LIGHTSTONE VALUE PLUS REIT II, INC. The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements ofLightstone Value Plus REIT II, Inc. and Subsidiaries and the notes thereto. As used herein, the terms "we," "our" and "us" refer toLightstone Value Plus REIT II, Inc. , which was formerly known asLightstone Value Plus Real Estate Investment Trust II, Inc. beforeSeptember 16, 2021 , aMaryland corporation, and, as required by context,Lightstone Value Plus REIT II LP and its wholly owned subsidiaries, which we collectively refer to as the "Operating Partnership". Dollar amounts are presented in thousands, except per share data and where indicated in millions. 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 II, 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 our failure 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 our failure 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 withtheSEC .
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 REIT II is a
19
Lightstone REIT II 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 II LP (the "Operating Partnership"), a
Delaware limited partnership formed on April 30, 2008 . As of September 30, 2021 ,
we held a 99% general partnership interest in our Operating Partnership's common
units.
Lightstone REIT II and the Operating 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 Lightstone REIT II, its
Operating 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 in the 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
invest in whatever types of real estate-related investments that we believeare in our best interests. We currently have one operating segment. As ofSeptember 30, 2021 , we (i) majority owned and consolidated the operating results and financial condition of 14 limited service hotels containing a total of 1,804 rooms, (ii) held an unconsolidated 48.6% membership interest inBrownmill, LLC ("the Brownmill Joint Venture"), an affiliated entity that owns two retail properties, and (iii) held 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 the Brownmill Joint Venture and theHilton Garden Inn Joint Venture under the equity method of accounting. As ofSeptember 30, 2021 , seven of our consolidated limited service hotels are held in a joint venture (the "Joint Venture") formed between us andLightstone Value Plus REIT I, Inc. ("Lightstone I"), a related party REIT also sponsored byThe Lightstone Group, LLC . We and Lightstone I have 97.5% and 2.5% membership interests in the Joint Venture, respectively. Additionally, as ofSeptember 30, 2021 , 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 interests. Our advisor isLightstone Value Plus REIT II LLC (the "Advisor"), which is majority owned byDavid Lichtenstein . OnMay 20, 2008 , 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 common stock ("Common Shares") which were issued onMay 20, 2008 for$200,000 , or$10.00 per share.Mr. Lichtenstein also is the majority owner of the equity interests ofThe Lightstone Group, LLC .The Lightstone Group, LLC served as the sponsor (the "Sponsor") during our initial public offering and follow-on offering (the "Follow-On Offering", and collectively, the "Offerings"), which terminated onAugust 15, 2012 andSeptember 27, 2014 , respectively. Our Advisor, pursuant to the terms of an advisory agreement, together with our board of directors (the "Board of Directors"), is primarily responsible 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 II LLC , aDelaware limited liability company (the "AssociateGeneral Partner "), which owns 177.0 subordinated profits interests ("Subordinated Profits Interests") in theOperating Partnership which were acquired for aggregate consideration of$17.7 million in connection with our Offerings.Mr. Lichtenstein also acts as our Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT II or theOperating Partnership .
We do not have any employees. The Advisor receives compensation and fees for services related to the investment and management of our assets.
Our Advisor has affiliates which may manage certain of the properties we acquire. However, we also contract with 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 market for our Common Shares until they are listed for trading. In the event we do not obtain listing prior toSeptember 27, 2024 , which is the tenth anniversary of the termination of our Follow-On Offering, our charter requires that our Board of Directors must either (i) seek stockholder approval of an extension or amendment of this listing deadline; or (ii) seek stockholder approval to adopt a plan of liquidation of the corporation. 20 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.
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. Additionally, we have an unconsolidated 48.6% membership interest in the Brownmill Joint Venture, which owns two retail properties located inNew Jersey that have been subject to various restrictions. If the Brownmill Joint Venture'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 the Brownmill Joint Venture could be materially and adversely impacted.
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 -
OnJune 2, 2020 , our revolving credit facility (the "Revolving Credit Facility") was amended to provide for (i) the deferral of the six monthly debt service payments aggregating$2.6 million for the period fromApril 1, 2020 throughSeptember 30, 2020 untilNovember 15, 2021 ; (ii) a 100 bps reduction in the interest rate spread to LIBOR + 2.15%, subject to a 3.00% floor, for the six-month period fromSeptember 1, 2020 throughFebruary 28, 2021 ; (iii) our pre-funding$2.5 million into a cash collateral reserve account to cover the six monthly debt service payments due fromOctober 1, 2020 throughMarch 1, 2021 ; and (iv) a waiver of all financial covenants for quarter-end periods before
June 30, 2021 .
Subsequently, onMarch 31, 2021 , the Revolving Credit Facility was further amended providing 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 throughSeptember 30, 2021 with a phased-in gradual return to the full financial covenant requirements over the quarter-end periods beginningDecember 31, 2021 throughMarch 31, 2023 ; (iv) an extension of the maturity date fromMay 17, 2021 toSeptember 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.
On
21
See Note 5 of the Notes to Consolidated Financial Statements for additional information.
· In
and
Protection Program ("PPP Loans"). Subsequently, during the second quarter of
2021, we received notice from the
"SBA") that
legally forgiven. See Note 6 of the Notes to Consolidated Financial Statements
for additional information.
· On
quarterly distributions, and, as result, has not declared any distributions on
our Common Shares or Subordinated Profits Interests since the suspension.
Additionally, on
of all redemptions under our shareholder repurchase program (the "SRP").
Subsequently on
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.
·
non-recourse mortgage loan secured by the
See Note 3 of the Notes to the Consolidated Financial Statements for additional
information. We believe that these actions, along with our available on hand cash and cash equivalents, restricted cash and marketable securities, as well as our intention to seek to extend the Revolving Credit Facility toSeptember 15, 2023 pursuant to the lender's option 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 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. The preparation of financial statements in conformity with generally accepted accounting principles inthe United States of America ("GAAP") requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. Portfolio Summary - Annualized Revenues Annualized based on Revenues per Percentage Occupied rents square foot as of as of as of Year Leasable September 30, September 30, September 30, Location Built Square Feet 2021 2021 2021
Unconsolidated Affiliated Entities:
Retail
Brownmill LLC (2 retail Old Bridge and
properties) Vauxhall, New
Jersey 1962 155,975 79.0 % $2.9 million $ 18.46
Revenue per
Percentage Available Room Average Daily
Occupied ("RevPAR") for Rate ("ADR")
for the Nine the Nine Months for the Nine
Year to Date Months Ended Ended Months Ended
Year Available September 30, September 30, September 30,
Hospitality Location Built Rooms 2021 2021 2021
Hilton Garden Inn - Long Long Island City,
Island City New York 2014 49,959 74.7 % $ 102.53 $ 137.22
22
Consolidated Properties :
Percentage
Occupied Average Daily Rate
for the Nine RevPAR for the for the Nine Months
Hospitality Year to Date Months Ended Nine Months Ended Ended
Year Available September 30, September 30, September 30,
Location Built Rooms 2021 2021 2021
Fairfield Inn - East East Rutherford, New
Rutherford Jersey 1990 38,493 55.00 % $ 56.58 $ 102.82
TownePlace Suites - Little Little Rock,
Rock Arkansas 2009 25,116 82.10 % $ 60.23 $ 73.39
Aloft - Tucson Tucson, Arizona 1971 42,042 47.20 % $ 54.47 $ 115.37
Philadelphia,
Aloft - Philadelphia Pennsylvania 2008 37,128 64.00 % $ 63.06 $ 98.51
Four Points by Sheraton - Philadelphia,
Philadelphia Pennsylvania 1985 48,321 55.40 % $ 47.25 $ 85.23
Courtyard - Willoughby Willoughby, Ohio 1999 24,570 58.60 % $ 66.01 $
112.55
West Des Moines,
Fairfield Inn - Des Moines Iowa 1997
27,846 55.90 % $ 55.49 $ 99.19
SpringHill Suites - Des West Des Moines,
Moines Iowa 1999 26,481 53.30 % $ 53.56 $ 100.46
Hampton Inn - Miami Miami, Florida 1996 34,398 80.30 % $ 75.64 $ 94.18
Hampton Inn & Suites - Fort Fort Lauderdale,
Lauderdale Florida 1996 28,392 84.40 % $ 96.54 $ 114.42
Parsippany, New
Courtyard - Parsippany Jersey 2001 41,223 42.70 % $ 44.27 $ 103.62
New Orleans,Hyatt Place - New Orleans Louisiana 1996 46,726 70.80 % $ 54.17 $
76.48
Needham,
Residence Inn - Needham Massachusetts 2013 36,036 78.20 % $ 91.40 $ 116.87
Paso Robles,
Courtyard - Paso Robles California 2007
35,490 78.20 % $ 118.58 $ 151.64
Hospitality
Total 492,262 63.9 % $ 65.80 $ 102.98
23
Annualized base rent is defined as the minimum monthly base rent due as ofSeptember 30, 2021 annualized, excluding periodic contractual fixed increases and rents calculated based on a percentage of tenants' sales. The annualized base rent disclosed in the table above includes all concessions, abatements and reimbursements of rent to tenants.
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 except for as discussed in Note 2
to the financial statements. Results of Operations We currently have one operating segment. As ofSeptember 30, 2021 we (i) majority owned and consolidated the operating results and financial condition of 14 limited service hotels containing a total of 1,804 rooms, (ii) held an unconsolidated 48.6% membership interest inBrownmill LLC (the "Brownmill Joint Venture"), 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 theHilton Garden Inn -Long Island City , a 183-room limited service hotel. We account for our unconsolidated membership interests in the Brownmill Joint Venture and the Hilton Garden Inn Joint Venture under the equity method of accounting. As ofSeptember 30, 2021 , seven of our consolidated limited service hotels are held in a joint venture (the "Joint Venture") formed between us andLightstone Value Plus REIT I, 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 ofSeptember 30, 2021 , 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 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 quarterly 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 (i) the percentage of rooms occupied from 49.0% to 70.8% for the third quarters of 2020 and 2021, respectively, (ii) revenue per available room ("RevPAR") from$43.19 to$83.89 for the third quarters of 2020 and 2021, respectively, and (iii) the average daily rate per room ("ADR") from$88.08 to$118.58 for the third quarters of 2020 and 2021, respectively. Revenues
Revenues increased by
Property operating expenses
Property operating expenses increased by
Real estate taxes
Real estate taxes decreased slightly by
24
General and administrative expenses
General and administrative expenses were unchanged at
Depreciation and amortization
Depreciation and amortization expense decreased by slightly by$0.1 million to$2.6 million during the three months endedSeptember 30, 2021 compared to$2.7 million for the same period in 2020. Interest expense Interest expense increased by slightly by$0.1 million to$1.6 million during the three months endedSeptember 30, 2021 compared to$1.5 million for the same period in 2020. 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 forgiveness of debt
During the third quarter of 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 three months endedSeptember 30, 2021 . 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$0.6 million for the same period in 2020. Our earnings from investments in unconsolidated affiliated real estate entities is attributable to our ownership interests in the Hilton Garden Inn Joint Venture and the Brownmill Joint Venture. We account for our membership interests in the Hilton Garden Inn Joint Venture and the Brownmill Joint Venture under the equity method of accounting. 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.
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 but they continue to be below historical levels. Overall, our hospitality portfolio experienced increases in the percentage of rooms occupied from 44.5% to 63.9% for the nine months endedSeptember 30, 2020 and 2021, respectively, and RevPAR from$46.55 to$65.80 for the nine months endedSeptember 30, 2020 and 2021, respectively, and a decrease in theADR from$104.66 to$102.98 for the nine months endedSeptember 30, 2020 and 2021, respectively. Revenues
Revenues increased by$9.5 million to$33.8 million during the nine months endedSeptember 30, 2021 , compared to$24.3 million for the same period in 2020. This increase reflects the higher occupancy and RevPAR during the 2021 period partially offset by the lower ADR during the 2021 period. 25
Property operating expenses
Property operating expenses increased by$3.1 million to$23.1 million during the nine months endedSeptember 30, 2021 compared to$20.0 million for the same period in 2020. This increase reflects the higher occupancy during the 2021
period. Real estate taxes
Real estate taxes decreased by
General and administrative expenses
General and administrative expenses for both the nine months ended
Depreciation and amortization
Depreciation and amortization expense decreased by$0.3 million to$7.8 million during the nine months endedSeptember 30, 2021 compared to$8.1 million for the same period in 2020. Interest expense Interest expense was$4.5 million during the nine months endedSeptember 30, 2021 compared to$4.9 million for the same period in 2020. 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 forgiveness of debt During the nine months endedSeptember 30, 2021 notice was received from the SBA that$2.4 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 . Earnings from investments in unconsolidated affiliated real estate entities Our loss from investments in unconsolidated affiliated real estate entities was$0.1 million during the nine months endedSeptember 30, 2021 compared to$1.6 million for the same period in 2020. Our earnings 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$18.1 million , restricted cash of$2.5 million and marketable securities of$6.9 million , all as ofSeptember 30, 2021 , as well as our intention to seek to extend the Revolving Credit Facility toSeptember 15, 2023 pursuant to the lender's option, 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. 26 As ofSeptember 30, 2021 , we have mortgage indebtedness totaling$136.1 million ,$4.7 million of PPP Loans (classified as notes payable on our consolidated balance sheet) and a margin loan of$2.4 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 ofSeptember 30, 2021 , our total borrowings aggregated$143.6 million which represented 84% 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. 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. 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. 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 Nine Months Ended
For the Three Months Ended September 30, September 30,
2021 2020 2021 2020
Development fees (1) $ - $ - $ - $ 32
Asset management fees (general and
administrative costs) 739 736 2,214 2,192
Total $ 739 $ 736 $ 2,214 $ 2,224 (1) Generally, capitalized and amortized over the estimated useful life of the
associated asset.
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