LIGHTSTONE VALUE PLUS REIT II, INC. You should read the following discussion and analysis together with our consolidated financial statements and notes thereto included in this Annual Report on Form 10-K. The following information contains forward-looking statements, which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, actual results may differ materially from those expressed or implied by the forward-looking statements. Please see "Special Note Regarding Forward-Looking Statements" above for a description of these risks and uncertainties. Dollar amounts are presented in thousands, except per share data and where indicated in millions. OverviewLightstone Value Plus Real Estate Investment Trust II, Inc. ("Lightstone REIT II"), together withLightstone Value Plus REIT II, LP (the "Operating Partnership" and collectively "the Company", also referred to as "we", "our" or "us") has and may continue to acquire and operate commercial (including hospitality and retail properties) and residential real estate assets, as well as other real estate-related investments, principally inthe United States . Our acquisitions and investments are principally conducted through ourOperating Partnership and generally include both portfolios and individual properties. Our commercial holdings currently consist of hospitality and retail (multi-tenanted shopping centers) properties. Our real estate investments have been and will continue to be acquired and operated by us alone or jointly with others. We do not have employees. We have entered into an advisory agreement pursuant to which the Advisor supervises and manages our day-to-day operations and selects our real estate and real estate related investments, subject to oversight by our Board of Directors. We pay the Advisor fees for services related to the investment and management of our assets, and we will reimburse the Advisor for certain expenses incurred on our behalf. 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 are subject toU.S. federal and state income and franchise taxes from these activities.
Acquisitions and Investment Strategy
We have made and intend to continue to make direct or indirect real estate investments that will satisfy our primary investment objectives of preserving capital, paying distributions, if necessary to maintain our status as a REIT, and achieving appreciation of our assets over the long term. The ability of our Advisor to identify and execute investment opportunities directly impacts our financial performance.
We will continue to seek to acquire and operate hotels and other commercial real estate assets primarily located inthe United States . We may also acquire and operate residential properties and make other real estate-related investments. We may acquire and operate all such properties alone or jointly with another party. 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. These and other market and economic challenges could materially affect (i) the value and performance of our investments, (ii) our ability to pay future distributions, if any, (iii) the availability or terms of financings, (iv) our ability to make scheduled principal and interest payments, and (v) our ability to refinance any outstanding debt when contractually due. 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-K.
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COVID-19 Pandemic Operations and Liquidity Update
OnMarch 11, 2020 , theWorld Health Organization declared COVID-19 a global pandemic leading many countries, includingthe 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 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, room demand for our consolidated and unconsolidated hotels began to significantly decline inMarch 2020 and while there has been some slight improvement; room demand continues to be substantially below historical levels. The COVID-19 pandemic has had a significant negative impact on our operations and financial results to date and we currently expect that the COVID-19 pandemic will continue to have a significant negative impact on our results of operations, financial position and cash flow for the foreseeable future. We cannot currently estimate if and when room demand will fully recover to pre-pandemic levels for our hotels. Additionally, we have an unconsolidated 48.6% membership interest in Brownmill, which owns two retail properties located inNew Jersey that have been subject to various restrictions. If Brownmill's retail properties are negatively impacted for an extended period because our tenants are unable to pay their rent, our equity earnings and the carrying value of our investment in Brownmill could be materially and adversely impacted. In light of the 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
through
the interest rate spread to LIBOR + 2.15%, subject to a 3.00% floor, for the
six-month period from
pre-funding
six monthly debt service payments due from
2021; and (iv) a waiver of all financial covenants for quarter-end periods
before
We and the lender have agreed in principle to certain amendments to the terms
of the Revolving Credit Facility, that we expect will be finalized shortly,
that provide for (i) us to pledge our membership interest in another hotel as
additional collateral within 45 days, (ii) us to fund an additional
million into the cash collateral reserve account; (iii) a waiver of all
financial covenants for quarter-end periods through
phased-in gradual return to the full financial covenant requirements over the
quarter-end periods beginning
extension of the maturity date from
completion of the pledge of the additional collateral; (v) one additional
one-year extension option at the lender's sole discretion; and (vi) certain
limitations and restrictions on asset sales and additional borrowings related
to the pledged collateral.
We intend to timely pledge the additional collateral and extend the maturity
date of the Revolving Credit Facility to
See Note 6 of the Notes to Consolidated Financial Statements for additional
information. ? Paycheck Protection Program Loans -
In
federal Paycheck Protection Program ("PPP Loans"). Subsequently, during the
first quarter of 2021, our hotels received an additional
Loans. See Note 7 of the Notes to Consolidated Financial Statements for
additional information.
? On March 19, 2020 , the Board of Directors determined to suspend regularquarterly distributions, and, as result, did not declare any distributions on
our Common Shares during 2020. Additionally, on
Directors approved the suspension of all redemptions under our shareholder
redemption program. See Note 8 of the Notes to Consolidated Financial
Statements for additional information.
19
? In
escrow account. See Note 3 of the Notes to Consolidated Financial Statements
for additional information.
?
various amendments to its non-recourse mortgage loan secured by the Hilton
Garden Inn -
Note 4 of the Notes to the Consolidated Financial Statements for additional
information. Based on these actions, along with our cash and cash equivalents on hand, we believe that we will have sufficient liquidity to meet our obligations for at least 12 months from the date of issuance of these financial statements.
Critical Accounting Estimates and Policies
General. Our consolidated financial statements included in this annual report include our accounts and theOperating Partnership (over which we exercise financial and operating control). All inter-company balances and transactions have been eliminated in consolidation. The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States ("GAAP"). The preparation of our financial statements requires us to make estimates and judgments about the effects of matters or future events that are inherently uncertain. These estimates and judgments may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including contingencies and litigation. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable in the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. To assist in understanding our results of operations and financial position, we have identified our critical accounting policies and discussed them below. These accounting policies are most important to the portrayal of our results and financial position, either because of the significance of the financial statement items to which they relate or because they require management's most difficult, subjective or complex judgments. Revenue Recognition.
Our revenues are comprised primarily of revenues from the operations of hotels.
Room revenue is generated through contracts with customers whereby the customers agree to pay a daily rate for right to use a hotel room. The Company's contract performance obligations are fulfilled at the end of the day that the customer is provided the room and revenue is recognized daily at the contract rate. Payment from the customer is secured at the end of the contract upon check-out by the customer from our hotel. The Company participates in frequent guest programs sponsored by the brand owners of our hotels whereby the brand owner allows guests to earn loyalty points during their hotel stay. The Company recognizes revenue at the amount earned that it will receive from the brand owner when a guest redeems their loyalty points by staying at one of the Company's hotels. Revenue from food, beverage and other ancillary services is generated when a customer chooses to purchase goods or services separately from a hotel room and revenue is recognized when these goods or services are provided to the customer and the Company's contract performance obligations have been fulfilled. Some contracts for rooms, food, beverage or other services require an upfront deposit which is recorded as deferred revenues (or contract liabilities) and recognized once the performance obligations are satisfied. The contract liabilities are not significant.
The Company notes no significant judgments regarding the recognition of room, food and beverage or other revenues.
Investments in Real Estate.
Carrying Value of Assets
The amounts to be capitalized as a result of periodic improvements and additions
to real estate property, when applicable, and the periods over which the assets
will be depreciated or amortized, are determined based on the application of
accounting standards that may require estimates as to fair value and the
allocation of various costs to the individual assets. Differences in the amount
attributed to the assets may be significant based upon the assumptions made in
calculating these estimates.
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Impairment Evaluation
We evaluate our investments in real estate assets for potential impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable for a particular property. We evaluate the recoverability of our investments in real estate assets at the lowest identifiable level, the individual property level. No single indicator would necessarily result in us preparing an estimate to determine if an individual property's future undiscounted cash flows are less than its carrying value. We use judgment to determine if the severity of any single indicator, or the fact there are a number of indicators of less severity that when combined, would result in an indication that a property requires an estimate of the undiscounted cash flows to determine if an impairment has occurred. Relevant facts and circumstances include, among others, significant underperformance relative to historical or projected future operating results and significant negative industry or economic trends. The estimated cash flows used for the impairment analysis are subjective and require us to use our judgment and the determination of estimated fair value are based on our plans for the respective assets and our views of market and economic conditions. The estimates consider matters such as future operating income, market and other applicable trends and residual value, as well as the effects of demand, competition, and recent sales data for comparable properties. An impairment loss is recognized only if the carrying amount of a property is not recoverable and exceeds its fair value. The results of our 2020 impairment analysis did not identify any properties where the undiscounted cash flows were less than the carrying value. However, any changes in assumptions used in our impairment analysis could result in future impairment losses, which could be material. Depreciation and Amortization
Depreciation expense is computed based on the straight-line method over the estimated useful life of the applicable real estate asset. We generally use estimated useful lives of up to thirty-nine years for buildings and improvements and five to ten years for furniture and fixtures. Maintenance and repairs will be charged to expense as incurred.
Investments in Unconsolidated Entities.
We evaluate all investments in other entities for consolidation. We consider our percentage interest in the joint venture, evaluation of control and whether a variable interest entity exists when determining whether or not the investment qualifies for consolidation or if it should be accounted for as an unconsolidated investment under the equity method of accounting. If an investment qualifies for the equity method of accounting, our investment is recorded initially at cost, and subsequently adjusted for equity in net income or loss and cash contributions and distributions. The net income or loss of an unconsolidated investment is allocated to its investors in accordance with the provisions of the operating agreement of the entity. The allocation provisions in these agreements may differ from the ownership interest held by each investor. Differences, if any, between the carrying amount of our investment in the respective joint venture and our share of the underlying equity of such unconsolidated entity are amortized over the respective lives of the underlying assets as applicable. These items are reported as a single line item in the statements of operations as income or loss from investments in unconsolidated entities. We review investments for impairment in value whenever events or changes in circumstances indicate that the carrying amount of such investment may not be recoverable. An investment is impaired only if management's estimate of the fair value of the investment is less than the carrying value of the investment, and such decline in value is deemed to be other than temporary. The ultimate realization of our investment in partially owned entities is dependent on a number of factors including the performance of that entity and market conditions. If we determine that a decline in the value of a partially owned entity is other than temporary, we record an impairment charge.
Treatment of Management Compensation, Expense Reimbursements and Operating Partnership Participation Interest
Management of our operations is outsourced to our Advisor and certain other
affiliates of our Sponsor. Fees related to each of these services are accounted
for based on the nature of such service and the relevant accounting literature.
Such fees include acquisition fees associated with the purchase of interests in
real estate entities; asset management fees paid to our Advisor and property
management fees paid to its affiliates, which may manage certain of the
properties we acquire, or to other unaffiliated third-party property managers,
principally for the management of our hospitality properties. These fees are
expensed or capitalized to the basis of acquired assets, as appropriate.
Our Advisor's affiliates may also perform fee-based construction management
services for both our development and redevelopment activities and tenant
construction projects. These fees will be considered incremental to the
construction effort and will be capitalized to the associated real estate
project as incurred. Costs incurred for tenant construction will be depreciated
over the shorter of their useful life or the term of the related lease. Costs
related to development and redevelopment activities will be depreciated over the
estimated useful life of the associated project.
Leasing activity at certain of our properties has also been outsourced to our
Advisor's affiliates. Any corresponding leasing fees we pay are capitalized and
amortized over the life of the related lease.
21
Expense reimbursements made to both our Advisor and its affiliates are expensed or capitalized to the basis of acquired assets, as appropriate.
Income Taxes We elected to qualify and be taxed as a REIT commencing with the taxable year endingDecember 31, 2009 . 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, or 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 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 are subject toU.S. federal and state income and franchise taxes from these activities. As ofDecember 31, 2020 and 2019, 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. Results of Operations
Acquisition and Disposition Activities
The following summarizes our acquisition and disposition activities during the
years ended
2019:
Disposition of
OnMay 9, 2019 , we completed the disposition of two limited services hotels (collectively, the "Alabama Hotels ") for an aggregate contractual sales price of$13.3 million resulting in a gain on disposition of real estate and other assets of$0.1 million .
? a
? a
in Auburn, Alabama .
Disposition of SpringHill Suites -
OnOctober 24, 2019 , we completed the disposition of a SpringHill Suites hotel located inPeabody, Massachusetts , (the "SpringHill Suites -Peabody ") for an aggregate contractual sales price of$19.0 million resulting in a gain on disposition of real estate and other assets of$8.3 million .
The dispositions of the
The 2019Disposed Hotels did not qualify to be reported as discontinued operations since the dispositions did not represent a strategic shift in our operations that had a major effect on our operations and financial results. Accordingly, the operating results of the 2019Disposed Hotels are reflected in our results from continuing operations for all periods presented through their respective dates of disposition.
See Note 4 of the Notes to Consolidated Financial Statements for additional information on our dispositions.
22
We currently have one operating segment. As of December 31, 2020 we (i) majority
owned and consolidated the operating results and financial condition of 14
limited service hotels containing a total of 1,802 rooms, (ii) held an
unconsolidated 48.6% membership interest in Brownmill LLC ("Brownmill"), an
affiliated entity that owns two retail properties, and (iii) held an
unconsolidated 50.0% membership interest in the Hilton Garden Inn Joint Venture,
an affiliated entity that owns and operates the Hilton Garden Inn - Long Island
City , a 183-room limited service hotel. We account for our unconsolidated
membership interests in Brownmill and the Hilton Garden Inn Joint Venture under
the equity method of accounting.
As of December 31, 2020 , seven of our consolidated limited service hotels are
held in a joint venture (the "Joint Venture") formed between us and Lightstone
Value Plus Real Estate Investment Trust, Inc. ("Lightstone I"), a related party
REIT also sponsored by our Sponsor. We and Lightstone I have 97.5% and 2.5%
membership interests in the Joint Venture, respectively. Additionally, as of
December 31, 2020 , certain of our consolidated hotels also have ownership
interests held by unrelated minority owners. The membership interests of
Lightstone I and the unrelated minority owners are accounted for as
noncontrolling interest.
Comparison of the year ended
Consolidated
Our consolidated revenues, property operating expenses, real estate taxes, general and administrative expense and depreciation and amortization for the year endedDecember 31, 2020 and 2019 are attributable to our consolidated hospitality properties, including the 2019Disposed Hotels through their respective dates of disposition. Properties owned by us during the entire periods presented are referred to as our "Same Store" properties. Overall, our hospitality portfolio experienced decreases in the percentage of rooms occupied from 74.7% to 45.6% for 2019 and 2020, respectively, revenue per available room ("RevPAR") from$95.96 to$44.49 for 2019 and 2020, respectively, and the
average daily rate per room ("ADR") from
Revenues
Revenues decreased by$44.4 million to$30.9 million during the year endedDecember 31, 2020 , compared to$75.3 million for the same period in 2019. Excluding the effect of the dispositions of the 2019Disposed Hotels , revenues for ourSame Store Hotels decreased by$37.5 million . This decrease reflects lower occupancy, RevPAR and ADR during 2020 compared to 2019, all of which were primarily attributable to reduced room demand during the 2020 period resulting from the COVID-19 pandemic. Property operating expenses Property operating expenses decreased by$23.9 million to$25.8 million during the year endedDecember 31, 2020 compared to$49.7 million for the same period in 2019. Excluding the effect of the dispositions of the 2019Disposed Hotels , property operating expenses for ourSame Store Hotels decreased by$19.2 million . This decrease reflects the lower occupancy during 2020 resulting from the COVID-19 pandemic. Real estate taxes
Real estate taxes decreased by
General and administrative expenses
General and administrative expenses were
Depreciation and amortization
Depreciation and amortization expense decreased by$0.6 million to$10.7 million during the year endedDecember 31, 2020 compared to$11.3 million for the same period in 2019. Excluding the effect of the dispositions of the 2019Disposed Hotels , depreciation and amortization expense for ourSame Store Hotels increased by$0.3 million . Interest expense Interest expense was$6.1 million during the year endedDecember 31, 2020 compared to$8.9 million for the same period in 2019. Interest expense is primarily attributable to financings associated with our hotels and reflects both changes in market interest rates on our variable rate indebtedness and the weighted average principal outstanding during the periods.
Gain on disposition of real estate and other assets
In connection with the dispositions of the 2019
23
Earnings from investments in unconsolidated affiliated real estate entities Our loss from investments in unconsolidated affiliated real estate entities was$2.1 million during the year endedDecember 31, 2020 compared to a loss of$0.2 million for the same period in 2019. Our loss from investments in unconsolidated affiliated real estate entities is attributable to our ownership interests in the Hilton Garden Inn Joint Venture and Brownmill. We account for our membership interests in the Hilton Garden Inn Joint Venture and Brownmill under the equity method of accounting commencing on the date that we acquired our interests.
Noncontrolling interests The income or loss allocated to noncontrolling interests relates to the interest in ourOperating Partnership held by our Advisor, the membership interest held by Lightstone I in the Joint Venture, and the ownership interests held by unrelated minority owners in certain of our hotels.
Financial Condition, Liquidity and Capital Resources
Overview: Revenues, interest and dividend income, proceeds from the sale of marketable securities, distributions from unconsolidated affiliated entities 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. We currently believe that these cash resources along with our available cash on hand of$15.3 million and marketable securities, available for sale, of$6.9 million , both as ofDecember 31, 2020 , will be sufficient to satisfy our cash requirements for the foreseeable future since we currently expect to extend the maturity of our Revolving Credit Facility (see the "Revolving Credit Facility" below for additional information), and we do not currently anticipate a need to raise funds from other than these sources within the next 12 months. As ofDecember 31, 2020 , we have mortgage indebtedness totaling$136.7 million ,$3.3 million of PPP Loans (classified as notes payable on our consolidated balance sheet) and a margin loan of$2.6 million . 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 our independent directors and is disclosed to our stockholders. Market conditions will dictate the 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 ofDecember 31, 2020 , our total borrowings aggregated$142.6 million which represented 85% of our net assets. Additionally, in order to leverage our investments in marketable securities and seek a higher rate of return, we have access to borrowings under a margin loan. This loan is due on demand and any outstanding balance must be paid upon the liquidation of securities. Any future properties that we may acquire may be funded through a combination of borrowings and the proceeds received from the selective disposition of certain of our real estate assets. These borrowings 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 debt, which will be on a non-recourse basis. 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. 24 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. 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. We have agreements with the Advisor to pay certain fees in exchange for services performed by the Advisor and/or its affiliated entities. Upon the liquidation of assets, we may pay our Advisor or its affiliates a real estate disposition commission. Additionally, ourOperating Partnership may be required to make distributions toLightstone SLP II LLC , an affiliate of the Advisor.
Pursuant to the related party arrangements described above, we have recorded the following amounts for the years indicated:
For the Years Ended
December 31,
2020 2019
Development fees (1) $ 32 $ 62 Asset management fees (general and administrative costs) 2,929
3,011 Total$ 2,961 $ 3,073
(1) Generally, capitalized and amortized over the estimated useful life of the
associated asset.
We did not incur any fees to affiliates of our Advisor for property management
services during the years ended
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:
Year Ended Year Ended
December 31, December 31,
2020 2019
Cash flows (used in)/provided by operating activities $ (5,839 ) $ 8,404
Cash flows (used in)/provided by investing activities (2,857 ) 25,863
Cash flows used in financing activities (3,097 ) (34,711 )
Net change in cash, cash equivalents and restricted cash (11,793 ) (444 )
Cash, cash equivalents and restricted cash, beginning of year 30,216 30,660
Cash, cash equivalents and restricted cash, end of period
We believe that our cash available on hand and any proceeds from the sale of marketable securities, together with our expected earnings, and/or distributions from our investments will provide us with sufficient resources to fund our operating expenses, debt service, capital contributions, distributions, if any, required to maintain our status as a REIT. Generally, we expect to meet our cash needs with our cash on hand and cash flow from operations. 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. In light of the COVID-19 pandemic's impact on our operating performance, we have successfully negotiated various changes to the terms of our Revolving Credit Facility, including forbearance of scheduled debt service, reductions in interest rates, waiver periods and modifications of financial covenants and various extension options. See "Contractual Mortgage Obligations" for additional information. Operating activities The cash used in operating activities of$5.8 million for the year endedDecember 31, 2020 consisted of our net loss of$21.7 million offset by net changes in operating assets and liabilities of$2.4 million and depreciation and amortization, loss from investments in unconsolidated affiliated entities, amortization of deferred financing costs and other non-cash items aggregating$13.5 million . The net use of cash in operating activities of$5.8 million during the year endedDecember 31, 2020 was principally attributable to the effect of the COVID-19 pandemic on our operating performance. 25 Investing activities
The net cash used in investing activities of
? capital expenditures of
? net proceeds of
securities;
?
entities; and
?
entities. Financing activities
The net cash used in financing activities of
? distributions to our common shareholders of
? distributions to our noncontrolling interests of
? proceeds from notes payable of
? redemptions and cancellation of common stock of
? net margin loan payments of
Share Repurchase Program Our share repurchase program (the "Share Repurchase Program") may provide eligible stockholders with limited, interim liquidity by enabling them to sell Common Shares back to us, subject to restrictions and applicable law. A selling stockholder must be unaffiliated with us, and must have beneficially held the Common Shares for at least one year prior to offering the Common Shares for sale to us through the Share Repurchase Program. Subject to certain limitations, we will also redeem Common Shares upon the request of the estate, heir or beneficiary of a deceased stockholder. OnDecember 13, 2018 , our Board of Directors changed the price for all purchases under our Share Repurchase Program to 100% of the estimated net asset value per share of the Company's common stock, which is$8.02 per share as ofDecember 31, 2020 . Redemption of shares, when requested, will be made on a quarterly basis subject to ourBoard of Director's approval. Provided sufficient funds are available, the number of shares repurchased during the current calendar year will not exceed two percent of the weighted average number of shares outstanding during the prior calendar year. Funding for the Share Repurchase Program will come exclusively from operating funds, if any, as the Board of Directors, at its sole discretion, may reserve for this purpose. For the period fromJanuary 1 through March 18, 2020 , we redeemed 0.1 million common shares at an average price of$10.00 per share. During 2019, we redeemed 0.4 million common shares at an average price per share of$10.00 per share. OnMarch 19, 2020 , the Board of Directors amended the share repurchase program to remove stockholder notice requirements and also approved the suspension of all redemptions effective immediately.
Distributions Declared by our Board of Directors
Common Shares
During the year endedDecember 31, 2019 , distributions on our Common Shares were declared quarterly, for each calendar quarter end, at the pro rata equivalent of an annual distribution of$0.70 per share, or an annualized rate of 7.0% assuming a purchase price of$10.00 per share, to stockholders of record at the close of business on the last day of the quarter-end. All distributions were paid on or about the 15th day of the month following the quarter-end. 26 There were no distributions declared during the year endedDecember 31, 2020 . Total distributions declared during the years endedDecember 31, 2019 were
$12.3 million .
On
Future distributions declared, if any, will be at the discretion of the Board of Directors based on their analysis of the Company's performance over the previous periods and expectations of performance for future periods. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, revenues and other sources of income, operating and interest expenses and the Company's ability to refinance near-term debt as well as theIRS's annual distribution requirement that REITs distribute no less than 90% of their taxable income. The Company cannot assure that any future distributions will be made or that it will maintain any particular level of distributions that it has previously established or may establish.
Contractual Mortgage Obligations
The following is a summary of our estimated contractual mortgage obligations
outstanding over the next five years and thereafter as of
Contractual Mortgage Obligations 2021 2022 2023 2024 2025 Thereafter Total Principal maturities$ 123,245 $ 211 $ 13,208 $ - $ - $ -$ 136,664 Interest payments(1) 5,113 741 670 - - - 6,524 Total Contractual Mortgage Obligations$ 128,358 $ 952 $ 13,878 $ - $ - $ -$ 143,188 Note:
(1) These amounts represent future interest payments related to mortgage payable
obligations based on the fixed and variable interest rates specified in the
associated debt agreement. All variable rate debt agreements are based on the
one-month LIBOR rate. For purposes of calculating future interest amounts on
variable interest rate debt the one-month LIBOR rate as of
was used.
Revolving Credit Facility
We, through certain subsidiaries, have a non-recourse Revolving Credit Facility
with a financial institution. The Revolving Credit Facility provides us with a
line of credit of up to $140.0 million pursuant to which we may designate
properties as collateral that allow borrowings up to a 65.0% loan-to-value ratio
subject to also meeting certain financial covenants, including a prescribed
minimum debt yield. The Revolving Credit Facility provides for monthly
interest-only payments and the entire principal balance is due upon its
expiration.
The Revolving Credit Facility, which was entered into on May 17, 2018 , has an
initial maturity date of May 17, 2021 , subject to two one-year options to extend
at the sole discretion of the lender. The initial interest rate on the Revolving
Credit Facility was LIBOR + 3.50% until it was reduced to LIBOR + 3.15%
effective March 31, 2019 .
On June 2, 2020 , we and the lender agreed to certain changes to the terms of
Revolving Credit Facility, including (i) the deferral of monthly debt service
for payments aggregating $2.6 million for the period from April 1, 2020 through
September 30, 2020 , which are now due on November 15, 2021 ; (ii) subject to
certain conditions, the interest rate spread may be reduced by 100 bps to LIBOR
+ 2.15%, subject to a 3.00% floor, for the six-month period beginning September
1, 2020 through February 28, 2021 ; (iii) we deposited $2.5 million into a cash
collateral account to be applied against the monthly debt service payments due
from October 1, 2020 through March 1, 2021 ; and (iv) waiver of all financial
covenants for periods before June 30, 2021 .
We and the lender have agreed in principle to certain amendments to the terms of
the Revolving Credit Facility, that we expect will be finalized shortly, that
provide for (i) us to pledge our membership interest in another hotel as
additional collateral within 45 days, (ii) us to fund an additional $2.5 million
into the cash collateral reserve account; (iii) a waiver of all financial
covenants for quarter-end periods through September 30, 2021 with a phased-in
gradual return to the full financial covenant requirements over the quarter-end
periods beginning December 31, 2021 through March 31, 2023 ; (iv) an extension of
the maturity date from May 17, 2021 to September 15, 2022 upon completion of the
pledge of the additional collateral; (v) one additional one-year extension
option at the lender's sole discretion; and (vi) certain limitations and
restrictions on asset sales and additional borrowings related to the pledged
collateral.
We intend to timely pledge the additional collateral and extend the maturity
date of the Revolving Credit Facility to
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As of December 31, 2020 , we had pledged 12 of our hotel properties as collateral
under the Revolving Credit Facility and the outstanding principal balance was
approximately $123.0 million . Additionally, no additional borrowings were
available under the Revolving Credit Facility as of December 31, 2020 .
Courtyard - Paso Robles Mortgage Loan
In connection with our acquisition of the Courtyard - Paso Robles onDecember 14, 2017 , we assumed the Courtyard - Paso Robles Mortgage Loan. The Courtyard - Paso Robles Mortgage Loan matures inNovember 2023 , bears interest at a fixed rate of 5.49% and requires monthly principal and interest payments of approximately$79 through its stated maturity with a balloon payment of approximately$13.0 million due at maturity. The Courtyard - Paso Robles Mortgage Loan had an outstanding balance of approximately$13.6 million as
ofDecember 31, 2020 .
On
PPP Loans DuringApril 2020 , we, through various subsidiaries (each such entity, a "Borrower") received aggregate funding of$3.3 million through loans (the "PPP Loans") originated under the federal Paycheck Protection Program, which was established under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and is administered by theU.S. Small Business Administration . The PPP Loans each have a term of five years and provide for an interest rate of 1.00%. The payment of principal and interest on the PPP loan is deferred until the day that the forgiven amount is remitted to the lender (approximately five months after the forgiveness application is submitted to the lender, unless the Borrower appeals a denial of forgiveness) or ten months after the end of the Borrower's covered period, whichever is earlier. Pursuant to the terms of the CARES Act, the proceeds of the PPP Loans may be used for payroll costs, mortgage interest, rent or utility costs. The promissory note for each of the PPP Loans contains customary events of default relating to, among other things, payment defaults and breach of representations and warranties or of provisions of the relevant promissory note. Under the terms of the CARES Act, each Borrower can apply for and be granted forgiveness for all or a portion of the PPP Loans. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds in accordance with the terms of the CARES Act. Although we intend for each Borrower to apply for forgiveness, no assurance may be given that any Borrower will ultimately obtain forgiveness under any relevant PPP Loan in whole or in part. As ofDecember 31, 2020 , the PPP Loans had an outstanding balance of$3.3 million , which is classified as Notes Payable on the consolidated balance sheets.
Subsequently, during the first quarter of 2021, our hotels received an
additional
In addition to the mortgages payable and PPP Loans described above, a margin loan that was made available to us from a financial institution that holds custody of certain of our marketable securities. The margin loan is collateralized by the marketable securities in our account. The amounts available to us under the margin loan are at the discretion of the financial institution and not limited to the amount of collateral in our account. The amount outstanding under this margin loan was$2.6 million as ofDecember 31, 2020 and is due on demand. The margin loan bears interest at LIBOR + 0.85% (0.99% as ofDecember 31, 2020 ).
Investments in Unconsolidated Affiliated Entities
We have an unconsolidated 48.6% membership interest inBrownmill, LLC ("Brownmill"), an affiliated entity that owns two retail properties, and an unconsolidated 50.0% membership interest inLVP LIC Hotel JV LLC (the "Hilton Garden Inn Joint Venture"), an affiliated entity that owns and operates a 183-room limited service hotel located inLong Island City, New York (the "Hilton Garden Inn -Long Island City "). We account for our unconsolidated membership interests in Brownmill and the Hilton Garden Inn Joint Venture under the equity method of accounting. In light of the impact of the COVID-19 pandemic on the operating results of theHilton Garden Inn -Long Island City , the Hilton Garden Inn Joint Venture has entered into certain amendments with respect to its non-recourse mortgage loan (theHilton Garden Inn Mortgage ") as discussed below. OnJune 2, 2020 , theHilton Garden Inn Mortgage was amended to provide for (i) the deferral of the six monthly debt service payments aggregating$0.9 million for the period fromApril 1, 2020 throughSeptember 30, 2020 untilMarch 27, 2023 ; (ii) a 100 bps reduction in the interest rate spread to LIBOR + 2.15%, subject to a 4.03% floor, for the six-month period fromSeptember 1, 2020 throughFebruary 28, 2021 ; (iii) the Hilton Garden Inn Joint Venture pre-funding$1.2 million into a cash collateral reserve account to cover the six monthly debt service payments due fromOctober 1, 2020 throughMarch 1, 2021 ; and (iv) waiver of all financial covenants for quarter-end periods beforeJune 30, 2021 . 28 Additionally, the Hilton Garden Inn Joint Venture and the lender have agreed in principle to certain amendments to the terms of theHilton Garden Inn Mortgage , which they expect will be finalized shortly, that provide for (i) the Hilton Garden Inn Joint Venture to make a principal paydown of$1.7 million ; (ii) the Hilton Garden Inn Joint Venture to fund an additional$0.7 million into the cash collateral reserve account; (iii) a waiver of all financial covenants for quarter-end periods throughSeptember 30, 2021 with a phased-in gradual return to the full financial covenant requirements over the quarter-end periods beginningDecember 31, 2021 throughDecember 31, 2022 ; (iv) a 12-month interest-only payment period fromApril 1, 2021 throughMarch 31, 2022 ; and (v) certain restrictions on distributions to the members of the Hilton Garden Inn Joint Venture during the interest-only payment period.
See Note 4 of the Notes to Consolidated Financial Statements for additional information.
Funds from Operations and Modified Funds from Operations
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings, improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be less informative. Because of these factors, theNational Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has published a standardized measure of performance known as funds from operations ("FFO"), which is used in the REIT industry as a supplemental performance measure. We believe FFO, which excludes certain items such as real estate-related depreciation and amortization, is an appropriate supplemental measure of a REIT's operating performance. FFO is not equivalent to our net income or loss as determined under GAAP. We calculate FFO, a non-GAAP measure, consistent with the standards established over time by theBoard of Governors of NAREIT, as restated in a White Paper approved by theBoard of Governors of NAREIT effective inDecember 2018 (the "White Paper"). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Our FFO calculation complies with NAREIT's definition.
We believe that the use of FFO provides a more complete understanding of our performance to investors and to management, and reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.
Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT's definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings. Because of these factors, theInvestment Program Association (the "IPA"), an industry trade group, published a standardized measure of performance known as modified funds from operations ("MFFO"), which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that both before and after we have deployed all of our offering proceeds and are no longer incurring a significant amount of acquisition fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP. 29 We define MFFO, a non-GAAP measure, consistent with the IPA's Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the "Practice Guideline") issued by the IPA inNovember 2010 . The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction-related fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and exclude acquisition and transaction-related fees and expenses (which includes costs incurred in connection with strategic alternatives), amounts relating to deferred rent receivables and amortization of market lease and other intangibles, net (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), accretion of discounts and amortization of premiums on debt investments and borrowings, mark-to-market adjustments included in net income (including gains or losses incurred on assets held for sale), gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. Certain of the above adjustments are also made to reconcile net income (loss) to net cash provided by (used in) operating activities, such as for the amortization of a premium and accretion of a discount on debt and securities investments, amortization of fees, any unrealized gains (losses) on derivatives, securities or other investments,
as well as other adjustments.
MFFO excludes non-recurring impairment of real estate-related investments. We assess the credit quality of our investments and adequacy of reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. We consider the estimated net recoverable value of a loan as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive situation of the region where the borrower
does business. We believe that, because MFFO excludes costs that we consider more reflective of acquisition activities and other non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring properties and once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs. Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO. Neither theSEC , NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guidelines or theSEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry, and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.
The below table illustrates the items deducted from or added to net income in the calculation of FFO and MFFO. Items are presented net of noncontrolling interest portions where applicable.
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For the Years Ended
December 31, December 31,
2020 2019
Net (loss)/income $ (21,720 ) $ 5,716
FFO adjustments:
Depreciation and amortization of real estate assets 10,748 11,265
Gain on disposition of real estate and other assets, net - (8,357 )
Adjustments to equity in earnings from unconsolidated
entities, net 1,714 1,848
FFO (9,258 ) 10,472
MFFO adjustments:
Other adjustments:Acquisition and other transaction related costs expensed(1) - 20 Adjustments to equity in earnings from unconsolidated entities, net unconsolidated entities, net (8 ) (39 )
Amortization of above or below market leases and
liabilities(2) - - Mark-to-market adjustments(3) (103 ) -
Non-recurring loss/(gain) from extinguishment/sale of debt, derivatives or securities holdings(4)
292 - MFFO (9,077 ) 10,453 Straight-line rent(5) - - MFFO - IPA recommended format(6) $
(9,077 )
Net (loss)/income$ (21,720 ) $ 5,716 Less: loss attributable to noncontrolling interests 397 -
Net (loss)/income applicable to Company's common shares
FFO$ (9,258 ) $ 10,472 Less: FFO attributable to noncontrolling interests 166 (240 ) FFO attributable to Company's common shares$ (9,092 ) $ 10,232 FFO per common share, basic and diluted $
(0.52 ) $ 0.58
MFFO - IPA recommended format$ (9,077 ) $ 10,453 Less: MFFO attributable to noncontrolling interests 166 (240 ) MFFO attributable to Company's common shares $
(8,911 )
Weighted average number of common shares outstanding, basic and diluted 17,433 17,667
(1) The purchase of properties, and the corresponding expenses associated with
that process, is a key operational feature of our business plan to generate
operational income and cash flows in order to make distributions to
investors. In evaluating investments in real estate, management
differentiates the costs to acquire the investment from the operations
derived from the investment. Such information would be comparable only for
non-listed REITs that have completed their acquisition activity and have
other similar operating characteristics. By excluding expensed acquisition
costs, management believes MFFO provides useful supplemental information that
is comparable for each type of real estate investment and is consistent with
management's analysis of the investing and operating performance of our
properties. Acquisition fees and expenses include payments to our Advisor or
third parties. Acquisition fees and expenses under GAAP are considered
operating expenses and as expenses included in the determination of net
income and income from continuing operations, both of which are performance
measures under GAAP. Such fees and expenses are paid in cash, and therefore
such funds will not be available to distribute to investors. Such fees and
expenses negatively impact our operating performance during the period in
which properties are being acquired. Therefore, MFFO may not be an accurate
indicator of our operating performance, especially during periods in which
properties are being acquired. All paid and accrued acquisition fees and
expenses will have negative effects on returns to investors, the potential
for future distributions, and cash flows generated by us, unless earnings
from operations or net sales proceeds from the disposition of properties are
generated to cover the purchase price of the property, these fees and
expenses and other costs related to the property. Acquisition fees and
expenses will need to be paid from either additional debt, operational
earnings or cash flow proceeds from the sale of properties or from ancillary
cash flows.
(2) Under GAAP, certain intangibles are accounted for at cost and reviewed at
least annually for impairment, and certain intangibles are assumed to
diminish predictably in value over time and amortized, similar to
depreciation and amortization of other real estate related assets that are
excluded from FFO. However, because real estate values and market lease rates
historically rise or fall with market conditions, management believes that by
excluding charges relating to amortization of these intangibles, MFFO
provides useful supplemental information on the performance of the real
estate.
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(3) Management believes that adjusting for mark-to-market adjustments is
appropriate because they are items that may not be reflective of ongoing
operations and reflect unrealized impacts on value based only on then current
market conditions, although they may be based upon current operational issues
related to an individual property or industry or general market conditions.
Mark-to-market adjustments are made for items such as ineffective derivative
instruments, certain marketable securities and any other items that GAAP
requires we make a mark-to-market adjustment for. The need to reflect
mark-to-market adjustments is a continuous process and is analyzed on a
quarterly and/or annual basis in accordance with GAAP.
(4) Management believes that adjusting for gains or losses related to
extinguishment/sale of debt, derivatives or securities holdings is
appropriate because they are items that may not be reflective of ongoing
operations. By excluding these items, management believes that MFFO provides
supplemental information related to sustainable operations that will be more
comparable between other reporting periods.
(5) Under GAAP, rental receipts are allocated to periods using various
methodologies. This may result in income recognition that is significantly
different than underlying contract terms. By adjusting for these items (to
reflect such payments from a GAAP accrual basis to a cash basis of disclosing
the rent and lease payments), MFFO provides useful supplemental information
on the realized economic impact of lease terms and debt investments,
providing insight on the contractual cash flows of such lease terms and debt
investments, and aligns results with management's analysis of operating
performance.
The table below presents our cumulative distributions declared and cumulative
FFO:
For the period April, 28, 2008
(date of inception) through
December 31,
2020
FFO $ 63,753
Distributions declared $ 85,040
For the year ended December 31, 2020 , we paid distributions of $3.1 million . FFO
attributable to our Common Shares for the year ended December 31, 2020 was
negative $9.1 million and cash flow used in operations was $5.8 million . For the
year ended December 31, 2019 , we paid distributions of $12.4 million . FFO
attributable to our Common Shares for the year ended December 31, 2019 was $10.2
million and cash flow from operations was $8.4 million .
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