had a significant negative impact on the Company’s operations, financial position and cash flow and the Company currently expects that it will continue to do so for the foreseeable future. The Company cannot currently estimate if and when room demand will fully recover to pre-pandemic levels for its hotels.

 

In light of the past, present and potential future impact of the COVID-19 pandemic on the operating results of its hotels, the Company has taken various actions to preserve its liquidity, including, but not limited to, those described below:

 

●

The Company implemented cost reduction strategies for all of its hotels, leading to reductions in certain operating expenses and capital expenditures.

 

●

Amendments to Revolving Credit Facility –   On June 2, 2020, the Company’s revolving credit facility (the “Revolving Credit Facility”) was amended to provide for (i) the deferral of the six monthly debt service payments aggregating $0.8 million for the period from April 1, 2020 through September 30, 2020 until July 13, 2022; (ii) a 100 bps reduction in the interest rate spread to LIBOR + 2.15%, subject to a 3.00% floor, for the six-month period from September 1, 2020 through February 28, 2021; (iii) the Company pre-funding $0.7 million into a cash collateral reserve account to cover the six monthly debt service payments due from October 1, 2020 through March 1, 2021; and (iv) a waiver of all financial covenants for quarter-end periods before June 30, 2021. Additionally, a principal paydown of $0.6 million, which was previously due on April 1, 2020 was bifurcated into two separate principal paydowns, each one $0.3 million, which were made in June 2020 and September 2020.   Subsequently, on March 31, 2021, the Revolving Credit Facility was further amended providing for (i) the Company to make another principal paydown of $3.8 million, (ii) the Company to fund an additional $0.7 million into the cash collateral reserve account; (iii) a waiver of all financial covenants for quarter-end periods through September 30, 2021 with a phased-in gradual return to the full financial covenant requirements over the quarter-end periods beginning December 31, 2021 through March 31, 2023; (iv) two one-year extension options at the lender’s sole discretion; and (v) certain limitations and restrictions on asset sales and additional borrowings related to the pledged collateral.   See Note 5 for additional information.

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

●

In April 2020, the Company’s hotels received $1.5 million from loans provided under the federal Paycheck Protection Program (“PPP Loans”). Subsequently, during the first quarter of 2021, the Company’s hotels received an additional $1.9 million from PPP Loans. See Note 6 for additional information.

 

●

On June 19, 2019, the Board of Directors had previously determined to suspend regular monthly distributions and, as a result, has not declared any distributions on the Company’s Common Shares since the suspension. Additionally, on March 19, 2020, the Board of Directors approved the suspension of all redemptions under the Company’s shareholder redemption program.

 

●

The Company had $5.2 million of funds previously held in escrow with a qualified intermediary to facilitate a potential like-kind exchange transaction in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended, released to it in May 2020.

 

●

The Hilton Garden Inn Joint Venture has obtained various amendments to its non-recourse mortgage loan secured by the Hilton Garden Inn – Long Island City. See Note 3 for additional information.

 

The Company believes that these actions, along with its available cash on hand, restricted cash and marketable securities will provide it with sufficient liquidity to meet its obligations for at least 12 months from the date of issuance of these financial statements.

 

New Accounting Pronouncements

   

The Company has reviewed and determined that other recently issued accounting pronouncements will not have a material impact on its financial position, results of operations and cash flows, or do not apply to its current operations.

 

3.	Investments in Unconsolidated Affiliated Real Estate Entities

 

The entity below is partially owned by the Company. The Company accounts for this investment under the equity method of accounting as the Company exercises significant influence, but does not exercise financial and operating control over this entity. A summary of the Company’s investment in the unconsolidated affiliated real estate entity is as follows:

 

								As of
Entity		Date Acquired		Ownership %				March 31, 2021				December 31, 2020
LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”)		March 27, 2018			50.00	%		$	10,416,310			$	10,663,655

 

Hilton Garden Inn Joint Venture

 

On March 27, 2018, the Company and its Sponsor’s other public program, Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone REIT II”), acquired, through the Hilton Garden Inn Joint Venture, a 183-room, limited-service hotel located at 29-21 41^st Avenue, Long Island City, New York (the “Hilton Garden Inn - Long Island City”) from an unrelated third party, for aggregate consideration of $60.0 million, which consisted of $25.0 million of cash and $35.0 million of proceeds from a mortgage loan from a financial institution (the “Hilton Garden Inn Mortgage”), excluding closing and other related transaction costs. The Company and Lightstone REIT II each have a 50.0% membership interest in the Hilton Garden Inn Joint Venture.

 

The Company paid $12.9 million for a 50.0% membership interest in the Hilton Garden Inn Joint Venture. The Company’s membership interest in the Hilton Garden Inn Joint Venture is a co-managing interest. The Company accounts for its membership interest in the Hilton Garden Inn Joint Venture in accordance with the equity method of accounting because it exerts significant influence over but does not control the Hilton Garden Inn Joint Venture.  All capital contributions and distributions of earnings from the Hilton Garden Inn Joint Venture are made on a pro rata basis in proportion to each member’s equity interest percentage. Any distributions in excess of earnings from the Hilton Garden Inn Joint Venture are made to the members pursuant to the terms of the Hilton Garden Inn Joint Venture’s operating agreement. The Company commenced recording its allocated portion of profit/loss and cash distributions beginning as of March 27, 2018 with respect to its membership interest of 50.0% in the Hilton Garden Inn Joint Venture.

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

In light of the impact of the COVID-19 pandemic on the operating results of the Hilton Garden Inn – Long Island City, the Hilton Garden Inn Joint Venture has entered into certain amendments with respect the Hilton Garden Inn Mortgage as discussed below.

 

On June 2, 2020, the Hilton Garden Inn Mortgage was amended to provide for (i) the deferral of the six monthly debt service payments aggregating $0.9 million for the period from April 1, 2020 through September 30, 2020 until March 27, 2023; (ii) a 100 bps reduction in the interest rate spread to LIBOR + 2.15%, subject to a 4.03% floor, for the six-month period from September 1, 2020 through February 28, 2021; (iii) the Hilton Garden Inn Joint Venture pre-funding $1.2 million into a cash collateral reserve account to cover the six monthly debt service payments due from October 1, 2020 through March 1, 2021; and (iv) waiver of all financial covenants for quarter-end periods before June 30, 2021.

 

Additionally, on April 7, 2021, the Hilton Garden Inn Joint Venture and the lender further amended the terms of the Hilton Garden Inn Mortgage to provide for (i) the Hilton Garden Inn Joint Venture to make a principal paydown of $1.7 million; (ii) the Hilton Garden Inn Joint Venture to fund an additional $0.7 million into the cash collateral reserve account; (iii) a waiver of all financial covenants for quarter-end periods through September 30, 2021 with a phased-in gradual return to the full financial covenant requirements over the quarter-end periods beginning December 31, 2021 through December 31, 2022; (iv) a 11-month interest-only payment period from May 1, 2021 through March 31, 2022; and (v) certain restrictions on distributions to the members of the Hilton Garden Inn Joint Venture during the interest-only payment period.

 

Subsequent to the Company’s acquisition of its 50.0% membership interest in the Hilton Garden Joint Venture through March 31, 2021, it has made an aggregate of $1.5 million of additional capital contributions and received aggregate distributions of $1.5 million. All of these additional capital contributions and distributions were made prior to 2021.

 

Hilton Garden Inn Joint Venture Financial Information

 

The following table represents the condensed income statement for the Hilton Garden Inn Joint Venture for the period indicated:

 

(amounts in thousands)		For the Three Months Ended March 31, 2021				For the Three Months Ended March 31, 2020
Revenues		$	1,419			$	1,540
Property operating expenses			872				1,344
General and administrative costs			10				18
Depreciation and amortization			635				630
Operating loss			(98	)			(452	)
Interest expense			(397	)			(457	)
Net loss		$	(495	)		$	(909	)
Company’s share of net loss (50.00%)		$	(247	)		$	(455	)

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

The following table represents the condensed balance sheet for the Hilton Garden Inn Joint Venture:

 

		As of				As of
(amounts in thousands)		March 31, 2021				December 31, 2020
Investment property, net		$	54,215			$	54,826
Cash			2,081				885
Other assets			552				1,211
Total assets		$	56,848			$	56,922
Loans payable, net		$	35,239			$	34,988
Other liabilities			1,376				1,207
Members’ capital			20,233				20,727
Total liabilities and members’ capital		$	56,848			$	56,922

 

The Cove Joint Venture

 

On January 31, 2017, the Company, through its wholly owned subsidiary, REIT III COVE LLC along with LSG Cove LLC, an affiliate of the Sponsor and a related party, REIT IV COVE LLC, a wholly owned subsidiary of Lightstone Real Estate Income Trust, Inc. (“Lightstone IV”), a real estate investment trust also sponsored by the Sponsor and a related party and Maximus Cove Investor LLC (“Maximus”), an unrelated third party, completed the acquisition of all of RP Cove, L.L.C’s membership interest in RP Maximus Cove, L.L.C. (the “Cove Joint Venture”) for aggregate consideration of $255.0 million (the “Cove Transaction”). Excluding mortgage financing obtained by the Cove Joint Venture in connection with the Cove Transaction, the Company paid $20.0 million for a 22.5% non-managing membership interest in the Cove Joint Venture.

 

The Cove Joint Venture owned and operated The Cove at Tiburon (“the Cove”), a 281-unit, luxury waterfront multifamily residential property located in Tiburon, California from January 31, 2017 through February 12, 2020. As discussed below, the Company disposed of its 22.5% membership interest in the Cove Joint Venture on February 12, 2020.

 

The Company accounted for its 22.5% membership interest in the Cove Joint Venture in accordance with the equity method of accounting. For the period from January 1, 2020 through February 12, 2020, the Company’s share of the Cove Joint Venture’s loss of $0.7 million was $0.2 million, which is included in the loss from investments in unconsolidated affiliated real estate entities on the consolidated statements of operations.

 

On February 12, 2020, REIT IV Cove LLC, LSG Cove LLC and REIT III COVE LLC each redeemed their respective membership interests in the Cove Joint Venture for an aggregate redemption price of $87.6 million. In connection, with the redemption of the Company’s 22.5% membership interest in the Cove Joint Venture, it received proceeds of $21.9 million which resulted in the recognition of a gain on the disposition of unconsolidated affiliated real estate entity of $7.9 million during the first quarter of 2020.

 

As a result of the redemption of the Company’s 22.5% membership interest in the Cove Joint Venture on February 12, 2020, it no longer has an ownership interest in the Cove Joint Venture. During August 2020, the Company received $0.1 million of additional proceeds related to the redemption of its membership interest in the Cove Joint Venture and recognized a gain on the disposition of investment in unconsolidated affiliated real estate entity of $0.1 million during the third quarter of 2020. As a result, the Company recognized an aggregate gain on the disposition of investment in unconsolidated affiliated real estate entity of $8.0 million during the year ended December 31, 2020.

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

4.	Marketable Securities and Fair Value Measurements

 

Marketable Securities

 

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

 

		As of March 31, 2021
		Adjusted Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Marketable Securities:
Equity securities:
Mutual funds		$	218,369			$	47			$	-			$	218,416
Debt securities:
Corporate Bonds			1,707,096				9,598				(123,749	)			1,592,945
Total		$	1,925,465			$	9,645			$	(123,749	)		$	1,811,361

 

		As of December 31, 2020
		Adjusted Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Marketable Securities:
Equity securities:
Mutual funds		$	218,206			$	258			$	-			$	218,464
Debt securities:
Corporate Bonds			3,229,608				10,039				(231,258	)			3,008,389
Total		$	3,447,814			$	10,297			$	(231,258	)		$	3,226,853

 

The Company considers the declines in market value of its investments in debt securities to be temporary in nature. When evaluating its investments in debt securities for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the debt security before recovery of its amortized cost basis. During the three months ended March 31, 2021 and 2020, the Company did not recognize any impairment charges on its investments in debt securities. As of March 31, 2021, the Company does not consider any of its investments in debt securities to be other-than-temporarily impaired.

 

The Company may sell certain of its investments in marketable debt securities prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management.

 

Fair Value Measurements

 

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

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

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

 

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

 

As of March 31, 2021 and December 31, 2020, the Company’s equity securities were classified as Level 1 assets and the Company’s debt securities were classified as Level 2 assets. There were no transfers between the level classifications during the during the three months ended March 31, 2021.

 

The fair values of the Company’s investments in equity securities are measured using quoted prices in active markets for identical assets and debt securities are measured using readily available quoted prices for similar assets.

 

The following table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:

 

		As of March 31, 2021
Due in 1 year		$	-
Due in 1 year through 5 years			970,445
Due in 5 year through 10 years			-
Due after 10 years			622,500
Total		$	1,592,945

 

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

 

5.	Mortgages payable, net

 

Mortgages payable, net consists of the following:

 

				Weighted Average Interest Rate
Description		Interest Rate		as of March 31, 2021				Maturity Date		Amount Due at Maturity				As of March 31, 2021				As of December 31, 2020
Revolving Credit Facility		LIBOR + 3.15% (floor of 4.00%)			3.47	%		July 2022		$	34,573,333			$	34,573,333			$	38,414,814
Promissory Note, secured by two properties		4.73%			4.73	%		October 2021			26,127,572				26,379,216				26,509,613
Total mortgages payable					4.02	%				$	60,700,905				60,952,549				64,924,427
Less: Deferred financing costs															(155,482	)			(169,978	)
Total mortgage payable, net														$	60,797,067			$	64,754,449

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

Revolving Credit Facility

 

The Company, through certain subsidiaries, has a non-recourse Revolving Credit Facility with a financial institution. The Revolving Credit Facility provides the Company with a line of credit of up to $60.0 million pursuant to which it may designate properties as collateral that allow borrowings up to a 65.0% loan-to-value ratio subject to also meeting certain financial covenants, including a prescribed minimum debt yield. The Revolving Credit Facility provides for monthly interest-only payments and the entire principal balance is due upon its expiration.

 

The Revolving Credit Facility, which was entered into on July 13, 2016, had an initial maturity date of July 13, 2019, subject to two one-year options to extend at the sole discretion of the lender. The initial interest rate on the Revolving Credit Facility was LIBOR+ 4.95% until it was reduced to LIBOR + 3.50% effective June 18, 2018. On July 11, 2019, the Company and the lender amended the Revolving Credit Facility to extend the initial maturity date for 60 days to provide additional time to finalize the terms of a long-term extension. In connection with this amendment, the interest rate on the Revolving Credit Facility was reduced from LIBOR + 3.50% to LIBOR + 3.15%, effective July 1, 2019 and the requirements under the minimum debt yield ratio were modified effective as of March 31, 2019. On August 22, 2019, the Company and the lender further amended the Revolving Credit Facility to extend the maturity date to July 13, 2022, subject to two, one-year options to extend at the sole discretion of the lender. In connection with this amendment, the Company made principal paydowns of $0.6 million on both August 22, 2019 and December 31, 2019, respectively, and in certain circumstances would be required to make an additional principal paydown of $0.6 million on April 1, 2020. 

 

On June 2, 2020, the Company’s Revolving Credit Facility was amended to provide for (i) the deferral of the six monthly debt service payments aggregating $0.8 million for the period from April 1, 2020 through September 30, 2020 until July 13, 2022; (ii) a 100 bps reduction in the interest rate spread to LIBOR + 2.15%, subject to a 3.00% floor, for the six-month period from September 1, 2020 through February 28, 2021; (iii) the Company pre-funding $0.8 million into a cash collateral reserve account (of which $0.3 million was included in restricted cash on the Company’s consolidated balance sheet as of December 31, 2020) to cover the six monthly debt service payments due from October 1, 2020 through March 1, 2021; and (iv) a waiver of all financial covenants for quarter-end periods before June 30, 2021. Additionally, a principal paydown of $0.6 million, which was previously due on April 1, 2020 was bifurcated into two separate principal paydowns, each one $0.3 million, which were made in June 2020 and September 2020.

 

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

 

As of March 31, 2021, the Revolving Credit Facility had an outstanding principal balance of $34.6 million and six of the Company’s hotel properties were pledged as collateral. Additionally, no additional borrowings were available under the Revolving Credit Facility as of March 31, 2021.

 

Home2 Suites Promissory Note

 

On October 5, 2016, the Company entered into a non-recourse promissory note (the “Home2 Suites Promissory Note”) for $28.4 million. The Promissory Note has a term of five years, bears interest at 4.73% and requires monthly interest and principal payments of $147,806 through its stated maturity with the then remaining unpaid balance of $26.1 million due upon maturity. The Home2 Suites Promissory Note is cross-collateralized by two of the Company’s hotel properties (Home2 Suites – Tukwila and Home2 Suites – Salt Lake City). The Home2 Suites Promissory Note matures on October 5, 2021. The Company currently intends to refinance Home2 Suites Promissory Note on or before its maturity date.

 

Although the Company is current with respect to the payment of debt service on its nonrecourse Home2 Suites Promissory Note, it did not meet the required minimum debt service coverage ratio for the third and fourth quarters of 2020 and the first quarter of 2021because of the impact of the COVID-19 pandemic on the operating performance of these two hotels. As a result, the lender may elect to retain any excess cash flow from these two hotels until such time as a prescribed minimum debt service coverage ratio is achieved for two successive quarters. If the lender elects to retain any excess cash flow from these two hotels, the Company does not believe it would have a material effect on its liquidity or financial condition.

 

Principal Maturities

 

The following table, based on the initial terms of the mortgage, sets forth their aggregate estimated contractual principal maturities, including balloon payments due at maturity, as of March 31, 2021:

 

		2021				2022				2023				2024				2025				Thereafter				Total
Principal maturities		$	26,379,216			$	34,573,333			$	-			$	-			$	-			$	-			$	60,952,549
Less: Deferred financing costs																											(155,482	)
Total principal maturities, net																										$	60,797,067

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

Pursuant to the Company’s debt agreements, $3.2 million and $3.0 million of funds were held in restricted escrow accounts as of March 31, 2021 and December 31, 2020, respectively. Such escrows are subject to release in accordance with the applicable debt agreement for the payment of real estate taxes, debt service payments, insurance and capital improvements, as required. Certain of our debt agreements also contain clauses providing for prepayment penalties.

 

6.

Notes Payable

 

During April 2020, the Company, through various subsidiaries (each such entity, a “Borrower”), received aggregate funding of $1.5 million through loans (the “PPP Loans”) originated under the federal Paycheck Protection Program, which was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration. During March 2021, the Borrower received an additional aggregate funding of $1.9 million of PPP Loans.

 

The PPP Loans each have a term of five years and provide for an interest rate of 1.00%. The payment of principal and interest on the PPP loan is deferred until the day that the forgiven amount is remitted to the lender (approximately five months after the forgiveness application is submitted to the lender, unless the Borrower appeals a denial of forgiveness) or ten months after the end of the Borrower’s covered period, whichever is earlier. Pursuant to the terms of the CARES Act, the proceeds of the PPP Loans may be used for payroll costs, mortgage interest, rent or utility costs.

 

The promissory note for each of the PPP Loans contains customary events of default relating to, among other things, payment defaults and breach of representations and warranties or of provisions of the relevant promissory note. Under the terms of the CARES Act, each Borrower can apply for and be granted forgiveness for all or a portion of the PPP Loans. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds in accordance with the terms of the CARES Act. Although the Company intends for each Borrower to apply for loan forgiveness, no assurance can be given that any Borrower will ultimately obtain forgiveness under any relevant PPP Loan, in whole or in part.

 

As of March 31, 2021 and December 31, 2020, the PPP Loans had an outstanding balance of $3.3 million and $1.5 million, respectively, and are classified as Notes Payable on the consolidated balance sheets.

 

7.	Company’s Stockholder’s Equity

 

Distributions on Common Shares

 

On June 19, 2019, the Board of Directors determined to suspend regular monthly distributions on the Company’s Common Shares and as a result, no distributions have been declared since the suspension.

 

Previously, distributions on the Company’s Common Shares in an amount equal to a 6.0% annualized rate, based on a share price of $10.00, were declared on a monthly basis beginning on January 14, 2015 through June 30, 2019 and were paid on or about the 15th day following each month end.

 

Future distributions declared on the Company’s Common Shares, if any, will be at the discretion of the Board of Directors based on their analysis of the Company’s performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, revenues and other sources of income, operating and interest expenses and the Company’s ability to refinance near-term debt as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. The Company cannot assure that any future distributions will be made or that it will maintain any particular level of distributions that it has previously established or may establish.

 

Share Repurchase Program

 

The Company’s share repurchase program may provide its stockholders with limited, interim liquidity by enabling them to sell their Common Shares back to the Company, subject to restrictions.

 

On March 19, 2020, the Board of Directors amended the share repurchase program to remove stockholder notice requirements and also approved the suspension of all redemptions effective immediately. On March 25, 2020, the Board of Directors determined to suspend the share repurchase program effective immediately.

 

 

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

Effective May 10, 2021, the Board of Directors reopened the share repurchase program for redemptions submitted in connection with a stockholder’s death or hardship and set the price for all such purchases to 100% of the NAV per Share ($8.05 as of December 31, 2020).

 

Deaths that occurred subsequent to January 1, 2020 are eligible for consideration. Beginning January 1, 2022, requests for redemptions in connection with a stockholder’s death must be submitted and received by the Company within one year of the stockholder’s date of death for consideration.

 

On an annual basis, the Company will not redeem in excess of 0.5% of the number of shares outstanding as of the end of the preceding year for either death or hardship redemptions, respectively. Redemption requests are expected to be processed on a quarterly basis and may be subject to pro ration if either type of redemption requests exceed the annual limitation.

 

Earnings per Share

 

Net earnings per common share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding.

 

8.	Due to related parties and other transactions

 

The Company has various agreements, including an advisory agreement, with the Advisor to pay certain fees in exchange for services performed by the Advisor and/or its affiliated entities. Additionally, the Company’s ability to secure financing and its real estate operations are dependent upon its Advisor and its affiliates to perform such services as provided in these agreements. Amounts the Company owes to the Advisor and its affiliated entities are principally for asset management fees, and are classified as due to related parties on the consolidated balance sheets.

 

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

 

		For the Three Months Ended March 31.
		2021				2020
Asset management fees (general and administrative costs)		$	300,994			$	355,818

 

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

 

9.	Financial Instruments

 

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, accounts receivable and other assets, accounts payable and other accrued expenses, due to related parties and notes payable approximate their fair values because of the short maturity of these instruments.

 

The carrying amount and estimated fair value of our mortgages payable are as follows:

 

		As of March 31, 2021								As of December 31, 2020
		Carrying Amount				Estimated Fair Value				Carrying Amount				Estimated Fair Value
Mortgages payable		$	60,952,549			$	61,002,342			$	64,924,427			$	64,823,777

 

The fair value of our mortgages payable was determined by discounting the future contractual interest and principal payments by market interest rates.

 

10.

Commitments and Contingencies

 

Legal Proceedings

 

From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.

 

As of the date hereof, we are not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss.

 

 

PART I. FINANCIAL INFORMATION, CONTINUED:

 

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

 

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust III, Inc. and Subsidiaries and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Lightstone Value Plus Real Estate Investment Trust III, Inc., a Maryland corporation, and, as required by context, Lightstone Value Plus REIT III, L.P., which we collectively refer to as the “Operating Partnership”.

 

Forward-Looking Statements

 

Certain information included in this Quarterly Report on Form 10-Q contains, and other materials filed or to be filed by us with the United States Securities and Exchange Commission (the “SEC”), contain or will contain, forward-looking statements. All statements, other than statements of historical facts, including, among others, statements regarding our possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives, are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of Lightstone Value Plus Real Estate Investment Trust III, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements.

 

Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements.

 

Risks and other factors that might cause differences, some of which could be material, include, but are not limited to, economic and market conditions, competition, tenant or joint venture partner(s) bankruptcies, our lack of operating history, the availability of cash flows from operations to pay distributions, changes in governmental, tax, real estate and zoning laws and regulations, failure to increase tenant occupancy and operating income, rejection of leases by tenants in bankruptcy, financing and development risks, construction and lease-up delays, cost overruns, the level and volatility of interest rates, the rate of revenue increases versus expense increases, the financial stability of various tenants and industries, the failure of the Company to make additional investments in real estate properties, the failure to upgrade our tenant mix, restrictions in current financing arrangements, the failure to fully recover tenant obligations for common area maintenance, insurance, taxes and other property expenses, the failure of the Company to continue to qualify as a real estate investment trust (“REIT”), the failure to refinance debt at favorable terms and conditions, an increase in impairment charges, loss of key personnel, failure to achieve earnings/funds from operations targets or estimates, conflicts of interest with the Advisor and the Sponsor and their affiliates, failure of joint venture relationships, significant costs related to environmental issues and uncertainties regarding the impact of the current COVID-19 pandemic, and restrictions and other measures intended to prevent its spread on our business and the economy generally, as well as other risks listed from time to time in this Form 10-Q, our Form 10-K and in the Company’s other reports filed with the SEC.

 

We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless required by law.

 

Structure

 

Lightstone Value Plus Real Estate Investment Trust III, Inc. (“Lightstone REIT III”), is a Maryland corporation, formed on October 5, 2012, which elected to qualify to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes beginning with the taxable year ending December 31, 2015.

 

Lightstone REIT III is structured as an umbrella partnership REIT (“UPREIT”), and substantially all of its current and future business is and will be conducted through Lightstone Value Plus REIT III LP, a Delaware limited partnership (the “Operating Partnership”). As of March 31, 2021, Lightstone REIT III held an approximately 99% general partnership interest in the Operating Partnership’s common units.

 

 

Lightstone REIT III and the Operating Partnership and its subsidiaries are collectively referred to as the “Company” and the use of “we,” “our,” “us” or similar pronouns in this annual report refers to the Lightstone REIT III, its Operating Partnership or the Company as required by the context in which such pronoun is used. 

 

We have and will continue to seek to acquire a diverse portfolio of real estate assets and real estate-related investments, including hotels, other commercial and/or residential properties, primarily located in the United States. All such properties may be acquired and operated by us alone or jointly with another party. We may also originate or acquire mortgage loans secured by real estate. Although we expect that most of our investments will be of these types, we may make other investments. In fact, we may invest in whatever types of real estate-related investments that we believe are in our best interests.

 

We currently have one operating segment. As of March 31, 2021, we majority owned and consolidated the operating results and financial condition of eight limited service hotels containing a total of 872 rooms and an unconsolidated 50.0% membership interest in LVP LIC Hotel JV LLC (the “Hilton Garden Inn Joint Venture”). We account for our unconsolidated membership interest in the Hilton Garden Inn Joint Venture under the equity method of accounting.

 

Our advisor is Lightstone Value Plus REIT III LLC (the “Advisor”), which is majority owned by David Lichtenstein. On July 16, 2014, the Advisor contributed $2,000 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. Our Advisor also owns 20,000 shares of our common stock (“Common Shares”) which were issued on December 24, 2012 for $200,000, or $10.00 per share. Mr. Lichtenstein also is the majority owner of the equity interests of the Lightstone Group, LLC. The Lightstone Group, LLC served as our sponsor (the “Sponsor”) during our initial public offering (the “Offering”) which terminated on March 31, 2017. Mr. Lichtenstein owns 222,222 Common Shares which were issued on December 11, 2014 for $2.0 million, or $9.00 per share. Pursuant to the terms of an advisory agreement and subject to the oversight of our board of directors (the “Board of Directors”), the Advisor has primary responsibility for making investment decisions on our behalf and managing our day-to-day operations. Through his ownership and control of The Lightstone Group, LLC, Mr. Lichtenstein is the indirect owner and manager of Lightstone SLP III LLC, a Delaware limited liability company (the “Special Limited Partner”), which owns 242 subordinated participation interests (“Subordinated Participation Interests”) in the Operating Partnership which were acquired for $12.1 million in connection with our Offering. Mr. Lichtenstein also acts as our Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT III or the Operating Partnership.

 

We do not have employees. The Advisor receives compensation and fees for services related to the investment and management of our assets.

 

Our Advisor has affiliated property managers (the “Property Managers”), which may manage certain of the properties we acquire. We also use other unaffiliated third-party property managers, principally for the management of our hospitality properties.

 

Our Common Shares are not currently listed on a national securities exchange. We may seek to list our Common Shares for trading on a national securities exchange only if a majority of our independent directors believe listing would be in the best interest of our stockholders. We do not intend to list our Common Shares at this time. We do not anticipate that there would be any active market for our Common Shares until they are listed for trading. In the event we do not begin the process of achieving a liquidity event prior to March 31, 2025, which is the eighth anniversary of the termination of our Offering, our charter requires either (a) an amendment to our charter to extend the deadline to begin the process of achieving a liquidity event, or (b) the holding of a stockholders meeting to vote on a proposal for an orderly liquidation of our portfolio.

 

Noncontrolling Interests – Partners of the Operating Partnership

 

Limited Partner

 

On July 16, 2014, the Advisor contributed $2,000 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. The Advisor has the right to convert the limited partner units into cash or, at our option, an equal number of our Common Shares.

 

Special Limited Partner

 

In connection with our Offering, which terminated on March 31, 2017, the Special Limited Partner purchased from the Operating Partnership an aggregate of approximately 242 Subordinated Participation Interests for consideration of $12.1 million. The Subordinated Participation Interests were each purchased for $50,000 in consideration and may be entitled to receive liquidation distributions upon the liquidation of Lightstone REIT III.

 

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

 

 

These Subordinated Participation Interests entitle the Special Limited Partner to a portion of any regular and liquidation distributions that we make to our stockholders, but only after our stockholders have received a stated preferred return. From our inception through March 31, 2021, no distributions have been declared or paid on the Subordinated Participation Interests.

 

Tax Status

 

We elected to qualify and be taxed as a REIT for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2015. As a REIT, we generally will not be subject to U.S. federal income tax on our net taxable income that we distribute currently to our stockholders. To maintain our REIT qualification under the Internal Revenue Code of 1986, as amended, (the “Code”), we must meet a number of organizational and operational requirements, including a requirement that we annually distribute to our stockholders at least 90% of our REIT taxable income, which does not equal net income, as calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”), determined without regard to the deduction for dividends paid and excluding any net capital gain. If we fail to remain qualified for taxation as a REIT in any subsequent year and do not qualify for certain statutory relief provisions, our income for that year will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as a REIT for the four-year period following our failure to qualify as a REIT. Such an event could materially adversely affect our net income and net cash available for distribution to our stockholders.

 

We engage in certain activities through taxable REIT subsidiaries (“TRSs”), including when we acquire a hotel we usually establish a TRS which then enters into an operating lease agreement for the hotel. As such, we may be subject to U.S. federal and state income taxes and franchise taxes from these activities.

 

As of March 31, 2021 and December 31, 2020, we had no material uncertain income tax positions. Additionally, even if we continue to qualify as a REIT for U.S. federal income tax purposes, we may still be subject to some U.S. federal, state and local taxes on our income and property and to U.S. federal income taxes and excise taxes on our undistributed income, if any.  

 

Current Environment

 

Our operating results are substantially impacted by the overall health of local, U.S. national and global economies and may be influenced by market and other challenges. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, and recession.

 

COVID-19 Pandemic Operations and Liquidity Update

 

On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic leading many countries, including the United States, particularly at the individual state level, to subsequently impose various degrees of restrictions and other measures, including, but not limited to, mandatory temporary closures, quarantine guidelines, limitations on travel, and “shelter in place” rules in an effort to reduce its duration and the severity of its spread. Although the COVID-19 pandemic has continued to evolve, most of these previously imposed restrictions and other measures have now been reduced and/or lifted. However, the COVID-19 pandemic remains highly unpredictable and dynamic and its duration and extent is likely dependent on numerous developments such as the regulatory approval, mass production, administration and ultimate effectiveness of vaccines, as well as the timeline to achieve a level of sufficient herd immunity amongst the general population. Accordingly, the COVID-19 pandemic may continue to have negative effects on the overall health of the U.S. economy for the foreseeable future. 

 

The extent to which our business may be affected by the ongoing COVID-19 pandemic will largely depend on both current and future developments, all of which are highly uncertain and cannot be reasonably predicted. As a result of the COVID-19 pandemic, room demand for our consolidated and unconsolidated hotels began to significantly decline in March 2020 and while there has been slight sequential improvement since then; room demand continues to be substantially below historical levels. Since March 2020, the COVID-19 pandemic has had a significant negative impact on our operations, financial position and cash flow and we currently expect that it will continue to do so for the foreseeable future. We cannot currently estimate if and when room demand will fully recover to pre-pandemic levels for our hotels.

 

In light of the past, present and potential future impact of the COVID-19 pandemic on the operating results of our hotels, we have taken various actions to preserve our liquidity, including, but not limited to, those described below:

 

●

We implemented cost reduction strategies for all of our hotels, leading to reductions in certain operating expenses and capital expenditures.

 

 

●

Amendments to Revolving Credit Facility –   On June 2, 2020, our revolving credit facility (the “Revolving Credit Facility”) was amended to provide for (i) the deferral of the six monthly debt service payments aggregating $0.8 million for the period from April 1, 2020 through September 30, 2020 until July 13, 2022; (ii) a 100 bps reduction in the interest rate spread to LIBOR + 2.15%, subject to a 3.00% floor, for the six-month period from September 1, 2020 through February 28, 2021; (iii) our pre-funding $0.8 million into a cash collateral reserve account to cover the six monthly debt service payments due from October 1, 2020 through March 1, 2021; and (iv) a waiver of all financial covenants for quarter-end periods before June 30, 2021. Additionally, a principal paydown of $0.6 million, which was previously due on April 1, 2020 was bifurcated into two separate principal paydowns, each one $0.3 million, which were made in June 2020 and September 2020.   Subsequently, on March 31, 2021, the Revolving Credit Facility was further amended providing for (i) us to make another principal paydown of $3.8 million, (ii) us to fund an additional $0.7 million into the cash collateral reserve account; (iii) a waiver of all financial covenants for quarter-end periods through September 30, 2021 with a phased-in gradual return to the full financial covenant requirements over the quarter-end periods beginning December 31, 2021 through March 31, 2023; (iv) two one-year extension options at the lender’s sole discretion (v) certain limitations and restrictions on asset sales and additional borrowings related to the pledged collateral.   See Note 5 of the Notes to Consolidated Financial Statements for additional information.

 

●

In April 2020, our hotels received $1.5 million from loans provided under the federal Paycheck Protection Program (“PPP Loans”). Subsequently, during the first quarter of 2021, our hotels received an additional $1.9 million from PPP Loans. See Note 6 of the Notes to Consolidated Financial Statements for additional information.

 

●

On June 19, 2019, the Board of Directors had previously determined to suspend regular monthly distributions and, as a result, have not declared any distributions on our Common Shares since  the suspension. Additionally, on March 19, 2020, the Board of Directors approved the suspension of all redemptions under our shareholder redemption program.

 

	●	We had $5.2 million of funds previously held in escrow with a qualified intermediary to facilitate a potential like-kind exchange transaction under Section 1031 of the Internal Revenue Code of 1986, as Amended, released to us in May 2020.
	●	The Hilton Garden Inn Joint Venture has obtained various amendments to its non-recourse mortgage loan secured by the Hilton Garden Inn – Long Island City. See Note 3 of the Notes to Consolidated Financial Statements for additional information.

 

We believe that these actions, along with our available cash on hand, restricted cash and marketable securities, will provide us with sufficient liquidity to meet our obligations for at least 12 months from the date of issuance of these financial statements.

 

We are not currently aware of any other material trends or uncertainties, favorable or unfavorable, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from our operations, other than those referred to above or throughout this Form 10-Q. The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period.

 

 

Portfolio Summary –

 

								Year to Date				Percentage Occupied for the Three Months Ended				Revenue per Available Room for the Three Months Ended				Average Daily Rate For the Three Months Ended
		Location		Year Built		Date Acquired		Available Rooms				March 31, 2021				March 31, 2021				March 31, 2021
Wholly-Owned and Consolidated Hospitality Properties:
Hampton Inn – Des Moines		Des Moines, Iowa		1987		02/04/2015			10,800				40	%		$	30.60			$	77.07
Courtyard - Durham		Durham, North Carolina		1996		05/15/2015			13,140				38	%		$	31.83			$	83.46
Hampton Inn – Lansing		Lansing, Michigan		2013		03/10/2016			7,740				52	%		$	39.16			$	75.57
Courtyard - Warwick		Warwick, Rhode Island		2003		03/23/2016			8,280				44	%		$	35.55			$	80.51
Home2 Suites – Salt Lake		Salt Lake City, Utah		2013		08/02/2016			11,250				47	%		$	32.52			$	69.91
Home2 Suites – Tukwila		Tukwila, Washington		2015		08/02/2016			12,510				82	%		$	73.32			$	89.35
Fairfield Inn – Austin		Austin, Texas		2014		09/13/2016			7,560				100	%		$	70.00			$	70.00
Staybridge Suites – Austin		Austin, Texas		2009		10/07/2016			7,200				74	%		$	59.20			$	80.52
						Total			78,480				57.7	%		$	45.68			$	79.10

 

Unconsolidated Affiliated Real Estate Entity:

 

Year to Date

Percentage Occupied for the Three Months Ended

Revenue per Available Room for the Three Months Ended

Average Daily Rate For the Three Months Ended

Hospitality

Location

Year Built

Date Acquired

Available Rooms

March 31, 2021

March 31, 2021

March 31, 2021

Hilton Garden Inn - Long Island City

Long Island City, New York

2014

03/27/2018

16,470

71.9

%

$

84.75

$

117.91

 

Critical Accounting Policies and Estimates

 

There were no material changes during the three months ended March 31, 2021 to our critical accounting policies as reported in our Annual Report on Form 10-K, for the year ended December 31, 2020.

 

Results of Operations

 

Disposition of an unconsolidated 22.5% membership interest in the Cove Joint Venture

 

On February 12, 2020, we completed the disposition of an unconsolidated 22.5% membership interest in the Cove Joint Venture which resulted in the recognition of a gain on the disposition of unconsolidated affiliated real estate entity of $7.9 million during the first quarter of 2020.

 

We currently have one operating segment. As of March 31, 2021, we majority owned and consolidated the operating results and financial condition of eight limited service hotels containing a total of 872 rooms and an unconsolidated 50.0% membership interest in the Hilton Garden Inn Joint Venture, which we account for under the equity method of accounting.

 

 

Comparison of the three months ended March 31, 2021 vs. March 31, 2020

 

Consolidated

 

Our consolidated revenues, property operating expenses, real estate taxes, general and administrative expense and depreciation and amortization for the three months ended March 31, 2021 and 2020 are attributable to our consolidated hospitality properties, all of which were owned by us during the entire periods presented.

 

Although our operating performance during the 2021 and 2020 quarterly periods were both negatively impacted by the COVID-19 pandemic, our hospitality portfolio first began to experience a significant drop in room demand beginning in March 2020. Overall, our hospitality portfolio experienced decreases in the percentage of rooms occupied from 60.3% to 57.7% for the three months ended March 31, 2020 and 2021, respectively, revenue per available room (“RevPAR”) from $63.54 to $45.68 for the three months ended March 31, 2020 and 2021, respectively, and the  average daily rate per room (“ADR”)  from $105.35 to $79.10 for the three months ended March 31, 2020 and 2021, respectively.

 

Revenues

 

Revenues decreased by $1.6 million to $3.7 million during the three months ended March 31, 2021 compared to $5.3 million for the same period in 2020. This decrease reflects the lower occupancy, RevPAR and ADR during the 2021 quarterly period compared to the same period in 2020, which was primarily attributable to the COVID-19 pandemic.

 

Property operating expenses

 

Property operating expenses decreased by $1.3 million to $2.7 million during the three months ended March 31, 2021 compared to $4.0 million for the same period in 2020. This decrease reflects the lower occupancy during the 2021 period resulting from the COVID-19 pandemic.

 

Real estate taxes

 

Real estate taxes were $0.4 million during both the three months ended March 31, 2021and 2020.

 

General and administrative expense

 

General and administrative expenses decreased slightly by $0.1 million to $0.6 million during the three months ended March 31, 2021 compared to $0.7 million for the same period in 2020.

 

Depreciation and amortization

 

Depreciation and amortization expense was $1.3 million during both the three months ended March 31, 2021 and 2020.

 

Interest expense

 

Interest expense decreased slightly by $0.1 million to $0.7 million during the three months ended March 31, 2021 compared to $0.8 million for the same period in 2020. Interest expense is attributable to financings associated with our hotels and reflects both changes in market interest rates on our variable rate indebtedness and the weighted average principal outstanding during the periods.

 

Gain on disposition of unconsolidated affiliated real estate entity

 

On February 12, 2020, we completed the disposition of an unconsolidated 22.5% membership interest in the Cove Joint Venture which resulted in the recognition of a gain on the disposition of unconsolidated affiliated real estate entity of $7.9 million during the first quarter of 2020.

 

Earnings from investments in unconsolidated affiliated real estate entities

 

Our loss from investments in unconsolidated affiliated real estate entities was $0.2 million during the three months ended March 31, 2021 compared to $0.6 million for the same period in 2020. Our loss from investments in unconsolidated affiliated real estate entities is attributable solely to our unconsolidated 50.0% membership interest in the Hilton Garden Inn Joint Venture during the three months ended March 31, 2021 and both our unconsolidated 50.0% membership interest in the Hilton Garden Inn Joint Venture our unconsolidated 22.5% membership interest in the Cove Joint Venture (through the date of the redemption of our membership interest on February 12, 2020) during the three months ended March 31, 2020. We account for our membership interests in the Hilton Garden Inn Joint Venture and the Cove Joint Venture under the equity method of accounting commencing on the date that we acquired our interests.

 

 

Financial Condition, Liquidity and Capital Resources

 

Overview:

 

Revenues, interest and dividend income, proceeds from the sale of marketable securities, cash on hand and borrowings are our principal sources of funds to pay operating expenses, scheduled debt service, capital expenditures (excluding non-recurring capital expenditures), contributions to our unconsolidated affiliated entity, redemptions and cancellations of shares of our common stock, if approved, and distributions, if any, required to maintain our status as a REIT. During the three months ended March 31, 2021, our primary source of funds was from the disposition of marketable securities of $1.5 million.

 

We currently believe that these cash resources along with our available cash on hand of $25.6 million, restricted cash of $3.2 million and marketable securities of $1.8 million, all as of March 31, 2021, will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not currently anticipate a need to raise funds from other than these sources within the next 12 months. However, to the extent that cash flow from operations and available cash on hand, restricted cash and marketable securities are not sufficient to cover our cash needs, we may use proceeds from additional borrowings and/or selective asset sales to fund such needs.

 

As of March 31, 2021, we have $60.8 million of outstanding mortgage debt and $3.3 million of PPP Loans (classified as notes payable on our consolidated balance sheet). We have and intend to continue to limit our aggregate long-term permanent borrowings to 75% of the aggregate fair market value of all properties unless any excess borrowing is approved by a majority of the independent directors and is disclosed to our stockholders. Market conditions will dictate our overall leverage limit; as such our aggregate long-term permanent borrowings may be less than 75% of aggregate fair market value of all properties. We may also incur short-term indebtedness, having a maturity of two years or less.

 

Our charter provides that the aggregate amount of our borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a satisfactory showing that a higher level is appropriate, the approval of our Board of Directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. Market conditions will dictate our overall leverage limit; as such our aggregate borrowings may be less than 300% of net assets. As of March 31, 2021, our total borrowings were $64.3 million which represented 62% of our net assets.

 

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

 

Any future properties that we may acquire or develop may be funded through a combination of borrowings and the proceeds received from the disposition of certain of our assets. These borrowing may consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. Such mortgages may be put in place either at the time we acquire a property or subsequent to our purchasing a property for cash. In addition, we may acquire properties that are subject to existing indebtedness where we choose to assume the existing mortgages. Generally, though not exclusively, we intend to seek to encumber our properties with non-recourse debt. This means that a lender’s rights on default will generally be limited to foreclosing on the property. However, we may, at our discretion, secure recourse financing or provide a guarantee to lenders if we believe this may result in more favorable terms. When we give a guaranty for a property owning entity, we will be responsible to the lender for the satisfaction of the indebtedness if it is not paid by the property owning entity.

 

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

 

 

We have various agreements, including an advisory agreement, with the Advisor to pay certain fees in exchange for services performed by the Advisor and/or its affiliated entities. Additionally, our ability to secure financing and our real estate operations are dependent upon our Advisor and its affiliates to perform such services as provided in these agreements.

 

In addition to meeting working capital needs and distributions, if any, made to maintain our status as a REIT, our capital resources are used to make certain payments to our Advisor, including payments related to asset acquisition fees and asset management fees, the reimbursement of acquisition-related expenses to our Advisor. We also reimburse our advisor for actual expenses it incurs for administrative and other services provided to us. Additionally, the Operating Partnership may be required to make distributions to Lightstone SLP III LLC, an affiliate of the Advisor. Upon the liquidation of assets, we may pay our Advisor or its affiliates a real estate disposition commission.

 

The advisory agreement has a one-year term and is renewable for an unlimited number of successive one-year periods upon the mutual consent of the Advisor and our independent directors.

 

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

 

		For the Three Months Ended March 31,
		2021				2020
Asset management fees (general and administrative costs)		$	300,994			$	355,818

 

Summary of Cash Flows

 

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

 

		For the Three Months Ended March 31,
		2021				2020
Net cash used in operating activities		$	(536,186	)		$	(912,134	)
Net cash provided by investing activities			1,457,493				21,744,930
Net cash used in financing activities			(2,118,428	)			(918,786	)
Net change in cash, cash equivalents and restricted cash			(1,197,121	)			19,914,010
Cash, cash equivalents and restricted cash, beginning of year			29,971,246				13,543,193
Cash, cash equivalents and restricted cash, end of the period		$	28,774,125			$	33,457,203

 

Our principal source of cash flow during the three months ended March 31, 2021 has been derived from the sale of marketable securities of $1.5 million. We believe our available cash on hand, restricted cash and any proceeds from the sale of our marketable securities, together with our expected earnings, will provide us with sufficient resources to fund our operating expenses, expected debt service, capital contributions and distributions, if any, required to maintain our qualification as a REIT. However, to the extent that our cash on hand, restricted cash and cash flow from operations are not sufficient to cover our cash needs, we may use proceeds from additional borrowings and/or selective asset sales to fund such needs.

 

In light of the COVID-19 pandemic’s impact on our operating performance, we have successfully negotiated various changes to the terms of our Revolving Credit Facility, including forbearance of scheduled debt service, reductions in interest rates and waiver periods and modifications of financial covenants. See “Contractual Mortgage Obligations” for additional information.

 

Operating activities

 

The net cash used in operating activities of $0.5 million during the three months ended March 31, 2021 consisted of our net loss of $2.1 million offset by depreciation and amortization, amortization of deferred financing costs and other non-cash items aggregating $1.6 million. The net use of cash in operating activities of $0.5 million during the three months ended March 31, 2021 was principally attributable to the effect of the COVID-19 pandemic on our operating performance as well as seasonality in our hospitality portfolio.

 

 

Investing activities

 

The net cash provided by investing activities during the three months ended March 31, 2021 primarily consisted of $1.5 million of proceeds received from the sale of marketable securities.

 

Financing activities

 

The cash used in financing activities of $2.1 million during the three months ended March 31, 2021 consisted of payments on our mortgages payable of $4.0 million (including a $3.8 million paydown on our Revolving Credit Facility) partially offset by proceeds received from PPP Loans of $1.9 million.

 

Distributions on Common Shares

 

On June 19, 2019, our Board of Directors determined to suspend regular monthly distributions on our Common Shares and as a result, no distributions have been declared since the suspension.

 

Previously, distributions on our Common Shares in an amount equal to a 6.0% annualized rate, based on a share price of $10.00, were declared on a monthly basis beginning on January 14, 2015 through June 30, 2019 and were paid on or about the 15th day following each month end.

 

Future distributions declared on our Common Shares, if any, will be at the discretion of the Board of Directors based on their analysis of our performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, revenues and sources of income, operating and interest expenses and our ability to refinance near-term debt as well as the IRS’s annual distribution requirement that REITs distribute no less than 90% of their taxable income. We cannot assure that any future distributions will be made or that we will maintain any particular level of distributions that we have previously established or may establish.

 

Contractual Mortgage Obligations

 

The following is a summary of the estimated contractual obligations related to our mortgage payable over the next five years and thereafter as of March 31, 2021.

 

Contractual Mortgage Obligations		2021				2022				2023				2024				2025				Thereafter				Total
Principal maturities		$	26,379,216			$	34,573,333			$	-			$	-			$	-			$	-			$	60,952,549
Interest payments(1)			1,794,583				1,687,183				-				-				-				-				3,481,766
Total Contractual Mortgage Obligations		$	28,173,799			$	36,260,516			$	-			$	-			$	-			$	-			$	64,434,315

 

Revolving Credit Facility

 

We, through certain subsidiaries, have a non-recourse Revolving Credit Facility with a financial institution. The Revolving Credit Facility provides us with a line of credit of up to $60.0 million pursuant to which we may designate properties as collateral that allow borrowings up to a 65.0% loan-to-value ratio subject to also meeting certain financial covenants, including a prescribed minimum debt yield. The Revolving Credit Facility provides for monthly interest-only payments and the entire principal balance is due upon its expiration.

 

 

The Revolving Credit Facility, which was entered into on July 13, 2016, had an initial maturity date of July 13, 2019, subject to two one-year options to extend at the sole discretion of the lender. The initial interest rate on the Revolving Credit Facility was LIBOR + 4.95% until it was reduced to LIBOR + 3.50% effective June 18, 2018. On July 11, 2019, we and the lender amended the Revolving Credit Facility to extend the initial maturity date for 60 days to provide additional time to finalize the terms of a long-term extension. In connection with this amendment, the interest rate on the Revolving Credit Facility was reduced from LIBOR + 3.50% to LIBOR + 3.15%, effective July 1, 2019 and the requirements under the minimum debt yield ratio were modified effective as of June 30, 2019. On August 22, 2019, we and the lender further amended the Revolving Credit Facility to extend the maturity date to July 13, 2022, subject to two, one-year options to extend at the sole discretion of the lender. In connection with this amendment, we were required to make principal paydowns of $0.6 million on both August 22, 2019 and December 31, 2019, respectively, and in certain circumstances would be required to make an additional principal paydown of $0.6 million on April 1, 2020.

 

On June 2, 2020, our Revolving Credit Facility was amended to provide for (i) the deferral of the six monthly debt service payments aggregating $0.8 million for the period from April 1, 2020 through September 30, 2020 until July 13, 2022; (ii) a 100 bps reduction in the interest rate spread to LIBOR + 2.15%, subject to a 3.00% floor, for the six-month period from September 1, 2020 through February 28, 2021; (iii) our pre-funding $0.8 million into a cash collateral reserve account (of which $0.3 million was included in restricted cash on our consolidated balance sheet as of December 31, 2020) to cover the six monthly debt service payments due from October 1, 2020 through March 1, 2021; and (iv) a waiver of all financial covenants for quarter-end periods before June 30, 2021. Additionally, a principal paydown of $0.6 million, which was previously due on April 1, 2020 was bifurcated into two separate principal paydowns, each one $0.3 million, which were made in June 2020 and September 2020.

 

On March 31, 2021, our Revolving Credit Facility was further amended to provide for (i) us to make another principal paydown of $3.8 million, (ii) us to fund an additional $0.7 million into the cash collateral reserve account (which is include in restricted cash on our consolidated balance sheet as of March 31, 2021); (iii) a waiver of all financial covenants for quarter-end periods through September 30, 2021 with a phased-in gradual return to the full financial covenant requirements over the quarter-end periods beginning December 31, 2021 through March 31, 2023; (iv) two one-year extension options at the lender’s sole discretion; and (v) certain limitations and restrictions on asset sales and additional borrowings related to the pledged collateral.

 

As of March 31, 2021, the Revolving Credit Facility had an outstanding principal balance of $34.6 million and six of our hotel properties were pledged as collateral. Additionally, no additional borrowings were available under the Revolving Credit Facility as of March 31, 2021.

 

Home2 Suites Promissory Note

 

On October 5, 2016, we entered into a non-recourse promissory note (the “Home2 Suites Promissory Note”) for $28.4 million. The Promissory Note has a term of five years, bears interest at 4.73% and requires monthly interest and principal payments of $147,806 through its stated maturity with the then remaining unpaid balance of $26.1 million due upon maturity. The Home2 Suites Promissory Note is cross-collateralized by two of our hotel properties (Home2 Suites – Tukwila and Home2 Suites – Salt Lake City). As of March 31, 2021, the Home2 Suites Promissory Note had an outstanding balance of $26.4 million. The Home2 Suites Promissory Note matures on October 5, 2021. We currently intend to refinance Home2 Suites Promissory Note on or before its maturity date.

 

Although we are current with respect to the payment of debt service on our nonrecourse Home2 Suites Promissory Note, we did not meet the required minimum debt service coverage ratio for the third and fourth quarters of 2020 and the first quarter of 2021 because of the impact of the COVID-19 pandemic on the operating performance of these two hotels. As a result, the lender may elect to retain any excess cash flow from these two hotels until such time as a prescribed minimum debt service coverage ratio is achieved for two successive quarters. If the lender elects to retain any excess cash flow from these two hotels, we do not believe it would have a material effect on our liquidity or financial condition.

 

 

PPP Loans

 

During April 2020, we, through various subsidiaries (each such entity, a “Borrower”) received aggregate funding of $1.5 million through loans (the “PPP Loans”) originated under the federal Paycheck Protection Program, which was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration.  During March 2021, the Borrower received an additional aggregate funding of $1.9 million of PPP Loans.

 

The PPP Loans each have a term of five years and provide for an interest rate of 1.00%.  The payment of principal and interest on the PPP loan is deferred until the day that the forgiven amount is remitted to the lender (approximately five months after the forgiveness application is submitted to the lender, unless the Borrower appeals a denial of forgiveness) or ten months after the end of the Borrower’s covered period, whichever is earlier. Pursuant to the terms of the CARES Act, the proceeds of the PPP Loans may be used for payroll costs, mortgage interest, rent or utility costs. 

 

The promissory note for each of the PPP Loans contains customary events of default relating to, among other things, payment defaults and breach of representations and warranties or of provisions of the relevant promissory note.   Under the terms of the CARES Act, each Borrower can apply for and be granted forgiveness for all or a portion of the PPP Loans.  Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds in accordance with the terms of the CARES Act.  Although we intend for each Borrower to apply for forgiveness, no assurance may be given that any Borrower will ultimately obtain forgiveness under any relevant PPP Loan in whole or in part.

 

As of March 31, 2021, the PPP Loans had an outstanding balance of $3.3 million, which is classified as Notes Payable on the consolidated balance sheets.

 

Funds from Operations and Modified Funds from Operations

 

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings, improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be less informative.

 

Because of these factors, the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has published a standardized measure of performance known as funds from operations (“FFO”), which is used in the REIT industry as a supplemental performance measure. We believe FFO, which excludes certain items such as real estate-related depreciation and amortization, is an appropriate supplemental measure of a REIT’s operating performance. FFO is not equivalent to our net income or loss as determined under GAAP.

 

We calculate FFO, a non-GAAP measure, consistent with the standards established over time by the Board of Governors of NAREIT, as restated in a White Paper approved by the Board of Governors of NAREIT effective in December 2018 (the “White Paper”). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Our FFO calculation complies with NAREIT’s definition.

 

We believe that the use of FFO provides a more complete understanding of our performance to investors and to management, and reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.

 

Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT’s definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.

 

 

Because of these factors, the Investment Program Association (the “IPA”), an industry trade group, published a standardized measure of performance known as modified funds from operations (“MFFO”), which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that both before and after we have deployed all of our offering proceeds and are no longer incurring a significant amount of acquisition fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP.

 

We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the “Practice Guideline”) issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction-related fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and exclude acquisition and transaction-related fees and expenses (which includes costs incurred in connection with strategic alternatives), amounts relating to deferred rent receivables and amortization of market lease and other intangibles, net (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), accretion of discounts and amortization of premiums on debt investments and borrowings, mark-to-market adjustments included in net income (including gains or losses incurred on assets held for sale), gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. Certain of the above adjustments are also made to reconcile net income (loss) to net cash provided by (used in) operating activities, such as for the amortization of a premium and accretion of a discount on debt and securities investments, amortization of fees, any unrealized gains (losses) on derivatives, securities or other investments, as well as other adjustments.

 

MFFO excludes non-recurring impairment of real estate-related investments. We assess the credit quality of our investments and adequacy of reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. We consider the estimated net recoverable value of a loan as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive situation of the region where the borrower does business.

 

We believe that, because MFFO excludes costs that we consider more reflective of acquisition activities and other non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.

 

Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO.

 

Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guidelines or the SEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry, and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.

 

 

The below table illustrates the items deducted in the calculation of FFO and MFFO. Items are presented net of non-controlling interest portions where applicable.

 

		For the Three Months Ended March 31,
		2021				2020
Net (loss)/income		$	(2,100,404	)		$	5,441,112
FFO adjustments:
Depreciation and amortization of real estate assets			1,275,148				1,272,082
Gain on disposition of unconsolidated affiliated real estate entity			-				(7,876,639	)
Adjustments to equity earnings from unconsolidated affiliated real estate entities			317,437				535,451
FFO			(507,819	)			(627,994	)
MFFO adjustments:
Loss on sale of marketable securities(1)			22,505				-
Unrealized loss on marketable equity securities(2)			218				-
MFFO			(485,096	)			(627,994	)
Straight-line rent(2)			-				-
MFFO - IPA recommended format		$	(485,096	)		$	(627,994	)
Net (loss)/income		$	(2,100,404	)		$	5,441,112
Less: net (loss)/income attributable to noncontrolling interests			27				(82	)
Net (loss)/income applicable to Company’s common shares		$	(2,100,377	)		$	5,441,030
Net (loss)/income per common share, basic and diluted		$	(0.16	)		$	0.41
FFO		$	(507,819	)		$	(627,994	)
Less: FFO attributable to noncontrolling interests			3				6
FFO attributable to Company’s common shares		$	(507,816	)		$	(627,988	)
FFO per common share, basic and diluted		$	(0.04	)		$	(0.05	)
MFFO - IPA recommended format		$	(485,096	)		$	(627,994	)
Less: MFFO attributable to noncontrolling interests			3				6
MFFO attributable to Company’s common shares		$	(485,093	)		$	(627,988	)
Weighted average number of common shares outstanding, basic and diluted			13,229,791				13,244,817

 

(1)

Management believes that adjusting for gains or losses related to extinguishment/sale of debt, derivatives or securities holdings is appropriate because they are items that may not be reflective of ongoing operations. By excluding these items, management believes that MFFO provides supplemental information related to sustainable operations that will be more comparable between other reporting periods.

(2)

Management believes that adjusting for mark-to-market adjustments is appropriate because they are nonrecurring items that may not be reflective of ongoing operations and reflects unrealized impacts on value based only on then current market conditions, although they may be based upon current operational issues related to an individual property or industry or general market conditions.  Mark-to-market adjustments are made for items such as ineffective derivative instruments, certain marketable securities and any other items that GAAP requires we make a mark-to-market adjustment for. The need to reflect mark-to-market adjustments is a continuous process and is analyzed on a quarterly and/or annual basis in accordance with GAAP.

(3)

Under GAAP, rental receipts are allocated to periods using various methodologies. This may result in income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, providing insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management’s analysis of operating performance.

 

 

The table below presents our cumulative FFO attributable to the Company’s common shares:

 

		For the period October 5, 2012
		(date of inception) through
		March 31, 2021
FFO attributable to Company’s common shares		$	11,110,349
Distributions declared and paid		$	25,876,082

 

New Accounting Pronouncements

 

See Note 2 of the Notes to Consolidated Financial Statements for further information of certain accounting standards that have been issued or adopted during 2021, if any, and certain accounting standards that we have not yet been required to implement and may be applicable to our future operations.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

As of the end of the period covered by this report, management, including our chief executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of the evaluation, our chief executive officer and principal financial officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.

 

There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no significant deficiencies or material weaknesses identified in the evaluation, and therefore, no corrective actions were taken.

 

 

PART II. OTHER INFORMATION:

 

ITEM 1. LEGAL PROCEEDINGS.

 

From time to time in the ordinary course of business, the Company may become subject to legal proceedings, claims or disputes.

 

As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Recent Sales of Unregistered Securities

 

During the period covered by this Form 10-Q, the Company did not sell any unregistered securities.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

Exhibit Number		Description
31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”
32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”
101*		XBRL (extensible Business Reporting Language).The following financial information from Lightstone Value Plus Real Estate Investment Trust III, Inc. on Form 10-Q for the quarter ended March 31, 2021, filed with the SEC on May 13, 2021, formatted in XBRL includes: (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations, (3) Consolidated Statements of Comprehensive Income, (4) Consolidated Statements of Stockholders’ Equity, (5) Consolidated Statements of Cash Flows, and (6) the Notes to the Consolidated Financial Statement.

 

*

Filed herewith

 

 

SIGNATURES

 

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

 

	LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST III, INC.
Date: May 13, 2021	By:	/s/ David Lichtenstein
		David Lichtenstein
		Chairman and Chief Executive Officer (Principal Executive Officer)

 

Date: May 13, 2021	By:	/s/ Seth Molod
		Seth Molod
		Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)