Lightstone Value Plus REIT V, Inc. - Quarter Report: 2021 March (Form 10-Q)

(Exact Name of Registrant as Specified in Its Charter)

1985 Cedar Bridge Avenue, Suite 1, Lakewood, New Jersey 08701

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:  (888) 808-7348

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:

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, the Registrant had approximately 20.2 million shares of common stock outstanding.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST V, INC.

INDEX

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Consolidated Balance Sheets

(dollars in thousands, except per share amounts)

See Notes to Consolidated Financial Statements.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Consolidated Statements of Operations and Comprehensive Income

(dollars and shares in thousands, except per share amounts)

(unaudited)

See Notes to Consolidated Financial Statements.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Consolidated Statements of Stockholders’ Equity

(dollars and shares in thousands)

(unaudited)

See Notes to Consolidated Financial Statements.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

See Notes to Consolidated Financial Statements.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

Lightstone Value Plus Real Estate Investment Trust V, Inc. which was previously named Behringer Harvard Opportunity REIT II, Inc., prior to July 20, 2017 (which may be referred to as the “Company,” “we,” “us,” or “our”), was organized as a Maryland corporation on January 9, 2007 and has elected to be taxed, and currently qualifies, as a real estate investment trust (“REIT”) for federal income tax purposes.

The Company was formed primarily to acquire and operate commercial real estate and real estate-related assets on an opportunistic and value-add basis. In particular, the Company has 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 sellers who are distressed or face time-sensitive deadlines.  The Company has acquired a wide variety of commercial properties, including office, industrial, retail, hospitality, and multifamily.  The Company has purchased existing, income-producing properties, and newly-constructed properties. The Company has also invested in other real estate-related investments such as mortgage and mezzanine loans. The Company intends to hold the various real properties in which it has invested until such time as its board of directors determines that a sale or other disposition appears to be advantageous to achieve the Company’s investment objectives or until it appears that the objectives will not be met. The Company currently has one operating segment. As of March 31, 2021, the Company had seven real estate investments (five wholly owned properties and two properties consolidated through investments in joint ventures) and one real estate-related investment (mezzanine loan).

Substantially all of the Company’s business is conducted through Lightstone REIT V OP LP, a limited partnership organized in Delaware (the “Operating Partnership”).  As of March 31, 2021, the Company’s wholly-owned subsidiary, BHO II, Inc., a Delaware corporation, owned a 0.1% partnership interest in the Operating Partnership as its sole general partner.  As of March 31, 2021, the Company’s wholly-owned subsidiary, BHO Business Trust II, a Maryland business trust, was the sole limited partner of the Operating Partnership and owned the remaining 99.9% interest in the Operating Partnership.

The Company’s business is managed by an external advisor and the Company has no employees. Effective February 10, 2017, the Company engaged affiliates of The Lightstone Group (“Lightstone”), LSG-BH II Advisor LLC and LSG Development Advisor LLC (collectively, the “Advisor”), to provide advisory services to the Company. Lightstone is majority owned by the chairman of the Company’s board of directors, David Lichtenstein. Pursuant to the terms of an advisory agreement and subject to the oversight of the Company’s board of directors, the Advisor is responsible for managing the Company’s day-to-day affairs and for services related to the management of the Company’s assets.

Organization

In connection with the Company’s initial capitalization, the Company issued 22,500 shares of its common stock and 1,000 shares of its convertible stock to the Company’s previous advisor on January 19, 2007.  The 1,000 shares of convertible stock were transferred to an affiliate of Lightstone on February 10, 2017 and remain outstanding. As of March 31, 2021, the Company had 20.2 million shares of common stock outstanding. 

The Company’s common stock is not currently listed on a national securities exchange. The timing of a liquidity event for the Company’s stockholders will depend upon then prevailing market conditions. On January 9, 2020, the Company’s board of directors extended the targeted timeline for the Company to commence a liquidity event until June 30, 2028 based on their assessment of the Company’s investment objectives and liquidity options for the Company’s stockholders. The Company can provide no assurances as to the actual timing of the commencement of a liquidity event for its stockholders or the ultimate liquidation of the Company. The Company will seek stockholder approval prior to liquidating its entire portfolio.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

Noncontrolling Interests

Noncontrolling interests represents the noncontrolling ownership interest’s proportionate share of the equity in our consolidated real estate investments.  Income and losses are allocated to noncontrolling interest holders based generally on their ownership percentage.   If a property reaches a defined return threshold, then it will result in distributions to noncontrolling interests which is different from the standard pro-rata allocation percentage. In certain instances, our joint venture agreements provide for liquidating distributions based on achieving certain return metrics.

Acquisition of Noncontrolling Member’s Ownership Interest (Lakes of Margate)

On March 17, 2021, the Company acquired the noncontrolling member’s 7.5% ownership interest in the Lakes of Margate for $1.1 million and as a result, owned 100% of the Lakes of Margate, which was subsequently sold (see Note 3).

Interim Unaudited Financial Information

The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which was filed with the Securities and Exchange Commission (the “SEC”) on March 25, 2021.  The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair presentation of the results for the periods presented. The accompanying unaudited consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust V, Inc. have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

Principles of Consolidation and Basis of Presentation

Our consolidated financial statements include our accounts and the accounts of other subsidiaries over which the Company has control. All inter-company transactions, balances, and profits have been eliminated in consolidation. In addition, interests in entities acquired are evaluated based on applicable GAAP, and entities deemed to be variable interest entities (“VIE”) in which the Company is the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which the Company has control, substantive participating rights or both under the respective ownership agreement. For entities in which the Company has less than a controlling interest or entities which we are not deemed to be the primary beneficiary, it accounts for the investment using the equity method of accounting.

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.

Investment in Unconsolidated Joint Venture (Prospect Park)

On May 10, 2021 the Company received a payment of $1.5 million for the settlement of its prior participation in the residual interests of a mezzanine financing to an unaffiliated third-party entity that owned an apartment complex in Denver, Colorado. 

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

Earnings per Share

The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, basic and diluted earnings per share is calculated by dividing net income/(loss) by the weighted-average number of shares of common stock outstanding during the applicable period.

Restricted cash

As required by the Company’s lenders, restricted cash is held in escrow accounts for anticipated capital expenditures, real estate taxes, and other reserves for certain of our consolidated properties. Capital reserves are typically utilized for non-operating expenses such as major capital expenditures. Alternatively, a lender may require its own formula for an escrow of capital reserves. As of March 31, 2021, restricted cash also included $14.1 million of the proceeds from the sale of Lakes of Margate. These funds have been temporarily placed in escrow with a qualified intermediary to potentially facilitate a like-kind exchange transaction in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended. See Note 3 for additional information.

COVID-19 Pandemic

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 Company’s consolidated portfolio of properties currently consists of six multi-family apartment complexes and one student housing complex. Despite past and current restrictions and mitigation strategies, the Company’s multi-family properties still have not yet seen any significant impact from the COVID-19 pandemic. The Company’s student housing complex, which consists of the River Club Apartments and the Townhomes at River Club, are located in Athens, Georgia and principally serve as “off-campus” lodging for students attending the University of Georgia (“UGA”). Leases for the River Club Apartments and Townhomes at River Club generally have a term of one year running from August through July. Because of the COVID-19 pandemic, UGA previously transitioned to online instruction during its Spring 2020 semester before resuming to “on-campus” classes beginning with its Fall 2020 semester. The Company’s student housing complex is located “off-campus” and therefore, its tenants are not required to vacate even if UGA does not conduct “on-campus” classes. However, if UGA decides to return to online instruction for its students in lieu of “on-campus” classes in future semesters, it could adversely impact leasing demand, occupancy levels and the operating results of the Company’s student housing complex in future periods. Additionally, the Company’s note receivable is collateralized by a condominium development project located in New Yok City (the “Condominium Project”), which is subject to similar restrictions and risks. To date, the Condominium Project and the Company’s note receivable have not been significantly impacted by the COVID-19 pandemic. 

While the Company’s business has not yet seen any material impact from the ongoing COVID-19 pandemic, the extent to which it may be affected in future periods will largely depend on current and future developments, all of which are highly uncertain and cannot be reasonably predicted. 

If the Company’s 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) demand for its student housing complex declines, and (iii) its borrower is unable to pay scheduled debt service on the outstanding note receivable; the Company’s business and financial results could be materially and adversely impacted.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

New Accounting Pronouncements

In June 2016, the FASB issued new guidance which replaces the incurred loss impairment methodology currently in use with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  The new guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.  The Company is currently in the process of evaluating the impact the adoption of this standard will have on the Company’s consolidated financial statements.

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.

Lakes of Margate 

During the fourth quarter of 2020, Lakes of Margate met the criteria to be classified as held for sale and therefore, its associated assets and liabilities were classified as held for sale in the consolidated balance sheet as of December 31, 2020. 

On March 17, 2021, the Company completed the disposition of the Lakes of Margate to Lakes of Margate FL LLC, an unrelated third party (the “Lakes of Margate Buyer”), for aggregate consideration of $50.8 million. At closing, the Lakes of Margate Buyer paid $15.1 million and assumed the existing Lakes of Margate Loan with an outstanding principal balance of $35.7 million and $14.1 million of the proceeds were placed in escrow with a qualified intermediary to potentially facilitate a like-kind exchange transaction in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended, and is included in restricted cash on the consolidated balance sheet as of March 31, 2021. In connection with the disposition of the Lakes of Margate, the Company recognized a gain on sale of investment property of $27.8 million during the first quarter of 2021.

The disposition of the Lakes of Margate did not qualify to be reported as discontinued operations since it did not represent a strategic shift that had a major effect on the Company’s operations and financial results. Accordingly, the operating results of the Lakes of Margate are reflected in our results from continuing operations for all periods presented through its date of disposition.

The following summary presents the major components of the Lakes of Margate’s assets and liabilities held for sale, of as December 31, 2020.

500 West 22nd Street Mezzanine Loan

On February 28, 2019, the Company, as the lender, and an unrelated third party (the “500 West 22nd Street Mezzanine Loan Borrower”), as the borrower, entered into a loan promissory note (the “500 West 22nd Street Mezzanine Loan”) pursuant to which the Company would fund up to $12.0 million of mezzanine financing. On the same date, the Company initially funded $8.0 million of the 500 West 22nd Street Mezzanine Loan. Subsequently, through the first quarter of 2020, the Company funded an additional $4.0 million and as a result, the 500 West 22nd Street Mezzanine Loan has been fully funded. 

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

The 500 West 22nd Street Mezzanine Loan is recorded in note receivable, net on the consolidated balance sheet. In connection with the fundings made for the 500 West 22nd Street Mezzanine Loan, the Advisor has received an aggregate of approximately $0.2 million in acquisition fees from the Company. The acquisition fees are accounted for as an addition to the carrying value of the 500 West 22nd Street Mezzanine Loan and are being amortized as a reduction to interest income over the initial term of the 500 West 22nd Street Mezzanine Loan using a straight-line method that approximates the effective interest method. 

The 500 West 22nd Street Mezzanine Loan is due August 31, 2021 and is collateralized by the ownership interests of the 500 West 22nd Street Mezzanine Loan Borrower. The 500 West 22nd Street Mezzanine Loan Borrower owns a parcel of land located at 500 West 22nd Street, New York, New York on which it is developing and constructing the Condominium Project. At the onset of the COVID-19 pandemic, the Borrower’s construction activities related to the Condominium Project were temporarily suspended due to restrictions on certain non-essential construction activities imposed by New York City. However, construction activities for the Condominium Project fully resumed in early May 2020 and its anticipated construction timeline has not been significantly impacted to date.

The 500 West 22nd Street Mezzanine Loan bears interest at a rate of LIBOR + 11.0% per annum with a floor of 13.493% (13.493% as of March 31, 2021). The Company received an origination fee of 1.0% of the loan balance, or approximately $0.1 million, which is presented in the consolidated balance sheets as a direct deduction from the carrying value of the 500 West 22nd Street Mezzanine Loan and is being amortized to interest income, using a straight-line method that approximates the effective interest method, over the initial term of the 500 West 22nd Street Mezzanine Loan. The 500 West 22nd Street Mezzanine Loan may be extended two additional six-month periods by the 500 West 22nd Street Mezzanine Loan Borrower provided certain conditions are met, including the establishment of an additional reserve for interest and the payment of an extension fee equal to 0.25% of the outstanding loan balance. 

In connection with the initial funding under the 500 West 22nd Street Mezzanine Loan, the Company retained approximately $2.1 million of the proceeds to establish a reserve for interest and other items, which is presented in the consolidated balance sheets as a direct deduction from the carrying value of the 500 West 22nd Street Mezzanine Loan and are being applied against the first 8.0% of monthly interest due during the initial term of the 500 West 22nd Street Mezzanine Loan. Through March 31, 2021, approximately $2.0 million of the reserve has been recognized as interest income and the remaining balance of the reserve was approximately $0.1 million as of March 31, 2021. The additional monthly interest due above the 8.0% threshold is added to the balance of the 500 West 22nd Street Mezzanine Loan and payable at maturity. As of March 31, 2021, approximately $1.3 million of additional interest due is included in the balance of the 500 West 22nd Street Mezzanine Loan.

During both the three months ended March 31, 2021 and 2020, the Company recorded approximately $0.4 million of interest income related to the note receivable. As of March 31, 2021, the outstanding principal balance of the 500 West 22nd Street Mezzanine Loan was approximately $13.4 million.

The Company determined the following disclosure of estimated fair values using available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data and develop the related estimates of fair value. The use of different market assumptions or only estimation methodologies may have a material effect on the estimated fair value amounts.

As of March 31, 2021 and December 31, 2020,  management estimated that the carrying value of cash and cash equivalents, restricted cash, note receivable, prepaid expenses and other assets, accounts payable and accrued and other liabilities were at amounts that reasonably approximated their fair value based on their highly-liquid nature and/or short-term maturities.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

The fair value of the notes payable is categorized as a Level 2 in the fair value hierarchy. The fair value was estimated using a discounted cash flow analysis valuation on the estimated borrowing rates currently available for loans with similar terms and maturities. The fair value of the notes payable was determined by discounting the future contractual interest and principal payments by a market rate. Disclosure about fair value of financial instruments is based on pertinent information available to management as of March 31, 2021 and December 31, 2020. Carrying amounts of our notes payable and the related estimated fair value is summarized as follows:

Marketable Securities

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

When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s amortized cost basis. As of March 31, 2021, the Company did not recognize any impairment charges.

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 V, Inc.

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

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:

The fair values of the Company’s investments in debt securities are measured using quoted prices for these investments; however, the markets for these assets are not active. As of March 31, 2021, all of the Company’s debt securities were classified as Level 2 assets and there were no transfers between the level classifications during the three months ended March 31, 2021.

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:

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

Notes payable, excluding debt classified as held for sale, consists of the following:

The following table provides information with respect to the contractual maturities and scheduled principal repayments of the Company’s indebtedness as of March 31, 2021.

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 August 9, 2017, the board of directors adopted a Fourth Amended and Restated Share Redemption Program (the “Fourth Amended SRP”) which became effective July 1, 2018. The Fourth Amended SRP established that the price at which the Company would redeem shares submitted for redemption will be a percentage of the estimated net asset value per share (“NAV per Share”) as of the Effective Date, as defined, as follows:

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

Pursuant to the terms of the Fourth Amended SRP, any shares approved for redemption are redeemed on a periodic basis as determined from time to time by the Company’s board of directors, and no less frequently than annually.  The Company will not redeem, during any twelve-month period, more than 5% of the weighted average number of shares outstanding during the twelve-month period immediately prior to the date of redemption.  In addition, the cash available for redemptions is limited to no more than $10.0 million in any twelve-month period.  Any redemption requests are honored pro rata among all requests received based on funds available and are not honored on a first come, first served basis.

On December 28, 2018, the Company’s board of directors adopted a Fifth Amended and Restated Share Redemption Program (the “Fifth Amended SRP”) which became effective on January 31, 2019. The only material change to the program was to change the measurement period for the limitations on the number and dollar amount of shares that may be accepted for redemption from a rolling 12 month-period to a calendar year.

In accordance with the Company’s Fifth Amended SRP, the per share redemption price automatically adjusted to $8.64 effective November 7, 2019 as a result of the determination and approval by the Company’s board of directors of the updated estimated NAV per Share.

On December 13, 2019, the Company’s board of directors approved the suspension of the SRP. Pursuant to the terms of the SRP, while the SRP is suspended, the Company will not accept any requests for redemption.

Effective March 25, 2021, the Company’s Board of Directors reopened the SRP solely for redemptions submitted in connection with a stockholder’s death and set the price for all such purchases to $9.42, which is 100% of the NAV per Share as of September 30, 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. 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.

Distributions

The Company made an election to qualify as a REIT for federal income tax purposes commencing with its taxable year ended December 31, 2008. U.S. federal tax law requires a REIT distribute at least 90% of its annual REIT taxable income (which does not equal net income, as calculated in accordance with GAAP) determined without regard to the deduction for dividends paid and excluding any net capital gain. In order to continue to qualify for REIT status, the Company may be required to make distributions in excess of cash available. Distributions are authorized at the discretion of the Company’s board of directors based on their analysis of the Company’s performance over the previous periods and expectations of performance for future periods.  Such analyses may include actual and anticipated operating cash flow, changes in market capitalization rates for investments suitable for the Company’s portfolio, capital expenditure needs, general financial and market conditions, proceeds from asset sales, and other factors that the Company’s board of directors deems relevant.

The Company’s board of directors’ decision will be substantially influenced by their obligation to ensure that the Company maintains its federal tax status as a REIT.  The Company cannot provide assurance that it will pay distributions at any particular level, or at all. 

The Company did not make any distributions to its stockholders during the three months ended March 31, 2021 and 2020.

The Company has agreements with the Advisor and its affiliates to pay certain fees in exchange for services performed by these entities and other related parties. On June 10, 2020, these agreements were extended an additional year through June 10, 2021.  The Company is dependent on the Advisor and property manager for certain services that are essential to it, including asset disposition decisions, property management and leasing services, and other general administrative responsibilities. In the event that these companies were unable to provide the Company with their respective services, the Company would be required to obtain such services from other sources.

Lightstone Value Plus Real Estate Investment Trust V, Inc.

Notes to Consolidated Financial Statements (unaudited)

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

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

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.

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 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 of Lightstone Value Plus Real Estate Investment Trust V, Inc. and our subsidiaries (which may be referred to herein as the “Company,” “we,” “us” or “our”), 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: 

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 sellers who 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 in the United States and other countries based on our view of existing market conditions. As of March 31, 2021, our investments included multifamily and student housing communities and a note receivable. All of our current investments are located in the 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

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. 

Our consolidated portfolio of properties currently consists of six multi-family apartment complexes and one student housing complex. Despite past and current restrictions and mitigation strategies, our multi-family properties still have not yet seen any significant impact from the COVID-19 pandemic. Our student housing complex, which consists of the River Club Apartments and the Townhomes at River Club, are located in Athens, Georgia and principally serve as “off-campus” lodging for students attending the University of Georgia (“UGA”). Leases for the River Club Apartments and Townhomes at River Club generally have a term of one year running from August through July. Because of the COVID-19 pandemic, UGA previously transitioned to online instruction during its Spring 2020 semester and resumed “on-campus” classes beginning with its Fall 2020. Our student housing complex is located “off-campus” and therefore, its tenants are not required to vacate even if UGA does not conduct “on-campus” classes. However, if UGA decides to return to online instruction for its students in lieu of “on-campus” classes in future semesters, it could adversely impact leasing demand, occupancy levels and the operating results of our student housing complex in future periods. Additionally, our note receivable is collateralized by a condominium development project located in New Yok City (the “Condominium Project”), which is subject to similar restrictions and risks. To date, the Condominium Project and our note receivable have not been significantly impacted by the COVID-19 pandemic.

While our business has not yet seen any material impact from the ongoing COVID-19 pandemic, the extent to which we may be affected in future periods 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) demand for its student housing complex declines, and (iii) its borrower is unable to pay scheduled debt service on the outstanding note receivable; our business and financial results could be materially and adversely impacted.

We are not currently aware of any other material trends or uncertainties, favorable or unfavorable, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from our operations, other than those referred to above or throughout this Form 10-Q. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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. Actual results may differ from those estimates and assumptions used in these consolidated financial statements.

Liquidity and Capital Resources

We had cash and cash equivalents of $27.0 million and marketable securities, available for sale of $3.6 million as of March 31, 2021. Our principal demands for funds going forward will be for the payment of (a) operating expenses and (b) scheduled interest and principal payments 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 on hand and cash flow from operations as well as the release of certain funds held in restricted cash. However, to the extent that our cash on hand 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. 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 approximately 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 Lakes of Margate

On March 17, 2021, we completed the disposition of the Lakes of Margate for a contractual sales price of $50.8 million to an unrelated third party.  At closing, the buyer paid $15.1 million and assumed the existing mortgage loan secured by the Lakes of Margate with an outstanding principal balance of $35.7 million. Approximately $14.1 million of the proceeds were placed in escrow with a qualified intermediary to potentially facilitate a like-kind exchange transaction in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended, and is included in restricted cash on the consolidated balance sheet as of March 31, 2021. In connection with the disposition of the Lakes of Margate, we recognized a gain on the sale of investment property of $27.8 million during the first quarter of 2021.

Acquisition of Autumn Breeze Apartments

On March 17, 2020, we completed the acquisition of a 280-unit multifamily property located in Noblesville, Indiana (the “Autumn Breeze Apartments”) from an unrelated third party, for an aggregate purchase price of approximately $43.0 million, excluding closing and other related transaction costs. In connection with the acquisition, we paid the Advisor an aggregate of approximately $0.8 million in acquisition fees and acquisition expense reimbursements.

Disposition of Gardens Medical Pavilion

On January 15, 2020, we and our noncontrolling member completed the disposition of the Gardens Medical Pavilion for a contractual sales price of $24.3 million to an unrelated third-party. In connection with the disposition of the Gardens Medical Pavilion, we recognized a gain on the sale of investment property of approximately $5.5 million during the first quarter of 2020. Approximately $12.6 million of the proceeds were used towards the repayment in full of a mortgage loan secured by the Gardens Medical Pavilion. Additionally, approximately $1.8 million of the remaining proceeds were distributed to the noncontrolling member.

Debt Financings

From time to time, we have obtained mortgage, bridge, or mezzanine loans for acquisitions and investments, as well as property development.  In the future, we may obtain new financings to acquire properties and for property renovation development and redevelopment activities or refinance our existing real estate assets, depending on multiple factors.

As of March 31, 2021, our outstanding notes payable were $213.3 million, net of deferred financing fees of $2.9 million and had a weighted average interest rate of 3.80%. As of December 31, 2020, we had notes payable of $213.0 million, net of deferred financing fees of $3.4 million, with a weighted average interest rate of 3.71%.

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 of March 31, 2021 (dollars in thousands).

Results of Operations

As of March 31, 2021, we had seven real estate investments (five wholly owned properties and two properties consolidated through investments in joint ventures) and one real estate-related investment (mezzanine loan). 

The tables below reflect occupancy and effective monthly rental rates for our operating properties owned as of March 31, 2021:

On March 17, 2020, we acquired the Autumn Breeze Apartments (the “2020 Acquisition”). On January 15, 2020, we disposed of the Gardens Medical Pavilion (the “2020 Disposition”) and on March 17, 2021, we disposed of the Lakes of Margate (the “2021 Disposition” and collectively, the “Dispositions”). In connection with the dispositions of Gardens Medical Pavilion and the Lakes of Margate, we recognized gains on the sale of investment property of $5.5 million during the first quarter of 2020 and $27.8 million during the first quarter of 2021, respectively. The Dispositions did not qualify to be reported as discontinued operations since neither disposition represented a strategic shift that had a major effect on our operations and financial results. Accordingly, the operating results of these properties are reflected in our results from continuing operations for all periods presented through their respective dates of disposition.

Our results of operations for the respective periods presented reflect our acquisition and disposition activities. Properties owned by us during the entire periods presented are referred to as our “Same Store” properties.

Three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

The following table provides summary information about our results of operations (dollars in thousands):

Notes:

The following table reflects total rental revenues and total property operating expenses for the three months ended March 31, 2021 and 2020 for: (i) our Same Store properties, (ii) the 2020 Acquisition and (iii) the Disposition (dollars in thousands):

Revenues.  Rental revenues for the three months ended March 31, 2021 were $10.3 million, an increase of $0.9 million, compared to $9.4 million for the same period in 2020.  Excluding the effect of our acquisition and disposition activities, our rental revenues increased by $0.4 million for our Same Store properties primarily as a result of increases in the average monthly rent per unit.

Property Operating Expenses.    Property operating expenses for the three months ended March 31, 2021 were $3.2 million, an increase of $0.2 million, compared to $3.0 million for the same period in 2020. Excluding the effect of our acquisition and disposition activities, our property operating expenses were flat for our Same Store properties.

Real Estate Taxes.  Real estate taxes for the three months ended March 31, 2021 were $1.5 million, an increase of $0.3 million, compared to $1.2 million for the same period in 2020. Excluding the effect of our acquisition and disposition activities, our real estate taxes increased by $0.2 million for our Same Store properties.

General and Administrative Expenses.   General and administrative expenses for the three months ended March 31, 2021 was $1.7 million, an increase of $0.2 million, compared to $1.5 million for the same period in 2020. Excluding the effect of our acquisition and disposition activities, our general and administrative expenses increased slightly by $0.1 million for our Same Store properties.

Depreciation and Amortization.   Depreciation and amortization expense for the three months ended March 31, 2021 was $2.9 million, an increase of $0.4 million, compared to $2.5 million for the same period in 2020. 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, 2021 was $2.5 million, an increase of $0.4 million, compared to $2.1 million for the same period in 2020. Excluding the effect of our acquisition and disposition activities, interest expense decreased by $0.2 million for our Same Store properties.

Related Party Transactions

We have agreements with the Advisor and its affiliates to pay certain fees in exchange for services performed by these entities and other related parties.  On June 10, 2020, these agreements were extended an additional year through June 10, 2021. We are dependent on the Advisor and property manager 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 for the periods indicated:

Summary of Cash Flows

Operating activities

The net cash provided by operating activities of $3.0 million for the three months ended March 31, 2021 consisted primarily of our net income of $27.1 million, depreciation and amortization and amortization of deferred financing costs aggregating $3.1 million and the net change in assets and liabilities of $1.1 million offset by a gain on the sale of investment property from the sale of the Lakes of Margate $27.8 million and non-cash interest income of $0.4 million.

Investing activities

The net cash provided by investing activities of $12.3 million for the three months ended March 31, 2021 consists primarily of the following:

Financing activities

The net cash used in financing activities of $0.4 million for the three months ended March 31, 2021 consists primarily of the following:

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, 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 generally accepted accounting principles in the United States of America (“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. 

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. 

Our calculations of FFO and MFFO are presented below (dollars and shares in thousands, except per share amounts):

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.

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. On a regular basis, we evaluate these estimates, including investment impairment.  These estimates include such items as impairment of long-lived assets, depreciation and amortization, and allowance for doubtful accounts.  Actual results could differ from those estimates.

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 the Securities and Exchange Commission on March 25, 2021.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our principal executive officer and principal financial officer, evaluated, as of March 31, 2021, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e) using the criteria established in Internal Control-New Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective, as of March 31, 2021, to provide reasonable assurance that information required to be disclosed by us in this report is recorded, processed, summarized, and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There has been no change in internal control over financial reporting that occurred during the quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

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

As of the date hereof, we are not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, we have 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 quarterly report, we did not sell any equity securities that were not registered under the Securities Act of 1933.

Our common stock is not currently listed on a national securities exchange. The timing of a liquidity event for our stockholders will depend upon then prevailing market conditions. On January 9, 2020, our board of directors extended the targeted timeline for us to commence a liquidity event until June 30, 2028 based on their assessment of our investment objectives and liquidity options for our stockholders. We can provide no assurances as to the actual timing of the commencement of a liquidity event for our stockholders or our ultimate liquidation. We will seek stockholder approval prior to liquidating our entire portfolio.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None. 

Item 5. Other Information.

None.

Item 6. Exhibits.

The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.

SIGNATURE

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.

Index to Exhibits