Lightstone Value Plus REIT I, Inc. - Quarter Report: 2011 September (Form 10-Q)

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-52610

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland		20-1237795
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1985 Cedar Bridge Avenue, Suite 1
Lakewood, New Jersey		08701
(Address of Principal Executive Offices)		(Zip Code)

(732) 367-0129

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ¨ No þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No þ

As of November 4, 2011, there were approximately 31.9 million outstanding shares of common stock of Lightstone Value Plus Real Estate Investment Trust, Inc., including 3.3 million shares issued pursuant to the dividend reinvestment plan.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

INDEX

		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010	3

	Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2011 and 2010	4

	Consolidated Statement of Stockholders’ Equity and Comprehensive Income (unaudited) for the Nine Months Ended September 30, 2011	5

	Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2011 and 2010	6

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

Item 4.	Controls and Procedures	45

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 3.	Defaults Upon Senior Securities	47

Item 4.	Removed and Reserved	47

Item 5.	Other Information	47

Item 6.	Exhibits	47

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except per share data)

	As of September 30, 2011			As of December 31, 2010
	(unaudited)
Assets
Investment property:
Land and improvements	$	72,677		$	51,481
Building and improvements		213,834			207,228
Furniture and fixtures		3,843			1,704
Construction in progress		560			266
Gross investment property		290,914			260,679
Less accumulated depreciation		(22,420	)		(16,883	)
Net investment property		268,494			243,796
Investments in unconsolidated affiliated real estate entities		21,070			14,890
Cash and cash equivalents		9,079			24,318
Marketable securities, available for sale		114,263			172,379
Restricted marketable securities, available for sale		40,228			33,946
Restricted escrows		33,646			16,028
Tenant accounts receivable (net of allowance for doubtful accounts of $169 and $367, respectively)		2,468			1,548
Mortgages receivable		21,293			-
Intangible assets, net		2,899			1,796
Interest receivable from related parties		1,432			1,950
Prepaid expenses and other assets		8,541			6,807

Total Assets	$	523,413		$	517,458
Liabilities and Stockholders' Equity
Mortgages payable	$	206,968		$	195,523
Margin loan		1,005			-
Accounts payable and accrued expenses		9,007			4,685
Due to sponsor		588			301
Loans due to affiliates		473			1,493
Tenant allowances and deposits payable		1,116			880
Distributions payable		5,602			5,604
Deferred rental income		1,197			1,285
Acquired below market lease intangibles, net		436			548
Deferred gain on disposition		30,287			32,176
Total Liabilities		256,679			242,495
Commitments and contingencies (See Note 15)
Stockholders' equity:
Company's Stockholders Equity:
Preferred shares, $0.01 par value, 10,000 shares authorized, none outstanding		-			-
Common stock, $.01 par value; 60,000 shares authorized, 31,698 and 31,614 shares issued and outstanding in 2011 and 2010, respectively		317			316
Additional paid-in-capital		282,722			281,733
Accumulated other comprehensive income		9,075			4,840
Accumulated distributions in excess of net earnings		(60,210	)		(42,858	)
Total Company's stockholders' equity		231,904			244,031
Noncontrolling interests		34,830			30,932
Total Stockholders' Equity		266,734			274,963

Total Liabilities and Stockholders' Equity	$	523,413		$	517,458

The accompanying notes are an integral part of these consolidated financial statements.

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data) (UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Revenues:
Rental income	$	8,931		$	6,918		$	24,784		$	20,707
Tenant recovery income		1,354			1,206			3,833			3,530
Other service income		1,883			-			4,477			-

Total revenues		12,168			8,124			33,094			24,237

Expenses:
Property operating expenses		6,276			3,043			15,905			8,975
Real estate taxes		1,149			915			3,031			2,768
Loss on long-lived assets		-			-			-			1,124
General and administrative costs		1,680			1,904			5,774			7,131
Franchise cancellation expense		-			-			1,234			-
Depreciation and amortization		2,147			1,881			6,264			4,680

Total operating expenses		11,252			7,743			32,208			24,678
Operating income/(loss)		916			381			886			(441	)

Other income, net		373			148			538			493
Mark to market adjustment on derivative financial instruments		2,552			-			(4,782	)		-
Interest income		4,331			999			12,225			3,132
Interest expense		(3,098	)		(2,932	)		(9,094	)		(8,649	)
Gain on disposition of unconsolidated affiliated real estate entities		2,824			142,780			2,824			142,780
Gain/(loss) on sale of marketable securities		65			-			(2,929	)		67
Income/(loss) from investments in unconsolidated affiliated real estate entities		15			(7,838	)		(285	)		(11,555	)
Net income/(loss) from continuing operations		7,978			133,538			(617	)		125,827
Net income from discontinued operations		-			87			-			16,443
Net income/(loss)		7,978			133,625			(617	)		142,270

Less: net income attributable to noncontrolling interests		(485	)		(2,064	)		(132	)		(2,191	)
Net income/(loss) attributable to common shares	$	7,493		$	131,561		$	(749	)	$	140,079

Basic and diluted earnings/(loss) per common share:
Continuing operations	$	0.24		$	4.13		$	(0.02	)	$	3.89
Discontinued operations		-			-			-			0.52
Net earnings/(loss) per common share	$	0.24		$	4.13		$	(0.02	)	$	4.41

Weighted average number of common shares outstanding, basic and diluted		31,726			31,818			31,682			31,758

The accompanying notes are an integral part of these consolidated financial statements.

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPRESHENSIVE INCOME

(Amounts in thousands) (UNAUDITED)

	Common Shares
	Number of Shares			Amount			Additional Paid-In Capital			Accumulated Other Comprehensive Income		Accumulated Distributions in Excessof Net Earnings			Total Noncontrolling Interests			Total Equity
BALANCE, December 31, 2010		31,614		$	316		$	281,733		$	4,840	$	(42,858	)	$	30,932		$	274,963

Comprehensive income/(loss):
Net loss/(income)		-			-			-			-		(749	)		132			(617	)
Unrealized gains on available for sale securities		-			-			-			3,992		-			63			4,055
Reclassification adjustment for gain realized in net loss		-			-			-			243		-			4			247

Total comprehensive income, net																			3,685

Distributions declared		-			-			-			-		(16,603	)		-			(16,603	)
Distributions paid to noncontrolling interests		-			-			-			-		-			(5,402	)		(5,402	)
Contributions received from noncontrolling interests		-			-			-			-		-			9,101			9,101
Redemption and cancellation of shares		(503	)		(5	)		(4,577	)		-		-			-			(4,582	)
Shares issued from distribution reinvestment program		587			6			5,566			-		-			-			5,572

BALANCE, September 30, 2011		31,698		$	317		$	282,722		$	9,075	$	(60,210	)	$	34,830		$	266,734

The accompanying notes are an integral part of these consolidated financial statements.

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)(UNAUDITED)

	For the Nine Months Ended September 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)/income	$	(617	)	$	142,270
Less net income - discontinued operations		-			16,443
Net (loss)/income from continuing operations		(617	)		125,827
Adjustments to reconcile net (loss)/income to net cash provided by operating activities:
Depreciation and amortization		6,264			4,680
Mark to market adjustment on derivative financial instruments		4,782			-
Loss/(gain) on sale of marketable securities		2,929			(67	)
Gain on disposition of unconsolidated affiliated real estate entities		(2,824	)		(142,780	)
Loss from investments in unconsolidated affiliated real estate entities		285			11,555
Other non-cash adjustments		(678	)		1,488
Changes in assets and liabilities:
(Increase)/decrease in prepaid expenses and other assets		(222	)		281
Increase in tenant and other accounts receivable		(850	)		(789	)
Increase in tenant allowance and security deposits payable		(266	)		(13	)
Increase in accounts payable and accrued expenses		2,759			3,443
Increase in due to Sponsor		287			1,268
(Decrease)/increase in deferred rental income		(88	)		187
Net cash provided by operating activities - continuing operations		11,761			5,080
Net cash provided by operating activities - discontinued operations		-			1,535
Net cash provided by operating activities		11,761			6,615

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment property, net		(34,978	)		(1,308	)
Purchase of mortgages receivable		(20,449	)		-
Collections on mortgages receivable		27			-
Purchase of investment in unconsolidated affiliated real estate entities		(6,874	)		(2,487	)
Purchase of marketable securities		(95,184	)		(150,000	)
Proceeds from sale of marketable securities		148,392			429
Proceeds from disposition of investments in unconsolidated affiliated real estate entities		1,889			204,430
Redemption payments from investment in affiliate		409			5,402
Deposit for purchase of real estate		(4,318	)		-
Funding to restricted escrows		(1,689	)		(749	)

Net cash (used in)/provided by investing activities - continuing operations		(12,775	)		55,717
Net cash provided by investing activities - discontinued operations		-			(1,951	)
Net cash (used in)/provided by investing activities		(12,775	)		53,766

CASH FLOWS FROM FINANCING ACTIVITIES:
Mortgage payments		(2,055	)		(2,006	)
Payment of loan fees and expenses		(239	)		(316	)
Payments from loans due to affiliates		(1,020	)		1,485
Redemption and cancellation of common stock		(4,582	)		(1,847	)
Net proceeds from margin loan		1,005			-
Distribution received from discontinued operations		-			(16	)
Contributions received from noncontrolling interests		9,101			-
Distributions paid to noncontrolling interests		(5,402	)		(18,412	)
Distributions paid to Company's common stockholders		(11,033	)		(9,756	)
Net cash used in financing activities - continuing operations		(14,225	)		(30,868	)
Net cash used in financing activities - discontinued operations		-			16
Net cash used in financing activities		(14,225	)		(30,852	)

Net change in cash and cash equivalents		(15,239	)		29,529
Cash and cash equivalents, beginning of period		24,318			17,077
Cash and cash equivalents, end of period	$	9,079		$	46,606

The accompanying notes are an integral part of these consolidated financial statements.

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

(Amounts in thousands) (UNAUDITED)

	For the Nine Months Ended September 30,
	2011		2010
Supplemental disclosure of cash flow information:
Cash paid for interest	$	8,625	$	8,658
Distributions declared	$	16,603	$	17,464
Loan proceeds placed in escrow	$	13,500
Value of shares issued from distribution reinvestment program	$	5,572	$	4,471
Loan due to affiliate converted to a distribution from investment in unconsolidated affiliated real estate entity	$	-	$	2,817
Marketable equity securities received in connection of disposal of investment in unconsolidated affiliated real estate entities	$	-	$	29,222
Restricted marketable equity securities received in connection of disposal of investment in unconsolidated affiliated real estate entities	$	-	$	30,287
Cash escrowed in connection of disposal of investment in unconsolidated affiliated real estate entities	$	-	$	1,889

The accompanying notes are an integral part of these consolidated financial statements.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

1. Organization

Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation (together with the Operating Partnership (as defined below), the “Company”) was formed on June 8, 2004 and subsequently qualified as a real estate investment trust (“REIT”) during the year ending December 31, 2006. The Company was formed primarily for the purpose of engaging in the business of investing in and owning commercial and residential real estate properties located throughout the United States and Puerto Rico.

The Company is structured as an umbrella partnership real estate investment trust, or UPREIT, and substantially all of the Company’s current and future business is and will be conducted through Lightstone Value Plus REIT, L.P., a Delaware limited partnership formed on July 12, 2004 (the “Operating Partnership”), the Company as the general partner, held a 98.4% interest as of September 30, 2011. The Company is managed by Lightstone Value Plus REIT, LLC (the “Advisor”), an affiliate of the Lightstone Group (the “Sponsor”), under the terms and conditions of an advisory agreement. The Sponsor and Advisor are owned and controlled by David Lichtenstein, the Chairman of the Company’s board of directors (the “Board”) and its Chief Executive Officer.

The Company’s stock is not currently listed on a national securities exchange. The Company may seek to list its stock for trading on a national securities exchange only if a majority of its independent directors believe listing would be in the best interest of its stockholders. The Company does not intend to list its shares at this time. The Company does not anticipate that there would be any market for its common stock until its shares are listing for trading. In the event the Company does not obtain listing prior to October 10, 2018 (the tenth anniversary of the completion of its initial public offering, its charter requires that the 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.)

As of September 30, 2011, on a collective basis, the Company (i) wholly owned and consolidates the operating results and financial condition of 4 retail properties containing a total of approximately 0.7 million square feet of retail space, 15 industrial properties containing a total of approximately 1.3 million square feet of industrial space, 6 multi-family residential properties containing a total of 1,585 units, and 2 hotel hospitality properties containing a total of 290 rooms, (ii) majority owned and consolidates the operating results and financial condition of 1 hotel hospitality property containing 366 rooms and a 65,000 square foot water park and 1 residential development project, and (iii) owned interests accounted for under the equity method of accounting in 1 office property containing a total of approximately 1.1 million square feet of office space and 2 development outlet center retail projects. All of the Company’s properties are located within the United States. As of September 30, 2011, the retail properties, the industrial properties, the multi-family residential properties and the office property were 84.4%, 79.8%, 93.8% and 81.8% occupied based on a weighted-average basis, respectively. Its hotel hospitality properties’ average revenue per available room (“Rev PAR”) was $38.57 and occupancy was 63.9%, respectively for the nine months ended September 30, 2011.

During 2010, as a result of the Company defaulting on the debt related to three properties within its multi-family segment due to the properties no longer being economically beneficial to the Company, the lender foreclosed on these three properties. The operating results of these three properties through their respective dates of disposition have been classified as discontinued operations on a historical basis for all periods presented.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of the Company and the Operating Partnership and its subsidiaries (over which the Company exercises financial and operating control). All inter-company balances and transactions have been eliminated in consolidation.

The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of the Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010. The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair statement of the results for the periods presented. The accompanying unaudited consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust, Inc. and its Subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year presentation.

New Accounting Pronouncements

In June 2011, the FASB issued amended guidance for presenting comprehensive income, which will be effective for the Company beginning January 1, 2012. The amended guidance eliminates the option to present other comprehensive income and its components in the statement of stockholders' equity. The Company may elect to present the items of net income and other comprehensive income in a single continuous statement of comprehensive income or in two separate, but consecutive, statements. Under either method the statement would need to be presented with equal prominence as the other primary financial statements. The Company does not expect the adoption of the amended guidance to have a significant impact on its consolidated financial statements.

In May 2011, the FASB issued amended guidance for measuring fair value and required disclosure information about such measures, which will be effective for the Company beginning January 1, 2012, and applied prospectively. The amended guidance requires an entity to disclose all transfers between Level 1 and Level 2 of the fair value hierarchy as well as provide quantitative and qualitative disclosures related to Level 3 fair value measurements. Additionally, the amended guidance requires an entity to disclose the fair value hierarchy level which was used to determine the fair value of financial instruments that are not measured at fair value, but for which fair value information must be disclosed. The Company does not expect the adoption of the amended guidance to have a significant impact on its consolidated financial statements.

In December 2010, the Financial Accounting Standards Board (“FASB”) issued guidance requiring disclosure of pro forma information for business combinations that occurred in the current reporting period. The required disclosures include pro forma revenue and earnings of the combined entity as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the comparable prior annual reporting period. The guidance is effective prospectively for business combinations in which the acquisition date is on or after the first day of the annual period beginning on or after December 15, 2010. The adoption of this guidance had no impact on the consolidated financial statements but could result in the Company providing additional annual pro forma disclosures for significant business combinations that occur subsequent to December 31, 2010, if applicable.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The Company has determined that all other recently issued accounting pronouncements will not have a material impact on its consolidated financial position, results of operations and cash flows, or do not apply to its operations.

3. Simon Transaction

On December 8, 2009, the Company, its Operating Partnership and Pro-DFJV Holdings LLC (“PRO”), a Delaware limited liability company and a wholly-owned subsidiary of the Company (collectively, the “LVP Parties”) entered into a definitive agreement (“the “Contribution Agreement”) with Simon Property Group, Inc. (“Simon Inc.”), a Delaware corporation, Simon Property Group, L.P., a Delaware limited partnership (“Simon OP”), and Marco Capital Acquisition, LLC, a Delaware limited liability company (collectively, referred to herein as “Simon”) providing for the disposition of a substantial portion of the Company’s retail properties to Simon including the Company’s (i) St. Augustine Outlet Center, which is wholly owned, (ii) 40.00% interests in its investment in Prime Outlets Acquisition Company (“POAC”), which includes 18 operating outlet center properties (the “POAC Properties”) and two development projects, Livermore Valley Holdings, LLC (“Livermore”) and Grand Prairie Holdings LLC (“Grand Prairie”), and (iii) 36.80% interests in its investment in Mill Run LLC (“Mill Run”), which includes 2 operating outlet center properties (the “Mill Run Properties”). On June 28, 2010, the Contribution Agreement was amended to remove the previously contemplated dispositions of St. Augustine and the Company’s 40.00% interests in both Livermore and Grand Prairie. The transactions contemplated by the Contribution Agreement, as amended, are referred to herein as the “Simon Transaction”.

Additionally, certain affiliates of the Company’s Sponsor were parties to the Contribution Agreement, pursuant to which they would simultaneously dispose of their respective interests in POAC and Mill Run and certain other outlet center properties, in which the LVP Parties had no ownership interest, to Simon. Furthermore, as a result of the aforementioned amendment to the Contribution Agreement, the St. Augustine Outlet Center no longer met the criteria to be classified as held for sale and was reclassified to held for use effective as of June 28, 2010. The Company’s 40.00% and 36.80% interests in investments in POAC, including Grand Prairie and Livermore, and Mill Run, respectively, have been accounted for as investments in unconsolidated affiliated real estate entities since their acquisition.

On August 30, 2010, the Simon Transaction was completed and, as a result, the LVP Parties received total consideration, before allocations to noncontrolling interests, of approximately $265.8 million (the “Aggregate Consideration Value”) , after certain transaction expenses of approximately $9.6 million which was paid at closing. The Aggregate Consideration Value consisted of approximately (i) $204.4 million in the form of cash, (ii) $1.9 million of escrowed cash (the “Escrowed Cash”) and (iii) $59.5 million in the form of equity interests (“Marco OP Units”).

The cash consideration of $204.4 million that the LVP Parties received in connection with the closing of the Simon Transaction was paid by Simon with the proceeds from a draw under a revolving credit facility (the “Simon Loan”) that Simon entered into contemporaneously with the signing of the Contribution Agreement. In connection with the closing of the Simon Transaction, the LVP Parties have provided guaranties of collection (the “Simon Loan Collection Guaranties”) with respect to the Simon Loan. See Note 15. The Escrowed Cash of $1.9 million is included in restricted escrows in the consolidated balance sheet as of December 31, 2010. The equity interests that the LVP Parties received in connection with the closing of the Simon Transaction consisted of 703,737 Marco OP Units that are exchangeable for a similar number of common operating partnership units (“Simon OP Units”) of Simon Property Group, L.P. (“Simon OP”) subject to various conditions as discussed below. Subject to the various conditions, the Company may elect to exchange the Marco OP Units to Simon OP Units which must be immediately delivered to Simon in exchange for cash or similar number of shares of Simon common stock, based on the then current weighted-average 5-day closing price of Simon’s common stock (“Simon Stock”), at Simon’s election.

Although the Marco OP Units may be immediately exchanged into Simon OP Units, if upon their delivery to Simon, Simon elects to exchange them for a similar number of shares of Simon Stock rather than cash, the LVP Parties will be precluded from selling the Simon Stock for a 6-month period from the date of issuance. Additionally, because the Company is required to indemnify Simon OP and Simon for any liabilities and obligations (the “TPA Obligations”) that should arise under certain tax protection agreements (the “POAC/Mill Run Tax Protection Agreements”) through March 1, 2012 (see Note 15), the Company was required to place 367,778 of the Marco OP Units (the “Escrowed Marco OP Units”) into an escrow account.

Pursuant to the Contribution Agreement, as amended, there was a period after closing, of up to 215 days, for the Aggregate Consideration Value to be finalized between the LVP Parties and Simon. However, the Company and Simon agreed to extend the period and the Aggregate Consideration Value was finalized during the third quarter of 2011. The Escrowed Cash and the Escrowed Units were reserved for the final settlement of certain consideration adjustments (collectively, the “Final Consideration Adjustments”) related to net working capital reserves, including the true-up of debt assumption costs, certain indemnified liabilities and specified transaction costs. The Escrowed Marco OP Units also could have been used to cover any shortfalls resulting from the Final Consideration Adjustments not covered by the Escrowed Cash. In connection with the finalization of the Aggregate Consideration Value, the entire Escrowed Cash, plus interest was, released to the Company during the third quarter of 2011. The Escrowed Marco Units, net of any amounts used to settle shortfalls resulting from the TPA Obligations, will be released to the Company on March 1, 2012.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The Escrowed Marco OP Units had an estimated fair value of $30.3 million as of the closing date of the Simon Transaction and are classified as restricted marketable securities, which are available for sale, in the consolidated balance sheets as of September 30, 2011 and December 31, 2010. The 335,959 Marco OP Units which were not placed in an escrow had an estimated fair value of $29.2 million as of the closing date of the Simon Transaction and are classified as marketable securities, which are available for sale, in the consolidated balance sheets as of September 30, 2011 and December 31, 2010 . The estimated fair value of the Marco OP Units and the Escrowed Marco OP Units were based on the weighted-average closing price of Simon’s common stock for the 5-day period immediately prior to the closing date, discounted for certain factors, including the applicable various conditions.

In connection with the closing of the Simon Transaction, the Company initially recognized a gain on disposition of approximately $142.8 million in the consolidated statements of operations during the third quarter of 2010. The Company also deferred an additional $32.2 million of gain (the “Deferred Gain”) on the consolidated balance sheet consisting of the total of the (i) $1.9 million of Escrowed Cash and (ii) $30.3 million of Restricted Marco OP Units received as part of the Aggregate Consideration Value because realization of these items was subject to the Final Consideration Adjustments and the TPA Obligations. An additional $0.1 million of transaction expenses were incurred by the Company during the fourth quarter of 2010 which reduced the recognized gain to approximately $142.7 million for the year ended December 31, 2010. During the third quarter of 2011, the Company recognized an additional $2.8 million gain on the Simon Transaction consisting of the full return of the Escrowed Cash, plus interest, to the Company and certain other items. As a result, the remaining Deferred Gain reflected on our consolidated balance sheet was $30.3 million as of September 30, 2011.

PRO’s portion of the aforementioned $204.4 million of net cash proceeds received from the closing of the Simon Transaction were approximately $73.5 million, which were distributed to its members (the “PRO Distributions”) during the third quarter of 2010 pursuant to its operating agreement.

4. Investments in Unconsolidated Affiliated Real Estate Entities

The entities listed below are partially owned by the Company. The Company accounts for these investments under the equity method of accounting as the Company exercises significant influence, but does not control these entities. A summary of the Company’s investments in unconsolidated affiliated real estate entities is as follows:

					As of
Real Estate Entity	Date(s) Acquired	Ownership Interest			September 30, 2011		December 31, 2010
Livermore Valley Holdings LLC ("Livermore")	March 30, 2009 & August 25, 2009		40.00	%	$	12,880	$	7,102
Grand Prairie Holdings LLC ("Grand Prairie")	March 30, 2009 & August 25, 2009		40.00	%		8,190		7,482
1407 Broadway Mezz II, LLC ("1407 Broadway")	January 4, 2007		49.00	%		-		306
Total Investments in unconsolidated affiliated real estate entities					$	21,070	$	14,890

Livermore Valley Holdings LLC

Livermore was wholly owned by POAC through August 30, 2010. In connection with the closing of the Simon Transaction, the Company retained its 40.00% interest in investment in Livermore. The Operating Partnership owns a 40.00% membership interest in Livermore (the “Livermore Interest”). The Livermore Interest is a non-managing interest, with certain consent rights with respect to major decisions. An affiliate of the Company’s Sponsor, is the majority owner and manager of Livermore. Contributions are allocated in accordance with each investor’s ownership percentage. Profit and cash distributions, if any, will be allocated in accordance with each investor’s ownership percentage.

On July 29, 2011, Livermore, through an affiliate, closed on commitments for a construction loan and a mezzanine loan (collectively, the “Livermore Development Loan”) in an aggregate amount of approximately $137.8 million from Livermore Lender, LLC (the “Livermore Lender”), an unrelated third party, to fund the costs associated with the development of Paragon Outlets at Livermore Valley (the “Livermore Project”), an outlet center currently under construction which is located in Livermore, California, east of San Francisco.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The Livermore Project will consist of 512,000 square feet of gross leasable area (“GLA”) at a total expected cost of $165.0 million and is currently expected to open in the fall of 2012.

At closing, the Livermore Lender advanced an aggregate of approximately $11.5 million under the Livermore Development Loan. As of September 30, 2011, the outstanding aggregate balance outstanding on the Livermore Development Loan, of which the construction loan and the mezzanine loan are co-funded at a ratio of approximately 79% and 21%, respectively, was approximately $13.7 million and the remaining unfunded commitment aggregated $124.1 million. The proceeds from the closing of the Livermore Development Loan, net of fees and other costs, along with an additional $10.3 million (of which the Company’s share was $4.1 million) of member contributions funded at closing were primarily used to simultaneously acquire three parcels of land for the Livermore Project.

The Livermore Development Loan has an initial term of 2 years from closing and, subject to satisfaction of certain conditions, has two one-year extension options. The Livermore Development Loan bears interest at a fixed rate of 7%, which accrues to principal during the initial term, and the Livermore Lender will earn a 15% internal rate of return on the mezzanine portion which is due at final maturity.

Livermore had no operating results through September 30, 2011. The Company made additional capital contributions of approximately $5.8 million to Livermore during the nine months ended September 30, 2011. The Company accounts for its Livermore Interest in accordance with the equity method of accounting.

Livermore Financial Information

The following table represents the unaudited condensed balance sheet for Livermore as of the dates indicated:

	As of		As of
	September 30, 2011		December 31, 2010
Construction in progress	$	48,509	$	18,217
Cash		1,119	$	-

Total assets	$	49,628	$	18,217

Mortgage payable	$	13,736	$	-
Other liabilities		2,817		1,249
Members' capital		33,075		16,968

Total liabilities and members' capital	$	49,628	$	18,217

Grand Prairie Holdings LLC

Grand Prairie was wholly owned by POAC through August 30, 2010. In connection with the closing of the Simon Transaction, the Company retained its 40.00% interest in investment in Grand Prairie. The Operating Partnership owns a 40.00% membership interest in Grand Prairie (the “Grand Prairie Interest”). The Grand Prairie Interest is a non-managing interest, with certain consent rights with respect to major decisions. An affiliate of the Company’s Sponsor is the majority owner and manager of Grand Prairie. Contributions are allocated in accordance with each investor’s ownership percentage. Profit and cash distributions, if any, will be allocated in accordance with each investor’s ownership percentage.

On May 20, 2011, Grand Prairie, through an affiliate, closed on commitments for a construction loan and a mezzanine loan (collectively, the “GP Development Loan”) in an aggregate amount of $98.0 million from Grand Prairie Lender, LLC (the “GP Lender”), an unrelated third party, to fund the costs associated with the development of Paragon Outlets at Grand Prairie (the “Grand Prairie Project”), an outlet center currently under construction which is located in Grand Prairie, Texas, between Dallas and Fort Worth.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The Grand Prairie Project will consist of approximately 418,000 square feet of GLA at a total expected cost of approximately $116.5 million and is currently expected to open in the summer of 2012. As of September 30, 2011, the outstanding aggregate balance outstanding on the GP Development Loan, of which the construction loan and the mezzanine loan are co-funded at a ratio of approximately 79% and 21%, respectively, was approximately $11.5 million and the remaining unfunded commitment aggregated $86.5 million. The proceeds from the closing of the Grand Prairie Development Loan, net of fees and other costs, along with an additional $0.8 million (of which the Company’s share was $.03 million) of member contributions funded at closing were primarily used to pay certain development costs. The land for the Grand Prairie Project was previously acquired in 2008.

The GP Development Loan has an initial term of 2 years from closing and, subject to satisfaction of certain conditions, has two one-year extension options. The GP Development Loan bears interest at a fixed rate of 7%, which accrues to principal during the initial term, and the GP Lender will earn a 15% internal rate of return on the mezzanine portion which is due at final maturity.

Grand Prairie had no operating results through September 30, 2011, other than other ancillary income of $36 and $52 for the three and nine months ended September 30, 2011, respectively (of which the Company’s proportionate share was $14 and $21, respectively) that resulted from Grand Prairie’s leasing of certain mineral rights on the property that it owns. The Company made additional capital contributions of approximately $1.1 million to Grand Prairie during the nine months ended September 30, 2011. The Company accounts for its Grand Prairie Interest in accordance with the equity method of accounting.

Grand Prairie Financial Information

The following table represents the unaudited condensed balance sheet for Grand Prairie as of the dates indicated:

	As of		As of
	September 30, 2011		December 31, 2010

Construction in progress	$	37,280	$	18,697
Other assets		429		3

Total assets	$	37,709	$	18,700

Mortgage payable	$	11,532	$	-
Other liabilities		6,445		303
Members' capital		19,732		18,397

Total liabilities and members' capital	$	37,709	$	18,700

1407 Broadway Mezz II, LLC

As of September 30, 2011, the Company has a 49.00% ownership in 1407 Broadway Mezz II, LLC (“1407 Broadway”), which has a sub-leasehold interest in a ground lease to an office building located at 1407 Broadway Street in New York, New York. As the Company has recorded this investment in accordance with the equity method of accounting, its portion of 1407 Broadway’s total indebtedness of approximately $127.3 million as of September 30, 2011 is not included in the Company’s investment. Earnings for this investment are recognized in accordance with this investment. During the second quarter of 2011, the Company’s share of cumulative losses from resulting from its investment in 1407 Broadway brought the carrying value of its investment in 1407 Broadway to zero. Since the Company is not obligated to fund 1407 Broadway’s deficits and the balance of the Company’s investment in 1407 Broadway is zero the Company has suspended the recording of its portion of equity losses or earnings from 1407 Broadway until such time as the Company’s investment in 1407 Broadway is greater than zero.

During March 2010, the Company entered a demand grid note to borrow up to $20.0 million from 1407 Broadway. During the quarters ended June 30, 2010 and September 30, 2010, the Company received aggregate loan proceeds from 1407 Broadway associated with this demand grid note in the amount of $490 and $980, respectively. During the nine months ended September 30, 2011, the Company made principal payments of approximately $1.0 million to 1407 Broadway. The loan bears interest at LIBOR plus 2.5%. The principal and interest on this loan is due the earlier of February 28, 2020 or on demand. As of September 30, 2011 and December 31, 2010, the outstanding principal and interest of approximately $0.5 million and $1.5 million, respectively, is recorded in loans due to affiliates in the consolidated balance sheets.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

1407 Broadway Financial Information

The following table represents the unaudited condensed income statement for 1407 Broadway for the periods indicated:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2011			2010			2011			2010

Total revenue	$	7,649		$	9,297		$	25,641		$	26,643
Property operating expenses		7,236			7,797			21,440			20,625
Depreciation and amortization		1,545			1,558			4,465			4,643
Operating (loss)/income		(1,132	)		(58	)		(264	)		1,375
Interest expense and other, net		(649	)		(1,223	)		(2,677	)		(3,466	)
Net loss	$	(1,781	)	$	(1,281	)	$	(2,941	)	$	(2,091	)
Company's share of net loss (49%)	$	-		$	(628	)	$	(306	)	$	(1,025	)

The following table represents the unaudited condensed balance sheet for 1407 Broadway as of the dates indicated:


	As of			As of
	September 30, 2011			December 31, 2010

Real estate, at cost (net)	$	110,271		$	112,213
Intangible assets		734			1,068
Cash and restricted cash		12,604			9,788
Other assets		14,973			17,373
Total assets	$	138,582		$	140,442

Mortgage payable	$	127,250		$	126,575
Other liabilities		13,790			13,384
Members' (deficiency)/capital		(2,458	)		483

Total liabilities and members'(deficiency)/capital	$	138,582		$	140,442

5. CP Boston Joint Venture

On February 17, 2011, the Company’s Sponsor and Advisor, the Lightstone Group (the “Buyer”), made a successful auction bid to acquire a 366-room, eight-story, full-service hotel (the “Hotel”) and a 65,000 square foot water park (the “Water Park”), collectively, the “CP Boston Property”, located at 50 Ferncroft Road, Danvers, Massachusetts (part of the Boston “Metropolitan Statistical Area”) from WPH Boston, LLC (the “Seller”) for an aggregate purchase price of approximately $10.1 million, excluding closing and other related transaction costs. Pursuant to the terms of the Agreement of Purchase and Sale and Joint Escrow Instructions (the “PSA”) dated February 17, 2011, between the Buyer and the Seller, the Buyer made an earnest money deposit of approximately $1.0 million on February 18, 2011 representing 10% of the aggregate purchase price.

On March 4, 2011, the Buyer offered the Company and its other sponsored public program, the Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone REIT II”), through their respective operating partnerships, the opportunity to purchase, at cost, joint venture ownership interests in LVP CP Boston Holdings, LLC (“the CP Boston Joint Venture”) which will acquire the CP Boston Property through LVP CP Boston, LLC (“LVP CP Boston”), a wholly owned subsidiary, subject to the Buyer obtaining the Seller’s consent which was obtained on March 21, 2011. The Company’s Board of Directors and Lightstone REIT II’s Board of Directors approved 80% and 20% participations, respectively, in the CP Boston Joint Venture. During the second quarter of 2011, Lightstone REIT II contributed $2.1 million to the CP Boston Joint Venture.

On March 21, 2011, the CP Boston Joint Venture closed on the acquisition of the CP Boston Property and the Company’s share of the aggregate purchase price was approximately $8.0 million. Additionally, in connection with the acquisition, the Company’s Advisor received an acquisition fee equal to 2.75% of the acquisition price, or approximately $0.2 million. The Company’s portion of the acquisition was funded with cash. During the second quarter of 2011, management of the CP Boston Property decided to rebrand the hotel property and incurred a franchise cancellation fee of approximately $1.2 million.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

The CP Boston Joint Venture established a taxable subsidiary, LVP CP Boston Holding Corp., which has entered into an operating lease agreement for the CP Boston Property. At closing, LVP CP Boston Holding Corp. also entered into an interim management agreement with Sage Client 289, LLC, an unrelated third party, for the management of the Hotel and the Water Park.

The Seller was not affiliated with the Company or its affiliates

The capitalization rate for the acquisition of the CP Boston Property during 2011 was 9.0%. The Company calculates the capitalization rate for real property by dividing the net operating income of the property by the purchase price of the property, excluding costs. For purposes of this calculation, net operating income is determined using the projected or budgeted net operating income of the property based upon then-current projections. Additionally, net operating income is all gross revenues from the property less all operating expenses, including property taxes and management fees but excluding depreciation and amortization.

The Company’s interest in the CP Boston Joint Venture is a managing interest. All distributions from the CP Boston Joint Venture will be made on a pro rata basis in proportion to each member’s equity interest percentage. Beginning on March 21, 2011, the Company has consolidated the operating results and financial condition of the CP Boston Joint Venture and accounted for the ownership interest of Lightstone REIT II as a noncontrolling interest.

The acquisition was accounted for under the purchase method of accounting with the Company treated as the acquiring entity. Accordingly, the consideration paid by the Company to complete the acquisition has been allocated to the assets acquired based upon their fair values as of the date of the acquisition. The allocation of purchase price is based upon certain preliminary valuations and other analyses that have not been completed as of the date of this filing. Any changes in the estimated fair values of the net assets recorded for these acquisitions prior to the finalization of more detailed analyses will change the allocation of the purchase price. As such, the purchase price allocations for this transaction are preliminary estimates, which are subject to change within the measurement period. Any subsequent changes to the purchase price allocations that are material will be adjusted retroactively. There was no contingent consideration related to this acquisition.

The Company paid approximately $9.1 million in cash and assumed approximately $1.2 million in liabilities. Approximately $1.0 million was allocated to land, $5.6 million was allocated to building and improvements, $2.0 million was allocated to furniture and fixtures, and the remaining $1.7 million was allocated to intangibles with a life of 10 years and other assets.

For the three and nine months ended September 30, 2011 approximately $3.6 million and $7.8 million of revenue, respectively and $3.0 million and $6.7 million of property operating expenses, respectively are included in operating loss on the Company’s consolidated statements of operations from the CP Boston Joint Venture since the date of acquisition.

The following table provides unaudited pro forma results of operations for the periods indicated, as if CP Boston Joint Venture had been acquired at the beginning of each period presented. Such pro forma results are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the dates indicated, nor are they indicative of the future operating results of the combined company.

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2011		2010		2011			2010
Pro forma net revenue	$	12,168	$	11,972	$	36,507		$	36,105
Pro forma net income/(loss)	$	7,978	$	133,334	$	(921	)	$	123,812
Pro forma earnings/(loss) per share	$	0.25	$	4.19	$	(0.03	)	$	3.90

6. Option Agreement to Acquire an Interest in Festival Bay Mall

On December 8, 2010, FB Orlando Acquisition Company, LLC (the “Owner”), a previously wholly owned entity of David Lichtenstein (“Lichtenstein”), who does business as the Lightstone Group and is the sponsor of the Company, acquired Festival Bay Mall (the “Property”) for cash consideration of approximately $25.0 million (the “Contract Price”) from BT Orlando LP, an unrelated third party seller. Ownership of the Owner was be transferred to the A.S. Holdings LLC (“A.S. Holdings”), a wholly-owned entity of Lichtenstein, on or about June 26, 2011 (the “Transfer Date”) pursuant to the terms of a transfer and exchange agreement between various entities, including a qualified intermediary.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

On March 4, 2011, the Company, through the Operating Partnership, entered into an agreement with A.S. Holdings, providing the Operating Partnership an option to acquire a membership interest of up to 10% in A.S. Holdings. The option is exercisable in whole or in part, up to two times, by the Operating Partnership at any time, but in no event later than June 30, 2012. Although the option may be exercised immediately, if it is exercised in whole or in part before the Transfer Date, the closing on the acquisition of the applicable membership interests in A.S. Holdings will occur within 10 business days after the Transfer Date. The Company has not exercised its option, in whole or in part, as of the date of this filing. There can be no assurance that the Company will elect to exercise its option, in whole or in part, to purchase up to a 10% ownership interest in Festival Bay Mall.

The Property, which opened in 2003, consists of an approximately 751,000 square foot enclosed mall situated on 139 acres of land located at 5250 International Drive in Orlando close to the convergence of I-4 and the Florida Turnpike. The Property was built as a hybrid retail center with entertainment, destination retail and traditional in-line mall tenants. Concurrent with the closing of the acquisition, management of the Property was assumed by Paragon Retail Property Management LLC (“Paragon”), an affiliate of the Company’s sponsor. Paragon is currently evaluating redevelopment opportunities for the Property.

7. Participation in a Joint Venture Acquisition of a Second Mortgage Loan

On April 12, 2011, LVP Rego Park, LLC (“Rego Park”), a joint venture in which the Company and Lightstone REIT II have 90% and 10%, ownership interests, respectively, acquired a $19.5 million, nonrecourse second mortgage note (the “Second Mortgage Loan”) for approximately $14.8 million from Kelmar Company, LLC (the “Seller”), an unaffiliated third party. The purchase price reflects a discount of approximately $4.7 million to the outstanding principal balance. The Company’s share of the aggregate purchase price was approximately $13.6 million. Additionally, in connection with the purchase, the Company’s Advisor received an acquisition fee equal to 2.75% of its portion of the acquisition price, or approximately $0.4 million. The Company’s portion of the acquisition was funded with cash. Beginning on April 12, 2011, the Company has consolidated the operating results and financial condition of Rego Park and accounted for the ownership interest of Lightstone REIT II as a noncontrolling interest. The Second Mortgage Loan is recorded in mortgages receivable on the consolidated balance sheet.

The Second Mortgage Loan was originated by the Seller in May 2008 with an original principal balance of $19.5 million, is due May 31, 2013 and is collateralized by a 417 unit apartment complex located in Queens, New York. The Second Mortgage Loan bears an interest at a fixed rate of 5.0% per annum with monthly interest only payments of approximately $0.1 million through maturity. The Second Mortgage Loan is current with respect to debt service payments. The aforementioned discount is being amortized using the effective interest rate method through maturity.

8. Marketable Securities and Fair Value Measurements

Marketable Securities:

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

	As of September 30, 2011
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Equity Securities, primarily REITs	$	104	$	-	$	(71	)	$	33
Marco OP Units		29,222		7,727		-			36,949
Corporate Bonds and Preferred Equities		65,087		-		(8,260	)		56,827
Mortgage Backed Securities		20,530		14		(90	)		20,454
Total	$	114,943	$	7,741	$	(8,421	)	$	114,263

	As of December 31, 2010
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Equity Securities, primarily REITs	$	104	$	122	$	-		$	226
Marco OP Units		29,222		3,061		-			32,283
Mortgage Backed Securities		141,753		-		(1,883	)		139,870
Total	$	171,079	$	3,183	$	(1,883	)	$	172,379

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Since the Company purchased all of its corporate bonds and preferred equities and mortgage back securities (“MBS”) after September 30, 2010, all of these corporate bonds and preferred equities and MBS with unrealized losses as of September 30, 2011 and December 31, 2010 were in a loss position for less than 12 months.

The Company has access to a margin loan from a financial institution that holds custody of certain of the Company’s marketable securities. The margin loan is collateralized by the marketable securities in the Company’s account. The amounts available to the Company under the margin loan are at the discretion of the financial institution and not limited to the amount of collateral in its account. The amount outstanding under this margin loan is $1.0 million at September 30, 2011 and is due on demand. The margin loan bears interest at libor + 0.85% and interest expense on the margin loan was $0.1 and $0.3 for the three and nine months ended September 30, 2011.

Restricted Marketable Securities:

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

	As of September 30, 2011

	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Marco OP Units	$	30,287	$	9,941	$	-	$	40,228
Total	$	30,287	$	9,941	$	-	$	40,228

	As of December 31, 2010

	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Marco OP Units	$	30,287	$	3,659	$	-	$	33,946
Total	$	30,287	$	3,659	$	-	$	33,946

None of the Company’s restricted available for sale securities had unrealized losses as of September 30, 2011 and December 31, 2010.

On August 30, 2010, the Company disposed of certain of its interests in investment in unconsolidated affiliated real estate entities in connection with the closing of the Simon Transaction and received 367,778 of Escrowed Marco OP Units, with an adjusted cost basis valued at $30.3 million, and 335,959 Marco OP Units, with an adjusted cost basis valued at $29.2 million. The Escrowed Marco OP Units and the Marco OP Units are classified as restricted marketable securities, available for sale and marketable securities, available for sale, respectively, in the consolidated balance sheet as of September 30, 2011 and December 31, 2010.

All of the MBS were issued by various U.S. government-sponsored enterprises (Freddie Mac and Fannie Mae). The Company considers the declines in market value of its investment portfolio to be temporary in nature. The unrealized losses on the Company’s investments were caused primarily by changes in market interest rates or widening credit spreads. When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s amortized cost basis. As of September 30, 2011 and December 31, 2010, the Company did not recognize any impairment charges. As of September 30, 2011, the Company does not consider any of its investments to be other-than-temporarily impaired.

The Company may sell certain of its investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management. Additionally, for the three and nine months ended September 30, 2011, the Company realized $0.1 million of gross gains and $2.9 million of gross losses related to sales of securities and early redemptions of MBS by the security issuer. The maturities of the Company’s MBS generally range from 27 year to 30 years.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Derivative Financial Instruments

In order to manage risk related to changes in the price of Simon Stock, in October and November of 2010, the Company entered into a hedge of its Marco OP Units. The hedge transactions were executed with Morgan Stanley on 527,803 of the Marco Units (75% of the 703,737 total Marco OP Units). The hedges were structured as a collar where a series of puts were purchased at an average strike price of $90.32 per share and a series of calls were sold at an average strike price of $109.95 per share. Morgan Stanley is restricted under the agreement from assigning its rights to this hedge to another counter party.

The collateral for hedge is the greater of (i) the number of shares hedged times Simon stock price or (ii) 150% of the value of the calls sold times 30% less the value of the puts purchased. The initial collateral requirement was approximately $6.9 million and is subject to change based on changes in the share price of Simon stock. The hedge cost $5.6 million, or $10.70 per share, and expires in December 2013. The dividends, if any, on the hedged shares continue to accrue to the Company, however Morgan Stanley has the right to adjust the put strike price for any future increases in the dividend declared by Simon Inc.

The hedges were classified as fair value hedges and initially recorded on the consolidated balance sheets under prepaid and other assets with changes in the fair value of the hedge reported on the consolidated statements of operations. As of September 30, 2011, the fair value of the hedges was a liability of $1.7 million and recorded on the consolidated balance sheets under accounts payable and accrued expenses and the collateral requirement was approximately $3.5 million. As of December 31, 2010, the fair of the hedges was an asset of $3.1 million and the collateral requirement was approximately $6.9 million. The collateral was recorded on the consolidated balance sheets under restricted escrows. For the three and nine months ended September 30, 2011, a gain of $2.6 million and a loss of $4.8 million, respectively, was recorded within the consolidated statements of operations.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Marketable securities, available for sale, and derivative financial instruments measured at fair value on a recurring basis as of the dates indicated are as follows:

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

	Fair Value Measurement Using
As of September 30, 2011	Level 1		Level 2			Level 3		Total

Cash equivalents (money market accounts)	$	1,113	$	-		$	-	$	1,113

Marketable Securities:
Equity Securities, primarily REITs	$	33	$	-		$	-	$	33
Marco OP Units		-		36,949			-		36,949
Corporate Bonds and Preferred Equities		-		56,827			-		56,827
MBS		-		20,454			-		20,454
Total	$	33	$	114,230		$	-	$	114,263

Restricted Marketable Securities:
Marco OP Units	$	-	$	40,228		$	-	$	40,228
Total	$	-	$	40,228		$	-	$	40,228

Derivative Financial Instruments:
Marco OP Units Collar	$	-	$	(1,695	)	$	-	$	(1,695	)
Total	$	-	$	(1,695	)	$	-	$	(1,695	)

	Fair Value Measurement Using
As of December 31, 2010	Level 1		Level 2			Level 3		Total

Cash equivalents (money market accounts)	$	9,059	$	-		$	-	$	9,059

Marketable Securities:
Equity Securities, primarily REITs	$	226	$	-		$	-	$	226
Marco OP Units		-		32,283			-		32,283
Corporate Bonds
MBS		-		139,870			-		139,870
Total	$	226	$	172,153		$	-	$	172,379

Restricted Marketable Securities:
Marco OP Units	$	-	$	33,946		$	-	$	33,946
Total	$	-	$	33,946		$	-	$	33,946

Derivative Financial Instruments:
Marco OP Units Collar	$	-	$	3,088		$	-	$	3,088
Total	$	-	$	3,088		$	-	$	3,088

The Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized at fair value.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

9.	Assets and Liabilities Disposed of and Discontinued Operations

As a result of the Company defaulting on the debt related to three of the five apartment communities (of which one was located in Tampa, Florida, one was located in Charlotte, North Carolina and one was located in Greensboro, North Carolina) within its Camden Multi Family Properties due to the three properties no longer being economically beneficial to the Company, the lender foreclosed on the three properties during the year ended December 31, 2010. As a result of the foreclosure transactions, the debt associated with these three properties of $51.4 million was extinguished and the obligations were satisfied with the transfer of the applicable properties’ assets and working capital and the Company no longer has any ownership interests in these three properties. The operating results of these three properties through their respective dates of disposition have been classified as discontinued operations on a historical basis for all periods presented. The foreclosure transactions resulted in a gain on debt extinguishment of $19.9 million, of which $17.2 million and $2.7 million was recorded during the second quarter and fourth quarter of 2010, respectively. During the year ended December 31, 2009, the Company recorded an asset impairment charge of $30.3 million associated with these three foreclosed properties. No additional impairment charges were subsequently recorded as the net book values of their assets approximated their estimated fair market values, on a net aggregate basis, through their respective dates of disposition.

The following summary presents the operating results of the three properties within the multi-family segment included in discontinued operations in the Consolidated Statements of Operations for the periods indicated.

	For the Three Months Ended September 30, 2010			For the Nine Months Ended September 30, 2010
Revenues	$	312		$	2,808

Expenses:
Property operating expense		211			1,508
Real estate taxes		33			319
Loss on long-lived assets		-			300
General and administrative costs		27			77
Depreciation and amortization		41			326
Total operating expense		312			2,530

Operating income		-			278
Other income/(loss)		217			209
Interest income		-			1
Interest expense		(130	)		(1,215	)
Gain on debt extinguishment		-			17,170

Net income from discontinued operations	$	87		$	16,443

Cash flows generated from discontinued operations are presented separately in the consolidated statements of cash flows.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

10.	Mortgages Payable

Mortgages payable, totaling approximately $207.0 million September 30, 2011 and $195.5 million at December 31, 2010 consist of the following:

				Weighted Avg Interest Rate						Balance as of
Property	Interest Rate			as of September 30, 2011			Maturity Date	Amount Due at Maturity		September 30, 2011		December 31, 2010

Southeastern Michigan Multi- Family Properties		5.96	%		5.96	%	July 2016	$	38,139	$	40,657	$	40,725

Oakview Plaza		5.49	%		5.49	%	January 2017		25,583		27,500		27,500

Gulf Coast Industrial Portfolio		5.83	%		5.83	%	February 2017		49,557		53,025		53,025

Houston Extended Stay Hotels (Two Individual Loans)	LIBOR + 4.50%				4.60	%	June 2012		7,147		7,540		8,890

Brazos Crossing Power Center	Greater of LIBOR + 3.50% or 6.75%				6.75	%	December 2011		6,386		6,405		6,493

Camden Multi-Family Properties - (Two Individual Loans)		5.44	%		5.44	%	December 2014		26,334		27,584		27,850

St. Augustine Outlet Center		6.09	%		6.09	%	April 2016		23,748		25,757		26,041

50-01 2nd St	LIBOR + 1.00%				1.22	%	February 2012		13,500		13,500		-

Everson Pointe	Greater of Prime + 1.00% or 5.85%				5.85	%	December 2015		4,418		5,000		5,000

Total mortages payable					5.70	%		$	194,812	$	206,968	$	195,524

LIBOR at September 30, 2011 was 0.24%. Each of the loans is secured by acquired real estate and is non-recourse to the Company, with the exception of the Houston Extended Stay Hotels loan which is 35% recourse to the Company.

The following table shows the contractually scheduled principal maturities during the next five years and thereafter as of September 30, 2011:

	Remainder of 2011				2012				2013				2014				2015				Thereafter				Total
	$	6,845			$	23,148			$	2,519			$	28,958			$	6,773			$	138,725			$	206,968

Pursuant to the Company’s loan agreements, escrows in the amount of approximately $7.2 million were held in restricted escrow accounts as of September 30, 2011. Escrows held in restricted escrow accounts are included in restricted escrows on the consolidated balance sheets. Such escrows will be released in accordance with the applicable loan agreements for payments of real estate taxes, insurance and capital improvement transactions, as required. The Company’s mortgages payable also contains clauses providing for prepayment penalties.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

In April 2011, the lender extended the maturity date of the loan secured by the Houston Extended Stay Hotels by 30 days to May 16, 2011 and in May 2011 another 30 days to June 16, 2011. In June 2011 the loan was amended and extended to mature June 16, 2012. As part of the June 2011 amendment, the Company made a lump sum principal payment of $1.0 million in July 2011. The amended mortgage loan bears interest on a daily basis expressed as a floating rate equal to the lesser of (i) the maximum non-usurious rate of interest allowed by applicable law or (ii) the British Bankers Association Libor Daily Floating Rate plus 450 basis points (4.50%) per annum rate and requires monthly installments of interest plus a principal payment of $43,750. The remaining principal balance, together with all accrued and unpaid interest and all other amounts payable there under will be due on June 16, 2012. As part of the amendment the Company, may request either one or two, one year extensions of the loan. The request must be made thirty to ninety days before the loans maturity and the lender is required to grant the extension as long as the loan is not in default.

The Company’s loan secured by the Brazos Crossing Power Center is scheduled to mature on December 4, 2011. The Company has entered into preliminary negotiations with the lender to seek an extension to the maturity date of the loan. If the Company is unable to extend the loan at acceptable terms with the lender, the Company intends to refinance or repay in full the amount due at maturity.

Certain of the Company’s debt agreements require the maintenance of certain ratios, including debt service coverage. The Company did not meet certain debt service coverage ratios on the debt associated with its Gulf Coast Industrial Portfolio for two quarters in 2010 and the first three quarters of 2011. The Company currently is in compliance with all of its other debt covenants.

Under the terms of the loan agreement for the Gulf Coast Industrial Portfolio, beginning in July 2011, the lender has elected to retain all excess cash flow from the associated properties because of the aforementioned noncompliance. Through the date of this filing, notwithstanding the fact that the lender has taken such action, the Company is current with respect to regularly scheduled debt service payments on the loan. Additionally, the Company believes that the lender’s election to retain all excess cash flow from the associated properties will not have a material impact on its results of operations or financial position.

The Company currently expects to remain in compliance with all its other existing debt covenants; however, should circumstances arise that would constitute an event of default, the various lenders would have the ability to exercise various remedies under the applicable loan agreements, including the potential acceleration of the maturity of the outstanding debt.

11.	Net Income/(Loss) Per Share

Basic net income/(loss) per share is calculated by dividing net income/(loss) attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the applicable period. As of September 30, 2011, the Company has 45,000 options issued and outstanding. Diluted net income/(loss) per share includes the potentially dilutive effect, if any, which would occur if the outstanding options to purchase the Company’s common stock were exercised. For all periods presented, the effect of these exercises was anti-dilutive due to the loss from continuing operations and the net loss and because the grant prices exceeded the market prices, therefore, dilutive net income/(loss) per share is equivalent to basic net income/(loss) per share.

12.	Related Party Transactions

The Company has agreements with the Advisor and Lightstone Value Plus REIT Management LLC (the “Property Manager”) to pay certain fees in exchange for services performed by these entities and other affiliated entities. The Company’s ability to secure financing and subsequent real estate operations are dependent upon its Advisor, Property Manager and their affiliates to perform such services as provided in these agreements.

The Company, pursuant to the related party arrangements, has recorded the following amounts for the periods indicated:

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010

Acquisition fees	$	80	$	-	$	702	$	-
Asset management fees		508		1,220		1,444		4,071
Acquisition expenses reimbursed to advisor		-		-		242		-
Property management fees		335		281		971		1,140
Development fees and leasing commissions		131		14		564		207
Total	$	1,054	$	1,515	$	3,923	$	5,418

Lightstone SLP, LLC, an affiliate of the Company’s Sponsor, has purchased SLP units in the Operating Partnership. These SLP units, the purchase price of which will be repaid only after stockholders receive a stated preferred return and their net investment, will entitle Lightstone SLP, LLC to a portion of any regular distributions made by the Operating Partnership.

During the nine months ended September 30, 2011, distributions of $0.5 million were declared and paid to the SLP units and are part of non controlling interests. Since inception through September 30, 2011, cumulative distributions declared were $8.2 million, of which $7.6 million were paid. See Notes 4, 5 and 14 for other related party transactions.

Consolidated Joint Venture

On August 18, 2011, the Operating Partnership and its Sponsor formed a joint venture, 50-01 2nd Street Associates Holdings LLC ( the “2nd Street JV”) to own and operate 50-01 2nd Street Associates, LLC (the “2nd Street Owner”). The Operating Partnership owns a 75% membership interest in the 2nd Street JV (the “2nd Street JV Interest”). The 2nd Street JV Interest is a managing membership interest. The Sponsor has a 25% non managing membership interest with certain consent rights with respect to major decisions. Contributions are allocated in accordance with each investor’s ownership percentage. Profit and cash distributions, if any, will be allocated in accordance with each investor’s ownership percentage. In addition, the 2nd Street JV Interest has a put option (the “Put”) whereby the Operating Partnership can put its interest to the Sponsor through August 18, 2012 in exchange for the dollar value of its capital contributions as of the date of exercise. As of September 30, 2011, the Operating Partnership’s total capital contributions were $14.6 million. As the Operating Partnership through the 2nd Street JV Interest has the power to direct the activities of the 2nd Street JV that most significantly impact the performance, beginning August 18, 2011, the Company has consolidated the operating results and financial condition of the 2nd Street JV and has accounted for the ownership interest of the Sponsor as a noncontrolling interest.

On August 18, 2011, the 2nd Street Owner, which is wholly owned by the 2nd Street JV, acquired a parcel of land located in Queens, New York for approximately $19.3 million from an unaffiliated third party. The 2nd Street JV contributed approximately $19.3 million in cash to the 2nd Street Owner to fund the land acquisition. In connection with the acquisition of the land, the 2nd Street Owner entered into a six month loan for $13.5 million (the “Interim Loan”) with CIBC, Inc. that bears interest at libor plus 1.0% per annum with monthly interest only payments through maturity. The Interim Loan is collateralized by $13.5 million in cash held in escrow (included in restricted escrows on our consolidated balance sheet as of September 30, 2011) and is guaranteed by our Sponsor. In addition, the 2nd Street Owner incurred approximately $0.2 million in deferred financing costs associated with the 2nd Street Project through September 30, 2011. The Company’s Advisor will be entitled to an acquisition fee equal to 2.75% of its portion of the acquisition price, or approximately $0.5 million upon expiration of the Put.

The acquired land is expected to be used for the future development of a residential project (the “2nd Street Project”). The 2nd Street Owner is currently exploring the development plans and financing alternatives for the 2nd Street Project.

13.	Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, mortgages receivable, accounts payable and margin loan approximate their fair values because of the short maturity of these instruments. The estimated fair value (in millions) of the Company’s debt is summarized as follows:

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

	As of September 30, 2011				As of December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Mortgage payable	$	207.0	$	214.7	$	195.5	$	197.6

The fair value of the mortgage payable was determined by discounting the future contractual interest and principal payments by a market interest rate of approximately 5.0%.

14.	Segment Information

The Company currently operates in four business segments as of September 30, 2011: (i) retail real estate (the “Retail Segment”), (ii) multi-family residential real estate (the “Multi-family Residential Segment”), (iii) industrial real estate (the “Industrial Segment”) and (iv) hotel hospitality (the “Hotel Hospitality Segment”). The Company’s advisor and its affiliates provide leasing, property and facilities management, acquisition, development, construction and tenant-related services for its portfolio. The Company’s revenues for the three and nine months ended September 30, 2011 and 2010 were exclusively derived from activities in the United States. No revenues from foreign countries were received or reported. The Company had no long-lived assets in foreign locations as of September 30, 2011 and December 31, 2010. The accounting policies of the segments are the same as those described in Note 2: Summary of Significant Accounting Policies of the Company’s December 31, 2010 Annual Report on Form 10-K. Unallocated assets, revenues and expenses relate to corporate related accounts.

The Company evaluates performance based upon net operating income from the combined properties in each real estate segment.

Selected results of operations for the three months ended September 30, 2011 and 2010, and total assets as of September 30, 2011 and December 31, 2010 regarding the Company’s operating segments are as follows:

	For the Three Months Ended September 30, 2011

	Retail			Multi-Family		Industrial		Hospitality		Unallocated			Total
Total revenues	$	2,920		$	3,082	$	1,688	$	4,478	$	-		$	12,168

Property operating expenses		724			1,337		576		3,583		56			6,276
Real estate taxes		282			320		222		134		191			1,149
General and administrative costs		(15	)		47		2		95		1,551			1,680

Net operating income/(loss)		1,929			1,378		888		666		(1,798	)		3,063

Franchise cancellation expense		-			-		-		-		-			-
Depreciation and amortization		936			398		539		274		-			2,147
Operating income/(loss)	$	993		$	980	$	349	$	392	$	(1,798	)	$	916

As of September 30, 2011:
Total Assets	$	107,108		$	66,725	$	70,869	$	29,788	$	248,923		$	523,413

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

	For the Three Months Ended September 30, 2010

	Retail		Multi-Family		Industrial			Hospitality		Unallocated			Total

Total revenues	$	2,713	$	2,886	$	1,713		$	812	$	-		$	8,124

Property operating expenses		730		1,291		631			391		-			3,043
Real estate taxes		320		315		240			40		-			915
General and administrative costs		24		64		(3	)		11		1,808			1,904

Net operating income/(loss)		1,639		1,216		845			370		(1,808	)		2,262

Depreciation and amortization		843		380		530			128		-			1,881
Gain (loss) on long-lived assets		-		-		-			-		-			-
Operating income/(loss)	$	796	$	836	$	315		$	242	$	(1,808	)	$	381

As of December 31, 2010:
Total Assets	$	108,964	$	63,100	$	70,725		$	17,839	$	256,830		$	517,458

Selected results of operations for the nine months ended September 30, 2011 and 2010 regarding the Company’s operating segments are as follows:

	For the Nine Months Ended September 30, 2011

	Retail			Multi Family		Industrial			Hospitality			Unallocated			Total

Total revenues	$	8,557		$	9,115	$	5,155		$	10,267		$	-		$	33,094

Property operating expenses		2,153			4,006		1,571			8,119			56			15,905
Real estate taxes		853			961		651			375			191			3,031
General and administrative costs		(64	)		127		(3	)		256			5,458			5,774
Net operating income/(loss)		5,615			4,021		2,936			1,517			(5,705	)		8,384

Franchise cancellation expense		-			-		-			1,234			-			1,234
Depreciation and amortization		2,803			1,184		1,601			676			-			6,264
Operating income/(loss)	$	2,812		$	2,837	$	1,335		$	(393	)	$	(5,705	)	$	886

	For the Nine Months Ended September 30, 2010

	Retail		Multi Family		Industrial			Hospitality		Unallocated			Total

Total revenues	$	8,141	$	8,672	$	5,206		$	2,218	$	-		$	24,237

Property operating expenses		2,170		3,948		1,664			1,193		-			8,975
Real estate taxes		940		963		693			172		-			2,768
General and administrative costs		54		181		29			11		6,856			7,131
Net operating income/(loss)		4,977		3,580		2,820			842		(6,856	)		5,363

Depreciation and amortization		1,461		1,128		1,712			379		-			4,680
Loss on long-lived assets		1,194		-		(70	)		-		-			1,124

Operating income/(loss)	$	2,322	$	2,452	$	1,178		$	463	$	(6,856	)	$	(441	)

15.	Commitments and Contingencies

Legal Proceedings

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

On July 13, 2011, JF Capital Advisors, LLC filed a lawsuit in New York state court against The Lightstone Group, LLC, Lightstone Value Plus Real Estate Investment Trust II, Inc. and the Company seeking payment for services alleged to have been rendered, and to be rendered prospectively, under theories of unjust enrichment and breach of contract. The plaintiff had a limited business arrangement with The Lightstone Group, LLC; that arrangement has been terminated. The Company believes this suit to be without merit and will defend the case vigorously.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

On March 29, 2006, Jonathan Gould, a former member of the Company’s Board and Senior Vice-President-Acquisitions, filed a lawsuit against us in the District Court for the Southern District of New York. The suit alleges, among other things, that Mr. Gould was insufficiently compensated for his services to us as director and officer. Mr. Gould has sued for damages under theories of quantum merit and unjust enrichment seeking the value of work he performed. Management believes that this suit is frivolous and entirely without merit and intends to defend against these charges vigorously. The Company believes any unfavorable outcome on this matter will not have a material effect on the consolidated financial statements.

On January 4, 2007, 1407 Broadway Real Estate LLC (“Office Owner”), an indirect, wholly owned subsidiary of 1407 Broadway Mezz II LLC (“Mezz II”), consummated the acquisition of a sub-leasehold interest (the “Sublease Interest”) in an office building located at 1407 Broadway, New York, New York (the “Office Property’). Mezz II is a joint venture between LVP 1407 Broadway LLC (“LVP LLC”), a wholly owned subsidiary of the Company’s operating partnership, and Lightstone 1407 Manager LLC (“Manager”), which is wholly owned by David Lichtenstein, the Chairman of the Company’s Board and its Chief Executive Officer, and Shifra Lichtenstein, his wife.

The Sublease Interest was acquired pursuant to a Sale and Purchase of Leasehold Agreement with Gettinger Associates, L.P. (“Gettinger”). In July 2006, Abraham Kamber Company, as Sublessor under the sublease (“Sublessor”), served two notices of default on Gettinger (the “Default Notices”). The first alleged that Gettinger had failed to satisfy its obligations in performing certain renovations and the second asserted numerous defaults relating to Gettinger's purported failure to maintain the Office Property in compliance with its contractual obligations.

In response to the Default Notices, Gettinger commenced legal action and obtained an injunction that extends its time to cure any default, prohibits interference with its leasehold interest and prohibits Sublessor from terminating its sublease pending resolution of the litigation. A motion by Sublessor for partial summary judgment, alleging that certain work on the Office Property required its prior approval, was denied by the Supreme Court, New York County. Subsequently, by agreement of the parties, a stay was entered precluding the termination of the Sublease Interest pending a final decision on Sublessor's claim of defaults under the Sublease Interest. In addition, the parties stipulated to the intervention of Office Owner as a party to the proceedings. The parties have been directed to engage in and complete discovery. The Company considers the litigation to be without merit.

Prior to consummating the acquisition of the Sublease Interest, Office Owner received a letter from Sublessor indicating that Sublessor would consider such acquisition a default under the original sublease, which prohibits assignments of the Sublease Interest when there is an outstanding default there under. On February 16, 2007, Office Owner received a Notice to Cure from Sublessor stating the transfer of the Sublease Interest occurred in violation of the Sublease given Sublessor's position that Office Seller is in default. Office Owner will commence and vigorously pursue litigation in order to challenge the default, receive an injunction and toll the termination period provided for in the Sublease.

On September 4, 2007, Office Owner commenced a new action against Sublessor alleging a number claims, including the claims that Sublessor has breached the sublease and committed intentional torts against Office Owner by (among other things) issuing multiple groundless default notices, with the aim of prematurely terminating the sublease and depriving Office Owner of its valuable interest in the sublease. The complaint seeks a declaratory judgment that Office Owner has not defaulted under the sublease, damages for the losses Office Owner has incurred as a result of Sublessor’s wrongful conduct, and an injunction to prevent Sublessor from issuing further default notices without valid grounds or in bad faith. The Company believes any unfavorable outcome on this matter will not have a material effect on the consolidated financial statements.

As of the date hereof, the Company is not a party to any other material pending legal proceedings.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

POAC/Mill Run Tax Protection Agreements

In connection with the contribution of its interests in Mill Run and POAC, the Operating Partnership entered into the POAC/Mill Run Tax Protection Agreements with each of Arbor JRM, Arbor CJ, AR Prime, TRAC, Central Jersey and JT Prime (collectively, the “Contributors”). Under the POAC/Mill Run Tax Protection Agreements, the Operating Partnership is required to indemnify each of Arbor JRM, Arbor CJ, TRAC and Central Jersey with respect to the Mill Run Properties, and AR Prime and JT Prime, with respect to the POAC Properties, from June 26, 2008 for Arbor JRM, Arbor CJ and AR Prime and from August 25, 2009 for TRAC, Central Jersey and JT Prime to June 26, 2013 for, among other things, certain income tax liability that would result from the income or gain which Arbor JRM, Arbor CJ, TRAC, Central Jersey on the one hand, or AR Prime, JT Prime, on the other hand, would recognize upon the Operating Partnership’s failure to maintain the current level of debt encumbering the Mill Run Properties or the POAC Properties, respectively, or the sale or other disposition by the Operating Partnership of the Mill Run Properties, the interest in Mill Run, the POAC Properties, or the interest in POAC (each, an “Indemnifiable Event”). Under the terms of the POAC/Mill Run Tax Protection Agreements, the Operating Partnership is indemnifying the Contributors for certain income tax liabilities based on income or gain which the Contributors are deemed to be required to include in their gross income for federal or state income tax purposes (assuming the Contributors are subject to tax at the highest regional, U.S. federal, state and local tax rates imposed on individuals residing in New York City) as a result of an Indemnifiable Event. This indemnity covers income taxes, interest and penalties and is required to be made on a “grossed up” basis that effectively results in the Contributors receiving the indemnity payment on a net, after-tax basis. The amount of the potential tax indemnity to the Contributors under the POAC/Mill Run Tax Protection Agreements, including a gross-up for taxes on any such payment, using current tax rates, is estimated to be approximately $95.7 million. The Company has not recorded any liability in its consolidated balance sheets as the Company believes that the potential liability is remote as of September 30, 2011.

Each of the POAC/Mill Run Tax Protection Agreements imposes certain restrictions upon the Operating Partnership relating to transactions involving the Mill Run Properties and the POAC Properties which could result in taxable income or gain to the Contributors. The Operating Partnership may not dispose or transfer any Mill Run Property or any POAC Property without first proving that the Operating Partnership possesses the requisite liquidity, including the proceeds from any such transaction, to make any payments that would come due pursuant to the POAC/Mill Run Tax Protection Agreement. However, the Operating Partnership may take the following actions: (i) (A) as to the POAC Properties, commencing with the period one year and thirty-one days following the date of the POAC/Mill Run Tax Protection Agreement, the Operating Partnership can sell on an annual basis part or all of any of the POAC Properties with an aggregate value of ten percent (10%) or less of the total value of the POAC Properties as of the date of contribution (and any amounts of the ten percent (10%) value not sold can be applied to sales in future years); and (B) as to the Mill Run Properties either the same ten percent (10%) test as set forth above in (i)(A) with respect to the Mill Run Properties or the sale of the property known by Design Outlet Center; and (ii) the Operating Partnership can enter into a non-recognition transaction with either the consent of the Contributors or an opinion from an independent law or accounting firm stating that it is “more likely than not” that the transaction will not give rise to current taxable income or gain.

On August 30, 2010, the LVP Parties completed the Simon Transaction which included the disposition their interests in the POAC Properties and the Mill Run Properties and contemporaneously entered into the Simon Tax Matters Agreement. Additionally, the Company has been advised by an independent law firm that it is “more likely than not” that the Simon Transaction will not give rise to current taxable income or loss. Accordingly, the Company believes the Simon Transaction is a non-recognition transaction and not an Indemnifiable Event under the POAC/Mill Run TPA.

Simon Tax Matters Agreements

In connection with the closing of the Simon Transaction, the LVP Parties entered into the Simon Tax Matters Agreement with Simon. Under the Simon Tax Matters Agreement, Simon generally may not engage in a transaction that could result in the recognition of the “built-in gain” with respect to POAC and Mill Run at the time of the closing for specified periods of up to eight years following the closing date. Simon has a number of obligations with respect to the allocation of partnership liabilities to the LVP Parties. For example, Simon agreed to maintain certain of the outstanding mortgage loans that are secured by POAC Properties and Mill Run Properties until their respective maturities, and the LVP Parties have provided and will continue to have the opportunity to provide guaranties of collection with respect to the Simon Loan (or indebtedness incurred to refinance the Simon Loan) for at least four years following the closing of the Simon Transaction. The LVP Parties were also given the opportunity to enter into agreements to make specified capital contributions to Simon OP in the event that it defaults on certain of its indebtedness. If Simon breach their obligations under the Simon Tax Matters Agreement, Simon will be required to indemnify the LVP Parties for certain taxes that they are deemed to incur, including taxes relating to the recognition of “built-in gains” with respect to POAC Properties and Mill Run Properties, and gains recognized as a result of a reduction in the allocation of partnership liabilities. These indemnification payments will be “grossed up” such that the amount of the payments will equal, on an after-tax basis, the tax liability deemed incurred because of the breach.

Simon generally is required to indemnify the LVP Parties and certain affiliates of the Lightstone Group for liabilities and obligations under the POAC/Mill Run Tax Protection Agreements relating to the contributions of the Mill Run Interest and the POAC Interest (see POAC/Mill Run Tax Protection Agreements above) that are caused by Simon OP’s and Simon’s actions subsequent to the closing of the Simon Transaction (the “Indemnified Liabilities”). The Company and its operating partnership are required to indemnify Simon OP and Simon for all liabilities and obligations under the POAC/Mill Run Tax Protection Agreements other than the Indemnified Liabilities.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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

Simon Loan Collection Guaranties

In connection with the closing of the Simon Transaction, the LVP Parties have provided Simon Loan Collection Guaranties with respect to the Simon Loan in connection with the closing of the Simon Transaction. Under the terms of the Simon Loan Collection Guaranties, the LVP Parties are obligated to make payments in respect of principal and interest on the Simon Loan after Simon OP has failed to make payments, the Simon Loan has been accelerated, and the lenders have failed to collect the full amount of the Simon Loan after exhausting other remedies. The Simon Loan Collection Guaranties by the LVP Parties are limited to a specified aggregate maximum of $201.1 million, with the maximum of each of the respective LVP Parties limited to an amount that is at least equal to its respective cash considerations. The maximum amounts of the Simon Loan Collection Guaranties will be reduced to the extent of any payments of principal made by Simon OP or other cash proceeds recovered by the lenders. In connection with completion of the Simon Transaction, the Company recorded a liability (the “Collection Guaranties Liability”) in the amount of $0.1 million, representing the estimated fair value of the Simon Loan Collection Guaranties as of the closing date, which is included in accounts payable and accrued expenses in the consolidated balance sheet as of September 30, 2011.

16.	Subsequent Events

Distribution Payment

On October 14, 2011, the distribution for the three-month period ending September 30, 2011 was paid in full using a combination of cash (approximately $3.8 million) and approximately 193,000 shares (approximately $1.8 million) of the Company’s common stock issued pursuant to the Company’s Distribution Reinvestment Program (“DRIP”), at a price of $9.50 per share. The Company used proceeds from operations to fund the cash portion of its distributions.

Distribution Declaration

On November 11, 2011, the Company’s Board of Directors declared a distribution for the three-month period ending December 31, 2011. The distribution will be calculated based on shareholders of record each day during this three-month period at a rate of $0.0019178 per day, and will equal a daily amount that, if paid each day for a 365-day period, would equal a 7.0% annualized rate based on a share price of $10.00. The distribution will be paid in cash on January 13, 2012 to shareholders of record as of December 31, 2011. The shareholders have an option to elect the receipt of shares under the Company’s DRIP.

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with the accompanying financial statements of Lightstone Value Plus Real Estate Investment Trust, Inc. and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation, and, as required by context, Lightstone Value Plus REIT, L.P. 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 the Securities and Exchange Commission, or 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 of Lightstone Value Plus Real Estate Investment Trust, 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, changes in governmental, tax, real estate and zoning laws and regulations, failure to increase tenant occupancy and operating income, rejection of leases by tenants in bankruptcy, financing and development risks, construction and lease-up delays, cost overruns, the level and volatility of interest rates, the rate of revenue increases versus expense increases, the financial stability of various tenants and industries, the failure of the Company (defined herein) 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 (“CAM”), insurance, taxes and other property expenses, the failure of the Company to continue to qualify as a real estate investment trust (“REIT”), the failure to refinance debt at favorable terms and conditions, an increase in impairment charges, loss of key personnel, failure to achieve earnings/funds from operations targets or estimates, conflicts of interest with the Advisor, Sponsor and their affiliates, failure of joint venture relationships, significant costs related to environmental issues as well as other risks listed from time to time in this Form 10-Q, our Form 10-K, our Registration Statement on Form S-11 (File No. 333-117367), as the same may be amended and supplemented from time to time, and in the Company’s other reports filed with the Securities and Exchange Commission (“SEC”).

We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless required by law.

Overview

Lightstone Value Plus Real Estate Investment Trust, Inc. (the “Company”) has acquired and operates commercial, residential and hospitality properties, principally in the United States. Principally through the Lightstone Value Plus REIT, LP, (the “Operating Partnership”), our acquisitions have included both portfolios and individual properties. Our commercial holdings consist of retail (primarily multi-tenant shopping centers), lodging (primarily extended stay hotels), industrial properties and that our residential properties are principally comprised of ‘‘Class B’’ multi-family complexes.

We do not have employees. We entered into an advisory agreement dated April 22, 2005 with Lightstone Value Plus REIT LLC, a Delaware limited liability company, which we refer to as the “Advisor,” 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 reimburse the Advisor for certain expenses incurred on our behalf.

Current Environment

The slowdown in the economy coupled with continued job losses and/or lack of job growth leads us to be cautious regarding the expected performance throughout the remainder of 2011 for our commercial as well as multi-family residential properties. In addition, the effect of the current economic downturn is having an impact on many retailers nationwide, including tenants of our commercial properties. There have been many national retail chains that have filed for bankruptcy. In addition to those who have filed, or may file, bankruptcy, many retailers have announced store closings and a slowdown in their expansion plans. For multi-family residential properties, in general, evictions have increased and requests for rent reductions and abatements are becoming more frequent.

Our operating results as well as our investment opportunities are impacted primarily by the health of the North American economies. Our business and financial performance may be adversely affected by current and future economic conditions, such a availability of financing, interests rates and other factors, including supply and demand, that are beyond our control.

U.S. and global credit and equity markets have undergone significant volatility and disruption over the last several years, making it difficult for many businesses to obtain financing on acceptable terms or at all. If these conditions continue or worsen, the cost of borrowings may increase and it may be more difficult to finance investment opportunities in the short term.

We are not aware of any other material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting real estate generally, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from the acquisition and operation of real estate and real estate related investments, other than those referred to in this Form 10-Q.

Simon Transaction

On December 8, 2009, we, our Operating Partnership and Pro-DFJV Holdings LLC (“PRO”), a Delaware limited liability company and a wholly-owned subsidiary of ours (collectively, the “LVP Parties”) entered into a definitive agreement (“the “Contribution Agreement”) with Simon Property Group, Inc. (“Simon Inc.”), a Delaware corporation, Simon Property Group, L.P., a Delaware limited partnership (“Simon OP”), and Marco Capital Acquisition, LLC, a Delaware limited liability company (collectively, referred to herein as “Simon”) providing for the disposition of a substantial portion of our retail properties to Simon including our (i) St. Augustine Outlet Center, which is wholly owned, (ii) 40.00% interests in its investment in Prime Outlets Acquisition Company (“POAC”), which includes 18 operating outlet center properties and two development projects, Livermore Valley Holdings LLC (“Livermore”) and Grand Prairie Holdings LLC (“Grand Prairie”), and (iii) 36.80% interests in its investment in Mill Run, which includes 2 operating outlet center properties. The terms of the Contribution Agreement were subsequently amended on June 28, 2010 providing for us to retain the St. Augustine Outlet center and its interests in certain development properties (Livermore and Grand Prairie) which were owned by POAC. Additionally, certain affiliates of our Sponsor were parties to the Contribution Agreement, pursuant to which they would dispose of their respective ownership interests in POAC and Mill Run and certain other outlet center properties, in which we had no ownership interests, to Simon.

On August 30, 2010, the Simon Transaction closed pursuant to which the LVP Parties disposed of their interests in investments in Mill Run and POAC, except for their interests in investments in both Livermore and Grand Prairie which were retained.

In connection with the Simon Transaction, we recognized a gain on disposition of approximately $142.7 million (consisting of $142.8 million of gain in the third quarter of 2010 offset by $0.1 million of additional transaction expenses incurred in the fourth quarter of 2010) in the consolidated statements of operations during 2010. We also initially deferred an additional $32.2 million of gain on the consolidated balance sheet consisting of the total of the (i) $1.9 million of Escrowed Cash and (ii) $30.3 million of Restricted Marco OP Units received as part of the Aggregate Consideration Value because realization of these items was subject to final adjustment. During the third quarter of 2011, we recognized an additional $2.8 million of gain on the Simon Transaction consisting of the full return of the Escrowed Cash, plus interest, to the Company and certain other items. As a result, the remaining deferred gain reflected on our consolidated balance sheet was $30.3 million as of September 30, 2011.

Portfolio Summary –

		Year Built	Leasable Square	Percentage Occupied as of		Annualized Revenues based on rents at	Annualized Revenues per square foot/unit
	Location	(Range of years built)	Feet	September 30, 2011		September 30, 2011	September 30, 2011
Consolidated Real Estate Properties:

Retail
St. Augustine Outlet Center	St. Augustine, FL	1998	337,731	76.3	%	$3.7 million	$	14.17
Oakview Plaza	Omaha, NE	1999 - 2005	177,103	92.2	%	$2.2 million	$	13.67
Brazos Crossing Power Center	Lake Jackson, TX	2007-2008	61,213	100.0	%	$0.8 million	$	12.58
Everson Pointe	Snellvile, GA	1999	81,428	89.1	%	$0.8 million	$	11.08
		Retail Total	657,475	84.4	%

Industrial
7 Flex/Office/Industrial Buildings within the Gulf Coast Industrial Portfolio	New Orleans, LA	1980-2000	339,700	74.9	%	$2.8 million	$	11.03
4 Flex/Industrial Buildings within the Gulf Coast Industrial Portfolio	San Antonio, TX	1982-1986	484,364	67.2	%	$1.5 million	$	4.72
3 Flex/Industrial Buildings from the Gulf Coast Industrial Portfolio	Baton Rouge, LA	1985-1987	182,792	91.2	%	$1.1 million	$	6.55
Sarasota	Sarasota, FL	1992	280,242	100.0	%	$0.4 million	$	11.08
		Industrial Total	1,287,098	79.8	%

Multi-Family Residential
Southeastern Michigan Multi-Family Properties (Four Apartment Buildings)	Southeast MI	1965-1972	1,017 units	93.3	%	$7.6 million	$	8,008
Camden Multi-Family Properties (Two Apartment Communities)	Greensboro & Charlotte, NC	1984-1985	568 units	94.7	%	$3.7 million	$	6,834

		Residential Total	1,585 Units	93.8	%

			Year to Date	Percentage Occupied for the Period Ended		Revenue per Available Room through
	Location	Year Built	Available Rooms	September 30, 2011		September 30, 2011
Consolidated Hotel Hospitality Properties:
Houston Extended Stay Hotels (Two Hotels)	Houston, TX	1998	79,443	74.9	%	$30.82
CP Boston Hotel (1)	Danvers, MA	1976	70,665	47.3	%	$45.51

Leasable Square

Percentage Occupied

as of

Annualized Revenues

based on rents at

Annualized Revenues

per square foot

Location

Year Built

Feet

September 30, 2011

Unconsolidated Affiliated Real Estate Entities-Office:

1407 Broadway (2)

New York, NY

1952

1,114,695

81.8

$36.2 million

39.72

(1) - Indirectly owned by LVP CP Boston, LLC (the "CP Boston Joint Venture"), in which we have an 80.00% ownership interest.

(2) - Sub-lease interest indirectly owned by 1407 Broadway Mezz II, LLC, in which we have an 49.00% ownership interest.

Critical Accounting Policies and Estimates

There were no material changes during the three and nine months ended September 30, 2011 to our critical accounting policies as reported in our Annual Report on Form 10-K, for the year ended December 31, 2010.

Results of Operations

The Company’s primary financial measure for evaluating each of its properties is net operating income (“NOI”). NOI represents revenues less property operating expenses, real estate taxes and general and administrative expenses. The Company believes that NOI is helpful to investors as a supplemental measure of the operating performance of a real estate company because it is a direct measure of the actual operating results of the company’s properties.

For the Three Months Ended September 30, 2011 vs. September 30, 2010

Consolidated

Revenues

Our revenues are comprised of rental revenues, tenant recovery income and other service income. Total revenues increased by approximately $4.1 million to $12.2 million for the three months ended September 30, 2011 compared to $8.1 million for the same period in 2010. The increase reflects higher revenues in our (i) Hotel Hospitality Segment of $3.7 million, (ii) Retail Segment of $0.2 million and (iii) Multi-family Residential Segment of $0.2 million. Revenues in our Industrial Segment remained relatively flat. See “Segment Results of Operations for the Three Months Ended September 30, 2011 compared to September 30, 2010” for additional information on our revenues by segment.

Property operating expenses

Property operating expenses increased by approximately $3.3 million to $6.3 million for the three months ended September 30, 2011 compared to $3.0 million for the same period in 2010. The increase is primarily attributable to property operating expenses of approximately $3.1 million for the CP Boston Property, which was acquired on March 21, 2011 and $0.1 million on Everson Pointe, which was acquired on December 17, 2010. Property operating expenses on all other properties were relatively consistent in the 2011 and 2010 periods.

Real estate taxes

Real estate taxes were relatively unchanged at $1.1 million for the three months ended September 30, 2011 compared to $0.9 million for the same period in 2010.

General and administrative expenses

General and administrative decreased slightly by $0.2 million to $1.7 million for the three months ended September 30, 2011 as compared to $1.9 million for the same period in 2010. This decrease reflects reduced asset management fees in the 2011 period primarily resulting from the disposition of our interests in POAC and Mill Run during the third quarter of 2010.

Depreciation and Amortization

Depreciation and amortization expense increased by approximately $0.2 million to $2.1 million for the three months ended September 30, 2011 compared to $1.9 million during the same period in 2010. The increase in depreciation is primarily attributable to increases in our depreciable asset base during the 2011 period resulting from our acquisitions of Everson Pointe and the CP Boston Property.

Mark to market adjustment on derivative financial instrument

During the three months ended September 30, 2011, we recorded a $2.6 million positive mark to market adjustment on derivative financial instrument reflecting the change in the fair value of a collar entered into to protect the value of a portion of our Marco OP Units within a certain range, which did not exist during the 2010 period.

Interest income

Interest income increased by approximately $3.3 million to $4.3 million for the three months ended September 30, 2011 compared to $1.0 million the same period in 2010. The increase is primarily attributable to the significant increase in our marketable equity securities during the 2011 period compared to the 2010 period. The increase also reflects approximately $0.7 million of interest income on the Second Mortgage Loan purchased by the Rego Park Joint Venture on April 12, 2011 and approximately $0.6 million of dividend income related to our Marco OP Units.

Interest expense

Interest expense, including amortization of deferred financing costs, increased by approximately $0.2 million to $3.1 million for the three months ended September 30, 2011 compared to $2.9 million for the same period in 2010. The increase is primarily attributable to the debt associated with Everson Pointe.

Income/(loss) from investments in unconsolidated affiliated real estate entities

This account represents our portion of the net income/(loss) associated with our interests in investments in unconsolidated affiliated real estate entities which consists of our investments in POAC (which was disposed of on August 30, 2010), Mill Run (which was disposed of on August 30, 2010), 1407 Broadway, and two outlet center development projects. Our income/(loss) from investments in unconsolidated affiliated real estate entities increased by approximately $7.9 million to income of $0.02 million for the three months ended September 30, 2011 compared to a loss of $7.8 millionduring the same period in 2010. This change was primarily attributable to the disposition of our interests in POAC and Mill Run during the third quarter of 2010.

Noncontrolling interests

The net income allocated to noncontrolling interests relates to (i) the interests in the Operating Partnership held by our Sponsor as well as common units held by our limited partners, (ii) the interest in PRO held by our Sponsor, (iii) the 20% interest in the CP Boston Joint Venture held by Lightstone Value Plus Real estate Investment Trust II, Inc (“REIT II”), (iv) the 10% interest in the Rego Park Joint Venture held by REIT II and (v) the 25% interest in the 2nd Street JV held by the Sponsor.

Segment Results of Operations for the Three Months Ended September 30, 2011 compared to September 30, 2010

Retail Segment

	For the Three Months Ended September 30,						Variance Increase/(Decrease)
	2011			2010			$		%
	(unaudited)
Revenues	$	2,920		$	2,713		$	207		7.6	%
NOI		1,929			1,639			290		17.7	%
Average Occupancy Rate for period		82.9	%		84.7	%				-2.1	%

Revenues in our Retail Segment increased approximately $0.2 million for the three months ended September 30, 2011 compared to same period in 2010. The revenues for the 2011 period reflect an increase in revenues of approximately $0.2 million attributable to Everson Pointe. Revenues for all our other retail properties were relatively consistent in the 2011 period compared to the 2010 period.

NOI in our Retail Segment increased by approximately $0.3 million for the three months ended September 30, 2011 compared to the same period in 2010. This increase is primarily attributable to the aforementioned increase in revenues in the 2011 period and a small decrease in operating expenses of approximately $0.1 million in the 2011 period.

Multi-family Residential Segment

	For the Three Months Ended September 30,						Variance Increase/(Decrease)
	2011			2010			$		%
	(unaudited)
Revenues	$	3,082		$	2,886		$	196		6.8	%
NOI		1,378			1,216			162		13.3	%
Average Occupancy Rate for period		94.9	%		88.9	%				6.7	%

Revenues in our Multi-family Residential Segment increased by approximately $0.2 million for the three months ended September 30, 2011 compared to the same period in 2010. This increase is primarily attributable to the higher average occupancy rate in the 2011 period.

NOI in our Multi-family Residential Segment increased by approximately $0.2 million for the three months ended September 30, 2011 compared to the same period in 2010. This increase is primarily attributable to the aforementioned increase in revenues in the 2011 period.

Industrial Segment

	For the Three Months Ended September 30,						Variance Increase/(Decrease)
	2011			2010			$			%
	(unaudited)
Revenues	$	1,688		$	1,713		$	(25	)	-1.5	%
NOI		888			845			43		5.1	%
Average Occupancy Rate for period		75.3	%		61.3	%				22.8	%

Revenues in our Industrial Segment were relatively flat for the three months ended September 30, 2011 compared to the same period in 2010. This increase in average occupancy rate did not lead to an increase in revenue due to certain incentives given in connection with new leasing activity during the 2011 period.

NOI in our Industrial Segment increased was relatively flat for the three months ended September 30, 2011 compared to the same period in 2010.

Hotel Hospitality Segment

	For the Three Months Ended September 30,						Variance Increase/(Decrease)
	2011			2010			$		%
	(unaudited)
Revenues	$	4,478		$	812		$	3,666		451.5	%
NOI		666			370			296		80.0	%
Average Occupancy Rate for period		67.2	%		74.7	%				-10.0	%
Rev PAR	$	38.92		$	30.30		$	8.62		28.4	%

The revenues in our Hotel Hospitality Segment increased by approximately $3.7 million for the three months ended September 30, 2011 compared to the same period in 2010. The increase for the 2011 period reflects rental revenues and other service income of approximately $1.8 million and $1.9 million, respectively, attributable to the CP Boston Property. Other service income consists of revenues of $1.0 million, $0.8 million and $0.1 million from food and beverage services, water park admissions and arcade income, respectively. The lower average occupancy rate and the increased Rev PAR during the 2011 period were primarily driven by the CP Boston Property.

NOI in our Hotel Hospitality Segment increased by approximately $0.3 million for the three months ended September 30, 2011 compared to the same period in 2010. This increase reflects the aforementioned increase in revenues substantially offset by additional operating expenses of approximately $3.4 million during the 2011 period. The increase in operating expenses consists of (i) property operating expenses of $3.2 million, (ii) real estate taxes of $0.1 million and ((iii) general and administrative costs of $0.1 million attributable to the CP Boston Property.

For the Nine Months Ended September 30, 2011 vs. September 30, 2010

Consolidated

Revenues

Our revenues are comprised of rental revenues, tenant recovery income and other service income. Total revenues increased by approximately $4.1 million to $24.8 million for the nine months ended September 30, 2011 compared to $20.7 million for the same period in 2010. The increase reflects higher revenues in our (i) Hotel Hospitality Segment of $8.0 million, (ii) Retail Segment of $0.4 million and (iii) Multi-Family Residential Segment of $0.4 million. Revenues in our Industrial Segment remained relatively flat. See “Segment Results of Operations for the Nine Months Ended September 30, 2011 compared to September 30, 2010” for additional information on revenues by segment.

Property operating expenses

Property operating expenses increased by approximately $6.9 million to $15.9 million for the nine months ended September 30, 2011 compared to $9.0 million for the same period in 2010. The increase is primarily attributable to property operating expenses of approximately $6.7 million for the CP Boston Property, which was acquired on March 21, 2011 and $0.2 million on Everson Pointe, which was acquired on December 17, 2010.

Real estate taxes

Real estate taxes were relatively flat at $3.0 million for the nine months ended September 30, 2011 compared to $2.8 million in the same period in 2010.

Loss on long-lived assets

For the nine months ended September 30, 2011, the Company did not record any loss on long-lived assets. The loss of long-lived assets of $1.1 million during the nine months ended September 30, 2010 primarily represents an impairment charge within our Retail Segment recorded in connection with the transfer of our St. Augustine Outlet Center from held for sale to held and used during the second quarter of 2010. An adjustment of $1.2 million was recorded to bring the St. Augustine Outlet Center’s assets balance to the lower of its carrying value net of any depreciation (amortization) expense that would have been recognized had the assets been continuously classified as held and used or the fair value on June 28, 2010.

General and administrative expenses

General and administrative decreased by $1.3 million to $5.8 million for the nine months ended September 30, 2011 as compared to $7.1 million for the same period in 2010. This decrease reflects reduced asset management fees and audit fees in the 2011 period primarily resulting from the disposition of our interests in POAC and Mill Run during the third quarter of 2010, partially offset by higher acquisition fees and related costs in the 2011 period.

Franchise cancellation expense

The Company incurred a franchise cancellation fee of approximately $1.2 in the 2011 period related to management’s decision to rebrand the CP Boston Property. There was no franchise cancellation fee in the 2010 period.

Depreciation and Amortization

Depreciation and amortization expense increased by approximately $1.6 million to $6.3 million for the nine months ended September 30, 2011 compared to $4.7 million during the same period in 2010. The increase in depreciation is primarily attributable to increases in our depreciable asset base during the 2011 period resulting from our acquisitions of Everson Pointe and the CP Boston Property plus the reclassification of our St. Augustine Outlet Center to held for use from held for sale during the second quarter of 2010.

Mark to market adjustment on derivative financial instrument

During the nine months ended September 30, 2011, we recorded a $4.8 million negative mark to market adjustment on derivative financial instrument reflecting the change in the fair value of a collar entered into to protect the value of a portion of our Marco OP Units within a certain range, which did not exist during the 2010 period.

Interest income

Interest income increased by approximately $9.1 million to $12.2 million for the nine months ended September 30, 2011 compared to $3.1 million for the same period in 2010. The increase is primarily attributable to the significant increase in our marketable equity securities during the 2011 period compared to the 2010 period. The increase also reflects approximately $1.3 million of interest income on the Second Mortgage Loan purchased by the Rego Park Joint Venture on April 12, 2011.and approximately $1.7 million of dividend income related to our Marco OP Units.

Interest expense

Interest expense, including amortization of deferred financing costs, increased by approximately $0.4 million to $9.1 million for the nine months ended September 30, 2011 compared to $8.7 million for the same period in 2010. The increase is primarily attributable to the debt associated with Everson Pointe.

Gain/(loss) on sale of marketable securities

Loss on sale of marketable securities was approximately $3.0 million during the nine months ended September 30, 2011 compared to a $0.1 million gain for the same period in 2010 primarily due to timing of sales of securities and the differences in adjusted cost basis compared to proceeds received upon sale.

Loss from investments in unconsolidated affiliated real estate entities

This account represents our portion of the net income/(loss) associated with our interests in investments in unconsolidated affiliated real estate entities which consists of our investments in POAC (which was disposed of on August 30, 2010), Mill Run (which was disposed of on August 30, 2010), 1407 Broadway and two outlet center development projects. Our loss from investments in unconsolidated affiliated real estate entities decreased by approximately $11.3 million to $0.3 million for the nine months ended September 30, 2011 compared to $11.6 million during the same period in 2010. This decrease was primarily attributable to the disposition of our interests in POAC and Mill Run during the third quarter of 2010.

Noncontrolling interests

Segment Results of Operations for the Nine Months Ended September 30, 2011 compared to September 30, 2010

Retail Segment

	For the Nine Months Ended September 30,						Variance Increase/(Decrease)
	2011			2010			$		%
	(unaudited)
Revenues	$	8,557		$	8,141		$	416		5.1	%
NOI		5,615			4,977			638		12.8	%
Average Occupancy Rate for period		82.8	%		87.1	%				-4.9	%

Revenues in our Retail Segment increased approximately $0.4 million for the nine months ended September 30, 2011 compared to same period in 2010. The revenues for the 2011 period reflect an increase of approximately $0.7 million attributable to Everson Pointe, partially offset by slight decreases of approximately $0.2 million and $0.1 million for the Oakview Plaza and St. Augustine Outlet Center, which were primarily due to lower average occupancy during the 2011 period.

NOI in our Retail Segment increased by approximately $0.6 million for the nine months ended September 30, 2011 compared to the same period in 2010. This increase is primarily attributable to the aforementioned increase in revenues in the 2011 period and a slight decrease in operating expenses of approximately $0.2 million in the 2011.

Multi-family Residential Segment

	For the Nine Months Ended September 30,						Variance Increase/(Decrease)
	2011			2010			$		%
	(unaudited)
Revenues	$	9,115		$	8,672		$	443	5.1	%
NOI		4,021			3,580			441	12.3	%
Average Occupancy Rate for period		94.2	%		88.7	%			6.2	%

Revenues in our Multi-family Residential Segment increased by approximately $0.4 million for the nine months ended September 30, 2011 compared to the same period in 2010. This increase is primarily attributable to the higher average occupancy rate in the 2011 period.

NOI in our Multi-family Residential Segment increased by approximately $0.4 million for the nine months ended September 30, 2011 compared to the same period in 2010. This increase is primarily attributable to the aforementioned increase in revenues in the 2011 period.

Industrial Segment

	For the Nine Months Ended September 30,						Variance Increase/(Decrease)
	2011			2010			$			%
	(unaudited)
Revenues	$	5,155		$	5,206		$	(51	)		-1.0	%
NOI		2,936			2,820			116			4.1	%
Average Occupancy Rate for period		72.8	%		62.1	%					17.2	%

Revenues in our Industrial Segment were relatively flat for the nine months ended September 30, 2011 compared to the same period in 2010. This increase in average occupancy rate did not lead to an increase in revenue due to certain incentives given in connection with new leasing activity during the 2011 period.

NOI in our Industrial Segment increased by approximately $0.1 million for the nine months ended September 30, 2011 compared to the same period in 2010 as a result of slightly lower operating expenses in the 2011 period.

Hotel Hospitality Segment

	For the Nine Months Ended September 30,						Variance Increase/(Decrease)
	2011			2010			$		%
	(unaudited)
Revenues	$	10,267		$	2,218		$	8,049		362.9	%
NOI		1,518			842			676		80.3	%
Average Occupancy Rate for period		63.9	%		71.4	%				-10.5	%
Rev PAR	$	36.31		$	27.92		$	8.39		30.1	%

The revenues in our Hotel Hospitality Segment increased by approximately $8.0 million for the nine months ended September 30, 2011 compared to the same period in 2010. The increase for the 2011 period reflects rental revenues and other service income of approximately $3.3 million and $4.5 million, respectively, attributable to the CP Boston Property. Other service income consists of revenues of $2.4 million, $1.9 million and $0.2 million from food and beverage services, water park admissions and arcade income, respectively. The lower average occupancy rate and the increased Rev PAR during the 2011 period were primarily driven by the CP Boston Property.

NOI in our Hotel Hospitality Segment increased by approximately $0.7 million for the nine months ended September 30, 2011 compared to the same period in 2010. This increase reflects the aforementioned increase in revenues substantially offset by additional operating expenses of approximately $7.3 million during the 2011 period. The increase in operating expenses consists of (i) property operating expenses of $6.9 million, (ii) real estate taxes of $0.2 million and ((iii) general and administrative costs of $0.2 million attributable to the CP Boston Property.

Financial Condition, Liquidity and Capital Resources

Overview:

Rental revenue and borrowings are our principal source of funds to pay operating expenses, scheduled debt service, capital expenditures and distributions, excluding non-recurring capital expenditures.

We expect to meet our short-term liquidity requirements generally through working capital and proceeds from our distribution reinvestment plan and borrowings. We believe that these cash resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other than these sources within the next twelve months.

We currently have $207.0 million of outstanding mortgage debt and a margin loan of $1.0 million. We intend to limit our aggregate long-term permanent borrowings to 75% of the aggregate fair market value of all properties unless any excess borrowing is approved by a majority of the independent directors and is disclosed to our stockholders. We may also incur short-term indebtedness, having a maturity of two years or less.

Our charter provides that the aggregate amount of 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. As of September 30, 2011, our total borrowings of $208.0 million represented 72% of net assets.

Our borrowings consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. We typically have obtained level payment financing, meaning that the amount of debt service payable would be substantially the same each year. As such, most of the mortgages on our properties provide for a so-called “balloon” payment and are at a fixed interest rate.

Additionally, in order to leverage our investments in marketable securities and seek a higher rate of return, we borrowed using a margin loan collateralized by the securities held with the financial institution that provided the margin loan. This loan is due on demand and will be paid upon the liquidation of securities.

Any future properties that we may acquire may be funded through a combination of borrowings, proceeds generated from the sale of our marketable securities, available for sale, and proceeds received from the disposition of certain of our retail 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 or real estate-related assets. 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 or permanent financing. Our Sponsor or its affiliates may guarantee the lines of credit although they will not be obligated to do so.

In addition to meeting working capital needs and distributions to our stockholders, our capital resources are used to make certain payments to our Advisor and our Property Manager, included payments related to asset acquisition fees and asset management fees, the reimbursement of acquisition related expenses to our Advisor and property management fees. We also reimburse our Advisor and its affiliates for actual expenses it incurs for administrative and other services provided to us. Additionally, the Operating Partnership may be required to make distributions to Lightstone SLP, LLC, an affiliate of the Advisor.

The following table represents the fees incurred associated with the payments to our Advisor, our Dealer Manager, and our Property Manager for the periods indicated:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
	(unaudited)				(unaudited)
Acquisition fees	$	80	$	-	$	702	$	-
Asset management fees		508		1,220		1,444		4,071
Acquisition expenses reimbursed to Advisor		-		-		242		-
Property management fees		335		281		971		1,140
Development fees and leasing commissions		131		14		564		207
Total	$	1,054	$	1,515	$	3,923	$	5,418

As of September 30, 2011, we had approximately $9.1 million of cash and cash equivalents on hand and $114.3 million of marketable securities, available for sale.

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:

	For the Nine Months Ended September 30,
	2011			2010
	(unaudited)
Cash flows provided by operating activities	$	11,761		$	6,615
Cash flows used in/(provided by ) investing activities		(12,775	)		53,766
Cash flows used in financing activities		(14,225	)		(30,852	)
Net change in cash and cash equivalents		(15,239	)		29,529

Cash and cash equivalents, beginning of the period		24,318			17,077
Cash and cash equivalents, end of the period	$	9,079		$	46,606

Our principal sources of cash flow are derived from the operation of our rental properties as well as proceeds from the sale of marketable securities, loan proceeds and distributions received from affiliates. We intend that our properties will provide a relatively consistent stream of cash flow that provides us with resources to fund operating expenses, debt service and quarterly dividends.

Our principal demands for liquidity are (i) our property operating expenses, (ii) real estate taxes, (iii) insurance costs, (iv)leasing costs and related tenant improvements, (v) capital expenditures, (vi) acquisition and development activities, (vii) debt service and (viii) distributions to our stockholders and noncontrolling interests. The principal sources of funding for our operations are operating cash flows and proceeds from (i) the sale of marketable securities, (ii) the disposition of properties or interests in properties, (iii) the issuance of equity and debt securities and (iv) the placement of mortgage loans or other indebtedness.

Operating activities

Net cash flows provided by operating activities of $11.8 million for the nine months ended September 30, 2011 consists of the following:

Cash inflows of approximately $10.2 million from our net loss after adjustment for non-cash items and discontinued operations; and

cash inflows of approximately $1.6 million associated with the net changes in operating assets and liabilities.

Investing activities

The net cash used in investing activities of $12.8 million the nine months ended September 30, 2011 consists primarily of the following:

purchases of investments of in investment property, mortgages and joint ventures of approximately $66.6 million;

proceeds from the sale of marketable securities of $148.4 million and the purchase of $95.2 million of marketable securities;

Financing activities

The net cash used by financing activities of approximately $14.2 million for the nine months ended September 30, 2011 is primarily related to the following:

distributions to our common shareholders of $11.0 million and common share redemptions of $4.5 million made pursuant to our share redemption program;

distributions to our noncontrolling interests of $5.4 million and contributions from our noncontrolling interests of $9.1 million;

debt principal payments $2.0 million; and

CP Boston Property Improvements

The CP Boston Property was purchased “as is” and it is currently expected that approximately $13.0 million of additional renovations and improvements will be funded by the owners of CP Boston Joint Venture over the next 18 months.

We anticipate that adequate cash will be available to fund our operating and administrative expenses, regular debt service obligations, and the payment of dividends in accordance with REIT requirements in both the short and long-term. We believe our current financial condition is sound, however due to the current economic conditions and the continued weakness in, and unpredictability of, the capital and credit markets, we can give no assurance that affordable access to capital will exist when our debt maturities occur.

Contractual Obligations

The following is a summary of our contractual obligations outstanding over the next five years and thereafter as of September 30, 2011.

Contractual Obligations	Remainder of 2011		2012		2013		2014		2015		Thereafter		Total
Mortgage Payable 1	$	6,845	$	23,148	$	2,519	$	28,958	$	6,773	$	138,725	$	206,968
Interest Payments2		2,792		10,674		10,313		10,161		8,562		6,868		49,370

Total Contractual Obligations	$	9,637	$	33,822	$	12,832	$	39,119	$	15,335	$	145,593	$	256,338

These amounts represent future interest payments related to mortgage payable obligations based on the fixed and variable interest rates specified in the associated debt agreements. All variable rate debt agreements are based on the one-month rate. For purposes of calculating future interest amounts on variable interest rate debt the one-month rate as of September 30, 2011 was used.

Certain of the Company’s debt agreements require the maintenance of certain ratios, including debt service coverage. The Company currently is in compliance with all of its debt covenants or has obtained waivers from their lenders, with the exception of certain debt service coverage ratios during 2 quarters in 2010 and the first 3 quarters of 2011 on the debt associated with the Gulf Coast Industrial Portfolio.

Under the terms of the loan agreement for the Gulf Coast Industrial Portfolio, the lender has elected to retain all excess cash flow from the associated properties because of the aforementioned noncompliance. Through the date of this filing, notwithstanding the fact that the lender has taken such action, the Company is current with respect to regularly scheduled debt service payments on the loan. Additionally, the Company believes that the lender’s election to retain all excess cash flow from the associated properties, will not have a material impact on its results of operations or financial position.

We currently expect to remain in compliance with all our other existing debt covenants; however, should circumstances arise that would constitute an event of default, the various lenders would have the ability to exercise various remedies under the applicable loan agreements, including the potential acceleration of the maturity of the outstanding debt.

In addition to the mortgage payable described above, in February 2011, we used a margin loan that is available from a financial institution that holds custody of certain of our marketable securities. The margin loan is collateralized by the marketable securities in the Company’s 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 is $1.0 million at September 30, 2011 and is due on demand. The margin loan bears interest at libor + 0.85%.

Funds from Operations and Modified Funds from Operations

In addition to measurements defined by GAAP, our management also considers funds from operations (“FFO”) and modified funds from operations (“MFFO”), each as described below, as supplemental measures of our performance. We present FFO and MFFO because we consider them important supplemental measures of our operating performance and believe they are frequently used by investors and other interested parties in the evaluation of REITS, many of which present FFO and MFFO when reporting their results.

FFO is generally considered to be an appropriate supplemental non-GAAP measure of the performance of REIT. FFO is defined by the National Association of Real Estate Investment Trusts, Inc (“NAREIT”) as net earnings before depreciation and amortization of real estate assets, gains or losses on dispositions of real estate, (including such non-FFO items reported in discontinued operations). Notwithstanding the widespread reporting of FFO, changes in accounting and reporting rules under GAAP that were adopted after NAREIT’s definition of FFO have prompted a significant increase in the magnitude of non- operating items included in FFO. For example, acquisition expenses, acquisition fees and financing fees, which we intend to fund from the proceeds of our Offering and which we do not view as an expense of operating a property, are now deducted as expenses in the determination of GAAP net income. As a result, we intend to consider a modified FFO, or MFFO, as a supplements measure when assessing our operating performance. We intend to explain all modifications to FFO and to reconcile MFFO to FFO and FFO to GAAP net income when presenting MFFO information.

Our MFFO has been determined in accordance with the Investment Program Association (“IPA”) definition of MFFO and may not be comparable to MFFO reported by other non listed REITs or traded REITs that do not define the term in accordance with the current IPA definition or that interpret the current IPA definition differently. Our MFFO is FFO excluding straight-line rental revenue, gain on sale of unconsolidated real estate entity and acquisition-related costs expensed. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. MFFO may provide investors with a useful indication of our future performance and the sustainability of our current distribution policy upon completion of the acquisition period. However, because MFFO excludes the effects of acquisition costs, which are an important component in the analysis of the historical performance of an asset, MFFO should not be construed as a historic performance measure.

Our calculation of MFFO will exclude the following items and as a result will have the following limitations with its use as compared to net income/(loss):

Other non-cash charges not related to the operating performance or our properties. Straight-line rental revenue, the net amortization of above market and below market leases, other than temporary impairment of marketable securities, gain/loss on sale of marketable securities, impairment charges on long-lived assets, gain on debt extinguishment, unrealized gains/(losses) from mark to market adjustments on derivatives and other non-cash charges, if any, may be excluded from MFFO if we believe these charges are not useful in the evaluation of our operating performance. Although these charges will be included in the calculation, and result in an increase or decrease, of net income (loss), these charges are adjustments excluded from MFFO because we believe that MFFO provides useful supplemental information by focusing on the changes in our operating fundamentals rather than on events not related to our core operations. However, the exclusion of impairments limits the usefulness of MFFO as a historical operating performance measure since an impairment indicates that the property’s operating performance has been permanently affected.

Organizational and offering expenses and acquisition expenses payable to our Advisor. Although these amounts reduce net income, we fund such costs with proceeds from our offering and acquisition-related indebtedness and do not consider these expenses in the evaluation of our operating performance and determining MFFO. Our calculation of MFFO set forth in the table below reflects such exclusions.

The calculation of FFO and MFFO may vary from entity to entity because capitalization and expense policies tend to vary from entity to entity. Consequently, our presentation of FFO and MFFO may not be comparable to other similarly titled measures presented by other non-traded REITs. FFO and MFFO have significant limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. FFO and MFFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance. FFO and MFFO does not represent cash generated from operating activities determined in accordance with GAAP and are not measures of liquidity and should be considered in conjunction with reported net income and cash flows from operations computed in accordance with GAAP, as presented in our consolidated financial statements.

Accordingly, we believe that FFO is helpful to our management as a measure of operating performance because it excludes depreciation and amortization, gains and losses from property dispositions, and extraordinary items, and as a result, when compared year over year, reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which is not immediately apparent from net income. We believe that MFFO is helpful to investors, other interested parties and our management as a measure of operating performance because it excludes charges that management considers more reflective of investing activities or non-operating valuation changes. By providing FFO and MFFO, we present supplemental information that reflects how our management analyzes our long-term operating activities. We believe fluctuations in MFFO are indicative of changes in operating activities and provide comparability in evaluating our performance over time and as compared to other real estate companies that may not be affected by impairments or acquisition activities.

We believe that presenting FFO and MFFO is useful to and will benefit investors and other interested parties by (i) enhancing the ability of the financial community to analyze and compare our operating performance over time through the developing stages of our operations and among other non-traded REITs; (ii) enhance transparency and public confidence in the quality and consistency of our reported results; and (iii) provide standardized information for the evaluation by investors of our operating performance consistent with how our management, advisor and board of directors judge our operating performance and determine operating, financing and distribution policies.

Our calculation of FFO and MFFO may differ from other real estate companies due to, among other items, variations in cost capitalization policies for capital expenditures and, accordingly, may not be comparable to such other real estate companies.

Below is a reconciliation of net income/(loss) to FFO and MFFO for the periods indicated:

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Net income/(loss)	$	7,978		$	133,625		$	(617	)	$	142,270
FFO adjustments:
Depreciation and amortization:
Depreciation and amortization of real estate assets		2,147			1,881			6,264			4,680
Equity in depreciation and amortization for unconsolidated affiliated real estate entities		757			6,141			2,188			24,582
Adjustments to equity in earnings from unconsolidated entities, net		(871	)		-			(1,135	)		-
Gain on disposal of investment property		-			-			-			(70	)
Gain on disposal of investment property of unconsolidated affiliated real estate entities		-			-			-			(4	)
Gain on disposal of unconsolidated affiliated real estate entities		(2,824	)		(142,780	)		(2,824	)		(142,780	)
Discontinued operations:
Depreciation and amortization of real estate assets		-			41			-			326
Loss on disposal of investment property		-			-			-			300
FFO		7,187			(1,092	)		3,876			29,304
MFFO adjustments:
Noncash adjustments:
Amortization of above and below market leases(1)		(137	)		(93	)		(279	)		(196	)
Impairment loss on long-lived assets		-			-			-			1,193
Gain on debt extinguishment		-			-			-			(17,170	)
Straight-line rent adjustment(2)		132			(669	)		(486	)		(2,128	)
Mark to market adjustment on derivative financial instruments		(2,552	)		-			4,782			-
Amortization of discount on debt investment		(473	)		-			(871	)		-
Gain/(loss) on sale of marketable securities		(65	)		-			2,929			(67	)
Total non cash adjustments		(3,095	)		(762	)		6,075			(18,368	)
Other adjustments:
Acquisition and other transaction related costs		184			10,471			3,148			12,227
MFFO	$	4,276		$	8,617		$	13,099		$	23,163

Net income/(loss)	$	7,978		$	133,625		$	(617	)	$	142,270
Less: income attributable to noncontrolling interests		(485	)		(2,064	)		(132	)		(2,191	)
Net income/(loss) applicable to company's common shares	$	7,493		$	131,561		$	(749	)	$	140,079
Net income/(loss) per common share, basic and diluted	$	0.24		$	4.13		$	(0.02	)	$	4.41

FFO	$	7,187		$	(1,092	)	$	3,876		$	29,304
Less: FFO attributable to noncontrolling interests		(264	)		17			19			(457	)
FFO attributable to company's common shares	$	6,923		$	(1,075	)	$	3,895		$	28,847
FFO per common share, basic and diluted	$	0.22		$	(0.03	)	$	0.12		$	0.91

MFFO	$	4,276		$	8,617		$	13,099		$	23,163
Less: MFFO attributable to noncontrolling interests		(153	)		(133	)		(407	)		(359	)
MFFO attributable to company's common shares	$	4,123		$	8,484		$	12,692		$	22,804

Weighted average number of common shares outstanding, basic and diluted		31,726			31,818			31,682			31,758

Notes:

1)	Amortization of above and below market leases includes amortization for wholly owned subsidiaries in continuing operations as well as amortization from unconsolidated entities.

2)	Straight-line rent adjustment includes straight-line rent for wholly owned subsidiaries in continuing operations as well as straight-line rent from unconsolidated entities.

The table below presents our cumulative distributions paid and cumulative FFO:


	From inception through
	September 30, 2011

FFO	$	1,316
Distributions	$	79,287

Sources of Distribution

The amount of distributions paid to our stockholders in the future will be determined by our Board and is dependent on a number of factors, including funds available for payment of dividends, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code.

The following table provides a summary of the quarterly distribution declared and the source of distribution based upon cash flows provided by operations for the three and nine months ended September 30, 2011.

	Year to Date			Quarter ended			Quarter ended			Quarter ended
	September 30, 2011			September 30, 2011			June 30, 2011			March 31, 2011

Distribution period:					Q3 2011			Q2 2011			Q1 2011

Date(s) distribution declared				August 12, 2011			May 13, 2011			March 4, 2011

Date(s) distribution paid				October 14, 2011			July 15, 2011			April 15, 2011

Distributions :
Paid in cash	$	11,087		$	3,767		$	3,666		$	3,654
Dividend Reinvestment Plan ("DRIP")		5,516			1,835			1,857			1,824
Total Distributions	$	16,603		$	5,602		$	5,523		$	5,478

Source of distributions
Cash flows provided by operations	$	11,762		$	4,136		$	5,266		$	2,360
Procceds from investment in affiliates and excess cash		(675	)		(369	)		(1,600	)		1,294
Proceeds from issuance of common stock through DRIP		5,516			1,835			1,857			1,824
Total Sources	$	16,603		$	5,602		$	5,523		$	5,478

The following table provides a summary of the quarterly distributions declared and the source of distribution based upon cash flows provided by operations for the three and nine months ended September 30, 2010.

	Year to Date		Quarter ended			Quarter ended			Quarter ended
	September 30, 2010		September 30, 2010			June 30, 2010			March 31, 2010

Distribution period:				Q3 2010			Q2 2010			Q1 2010

Date(s) distribution declared			September 16, 2010			July 28, 2010 and August 30, 2010			March 2, 2010

Date(s) distribution paid			October 29, 2010			August 6, 2010 and October 15, 2010			March 30, 2010

Distributions Paid	$	13,473	$	3,744		$	6,237		$	3,492
Distributions Reinvested		4,008		1,877			-			2,131
Total Distributions	$	17,481	$	5,621		$	6,237		$	5,623

Source of distributions
Cash flows provided by operations	$	6,615	$	5,452		$	(75	)	$	1,238
Procceds from investment in affiliates and excess cash		6,858		(1,708	)		6,312			2,254
Proceeds from issuance of common stock through distribution reinvestment program		4,008		1,877			-			2,131
Total Sources	$	17,481	$	5,621		$	6,237		$	5,623

Information Regarding Dilution

In connection with the ongoing offering of shares of our common stock under out DRIP, we are providing information about our net tangible book value per share. Our net tangible book value per share is a mechanical calculation using amounts from our audited balance sheet, and is calculated as (1) total book value of our assets (2) minus total liabilities, (3) divided by the total number of shares of common stock outstanding. It assumes that the value of real estate, and real estate related assets and liabilities diminish predictably over time as shown through the depreciation and amortization of real estate investments. Real estate values have historically risen or fallen with market conditions. Net tangible book value is used generally as a conservative measure of net worth that we do not believe reflects our estimated fair value per share. It is not intended to reflect the value of our assets upon an orderly liquidation of the company in accordance with our investment objectives. Our net tangible book value reflects dilution in the value of our common stock from the issue price as a result of (i) operating losses, which reflect accumulated depreciation and amortization of real estate investments and (ii) the funding of distributions from sources other than our cash flow from operations. As of September 30, 2011, our net tangible book value per share was $8.41. The offering price of shares under our DRIP at September 30, 2011 was $9.50.

Our offering price under out DRIP was not established on an independent basis and bears no relationship to the net value of our assets. Further, even without depreciation in the value of our assets, the other factors described above with respect to the dilution in the value of our common stock are likely to cause our offering price to be higher than the amount you would receive per share if we were to liquidate at this time.

New Accounting Pronouncements

See Note 2 to the Notes to Consolidated Financial Statements for further information of certain accounting standards that have been adopted during 2011 and certain accounting standards that we have not yet been required to implement and may be applicable to our future operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk.

We may be exposed to the effects of interest rate changes primarily as a result of borrowings used to maintain liquidity and fund the expansion and refinancing of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk. To achieve our objectives, we may borrow at fixed rates or variable rates. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes. As of September 30, 2011, we had one interest rate cap outstanding with an insignificant intrinsic value.

As of September 30, 2011, we held various marketable securities with a fair value of approximately $114.3 million, which are available for sale for general investment return purposes and an additional $40.2 million of restricted marketable securities. We regularly review the market prices of these investments for impairment purposes. In order to manage risk related to changes in the price of Simon Stock, in October and November of 2010, we entered into a hedge, structured as a collar on 527,803 (75% of our total Marco OP Units) of our Marco OP Units. As of September 30, 2011, a hypothetical adverse 10% movement in market values (after taking into consideration the effect of our collar) would result in a hypothetical loss in fair value of approximately by approximately $15.4 million.

The following table shows the mortgage payable obligations maturing during the next five years and thereafter as of September 30, 2011:

	Remainder of 2011		2012		2013		2014		2015		Thereafter		Total		Estimated Fair Value
Mortgage Payable	$	6,845	$	23,148	$	2,519	$	28,958	$	6,773	$	138,725	$	206,968	$	214,735

Marco OP Units Collar:

Notional Amount		527,803	Units												$	(1,695	)
Average Cap (Highest)	$	109.95
Average Floor (Lowest)	$	90.32

As of September 30, 2011, approximately $32.4 million, or 16%, of our debt has variable interest rates and our interest expense associated with these instruments is, therefore, subject to changes in market interest rates. Approximately $11.4 million of our total outstanding variable-rate indebtedness was subject to a floor rate of between 5.85% and 6.75% as of September 30, 2011. Based on rates as of September 30, 2011, a 1% adverse movement (increase in LIBOR) would increase our annual interest expense by approximately $0.3 million.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and margin loan approximate their fair values because of the short maturity of these instruments. The estimated fair value (in millions) of the Company’s debt is summarized as follows:

	As of September 30, 2011				As of December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Mortgage payable	$	207.0	$	214.7	$	195.5	$	197.6

The fair value of the mortgage payable was determined by discounting the future contractual interest and principal payments by a market interest rate.

In addition to changes in interest rates, the value of our real estate and real estate related investments is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of lessees, which may affect our ability to refinance our debt if necessary. As of September 30, 2011, the only off-balance sheet arrangements we had outstanding was an interest rate cap with an insignificant intrinsic value.

We cannot predict the effect of adverse changes in interest rates on our debt and, therefore, our exposure to market risk, nor can we provide any assurance that long-term debt will be available at advantageous pricing. Consequently, future results may differ materially from the estimated adverse changes discussed above.

ITEM 4. CONTROLS AND PROCEDURES.

As of the end of the period covered by this report, management, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, our chief executive officer and chief financial officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required.

There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no significant deficiencies or material weaknesses identified in the evaluation, and therefore, no corrective actions were taken.

PART II. OTHER INFORMATION:

ITEM 1. LEGAL PROCEEDINGS

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

On July 13, 2011, JF Capital Advisors, LLC filed a lawsuit in New York state court against The Lightstone Group, LLC, Lightstone Value Plus Real Estate Investment Trust II, Inc. and us seeking payment for services alleged to have been rendered, and to be rendered prospectively, under theories of unjust enrichment and breach of contract. The plaintiff had a limited business arrangement with The Lightstone Group, LLC; that arrangement has been terminated. We believe this suit to be without merit and will defend the case vigorously.

On March 29, 2006, Jonathan Gould, a former member of our Board and Senior Vice-President-Acquisitions, filed a lawsuit against us in the District Court for the Southern District of New York. The suit alleges, among other things, that Mr. Gould was insufficiently compensated for his services to us as director and officer. Mr. Gould has sued for damages under theories of quantum merit and unjust enrichment seeking the value of work he performed. Management believes that this suit is frivolous and entirely without merit and intends to defend against these charges vigorously. The Company believes any unfavorable outcome on this matter will not have a material effect on the consolidated financial statements.

On January 4, 2007, 1407 Broadway Real Estate LLC ("Office Owner"), an indirect, wholly owned subsidiary of 1407 Broadway Mezz II LLC ("1407 Broadway "), consummated the acquisition of a sub-leasehold interest (the "Sublease Interest") in an office building located at 1407 Broadway, New York, New York (the "Office Property"). 1407 Broadway is a joint venture between LVP 1407 Broadway LLC ("LVP LLC"), a wholly owned subsidiary of our operating partnership, and Lightstone 1407 Manager LLC ("Manager"), which is wholly owned by David Lichtenstein, the Chairman of our Board of Directors and our Chief Executive Officer, and Shifra Lichtenstein, his wife.

The Sublease Interest was acquired pursuant to a Sale and Purchase of Leasehold Agreement with Gettinger Associates, L.P. ("Gettinger"). In July 2006, Abraham Kamber Company, as Sublessor under the sublease ("Sublessor"), served two notices of default on Gettinger (the "Default Notices"). The first alleged that Gettinger had failed to satisfy its obligations in performing certain renovations and the second asserted numerous defaults relating to Gettinger's purported failure to maintain the Office Property in compliance with its contractual obligations.

As of the date hereof, we are not a party to any other material pending legal proceedings.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933, and we did not repurchase any shares.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. REMOVED AND RESERVED

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS

Exhibit
Number		Description

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15 d-14(a) of the Securities Exchange Act, as amended.
32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”
32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”

*Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.

Date: November 14, 2011	By:	/s/ David Lichtenstein
		David Lichtenstein
		Chairman and Chief Executive Officer
		(Principal Executive Officer)

Date: November 14, 2011	By:	/s/ Donna Brandin
		Donna Brandin
		Chief Financial Officer and Treasurer
		(Duly Authorized Officer and Principal Financial and
		Accounting Officer)