LIGHTSTONE VALUE PLUS REIT V, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

The following discussion and analysis should be read in conjunction with the
accompanying consolidated financial statements and the notes thereto.



Forward-Looking Statements



Certain statements in this Quarterly Report on Form 10-Q constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking
statements include discussion and analysis of the financial condition of
Lightstone Value Plus REIT V, Inc. and our subsidiaries (which may be referred
to herein as the "Company," "we," "us" or "our"), which was formerly known as
Lightstone Value Plus Real Estate Investment Trust V, Inc. before August 31,
2021, including our ability to make accretive real estate or real estate-related
investments, rent space on favorable terms, to address our debt maturities and
to fund our liquidity requirements, to sell our assets when we believe
advantageous to achieve our investment objectives, our anticipated capital
expenditures, the amount and timing of anticipated future cash distributions to
our stockholders, the estimated net asset value per share of our common stock
("NAV per Share"), and other matters. Words such as "may," "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," "would,"
"could," "should" and variations of these words and similar expressions are
intended to identify forward-looking statements.



These forward-looking statements are not historical facts but reflect the
intent, belief or current expectations of our management based on their
knowledge and understanding of the business and industry, the economy and other
future conditions. These statements are not guarantees of future performance,
and we caution stockholders not to place undue reliance on forward-looking
statements. Actual results may differ materially from those expressed or
forecasted in the forward-looking statements due to a variety of risks,
uncertainties and other factors, including but not limited to the factors
described below:



? market and economic challenges experienced by the U.S. and global economies or

real estate industry as a whole and the local economic conditions in the

markets in which our investments are located. Additionally, our business and

financial performance may be adversely affected by current and future economic

and other conditions; such as recession, political upheaval or uncertainty,

terrorism and acts of war, natural and man-made disasters, cybercrime, and

outbreaks of contagious diseases;

? 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;

? the availability of cash flow from operating activities for distributions, if

any;

? conflicts of interest arising out of our relationships with our advisor and

its affiliates;

? our ability to retain our executive officers and other key individuals who

provide advisory and property management services to us;

? our level of debt and the terms and limitations imposed on us by our debt

agreements;

? the availability of credit generally, and any failure to obtain debt financing

at favorable terms or a failure to satisfy the conditions and requirements of

that debt;

? the effect of the phase-out of the London Interbank Offered Rate, or LIBOR, as

a variable rate debt benchmark and the transition to a different benchmark

    interest rate,

  ? our ability to make accretive investments in a diversified portfolio of
    assets;

? future changes in market factors that could affect the ultimate performance of

any development or redevelopment projects, including but not limited to

construction costs, plan or design changes, schedule delays, availability of

construction financing, performance of developers, contractors and consultants

    and growth in rental rates and operating costs;




                                       17





  ? our ability to secure leases at favorable rental rates;

? our ability to sell our assets at a price and on a timeline consistent with

    our investment objectives;

  ? impairment charges;

? unfavorable changes in laws or regulations impacting our business, our assets

or our key relationships; and

? factors that could affect our ability to qualify as a real estate investment

    trust.




Forward-looking statements in this Quarterly Report on Form 10-Q reflect our
management's view only as of the date of this Report, and may ultimately prove
to be incorrect. We undertake no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events or changes to future operating results, except as required by applicable
law. We intend for these forward-looking statements to be covered by the
applicable safe harbor provisions created by Section 21E of the Exchange Act.



Cautionary Note


The representations, warranties, and covenants made by us in any agreement filed
as an exhibit to this Quarterly Report on Form 10-Q are made solely for the
benefit of the parties to the agreement, including, in some cases, for the
purpose of allocating risk among the parties to the agreement, and should not be
deemed to be representations, warranties, or covenants to or with any other
parties. Moreover, these representations, warranties, or covenants should not be
relied upon as accurately describing or reflecting the current state of our
affairs.



Executive Overview


We were formed primarily to acquire and operate commercial real estate and real
estate-related assets on an opportunistic and value-add basis. In particular, we
have focused generally on acquiring commercial properties with significant
possibilities for capital appreciation, such as those requiring development,
redevelopment or repositioning, those located in markets and submarkets with
high growth potential, and those available from sellers who were distressed or
faced time-sensitive deadlines. In addition, our opportunistic and value-add
investment strategy has included investments in real estate-related assets that
present opportunities for higher current income. Since inception, we have
acquired a wide variety of commercial properties, including office, industrial,
retail, hospitality, and multifamily. We have purchased existing,
income-producing properties and newly constructed properties. We have also
invested in mortgage and mezzanine loans. We have made our investments in or in
respect of real estate assets located in the United States and other countries
based on our view of existing market conditions. As of March 31, 2022, our
investments included eight wholly owned multi-family apartment complexes and a
note receivable. All of our current investments are located in the United
States. We currently intend to hold our various real properties until such time
as our board of directors determines that a sale or other disposition appears to
be advantageous to achieve our investment objectives or until it appears that
the objectives will not be met.



Current Environment



Our operating results are substantially impacted by the overall health of local,
U.S. national and global economies and may be influenced by market and other
challenges. Additionally, our business and financial performance may be
adversely affected by current and future economic and other conditions;
including, but not limited to, availability or terms of financings, financial
markets volatility, political upheaval or uncertainty, natural and man-made
disasters, terrorism and acts of war, unfavorable changes in laws and
regulations, outbreaks of contagious diseases, cybercrime, loss of key
relationships, and recession.



COVID-19 Pandemic


The World Health Organization declared COVID-19 a global pandemic on March 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 continuing COVID-19 pandemic remains highly unpredictable
and dynamic and its ultimate 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 ongoing administration and ultimate
effectiveness of vaccines, including booster shots, and the eventual timeline to
achieve a sufficient level of herd immunity among the general population.
Accordingly, the ongoing COVID-19 pandemic may have negative effects on the
health of the U.S. economy for the foreseeable future.



                                       18




As of March 31, 2022, our consolidated portfolio of properties consisted of
eight wholly owned multi-family apartment complexes. Our multi-family properties
have not been significantly impacted by the COVID-19 pandemic and their
occupancy levels, rental rates and rental collection have remained stable.
Additionally, our note receivable is collateralized by a condominium development
project located in New York City (the "Condominium Project"), which has been
subject to similar restrictions and risks. To date, both the Condominium Project
and our note receivable have not been significantly impacted by the COVID-19
pandemic.


We continue to closely monitor the overall extent as to which our business may
be affected by the ongoing COVID-19 pandemic which will largely depend on both
current and future developments, all of which are highly uncertain and cannot be
reasonably predicted.



If our properties and real estate-related investments are negatively impacted in
future periods for an extended period because (i) tenants are unable to pay
their rent, (ii) leasing demand falls causing declines in occupancy levels
and/or rental rates, and (iii) our borrower is unable to pay scheduled debt
service on the outstanding note receivable; our business and financial results
could be materially and adversely impacted.



Liquidity and Capital Resources




We had cash and cash equivalents of $37.8 million, marketable securities,
available for sale of $3.5 million and restricted cash of $20.1 million as of
March 31, 2022. Our principal demands for funds going forward are expected to be
for the payment of (a) operating expenses, including capital expenditures, and
(b) scheduled debt service on our outstanding indebtedness. We also may, at our
discretion, use funds for (a) tender offers and/or redemptions of shares of our
common stock, (b) distributions, if any, to our shareholders, and (c) selective
acquisitions and/or real estate-related investments. Generally, we expect to
meet our cash needs with our cash and cash equivalents on hand along with our
cash flow from operations, the release of certain funds held in restricted cash,
the remaining availability on certain of our mortgage loans and the repayment of
our outstanding note receivable. However, to the extent that these sources are
not sufficient to cover our cash needs, we may also use proceeds from additional
borrowings and/or selective asset sales to fund such needs.



We have borrowed money to acquire properties and make other investments. Under
our charter, the maximum amount of our indebtedness is limited to 300% of our
"net assets" (as defined by our charter) as of the date of any borrowing;
however, we may exceed that limit if approved by a majority of our independent
directors. In addition to our charter limitation, our board of directors has
adopted a policy to generally limit our aggregate borrowings to 75% of the
aggregate value of our assets unless substantial justification exists that
borrowing a greater amount is in our best interests. Our policy limitation,
however, does not apply to individual real estate assets.



Acquisition and Disposition Activities

Disposition of the Lakes of Margate




On March 17, 2021, we completed the disposition of a 280-unit multifamily
property located in Margate, Florida (the "Lakes of Margate") for a contractual
sales price of $50.8 million to an unrelated third party. In connection with the
disposition of the Lakes of Margate, we recognized a gain on the sale of
investment property of $27.8 million during the first quarter of 2021.



Acquisition of the BayVue Apartments




On July 7, 2021, we completed the acquisition of a 368-unit multifamily property
located in Tampa, Florida (the "BayVue Apartments") from an unrelated third
party, for a contractual purchase price of $59.5 million, excluding closing and
other related transaction costs.



Acquisition of the Citadel Apartments

On October 6, 2021, we acquired a 293-unit multifamily property located in
Houston, Texas (the “Citadel Apartments“), from an unrelated third party, for a
contractual purchase price of $66.0 million, excluding closing and other
acquisition related costs.



                                       19




Disposition of the River Club Properties




On December 22, 2021, we completed the disposition of the River Club Apartments
and the Townhomes at River Club, two student housing complexes with a total of
1,134 beds (collectively, the "River Club Properties") located in Athens,
Georgia, for a contractual sales price of $77.3 million to an unrelated third
party. In connection with the disposition of the River Club Properties, we
recognized a gain on the sale of investment property of $55.0 million during the
fourth quarter of 2021.



Results of Operations


As of March 31, 2022, we had eight wholly owned real estate investments
(multi-family apartment complexes) and one real estate-related investment
(mezzanine loan).

The tables below reflect occupancy and effective monthly rental rates for our
operating properties owned as of March 31, 2022:



                               Occupancy            Effective Monthly Rent per Unit(1)
                                 As of                             As of
                               March 31,                         March 31,
Property                    2022      2021            2022                      2021
Arbors Harbor Town             95 %      96 %   $           1,519         $           1,367
Parkside                       97 %      98 %   $           1,307         $           1,197
Flats at Fishers               94 %      95 %   $           1,391         $           1,220
Axis at Westmont               93 %      95 %   $           1,325         $           1,177
Valley Ranch Apartments        94 %      95 %   $           1,541         $           1,463
Autumn Breeze Apartments       94 %      95 %   $           1,249         $           1,076
BayVue Apartments (2)          95 %     N/A     $           1,196                      N/A
Citadel Apartments (3)         94 %     N/A     $           1,631                      N/A





(1) Effective monthly rent is calculated as in-place contracted monthly rental

revenue, including any premiums due for short-term or month-to-month leases,

less any concessions or discounts.

(2) The BayVue Apartments were acquired on July 7, 2021.

(3) The Citadel Apartments were acquired on October 6, 2021.

On July 7, 2021 we acquired the BayVue Apartments and on October 6, 2021 we
acquired the Citadel Apartments (collectively, the “2021 Acquisitions”).

On March 17, 2021 we disposed of the Lakes of Margate and on December 22, 2021
we disposed of the River Club Properties (collectively, the “2021
Dispositions”).

The Dispositions did not qualify to be reported as discontinued operations since
they did not represent a strategic shift that had a major effect on our
operations and financial results. Accordingly, the operating results of the
Dispositions are reflected in our results from continuing operations for all
periods presented through their dates of disposition.



                                       20




Three months ended March 31, 2022 as compared to the three months ended
March 31, 2021.

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



                        Three Months Ended                                                 Change                Change              Change
                            March 31,                Increase/        Percentage           due to                due to            due to Same
                       2022            2021          (Decrease)         Change         Acquisitions(1)       Dispositions(2)        Store(3)
Rental revenues    $     11,206     $    10,287     $        919              9.0 %   $           2,857     $          (2,674 )   $         736
Property
operating
expenses                  3,247           3,177               70              2.0 %                 927                  (973 )             116
Real estate
taxes                     1,728           1,471              257             17.0 %                 537                  (304 )              24
General and
administrative            1,818           1,653              165             10.0 %                  35                   (67 )             197
Depreciation and
amortization              4,919           2,910            2,009             69.0 %               2,475                  (388 )             (78 )
Interest
expense, net              3,114           2,453              661             27.0 %                 933                   (88 )            (184 )




Notes:

(1) Represents the effect on our operating results for the periods indicated

resulting from the 2021 Acquisitions.

(2) Represents the effect on our operating results for the periods indicated

resulting from the 2021 Dispositions.

(3) Represents the change for the three months ended March 31, 2022 compared to

the same period in 2021 for real estate and real estate-related investments

owned by us during the entire periods presented (“Same Store”). Our results

for Same Store properties for the three months ended March 31, 2022 and 2021

include Arbors Harbor Town, Parkside, Flats at Fishers, Axis at Westmont, the

     Valley Ranch Apartments and the Autumn Breeze Apartments.




The following table reflects total rental revenues and total property operating
expenses for the three months ended March 31, 2022 and 2021 for: (i) our Same
Store properties, (ii) the 2021 Acquisitions and (iii) the 2021 Dispositions
(dollars in thousands):



                                                Three Months Ended
                                                     March 31,
Description                                      2022          2021        Change
Rental Revenues:
Same Store                                    $    8,349     $  7,613     $    736
Acquisitions                                       2,857            -        2,857
Dispositions                                           -        2,674       (2,674 )
Total rental revenues                         $   11,206     $ 10,287     $    919

Property operating expenses:
Same Store                                    $    2,374     $  2,258     $    116
Acquisitions                                         927            -          927
Dispositions                                         (54 )        919         (973 )
Total property and hotel operating expenses   $    3,247     $  3,177     $
    70




                                       21





Revenues Rental revenues for the three months ended March 31, 2022 were $11.2
million, an increase of $0.9 million, compared to $10.3 million for the same
period in 2021. Excluding the effect of our acquisition and disposition
activities, our rental revenues increased by $0.7 million for our Same Store
properties during the 2021 period as a result of the higher average monthly rent
per unit partially offset by slightly lower occupancy.



Property Operating Expenses Property operating expenses were $3.2 million for
both the three months ended March 31, 2022 and 2021. Excluding the effect of our
acquisition and disposition activities, our property operating expenses
increased by $0.1 million for our Same Store properties.



Real Estate Taxes Real estate taxes for the three months ended March 31, 2022
were $1.7 million, an increase of $0.2 million, compared to $1.5 million for the
same period in 2021. Excluding the effect of our acquisition and disposition
activities, real estate taxes were unchanged for our Same Store properties.



General and Administrative Expenses General and administrative expenses for the
three months ended March 31, 2022 were $1.8 million, an increase of $0.1
million, compared to $1.7 million for the same period in 2021. Excluding the
effect of our acquisition and disposition activities, our general and
administrative expenses increased by $0.2 million for our Same Store properties.



Depreciation and Amortization Depreciation and amortization expense for the
three months ended March 31, 2022 was $4.9 million, an increase of $2.0 million,
compared to $2.9 million for the same period in 2021. Excluding the effect of
our acquisition and disposition activities, depreciation and amortization
expenses decreased slightly by $0.1 million for our Same Store properties.



Interest Expense, Net Interest expense for the three months ended March 31, 2022
was $3.1 million, an increase of $0.6 million, compared to $2.5 million for the
same period in 2021. Excluding the effect of our acquisition and disposition
activities, interest expense decreased by $0.2 million for our Same Store
properties.



Mark to Market Adjustment on Derivative Financial Instruments During the three
months ended March 31, 2022, we recorded positive mark to market adjustments on
derivative financial instruments of $0.6 million. These mark to market
adjustments represented the change in the fair value of our interest rate cap
contracts during this period.



Income Tax Benefit During 2015, we recorded an aggregate provision for income
tax of approximately $2.7 million representing estimated foreign income tax due
as a result of the sale of two foreign investments, Alte Jakobstraße and
Holstenplatz. During the first quarter of 2022, we recorded an income tax
benefit consisting of a refund of foreign income tax of $0.8 million.



Related Party Transactions



We have agreements with the Advisor and its affiliate to pay certain fees in
exchange for services performed by these entities and other related parties.
These agreements have one-year terms and currently extend through June 30, 2022.
We are dependent on the Advisor and its affiliates for certain services that are
essential to us, including asset disposition decisions, property management and
leasing services, and other general administrative responsibilities. In the
event that these companies were unable to provide us with their respective
services, we would be required to obtain such services from other sources.

The following table represents the fees incurred associated with the payments to
our Advisor and its affiliates for the periods indicated:



                                                                        For the
                                                                  Three Months Ended
                                                                       March 31,
                                                                  2022           2021

Property management fees (property operating expenses) $ 117

$ 118
Administrative services reimbursement (general and
administrative costs)

                                                 347   

333

Asset management fees (general and administrative costs)              868  
         695
Total                                                          $    1,332      $   1,146




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Summary of Cash Flows



Operating activities


The net cash provided by operating activities of $2.4 million for the three
months ended March 31, 2022 consisted primarily of our net loss of $1.4 million,
positive mark to market adjustments on derivative financial instruments and
non-cash interest income of $0.8 million and the net change in assets and
liabilities of $0.7 million offset by depreciation and amortization and
amortization of deferred financing costs aggregating $5.3 million.



Investing activities


The net cash used in investing activities of $0.2 million for the three months
ended March 31, 2022 consists primarily of the following:

? net proceeds from the repayment of note receivable of $1.6 million; and

? capital expenditures of $1.8 million.




Financing activities


The net cash provided by financing activities of $10.4 million for the three
months ended March 31, 2022 consists primarily of the following:

? net proceeds from notes payable of $11.2 million;

? debt principal payments of $0.4 million; and

? redemptions and cancellation of common stock of $0.3 million.




LIBOR



The Citadel Apartments Mortgages and the BayVue Apartments Mortgage are indexed
to LIBOR. In late 2021, it was announced LIBOR interest rates will cease
publication altogether by June 30, 2023. We have and intend to continue to
incorporate relatively standardized replacement rate provisions into our
LIBOR-indexed debt documents, including a spread adjustment mechanism designed
to equate to the current LIBOR "all in" rate. There is significant uncertainty
with respect to the implementation of the phase out and what alternative indexes
will be adopted which will ultimately be determined by the market as a whole. It
therefore remains uncertain how such changes will be implemented and the effects
such changes would have on us and the financial markets generally.



One of our principal short-term and long-term liquidity requirements includes
the repayment of maturing debt. The following table provides information with
respect to the contractual maturities and scheduled principal repayments of our
indebtedness as of March 31, 2022 (dollars in thousands).



Contractual Obligations          2022         2023         2024          2025         2026         Thereafter        Total
Mortgage Payable                $ 1,298     $  2,191     $  96,031     $ 18,138     $ 147,729     $     27,732     $ 293,119
Interest Payments(1)              8,544       11,373        10,441        7,617         2,842            3,245        44,062
Total Contractual Obligations   $ 9,842     $ 13,564     $ 106,472     $ 25,755     $ 150,571     $     30,977     $ 337,181





(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 March 31, 2022 was

     used.




                                       23




Funds from Operations and Modified Funds from Operations




The historical accounting convention used for real estate assets requires
straight-line depreciation of buildings and improvements and straight-line
amortization of intangibles, which implies that the value of a real estate asset
diminishes predictably over time. We believe that, because real estate values
historically rise and fall with market conditions, including, but not limited
to, inflation, interest rates, the business cycle, unemployment and consumer
spending, presentations of operating results for a REIT using the historical
accounting convention for depreciation and certain other items may be less
informative.



Because of these factors, the National Association of Real Estate Investment
Trusts ("NAREIT"), an industry trade group, has published a standardized measure
of performance known as funds from operations ("FFO"), which is used in the REIT
industry as a supplemental performance measure. We believe FFO, which excludes
certain items such as real estate-related depreciation and amortization, is an
appropriate supplemental measure of a REIT's operating performance. FFO is not
equivalent to our net income or loss as determined under generally accepted
accounting principles in the United States of America ("GAAP").



We calculate FFO, a non-GAAP measure, consistent with the standards established
over time by the Board of Governors of NAREIT, as restated in a White Paper
approved by the Board of Governors of NAREIT effective in December 2018 (the
"White Paper"). The White Paper defines FFO as net income or loss computed in
accordance with GAAP, excluding depreciation and amortization related to real
estate, gains and losses from the sale of certain real estate assets, gains and
losses from change in control and impairment write-downs of certain real estate
assets and investments in entities when the impairment is directly attributable
to decreases in the value of depreciable real estate held by the entity. Our FFO
calculation complies with NAREIT's definition.



We believe that the use of FFO provides a more complete understanding of our
performance to investors and to management and reflects the impact on our
operations from trends in occupancy rates, rental rates, operating costs,
general and administrative expenses, and interest costs, which may not be
immediately apparent from net income.

Changes in the accounting and reporting promulgations under GAAP that were put
into effect in 2009 subsequent to the establishment of NAREIT's definition of
FFO, such as the change to expense as incurred rather than capitalize and
depreciate acquisition fees and expenses incurred for business combinations,
have prompted an increase in cash-settled expenses, specifically acquisition
fees and expenses, as items that are expensed under GAAP across all industries.
These changes had a particularly significant impact on publicly registered,
non-listed REITs, which typically have a significant amount of acquisition
activity in the early part of their existence, particularly during the period
when they are raising capital through ongoing initial public offerings.



Because of these factors, the Investment Program Association (the "IPA"), an
industry trade group, published a standardized measure of performance known as
modified funds from operations ("MFFO"), which the IPA has recommended as a
supplemental measure for publicly registered, non-listed REITs. MFFO is designed
to be reflective of the ongoing operating performance of publicly registered,
non-listed REITs by adjusting for those costs that are more reflective of
acquisitions and investment activity, along with other items the IPA believes
are not indicative of the ongoing operating performance of a publicly
registered, non-listed REIT, such as straight-lining of rents as required by
GAAP. We believe it is appropriate to use MFFO as a supplemental measure of
operating performance because we believe that both before and after we have
deployed all of our offering proceeds and are no longer incurring a significant
amount of acquisition fees or other related costs, it reflects the impact on our
operations from trends in occupancy rates, rental rates, operating costs,
general and administrative expenses, and interest costs, which may not be
immediately apparent from net income. MFFO is not equivalent to our net income
or loss as determined under GAAP.



We define MFFO, a non-GAAP measure, consistent with the IPA's Guideline 2010-01,
Supplemental Performance Measure for Publicly Registered, Non-Listed REITs:
Modified Funds from Operations (the "Practice Guideline") issued by the IPA in
November 2010. The Practice Guideline defines MFFO as FFO further adjusted for
acquisition and transaction-related fees and expenses and other items. In
calculating MFFO, we follow the Practice Guideline and exclude acquisition and
transaction-related fees and expenses (which includes costs incurred in
connection with strategic alternatives), amounts relating to deferred rent
receivables and amortization of market lease and other intangibles, net (which
are adjusted in order to reflect such payments from a GAAP accrual basis to a
cash basis of disclosing the rent and lease payments), accretion of discounts
and amortization of premiums on debt investments and borrowings, mark-to-market
adjustments included in net income (including gains or losses incurred on assets
held for sale), gains or losses included in net income from the extinguishment
or sale of debt, hedges, foreign exchange, derivatives or securities holdings
where trading of such holdings is not a fundamental attribute of the business
plan, unrealized gains or losses resulting from consolidation from, or
deconsolidation to, equity accounting, and after adjustments for consolidated
and unconsolidated partnerships and joint ventures, with such adjustments
calculated to reflect MFFO on the same basis.



We believe that, because MFFO excludes costs that we consider more reflective of
acquisition activities and other non-operating items, MFFO can provide, on a
going-forward basis, an indication of the sustainability (that is, the capacity
to continue to be maintained) of our operating performance after the period in
which we are acquiring properties and once our portfolio is stabilized. We also
believe that MFFO is a recognized measure of sustainable operating performance
by the non-listed REIT industry and allows for an evaluation of our performance
against other publicly registered, non-listed REITs.



                                       24





Not all REITs, including publicly registered, non-listed REITs, calculate FFO
and MFFO the same way. Accordingly, comparisons with other REITs, including
publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO
and MFFO are not indicative of cash flow available to fund cash needs and should
not be considered as an alternative to net income (loss) or income (loss) from
continuing operations as determined under GAAP as an indication of our
performance, as an alternative to cash flows from operations as an indication of
our liquidity, or indicative of funds available to fund our cash needs including
our ability to make distributions to our stockholders. FFO and MFFO should be
reviewed in conjunction with other GAAP measurements as an indication of our
performance. FFO and MFFO should not be construed to be more relevant or
accurate than the current GAAP methodology in calculating net income or in its
applicability in evaluating our operating performance. The methods utilized to
evaluate the performance of a publicly registered, non-listed REIT under GAAP
should be construed as more relevant measures of operational performance and
considered more prominently than the non-GAAP measures, FFO and MFFO, and the
adjustments to GAAP in calculating FFO and MFFO.



Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade
group has passed judgment on the acceptability of the adjustments that we use to
calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade
group may publish updates to the White Paper or the Practice Guidelines or the
SEC or another regulatory body could standardize the allowable adjustments
across the publicly registered, non-listed REIT industry, and we would have to
adjust our calculation and characterization of FFO or MFFO accordingly.



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



                                                                       For the
                                                                  Three Months Ended
                                                                      March 31,
Description                                                       2022          2021
Net (loss)/income                                              $   (1,379 )   $  27,112
FFO adjustments:
Depreciation and amortization of real estate assets                 4,919  

2,910

Gain on sale of investment property                                     -  
    (27,825 )
FFO                                                                 3,540         2,197
MFFO adjustments:
Other adjustments:
Acquisition and other transaction related costs expensed(1)             -  

Noncash adjustments:
Mark to market adjustments(2)                                        (618 )

(2 )
Non-recurring gain from extinguishment/sale of debt,
derivatives or securities holdings(3)

                                  (4 )          (8 )
MFFO before straight-line rent                                      2,918  

2,187

Straight-line rent(4)                                                   -  

MFFO - IPA recommended format                                  $    2,918  

$ 2,187

Net (loss)/income                                              $   (1,379 )   $  27,112
Less: income attributable to noncontrolling interests                   -           (77 )
Net (loss)/income applicable to Company's common shares        $   (1,379 )   $  27,035
Net (loss)/income per common share, basic and diluted          $    (0.07 )

$ 1.34

FFO                                                            $    3,540     $   2,197
Less: FFO attributable to noncontrolling interests                      -          (150 )
FFO attributable to Company's common shares                    $    3,540     $   2,047
FFO per common share, basic and diluted                        $     0.18  

$ 0.10

MFFO - IPA recommended format                                  $    2,918     $   2,187
Less: MFFO attributable to noncontrolling interests                     -          (150 )
MFFO attributable to Company's common shares                   $    2,918  

$ 2,037


Weighted average number of common shares outstanding, basic
and diluted                                                        20,110        20,193




                                       25






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 not be paid or reimbursed, as

applicable, to our advisor even if there are no further proceeds from the sale

of shares in our offering, and therefore such fees and expenses would need to

be paid from either additional debt, operational earnings or cash flows, net

proceeds from the sale of properties or from ancillary cash flows.

2) Management believes that adjusting for mark-to-market adjustments is

appropriate because they are nonrecurring items that may not be reflective of

ongoing operations and reflects 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 equity 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.

3) 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.

4) 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.




Distributions



We made an election to qualify as a REIT for federal income tax purposes
commencing with our taxable year ended December 31, 2008. U.S. federal tax law
requires a REIT to distribute at least 90% of its annual REIT taxable income
(which does not equal net income, as calculated in accordance with generally
accepted accounting principles, or GAAP) determined without regard to the
deduction for dividends paid and excluding any net capital gain. In order to
continue to qualify for REIT status, we may be required to make distributions in
excess of cash available. Distributions, if any, are authorized at the
discretion of our board of directors based on their analysis of our performance
over the previous periods and expectations of performance for future periods.
Such analyses may include actual and anticipated operating cash flow, capital
expenditure needs, general financial and market conditions, proceeds from asset
sales and other factors that our board of directors deems relevant. Our board of
directors' decisions will be substantially influenced by their obligation to
ensure that we maintain our federal tax status as a REIT. We cannot provide
assurance that we will pay distributions at any particular level, or at all.



Off-Balance Sheet Arrangements




We have no off-balance sheet arrangements that are reasonably likely to have a
current or future material effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures, or capital resources.



                                       26




Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with GAAP. The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.



Our critical accounting policies and estimates have not changed significantly
from the discussion found in the Management Discussion and Analysis and Results
of Operations in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 24, 2022.

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