LIGHTSTONE VALUE PLUS REIT V, INC. The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and the notes thereto.
Forward-Looking Statements Certain statements in this Quarterly Report on Form 10-Q constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements include discussion and analysis of the financial condition ofLightstone Value Plus REIT V, Inc. and our subsidiaries (which may be referred to herein as the "Company," "we," "us" or "our"), which was formerly known asLightstone Value Plus Real Estate Investment Trust V, Inc. beforeAugust 31, 2021 , including our ability to make accretive real estate or real estate-related investments, rent space on favorable terms, to address our debt maturities and to fund our liquidity requirements, to sell our assets when we believe advantageous to achieve our investment objectives, our anticipated capital expenditures, the amount and timing of anticipated future cash distributions to our stockholders, the estimated net asset value per share of our common stock ("NAV per Share"), and other matters. Words such as "may," "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "would," "could," "should" and variations of these words and similar expressions are intended to identify forward-looking statements. These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors described below:
? market and economic challenges experienced by the
real estate industry as a whole and the local economic conditions in the
markets in which our investments are located. Additionally, our business and
financial performance may be adversely affected by current and future economic
and other conditions; such as recession, political upheaval or uncertainty,
terrorism and acts of war, natural and man-made disasters, cybercrime, and
outbreaks of contagious diseases;
? 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;
? the availability of cash flow from operating activities for distributions, if
any;
? conflicts of interest arising out of our relationships with our advisor and
its affiliates;
? our ability to retain our executive officers and other key individuals
provide advisory and property management services to us;
? our level of debt and the terms and limitations imposed on us by our debt
agreements;
? the availability of credit generally, and any failure to obtain debt financing
at favorable terms or a failure to satisfy the conditions and requirements of
that debt;
? the effect of the phase-out of the London Interbank Offered Rate, or LIBOR, as
a variable rate debt benchmark and the transition to a different benchmark
interest rate,
? our ability to make accretive investments in a diversified portfolio of
assets;
? future changes in market factors that could affect the ultimate performance of
any development or redevelopment projects, including but not limited to
construction costs, plan or design changes, schedule delays, availability of
construction financing, performance of developers, contractors and consultants
and growth in rental rates and operating costs;
17
? our ability to secure leases at favorable rental rates;
? our ability to sell our assets at a price and on a timeline consistent with
our investment objectives;
? impairment charges;
? unfavorable changes in laws or regulations impacting our business, our assets
or our key relationships; and
? factors that could affect our ability to qualify as a real estate investment
trust.
Forward-looking statements in this Quarterly Report on Form 10-Q reflect our
management's view only as of the date of this Report, and may ultimately prove
to be incorrect. We undertake no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events or changes to future operating results, except as required by applicable
law. We intend for these forward-looking statements to be covered by the
applicable safe harbor provisions created by Section 21E of the Exchange Act.
Cautionary Note
The representations, warranties, and covenants made by us in any agreement filed as an exhibit to this Quarterly Report on Form 10-Q are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties, or covenants to or with any other parties. Moreover, these representations, warranties, or covenants should not be relied upon as accurately describing or reflecting the current state of our
affairs. Executive Overview
We were formed primarily to acquire and operate commercial real estate and real estate-related assets on an opportunistic and value-add basis. In particular, we have focused generally on acquiring commercial properties with significant possibilities for capital appreciation, such as those requiring development, redevelopment or repositioning, those located in markets and submarkets with high growth potential, and those available from sellerswho were distressed or faced time-sensitive deadlines. In addition, our opportunistic and value-add investment strategy has included investments in real estate-related assets that present opportunities for higher current income. Since inception, we have acquired a wide variety of commercial properties, including office, industrial, retail, hospitality, and multifamily. We have purchased existing, income-producing properties and newly constructed properties. We have also invested in mortgage and mezzanine loans. We have made our investments in or in respect of real estate assets located inthe United States and other countries based on our view of existing market conditions. As ofMarch 31, 2022 , our investments included eight wholly owned multi-family apartment complexes and a note receivable. All of our current investments are located inthe United States . We currently intend to hold our various real properties until such time as our board of directors determines that a sale or other disposition appears to be advantageous to achieve our investment objectives or until it appears that the objectives will not be met. Current Environment Our operating results are substantially impacted by the overall health of local,U.S. national and global economies and may be influenced by market and other challenges. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, and recession. COVID-19 Pandemic
TheWorld Health Organization declared COVID-19 a global pandemic onMarch 11, 2020 and since that time many of the previously imposed restrictions and other measures which were instituted in response have been subsequently reduced or lifted. However, the continuing COVID-19 pandemic remains highly unpredictable and dynamic and its ultimate duration and extent continue to be dependent on various developments, such as the emergence of variants to the virus that may cause additional strains of COVID-19, the ongoing administration and ultimate effectiveness of vaccines, including booster shots, and the eventual timeline to achieve a sufficient level of herd immunity among the general population. Accordingly, the ongoing COVID-19 pandemic may have negative effects on the health of theU.S. economy for the foreseeable future. 18
As ofMarch 31, 2022 , our consolidated portfolio of properties consisted of eight wholly owned multi-family apartment complexes. Our multi-family properties have not been significantly impacted by the COVID-19 pandemic and their occupancy levels, rental rates and rental collection have remained stable. Additionally, our note receivable is collateralized by a condominium development project located inNew York City (the "Condominium Project "), which has been subject to similar restrictions and risks. To date, both theCondominium Project and our note receivable have not been significantly impacted by the COVID-19 pandemic.
We continue to closely monitor the overall extent as to which our business may be affected by the ongoing COVID-19 pandemic which will largely depend on both current and future developments, all of which are highly uncertain and cannot be reasonably predicted. If our properties and real estate-related investments are negatively impacted in future periods for an extended period because (i) tenants are unable to pay their rent, (ii) leasing demand falls causing declines in occupancy levels and/or rental rates, and (iii) our borrower is unable to pay scheduled debt service on the outstanding note receivable; our business and financial results could be materially and adversely impacted.
Liquidity and Capital Resources
We had cash and cash equivalents of$37.8 million , marketable securities, available for sale of$3.5 million and restricted cash of$20.1 million as ofMarch 31, 2022 . Our principal demands for funds going forward are expected to be for the payment of (a) operating expenses, including capital expenditures, and (b) scheduled debt service on our outstanding indebtedness. We also may, at our discretion, use funds for (a) tender offers and/or redemptions of shares of our common stock, (b) distributions, if any, to our shareholders, and (c) selective acquisitions and/or real estate-related investments. Generally, we expect to meet our cash needs with our cash and cash equivalents on hand along with our cash flow from operations, the release of certain funds held in restricted cash, the remaining availability on certain of our mortgage loans and the repayment of our outstanding note receivable. However, to the extent that these sources are not sufficient to cover our cash needs, we may also use proceeds from additional borrowings and/or selective asset sales to fund such needs. We have borrowed money to acquire properties and make other investments. Under our charter, the maximum amount of our indebtedness is limited to 300% of our "net assets" (as defined by our charter) as of the date of any borrowing; however, we may exceed that limit if approved by a majority of our independent directors. In addition to our charter limitation, our board of directors has adopted a policy to generally limit our aggregate borrowings to 75% of the aggregate value of our assets unless substantial justification exists that borrowing a greater amount is in our best interests. Our policy limitation, however, does not apply to individual real estate assets.
Acquisition and Disposition Activities
Disposition of the Lakes of
OnMarch 17, 2021 , we completed the disposition of a 280-unit multifamily property located inMargate, Florida (the "Lakes ofMargate ") for a contractual sales price of$50.8 million to an unrelated third party. In connection with the disposition of the Lakes ofMargate , we recognized a gain on the sale of investment property of$27.8 million during the first quarter of 2021.
Acquisition of the
OnJuly 7, 2021 , we completed the acquisition of a 368-unit multifamily property located inTampa, Florida (the "BayVue Apartments ") from an unrelated third party, for a contractual purchase price of$59.5 million , excluding closing and other related transaction costs.
Acquisition of the
On
19
Disposition of the
OnDecember 22, 2021 , we completed the disposition of theRiver Club Apartments and the Townhomes atRiver Club , two student housing complexes with a total of 1,134 beds (collectively, the "River Club Properties ") located inAthens, Georgia , for a contractual sales price of$77.3 million to an unrelated third party. In connection with the disposition of theRiver Club Properties , we recognized a gain on the sale of investment property of$55.0 million during the fourth quarter of 2021. Results of Operations
As of
The tables below reflect occupancy and effective monthly rental rates for our
operating properties owned as of
Occupancy Effective Monthly Rent per Unit(1)
As of As of
March 31, March 31,
Property 2022 2021 2022 2021
Arbors Harbor Town 95 % 96 % $ 1,519 $ 1,367
Parkside 97 % 98 % $ 1,307 $ 1,197
Flats at Fishers 94 % 95 % $ 1,391 $ 1,220
Axis at Westmont 93 % 95 % $ 1,325 $ 1,177
Valley Ranch Apartments 94 % 95 % $ 1,541 $ 1,463
Autumn Breeze Apartments 94 % 95 % $ 1,249 $ 1,076
BayVue Apartments (2) 95 % N/A $ 1,196 N/A
Citadel Apartments (3) 94 % N/A $ 1,631 N/A
(1) Effective monthly rent is calculated as in-place contracted monthly rental
revenue, including any premiums due for short-term or month-to-month leases,
less any concessions or discounts.
(2)
(3)
On
On
The Dispositions did not qualify to be reported as discontinued operations since
they did not represent a strategic shift that had a major effect on our
operations and financial results. Accordingly, the operating results of the
Dispositions are reflected in our results from continuing operations for all
periods presented through their dates of disposition.
20
Three months ended
The following table provides summary information about our results of operations (dollars in thousands):
Three Months Ended Change Change Change
March 31, Increase/ Percentage due to due to due to Same
2022 2021 (Decrease) Change Acquisitions(1) Dispositions(2) Store(3)
Rental revenues $ 11,206 $ 10,287 $ 919 9.0 % $ 2,857 $ (2,674 ) $ 736
Property
operating
expenses 3,247 3,177 70 2.0 % 927 (973 ) 116
Real estate
taxes 1,728 1,471 257 17.0 % 537 (304 ) 24
General and
administrative 1,818 1,653 165 10.0 % 35 (67 ) 197
Depreciation and
amortization 4,919 2,910 2,009 69.0 % 2,475 (388 ) (78 )
Interest
expense, net 3,114 2,453 661 27.0 % 933 (88 ) (184 )
Notes:
(1) Represents the effect on our operating results for the periods indicated
resulting from the 2021 Acquisitions.
(2) Represents the effect on our operating results for the periods indicated
resulting from the 2021 Dispositions.
(3) Represents the change for the three months ended
the same period in 2021 for real estate and real estate-related investments
owned by us during the entire periods presented ("Same Store"). Our results
for Same Store properties for the three months ended
include
Valley Ranch Apartments and theAutumn Breeze Apartments . The following table reflects total rental revenues and total property operating expenses for the three months endedMarch 31, 2022 and 2021 for: (i) our Same Store properties, (ii) the 2021 Acquisitions and (iii) the 2021 Dispositions (dollars in thousands): Three Months Ended March 31, Description 2022 2021 Change Rental Revenues: Same Store$ 8,349 $ 7,613 $ 736 Acquisitions 2,857 - 2,857 Dispositions - 2,674 (2,674 ) Total rental revenues$ 11,206 $ 10,287 $ 919 Property operating expenses: Same Store$ 2,374 $ 2,258 $ 116 Acquisitions 927 - 927 Dispositions (54 ) 919 (973 )
Total property and hotel operating expenses$ 3,247 $ 3,177 $
70
21
Revenues Rental revenues for the three months ended March 31, 2022 were $11.2
million , an increase of $0.9 million , compared to $10.3 million for the same
period in 2021. Excluding the effect of our acquisition and disposition
activities, our rental revenues increased by $0.7 million for our Same Store
properties during the 2021 period as a result of the higher average monthly rent
per unit partially offset by slightly lower occupancy.
Property Operating Expenses Property operating expenses were $3.2 million for
both the three months ended March 31, 2022 and 2021. Excluding the effect of our
acquisition and disposition activities, our property operating expenses
increased by $0.1 million for our Same Store properties.
Real Estate Taxes Real estate taxes for the three months ended March 31, 2022
were $1.7 million , an increase of $0.2 million , compared to $1.5 million for the
same period in 2021. Excluding the effect of our acquisition and disposition
activities, real estate taxes were unchanged for our Same Store properties.
General and Administrative Expenses General and administrative expenses for the
three months ended March 31, 2022 were $1.8 million , an increase of $0.1
million , compared to $1.7 million for the same period in 2021. Excluding the
effect of our acquisition and disposition activities, our general and
administrative expenses increased by $0.2 million for our Same Store properties.
Depreciation and Amortization Depreciation and amortization expense for the
three months ended March 31, 2022 was $4.9 million , an increase of $2.0 million ,
compared to $2.9 million for the same period in 2021. Excluding the effect of
our acquisition and disposition activities, depreciation and amortization
expenses decreased slightly by $0.1 million for our Same Store properties.
Interest Expense, Net Interest expense for the three months ended March 31, 2022
was $3.1 million , an increase of $0.6 million , compared to $2.5 million for the
same period in 2021. Excluding the effect of our acquisition and disposition
activities, interest expense decreased by $0.2 million for our Same Store
properties.
Mark to Market Adjustment on Derivative Financial Instruments During the three
months ended March 31, 2022 , we recorded positive mark to market adjustments on
derivative financial instruments of $0.6 million . These mark to market
adjustments represented the change in the fair value of our interest rate cap
contracts during this period.
Income Tax Benefit During 2015, we recorded an aggregate provision for income
tax of approximately $2.7 million representing estimated foreign income tax due
as a result of the sale of two foreign investments, Alte Jakobstraße and
Holstenplatz. During the first quarter of 2022, we recorded an income tax
benefit consisting of a refund of foreign income tax of $0.8 million .
Related Party Transactions
We have agreements with the Advisor and its affiliate to pay certain fees in
exchange for services performed by these entities and other related parties.
These agreements have one-year terms and currently extend through June 30, 2022 .
We are dependent on the Advisor and its affiliates for certain services that are
essential to us, including asset disposition decisions, property management and
leasing services, and other general administrative responsibilities. In the
event that these companies were unable to provide us with their respective
services, we would be required to obtain such services from other sources.The following table represents the fees incurred associated with the payments to our Advisor and its affiliates for the periods indicated:
For the
Three Months Ended
March 31,
2022 2021
Property management fees (property operating expenses)
347 333
Asset management fees (general and administrative costs) 868
695
Total $ 1,332 $ 1,146
22
Summary of Cash Flows
Operating activities
The net cash provided by operating activities of
Investing activities
The net cash used in investing activities of
? net proceeds from the repayment of note receivable of
? capital expenditures of
Financing activities
The net cash provided by financing activities of
? net proceeds from notes payable of
? debt principal payments of
? redemptions and cancellation of common stock of
LIBOR The Citadel Apartments Mortgages and the BayVue Apartments Mortgage are indexed to LIBOR. In late 2021, it was announced LIBOR interest rates will cease publication altogether byJune 30, 2023 . We have and intend to continue to incorporate relatively standardized replacement rate provisions into our LIBOR-indexed debt documents, including a spread adjustment mechanism designed to equate to the current LIBOR "all in" rate. There is significant uncertainty with respect to the implementation of the phase out and what alternative indexes will be adopted which will ultimately be determined by the market as a whole. It therefore remains uncertain how such changes will be implemented and the effects such changes would have on us and the financial markets generally. One of our principal short-term and long-term liquidity requirements includes the repayment of maturing debt. The following table provides information with respect to the contractual maturities and scheduled principal repayments of our indebtedness as ofMarch 31, 2022 (dollars in thousands). Contractual Obligations 2022 2023 2024 2025 2026 Thereafter Total Mortgage Payable$ 1,298 $ 2,191 $ 96,031 $ 18,138 $ 147,729 $ 27,732 $ 293,119 Interest Payments(1) 8,544 11,373 10,441 7,617 2,842 3,245 44,062 Total Contractual Obligations$ 9,842 $ 13,564 $ 106,472 $ 25,755 $ 150,571 $ 30,977 $ 337,181
(1) These amounts represent future interest payments related to mortgage payable
obligations based on the fixed and variable interest rates specified in the
associated debt agreement. All variable rate debt agreements are based on the
one-month LIBOR rate. For purposes of calculating future interest amounts on
variable interest rate debt the one-month LIBOR rate as of
used.
23
Funds from Operations and Modified Funds from Operations
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and 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, theNational 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 generally accepted accounting principles inthe United States of America ("GAAP"). We calculate FFO, a non-GAAP measure, consistent with the standards established over time by theBoard of Governors of NAREIT, as restated in a White Paper approved by theBoard of Governors of NAREIT effective inDecember 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, theInvestment 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 inNovember 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. 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. 24 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 theSEC , 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 theSEC 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.
Our calculations of FFO and MFFO are presented below (dollars and shares in thousands, except per share amounts):
For the
Three Months Ended
March 31,
Description 2022 2021
Net (loss)/income $ (1,379 ) $ 27,112
FFO adjustments:Depreciation and amortization of real estate assets 4,919
2,910
Gain on sale of investment property -
(27,825 )
FFO 3,540 2,197
MFFO adjustments:
Other adjustments:Acquisition and other transaction related costs expensed(1) -
-
Noncash adjustments: Mark to market adjustments(2) (618 )
(2 ) Non-recurring gain from extinguishment/sale of debt, derivatives or securities holdings(3)
(4 ) (8 )
MFFO before straight-line rent 2,918 2,187
Straight-line rent(4) -
-
MFFO - IPA recommended format$ 2,918
Net (loss)/income$ (1,379 ) $ 27,112 Less: income attributable to noncontrolling interests - (77 ) Net (loss)/income applicable to Company's common shares$ (1,379 ) $ 27,035 Net (loss)/income per common share, basic and diluted$ (0.07 )
FFO$ 3,540 $ 2,197 Less: FFO attributable to noncontrolling interests - (150 ) FFO attributable to Company's common shares$ 3,540 $ 2,047 FFO per common share, basic and diluted$ 0.18
MFFO - IPA recommended format$ 2,918 $ 2,187 Less: MFFO attributable to noncontrolling interests - (150 ) MFFO attributable to Company's common shares$ 2,918
Weighted average number of common shares outstanding, basic
and diluted 20,110 20,193
25
1) The purchase of properties, and the corresponding expenses associated with
that process, is a key operational feature of our business plan to generate
operational income and cash flows in order to make distributions to investors.
In evaluating investments in real estate, management differentiates the costs
to acquire the investment from the operations derived from the investment.
Such information would be comparable only for non-listed REITs that have
completed their acquisition activity and have other similar operating
characteristics. By excluding expensed acquisition costs, management believes
MFFO provides useful supplemental information that is comparable for each type
of real estate investment and is consistent with management's analysis of the
investing and operating performance of our properties. Acquisition fees and
expenses include payments to our advisor or third parties. Acquisition fees
and expenses under GAAP are considered operating expenses and as expenses
included in the determination of net income and income from continuing
operations, both of which are performance measures under GAAP. Such fees and
expenses are paid in cash, and therefore such funds will not be available to
distribute to investors. Such fees and expenses negatively impact our
operating performance during the period in which properties are being
acquired. Therefore, MFFO may not be an accurate indicator of our operating
performance, especially during periods in which properties are being acquired.
All paid and accrued acquisition fees and expenses will have negative effects
on returns to investors, the potential for future distributions, and cash
flows generated by us, unless earnings from operations or net sales proceeds
from the disposition of properties are generated to cover the purchase price
of the property, these fees and expenses and other costs related to the
property. Acquisition fees and expenses will not be paid or reimbursed, as
applicable, to our advisor even if there are no further proceeds from the sale
of shares in our offering, and therefore such fees and expenses would need to
be paid from either additional debt, operational earnings or cash flows, net
proceeds from the sale of properties or from ancillary cash flows.
2) 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 equity 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) 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.
4) 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.
Distributions
We made an election to qualify as a REIT for federal income tax purposes
commencing with our taxable year ended December 31, 2008 . U.S. federal tax law
requires a REIT to distribute at least 90% of its annual REIT taxable income
(which does not equal net income, as calculated in accordance with generally
accepted accounting principles, or GAAP) determined without regard to the
deduction for dividends paid and excluding any net capital gain. In order to
continue to qualify for REIT status, we may be required to make distributions in
excess of cash available. Distributions, if any, are authorized at the
discretion of our board of directors based on their analysis of our performance
over the previous periods and expectations of performance for future periods.
Such analyses may include actual and anticipated operating cash flow, capital
expenditure needs, general financial and market conditions, proceeds from asset
sales and other factors that our board of directors deems relevant. Our board of
directors' decisions will be substantially influenced by their obligation to
ensure that we maintain our federal tax status as a REIT. We cannot provide
assurance that we will pay distributions at any particular level, or at all.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that are reasonably likely to have a
current or future material effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures, or capital resources.
26
Critical Accounting Policies and Estimates
Management's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our critical accounting policies and estimates have not changed significantly from the discussion found in the Management Discussion and Analysis and Results of Operations in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission onMarch 24, 2022 .
© Edgar Online, source
