Item 8.01 Other Events.
I. Estimated Net Asset Value ("NAV") and NAV per Share of Common Stock ("NAV per
Share")
On
The estimated NAV of our shares was calculated as of a particular point in time. The estimated NAV of our shares will fluctuate over time in response to developments related to individual assets in the portfolio and the management of those assets and in response to the real estate and finance markets. There is no assurance of the extent to which the current estimated valuation should be relied upon for any purpose after its effective date regardless that it may be published on any statement issued by us or otherwise.
Process and Methodology
Our business is managed by
Our estimated NAV and resulting NAV per Share as of
In arriving at an estimated NAV and resulting NAV per Share, our board of
directors reviewed and considered the valuation analyses prepared by our Advisor
and Capright. Our Advisor presented a report to the board of directors with an
estimated NAV and resulting NAV per Share. Capright provided our board of
directors an opinion that the resulting "as-is" market value for the Company's
properties, as calculated by our Advisor, and the other assets and liabilities
as valued by our Advisor, along with the corresponding NAV valuation
methodologies and assumptions used by our Advisor to arrive at a recommended NAV
per Share of
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The engagement of Capright with respect to our estimated NAV and resulting NAV
per Share as of
Capright's opinion was subject to various limitations. In forming its opinion, Capright relied on certain information provided by our Advisor and third parties without independent verification. Our Advisor provided Capright with certain information regarding lease terms and the physical condition and capital expenditure requirements of each property. Capright did not perform engineering or structural studies or environmental studies of any of the properties, nor did they perform an independent appraisal of the other assets and liabilities included in our estimated NAV and resulting NAV per Share.
In forming their conclusion as to the "as-is" value of the real estate
investments held by us as of
? Review of all property level information provided by our Advisor;
? Review of the historical performance of our real estate investments and
business plans related to operations of the investments;
? Review of the data models prepared by the Advisor supporting the valuation for
each investment; and
? Review of the applicable markets by means of publications and other resources
to measure current market conditions, supply and demand factors, and growth
patterns.
In addition to their appraisals of our consolidated properties, Capright also evaluated the following information to arrive at their opinion of our other assets and liabilities:
? Review of key market assumptions for our notes payable, which consist of
mortgage loans on our properties, including but not limited to interest rates
and collateral;
? Review of our Advisor's valuation of our note receivable, net;
? Review of our Advisor calculations related to allocations of value to our
noncontrolling interests based on applicable contractual terms and market
assessments; and
? Review of valuation methodology used by our Advisor for all our other assets
and liabilities.
Capright has acted as a valuation advisor to us in connection with this assignment. The compensation paid to Capright in connection with this assignment was not contingent upon the successful completion of any transaction or conclusion reached by Capright. Capright may be engaged to provide financial advisory services to us, our Advisor, or other Lightstone-sponsored investment programs or their affiliates in the future.
The following is a summary of the valuation methodologies used for each type of asset:
Investments in real estate. We have generally focused on acquiring commercial real estate properties in various asset classes. Accordingly, Capright and our Advisor utilized a variety of valuation methodologies, each deemed appropriate for the asset type under consideration to assign an estimated value to each asset.
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The value of our investments in real estate were estimated utilizing multiple
valuation methods, as appropriate for each asset, including an income approach
using discounted cash flow analysis and a sales comparable analysis. The key
assumptions used in the discounted cash flow approach were specific to each
property type, market location, and quality of each property and were based on
similar investors' return expectations and market assessments. The key
assumptions are reflected in the table included under "Allocation of Estimated
NAV per Share" below. In calculating values for our assets, both balance sheet
and estimates of cash flow as of
In forming its opinion, Capright prepared appraisals on seven of our eight
consolidated investment properties in connection with the valuation. An
appraisal was not deemed necessary for one of our investment properties,
While we and our Advisor believe that the approaches used by appraisers in
valuing our real estate assets, including an income approach using discounted
cash flow analysis and sales comparable analysis, are standard in the real
estate industry, the estimated values for our investments in real estate may or
may not represent current market values or fair values determined in accordance
with generally accepted accounting principles in
Cash and cash equivalents. The estimated value of our cash and cash equivalents approximate their carrying value due to their short term maturities.
Marketable securities, available for sale. The estimated values of our marketable securities are based on Level 2 inputs. Level 2 inputs are inputs that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. All of our marketable securities measured using Level 2 inputs were valued based on a market approach using readily available quoted market prices for similar assets.
Restricted cash. The estimated value of our restricted cash approximate their carrying value due to their short term maturities.
Note receivable, net. The estimated value of our note receivable, net
approximates its carrying value as of
Notes payable. We have notes payable, which consist of mortgage loans, that bear interest at both variable and fixed rates. The estimated values of our variable-rate mortgage loans were deemed to approximate their carrying values because their interest rates move in conjunction with changes to market interest rates. The estimated values of our fixed-rate notes payable were estimated by the Advisor and reviewed by Capright using a discounted cash flow analysis, which used inputs based on the remaining loan terms and estimated current market interest rates for mortgage loans with similar characteristics, including remaining loan term and loan-to-value ratios. The current market interest rates for our fixed-rate notes payable were generally determined1based on market rates for available comparable debt. The estimated current market interest rates for our fixed-rate mortgage loans ranged from 2.8% to 3.8%.
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Other assets and liabilities, net. Our other assets and liabilities, net consist
of prepaid expenses and other assets, accounts payable and accrued and other
liabilities, payables to related parties, and accrued property tax. For a
majority of our other assets and liabilities, the carrying values as of
Noncontrolling interests. In those situations where our consolidated operating properties are held in joint venture structures in which other equity holders have an ownership interest, our Advisor has valued those noncontrolling interests based on the terms of the respective joint venture agreement applied assuming a liquidation of the joint venture as of the date of valuation. The resulting allocation of value to noncontrolling interests is a deduction to the estimated NAV.
Common stock outstanding. In deriving an estimated NAV per Share, the total
estimated NAV was divided by approximately 20.1 million, the total number of
common shares outstanding as of
Our estimated NAV per Share was calculated by aggregating the value of our
assets, subtracting the value of both our liabilities and noncontrolling
interests, and dividing the net amount by the fully-diluted shares of common
stock outstanding, all as of
Allocation of Estimated NAV per Share
The table below sets forth the calculation of our estimated NAV per Share as of
Estimated NAV per Share As of As of September 30, September 30, 2021 2020 Investments in real estate(1) $ 24.52 $ 19.99 Cash and cash equivalents 1.89 1.38 Restricted cash 0.35 0.36 Marketable securities 0.18 0.18 Note receivable 0.68 0.61 Notes payable (13.73 ) (12.45 ) Other assets and liabilities, net (0.32 ) (0.23 ) Noncontrolling interests (0.66 ) (0.42 ) Estimated NAV per Share(2) $ 12.91 $ 9.42 4 Notes:
(1) The following are the key assumptions (shown on a weighted average basis)
used in the discounted cash flow models to estimate the value of the seven of the eight consolidated properties we currently own. Multifamily Student Housing (six properties) (one property) Exit capitalization rate 6.04 % 5.50 % Discount rate 6.98 % 6.50 % Annual market rent growth 3.00 % 3.90 % Average holding period (in years) 10.0 10.0
The following are ranges of the key assumptions used in the discounted cash flow models to estimate the value of our seven multifamily properties. The discounted cash flow analysis for our student housing asset is for only one property, and therefore, a range of values is not applicable.
Multifamily (six properties) Exit capitalization rate 5.50% - 6.50% Discount rate 6.50% - 7.50%
(2) As of
outstanding. The potential dilutive effect of our common stock equivalents
does not affect our estimated NAV per Share as there were no potentially
dilutive securities outstanding as of the valuation date.
As of
While we believe that our assumptions utilized are reasonable, a change in these assumptions would affect the calculation of the value of our real estate assets. The table below presents the estimated increase or decrease to our estimated NAV per Share resulting from a 25 basis point increase and decrease in the discount rates and capitalization rates for seven of the eight consolidated properties we currently own. The table is presented to provide a hypothetical illustration of possible results if only one change in assumptions was made, with all other factors remaining constant. Further, each of these assumptions could change by more or less than 25 basis points or not at all.
Change in NAV per Share Increase of Decrease of 25 basis points 25 basis points
Capitalization rate $ (1.07 ) $ 1.19 Discount rate $ (0.41 ) $ 0.42
Historical Estimated NAV per Share
The historical reported estimated NAV per Share of our common stock as approved by our board of directors for the preceding year is set forth below:
$9.42 September 30, 2020 Current Report on Form 8-K filed November 12, 2020 5 Limitations and Risks
As with any valuation methodology, the methodology used to determine our estimated NAV and resulting NAV per Share is based upon a number of estimates and assumptions that may prove later not to be accurate or complete. Further, different participants with different property-specific and general real estate and capital market assumptions, estimates, judgments and standards could derive a different estimated NAV per Share, which could be significantly different from the estimated NAV per Share approved by our board of directors. The estimated NAV per Share approved by our board of directors does not represents the fair value of our assets and liabilities in accordance with GAAP, and such estimated NAV per Share is not a representation, warranty or guarantee that:
? A stockholder would be able to resell his or her shares at the estimated NAV
per Share;
? A stockholder would ultimately realize distributions per share of common stock
equal to the estimated NAV per Share upon liquidation of our assets and
settlement of our liabilities or a sale of the Company;
? Our shares of common stock would trade at the estimated NAV per Share on a
national securities exchange,
? An independent third-party appraiser or other third-party valuation firm would
agree with the estimated NAV per Share; or
? The methodology used to estimate our NAV per Share would be acceptable to
or under the Employee Retirement Income Security Act with respect to their
respective requirements.
The Internal Revenue Service and the
As with any valuation methodology, our methodology is based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive different estimated NAVs and resulting NAVs per share, and these differences could be significant. The estimated NAV per Share is not audited and does not represent the fair value of our assets less our liabilities in accordance GAAP, nor do they represent an actual liquidation value of our assets and liabilities or the amount shares of our common stock would trade at on a national securities exchange. Our estimated NAV per Share is based on the estimated value of our assets less the estimated value of our liabilities and other non-controlling interests divided by the number of our diluted shares of common stock outstanding, all as of the date indicated. Our estimated NAV per Share does not reflect a discount for the fact we are externally managed, nor does it reflect a real estate portfolio premium/discount versus the sum of the individual property values. Our estimated NAV per Share does not take into account estimated disposition costs or fees or penalties, if any, that may apply upon the prepayment of certain of our debt obligations or the impact of restrictions on the assumption of certain debt. Our estimated NAV per Share will fluctuate over time as a result of, among other things, future acquisitions or dispositions of assets, developments related to individual assets and the management of those assets and changes in the real estate and capital markets. Different parties using different assumptions and estimates could derive different NAVs and resulting estimated NAVs per share, and these differences could be significant. Markets for real estate and real estate-related investments can fluctuate and values are expected to change in the future. Our Estimated Valuation Policy requires us to update our estimated NAV per Share value on an annual basis. Our board of directors will review and approve each estimate of NAV and resulting estimated NAV per Share.
The following factors may cause a stockholder not to ultimately realize distributions per share of common stock equal to the estimated NAV per Share upon liquidation:
? The methodology used to determine estimated NAV per Share includes a number of
estimates and assumptions that may not prove to be accurate or complete as
compared to the actual amounts received in the liquidation.
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? In a liquidation, certain assets may not be liquidated at their estimated
values because of transfer fees and disposition fees, which are not reflected
in the estimated NAV calculation.
? In a liquidation debt obligations may have to be prepaid and the costs of any
prepayment penalties may reduce the liquidation amounts. Prepayment penalties
are not included in determining the estimated value of liabilities in
determining estimated NAV.
? In a liquidation, the real estate assets may derive a portfolio premium which
premium is not considered in determining estimated NAV.
? In a liquidation, the potential buyers of the assets may use different
estimates and assumptions than those used in determining estimated NAV.
? If the liquidation occurs through a listing of the common stock on a national
securities exchange, the capital markets may value the Company's net assets at
a different amount than the estimated NAV. Such valuation would likely be based
upon customary REIT valuation methodology including funds from operation
(''FFO'') multiples of other comparable REITs, FFO coverage of dividends and
adjusted FFO payout of the Company's anticipated dividend.
? If the liquidation occurs through a merger of the Company with another REIT,
the amount realized for the common stock may not equal the estimated NAV per
Share because of many factors including the aggregate consideration received,
the make-up of the consideration (e.g., cash, stock or both), the performance
of any stock received as part of the consideration during the merger process
and thereafter, the reception of the merger in the market and whether the
market believes the pricing of the merger was fair to both parties.
For further information regarding the limitations of our estimated NAV per
Share, see our Estimated Valuation Policy filed as Exhibit 99.2 to our Current
Report on Form 8-K as filed with the
II. Share Redemption Program and Redemption Price
The Company's board of directors has adopted a share redemption program (the "SRP") that permits stockholders to sell their shares back to it, subject to the significant conditions and limitations of the program. The Company's board of directors can amend the provisions of the SRP at any time without the approval of the stockholders.
On
Effective
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. Death redemption requests are expected to be processed on a quarterly basis and may be subject to pro ration if death redemption requests exceed the annual limitation.
The Company's board of directors will continue to consider the liquidity available to stockholders going forward, balanced with other long-term interests of the stockholders and the Company. It is possible that in the future additional liquidity will be made available by the Company through the SRP, issuer tender offers or other methods, though it can make no assurances as to whether that will happen, or the timing or terms of any such liquidity.
In accordance with the Company's SRP, the per share redemption price
automatically adjusted to
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