Lightstone Value Plus REIT I, Inc. - Quarter Report: 2012 September (Form 10-Q)

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, 2012

¨	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 þ No ¨

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 þ 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 9, 2012, there were approximately 30.1 million outstanding shares of common stock of Lightstone Value Plus Real Estate Investment Trust, Inc., including shares issued pursuant to the dividend reinvestment plan.

In connection with the filing of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, Lightstone Value Plus Real Estate Investment Trust, Inc. (the “Lightstone REIT”), is relying on Release No. 68224 issued by the Securities and Exchange Commission titled “Order Under Section 17a and Section 36 of the Securities Exchange Act Of 1934 Granting Exemptions from Specified Provisions of the Exchange Act And Certain Rules There under,” which provides that filings by registrants unable to meet filing deadlines due to Hurricane Sandy and its aftermath shall be considered timely so long as the filing is made on or before November 21, 2012, and the conditions contained therein are satisfied. The Lightstone REIT’s finance department and its independent accountants are located in New Jersey and accordingly, the Lightstone REIT was unable to file this Report by the original due date of November 14, 2012 due to disruptions caused by Hurricane Sandy.

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, 2012 (unaudited) and December 31, 2011	3

	Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2012 and 2011	4

	Consolidated Statements of Comprehensive Income/(Loss) (unaudited) for the Three and Nine Months Ended September 30, 2012 and 2011	5

	Consolidated Statement of Stockholders’ Equity (unaudited) for the Nine Months Ended September 30, 2012	6

	Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2012 and 2011	7

	Notes to Consolidated Financial Statements	9

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47

Item 4.	Controls and Procedures	48

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	49

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50

Item 3.	Defaults Upon Senior Securities	50

Item 4.	Mine Safety Disclosures	50

Item 5.	Other Information	50

Item 6.	Exhibits	50

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, 2012			As of December 31, 2011
	(Unaudited)
Assets
Investment property:
Land and improvements	$	83,415		$	85,685
Building and improvements		226,638			214,097
Furniture and fixtures		4,930			3,459
Construction in progress		19,319			1,688
Gross investment property		334,302			304,929
Less accumulated depreciation		(27,570	)		(21,725	)
Net investment property		306,732			283,204
Investments in unconsolidated affiliated real estate entities		15,122			14,780
Cash and cash equivalents		21,444			31,525
Marketable securities, available for sale		164,047			103,174
Restricted marketable securities, available for sale		-			47,256
Restricted escrows		53,284			33,543
Tenant accounts receivable (net of allowance for doubtful accounts of $202 and $173, respectively)		2,562			2,364
Mortgages receivable		23,309			31,062
Intangible assets, net		4,028			1,475
Interest receivable from related parties		1,340			2,269
Prepaid expenses and other assets		10,287			8,115
Assets disposed of (See Note 9)		-			5,589
Total Assets	$	602,155		$	564,356
Liabilities and Stockholders' Equity
Mortgages payable	$	216,090		$	217,934
Margin loan		39,047			20,400
Accounts payable and accrued expenses		33,613			17,571
Due to sponsor		672			751
Loans due to affiliates		2,340			476
Tenant allowances and deposits payable		1,194			1,329
Distributions payable		5,289			5,557
Deferred rental income		568			964
Acquired below market lease intangibles, net		1,622			400
Deferred gain on disposition		-			30,287
Liabilities disposed of (See Note 9)		-			6,373
Total Liabilities		300,435			302,042
Commitments and contingencies (See Note 14)
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, 29,949 and 29,747 shares issued and outstanding in 2011 and 2010, respectively		299			297
Additional paid-in-capital		265,036			263,558
Accumulated other comprehensive income		42,950			22,104
Accumulated distributions in excess of net earnings		(45,879	)		(59,418	)
Total Company's stockholders' equity		262,406			226,541
Noncontrolling interests		39,314			35,773
Total Stockholders' Equity		301,720			262,314
Total Liabilities and Stockholders' Equity	$	602,155		$	564,356

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,
	2012			2011			2012			2011

Revenues:
Rental income	$	10,491		$	8,736		$	28,714		$	24,198
Tenant recovery income		1,266			1,299			4,097			3,669
Other service income		1,598			1,883			6,106			4,477
Total revenues		13,355			11,918			38,917			32,344

Expenses:
Property operating expenses		7,107			6,249			19,465			15,833
Real estate taxes		1,088			1,113			3,189			2,924
General and administrative costs		1,643			1,680			4,941			5,774
Franchise cancellation expense		-			-			-			1,234
Depreciation and amortization		2,510			2,080			7,411			6,063
Total operating expenses		12,348			11,122			35,006			31,828
Operating income		1,007			796			3,911			516
Other income, net		383			373			1,235			538
Mark to market adjustment on derivative financial instruments		1,819			2,552			(11,245	)		(4,782	)
Interest income		3,724			4,331			10,956			12,225
Interest expense		(3,263	)		(2,982	)		(9,726	)		(8,748	)
Gain/(loss) on sale of marketable securities		490			65			92			(2,929	)
Gain on disposition of unconsolidated affiliated real estate entities		-			2,824			30,287			2,824
Bargain purchase gain		4,800			-			4,800			-
Income/(loss) from investments in unconsolidated affiliated real estate entities		182			15			353			(285	)
Net income/(loss) from continuing operations		9,142			7,974			30,663			(641	)

Net income from discontinued operations		2,019			4			2,054			24
Net income/(loss)		11,161			7,978			32,717			(617	)

Less: net income attributable to noncontrolling interests		(600	)		(485	)		(3,457	)		(132	)

Net income/(loss) attributable to Company's common shares	$	10,561		$	7,493		$	29,260		$	(749	)

Basic and diluted net income/(loss) per Company's common share:
Continuing operations	$	0.28		$	0.24		$	0.91		$	(0.02	)
Discontinued operations		0.07			-			0.07			-

Net income/(loss) per Company’s common share, basic and diluted	$	0.35		$	0.24		$	0.98		$	(0.02	)
Weighted average number of common shares outstanding, basic and diluted		29,958			31,726			29,903			31,682

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 COMPREHENSIVE INCOME/(LOSS)

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2012			2011			2012			2011

Net income/(loss)	$	11,161		$	7,978		$	32,717		$	(617	)

Other comprehensive (loss)/income:
Unrealized (loss)/gain on available for sale securities		(648	)		(8,839	)		22,315			4,055
Reclassification adjustment for gains/(loss) included in net income/(loss)		11			(4	)		22			247

Other comprehensive (loss)/income		(637	)		(8,843	)		22,337			4,302

Comprehensive income/(loss)		10,524			(865	)		55,054			3,685

Less: Comprehensive (loss)/income attributable to non-controlling interests		(402	)		(282	)		(4,948	)		(956	)

Comprehensive income/(loss) attributable to the Company's common shares	$	10,122		$	(1,147	)	$	50,106		$	2,729

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

(Amounts in thousands) (UNAUDITED)

	Common Shares						Additional Paid-In			Accumulated Other		Accumulated Distributions in Excess of Net			Total Noncontrolling
	Number of Shares			Amount			Capital			Comprehensive Income		Earnings			Interests			Total Equity

BALANCE, December 31, 2011		29,747		$	297		$	263,558		$	22,104	$	(59,418	)	$	35,773		$	262,314

Net income		-			-			-			-		29,260			3,457			32,717
Other comprehensive income		-			-			-			20,846		-			1,491			22,337
Distributions declared		-			-			-			-		(15,721	)		-			(15,721	)
Distributions paid to noncontrolling interests		-			-			-			-		-			(5,944	)		(5,944	)
Contributions received from noncontrolling interests		-			-			-			-		-			6,732			6,732
Redemption and cancellation of shares		(329	)		(3	)		(3,011	)		-		-			-			(3,014	)
Shares issued from distribution reinvestment program		531			5			5,254			-		-			-			5,259
Acquisition of noncontrolling interest in a subsidiary		-			-			(765	)		-		-			(2,195	)		(2,960	)

BALANCE, September 30, 2012		29,949		$	299		$	265,036		$	42,950	$	(45,879	)	$	39,314		$	301,720

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,
	2012			2011

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)	$	32,717		$	(617	)
Less net income – discontinued operations		2,054			24
Net income/(loss) – continuing operations		30,663			(641	)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
Depreciation and amortization		7,411			6,063
Mark to market adjustment on derivative financial instruments		11,245			4,782
(Gain)/loss on sale of marketable securities		(92	)		2,929
Gain on disposition of unconsolidated affiliated real estate entities		(30,287	)		(2,824	)
Bargain purchase gain		(4,800	)		-
(Income)/loss from investments in unconsolidated affiliated real estate entities		(353	)		285
Other non-cash adjustments		(1,543	)		(694	)
Changes in assets and liabilities:
Decrease/(increase) in prepaid expenses and other assets		1,309			(220	)
Increase in tenant and other accounts receivable		(544	)		(872	)
Increase/(decrease) in tenant allowance and security deposits payable		35			(266	)
Increase in accounts payable and accrued expenses		2,613			2,649
(Decrease)/increase in due to Sponsor		(325	)		287
Decrease in deferred rental income		(396	)		(56	)
Net cash provided by operating activities – continuing operations		14,936			11,422
Net cash provided by operating activities – discontinued operations		297			339
Net cash provided by operating activities		15,233			11,761

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment property, net		(17,028	)		(34,978	)
Purchase of noncontrolling interest in a subsidiary		(560	)		-
Purchase of investment in unconsolidated affiliated real estate entities		(106	)		(6,874	)
Purchase of marketable securities		(6,983	)		(95,184	)
Purchase of mortgages receivable		-			(20,449	)
Collections on mortgage receivable		85			27
Payments on note payable		(60	)		-
Proceeds from sale of marketable securities		15,794			148,392
Proceeds from disposition of investments in unconsolidated affiliated real estate entities		-			1,889
Distribution from investments in unconsolidated affiliates		146			409
Deposit for purchase of real estate, net		2,400			(4,318	)
Funding to restricted escrows		(21,141	)		(1,689	)
Net cash used in investing activities – continuing operations		(27,453	)		(12,775	)
Net cash provided by investing activities – discontinued operations		7,267			-
Net cash used in investing activities		(20,186	)		(12,775	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Mortgage payments		(13,845	)		(1,967	)
Payments from loans due to affiliates		-			(1,020	)
Redemption and cancellation of common stock		(3,014	)		(4,582	)
Proceeds from mortgage financing		12,000			-
Payment of loan fees and expenses		(2,677	)		(239	)
Net margin loan proceeds		18,647			1,005
Contributions received from noncontrolling interests		6,732			9,101
Distributions paid to noncontrolling interests		(5,944	)		(5,402	)
Distributions paid to Company's common stockholders		(10,731	)		(11,033	)
Net cash provided by/(used in) financing activities – continuing operations		1,168			(14,137	)
Net cash used in financing activities – discontinued operations		(6,296	)		(88	)
Net cash used in financing activities		(5,128	)		(14,225	)

Net change in cash and cash equivalents		(10,081	)		(15,239	)
Cash and cash equivalents, beginning of period		31,525			24,318
Cash and cash equivalents, end of period	$	21,444		$	9,079

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,
	2012		2011
Supplemental disclosure of cash flow information:
Cash paid for interest	$	9,163	$	8,293
Distributions declared	$	15,721	$	16,603
Value of shares issued from distribution reinvestment program	$	5,259	$	5,572
Issuance of note payable in exchange for remaining interest in CP Boston Joint Venture	$	2,400	$	-
Loan proceeds placed in escrows	$	-	$	13,500
Satisfaction of Promissory Note for Marriott	$	9,300	$	-

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/unit data and where indicated in millions)(Unaudited)

Organization

Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation (“Lightstone REIT”) was formed on June 8, 2004 (date of inception) and subsequently qualified as a real estate investment trust (“REIT”) during the year ending December 31, 2006. Lightstone REIT 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.

Lightstone REIT is structured as an umbrella partnership REIT, or UPREIT, and substantially all of its 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”), in which Lightstone REIT as the general partner, held a 98.3% interest as of September 30, 2012.

The Lightstone REIT and the Operating Partnership and its subsidiaries are collectively referred to as the ‘‘Company’’ and the use of ‘‘we,’’ ‘‘our,’’ ‘‘us’’ or similar pronouns refers to the Lightstone REIT, its Operating Partnership or the Company as required by the context in which such pronoun is used.

The Company is managed by Lightstone Value Plus REIT, LLC (the “Advisor”), an affiliate of the Lightstone Group, Inc., under the terms and conditions of an advisory agreement. The Lightstone Group, Inc. previously served as the Company’s sponsor (the “Sponsor”) during its initial public offering, which closed on October 10, 2008. The Sponsor and Advisor are majority 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 shares of common stock until they are listed 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, 2012, on a collective basis, the Company (i) wholly owned and consolidates the operating results and financial condition of 5 retail properties containing a total of approximately 0.9 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 4 hotel hospitality properties containing a total of 656 rooms, (ii) majority owned and consolidates the operating results and financial condition of 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 outlet center retail projects. All of the Company’s properties are located within the United States. As of September 30, 2012, the retail properties, the industrial properties, the multi-family residential properties and the office property were 84.8%, 83.0%, 95.1% and 82.0% occupied based on a weighted-average basis, respectively. Its hotel hospitality properties’ average revenue per available room (“Rev PAR”) was $39.37 and occupancy was 59.7%, respectively for the nine months ended September 30, 2012.

On July 30, 2012, the Company disposed of the Brazos Crossing Power Center (“Brazos”), a retailing shopping center located in Lake Jackson, Texas. The operating results of Brazos have been classified as discontinued operations in the consolidated statements of operations for all periods presented. Additionally, the associated assets and liabilities of Brazos are classified as disposed of in the consolidated balance sheets for all periods presented.

Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of the Lightstone REIT and its 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.

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

Notes to Consolidated Financial Statements

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

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, 2011. 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 consolidated balance sheet as of December 31, 2011 included herein has been derived from the consolidated balance sheet included in the Company's Annual Report on Form 10-K, adjusted to present the classification of Brazos as disposed of (see Note 9 for additional information).

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

On January 1, 2012, the Company adopted changes issued by the Financial Accounting Standards Board (the “FASB”) to the presentation of comprehensive income. These changes give an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements; the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. The items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income were not changed. Additionally, no changes were made to the calculation and presentation of earnings per share. Management elected to present the two-statement option. Other than the change in presentation, the adoption of these changes had no impact on the Company’s consolidated financial statements.

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.

Gain on Disposition of Unconsolidated Affiliated Real Estate Entities

As of December 31, 2011, the Company’s consolidated balance sheet included a deferred gain of approximately $30.3 million representing the remaining deferred gain related to its disposition of certain investments in unconsolidated affiliated real estate entities in August 2010. The gain was deferred because certain equity interests (the “Escrowed Marco Units”) received as part of the consideration in connection with the disposition were placed into escrow for potential indemnification for certain liabilities and obligations that could arise under certain tax protection agreements (the “POAC/Mill Run Tax Protection Agreements”) through March 1, 2012. The Escrowed Marco Units were fully released to the Company on March 1, 2012 as no liabilities or obligations arose under the POAC/Mill Run Tax Protection Agreements and the Company recognized the remaining deferred gain of $30.3 million during the first quarter of 2012.

Investments in Unconsolidated Affiliated Real Estate Entities

The entities discussed 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:

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

Notes to Consolidated Financial Statements

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

					As of
Real Estate Entity	Date(s) Acquired	Ownership %			September 30, 2012		December 31, 2011
Grand Prairie Holdings LLC ("GPH")	March 30, 2009 & August 25, 2009		40.0	%	$	5,471	$	5,297
Livermore Valley Holdings LLC ("LVH")	March 30, 2009 & August 25, 2009		40.0	%		9,651		9,483
1407 Broadway Mezz II, LLC ("1407 Broadway")	January 4, 2007		49.0	%		-		-
Total investments in unconsolidated affiliated real estate entities					$	15,122	$	14,780

GPH

The Company has an aggregate 40.0% membership interest in GPH, of which 25.0% and 15.0% are held by the Operating Partnership and Pro-DFJV Holdings LLC (“PRO”), respectively. GPH, through subsidiaries, holds various ownership interests in certain entities, including (i) a 50.0% ownership interest in the entity that owns an outlet center located in Grand Prairie, Texas (the “Grand Prairie Outlet Center”) , which consists of approximately 418,000 square feet of gross leasable area (“GLA”) and opened on August 17, 2012 and (ii) a 100.0% ownership interest in an entity that holds certain rights related to the land on which the Grand Prairie Outlet Center is located.

The Company’s ownership interest in GPH is a non-managing interest, with certain consent rights with respect to major decisions. The Company accounts for its ownership interest in GPH under the equity method of accounting in its consolidated financial statements. An affiliate of the Company’s Sponsor has a 60.0% membership interest in GPH and is the majority owner and manager. Contributions, profits and cash distributions are allocated in accordance with each investor’s ownership percentage.

GPH Financial Information

The following table represents the unaudited condensed income statement for GPH for the three and nine months ended September 30, 2012 and 2011:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2012		2011		2012			2011

Operating loss	$	-	$	-	$	(2	)	$	-
Interest income and other, net		27		36		151			52
Income from investment in unconsolidated affiliated entity		363		-		435			-
Net income	$	390	$	36	$	584		$	52
Company's share of net income (40.0%)	$	156	$	15	$	234		$	21

The following table represents the unaudited condensed balance sheet for GPH:

	As of		As of
	September 30, 2012		December 31, 2011

Investments in unconsolidated affiliated real estate entities	$	10,549	$	10,114
Marketable securities, available for sale		3,945		3,350
Other assets		19		127

Total assets	$	14,513	$	13,591

Other liabilities	$	35	$	142
Members' capital		14,478		13,449

Total liabilities and members' capital	$	14,513	$	13,591

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

Notes to Consolidated Financial Statements

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

LVH

The Company has an aggregate 40.0% membership interest in LVH, of which 25.0% and 15.0% are held by the Operating Partnership and PRO, respectively. LVH, through subsidiaries, holds various ownership interests in certain entities, including (i) a 50.0% ownership interest in the entity that owns an outlet center located in Livermore Valley, California (the “Livermore Valley Outlet Center”), which consists of approximately 511,000 square feet of GLA and opened on November 8, 2012 and (ii) a 100.0% ownership interest in an entity that owns a parcel of land adjacent to the Livermore Valley Outlet Center, which was acquired for the potential expansion to the Livermore Outlet Center.

The Company’s ownership interest is a non-managing interest, with certain consent rights with respect to major decisions. The Company accounts for its ownership interest in LVH under the equity method of accounting in its consolidated financial statements. An affiliate of the Company’s Sponsor has a 60.0% membership interest in LVH and is the majority owner and manager. Contributions, profit and cash distributions are allocated in accordance with each investor’s ownership percentage.

LVH Financial Information

LVH had no operating results for the three and nine months ended September 30, 2011. The following table represents the unaudited condensed income statement for LVH for the three and nine months ended September 30, 2012:

	For the Three Months Ended September 30, 2012		For the Nine Months Ended September 30, 2012
Interest income and other, net	$	50	$	214
Income from investment in unconsolidated affiliated entity		15		84
Net income	$	65	$	298
Company's share of net income (40.0%)	$	26	$	119

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

	As of		As of
	September 30, 2012		December 31, 2011

Construction in progress	$	4,038	$	3,776
Investments in unconsolidated affiliated real estate entities		14,261		14,176
Marketable securities, available for sale		7,202		6,117
Other assets		19		127
Total assets	$	25,520	$	24,196

Other liabilities	$	285	$	226
Members' capital		25,235		23,970
Total liabilities and members' capital	$	25,520	$	24,196

1407 Broadway

The Company has a 49.0% ownership in 1407 Broadway, which has a sub-leasehold interest in a ground lease to an office building located at 1407 Broadway in New York, New York. During the second quarter of 2011, the Company’s share of cumulative losses resulting from its ownership interest 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.

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

Notes to Consolidated Financial Statements

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

During March 2010, the Company entered a demand grid note to borrow up to $20.0 million from 1407 Broadway. During 2010 the Company received aggregate loan proceeds from 1407 Broadway associated with this demand grid note in the amount of $1.5 million. During 2011, the Company made principal payments of approximately $1.0 million to 1407 Broadway. During the third quarter of 2012, the remaining balance of the loan, approximately $0.5 million was converted to a distribution, since the Company’s carrying value of its investment in 1407 Broadway is zero; the Company recorded the distribution as a liability. As of December 31, 2011, the outstanding principal and interest of approximately $0.5 million, is recorded in loans due to affiliates in the consolidated balance sheets. As of September 30, 2012, the distribution of approximately $0.5 million, is recorded in accounts payable and accrued expenses the consolidated balance sheets.

1407 Broadway Financial Information

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2012			2011			2012			2011

Total revenue	$	9,521		$	7,649		$	27,795		$	25,641
Property operating expenses		7,444			7,236			20,432			21,440
Depreciation and amortization		1,459			1,545			4,298			4,465
Operating income (loss)		618			(1,132	)		3,065			(264	)
Interest expense and other, net		(1,037	)		(649	)		(3,074	)		(2,677	)
Net loss	$	(419	)	$	(1,781	)	$	(9	)	$	(2,941	)
Company's share of net loss (49%)	$	-		$	-		$	-		$	(306	)

The following table represents the unaudited condensed balance sheet for 1407 Broadway:

	As of			As of
	September 30, 2012			December 31, 2011

Real estate, at cost (net)	$	107,297		$	109,275
Intangible assets		493			663
Cash and restricted cash		10,398			10,010
Other assets		17,771			16,653

Total assets	$	135,959		$	136,601

Mortgage payable	$	127,250		$	127,250
Other liabilities		12,832			12,581
Member deficit		(4,123	)		(3,230	)

Total liabilities and members' capital	$	135,959		$	136,601

CP Boston Joint Venture

On March 21, 2011, the Company and its Sponsor’s other sponsored public program, the Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone REIT II”), acquired, through LVP CP Boston Holdings, LLC (the “CP Boston Joint Venture”) 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, an unrelated third party, for an aggregate purchase price of approximately $10.1 million, excluding closing and other related transaction costs. The Company and Lightstone REIT II had 80.0% and 20.0% joint venture ownership interests, respectively, in the CP Boston Joint Venture 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/unit 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.

On February 20, 2012, the Company completed the acquisition of the remaining 20.0% joint venture ownership interest in the CP Boston Joint Venture, with an effective date of January, 1, 2012, from Lightstone REIT II. As a result, the Company now owns 100.0% of the CP Boston Joint Venture. Under the terms of the agreement, the Company paid $3.0 million in total consideration, consisting of $0.6 million of cash and a $2.4 million unsecured 10.0% interest-bearing demand note (the “Lightstone REIT II Note”), which is included in loans due to affiliates in the consolidated balance sheet as of September 30, 2012. The Lightstone REIT II Note requires monthly payments of interest and during the three months ended September 30, 2012, the Company incurred $61 of interest expense on the Lightstone REIT II Note. The difference between the book value of the 20.0% non-controlling interest previously owned by Lightstone REIT II and the purchase price was recorded as a deduction from paid in capital of approximately $0.8 million.

The Company’s interest in the CP Boston Joint Venture is a managing interest. Beginning on March 21, 2011, the Company consolidated the operating results and financial condition of the CP Boston Joint Venture and accounted for the joint venture ownership interest of Lightstone REIT II as a noncontrolling interest from the date of initial acquisition through the date the Company acquired Lightstone REIT II’s 20.0% joint venture ownership interest, effective January, 1, 2012.

The Company paid approximately $9.1 million in cash and assumed approximately $0.9 million in net liabilities. Approximately $2.4 million was allocated to land, $6.1 million was allocated to building and improvements, $1.8 million was allocated to furniture and fixtures and other assets.

For the three and nine months ended September 30, 2012 approximately $2.8 million and $9.7 million of revenue, respectively and $3.1 million and $9.1 million of property operating expenses, respectively and 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 income 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, 2011		For the Nine Months Ended September 30, 2011
Pro forma net revenue	$	12,168	$	36,507
Pro forma net income/(loss)	$	7,978	$	(921	)
Pro forma earnings/(loss) per share	$	0.25	$	(0.03	)

Courtyard by Marriott Hotel

On October 28, 2011, the Company acquired a $17.9 million promissory note (the “Promissory Note”) for approximately $9.3 million from Waterford of Parsippany, LLC (the “Marriot Seller”), an unaffiliated third party. The purchase price reflected a discount of approximately $8.6 million to the outstanding principal balance and the Company did not amortize the discount because the Promissory Note was in default. Additionally, in connection with the purchase, the Company’s Advisor received an acquisition fee equal to 2.75% of the acquisition price, or approximately $0.3 million. The acquisition was funded with cash. The Promissory Note, which was collateralized by a Courtyard by Marriott hotel (the “Courtyard by Marriott Hotel”) located in Parsippany, New Jersey, was recorded in mortgages receivable on the consolidated balance sheet.

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

Notes to Consolidated Financial Statements

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

On July 30, 2012 the Company completed the foreclosure of the Promissory Note and took title to the Courtyard by Marriott Hotel, including its $1.0 million furniture, fixtures and equipment reserve (the “FFE Reserve”) escrow held by Marriott. 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 preliminary fair values as of the date of the acquisition. The fair value of the assets acquired of $14.1 million exceeded the book value of the Promissory Note of $9.3 million, resulting in the recognition of a bargain purchase gain of approximately $4.8 million in the consolidated statements of operations during the third quarter of 2012. The allocation of the 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 this acquisition 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. Approximately $2.8 million was allocated to land, $9.2 million was allocated to building and improvements, and $1.1 million was allocated to furniture and fixtures. The FFE Reserve of $1.0 million was recorded at its stated balance and is included in restricted escrows in the consolidated balance sheet as of September 30, 2012.

This acquisition did not have a material effect on the Company’s results of operations for the three and nine months ended September 30, 2012 and 2011.

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, 2012
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Equity Securities, primarily REITs	$	7	$	-	$	(2	)	$	5
Marco OP Units		59,508		47,326		-			106,834
Corporate Bonds and Preferred Equities		43,543		1,134		(1,366	)		43,311
Mortgage Backed Securities ("MBS")		13,960		40		(103	)		13,897
Total	$	117,018	$	48,500	$	(1,471	)	$	164,047

	As of December 31, 2011
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Equity Securities, primarily REITs	$	104	$	-	$	(32	)	$	72
Marco OP Units		29,222		14,097		-			43,319
Corporate Bonds and Preferred Equities		47,395		-		(6,257	)		41,138
MBS		18,730		2		(87	)		18,645
Total	$	95,451	$	14,099	$	(6,376	)	$	103,174

Restricted Marketable Securities:

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

	As of December 31, 2011
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Marco OP Units	$	30,287	$	16,969	$	-	$	47,256
Total	$	30,287	$	16,969	$	-	$	47,256

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

Notes to Consolidated Financial Statements

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

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 POAC/Mill Run 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 December 31, 2011. The Escrowed Marco OP Units were fully released to the Company on March 1, 2012 as no TPA Obligations arose under the POAC/Mill Run Tax Protection Agreements. As of September 30, 2012, the entire 703,737 Marco OP Units that the Company received in connection with the closing of the POAC/Mill Run Transaction are classified as marketable securities, available for sale, in the consolidated balance sheet.

The Marco OP Units are exchangeable for a similar number of common operating partnership units (“Simon OP Units”) of Simon Property Group, L.P., (“Simon OP”), the operating partnership of Simon Inc. (“Simon”). 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’s common stock (“Simon Stock”).

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. During the three and nine months ended September 30, 2012 and 2011, the Company did not recognize any impairment charges. As of September 30, 2012, 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. For the three and nine months ended September 30, 2012 the Company realized $490 and $92 of gross gains, respectively, and, for the three and nine months ended September 30, 2011 the Company realized $65 of gross gains and $2.9 million of gross losses, respectively, 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.

Margin Loan

The Company has access to a margin loan (the Margin Loan”) from a financial institution that holds custody of certain of the Company’s marketable securities. The Margin Loan, which is due on demand, bears interest at Libor plus 0.85% (1.06% as of September 30, 2012) and 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 $39.0 million and $20.4 million as of September 30, 2012 and December 31, 2011, respectively. Interest expense on the Margin Loan was $114 and $264 for the three and nine months ended September 30, 2012, respectively and $123 and $287 for the three and nine months ended September 30, 2011.

Line of Credit

On September 14, 2012, the Company entered into a nonrevolving credit facility (“Line of Credit”) with the same financial institution which permits borrowings up to $25.0 million. The Line of Credit expires on September 14, 2013, but may be extended at the option of the Borrower for an additional one year subject to lender’s approval. The Line of Credit bears interest at Libor plus 3.00%. As of September 30, 2012, no amounts are outstanding under the Line of Credit.

The Company paid a $125 facility fee related to the Line of Credit that is being amortized over one year. Additionally, the Line of Credit provides for an annual fee equal to 0.25% of the unused balance for the Line of Credit.

The Line of Credit is collateralized by 440,311 Marco OP Units and PRO guaranteed the Line of Credit.

Derivative Financial Instruments

In order to manage risk related to changes in the price of Simon Stock, in 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.

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

Notes to Consolidated Financial Statements

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

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. and as of September 30, 2012, the strike price of the calls was adjusted to $108.77 per share.

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, 2012 and December 31, 2011, the fair value of the hedges was a liability of $22.0 million and $10.9 million, respectively, recorded on the consolidated balance sheets under accounts payable and accrued expenses and the collateral requirement was approximately $26.5 million and $8.3 million, respectively. The collateral was recorded on the consolidated balance sheets under restricted escrows. For the three and nine months ended September 30, 2012, a gain of $2.0 million and a loss of $11.1 million, respectively, and, 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/unit data and where indicated in millions)(Unaudited)

	Fair Value Measurement Using
As of September 30, 2012	Level 1		Level 2			Level 3		Total

Cash equivalents (money market accounts)	$	10,005	$	-		$	-	$	10,005

Marketable Securities:
Equity Securities, primarily REITs	$	5	$	-		$	-	$	5
Marco OP Units		-		106,834			-		106,834
Corporate Bonds and Preferred Equities		-		43,311			-		43,311
MBS		-		13,897			-		13,897
Total	$	5	$	164,042		$	-	$	164,047

Derivative Financial Instruments:
Marco OP Units Collar	$	-	$	(21,967	)	$	-	$	(21,967	)
Total	$	-	$	(21,967	)	$	-	$	(21,967	)

	Fair Value Measurement Using
As of December 31, 2011	Level 1		Level 2			Level 3		Total

Cash equivalents (money market accounts)	$	70	$	-		$	-	$	70

Marketable Securities:
Equity Securities, primarily REITs	$	72	$	-		$	-	$	72
Marco OP Units		-		43,319			-		43,319
Corporate Bonds				41,138					41,138
MBS		-		18,645			-		18,645
Total	$	72	$	103,102		$	-	$	103,174

Restricted Marketable Securities:
Marco OP Units	$	-	$	47,256		$	-	$	47,256
Total	$	-	$	47,256		$	-	$	47,256

Derivative Financial Instruments:
Marco OP Units Collar	$	-	$	(10,855	)	$	-	$	(10,855	)
Total	$	-	$	(10,855	)	$	-	$	(10,855	)

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

Mortgages Payable

Mortgages payable consists of the following:

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

Notes to Consolidated Financial Statements

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

									Loan Amount as of
Property	Interest Rate		Weighted Average Interest Rate as of September 30, 2012			Maturity Date	Amount Due at Maturity		September 30, 2012		December 31, 2011

Southeastern Michigan Multi-Family Properties		5.96%		5.96	%	July 2016	$	38,139	$	40,190	$	40,539

Oakview Plaza		5.49%		5.49	%	January 2017		25,583		27,272		27,500

Gulf Coast Industrial Portfolio		5.83%		5.83	%	Due on demand		52,711		52,711		53,025

Houston Extended Stay Hotels (Two Individual Loans)		LIBOR + 4.50%		4.71	%	June 2013		6,622		7,015		7,409

Camden Multi-Family Properties (Two Individual Loans)		5.44%		5.44	%	December 2014		26,334		27,215		27,492

St. Augustine Outlet Center		6.09%		6.09	%	April 2016		23,748		25,361		25,658

2nd Street Project		LIBOR + 1.00%		-		September 2012		-		-		13,500

2nd Street Project		LIBOR + 3.50%		3.72	%	September 2016		13,500		13,500		-

Crowe’s Crossing		5.44%		5.44	%	November 2016		5,578		5,937		5,993

DePaul Plaza		6.48%		-		October 2012		-		-		11,818

DePaul Plaza		LIBOR + 3.00%		3.22	%	September 2017		11,146		12,000		-

Everson Pointe		Prime + 1% with a 5.85% floor		5.85	%	December 2015		4,418		4,889		5,000

Total mortgages payable				5.47	%		$	207,779	$	216,090	$	217,934

Libor as of September 30, 2012 and December 31, 2011 was 0.2143% and 0.2953%, respectively. Our loans are secured by the indicated real estate and are non-recourse to the Company, with the exception of the Houston Extended Stay Hotels loan which are 35.0% recourse to the Company.

The following table shows the contractually scheduled principal maturities during the next five years and thereafter as of September 30, 2012:

Remainder of 2012				2013				2014				2015				2016				Thereafter				Total
$	53,316			$	8,861			$	28,562			$	6,340			$	82,118			$	36,893			$	216,090

Pursuant to the Company’s loan agreements, escrows in the amount of approximately $11.0 million and $7.7 million were held in restricted escrow accounts as of September 30, 2012 and December 31, 2011, respectively. 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. Additionally, approximately $13.5 million of cash collateral required for the 2^nd Street Project mortgage loan was held in restricted escrows as of September 30, 2012 and December 31, 2011. Certain of our mortgages payable also contain clauses providing for prepayment penalties.

The loan secured by the Houston Extended Stay Hotels was scheduled to mature on June 16, 2012. The loan provides for the Company to 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. During the second quarter of 2012 the Company requested and the lender granted the first one year extension of the loan until June 16, 2013.

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

Notes to Consolidated Financial Statements

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

On September 28, 2012, 50-01 2^ndStreet Associates, LLC (the “2^nd Street Owner”), a wholly owned subsidiary of 50-01 2^nd Street Associates Holdings LLC (the “2^nd Street JV”), a joint venture between the Operating Partnership and the Sponsor, entered into a construction loan (the “Construction Loan”) with CIBC, Inc. (“CIBC”) providing for up to $51.0 million of financings for a residential project (the “2^nd Street Project”). At closing, $13.5 million of proceeds were advanced under the Construction Loan and used to repay in full an interim loan (the “Interim Loan”) from CIBC which was previously obtained in August 2011 in connection with the acquisition of the land on which the 2^nd Street Project is being constructed. As of September 30, 2012, the remaining amount available under the Construction Loan was $37.5 million and future draws will be used to fund the development and construction of the 2^nd Street Project. See Note 11 for additional information.

The Construction Loan bears interest at a floating rate of LIBOR plus 3.50% and matures on September 30, 2016. The maturity of the Construction Loan may be extended for one additional year at the Company’s option. The Construction Loan provides for a commitment fee equal to 2% of its unused capacity and an administrative fee of $3 per month. Additionally, the 2^nd Street JV entered into an interest rate cap agreement to cap the LIBOR rate at 2.00% through September 30, 2016 at a cost of approximately $0.3 million. The Construction Loan is collateralized by the 2^nd Street Project and $13.5 million of cash held in escrow (included in restricted escrows on our consolidated balance sheet as of September 30, 2012) and is guaranteed by the Company and the Sponsor. In addition, the 2^nd Street Owner incurred approximately $2.2 million in deferred financing costs associated with the 2^nd Street Project through September 30, 2012.

In connection with its acquisition of DePaul Plaza on November 22, 2011, the Company assumed an existing mortgage loan with an outstanding principal balance of $11.8 million. On September 27, 2012 the Company entered into a new three-year mortgage loan with an initial principal amount of $12.0 million, which provides for additional advances up to $1.0 million for payment of certain leasing related costs, and bears interest at a rate of LIBOR plus 3.00%. Approximately $11.6 million of the proceeds from the new mortgage loan were used to repay the existing mortgage loan in full. The new mortgage loan will mature on September 27, 2017, at which time a balloon payment of approximately $11.1 million will be due to the lender, assuming no principal prepayments or additional advances Additionally, the Company entered into an interest rate swap agreement to hedge the variability of LIBOR for $12.0 million, expiring on September 27, 2017, with a fixed interest rate of 0.9%. As of September 30, 2012, the fair value of the swap of approximately $0.1 million is recorded in accounts payable and accrued expenses in the consolidated balance sheets.

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 during several quarterly periods in 2010, all quarter periods in 2011, and the first three quarters of 2012 (see below). The Company currently is in compliance with all of its other debt covenants.

As a result of the Company not meeting certain debt service coverage ratios on the debt associated with its Gulf Coast Industrial Portfolio, beginning in July 2011, the lender elected to retain all excess cash flow from the associated properties until the Company meets the required coverage ratios for two successive quarters. Additionally, the Lender has notified the Company that the loan is in default and due on demand. 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 and is currently in negotiations with the lender to cure the default. Additionally, the Company believes that the lender’s actions will not have a material impact on its results of operations or financial position.

Assets and Liabilities Disposed of and Discontinued Operations

During the second quarter of 2012, Brazos met the criteria to be classified as held for sale. On July 30, 2012, the Company disposed of Brazos, a retail shopping center located in Lake Jackson, Texas for approximately $7.7 million. In connection with the disposition, the Company repaid in full the then outstanding mortgage indebtedness of approximately $6.2 million, which was scheduled to mature in December 2012. The Company recognized a gain on disposition of $2.1 million during the third quarter of 2012. The operating results of Brazos are classified as discontinued operations in the Consolidated Statements of Operations for all periods presented. Additionally, the associated assets and liabilities of Brazos are classified as assets disposed of in the Consolidated Balance Sheets for all periods presented.

The following summary presents the operating results of Brazos included in discontinued operations in the Consolidated Statements of Operations 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/unit data and where indicated in millions)(Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
Revenues	$	(47	)	$	250		$	454		$	750

Operating expenses		(1	)		130			242			380

Operating income		(46	)		120			212			370

Interest expense		(33	)		(116	)		(256	)		(346	)
Gain on disposition		2,098			-			2,098

Net income from discontinued operations	$	2,019		$	4		$	2,054		$	24

Cash flows generated from discontinued operations are presented separately on the Company’s consolidated statements of cash flows.

The following summary presents the major components of assets and liabilities disposed of, of as the date indicated.

	As of
	December 31, 2011

Net investment property	$	5,265
Tenant accounts receivable		131
Prepaid expenses and other assets		193

Total assets disposed of	$	5,589

Mortgage payable	$	6,336
Accounts payable and accrued expenses		37
Deferred rental income		-

Total liabilities disposed of	$	6,373

10.

Net Earnings Per Share

Basic net earnings 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. Diluted net income/(loss) per share includes the potentially dilutive effect, if any, which would occur if our outstanding options to purchase our common stock were exercised. For all periods presented, the effect of these exercises was anti-dilutive and, therefore, diluted net income/(loss) per share is equivalent to basic net income/(loss) per share.

11.

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/unit data and where indicated in millions)(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	(unaudited)				(unaudited)
Acquisition fees	$	127	$	80	$	184	$	702
Asset management fees		598		508		1,748		1,444
Acquisition expenses reimbursed to Advisor		-		-		-		242
Property management fees		356		335		1,076		971
Development fees and leasing commissions		339		131		483		564
Total	$	1,420	$	1,054	$	3,491	$	3,923

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

During the three months ended September 30, 2012, distributions of $0.5 million were declared and paid on the SLP units and are part of non controlling interests. Since inception through September 30, 2012, cumulative distributions declared were $10.3 million, of which $9.7 million were paid. See Notes 3, 4 and 14 for other related party transactions.

Consolidated Joint Venture

On August 18, 2011, the Operating Partnership and its Sponsor formed the 2^nd Street Joint Venture to own and operate the “2^nd Street Owner. The Operating Partnership initially owned a 75.0% membership interest in the 2^nd Street JV (the “2^nd Street JV Interest”). The 2^nd Street JV Interest is a managing membership interest. The Sponsor initially had a 25.0% 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 2^nd Street JV Interest had a put option (the “Put”) whereby the Operating Partnership could put a portion or all of its interest to the Sponsor through August 18, 2012 in exchange for the corresponding dollar value of its capital contributions as of the date of exercise. On August 14, 2012, the Operating Partnership exercised the Put pursuant to which it would transfer 15.0% of its membership interest to the Sponsor effective upon obtaining the Construction Loan (see Note 8 for additional information) for the 2^nd Street Project. On September 28, 2012, the Construction Loan closed and the Sponsor reimbursed the Operating Partnership approximately $4.1 million.

As of September 30, 2012, the Operating Partnership owned a 60.0% managing membership interest in the 2^nd Street JV and the Sponsor owned a 40.0% non managing membership interest. As the Operating Partnership through the 2^nd Street JV Interest has the power to direct the activities of the 2^nd Street JV that most significantly impact the performance, beginning August 18, 2011, the Company has consolidated the operating results and financial condition of the 2^nd Street JV and has accounted for the ownership interest of the Sponsor as a noncontrolling interest.

On August 18, 2011, the 2^nd Street Owner, which is wholly owned by the 2^nd Street JV, acquired a parcel of land located in Queens, New York for approximately $19.3 million from an unaffiliated third party. The 2^nd Street JV contributed approximately $19.3 million in cash to the 2^nd Street Owner to fund the land acquisition. In connection with the acquisition of the land, the 2^ndStreet Owner also obtained the $13.5 million Interim Loan. During the second quarter of 2012, the 2nd Street Owner commenced construction of the 2nd Street Project on the acquired land. The 2nd Street Project is currently expected to consist of approximately 200 apartment units at an estimated total development cost of approximately $81.4 million, inclusive of the land acquisition cost, with an estimated completion in mid-2014. On September 28, 2012 the 2^nd Street Owner entered into the Construction Loan and used proceeds advanced at closing to repay the Interim Loan in full. The remaining available amount of $37.5 million under the Construction Loan will be used to fund the construction and development of the 2^nd Street Project.

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 transferred to the A.S. Holdings LLC (“A.S. Holdings”), a wholly-owned entity of Lichtenstein, on 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/unit data and where indicated in millions)(Unaudited)

On March 4, 2011, the Company, through its Operating Partnership, entered into an agreement with A.S. Holdings, providing the Operating Partnership an option to acquire a membership interest of up to 10.0% in A.S. Holdings. The option was not exercised and expired on June 30, 2012.

12.

Financial Instruments

The carrying amounts of cash and cash equivalents, restricted escrows, tenants’ accounts receivable, interest receivable from related parties, accounts payable and accrued expenses, loans due to affiliates, and the margin loan approximated their fair values as of September 30, 2012 because of the short maturity of these instruments. The carrying amount of the mortgages receivable approximated their fair value as of September 30, 2012 based upon current market information that would have been used by a market participant to estimate the fair value of such loan.

The estimated fair value (in millions) of the Company’s debt is summarized as follows:

	As of September 30, 2012				As of December 31, 2011
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Mortgage payable	$	216.1	$	217.4	$	217.9	$	218.0

The fair value of the mortgages payable was determined by discounting the future contractual interest and principal payments by estimated current market interest rates.

13.

Segment Information

The Company currently operates in four business segments as of September 30, 2012: (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, 2012 and 2011 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, 2012 and December 31, 2011. 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, 2011 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.

As discussed in Note 9, the results of operations presented below exclude Brazos due to its classification as discontinued operations for all periods presented. Brazos was previously included in the Company’s retail segment.

Selected results of operations for the three months ended September 30, 2012 and 2011, and total assets as of September 30, 2012 and December 31, 2011 regarding the Company’s operating segments 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/unit data and where indicated in millions)(Unaudited)

	For the Three Months Ended September 30, 2012
	Retail		Multi-Family		Industrial		Hospitality			Unallocated			Total

Total revenues	$	3,585	$	3,175	$	1,814	$	4,781		$	-		$	13,355

Property operating expenses		991		1,364		568		4,256			(72	)		7,107
Real estate taxes		396		318		202		173			(1	)		1,088
General and administrative costs		19		7		52		95			1,470			1,643

Net operating income/(loss)		2,179		1,486		992		257			(1,397	)		3,517

Depreciation and amortization		1,321		420		471		298			-			2,510

Operating income/(loss)	$	858	$	1,066	$	521	$	(41	)	$	(1,397	)	$	1,007

As of September 30, 2012:
Total Assets	$	128,739	$	65,406	$	61,214	$	54,541		$	292,255		$	602,155

	For the Three Months Ended September 30, 2011
	Retail			Multi-Family		Industrial		Hospitality		Unallocated			Total

Total revenues	$	2,670		$	3,082	$	1,688	$	4,478	$	-		$	11,918

Property operating expenses		697			1,337		576		3,583		56			6,249
Real estate taxes		246			320		222		134		191			1,113
General and administrative costs		(15	)		47		2		95		1,551			1,680

Net operating income/(loss)		1,742			1,378		888		666		(1,798	)		2,876

Franchise cancellation expense		-			-		-		-		-			-
Depreciation and amortization		869			398		539		274		-			2,080

Operating income/(loss)	$	873		$	980	$	349	$	392	$	(1,798	)	$	796

As of December 31, 2011:
Total Assets	$	134,952		$	66,702	$	61,721	$	31,229	$	269,752		$	564,356

Selected results of operations for the nine months ended September 30, 2012 and 2011 regarding the Company’s operating segments are as follows:

	For the Nine Months Ended September 30, 2012
	Retail		Multi Family		Industrial		Hospitality		Unallocated			Total

Total revenues	$	10,675	$	9,450	$	5,362	$	13,430	$	-		$	38,917

Property operating expenses		2,752		4,017		1,578		11,157		(39	)		19,465
Real estate taxes		1,193		984		532		480		-			3,189
General and administrative costs		57		111		254		292		4,227			4,941

Net operating income/(loss)		6,673		4,338		2,998		1,501		(4,188	)		11,322

Depreciation and amortization		3,999		1,239		1,417		756		-			7,411
Operating income/(loss)	$	2,674	$	3,099	$	1,581	$	745	$	(4,188	)	$	3,911

	For the Nine Months Ended September 30, 2011
	Retail			Multi Family		Industrial			Hospitality			Unallocated			Total

Total revenues	$	7,807		$	9,115	$	5,155		$	10,267		$	-		$	32,344

Property operating expenses		2,081			4,006		1,571			8,119			56			15,833
Real estate taxes		746			961		651			375			191			2,924
General and administrative costs		(64	)		127		(3	)		256			5,458			5,774

Net operating income/(loss)		5,044			4,021		2,936			1,517			(5,705	)		7,813

Franchise cancellation expense		-			-		-			1,234			-			1,234
Depreciation and amortization		2,602			1,184		1,601			676			-			6,063
Operating income/(loss)	$	2,442		$	2,837	$	1,335		$	(393	)	$	(5,705	)	$	516

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

Notes to Consolidated Financial Statements

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

14.

Commitments and Contingencies

Legal Proceedings

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

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 meruit 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.

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.

On April 12, 2012, the Supreme Court, New York County decided in favor of the Company with respect to all matters before the Court. Sublessor filed a Notice of Appeal on June 7, 2012 and legal briefs from both parties were due on October 1, 2012. The parties extended the time to file opposition papers until the end of November, with Kamber having approximately two weeks thereafter to file reply papers. A date for oral argument will then be fixed by the court. Management is confident that the lower court’s rulings will be upheld. Management is engaged in conversations with Kamber regarding a restructuring and settlement of the litigation; however, the outcome of such conversations is uncertain.

On July 13, 2011, JF Capital Advisors, filed a lawsuit against The Lightstone Group, LLC, the Company, and Lightstone REIT II in the Supreme Court of the State of New York 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 filed a motion to dismiss the action and, on January 31, 2012, the Supreme Court dismissed the complaint in its entirety, but granted the plaintiff leave to replead two limited causes of action.

The plaintiff filed an amended complaint on May 18, 2012, bringing limited claims under theories of unjust enrichment and quantum meruit. We continue to believe these claims to be without merit and will defend the case vigorously, and anticipate filing another motion to dismiss shortly.

While any proceeding or litigation has an element of uncertainty, management currently believes that the likelihood of an unfavorable outcome with respect to any of the aforementioned legal proceedings is remote. No provision for loss has been recorded in connection therewith.

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

Notes to Consolidated Financial Statements

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

As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss.

Tax Protection Agreements

In connection with the contribution of the certain ownership interests (the “Mill Run Interest”) in Mill Run LLC (“Mill Run”) and certain ownership interests (the “POAC Interest”) in Prime Outlets Acquisition Company ( “POAC”), our 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, our Operating Partnership is required to indemnify each of Arbor JRM, Arbor CJ, TRAC and Central Jersey with respect to Mill Run’s properties (the “Mill Run Properties”), and AR Prime and JT Prime, with respect to POAC’s properties (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 Mill Run Interest, the POAC Properties, or the POAC Interest (each, an “Indemnifiable Event”). Under the terms of the POAC/Mill Run Tax Protection Agreements, our 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, 2012.

Each of the POAC/Mill Run Tax Protection Agreements imposes certain restrictions upon our 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. Our Operating Partnership may not dispose or transfer any of the Mill Run Properties or any of the POAC Properties 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 Agreements. However, our 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 Agreements, our Operating Partnership can sell on an annual basis part or all of any of the POAC Properties with an aggregate value of ten percent or less of the total value of the POAC Properties as of the date of contribution (and any amounts of the ten percent value not sold can be applied to sales in future years); and (B) as to the Mill Run Properties either the same ten percent test as set forth above in (i)(A) with respect to the Mill Run Properties or the sale of the property then known as Designer Outlet Center; and (ii) our Operating Partnership could enter into a non-recognition transaction with either the consent of the Contributors or an opinion from an independent law or accounting firm advising 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 Company, its Operating Partnership and PRO (collectively, the “LVP Parties”) completed the disposition of the POAC Interest and Mill Run Interest (collectively, the “POAC/Mill Run Transaction”) to Simon and contemporaneously entered into a tax matters agreement with Simon. Additionally, the Company was advised by an independent law firm that it was “more likely than not” that the POAC/Mill Run Transaction did not give rise to current taxable income or loss. Accordingly, the Company believed the POAC/Mill Run Transaction was a non-recognition transaction and not an Indemnifiable Event under the POAC/Mill Run Tax Protection Agreements. Pursuant to the terms of the 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 a revolving credit facility (or indebtedness incurred to refinance the revolving credit facility) for at least four years following the closing of the POAC/Mill Run Transaction. The LVP Parties were also given the opportunity to enter into agreements to make specified capital contributions to Simon Property Group, L.P. (“Simon OP”) in the event that it defaults on certain of its indebtedness. If Simon breaches its obligations under the 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.

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

Notes to Consolidated Financial Statements

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

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 POAC/Mill Run Transaction (the “Indemnified Liabilities”). The Company and its Operating Partnership were 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 through March 1, 2012, of which there were none.

On December 9, 2011, GPH, LVH and certain of their subsidiaries (collectively, the “Holding Entities”) completed the disposition of 50.0% of their ownership interests in both the Grand Prairie Outlet Center and the Livermore Valley Outlet Center (the “Outlet Centers Transaction”) to Simon. In connection with the closing of the Outlet Centers Transaction, the Holdings Entities, the Company, the Operating Partnership, PRO and the Sponsor’s Affiliates (collectively, the “Outlet Centers Parties”) entered into a tax matters agreement with Simon pursuant to which Simon generally may not engage in a transaction that could result in the recognition of the “built-in gain” with respect to the Grand Prairie Outlet Center and the Livermore Valley Outlet Center 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 Outlet Centers Parties For example, Simon agreed to maintain a debt level of no less than the cash portion of the proceeds from the Outlet Centers Transaction until at the fourth anniversary of the closing, and the Outlet Centers Parties have provided and will continue to have the opportunity to provide guaranties of collection with respect to a revolving credit facility (or indebtedness incurred to refinance the revolving credit facility) for at least four years following the closing of the Outlet Centers Transaction. The Outlet Centers 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 breaches its obligations under the tax matters agreement, Simon will be required to indemnify the Outlet Centers Parties for certain taxes that they are deemed to incur, including taxes relating to the recognition of “built-in gains” with respect to the Grand Prairie Outlet Center and the Livermore Valley Outlet Center, 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.

Loan Collection Guaranties

In connection with the closing of the POAC/Mill Run Transaction, the LVP Parties have provided POAC/Mill Run Loan Collection Guaranties with respect to the draws under a revolving credit facility made by Simon in connection with the closing of the POAC/Mill Run Transaction. Under the terms of the POAC/Mill Run Loan Collection Guaranties, the LVP Parties are obligated to make payments in respect of principal and interest due under the revolving credit facility after Simon OP has failed to make payments, the amount outstanding under the revolving credit facility has been accelerated, and the lenders have failed to collect the full amount outstanding under the revolving credit facility after exhausting other remedies. The POAC/Mill Run 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 POAC/Mill Run 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 POAC/Mill Run Transaction, the Company recorded a liability in the amount of $0.1 million, representing the estimated fair value of the POAC/Mill Run 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, 2012 and December 31, 2011, respectively.

Outlet Centers Put/Call Rights

Pursuant to the terms of certain joint venture agreements with respect to the Grand Prairie Outlet Center and the Livermore Outlet Center, commencing fifteen months after the grand opening date (the “Grand Opening Date”), as defined, of the respective outlet center, GPH and LVH have the right to put (the “Put”) their remaining interests in the Grand Prairie Outlet Center and/or Livermore Valley Outlet Center, respectively, to Simon at certain prescribed exit consideration amounts (the “Exit Consideration Amounts”) and Simon has the right to call (the “Call”) the remaining interests from GPH and/or LVH at the Exit Consideration Amounts. The Exit Consideration Amounts consist of (i) a final valuation (the “Final Valuation”) based on respective outlet center’s in-place net operating income, subject to certain adjustments, as of the one-year anniversary of its Grand Opening Date, divided by a capitalization rate of 7.0%, adjusted for certain items, including outstanding indebtedness and (ii) a true-up valuation, as defined.

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

Notes to Consolidated Financial Statements

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

15. Subsequent Events

Distribution Payment

On October 15, 2012, the distribution for the three-month period ending September 30, 2012 was paid in full using a combination of cash and approximately 0.2 million shares of the Company’s common stock issued pursuant to the Company’s DRIP, at a discounted price of $10.12 per share. The distribution was paid from cash flows provided from operations (approximately $3.6 million or 68%) and excess cash proceeds from the issuance of common stock through the Company’s Distribution Reinvestment Program (approximately $1.7 million or 32%).

Distribution Declaration

On November 9, 2012, the Board authorized and the Company declared a distribution for the three-month period ending December 31, 2012. 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 15, 2013 to shareholders of record as of December 31, 2012. 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 consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust, Inc. and Subsidiaries 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.

As discussed in Note 9 to the Consolidated Financial Statements, the results of operations presented below exclude Brazos Crossing Power Center (“Brazos”) due to its classification as discontinued operations. Brazos was previously included in the Company’s retail segment.

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 and in the Company’s other reports filed with the SEC.

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

Overview

Lightstone Value Plus Real Estate Investment Trust, Inc. (the “Lightstone REIT”) and Lightstone Value Plus REIT, LP, (the “Operating Partnership”) and its subsidiaries are collectively referred to as the ‘‘Company’’ and the use of ‘‘we,’’ ‘‘our,’’ ‘‘us’’ or similar pronouns refers to the Lightstone REIT, its Operating Partnership or the Company as required by the context in which such pronoun is used.

Lightstone REIT has acquired and operates commercial, residential and hospitality properties, principally in the United States. Principally through 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

Our operating results as well as our investment opportunities are impacted by the health of the North American economies. Our business and financial performance may be adversely affected by current and future economic conditions, such as an availability of credit, financial markets volatility and recession.

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. As a result of this disruption, in general there has been an increase in costs associated with borrowings and refinancing as well as limited availability of funds for borrowing and refinancing. If these conditions continue or worsen, our 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.

Portfolio Summary –

	Location	Year Built (Range of years built)		Leasable Square Feet		Percentage Occupied as of September 30, 2012			Annualized Revenues based on rents at September 30, 2012		Annualized Revenues per square foot September 30, 2012
Wholly Owned Real Estate Properties:

Retail
St. Augustine Outlet Center	St. Augustine, FL	1998			330,246		84.1	%		$3.8 million	$	13.85
Oakview Plaza	Omaha, NE	1999 - 2005			177,103		88.6	%	$2.3 million		$	14.71
Crowe's Crossing	Stone Mountain, GA	1986			93,728		77.5	%	$0.6 million		$	8.87
DePaul Plaza	Bridgeton, MO	1985			187,090		83.2	%	$1.7 million		$	11.13
Everson Pointe	Snellville, GA	1999			81,428		90.8	%	$0.8 million		$	11.33
		Retail Total			869,595		84.8	%

Industrial
7 Flex/Office/Industrial Buildings within the Gulf Coast Industrial Portfolio	New Orleans, LA	1980-2000			339,700		82.9	%	$3.0 million		$	10.72
4 Flex/Industrial Buildings within the Gulf Coast Industrial Portfolio	San Antonio, TX	1982-1986			484,364		73.6	%	$1.7 million		$	4.69
3 Flex/Industrial Buildings within the Gulf Coast Industrial Portfolio	Baton Rouge, LA	1985-1987			182,792		82.2	%	$1.0 million		$	6.70
Sarasota	Sarasota, FL	1992			280,242		100.0	%	$0.5 million		$	1.85
		Industrial Total			1,287,098		83.0	%

Multi - Family Residential	Location	Year Built (Range of years built)		Leasable Units		Percentage Occupied as of September 30, 2012			Annualized Revenues based on rents at September 30, 2012		Annualized Revenues per unit September 30, 2012
Southeastern Michigan Multi-Family Properties (Four Apartment Buildings)	Southeast MI	1965-1972			1,017		94.7	%	$7.7 million		$	8,002
Camden Multi-Family Properties (Two Apartment Communities)	Greensboro/Charlotte, NC	1984-1985			568		96.0	%	$3.9 million		$	7,226
		Residential Total			1,585		95.1	%

	Location	Year Built		Year to date Available Rooms		Percentage Occupied as of September 30, 2012			Revenue per Available Room through September 30, 2012
Wholly-Owned and Consolidated Hospitality Properties:
Houston Extended Stay Hotels (Two Hotels)	Houston, TX	1998			79,734		82.8	%	$	35.47

Marriott Courtyard Parsippany	Parsippany, NJ	2001			12,684		73.3	%	$	88.20

CP Boston Property (Hotel and Water Park Resort)	Danvers, Massachusetts	1978			99,798		39.5	%	$	36.28
		Hospitalisty Total			192,216		59.7	%

	Location	Year Built		Leasable Square Feet		Percentage Occupied as of September 30, 2012			Annualized Revenues based on rents at September 30, 2012		Annualized Revenues per square foot September 30, 2012
Unconsolidated Affiliated Real Estate Entities-Office:
1407 Broadway⁽¹⁾	New York, NY		1952		1,114,695		82.0	%		$35.7 million	$	34.72

(1) - Sub-lease interest indirectly owned by 1407 Broadway Mezz II, LLC, in which we have an 49.0% ownership interest.

Annualized revenue is defined as the minimum monthly payments due as of September 30, 2012 annualized, excluding periodic contractual fixed increases and rents calculated based on a percentage of tenants’ sales. The annualized base rent disclosed in the table above includes all concessions, abatements and reimbursements of rent to tenants.

Critical Accounting Policies and Estimates

There were no material changes during the three and nine months ended September 30, 2012 to our critical accounting policies as reported in our Annual Report on Form 10-K, for the year ended December 31, 2011.

Results of Operations

Our primary financial measure for evaluating each of our properties is net operating income (“NOI”). NOI represents revenues less property operating expenses, real estate taxes and general and administrative expenses. We believe 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 our properties.

For the Three Months Ended September 30, 2012 vs. September 30, 2011

Consolidated

Revenues

Our revenues are comprised of rental revenues, tenant recovery income and other service income. Total revenues increased by approximately $1.5 million to $13.4 million for the three months ended September 30, 2012 compared to $11.9 million for the same period in 2011. The increase primarily reflects higher revenues in our Retail segment of $ $0.9 million and our Hospitality Segment of $0.3 million as well as slight increases in our Multi-Family Residential and Industrial segments. See “Segment Results of Operations for the Three Months Ended September 30, 2012 compared to September 30, 2011” for additional information on revenues by segment.

Property operating expenses

Property operating expenses increased by approximately $0.9 million to $7.1 million for the three months ended September 30, 2012 compared to $6.2 million the same period in 2011. The increase was due to increased expenses from the properties acquired in October and November of 2011.

Real estate taxes

Real estate taxes were unchanged for the three months ended September 30, 2012 compared to the same period in 2011.

General and administrative expenses

General and administrative were unchanged for the three months ended September 30, 2012 compared to the same period in 2011.

Depreciation and Amortization

Depreciation and amortization expense increased by approximately $0.4 million to $2.5 million for the three months ended September 30, 2012 compared to $2.1 million the same period in 2011. The increase was due to depreciation from the properties acquired in October and November of 2011.

Mark to market adjustment on derivative financial instruments

During the three months ended September 30, 2012 and 2011, we recorded positive mark to market adjustment on derivative financial instruments of $1.8 million and $2.6 million, respectively. These mark to market adjustments represent the change in the fair values of a collar entered into to protect the value of a portion of our Marco OP Units within a certain specified range.

Interest income

Interest income decreased by approximately $0.6 million to $3.7 million for the three months ended September 30, 2012 compared to $4.3 million the same period in 2011. The decrease was attributable to lower income from our marketable equity securities offset by higher interest on our mortgages receivable.

Interest expense

Interest expense, including amortization of deferred financing costs, increased by approximately $0.3 million to $3.3 million for the three months ended September 30, 2012 compared to $3.0 million for the same period in 2011. The increase is primarily attributable to the debt associated with 2011 acquisitions.

Gain/(loss) on sale of marketable securities

Gain/(loss) on sale of marketable securities increased by $0.4 million to $0.5 million for the three months ended September 30, 2012 compared to $0.1 million for the same period in 2011 primarily due to timing of sales of securities and the differences in adjusted cost basis compared to proceeds received upon sale.

Bargain purchase gain

We recognized a bargain purchase gain of approximately $4.8 million during the three months ended September 30, 2012 in connection with the acquisition of the Courtyard by Marriott Hotel. See Note 6 for additional information.

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

This account represents our portion of the earnings associated with our interests in investments in unconsolidated affiliated real estate entities which consists of our investments in 1407 Broadway, GPH and LVH. Our income from investments in unconsolidated affiliated real estate entities was $0.2 million during the three months ended September 30, 2012 compared to income of $15 during the same period in 2011. See Note 4 for additional information.

Noncontrolling interests

The net earnings 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 20.0% interest in the CP Boston Joint Venture previously held by Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone REIT II”) in the 2011 period, (iv) the 10.0% interest in the Rego Park Joint venture held by Lightstone REIT II and (iv) the 25.0% and 40.0% interest in the 50-01 2^ndStreet Joint Venture held by our Sponsor prior to September 28, 2012 and subsequent to September 28, 2012, respectively.

Segment Results of Operations for the Three Months Ended September 30, 2012 compared to September 30, 2011

Retail Segment

	For the Three Months Ended September 30,						Variance Increase/(Decrease)
	2012			2011			$		%
	(unaudited)
Revenues	$	3,585		$	2,670		$	915		34.3	%
NOI		2,179			1,742			437		25.1	%
Average Occupancy Rate for period		84.5	%		82.6	%				1.9	%

Revenues increased by approximately $0.9 million for the three months ended September 30, 2012 compared to the same period in 2011. The higher revenues for the 2012 period reflect an aggregate $0.9 million for Crowes Crossing and DePaul Plaza, which were acquired on October 4, 2011 and November 22, 2011, respectively. Revenues at our other retail properties were relatively consistent in the 2012 and 2011 periods.

NOI increased by approximately $0.4 million for the three months ended September 30, 2012 compared to the same period in 2011. This increase is primarily attributable to the timing of the aforementioned 2011 property acquisitions.

Multi- Family Residential Segment

	For the Three Months Ended September 30,						Variance Increase/(Decrease)
	2012			2011			$		%
	(unaudited)
Revenues	$	3,175		$	3,082		$	93		3.0	%
NOI		1,486			1,378			108		7.8	%
Average Occupancy Rate for period		94.8	%		94.9	%				-0.1	%

Revenues and occupancy remained relatively flat for the three months ended September 30, 2012 compared to the same period in 2011.

NOI increased by approximately $0.1 million during the three months ended September 30, 2012 compared to the same period in 2011. This increase is primarily attributable to the aforementioned increase in revenues in the 2012 period.

Industrial Segment

	For the Three Months Ended September 30,						Variance Increase/(Decrease)
	2012			2011			$		%
	(unaudited)
Revenues	$	1,814		$	1,688		$	126		7.5	%
NOI		992			888			104		11.7	%
Average Occupancy Rate for period		82.8	%		79.2	%				3.6	%

Revenues increased by $0.1 million for the three months ended September 30, 2012 compared to the same period in 2011. This increase is primarily attributable to an increase in the average occupancy rate.

NOI increased by $0.1 million for the three months ended September 30, 2012 compared to the same period in 2011 primarily as a result of the increase in the average occupancy rate.

Hotel Hospitality Segment

	For the Three Months Ended September 30,						Variance Increase/(Decrease)
	2012			2011			$			%
	(unaudited)
Revenues	$	4,781		$	4,478		$	303			6.8	%
NOI		257			666			(409	)		-61.4	%
Average Occupancy Rate for period		64.5	%		67.2	%					-2.7	%
Rev PAR	$	46.97		$	43.08		$	3.89			9.0	%

The revenues in our Hotel Hospitality Segment increased by approximately $0.3 million for the three months ended September 30, 2012 compared to the same period in 2011. The increase reflects higher revenues of approximately $0.9 million in the 2012 period attributable to the acquisition of the Parsippany Marriot Property on July 30, 2012 offset by lower aggregate revenues of approximately $0.6 million in the other properties in our Hotel Hospitality Segment.

NOI in our Hotel Hospitality Segment decreased by $0.4 million for the three months ended September 30, 2012 compared to the same period in 2011. The acquisition of the Parsippany Marriot Property on July 30, 2012 accounted for the majority of the NOI for the three months ended September 30, 2012. The aforementioned decrease in revenue, as well as, increased operating expenses in the other properties in our Hotel Hospitality Segment accounted for the decrease in NOI in the current period as compared to the same period in 2011.

For the Nine Months Ended September 30, 2012 vs. September 30, 2011

Consolidated

Revenues

Our revenues are comprised of rental revenues, tenant recovery income and other service income. Total revenues increased by approximately $6.6 million to $38.9 million for the nine months ended September 30, 2012 compared to $32.3 million for the same period in 2011. The increase reflects higher revenues in our Hotel Hospitality and Retail segments of $3.2 million and $2.9 million, respectively. Revenues in our Multi-Family Residential and Industrial segments also increased slightly. See “Segment Results of Operations for the Nine Months Ended September 30, 2012 compared to September 30, 2011” for additional information on revenues by segment.

Property operating expenses

Property operating expenses increased by approximately $3.6 million to $19.5 million for the nine months ended September 30, 2012 compared to $15.8 million for the same period in 2011. The increase primarily reflects higher property operating expenses in our Hotel Hospitality segment of approximately $3.0 million in the 2012 period attributable to the timing of the acquisition of the CP Boston property, which was acquired on March 21, 2011 and the Parsippany Marriot property which was acquired in On July 30, 2012. The remaining increase is attributable to Crowes Crossing and DePaul Plaza, which were acquired on October 4, 2011 and November 22, 2011, respectively.

Real estate taxes

Real estate taxes increased by approximately $0.3 million to $3.2 million for the nine months ended September 30, 2012 compared to $2.9 million for the same period in 2011. The increase of approximately $0.3 million is attributable to the timing of acquisitions made in 2011.

General and administrative expenses

General and administrative expenses decreased by approximately $0.8 million to $4.9 million for the nine months ended September 30, 2012 compared to $5.7 million for the same period in 2011. The decrease was attributable to fewer expenses with respect to acquisitions.

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 2012 period.

Depreciation and Amortization

Depreciation and amortization expense increased by approximately $1.3 million to $7.4 million for the nine months ended September 30, 2012 compared to $6.1 million the same period in 2011. The increase was due primarily to depreciation from the properties acquired in October and November 2011.

Mark to market adjustment on derivative financial instruments

During the nine months ended September 30, 2012 and 2011, we recorded negative mark to market adjustment on derivative financial instruments of $11.2 million and $4.8 million, respectively. These mark to market adjustments represent the change in the fair values of a collar entered into to protect the value of a portion of our Marco OP Units within a certain specified range.

Interest income

Interest income decreased by approximately $1.2 million to $11.0 million for the nine months ended September 30, 2012 compared to $12.2 million the same period in 2011. The decrease was attributable to lower income from our marketable equity securities offset by higher interest on our mortgages receivable.

Interest expense

Interest expense, including amortization of deferred financing costs, increased by approximately $1.0 million to $9.7 million for the nine months ended September 30, 2012 compared to $8.7 million for the same period in 2011. The increase is primarily attributable to the debt associated with 2011 acquisitions.

Gain on disposition of unconsolidated affiliated real estate entities

On March 1, 2012, Marco OP Units previously held in escrow for potential indemnified liabilities related to the disposition of certain of our investments in unconsolidated affiliated real estate entities in August 2010 were fully released to us. As a result, we recognized a previously deferred gain in the amount of $30.3 million during the nine months ended September 30, 2012. See Note 3 for additional information.

Gain/(loss) on sale of marketable securities

Gain/(loss) on sale of marketable securities decreased by $3.0 million to a gain of $0.1 million for the nine months ended September 30, 2012 compared to a loss of $2.9 million for the same period in 2011 primarily due to timing of sales of securities and the differences in adjusted cost basis compared to proceeds received upon sale.

Bargain purchase gain

We recognized a bargain purchase gain of approximately $4.8 million during the nine months ended September 30, 2012 in connection with the acquisition of the Courtyard by Marriott Hotel. See Note 6 for additional information.

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

This account represents our portion of the earnings associated with our interests in investments in unconsolidated affiliated real estate entities which consists of our investments in 1407 Broadway, GPH and LVH. Our income from investments in unconsolidated affiliated real estate entities was $0.4 million during the nine months ended September 30, 2012 compared to a loss of $0.3 million during the same period in 2011. See Note 4 for additional information.

Noncontrolling interests

The net earnings 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 20.0% interest in the CP Boston Joint Venture previously held by Lightstone REIT II in the 2011 period, (iv) the 10.0% interest in the Rego Park Joint venture held by Lightstone REIT II and (iv) the 25.0% and 40.0% interest in the 50-01 2^nd Street Joint Venture held by our Sponsor prior to September 28, 2012 and subsequent to September 28, 2012, respectively.

Segment Results of Operations for the Nine Months Ended September 30, 2012 compared to September 30, 2011

Retail Segment

	For the Nine Months Ended September 30,						Variance Increase/(Decrease)
	2012			2011			$		%
	(unaudited)
Revenues	$	10,675		$	7,807		$	2,868		36.7	%
NOI		6,673			5,044			1,629		32.3	%
Average Occupancy Rate for period		84.7	%		81.9	%				2.8	%

Revenues increased by approximately $2.9 million for the nine months ended September 30, 2012 compared to the same period in 2011. The higher revenues for the 2012 period reflect an aggregate $2.7 million for Crowes Crossing and DePaul Plaza, which were acquired on October 4, 2011 and November 22, 2011, respectively (November 22, 2011). Revenues at our other retail properties were relatively consistent in the 2012 and 2011 periods.

NOI increased by approximately $1.6 million for the nine months ended September 30, 2012 compared to the same period in 2011. This increase is primarily attributable to the timing of the aforementioned 2011 property acquisitions.

Multi- Family Residential Segment

	For the Nine Months Ended September 30,						Variance Increase/(Decrease)
	2012			2011			$		%
	(unaudited)
Revenues	$	9,450		$	9,115		$	335		3.7	%
NOI		4,338			4,021			317		7.9	%
Average Occupancy Rate for period		95.0	%		94.4	%				0.6	%

Revenues increased by approximately $0.3 million for the nine months ended September 30, 2012 compared to the same period in 2011. This increase is primarily attributable to the higher average occupancy rate in the 2012 period.

NOI increased by approximately $0.3 million during the nine months ended September 30, 2012 compared to the same period in 2011. This increase is primarily attributable to the aforementioned increase in revenues in the 2012 period.

Industrial Segment

	For the Nine Months Ended September 30,						Variance Increase/(Decrease)
	2012			2011			$		%
	(unaudited)
Revenues	$	5,362		$	5,155		$	207		4.0	%
NOI		2,998			2,936			62		2.1	%
Average Occupancy Rate for period		82.7	%		74.9	%				7.8	%

Revenues increased slightly and NOI remained relatively unchanged for the nine months ended September 30, 2012 compared to the same period in 2011 while the average occupancy rate for the period increased by almost 8%. This increase in occupancy without a corresponding increase in revenue and NOI is primarily attributable to a reduction in revenues recognized at Sarasota due to a tenant dispute during the first quarter of 2012.

Hotel Hospitality Segment

	For the Nine Months Ended September 30,						Variance Increase/(Decrease)
	2012			2011			$			%
	(unaudited)
Revenues	$	13,430		$	10,267		$	3,163			30.8	%
NOI		1,501			1,517			(16	)		-1.1	%
Average Occupancy Rate for period		59.7	%		63.9	%					-4.2	%
Rev PAR	$	39.37		$	38.57		$	0.80			2.1	%

The revenues in our Hotel Hospitality Segment increased by approximately $3.2 million for the nine months ended September 30, 2012 compared to the same period in 2011. The increase reflects higher aggregate rental revenues and other service income of approximately $1.9 million in the 2012 period attributable to the timing of the acquisition of the CP Boston Property, which was acquired on March 21, 2011 and the acquisition of the Parsippany Marriot Property on July 30, 2012 of $0.9 million. The lower average occupancy rate and the increased Rev PAR during the 2012 period were primarily driven by the CP Boston Property.

NOI in our Hotel Hospitality Segment remained flat for the nine months ended September 30, 2012 compared to the same period in 2011. The aforementioned increase in revenues was substantially offset by additional operating expenses of approximately $2.5 million during the 2012 period attributable to the timing of the acquisition of the CP Boston Property, which was acquired on March 21, 2011 and the acquisition of the Parsippany Marriot Property on July 30, 2012 of $0.7 million.

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 $216.1 million of outstanding mortgage debt, $2.3 million of loans due to affiliates and a $39.0 million margin loan. Additionally, we have $25.0 million available to us under a line of credit and $37.5 million available to us under a construction loan for a property currently under development. We have and intend to continue to limit our aggregate long-term permanent borrowings to 75% of the aggregate fair market value of all properties unless any excess borrowing is approved by a majority of the independent directors and is disclosed to our stockholders. 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, 2012, our total borrowings of $257.5 million represented 78% 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,
	2012		2011		2012		2011
	(unaudited)				(unaudited)
Acquisition fees	$	127	$	80	$	184	$	702
Asset management fees		598		508		1,748		1,444
Acquisition expenses reimbursed to Advisor		-		-		-		242
Property management fees		356		335		1,076		971
Development fees and leasing commissions		339		131		483		564
Total	$	1,420	$	1,054	$	3,491	$	3,923

As of September 30, 2012, we had approximately $21.4 million of cash and cash equivalents on hand and $164.0 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,
	2012			2011
	(unaudited)

Cash flows provided by operating activities	$	15,233		$	11,761
Cash flows used in investing activities		(20,186	)		(12,775	)
Cash flows used in financing activities		(5,128	)		(14,225	)
Net change in cash and cash equivalents		(10,081	)		(15,239	)

Cash and cash equivalents, beginning of the period		31,525			24,318
Cash and cash equivalents, end of the period	$	21,444		$	9,079

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) scheduled 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 $15.2 million for the nine months ended September 30, 2012 consists of the following:

cash inflows of approximately $12.2 million from our net income from continuing operations after adjustment for non-cash items; and

cash inflows of approximately $2.7 million associated with the net changes in operating assets and liabilities.

Investing activities

The net cash used in investing activities from of $20.2 million for the nine months ended September 30, 2012 consists primarily of the following:

purchases or net deposits for purchases of investment property of approximately $14.6 million;

funding for the collateral requirement on our Marco OP Units Collar of approximately $21.1 million;

net proceeds from the sale and purchase of marketable securities of $8.8 million; and

net cash provided by discontinued operations of approximately $7.3 million

Financing activities

The net cash used by financing activities of approximately $5.1 million for the nine months ended September 30, 2012 is primarily related to the following:

distributions to our common shareholders of $10.7 million and common share redemptions of $3.0 million made pursuant to our share redemption program;

distributions to our noncontrolling interests of $5.9 million and contributions from our noncontrolling interests of $6.7 million;

proceeds from our margin loan of $18.6 million and proceeds from mortgage financing of $12.0 million;

debt principal payments $13.8 million and loan fees and expenses of $2.7 million; and

net cash used in discontinued operations of approximately $6.3 million

The following summarizes our indebtedness maturing in 2012 and our current intentions:

2nd Street Project

DePaul Plaza

In connection with its acquisition of DePaul Plaza on November 22, 2011, the Company assumed an existing mortgage loan with an outstanding principal balance of $11.8 million. On September 27, 2012 the Company entered into a new three-year mortgage loan with an initial principal amount of $12.0 million, which provides for additional advances up to $1.0 million for payment of certain leasing related costs, and bears interest at a rate of LIBOR plus 3.00%. Approximately $11.6 million of the proceeds from the new mortgage loan were used to repay the existing mortgage loan in full. The new mortgage loan will mature on September 27, 2017, at which time a balloon payment of approximately $11.1 million will be due to the lender, assuming no principal prepayments or additional advances. Additionally, the Company entered into an interest rate swap agreement to hedge the variability of LIBOR for $12.0 million, expiring on September 27, 2017, with a fixed interest rate of 0.9%. As of September 30, 2012, the fair value of the swap of approximately $0.1 million is recorded in accounts payable and accrued expenses in the consolidated balance sheets.

CP Boston Property Improvements

The CP Boston Property was purchased “as is” and we are currently renovating and improving the property. Through September 30, 2012, we spent approximately $11.2 million on renovations and improvements and it is expected that approximately $4.2 million of additional renovations and improvements will be completed during 2012.

We anticipate that adequate cash will be available to fund our operating and administrative expenses, regular debt service obligations, and the payment of distributions 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.

Distribution Reinvestment Plan and Share Repurchase Program

Our DRIP provides our stockholders with an opportunity to purchase additional shares of our common stock at a discount by reinvesting distributions. Our share repurchase program may provide our stockholders with limited, interim liquidity by enabling them to sell their shares of common stock back to us, subject to restrictions. We redeemed redemption requests at an average price per share of common stock of $9.00. We fund share redemptions from the cumulative proceeds of the sale of shares of common shares pursuant to our DRIP. Our Board of Directors reserves the right to terminate the either program for any reason without cause by providing written notice of termination of the DRIP to all participants or written notice of termination of the share repurchase program to all stockholders.

Contractual Obligations

The following is a summary of our contractual obligations outstanding over the next five years and thereafter as of September 30, 2012.

Contractual Obligations	Remainder of 2012		2013		2014		2015		2016		Thereafter		Total

Mortgage Payable	$	53,316	$	8,861		28,562	$	6,340	$	82,118	$	36,893	$	216,090
Interest Payments¹		2,144		8,627		8,331		6,762		4,367		424		30,655

Total Contractual Obligations	$	55,460	$	17,488	$	36,893	$	13,102	$	86,485	$	37,317	$	246,745

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, 2012 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, with the exception of certain debt service coverage ratios 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. Additionally, the Lender has notified the Company that the loan is in default and due on demand. 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 and is currently in negotiations with the lender to cure the default. Additionally, the Company believes that the lender’s actions will not have a material impact on its results of operations or financial position.

In addition to the mortgage payable described above, we use 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 was $39.0 million at September 30, 2012 and is due on demand. The margin loan bears interest at Libor plus 0.85% (1.06% as of September 30, 2012).

Funds from Operations and Modified Funds from Operations

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc., or NAREIT, an industry trade group, has promulgated a measure known as funds from operations, or FFO, which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to net income or loss as determined under generally accepted accounting principles in the United States, or GAAP.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004, or the White Paper. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property and asset impairment write-downs, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above.

The historical accounting convention used for real estate assets requires depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Additionally, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions which can change over time. An asset will only be evaluated for impairment if certain impairment indications exist and if the carrying, or book value, exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and the relatively limited term of our operations, it could be difficult to recover any impairment charges. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate-related depreciation and amortization and impairments, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. However, FFO and MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.

Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that were put into effect in 2009 and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses for all industries as items that are expensed under GAAP, that are typically accounted for as operating expenses.

Management believes these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start up entities may also experience significant acquisition activity during their initial years, we believe that non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases. We will use the proceeds raised in our offering to acquire properties, and we intend to begin the process of achieving a liquidity event (i.e., listing of our common stock on a national exchange, a merger or sale of the company or another similar transaction) within seven to ten years after the proceeds from the primary offering are fully invested. Thus, we will not continuously purchase assets and will have a limited life. Due to the above factors and other unique features of publicly registered, non-listed REITs, the Investment Program Association, or IPA, an industry trade group, has standardized a measure known as modified funds from operations, or MFFO, which the IPA has recommended as a supplemental measure for publicly registered non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring our properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our offering has been completed and our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our offering and acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. Investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on our operating performance during the periods in which properties are acquired.

We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the Practice Guideline, issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, nonrecurring unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. While we are responsible for managing interest rate, hedge and foreign exchange risk, we do retain an outside consultant to review all our hedging agreements. Inasmuch as interest rate hedges are not a fundamental part of our operations, we believe it is appropriate to exclude such non-recurring gains and losses in calculating MFFO, as such gains and losses are not reflective of ongoing operations.

Our MFFO calculation complies with the IPA’s Practice Guideline described above. In calculating MFFO, we exclude acquisition related expenses, amortization of above and below market leases, fair value adjustments of derivative financial instruments, deferred rent receivables and the adjustments of such items related to noncontrolling interests. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income. These expenses are paid in cash by us, and therefore such funds will not be available to distribute to investors. All paid and accrued acquisition fees and expenses negatively impact our operating performance during the period in which properties are acquired and will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. Therefore, MFFO may not be an accurate indicator of our operating performance, especially during periods in which properties are being acquired. MFFO that excludes such costs and expenses would only be comparable to non-listed REITs that have completed their acquisition activities and have similar operating characteristics as us. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments of derivatives and gains and losses from dispositions of assets as non-recurring items or items which are unrealized and may not ultimately be realized, and which are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. The purchase of properties, and the corresponding expenses associated with that process, is a key operational feature of our business plan to generate operational income and cash flows in order to make distributions to investors. Acquisition fees and expenses will not be reimbursed by the advisor if there are no further proceeds from the sale of shares in our offering, and therefore such fees and expenses will need to be paid from either additional debt, operational earnings or cash flows, net proceeds from the sale of properties or from ancillary cash flows.

Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-listed REITs which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures is useful to investors. For example, acquisition costs are funded from the proceeds of our offering and other financing sources and not from operations. By excluding expensed acquisition costs, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. MFFO has limitations as a performance measure in an offering such as ours where the price of a share of common stock is a stated value and there is no net asset value determination during the offering stage and for a period thereafter. MFFO is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete and net asset value is disclosed. FFO and MFFO are not useful measures in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO or MFFO.

Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO.

The below table illustrates the items deducted in the calculation of FFO and MFFO. Items are presented net of non-controlling interest portions where applicable.

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
Net income/(loss)	$	11,161		$	7,978		$	32,717		$	(617	)
FFO adjustments:
Depreciation and amortization:
Depreciation and amortization of real estate assets		2,510			2,080			7,411			6,063
Equity in depreciation and amortization for unconsolidated affiliated real estate entities		775			757			2,166			2,188
Adjustments to equity in earnings from unconsolidated entities, net		(206	)		(871	)		(5	)		(1,135	)
Bargain purchase gain		(4,800	)		-			(4,800	)		-
Gain on disposal of unconsolidated affiliated real estate entities		-			(2,824	)		(30,287	)		(2,824	)
Discontinued operations:
Depreciation and amortization of real estate assets		-			67			121			201
Gain on disposal of investment property		(2,098	)		-			(2,098	)		-
FFO		7,342			7,187			5,225			3,876
MFFO adjustments:
Other Adjustment
Acquisition and other transaction related costs expensed⁽¹⁾		147			184			305			3,148
Amortization of above or below market leases and liabilities⁽²⁾		(161	)		(137	)		(338	)		(279	)
Accretion of discounts and amortization of premiums on debt investments		(569	)		(473	)		(1,632	)		(871	)
Mark-to-market adjustments⁽³⁾		(1,819	)		(2,552	)		11,245			4,782
Non-recurring gains/(losses) from extinguishment/sale of debt, derivatives or securities holdings⁽⁴⁾		-			-			-			-
(Gain)/loss on sale of marketable securities		(490	)		(65	)		(92	)		2,929
MFFO		4,450			4,144			14,713			13,585
Straight-line rent⁽⁵⁾	$	54		$	132		$	(425	)	$	(486	)
MFFO - IPA recommended format	$	4,504		$	4,276		$	14,288		$	13,099

Net income/(loss)	$	11,161		$	7,978		$	32,717		$	(617	)
Less: income attributable to noncontrolling interests		(600	)		(485	)		(3,457	)		(132	)
Net income/(loss) applicable to company's common shares	$	10,561		$	7,493		$	29,260		$	(749	)
Net income/(loss) per common share, basic and diluted	$	0.35		$	0.24		$	0.98		$	(0.02	)

FFO	$	7,342		$	7,187		$	5,225		$	3,876
Less: FFO attributable to noncontrolling interests		(542	)		(264	)		(950	)		19
FFO attributable to company's common shares	$	6,800		$	6,923		$	4,275		$	3,895
FFO per common share, basic and diluted	$	0.23		$	0.22		$	0.14		$	0.12

MFFO - IPA recommended format	$	4,504		$	4,276		$	14,288		$	13,099
Less: MFFO attributable to noncontrolling interests		(437	)		(153	)		(936	)		(407	)
MFFO attributable to company's common shares	$	4,067		$	4,123		$	13,352		$	12,692

Weighted average number of common shares outstanding, basic and diluted		29,958			31,726			29,903			31,682

Notes:

(1)

The purchase of properties, and the corresponding expenses associated with that process, is a key operational feature of our business plan to generate operational income and cash flows in order to make distributions to investors. In evaluating investments in real estate, management differentiates the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for non-listed REITs that have completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition costs, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our advisor or third parties. Acquisition fees and expenses under GAAP are considered operating expenses and as expenses included in the determination of net income and income from continuing operations, both of which are performance measures under GAAP. Such fees and expenses are paid in cash, and therefore such funds will not be available to distribute to investors. Such fees and expenses negatively impact our operating performance during the period in which properties are being acquired. Therefore, MFFO may not be an accurate indicator of our operating performance, especially during periods in which properties are being acquired. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to the property. Acquisition fees and expenses will not be paid or reimbursed, as applicable, to our advisor even if there are no further proceeds from the sale of shares in our offering, and therefore such fees and expenses would need to be paid from either additional debt, operational earnings or cash flows, net proceeds from the sale of properties or from ancillary cash flows.

(2)

Under GAAP, certain intangibles are accounted for at cost and reviewed at least annually for impairment, and certain intangibles are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of other real estate related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, management believes that by excluding charges relating to amortization of these intangibles, MFFO provides useful supplemental information on the performance of the real estate.

(3)

Management believes that adjusting for mark-to-market adjustments is appropriate because they are nonrecurring items that may not be reflective of ongoing operations and reflects unrealized impacts on value based only on then current market conditions, although they may be based upon current operational issues related to an individual property or industry or general market conditions. The need to reflect mark-to-market adjustments is a continuous process and is analyzed on a quarterly and/or annual basis in accordance with GAAP.

(4)

Management believes that adjusting for fair value adjustments for derivatives provides useful information because such fair value adjustments are based on market fluctuations and may not be directly related or attributable to the company’s operations.

(5)

Under GAAP, rental receipts are allocated to periods using various methodologies. This may result in income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, providing insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management’s analysis of operating performance.

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

	From inception through
	September 30, 2012

FFO	$	49,900
Distributions	$	101,163

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 :

Distribution period:			Percentage of Distributions			Q3 2012		Percentage of Distributions			Q2 2012		Percentage of Distributions			Q1 2012		Percentage of Distributions
Date distribution declared						August 10, 2012					May 14, 2012					March 30, 2012

Date distribution paid						October 15, 2012					July 13, 2012					April 13, 2012

Distributions paid	$	10,609				$	3,608				$	3,547				$	3,454
Distributions reinvested		5,109					1,681					1,674					1,754
Total Distributions	$	15,718				$	5,289				$	5,221				$	5,208

Source of distributions:
Cash flows provided by operations	$	10,609		67	%	$	3,608		68	%	$	3,547		68	%	$	3,454		66	%
Excess cash		-		0	%		-		0	%		-		0	%		-		0	%
Proceeds from issuance of common stock through DRIP		5,109		33	%		1,681		32	%		1,674		32	%		1,754		34	%
Total Sources	$	15,718		100	%	$	5,289		100	%	$	5,221		100	%	$	5,208		100	%

Cash flows provided by/(used in) operations (GAAP basis)	$	14,801				$	4,675				$	4,866				$	5,260

Number of shares (in thousands) of common stock issued pursuant to the Company's DRIP		504					166					165					173

	Year to Date September 30, 2011					Three Months Ended September 30, 2011					Three Months Ended June 30, 2011					Three Months Ended March 31, 2011
Distribution period:			Percentage of Distributions			Q3 2011		Percentage of Distributions			Q2 2011		Percentage of Distributions			Q1 2011		Percentage of Distributions
Date distribution declared						August 12, 2011					May 13, 2011					March 4, 2011

Date distribution paid						October 14, 2011					July 15, 2011					April 15, 2011

Distributions paid	$	11,086				$	3,766				$	3,666				$	3,654
Distributions reinvested		5,517					1,836					1,857					1,824
Total Distributions	$	16,603				$	5,602				$	5,523				$	5,478

Source of distributions:
Cash flows provided by operations	$	9,791		59	%	$	3,766		67	%	$	3,666		66	%	$	2,359		43	%
Excess cash		1,295		8	%		-		0	%		-		0	%		1,295		24	%
Proceeds from issuance of common stock through DRIP		5,517		33	%		1,836		33	%		1,857		34	%		1,824		33	%
Total Sources	$	16,603		100	%	$	5,602		100	%	$	5,523		100	%	$	5,478		100	%

Cash flows provided by/(used in) operations (GAAP basis)	$	11,761				$	4,135				$	5,267				$	2,359

Number of shares (in thousands) of common stock issued pursuant to the Company's DRIP		580					193					195					192

Information Regarding Dilution

In connection with the ongoing offering of shares of our common stock under our 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, 2012, our net tangible book value per share was $10.07. The offering price of shares under our DRIP at September 30, 2012 was $10.12.

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 2012 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, 2012, we had one interest rate swap and two interest rate caps outstanding with insignificant intrinsic values.

As of September 30, 2012, we held various marketable securities with a fair value of approximately $164.0 million, which are available for sale for general investment return purposes. 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, 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, 2012, 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 $16.4 million.

The following table shows the mortgage payable obligations maturing during the next five years and thereafter as of September 30, 2012:

	Remainder of 2012		2013		2014		2015		2016		Thereafter		Total		Estimated Fair Value
Mortgage Payable	$	53,316	$	8,861	$	28,562	$	6,340	$	82,118	$	36,893	$	216,090	$	217,443

Marco OP Units Collar:

Notional Amount		527,803		Units											$	21,967
Average Cap (Highest)	$	108.77
Average Floor (Lowest)	$	90.32

As of September 30, 2012, approximately $37.4 million, or 17%, of our debt has variable interest rates and our interest expense associated with these instruments is, therefore, subject to changes in market interest rates. Based on rates as of September 30, 2012, a 1% adverse movement (increase in Libor) would increase our annual interest expense by approximately $0.4 million.

The carrying amounts of cash and cash equivalents, restricted escrows, tenants’ accounts receivable, interest receivable from related parties, accounts payable and accrued expenses, loans due to affiliates and the margin loan approximated their fair values as of September 30, 2012 because of the short maturity of these instruments. The carrying amount of the mortgages receivable approximated their fair value as of September 30, 2012 based upon current market information that would have been used by a market participant to estimate the fair value of such loan.

The estimated fair value (in millions) of the Company’s debt is summarized as follows:

	As of September 30, 2012				As of December 31, 2011
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Mortgages payable	$	216.1	$	217.4	$	217.9	$	218.0

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, 2012, 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 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.

The plaintiff filed an amended complaint on May 18, 2012, bringing limited claims under theories of unjust enrichment and quantum merit. We continue to believe these claims to be without merit and will defend the case vigorously, and anticipate filing another motion to dismiss shortly.

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. MINE SAFETY DISCLOSURES

Not applicable.

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 16, 2012	By:	/s/ David Lichtenstein
		David Lichtenstein
		Chairman and Chief Executive Officer
		(Principal Executive Officer)

Date: November 16, 2012	By:	/s/ Donna Brandin
		Donna Brandin
		Chief Financial Officer and Treasurer
		(Duly Authorized Officer and Principal Financial and
		Accounting Officer)