LIGHTSTONE VALUE PLUS REIT III, INC. The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements ofLightstone Value Plus REIT III, Inc. and Subsidiaries and the notes thereto. As used herein, the terms "we," "our" and "us" refer toLightstone Value Plus REIT III, Inc. , aMaryland corporation, and, as required by context,Lightstone Value Plus REIT III, L.P. , which we collectively refer to as the "Operating Partnership".
Forward-Looking Statements
Certain information included in this Quarterly Report on Form 10-Q contains, and other materials filed or to be filed by us with theUnited States Securities and Exchange Commission (the "SEC"), contain or will contain, forward-looking statements. All statements, other than statements of historical facts, including, among others, statements regarding our possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives, are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations ofLightstone Value Plus REIT III, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements.
Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements.
Risks and other factors that might cause differences, some of which could be
material, include, but are not limited to, economic and market conditions,
competition, tenant or joint venture partner(s) bankruptcies, our lack of
operating history, the availability of cash flows from operations to pay
distributions, changes in governmental, tax, real estate and zoning laws and
regulations, failure to increase tenant occupancy and operating income,
rejection of leases by tenants in bankruptcy, financing and development risks,
construction and lease-up delays, cost overruns, the level and volatility of
interest rates, the rate of revenue increases versus expense increases, the
financial stability of various tenants and industries, the failure of the
Company to make additional investments in real estate properties, the failure to
upgrade our tenant mix, restrictions in current financing arrangements, the
failure to fully recover tenant obligations for common area maintenance,
insurance, taxes and other property expenses, the failure of the Company to
continue to qualify as a real estate investment trust ("REIT"), the failure to
refinance debt at favorable terms and conditions, an increase in impairment
charges, loss of key personnel, failure to achieve earnings/funds from
operations targets or estimates, conflicts of interest with the Advisor and the
Sponsor and their affiliates, failure of joint venture relationships,
significant costs related to environmental issues and uncertainties regarding
the impact of the current COVID-19 pandemic, and restrictions and other measures
intended to prevent its spread on our business and the economy generally, as
well as other risks listed from time to time in this Form 10-Q, our Form 10-K
and in the Company's other reports filed with the SEC .
We believe these forward-looking statements are reasonable; however, undue
reliance should not be placed on any forward-looking statements, which are based
on current expectations. All written and oral forward-looking statements
attributable to us, or persons acting on our behalf, are qualified in their
entirety by these cautionary statements. Further, forward-looking statements
speak only as of the date they are made, and we undertake no obligation to
update or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes to future operating results over
time unless required by law.
Structure
Lightstone Value Plus REIT III, Inc. ("Lightstone REIT III"), which was formerly
known as Lightstone Value Plus Real Estate Investment Trust III, Inc. before
September 16, 2021 , is a Maryland corporation, formed on October 5, 2012 , which
elected to qualify to be taxed as a real estate investment trust ("REIT") for
U.S. federal income tax purposes beginning with the taxable year ending December
31, 2015 .
Lightstone REIT III is structured as an umbrella partnership REIT ("UPREIT"),
and substantially all of its current and future business is and will be
conducted through Lightstone Value Plus REIT III LP , a Delaware limited
partnership (the "Operating Partnership"). As of September 30, 2021 , Lightstone
REIT III held an approximately 99% general partnership interest in the Operating
Partnership's common units.
19
Lightstone REIT III and theOperating Partnership and its subsidiaries are collectively referred to as the "Company" and the use of "we," "our," "us" or similar pronouns in this annual report refers to the Lightstone REIT III, itsOperating Partnership or the Company as required by the context in which such pronoun is used. We have and will continue to seek to acquire a diverse portfolio of real estate assets and real estate-related investments, including hotels, other commercial and/or residential properties, primarily located inthe United States . All such properties may be acquired and operated by us alone or jointly with another party. We may also originate or acquire mortgage loans secured by real estate. Although we expect that most of our investments will be of these types, we may make other investments. In fact, we may invest in whatever types of real estate-related investments that we believe are in our best interests. We currently have one operating segment. As ofSeptember 30, 2021 , we majority owned and consolidated the operating results and financial condition of eight limited service hotels containing a total of 872 rooms, held an unconsolidated 50.0% membership interest inLVP LIC Hotel JV LLC (the "Hilton Garden Inn Joint Venture ") and (iii) held an unconsolidated 25.0% membership interest inBedford Avenue Holdings LLC (the "Williamsburg Moxy Hotel Joint Venture "). We account for our unconsolidated membership interests in theHilton Garden Inn Joint Venture and theWilliamsburg Moxy Hotel Joint Venture under the equity method of accounting.
Our advisor isLightstone Value Plus REIT III LLC (the "Advisor"), which is majority owned byDavid Lichtenstein . OnJuly 16, 2014 , the Advisor contributed$2,000 to theOperating Partnership in exchange for 200 limited partner units in theOperating Partnership . Our Advisor also owns 20,000 shares of our common stock ("Common Shares") which were issued onDecember 24, 2012 for$200,000 , or$10.00 per share.Mr. Lichtenstein also is the majority owner of the equity interests of theLightstone Group, LLC .The Lightstone Group, LLC served as our sponsor (the ''Sponsor'') during our initial public offering (the "Offering") which terminated onMarch 31, 2017 .Mr. Lichtenstein owns 222,222 Common Shares which were issued onDecember 11, 2014 for$2.0 million , or$9.00 per share. Pursuant to the terms of an advisory agreement and subject to the oversight of our board of directors (the "Board of Directors"), the Advisor has primary responsibility for making investment decisions on our behalf and managing our day-to-day operations. Through his ownership and control ofThe Lightstone Group, LLC ,Mr. Lichtenstein is the indirect owner and manager ofLightstone SLP III LLC , aDelaware limited liability company (the "Special Limited Partner"), which owns 242 subordinated participation interests ("Subordinated Participation Interests") in theOperating Partnership which were acquired for$12.1 million in connection with our Offering.Mr. Lichtenstein also acts as our Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT III or theOperating Partnership .
We do not have employees. The Advisor receives compensation and fees for services related to the investment and management of our assets.
Our Advisor has affiliated property managers (the "Property Managers"), which may manage certain of the properties we acquire. We also use other unaffiliated third-party property managers, principally for the management of our hospitality properties. Our Common Shares are not currently listed on a national securities exchange. We may seek to list our Common Shares for trading on a national securities exchange only if a majority of our independent directors believe listing would be in the best interest of our stockholders. We do not intend to list our Common Shares at this time. We do not anticipate that there would be any active market for our Common Shares until they are listed for trading. In the event we do not begin the process of achieving a liquidity event prior toMarch 31, 2025 , which is the eighth anniversary of the termination of our Offering, our charter requires either (a) an amendment to our charter to extend the deadline to begin the process of achieving a liquidity event, or (b) the holding of a stockholders meeting to vote on a proposal for an orderly liquidation of our portfolio.
Noncontrolling Interests - Partners of the
Limited Partner OnJuly 16, 2014 , the Advisor contributed$2,000 to theOperating Partnership in exchange for 200 limited partner units in theOperating Partnership . The Advisor has the right to convert the limited partner units into cash or, at our option, an equal number of our Common Shares. Special Limited Partner In connection with our Offering, which terminated onMarch 31, 2017 , the Special Limited Partner purchased from theOperating Partnership an aggregate of approximately 242 Subordinated Participation Interests for consideration of$12.1 million . The Subordinated Participation Interests were each purchased for$50,000 in consideration and may be entitled to receive liquidation distributions upon the liquidation of Lightstone REIT III. 20 As the majority owner of the Special Limited Partner,Mr. Lichtenstein is the beneficial owner of a 99% interest in such Subordinated Participation Interests and will thus receive an indirect benefit from any distributions made in respect thereof. These Subordinated Participation Interests entitle the Special Limited Partner to a portion of any regular and liquidation distributions that we make to our stockholders, but only after our stockholders have received a stated preferred return. From our inception throughSeptember 30, 2021 , no distributions have been declared or paid on the Subordinated Participation Interests. Tax Status We elected to qualify and be taxed as a REIT forU.S. federal income tax purposes beginning with the taxable year endedDecember 31, 2015 . As a REIT, we generally will not be subject toU.S. federal income tax on our net taxable income that we distribute currently to our stockholders. To maintain our REIT qualification under the Internal Revenue Code of 1986, as amended, (the "Code"), we must meet a number of organizational and operational requirements, including a requirement that we annually distribute to our stockholders at least 90% of our REIT taxable income, which does not equal net income, as calculated in accordance with accounting principles generally accepted inthe United States of America ("GAAP"), determined without regard to the deduction for dividends paid and excluding any net capital gain. If we fail to remain qualified for taxation as a REIT in any subsequent year and do not qualify for certain statutory relief provisions, our income for that year will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as a REIT for the four-year period following our failure to qualify as a REIT. Such an event could materially adversely affect our net income and net cash available for distribution to our stockholders. We engage in certain activities through taxable REIT subsidiaries ("TRSs"), including when we acquire a hotel we usually establish a TRS which then enters into an operating lease agreement for the hotel. As such, we may be subject toU.S. federal and state income taxes and franchise taxes from these activities. As ofSeptember 30, 2021 andDecember 31, 2020 , we had no material uncertain income tax positions. Additionally, even if we continue to qualify as a REIT forU.S. federal income tax purposes, we may still be subject to someU.S. federal, state and local taxes on our income and property and toU.S. federal income taxes and excise taxes on our undistributed income, if any. Current Environment Our operating results are substantially impacted by the overall health of local,U.S. national and global economies and may be influenced by market and other challenges. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; including, but not limited to, availability or terms of financings, financial markets volatility, political upheaval or uncertainty, natural and man-made disasters, terrorism and acts of war, unfavorable changes in laws and regulations, outbreaks of contagious diseases, cybercrime, loss of key relationships, and recession.
COVID-19 Pandemic Operations and Liquidity Update
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 COVID-19 pandemic remains highly unpredictable and dynamic and its 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 administration and ultimate effectiveness of vaccines, and the eventual timeline to achieve a sufficient level of herd immunity among the general population. Accordingly, the COVID-19 pandemic may continue to have negative effects on the health of theU.S. economy for the foreseeable future.
The extent to which our business may be affected by the ongoing COVID-19 pandemic will largely depend on both current and future developments, all of which are highly uncertain and cannot be reasonably predicted.
As a result of the COVID-19 pandemic, both room demand and rental rates for our consolidated and unconsolidated hotels began to significantly decline inMarch 2020 and while there has been sequential improvement since then; room demand and rental rates continue to be below historical levels. SinceMarch 2020 , the COVID-19 pandemic has had a significant negative impact on our operations, financial position and cash flow and we currently expect that it will continue to do so for the foreseeable future. We cannot currently estimate if and when room demand and rental rates will return to pre-pandemic levels
for our hotels. 21
In light of the past, present and potential future impact of the COVID-19 pandemic on the operating results of our hotels, we have taken various actions to preserve our liquidity, including, but not limited to, those described below:
? We implemented cost reduction strategies for all of our hotels, leading to
reductions in certain operating expenses and capital expenditures.
? Amendments to Revolving Credit Facility -
On
Facility") was amended to provide for (i) the deferral of the six monthly
debt service payments aggregating $0.8 million for the period from April
1, 2020 through September 30, 2020 until July 13, 2022 ; (ii) a 100 bpsreduction in the interest rate spread to LIBOR + 2.15%, subject to a 3.00%
floor, for the six-month period from
collateral reserve account to cover the six monthly debt service payments
due from
financial covenants for quarter-end periods before
Additionally, a principal paydown of
due on
of
Subsequently, on
amended providing for (i) us to make another principal paydown of
million, (ii) us to fund an additional
collateral reserve account; (iii) a waiver of all financial covenants for
quarter-end periods through
return to the full financial covenant requirements over the quarter-end
periods beginning
one-year extension options at the lender's sole discretion (v) certain
limitations and restrictions on asset sales and additional borrowings
related to the pledged collateral.
See Note 5 of the Notes to Consolidated Financial Statements for
additional information.
? In April 2020 and March 2021 , our hotels received $1.5 million and $1.9 million, respectively, from loans provided under the federal Paycheck
Protection Program ("PPP Loans"). Through
notice from the
aggregate of
have been legally forgiven. See Note 6 of the Notes to Consolidated
Financial Statements for additional information.
? On June 19, 2019 , the Board of Directors had previously determined tosuspend regular monthly distributions and, as a result, have not declared
any distributions on our Common Shares since the suspension. Additionally,
on
redemptions under our shareholder repurchase program (the "SRP").
Subsequently on
the SRP to allow, subject to various conditions, for redemptions submitted
in connection with a stockholder's death or hardship. See Note 7 of the
Notes to Consolidated Financial Statements for additional information.
? The Hilton Garden Inn Joint Venture has obtained various amendments to its
non-recourse mortgage loan secured by the Hilton Garden Inn - Long Island
City . See Note 3 of the Notes to Consolidated Financial Statements for
additional information.
We believe that these actions, along with our available cash on hand, restricted
cash and marketable securities, as well as our intention to seek to extend or
refinance certain debt arrangements as discussed in Note 5 of the Notes to
Consolidated Financial Statements, will provide us with sufficient liquidity to
meet our obligations for at least 12 months from the date of issuance of these
consolidated financial statements.
We are not currently aware of any other material trends or uncertainties,
favorable or unfavorable, that may be reasonably anticipated to have a material
impact on either capital resources or the revenues or income to be derived from
our operations, other than those referred to above or throughout this Form
10-Q.
22
Portfolio Summary -
Percentage Average Daily
Occupied Revenue per Available Rate For the
for the Nine Room for the Nine Nine Months
Months Ended Months Ended
Year to Date
Available September 30, Ended September 30, September 30,
Location Year Built Date Acquired Rooms 2021 2021 2021
Wholly-Owned and
Consolidated Hospitality
Properties:
Hampton Des
Inn - Des Moines,
Moines Iowa 1987 02/04/2015 32,760 57 % $ 56.45 $ 98.44
Durham,
Courtyard North
- Durham Carolina 1996 05/15/2015 39,858 55 % $ 50.03 $ 90.75
Hampton
Inn - Lansing,
Lansing Michigan 2013 03/10/2016 23,478 58 % $ 54.91 $ 95.37
Warwick,
Courtyard Rhode
- Warwick Island 2003 03/23/2016 25,116 58 % $ 67.60 $ 116.96
Home2
Suites - Salt Lake
Salt Lake City, Utah 2013 08/02/2016 34,125 59 % $ 48.17 $ 82.20
Home2
Suites - Tukwila,
Tukwila Washington 2015 08/02/2016 37,947 90 % $ 98.76 $ 109.52
Fairfield
Inn - Austin,
Austin Texas 2014 09/13/2016 22,932 89 % $ 68.08 $ 76.93
Staybridge
Suites - Austin,
Austin Texas 2009 10/07/2016 21,840 83 % $ 75.53 $ 91.08
Total 238,056 68 % $ 64.83 $ 95.61
Unconsolidated Affiliated Real Estate Entity:
Percentage Revenue per Average Daily
Occupied Available Room Rate For the
for the Nine for the Nine Nine Months
Months Ended Months Ended
Year to Date Ended September
Available September 30, 30, September 30,Hospitality Location Year Built Date Acquired Rooms 2021 2021 2021 Hilton Long Garden Inn Island - Long City, New Island City York 2014 03/27/2018 49,959
74.0 % $ 102.53 $ 137.22
As of September 30, 2021 , we held an unconsolidated 25.0% membership interest in
the Williamsburg Moxy Hotel Joint Venture which is developing and constructing a
210-room branded hotel (the "Williamsburg Moxy Hotel ") in Brooklyn, New York .
23
Critical Accounting Policies and Estimates
There were no material changes during the nine months endedSeptember 30, 2021 to our critical accounting policies as reported in our Annual Report on Form 10-K, for the year endedDecember 31, 2020 . Results of Operations
Disposition of an unconsolidated 22.5% membership interest in the Cove Joint Venture
OnFebruary 12, 2020 , we completed the disposition of an unconsolidated 22.5% membership interest in the Cove Joint Venture which resulted in the recognition of a gain on the disposition of unconsolidated affiliated real estate entity of$7.9 million during the first quarter of 2020. We currently have one operating segment. As ofSeptember 30, 2021 , we majority owned and consolidated the operating results and financial condition of eight limited service hotels containing a total of 872 rooms, held an unconsolidated 50.0% membership interest inLVP LIC Hotel JV LLC (the "Hilton Garden Inn Joint Venture") and (iii) held an unconsolidated 25.0% membership interest inBedford Avenue Holdings LLC (the "Williamsburg Moxy Hotel Joint Venture ").The Williamsburg Moxy Hotel is currently under construction and therefore, theWilliamsburg Moxy Hotel Joint Venture had no operating results fromAugust 5, 2021 (date of acquisition) throughSeptember 30, 2021 . We account for our unconsolidated membership interests in the Hilton Garden Inn Joint Venture and theWilliamsburg Moxy Hotel Joint Venture under the equity method of account.
Comparison of the three months ended
Consolidated Our consolidated revenues, property operating expenses, real estate taxes, general and administrative expense and depreciation and amortization for the three months endedSeptember 30, 2021 and 2020 are attributable to our consolidated hospitality properties, all of which were owned by us during the entire periods presented. Although our operating performance during the 2021 and 2020 periods were both negatively impacted by the COVID-19 pandemic, our hospitality portfolio first began to experience a significant drop in room demand and rental rates beginning inMarch 2020 . However, since that time many of the previously imposed restrictions and other measures which were instituted because of the COVID-19 pandemic have been subsequently reduced or lifted. As a result, we have experienced some sequential improvement in room demand and rental rates but they continue to be below historical levels. Overall, our hospitality portfolio experienced increases in the percentage of rooms occupied from 51.5% to 75.2% for the third quarters of 2020 and 2021, respectively, revenue per available room ("RevPAR") from$41.92 to$82.68 for the third quarters of 2020 and 2021, respectively, and the average daily rate per room ("ADR") from$81.46 to$110.00 for the third quarters of 2020 and 2021, respectively 24 Revenues
Revenues increased by$3.3 million to$6.8 million during the three months endedSeptember 30, 2021 compared to$3.5 million for the same period in 2020. This increase reflects the higher occupancy, RevPAR and ADR during the 2021 quarterly period compared to the same period in 2020. Property operating expenses
Property operating expenses increased by
Real estate taxes
Real estate taxes decreased slightly by
General and administrative expense
General and administrative expenses were relatively unchanged at
Depreciation and amortization
Depreciation and amortization expense was relatively unchanged at
Interest expense Interest expense was relatively unchanged at$0.7 million during both the three months endedSeptember 30, 2021 and 2020. Interest expense is attributable to financings associated with our hotels and reflects both changes in market interest rates on our variable rate indebtedness and the weighted average principal outstanding during the periods. Gain on forgiveness of debt
During the third quarter of 2021 notice was received from the SBA that$0.5 million of PPP Loans and related accrued interest had been legally forgiven and therefore, we recognized a gain on forgiveness of debt for that amount during the three months endedSeptember 30, 2021 .
Gain on disposition of unconsolidated affiliated real estate entity
OnFebruary 12, 2020 , we completed the disposition of an unconsolidated 22.5% membership interest in the Cove Joint Venture which resulted in the recognition of a gain on the disposition of unconsolidated affiliated real estate entity of$7.9 million during the first quarter of 2020. DuringAugust 2020 , we received$0.1 million of additional proceeds related to the redemption of our membership interest in the Cove Joint Venture and recognized a gain on the disposition of investment in unconsolidated affiliated real estate entity of$0.1 million during the third quarter of 2020. Earnings from investments in unconsolidated affiliated real estate entities Our income from investments in unconsolidated affiliated real estate entities was$0.1 million during the three months endedSeptember 30, 2021 compared to a loss of$0.5 million for the same period in 2020. Our earnings from investments in unconsolidated affiliated real estate entities are attributable to our unconsolidated 50.0% membership interest in the Hilton Garden Inn Joint Venture. 25
Comparison of the nine months ended
Consolidated Our consolidated revenues, property operating expenses, real estate taxes, general and administrative expense and depreciation and amortization for the nine months endedSeptember 30, 2021 and 2020 are attributable to our consolidated hospitality properties, all of which were owned by us during the entire periods presented. Although our operating performance during the 2021 and 2020 periods were both negatively impacted by the COVID-19 pandemic, our hospitality portfolio first began to experience a significant drop in room demand and rental rates beginning inMarch 2020 . However, since that time many of the previously imposed restrictions and other measures which were instituted because of the COVID-19 pandemic have been subsequently reduced or lifted. As a result, we have experienced some sequential improvement in room demand and rental rates but they continue to be below historical levels. Overall, our hospitality portfolio experienced increases in the percentage of rooms occupied from 49.6% to 67.8% for the nine months endedSeptember 30, 2020 and 2021, respectively, RevPAR from$44.74 to$64.83 for the nine months endedSeptember 30, 2020 and 2021, respectively, and the ADR from$90.28 to$95.61 for the nine months endedSeptember 30, 2020 and 2021, respectively. Revenues
Revenues increased by$4.8 million to$15.9 million during the nine months endedSeptember 30, 2021 compared to$11.1 million for the same period in 2020. This increase reflects the higher occupancy, RevPAR and ADR during the 2021 period. Property operating expenses Property operating expenses increased by$1.3 million to$10.0 million during the nine months endedSeptember 30, 2021 compared to$8.7 million for the same period in 2020. This increase reflects the higher occupancy during the 2021
period. Real estate taxes
Real estate taxes were relatively unchanged at
General and administrative expense
General and administrative expenses decreased slightly by
Depreciation and amortization
Depreciation and amortization expense was relatively unchanged at
Interest expense
Interest expense decreased by$0.2 million to$2.1 million during the nine months endedSeptember 30, 2021 compared to$2.3 million for the same period in 2020. Interest expense is attributable to financings associated with our hotels and reflects both changes in market interest rates on our variable rate indebtedness and the weighted average principal outstanding during the periods.
Gain on forgiveness of debt
During the nine months endedSeptember 30, 2021 notice was received from the SBA that$0.9 million of PPP Loans and related accrued interest had been legally forgiven and therefore, we recognized a gain on forgiveness of debt for that amount during the nine months endedSeptember 30, 2021 .
Gain on disposition of unconsolidated affiliated real estate entity
OnFebruary 12, 2020 , we completed the disposition of an unconsolidated 22.5% membership interest in the Cove Joint Venture which resulted in the recognition of a gain on the disposition of unconsolidated affiliated real estate entity of$7.9 million during the first quarter of 2020. DuringAugust 2020 , we received$0.1 million of additional proceeds related to the redemption of our membership interest in the Cove Joint Venture and recognized a gain on disposition of investment in unconsolidated affiliated real estate entity of$0.1 million during the third quarter of 2020. As a result, we have recognized an aggregate gain on the disposition of investment in unconsolidated affiliated real estate entity of$8.0 million during the nine months endedSeptember 30, 2020 . 26
Earnings from investments in unconsolidated affiliated real estate entities Our loss from investments in unconsolidated affiliated real estate entities was$0.3 million during the nine months endedSeptember 30, 2021 compared to$1.7 million for the same period in 2020. Our earnings from investments in unconsolidated affiliated real estate entities are attributable to our unconsolidated 50.0% membership interest in the Hilton Garden Inn Joint Venture and our unconsolidated 22.5% membership interest in the Cove Joint Venture (through the date of the redemption of our membership interest on February
12, 2020).
Financial Condition, Liquidity and Capital Resources
Overview: Revenues, interest and dividend income, proceeds from the sale of marketable securities, cash on hand and borrowings are our principal sources of funds to pay operating expenses, scheduled debt service, capital expenditures (excluding non-recurring capital expenditures), contributions to our unconsolidated affiliated entities, redemptions and cancellations of shares of our common stock, if approved, and distributions, if any, required to maintain our status as a REIT. During the nine months endedSeptember 30, 2021 , our primary sources of funds were$1.3 million of cash flows from operations, the disposition of marketable securities of$1.5 million , proceeds from PPP loans of$1.9 million and distributions from the Hilton Garden Inn Joint Venture of$0.5 million . We currently believe that these cash resources along with our available cash on hand of$15.8 million , restricted cash of$2.7 million and marketable securities of$1.8 million , all as ofSeptember 30, 2021 , as well as our intention to seek to extend or refinance certain debt arrangements, as discussed in Note 5 of the Notes to Consolidated Financial Statements, will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not currently anticipate a need to raise funds from other than these sources within the next 12 months. However, to the extent that cash flow from operations and available cash on hand, restricted cash and marketable securities are not sufficient to cover our cash needs, we may use proceeds from additional borrowings and/or selective asset sales to fund such needs. As ofSeptember 30, 2021 , we have$60.5 million of outstanding mortgage debt and$2.4 million of PPP Loans (classified as notes payable on our consolidated balance sheet). We have and intend to continue to limit our aggregate long-term permanent borrowings to 75% of the aggregate fair market value of all properties unless any excess borrowing is approved by a majority of the independent directors and is disclosed to our stockholders. Market conditions will dictate our overall leverage limit; as such our aggregate long-term permanent borrowings may be less than 75% of aggregate fair market value of all properties. We may also incur short-term indebtedness, having a maturity of two years or less. Our charter provides that the aggregate amount of our borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a satisfactory showing that a higher level is appropriate, the approval of our Board of Directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. Market conditions will dictate our overall leverage limit; as such our aggregate borrowings may be less than 300% of net assets. As ofSeptember 30, 2021 , our total borrowings were$63.1 million which represented 59% of our net assets. Our borrowings currently consist of mortgages collateralized by our properties. Our mortgages typically provide for either interest-only payments (generally for variable-rate indebtedness) or level payments (generally for fixed-rate indebtedness) with "balloon" payments due at maturity. Any future properties that we may acquire or develop may be funded through a combination of borrowings and the proceeds received from the disposition of certain of our assets. These borrowing may consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. Such mortgages may be put in place either at the time we acquire a property or subsequent to our purchasing a property for cash. In addition, we may acquire properties that are subject to existing indebtedness where we choose to assume the existing mortgages. Generally, though not exclusively, we intend to seek to encumber our properties with non-recourse debt. This means that a lender's rights on default will generally be limited to foreclosing on the property. However, we may, at our discretion, secure recourse financing or provide a guarantee to lenders if we believe this may result in more favorable terms. When we give a guaranty for a property owning entity, we will be responsible to the lender for the satisfaction of the indebtedness if it is not paid by the property owning entity. We may also obtain lines of credit to be used to acquire properties. If obtained, these lines of credit will be at prevailing market terms and will be repaid from proceeds from the sale or refinancing of properties, working capital and/or permanent financing. Our Sponsor and/or its affiliates may guarantee our lines of credit although they are not obligated to do so. We expect that such properties may be purchased by our Sponsor's affiliates on our behalf, in our name, in order to minimize the imposition of a transfer tax upon a transfer
of such properties to us. 27 We have various agreements, including an advisory agreement, with the Advisor to pay certain fees in exchange for services performed by the Advisor and/or its affiliated entities. Additionally, our ability to secure financing and our real estate operations are dependent upon our Advisor and its affiliates to perform such services as provided in these agreements. In addition to meeting working capital needs and distributions, if any, made to maintain our status as a REIT, our capital resources are used to make certain payments to our Advisor, including payments related to asset acquisition fees and asset management fees, the reimbursement of acquisition-related expenses to our Advisor. We also reimburse our advisor for actual expenses it incurs for administrative and other services provided to us. Additionally, theOperating Partnership may be required to make distributions toLightstone SLP III LLC , an affiliate of the Advisor. Upon the liquidation of assets, we may pay our Advisor or its affiliates a real estate disposition commission. The advisory agreement has a one-year term and is renewable for an unlimited number of successive one-year periods upon the mutual consent of the Advisor and our independent directors.
The following table represents the fees incurred associated with the payments to the Company's Advisor for the periods indicated:
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2021 2020 2021 2020Finance fees (1)$ 144,375 $ -$ 144,375 $ - Disposition fees (general and administrative costs) - - - 39,200 Asset management fees (general and administrative costs) 301,242 300,292 903,300 955,706 Total$ 445,617 $ 300,292 $ 1,047,675 $ 994,906
(1) A finance fee of
included in investment in unconsolidated affiliated real estate entities on
the consolidated balance sheets.
Summary of Cash Flows
The following summary discussion of our cash flows is based on the consolidated
statements of cash flows and is not meant to be an all-inclusive discussion of
the changes in our cash flows for the periods presented below:
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