Lightstone Value Plus REIT I, Inc. - Quarter Report: 2016 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2016

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 August 10, 2016, there were approximately 25.3 million outstanding shares of common stock of Lightstone Value Plus Real Estate Investment Trust, Inc., including shares issued pursuant to the dividend reinvestment plan.

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

INDEX

		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015	3

	Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2016 and 2015	4

	Consolidated Statements of Comprehensive Income/(Loss) (unaudited) for the Three and Six Months Ended June 30, 2016 and 2015	5

	Consolidated Statement of Stockholders’ Equity (unaudited) for the Six Months Ended June 30, 2016	6

	Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2016 and 2015	7

	Notes to Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4.	Controls and Procedures	38

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults Upon Senior Securities	39

Item 4.	Mine Safety Disclosures	39

Item 5.	Other Information	39

Item 6.	Exhibits	40

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 June 30, 2016			As of December 31, 2015
	(Unaudited)
Assets
Investment property:
Land and improvements	$	62,230		$	68,869
Building and improvements		208,286			238,757
Furniture and fixtures		17,468			17,421
Construction in progress		491			668
Gross investment property		288,475			325,715
Less accumulated depreciation		(46,612	)		(50,278	)
Net investment property		241,863			275,437
Investment in unconsolidated affiliated real estate entity		-			1,989
Investments in related parties		142,111			139,809
Cash and cash equivalents		81,321			68,459
Marketable securities, available for sale		57,488			81,016
Restricted escrows		2,708			7,672
Tenant and other accounts receivable		1,839			2,078
Mortgage receivable		4,966			5,040
Intangible assets, net		887			1,087
Prepaid expenses and other assets		5,056			5,557
Total Assets	$	538,239		$	588,144
Liabilities and Stockholders' Equity
Mortgages payable, net	$	164,086		$	226,647
Notes payable, net		18,625			18,609
Accounts payable, accrued expenses and other liabilities		17,048			14,379
Due to related parties		672			-
Tenant allowances and deposits payable		1,489			2,030
Distributions payable		4,444			4,528
Deferred rental income		1,125			1,204
Acquired below market lease intangibles, net		522			597
Total Liabilities		208,011			267,994
Commitments and contingencies (See Note 11)
Stockholders' equity:
Company's Stockholders Equity:
Preferred shares, $0.01 par value, 10,000 shares authorized, none issued and outstanding		-			-
Common stock, $0.01 par value; 60,000 shares authorized, 25,444 and 25,639 shares issued and outstanding, respectively		254			256
Additional paid-in-capital		200,117			202,068
Accumulated other comprehensive income		23,912			18,776
Accumulated surplus		82,727			67,961
Total Company's stockholders' equity		307,010			289,061
Noncontrolling interests		23,218			31,089
Total Stockholders' Equity		330,228			320,150
Total Liabilities and Stockholders' Equity	$	538,239		$	588,144

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 June 30,						Six Months Ended June 30,
	2016			2015			2016			2015

Revenues:
Rental income	$	9,934		$	10,610		$	19,168		$	19,694
Tenant recovery income		1,045			1,045			2,192			2,114
Other service income		2,962			2,821			5,750			5,499
Total revenues		13,941			14,476			27,110			27,307

Expenses:
Property operating expenses		7,196			6,922			14,096			13,443
Real estate taxes		805			831			1,714			1,706
General and administrative costs		1,162			1,136			2,638			2,550
Depreciation and amortization		2,910			2,818			5,890			5,617
Total operating expenses		12,073			11,707			24,338			23,316
Operating income		1,868			2,769			2,772			3,991
Other income, net		117			530			136			832

Mark to market adjustment on derivative financial instruments		(118	)		(83	)		(412	)		(152	)
Interest and dividend income		5,148			2,574			10,118			5,202
Interest expense		(3,298	)		(3,756	)		(7,063	)		(7,549	)
(Loss)/gain on sale and redemption of marketable securities (includes loss/(gain) of $9, ($35,181), $307 and ($41,498), respectively, of accumulated other comprehensive income reclassifications)		(715	)		27,817			(937	)		34,740
Gain on disposition of real estate		19,906			-			19,906			-
Income from investments in unconsolidated affiliated real estate entity		-			5,839			-			5,804
Net income from continuing operations		22,908			35,690			24,520			42,868

Net income from discontinued operations		-			4,126			-			18,731
Net income		22,908			39,816			24,520			61,599

Less: net income attributable to noncontrolling interests		(622	)		(3,467	)		(856	)		(4,094	)
Net income attributable to Company's common shares	$	22,286		$	36,349		$	23,664		$	57,505

Basic and diluted net income per Company's common share:
Continuing operations	$	0.87		$	1.24		$	0.93		$	1.50
Discontinued operations		-			0.16			-			0.72

Net income per Company’s common share, basic and diluted	$	0.87		$	1.40		$	0.93		$	2.22
Weighted average number of common shares outstanding, basic and diluted		25,473			25,894			25,529			25,916

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) (Unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015

Net income	$	22,908		$	39,816		$	24,520		$	61,599

Other comprehensive income/(loss)
Holding gain/(loss) on available for sale securities		1,968			(5,824	)		4,692			2,112
Reclassification adjustment for loss/(gain) included in net income		715			(35,181	)		937			(41,498	)
Other comprehensive income/(loss)		2,683			(41,005	)		5,629			(39,386	)
Comprehensive income/(loss)		25,591			(1,189	)		30,149			22,213

Less: Comprehensive (income)/loss attributable to noncontrolling interests		(830	)		935			(1,349	)		(370	)

Comprehensive income/(loss) attributable to Company's common shares	$	24,761		$	(254	)	$	28,800		$	21,843

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)

										Accumulated
	Common						Additional			Other					Total
	Shares			Amount			Paid-In Capital			Comprehensive Income		Accumulated Surplus			Noncontrolling Interests			Total Equity

BALANCE, December 31, 2015		25,639		$	256		$	202,068		$	18,776	$	67,961		$	31,089		$	320,150
Net income		-			-			-			-		23,664			856			24,520
Other comprehensive income		-			-			-			5,136		-			493			5,629
Distributions declared		-			-			-			-		(8,898	)		-			(8,898	)
Distributions paid to noncontrolling interests		-			-			-			-		-			(9,225	)		(9,225	)
Contributions received from noncontrolling interests		-			-			-			-		-			5			5
Redemption and cancellation of shares		(195	)		(2	)		(1,951	)		-		-			-			(1,953	)
BALANCE, June 30, 2016		25,444		$	254		$	200,117		$	23,912	$	82,727		$	23,218		$	330,228

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 Six Months Ended June 30,
	2016			2015

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	24,520		$	61,599
Less net income – discontinued operations		-			18,731
Net income – continuing operations		24,520			42,868
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,890			5,617
Mark to market adjustment on derivative financial instruments		412			152
Loss/(gain) on sale and redemption of marketable securities		937			(34,740	)
(Income)/loss from investments in unconsolidated affiliated real estate entities		-			(5,804	)
Gain on disposition of real estate		(19,906	)		-
Other non-cash adjustments		320			(107	)
Changes in assets and liabilities:
(Increase)/decrease in prepaid expenses and other assets		(648	)		827
Decrease/(increase) in tenant and other accounts receivable		14			(24	)
(Decrease)/increase in tenant allowance and security deposits payable		(496	)		8
Increase in accounts payable and accrued expenses		1,461			21
(Decrease)/increase in due to related party		756			(211	)
(Decrease)/increase in deferred rental income		(79	)		138
Net cash provided by operating activities – continuing operations		13,181			8,745
Net cash provided by operating activities – discontinued operations		-			1,259
Net cash provided by operating activities		13,181			10,004
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment property, net		(1,871	)		(2,192	)
Purchase of marketable securities		-			(5,113	)
Preferred investments in related parties		(44,539	)		(35,844	)
Proceeds from preferred investments in related parties		42,237			-
Contributions to investment in unconsolidated affiliated real estate entities		-			(1,568	)
Collections on mortgage receivable		74			70
Proceeds from sale and redemption of marketable securities		28,220			78,049
Distribution from investments in unconsolidated affiliates		1,989			15,230
Proceeds from sale of investment property and other real estate assets		50,574			-
Release of restricted escrows		5,880			996
Net cash provided by investing activities – continuing operations		82,564			49,628
Net cash provided by investing activities – discontinued operations		-			92,425
Net cash provided by investing activities		82,564			142,053

CASH FLOWS FROM FINANCING ACTIVITIES:
Mortgage payments		(62,728	)		(954	)
Payment of loan fees and expenses		-			(69	)
Redemption and cancellation of common stock		(1,953	)		(1,523	)
Proceeds from mortgage financing		-			3,863
Net payments on notes payable		-			(19,957	)
Contributions received from noncontrolling interests		5			8
Distributions paid to noncontrolling interests		(9,225	)		(3,131	)
Distributions paid to Company's common stockholders		(8,982	)		(7,592	)
Net cash used in financing activities – continuing operations		(82,883	)		(29,355	)
Net cash used in financing activities – discontinued operations		-			(34,314	)
Net cash used in financing activities		(82,883	)		(63,669	)

Net change in cash and cash equivalents		12,862			88,388
Cash and cash equivalents, beginning of period		68,459			54,529
Cash and cash equivalents, end of period	$	81,321		$	142,917

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 Six Months Ended June 30,
	2016		2015
Supplemental disclosure of cash flow information:
Cash paid for interest	$	4,595	$	6,059
Distributions declared	$	8,898	$	9,001
Value of shares issued from distribution reinvestment program	$	-	$	1,453
Non-cash purchase of investment property	$	109	$	2,339
Debt assumed by purchase on disposition	$	-	$	32,800

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% interest as of June 30, 2016.

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. Subject to the oversight of the Company’s board of directors (the “Board of Directors”), the Advisor has primary responsibility for making investment decisions and managing the Company’s day-to-day operations. Through his ownership and control of The Lightstone Group, David Lichtenstein is the indirect owner of the Advisor and the indirect owner and manager of Lightstone SLP, LLC, which has subordinated profits interests (“SLP units”) in the Operating Partnership. Mr. Lichtenstein also acts as the Company’s Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT or the Operating Partnership.

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 June 30, 2016, on a collective basis, the Company wholly owned and consolidated the operating results and financial condition of 3 retail properties containing a total of approximately 0.7 million square feet of retail space, 14 industrial properties containing a total of approximately 1.0 million square feet of industrial space, two multi-family residential properties containing a total of 367 units, and one hotel hospitality property containing 363 rooms. All of the Company’s properties are located within the United States. As of June 30, 2016, the retail properties, the industrial properties and the multi-family residential properties were 87%, 63% and 96% occupied based on a weighted-average basis, respectively. The Company’s hotel hospitality property’s average revenue per available room (“Rev PAR”) was $73 (whole dollars) and occupancy was 59% for the six months ended June 30, 2016.

Discontinued Operations

During the first quarter of 2015, a portfolio of 11 of the Company’s hotel hospitality properties (the “LVP REIT Hotels”) met the criteria to be classified as held for sale. The operating results of the LVP REIT Hotels have been classified as discontinued operations in the consolidated statements of operations for all periods presented. (See Note 6.)

Noncontrolling Interests

As of June 30, 2016, the noncontrolling interests consist of (i) parties of the Company that hold units in the Operating Partnership and (ii) certain interests in consolidated subsidiaries. The units include SLP units, limited partner units and common units. The noncontrolling interests in consolidated subsidiaries include ownership interests in Pro-DFJV Holdings LLC (“PRO”) and 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”).

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)

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.

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, 2015. 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 presentation 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 (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 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.

GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during a reporting period. The most significant assumptions and estimates relate to the valuation of real estate, marketable securities, depreciable lives, and revenue recognition. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.

The consolidated balance sheet as of December 31, 2015 included herein has been derived from the consolidated balance sheet included in the Company's Annual Report on Form 10-K.

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

Reclassifications

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

New Accounting Pronouncements

In January 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update that generally requires companies to measure investments in equity securities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income. Additionally, the guidance eliminates the requirement for public business entities to disclose the method and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. The new guidance must be applied using a modified-retrospective approach and is effective for periods beginning after December 15, 2017 and early adoption is not permitted. The Company has not yet determined whether the adoption of this guidance will have a material impact on its financial statements.

In May 2014, the FASB issued an accounting standards update that completes the joint effort by the FASB and International Accounting Standards Board to improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial Reporting Standards. The update applies to all companies that enter into contracts with customers to transfer goods or services and is effective for us for interim and annual reporting periods beginning after December 15, 2016. Early application is not permitted and companies have the choice to apply the update either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying the update at the date of initial application (January 1, 2017) and not adjusting comparative information. In August 2015, the FASB decided to delay the effective date of the new revenue standard by one year. The Company does not expect the adoption of this standard to have a material impact on our financial position, results of operations or cash flows.

In April 2015, the FASB issued an accounting standards update to simplify the presentation of debt issuance costs. This update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This new guidance will be effective for the Company beginning January 1, 2016. The Company adopted this standard during the quarter ended March 31, 2016. As a result of adopting this standard on a retrospective basis, approximately $2.0 million was reclassified out of prepaid expenses and other assets and was reclassified into mortgage payable, net on the consolidated balance sheet as of December 31, 2015.

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)

Investment in Unconsolidated Affiliated Real Estate Entity

1407 Broadway

The Company had a 49.0% ownership interest in 1407 Broadway Mezz II LLC (“1407 Broadway”) which was accounted for under the equity method. On April 30, 2015, 1407 Broadway completed the disposition of its sub-leasehold interest in a ground lease to an office building located in New York, New York to an unrelated third party for aggregate consideration of approximately $150.0 million. The Company’s share of the net proceeds, after repayment of outstanding mortgage indebtedness and transaction and other closing costs, was approximately $15.1 million. As of December 31, 2015, the Company’s remaining investment in 1407 Broadway was approximately $2.0 million; representing its share of 1407 Broadway’s remaining net assets, which were subsequently distributed to the Company in January 2016. As a result, the Company has no remaining investment in 1407 Broadway.

1407 Broadway Financial Information

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

	For the Three Months Ended June 30,			For the Six Months Ended June 30,
	2015			2015

Total revenue	$	3,253		$	13,510

Property operating expenses		2,200			9,439
Depreciation and amortization		622			2,644
Operating income		431			1,427

Interest expense and other, net		(208	)		(1,343	)

Gain on debt extinguishment		9,891			9,891

Net (loss)/income	$	10,114		$	9,975

Company's share of net income/(loss) (49%)	$	5,839		$	5,804

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

	As of
	December 31, 2015

Cash and restricted cash	$	5,964

Total assets	$	5,964

Other liabilities	$	556
Member capital		5,408

Total liabilities and members' capital	$	5,964

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)

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 June 30, 2016
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Equity Securities, primarily REITs	$	1,405	$	704	$	(1	)	$	2,108
Marco OP Units and Marco II OP Units		19,227		26,158		-			45,385
Corporate Bonds and Preferred Equities		7,200		-		(174	)		7,026
Mortgage Backed Securities ("MBS")		3,292		-		(323	)		2,969
Total	$	31,124	$	26,862	$	(498	)	$	57,488

	As of December 31, 2015
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Equity Securities, primarily REITs	$	1,405	$	487	$	(1	)	$	1,891
Marco OP Units and Marco II OP Units		19,227		21,458		-			40,685
Corporate Bonds and Preferred Equities		35,880		474		(1,369	)		34,985
Mortgage Backed Securities ("MBS")		3,769		-		(314	)		3,455
Total	$	60,281	$	22,419	$	(1,684	)	$	81,016

The Marco OP Units and the Marco II 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 Property Group, Inc. (“Simon”). Subject to the various conditions, the Company may elect to exchange the Marco OP Units and/or the Marco II 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”).

During the first and second quarters of 2015, the Company redeemed approximately 60,000 and 323,000 Marco OP units, respectively, with a cost basis of approximately $4.9 million and $27.8 million, respectively, for gross proceeds of approximately $11.5 million and $55.6 million, respectively. As a result, the Company realized gains of approximately $27.8 million and $34.4 million, which is included in gain on sale and redemption of marketable securities on the consolidated statements of operations, during the three and six months ended June 30, 2015, respectively.

The Company considers the declines in market value of certain of its investments to be temporary in nature as the unrealized losses were caused primarily by changes in market interest rates or widening credit spreads. When evaluating these 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 six months ended June 30, 2016 and 2015, the Company did not recognize any impairment charges. As of June 30, 2016, 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. The maturities of the Company’s MBS generally ranged from 27 years to 30 years.

Notes Payable

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% (1.32% as of June 30, 2016) 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. There were no amounts outstanding under this Margin Loan as of June 30, 2016 and December 31, 2015.

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)

Line of Credit

On September 14, 2012, the Company entered into a non-revolving credit facility (the “Line of Credit”) with a financial institution which permits borrowings up to $25.0 million. The Line of Credit expires on June 19, 2017 and bears interest at Libor plus 1.35% (1.82% as of June 30, 2016). The Line of Credit is collateralized by approximately 252,000 Marco OP Units and PRO guaranteed the Line of Credit. The amount outstanding under the Line of Credit was $18.6 million as of June 30, 2016 and December 31, 2015 and is included in Notes Payable on the consolidated balance sheets. The Company currently intends to seek to extend or replace the Line of Credit on or before its expiration. If the Company is unable to extend or replace the Line of Credit, it will repay the then outstanding balance in full at the expiration date using available cash.

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, measured at fair value on a recurring basis as of the dates indicated are as follows:

	Fair Value Measurement Using
As of June 30, 2016	Level 1		Level 2		Level 3		Total

Marketable Securities:
Equity Securities, primarily REITs	$	2,108	$	-	$	-	$	2,108
Marco OP and Marco OP II Units		-		45,385		-		45,385
Corporate Bonds and Preferred Equities		-		7,026		-		7,026
MBS		-		2,969		-		2,969
Total	$	2,108	$	55,380	$	-	$	57,488

	Fair Value Measurement Using
As of December 31, 2015	Level 1		Level 2		Level 3		Total

Marketable Securities:
Equity Securities, primarily REITs	$	1,891	$	-	$	-	$	1,891
Marco OP and Marco OP II Units		-		40,685		-		40,685
Corporate Bonds and Preferred Equities		-		34,985		-		34,985
MBS		-		3,455		-		3,455
Total	$	1,891	$	79,125	$	-	$	81,016

The fair values of the Company’s investments in Corporate Bonds and Preferred Equities and MBS are measured using readily available quoted prices for similar assets. Additionally, as noted and disclosed above, the Company’s Marco OP and Marco OP II Units are ultimately exchangeable for cash or similar number of shares of Simon Stock, therefore the Company uses the quoted market price of Simon Stock to measure the fair value of the Company’s Marco OP and Marco OP II Units.

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

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

Notes to Consolidated Financial Statements

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

Mortgages Payable, Net

Mortgages payable, net consists of the following:

Property	Interest Rate			Weighted Average Interest Rate as of June 30, 2016			Maturity Date	Amount Due at Maturity		As of June 30, 2016			As of December 31, 2015

Southeastern Michigan Multi-Family Properties								$	-	$	-		$	38,437

Oakview Plaza		5.49	%		5.49	%	January 2017		25,583		25,801			26,014

Gulf Coast Industrial Portfolio		9.83	%		9.83	%	Due on demand		50,525		50,525			50,525

St. Augustine Outlet Center									-		-			23,875

Gantry Park		4.48	%		4.48	%	November 2024		65,317		74,500			74,500

DePaul Plaza		LIBOR + 2.75%			3.21	%	June 2020		13,494		15,092			15,295

Total mortgages payable					6.15	%		$	154,919	$	165,918		$	228,646

Less: Deferred financing costs											(1,832	)		(1,999	)

Total mortgages payable, net										$	164,086		$	226,647

Libor as of June 30, 2016 and December 31, 2015 was 0.47% and 0.42%, respectively. The Company’s loans are secured by the indicated real estate and are non-recourse to the Company.

The following table shows the contractually scheduled principal maturities of the Company’s mortgage debt during the next five years and thereafter as of June 30, 2016:

	Remainder of 2016		2017		2018		2019		2020		Thereafter		Total
Principal maturities	$	50,947	$	25,991	$	1,567	$	1,621	$	14,924	$	70,868	$	165,918

Less: Deferred financing costs														(1,832	)

Total principal maturities, net													$	164,086

Pursuant to the Company’s loan agreements, escrows in the amount of $1.3 million and $7.1 million were held in restricted escrow accounts as of June 30, 2016 and December 31, 2015, 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. Certain of our mortgages payable also contain clauses providing for prepayment penalties.

On April 11, 2016, the Company’s mortgage loan (outstanding principal balance of $23.7 million) secured by the St. Augustine Outlet Center matured and was repaid in full.

On May 17, 2016, the Company’s mortgage loan (outstanding principal balance of $38.2 million) secured by the Southeastern Michigan Multi-Family Properties was repaid in full in connection with the Company’s disposition of three of the four apartment communities contained in the Michigan Multi-Family Properties (see Note 6).

Certain of the Company’s debt agreements require the maintenance of certain ratios, including debt service coverage. The Company is currently in compliance with all of its debt covenants other than the debt associated with the Gulf Coast Industrial Portfolio which was placed in default by the special servicer during 2012 and is due on demand as discussed below.

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 a result of not meeting certain debt service coverage ratios on the non-recourse mortgage indebtedness secured by the Gulf Coast Industrial Portfolio, the lender elected to retain the excess cash flow from these properties beginning in July 2011. During the third quarter of 2012, the loan was transferred to a special servicer, who discontinued scheduled debt service payments and notified the Company that the loan was in default and although originally due in February 2017 is now due on demand.

Although the lender is currently not charging or being paid interest at the stated default rate, the Company is accruing default interest expense pursuant to the terms of the loan agreement. Default interest expense of $0.5 million and $1.0 million was accrued for both the three and six months ended June 30, 2016 and 2015, respectively. As a result, cumulative accrued default interest expense of $8.1 million and $7.1 million is included in accounts payable, accrued expenses and other liabilities on our consolidated balance sheets as of June 30, 2016 and December 31, 2015, respectively. Although the Company has had various discussions with the special servicer to restructure the terms of the loan, there can be no assurances that it will be successful in these efforts. However, the Company does not expect to pay any of the accrued default interest expense as this mortgage indebtedness is non-recourse to it. Additionally, the Company believes the continued loss of excess cash flow from these properties and the special servicer’s placement of the non-recourse mortgage indebtedness in default will not have a material impact on its results of operations or financial position.

Additionally, the Company’s mortgage loan (outstanding principal balance of $25.8 million as of June 30, 2016) secured by Oakview Plaza matures in January 2017. The Company currently intends to seek to refinance and/or repay in full, using cash proceeds from the potential sale of assets or available cash, such existing indebtedness on or before its applicable stated maturity. Other than these financings, the Company has no additional significant maturities of mortgage debt over the next 12 months.

Dispositions and Discontinued Operations

Southeastern Michigan Multi-Family Properties

On May 17, 2016, the Company disposed of three of the four apartment communities contained in the Southeastern Michigan Multi-Family Properties to an unrelated third party for aggregate consideration of approximately $50.6 million. In connection with the disposition, the Company recorded a gain on the disposition of real estate of approximately $19.9 million during the second quarter of 2016. Approximately $38.2 million of the proceeds were used to repay in full the outstanding principal balance of the mortgage that was secured by the Southeastern Michigan Multi-Family Properties. Subsequently, the remaining apartment community in the Southeastern Michigan Multi-Family Properties was disposed of to the same unrelated third party on July 26, 2016 for approximately $10.3 million. The disposition of the Southeastern Michigan Multi-Family Properties did not qualify to be reported as discontinued operations since the disposition did not represent a strategic shift that had a major effect on the Company’s operations and financial results. Accordingly, the operating results of the Southeastern Michigan Multi-Family Properties are reflected in the Company’s results from continuing operations for all periods presented through their respective dates of disposition.

LVP REIT Hotels

During the first quarter of 2015, a portfolio of 11 of the Company’s hotel hospitality properties’ (the “LVP REIT Hotels”) met the criteria to be classified as held for sale. The operating results of the LVP REIT Hotels have been classified as discontinued operations in the consolidated statements of operations for all periods presented.

During the first quarter of 2015, the Company completed the disposition of substantially all of its ownership interests in seven of the 11 hotel hospitality properties contained in the LVP REIT Hotels and recognized a gain on disposition of $14.4 million, which is included in discontinued operations on the consolidated statements of operations. During the second quarter of 2015, the Company completed the disposition of substantially all of its ownership interests in the remaining four hotel hospitality properties contained in the LVP REIT Hotels and recognized an additional gain on disposition of $2.9 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 following summary presents the operating results of the LVP REIT Hotels included in discontinued operations in the Consolidated Statements of Operations for the periods indicated.

	For the Three Months Ended June 30,			For the Six Months Ended June 30,
	2015			2015

Revenues	$	2,832		$	8,000

Operating expenses		1,372			5,742
Operating income		1,460			2,258

Interest expense and other, net		(252	)		(849	)

Gain on disposition		2,918			17,322

Net income from discontinued operations	$	4,126		$	18,731

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

Net Earnings Per Share

Basic net earnings per share is calculated by dividing net income attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the applicable period. Diluted net income 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 had no impact on net earnings per share.

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:

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Acquisition fees (general and administrative costs)	$	-	$	-	$	-	$	8
Asset management fees (general and administrative costs)		623		696		1,243		1,407
Property management fees (property operating expenses)		259		293		549		582
Development fees and leasing commissions*		2		69		51		480
Total	$	884	$	1,058	$	1,843	$	2,477

* Generally, capitalized and amortized over the estimated useful life of the associated asset.

Lightstone SLP, LLC, an affiliate of the Company’s Sponsor, has purchased SLP units which are included in noncontrolling interests in the consolidated balance sheets. 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 both the three months and six months ended June 30, 2016 and 2015, distributions of $0.5 million and $1.0 million, respectively, were declared and paid on the SLP units.

The Company’s Sponsor, has a 19.17% membership interest in PRO, a subsidiary of the Operating Partnership, which is accounted for as noncontrolling interests. During 2015, PRO received aggregate proceeds of approximately $36.1 million related to its redemptions of certain Marco OP Units and Marco II OP Units. During the first quarter of 2016, PRO distributed these proceeds to its members, of which $29.2 million and $6.9 million were the Company’s and Sponsor’s share, respectively.

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)

Preferred Investments

The Company has entered into several agreements with various related party entities that provide for it to make preferred contributions pursuant to certain instruments (the “Preferred Investments”) that entitle the Company to certain prescribed monthly preferred distributions. The Preferred Investments had an aggregate balance of $140.6 million and $138.3 million as of June 30, 2016 and December 31, 2015, respectively, and are classified as held-to-maturity securities, recorded at cost and included in investments in related parties on the consolidated balance sheets. The fair value of these investments approximated their carrying values based on market rates for similar instruments. During the six months ended June 30, 2016, the Company made $44.5 million of additional contributions and redeemed $42.2 million (the 365 Bond Street Preferred Investment) of the Preferred Investments and as of June 30, 2016, remaining contributions of up to $39.4 million were unfunded. Additionally, during the three and six months ended June 30, 2016, the Company recognized investment income of $4.3 million and $8.2 million, respectively, and during the three and six months ended June 30, 2015, the Company recognized investment income of $1.5 million and $2.8 million, respectively, which is included in interest and dividend income on the consolidated statements of operations.

The Preferred Investments are summarized as follows:

				Preferred Investment Balance				Unfunded Contributions		Investment Income
				As of		As of		As of		Three Months Ended June 30,				Six Months Ended June 30,
Preferred Investments	Dividend Rate			June 30, 2016		December 31, 2015		June 30,2016		2016		2015		2016		2015
365 Bond Street		12	%	$	-	$	42,237	$	-	$	971	$	1,281	$	2,252	$	2,489
40 East End Avenue		12	%		30,000		28,768		-		600		268		1,182		268
30-02 39^th Avenue		9% to 12%			15,600		7,301		34,400		352		-		573		-
485 7th Avenue		12	%		60,000		60,000		-		1,820		-		3,640		-
East 11th Street		12	%		35,000		-		5,000		602		-		602		-
Total Preferred Investments				$	140,600	$	138,306	$	39,400	$	4,345	$	1,549	$	8,249	$	2,757

East 11^th Street Preferred Investment

On April 21, 2016, the Company entered into an agreement with various related party entities that provides for it to make contributions of up to $40.0 million in an affiliate of its Sponsor (the “Developer”) which owns two residential buildings located at 112-120 East 11^th Street and 85 East 10^th Street in New York, NY. The Developer is developing a hotel at 112-120 East 11^th Street (the “East 11^th Street Project”). Development of the East 11^th Street Project is expected to be substantially complete during the first quarter of 2019. These contributions are made pursuant to an instrument, the “East 11^th Street Preferred Investment,” that entitles the Company to monthly preferred distributions at a rate of 12% per annum. Upon the consummation of certain capital transactions the Company may redeem its investment in the East 11^th Street Preferred Investment. Additionally, the Developer may redeem the Company’s investment at any time or upon the consummation of any capital transaction. Any redemption by the Company or the Developer under the East 11^th Street Preferred Investment will be made at an amount equal to the amount invested by the Company plus a 12.0% annual cumulative, pre-tax, non-compounded return on the aggregate amount invested by the Company.

The Company made aggregate contributions of $35.0 million during the three months ended June 30, 2016, which are classified as a held-to-maturity security and is recorded at cost, leaving a remaining unfunded contribution of up to $5.0 million as of June 30, 2016.

Financial Instruments

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted escrows, tenants’ and other accounts receivable, interest receivable from related parties, accounts payable and accrued expenses and due to related parties approximated their fair values because of the short maturity of these instruments. The estimated fair value of the notes payable (line of credit) approximated its carrying value ($18.6 million) because of its floating interest rate. The carrying amount reported in the consolidated balance sheets for the mortgage receivable approximated its fair value based upon current market information that would have been used by a market participant to estimate the fair value of such loan.

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

	As of June 30, 2016				As of December 31, 2015
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Mortgages payable	$	165.9	$	167.1	$	228.6	$	227.1

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

10.

Segment Information

The Company currently operates in four business segments as of June 30, 2016: (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) hospitality (the “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 six months ended June 30, 2016 and 2015 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 June 30, 2016 and December 31, 2015. 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, 2015 Annual Report on Form 10-K. Unallocated assets, revenues and expenses relate to corporate related accounts, including the Company’s Preferred Investments in Related Parties (see Note 8).

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

As discussed in Note 6, the results of operations presented below exclude the LVP REIT Hotels due to their classification as discontinued operations for all periods presented. The LVP REIT Hotels were previously included in the Company’s Hospitality Segment.

Selected results of operations for the three and six months ended June 30, 2016 and 2015, and total assets as of June 30, 2016 and December 31, 2015 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 June 30, 2016
	Retail		Multi-Family		Industrial		Hospitality		Unallocated			Total

Total revenues	$	2,784	$	3,616	$	1,395	$	6,146	$	-		$	13,941

Property operating expenses		905		1,160		522		4,609		-			7,196
Real estate taxes		361		169		195		80		-			805
General and administrative costs		50		28		81		97		906			1,162

Net operating income/(loss)		1,468		2,259		597		1,360		(906	)		4,778

Depreciation and amortization		1,149		640		420		701		-			2,910

Operating income/(loss)	$	319	$	1,619	$	177	$	659	$	(906	)	$	1,868

As of June 30, 2016:
Total Assets	$	101,790	$	80,495	$	50,387	$	26,653	$	278,914		$	538,239

	For the Three Months Ended June 30, 2015
	Retail		Multi-Family		Industrial			Hospitality		Unallocated			Total

Total revenues	$	2,788	$	4,361	$	1,545		$	5,782	$	-		$	14,476

Property operating expenses		935		1,254		480			4,253		-			6,922
Real estate taxes		353		266		134			78		-			831
General and administrative costs		-		24		(1	)		48		1,065			1,136

Net operating income/(loss)		1,500		2,817		932			1,403		(1,065	)		5,587

Depreciation and amortization		1,032		726		400			660		-			2,818

Operating income/(loss)	$	468	$	2,091	$	532		$	743	$	(1,065	)	$	2,769

As of December 31, 2015:
Total Assets	$	107,835	$	113,600	$	49,815		$	26,825	$	290,069		$	588,144

	For the Six Months Ended June 30, 2016
	Retail		Multi-Family		Industrial		Hospitality		Unallocated			Total

Total revenues	$	5,642	$	8,122	$	2,774	$	10,572	$	-		$	27,110

Property operating expenses		1,837		2,528		1,020		8,710		1			14,096
Real estate taxes		723		431		399		161		-			1,714
General and administrative costs		63		46		86		171		2,272			2,638

Net operating income/(loss)		3,019		5,117		1,269		1,530		(2,273	)		8,662

Depreciation and amortization		2,307		1,370		822		1,391		-			5,890

Operating income/(loss)	$	712	$	3,747	$	447	$	139	$	(2,273	)	$	2,772

	For the Six Months Ended June 30, 2015
	Retail			Multi-Family		Industrial			Hospitality		Unallocated			Total

Total revenues	$	5,576		$	8,649	$	3,143		$	9,939	$	-		$	27,307

Property operating expenses		1,849			2,628		925			8,040		1			13,443
Real estate taxes		711			531		307			157		-			1,706
General and administrative costs		(3	)		82		(47	)		151		2,367			2,550

Net operating income/(loss)		3,019			5,408		1,958			1,591		(2,368	)		9,608

Depreciation and amortization		2,032			1,466		804			1,315		-			5,617

Operating income/(loss)	$	987		$	3,942	$	1,154		$	276	$	(2,368	)	$	3,991

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)

11.

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 July 13, 2011, JF Capital Advisors, filed a lawsuit against The Lightstone Group, LLC, the Company, and Lightstone Value Plus Real Estate Investment Trust II, Inc. 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. On November 21, 2012, the court dismissed this second complaint in part, leaving only $164 (plus interest) in potential damages. The plaintiff appealed this decision and Lightstone cross-appealed arguing that the case should have been dismissed in full. The appeals court denied plaintiff’s motion and granted defendants’ motion, as a result of which all claims were dismissed on March 25, 2014. The plaintiff filed a motion requesting the right to re-appeal to the Court of Appeals, which was granted on August 1, 2014.

Plaintiff has appealed to the Court of Appeals, which affirmed in part and denied in part, leaving a smaller number of claims available to the Plaintiff. Plaintiff has indicated that it intends to continue to pursue these claims in the trial court.

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.

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.

Loan Collection Guaranties

The Operating Partnership and PRO (collectively, the “LVP Parties”) have provided and will continue to have the opportunity to provide guaranties of collection (the “Loan Collection Guaranties”) with respect to draws made under revolving credit facilities (or indebtedness incurred to refinance the revolving credit facilities) by Simon in connection with the closing of certain contribution transactions related to the LVP Parties’ ownership interests in (i) Mill Run LLC (“Mill Run”) and Prime Outlets Acquisition Company (“POAC” and collectively, the “POAC/Mill Run Transaction”) and (ii) Grand Prairie Holdings LLC (“GPH”) and Livermore Valley Holdings LLC (“LVH” and collectively, the “Outlet Centers Transaction”). The Loan Collection Guaranties were required for at least four years following the closings of POAC/Mill Run Transaction and the Outlet Centers Transaction, which closed on August 30, 2010 and December 4, 2012, respectively. Under the terms of the Loan Collection Guaranties, the LVP Parties are obligated to make payments in respect of principal and interest due under the revolving credit facilities after Simon OP has failed to make payments, the amounts outstanding under the revolving credit facilities have been accelerated, and the lender has failed to collect the full amounts outstanding under the revolving credit facilities after exhausting other remedies. The maximum amounts of the Loan Collection Guaranties will be reduced by the extent of any payments of principal made by Simon OP or other cash proceeds recovered by the lenders.

12.

Subsequent Events

Distribution Payment

On July 13, 2016, the distribution for the three-month period ending June 30, 2016 of $4.4 million was paid in cash. The distribution was paid from cash flows provided from operations.

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)

Distribution Declaration

On August 15, 2016, the Board authorized and the Company declared a distribution for the three-month period ending September 30, 2016. 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 or about October 15, 2016 to shareholders of record as of September 30, 2016.

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 Notes 1 and 6 of the Notes to Consolidated Financial Statements, the results of operations presented below exclude certain properties due to their classification as discontinued operations.

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 and may continue to acquire and operate in the future 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, industrial properties and residential properties comprised of multi-family complexes.

We do not have employees. We have an advisory agreement 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.

Our business may be affected by market and economic challenges experienced by the U.S. and global economies. These conditions may materially affect the value and performance of our properties, and may affect our ability to pay distributions, the availability or the terms of financing that we have or may anticipate utilizing, and our ability to make principal and interest payments on, or refinance, any outstanding debt when due.

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 June 30, 2016			Annualized Revenues based on rents at June 30, 2016	Annualized Revenues per square foot at June 30, 2016
Wholly Owned and Consolidated Real Estate Properties:

Retail
St. Augustine Outlet Center	St. Augustine, FL	1998		335,456		85.4	%	$3.9 million	$	13.56
Oakview Plaza	Omaha, NE	1999 - 2005		176,774		87.0	%	$2.3 million	$	14.78
DePaul Plaza	Bridgeton, MO	1985		187,090		88.4	%	$2.0 million	$	11.84
		Retail Total		699,320		86.6	%

Industrial
7 Flex/Office/Industrial Buildings within the Gulf Coast Industrial Portfolio	New Orleans, LA	1980-2000		339,700		63.8	%	$2.5 million	$	11.30
4 Flex/Industrial Buildings within the Gulf Coast Industrial Portfolio	San Antonio, TX	1982-1986		484,369		81.3	%	$1.7 million	$	4.38
3 Flex/Industrial Buildings within the Gulf Coast Industrial Portfolio	Baton Rouge, LA	1985-1987		182,792		15.1	%	$0.3 million	$	10.14

		Industrial Total		1,006,861		63.4	%

Multi - Family Residential	Location	Year Built (Range of years built)		Leasable Units		Percentage Occupied as of June 30, 2016			Annualized Revenues based on rents at June 30, 2016	Annualized Revenues per unit at June 30, 2016
Southeastern Michigan Multi-Family Property (Multi-Family Apartment Building)	Southeast MI	1965			168		92.3	%	$1.4 million	$	9,259
Gantry Park (Multi-Family Apartment Building)	Queens, NY	2013			199		99.0	%	$8.2 million	$	41,855
			Residential Total		367		95.9	%

	Location	Year Built		Year to date Available Rooms		Percentage Occupied as of June 30, 2016			Revenue per Available Room ("RevPAR") for the Six Months Ended June 30, 2016		Average Daily Rate For the Six Months Ended June 30, 2016
Hospitality Property:

DoubleTree - Danvers	Danvers, Massachusetts		1976		66,066		59.0	%	$	72.99	$	123.79

Annualized revenue is defined as the minimum monthly payments due as of June 30, 2016 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 months ended June 30, 2016 to our critical accounting policies as reported in our Annual Report on Form 10-K, for the year ended December 31, 2015.

Results of Operations

Dispositions

Southeastern Michigan Multi-Family Properties

On May 17, 2016, the Company disposed of three of the four apartment communities contained in the Southeastern Michigan Multi-Family Properties to an unrelated third party for aggregate consideration of approximately $50.6 million. In connection with the disposition, the Company recorded a gain on the disposition of real estate of approximately $19.9 million during the second quarter of 2016. Approximately $38.2 million of the proceeds were used to repay in full the outstanding principal balance of the mortgage that was secured by the Southeastern Michigan Multi-Family Properties. Subsequently, the remaining apartment community in the Southeastern Michigan Multi-Family Properties was disposed of on July 26, 2016 to the same unrelated third party for approximately $10.3 million. The disposition of the Southeastern Michigan Multi-Family Properties did not qualify to be reported as discontinued operations since the disposition did not represent a strategic shift that had a major effect on the Company’s operations and financial results. Accordingly, the operating results of the Southeastern Michigan Multi-Family Properties are reflected in the Company’s results from continuing operations for all periods presented through their respective dates of disposition. The Southeastern Michigan Properties were included in our Multi-Family Residential Segment.

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 June 30, 2016 vs. June 30, 2015

Consolidated

Revenues

Our revenues are comprised of rental revenues, tenant recovery income and other service income. Total revenues decreased by approximately $0.6 million to $13.9 million for the three months ended June 30, 2016 compared to $14.5 million for the same period in 2015. See “Segment Results of Operations for the Three Months Ended June 30, 2016 compared to June 30, 2015” for additional information on revenues by segment.

Property operating expenses

Property operating expenses increased by approximately $0.3 million to $7.2 million for the three months ended June 30, 2016 compared to $6.9 million for the same period in 2015. This increase primarily reflects higher property expenses of $0.4 million for the DoubleTree – Danvers (Hospitality Segment) resulting from increased occupancy levels during the 2016 period partially offset by lower expenses of $0.1 million in our Multi-Family Residential Segment principally due to the sale of three of the four apartment communities contained in the Southeastern Michigan Multi-Family Properties.

Real estate taxes

Real estate taxes remained unchanged at $0.8 million for both the three months ended June 30, 2016 and 2015.

General and administrative expenses

General and administrative expenses were unchanged at approximately $1.1 million for both the three months ended June 30, 2016 and 2015.

Depreciation and amortization

Depreciation and amortization expense increased by approximately $0.1 million to $2.9 million for the three months ended June 30, 2016 compared to $2.8 million the same period in 2015. This increase primarily reflects higher depreciation expenses for the St. Augustine Outlet Center (included in our Retail Segment) resulting from certain capital expenditures made during 2015.

Interest and dividend income

Interest and dividend income increased by approximately $2.5 million to $5.1 million for the three months ended June 30, 2016 compared to $2.6 million the same period in 2015. The increase was primarily attributable to the increase of $2.8 million in investment income from our Preferred Investments (see Note 8) offset by a $0.2 million decrease in interest and dividend income from our investments in marketable securities principally due to the redemption of Marco OP Units during 2015.

Interest expense

Interest expense, including amortization of deferred financing costs, decreased by approximately $0.5 million to $3.3 million for the three months ended June 30, 2016 compared to $3.8 million for the same period in 2015. The decrease is primarily attributable to the repayment in full of the mortgages secured by the St. Augustine Outlet Center (in April 2016) and the Southeastern Michigan Multi-Family Properties (in May 2016).

Loss/gain on sale and redemption of marketable securities

Loss/gain on sale and redemption of marketable securities decreased by approximately $28.5 million to a loss of $0.7 million for the three months ended June 30, 2016 compared to a gain of $27.8 million for the same period in 2015. During the three months ended June 30, 2015 we recognized a gain on sale and redemption of marketable securities of approximately $27.8 million primarily attributable to the redemption of 323,000 Marco OP Units.

Gain on disposition of real estate

During the second quarter of 2016 we recognized a gain on disposition of real estate of approximately $19.9 million related to the sale of three of the four apartment communities contained in our Southeastern Michigan Multi-Family Properties.

Income from investment in unconsolidated affiliated real estate entity

This account represents our portion of the earnings associated with our ownership interest in an investment in an unconsolidated affiliated real estate entity, which we accounted for under the equity method of accounting. Our income from investment in unconsolidated affiliated real estate entity of $5.8 million during the three months ended June 30, 2015 was primarily the result of the Company’s portion of the gain that resulted when the unconsolidated affiliated real estate entity completed the disposition of its sub-leasehold interest in a ground lease to an office building in April 2015.

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-DFJV Holdings LLC (“PRO”) held by our Sponsor and (iii) the ownership interests in 50-01 2^nd St Associates LLC (the “2nd Street Joint Venture”) held by our Sponsor and other affiliates.

Segment Results of Operations for the Three Months Ended June 30, 2016 compared to June 30, 2015

Retail Segment

	For the Three Months Ended June 30,						Variance Increase/(Decrease)
	2016			2015			$			%
	(unaudited)
Revenues	$	2,784		$	2,788		$	(4	)		-0.1	%
NOI		1,468			1,500			(32	)		-2.1	%
Average Occupancy Rate for period		86.5	%		83.2	%					3.3	%

The following table represents lease expirations for the Retail Segment as of June 30, 2016:

Lease Expiration Year		Number of Expiring Leases		Gross Leaseable Area "GLA" of Expiring Leases (Sq. Ft.)		Annualized Base Rent of Expiring Leases ($)		Percent of Total GLA			Percent of Total Annualized Base Rent
	2016		9		41,528		453,061		7.4	%		5.8	%
	2017		9		23,183		339,668		4.1	%		4.3	%
	2018		11		80,817		1,426,053		14.2	%		18.2	%
	2019		17		76,530		1,490,014		13.6	%		19.0	%
	2020		11		204,457		2,297,004		36.1	%		29.2	%
	2021		5		27,998		479,057		5.0	%		6.1	%
	2022		1		4,800		75,600		0.9	%		1.0	%
	2023		1		28,000		479,920		5.0	%		6.1	%
	2024		1		1,163		51,821		0.2	%		0.7	%
	2025		6		47,301		695,891		8.4	%		8.9	%
	Thereafter		2		28,687		56,382		5.1	%		0.7	%
			73		564,464		7,844,471		100.0	%		100.0	%

As of June 30, 2016, we had two tenants, Kohl’s Inc. and Dick’s Sporting Goods, Inc., each with one store, representing approximately 14.6% and 6.4%, respectively, of the total GLA in our Retail Segment. Additionally, as of that date, we did not have any other tenants whose GLA was 5% or more of the total GLA in our Retail Segment.

Revenues and NOI were unchanged for three months ended June 30, 2016 compared to the same period in 2015.

Multi-Family Residential Segment

	For the Three Months Ended June 30,						Variance Increase/(Decrease)
	2016			2015			$			%
	(unaudited)
Revenues	$	3,616		$	4,361		$	(745	)		-17.1	%
NOI		2,259			2,817			(558	)		-19.8	%
Average Occupancy Rate for period		96.5	%		95.0	%					1.5	%

Revenues and NOI decreased for the three months ended June 30, 2016 compared to the same period in 2015 primarily as a result of the disposition of three of the four apartment communities contained in the Southeastern Michigan Multi-Family Properties during May 2016. Revenues and NOI decreased by approximately $0.8 million and $0.5 million, respectively, for the three months ended June 30, 2016 compared to the same period in 2015 for the Southeastern Michigan Multi-Family Properties. Revenues and NOI were mostly unchanged for the remaining property.

Industrial Segment

	For the Three Months Ended June 30,						Variance Increase/(Decrease)
	2016			2015			$			%
	(unaudited)
Revenues	$	1,395		$	1,545		$	(150	)		-9.7	%
NOI		597			932			(335	)		-35.9	%
Average Occupancy Rate for period		63.1	%		74.6	%					-11.5	%

The following table represents lease expirations for our Industrial Segment as of June 30, 2016:

Industrial Segment

Lease Expiration Year		Number of Expiring Leases		GLA of Expiring Leases (Sq. Ft.)		Annualized Base Rent of Expiring Leases ($)		Percent of Total GLA			Percent of Total Annualized Base Rent
	2016		14		70,850		43,261		11.1	%		1.1	%
	2017		34		180,925		1,009,395		28.3	%		25.5	%
	2018		25		190,221		1,431,929		29.9	%		36.1	%
	2019		12		71,079		319,077		11.1	%		8.1	%
	2020		11		118,611		1,098,918		18.6	%		27.8	%
	2021		2		6,667		54,719		1.0	%		1.4	%
	Thereafter		-		-		-		-			-
			98		638,353		3,957,299		100.0	%		100.0	%

As of June 30, 2016, we did not have any tenants whose GLA was 5% or more of the total GLA in our Industrial Segment.

Revenues and NOI decreased for the three months ended June 30, 2016 compared to the same period in 2015 primarily as a result of the lower average occupancy rate during the 2016 period.

Hospitality Segment

	For the Three Months Ended June 30,						Variance Increase/(Decrease)
	2016			2015			$			%
	(unaudited)
Revenues	$	6,146		$	5,782		$	364			6.3	%
NOI		1,360			1,403			(43	)		-3.1	%
Average Occupancy Rate for period		75.1	%		54.3	%					20.8	%
Rev PAR	$	96.41		$	67.56		$	28.85			42.7	%

Revenues increased during the three months ended June 30, 2016 compared to the same period in 2015 resulting from increased occupancy levels and RevPAR during the period. NOI was relatively flat due to higher property operating expenses also resulting from increased occupancy levels during the 2016 period offset the increases in revenues.

For the Six Months Ended June 30, 2016 vs. June 30, 2015

Consolidated

Revenues

Our revenues are comprised of rental revenues, tenant recovery income and other service income. Total revenues decreased by approximately $0.2 million to $27.1 million for the six months ended June 30, 2016 compared to $27.3 million for the same period in 2015. See “Segment Results of Operations for the Six Months Ended June 30, 2016 compared to June 30, 2015” for additional information on revenues by segment.

Property operating expenses

Property operating expenses increased by approximately $0.7 million to $14.1 million for the six months ended June 30, 2016 compared to $13.4 million for the same period in 2015. This increase primarily reflects higher property expenses for the DoubleTree – Danvers (Hospitality Segment) resulting from increased occupancy levels during the 2016 period.

Real estate taxes

Real estate taxes remained unchanged at $1.7 million for both the six months ended June 30, 2016 and 2015, respectively.

General and administrative expenses

General and administrative expenses remained unchanged at $2.6 million for both the six months ended June 30, 2016 and 2015, respectively.

Depreciation and amortization

Depreciation and amortization expense increased by approximately $0.3 million to $5.9 million for the six months ended June 30, 2016 compared to $5.6 million for the same period in 2015. This increase primarily reflects higher depreciation expense of $0.2 million for the St. Augustine Outlet Center (included in our Retail Segment) resulting from capital expenditures made during the 2015 period.

Interest and dividend income

Interest and dividend income increased by approximately $4.9 million to $10.1 million for the six months ended June 30, 2016 compared to $5.2 million the same period in 2015. The increase was primarily attributable to the increase of $5.5 million in investment income from our Preferred Investments offset by a $0.4 million decrease in interest and dividend income from our investments in marketable securities principally due to the redemption of Marco OP Units during 2015.

Interest expense

Interest expense, including amortization of deferred financing costs, decreased by approximately $0.4 million to $7.1 million for the six months ended June 30, 2016 compared to $7.5 million for the same period in 2015. The decrease is primarily attributable to the repayment in full of the mortgages secured by the St. Augustine Outlet Center (in April 2016) and the Southeastern Michigan Multi-Family Properties (in May 2016).

Gain on disposition of real estate

During the second quarter of 2016 we recognized a gain on disposition of real estate of approximately $19.9 million related to the sale of the Southeastern Michigan Multi-Family Properties.

Loss/gain on sale and redemption of marketable securities

Loss/gain on sale and redemption of marketable securities decreased by approximately $35.7 million to a loss of $0.9 million for the six months ended June 30, 2016 compared to a gain of $34.7 million for the same period in 2015. During the six months ended June 30, 2015 we recognized a gain on sale and redemption of marketable securities of approximately $34.4 million primarily attributable to the redemption of 383,000 Marco OP Units.

Income from investment in unconsolidated affiliated real estate entity

This account represents our portion of the earnings associated with our ownership interest in an investment in an unconsolidated affiliated real estate entity, which we accounted for under the equity method of accounting. Our income from investment in unconsolidated affiliated real estate entity of $5.8 million during the six months ended June 30, 2015 was primarily the result of the Company’s portion of the gain that resulted when the unconsolidated affiliated real estate entity completed the disposition of its sub-leasehold interest in a ground lease to an office building in April 2015.

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 and (iii) the ownership interests in the 2nd Street Joint Venture held by our Sponsor and other affiliates.

Segment Results of Operations for the Six Months Ended June 30, 2016 compared to June 30, 2015

Retail Segment

	For the Six Months Ended June 30,						Variance Increase/(Decrease)
	2016			2015			$		%
	(unaudited)
Revenues	$	5,642		$	5,576		$	66		1.2	%
NOI		3,019			3,019			-		0.0	%
Average Occupancy Rate for period		86.9	%		82.8	%				4.1	%

Revenues increased slightly for the six months ended June 30, 2016 compared to the same period in 2015 primarily as a result of the increase in the average occupancy rate during the 2016 period.

Multi-Family Residential Segment

	For the Six Months Ended June 30,						Variance Increase/(Decrease)
	2016			2015			$			%
	(unaudited)
Revenues	$	8,122		$	8,649		$	(527	)		-6.1	%
NOI		5,117			5,408			(291	)		-5.4	%
Average Occupancy Rate for period		96.6	%		94.9	%					1.7	%

Revenues and NOI decreased for the six months ended June 30, 2016 compared to the same period in 2015 primarily as a result of the disposition of three of the four apartment communities contained in the Southeastern Michigan Multi-Family Properties in May 2016. Revenues and NOI decreased by approximately $0.7 million and $0.4 million, respectively, for the six months ended June 30, 2016 compared to the same period in 2015 for the Southeastern Michigan Multi-Family Properties. Revenues and NOI increased slightly for the remaining property.

Industrial Segment

	For the Six Months Ended June 30,						Variance Increase/(Decrease)
	2016			2015			$			%
	(unaudited)
Revenues	$	2,774		$	3,143		$	(369	)		-11.7	%
NOI		1,269			1,958			(689	)		-35.2	%
Average Occupancy Rate for period		62.4	%		76.0	%					-13.6	%

Revenues and NOI decreased for the six months ended June 30, 2016 compared to the same period in 2015 primarily as a result of the lower average occupancy rate during the 2016 period.

Hospitality Segment

	For the Six Months Ended June 30,						Variance Increase/(Decrease)
	2016			2015			$			%
	(unaudited)
Revenues	$	10,572		$	9,939		$	633			6.4	%
NOI		1,530			1,591			(61	)		-3.8	%
Average Occupancy Rate for period		59.0	%		54.3	%					4.7	%
Rev PAR	$	72.99		$	67.56		$	5.43			8.0	%

Revenues increased during the six months ended June 30, 2016 compared to the same period in 2015 resulting from increased occupancy levels and RevPAR during the 2016 period. NOI was relatively flat as higher property operating expenses also resulting from increased occupancy levels during the 2016 period offset the increases in revenues.

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 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 $165.9 million of outstanding mortgage debt and an $18.6 million outstanding under a line of credit. 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 June 30, 2016, our total borrowings of $184.5 million represented 49% 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 or investments we may make may be funded through a combination of borrowings, proceeds generated from the sale and redemption of our marketable securities, available for sale, proceeds received from the selective disposition of our properties and proceeds received from the redemption of our preferred investments in related parties. 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 June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Acquisition fees (general and administrative costs)	$	-	$	-	$	-	$	8
Asset management fees (general and administrative costs)		623		696		1,243		1,407
Property management fees (property operating expenses)		259		293		549		582
Development fees and leasing commissions*		2		69		51		480
Total	$	884	$	1,058	$	1,843	$	2,477

* Generally, capitalized and amortized over the estimated useful life of the associated asset.

As of June 30, 2016, we had approximately $81.3 million of cash and cash equivalents on hand and $57.5 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 Six Months Ended June 30,
	2016			2015
	(unaudited)
Cash flows provided by operating activities	$	13,181		$	10,004
Cash flows provided by investing activities		82,564			142,053
Cash flows used in financing activities		(82,883	)		(63,669	)
Net change in cash and cash equivalents		12,862			88,388

Cash and cash equivalents, beginning of the period		68,459			54,529
Cash and cash equivalents, end of the period	$	81,321		$	142,917

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, investment 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 and redemption of marketable securities, (ii) the selective disposition of properties or interests in properties, (iii) redemptions of our preferred investments in related parties, (iv) the issuance of equity and debt securities and (v) the placement of mortgage loans or other indebtedness.

Operating activities

Net cash flows provided by operating activities of $13.2 million for the six months ended June 30, 2016 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 $1.0 million associated with the net changes in operating assets and liabilities.

Investing activities

The net cash provided by investing activities of $82.6 million for the six months ended June 30, 2016 consists primarily of the following:

purchases of investment property of approximately $1.9 million;

release of restricted escrows of approximately $5.9 million;

net preferred equity investments in related parties of $2.3 million;

proceeds from the disposition of investment property and other real estate assets of $50.6 million;

proceeds from the sale and redemption of marketable securities of $28.2 million; and

distributions from our investment in 1407 Broadway of $2.0 million.

Financing activities

The net cash used by financing activities of approximately $82.9 million for the six months ended June 30, 2016 is primarily related to the following:

distributions to our common shareholders of $9.2 million;

redemptions and cancellation of common stock of $2.0 million;

aggregate distributions to our noncontrolling interests of $9.0 million; and

mortgage payments of $62.7 million.

Preferred Investments

We have entered into several agreements with various related party entities that provide for us to make preferred contributions pursuant to certain instruments (the “Preferred Investments”) that entitle us to monthly preferred distributions. The Preferred Investments had an aggregate balance of $140.6 million and $138.3 million as of June 30, 2016 and December 31, 2015, respectively, and are classified as held-to-maturity securities, recorded at cost and included in investments in related parties on the consolidated balance sheets. During the six months ended June 30, 2016, we made $44.5 million of additional contributions and redeemed $42.2 million of the Preferred Investments (the 365 Bond Street Preferred Investment) and as of June 30, 2016, remaining contributions of up to $39.4 million were unfunded.

The Preferred Investments are summarized as follows:

				Preferred Investment Balance				Unfunded Contributions		Investment Income
				As of		As of		As of		Three Months Ended June 30,				Six Months Ended June 30,
Preferred Investments	Dividend Rate			June 30, 2016		December 31, 2015		June 30,2016		2016		2015		2016		2015
365 Bond Street		12	%	$	-	$	42,237	$	-	$	971	$	1,281	$	2,252	$	2,489
40 East End Avenue		12	%		30,000		28,768		-		600		268		1,182		268
30-02 39^th Avenue		9% to 12	%		15,600		7,301		34,400		352		-		573		-
485 7th Avenue		12	%		60,000		60,000		-		1,820		-		3,640		-
East 11th Street		12	%		35,000		-		5,000		602		-		602		-
Total Preferred Investments				$	140,600	$	138,306	$	39,400	$	4,345	$	1,549	$	8,249	$	2,757

Distribution Reinvestment Plan (“DRIP”) 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. From our inception through December 31, 2015 we repurchased approximately 3.1 million shares of common stock and for the six months ended June 30, 2016 we repurchased approximately 195,300 shares of common stock for $10.00 per share, pursuant to our share repurchase program. We funded share repurchases for the periods noted above from the cumulative proceeds of the sale of our shares pursuant to our DRIP.

On January 19, 2015, the Board of Directors suspended our DRIP effective April 15, 2015. For so long as the DRIP remains suspended, all future distributions will be in the form of cash.

Our Board of Directors reserves the right to terminate 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 June 30, 2016.

Contractual Obligations	Remainder of 2016		2017		2018		2019		2020		Thereafter		Total

Mortgage Payable	$	50,947	$	25,991		1,567	$	1,621	$	14,924	$	70,868	$	165,918
Interest Payments¹		2,659		3,984		3,826		3,759		3,481		12,304		30,013

Total Contractual Obligations	$	53,606	$	29,975	$	5,393	$	5,380	$	18,405	$	83,172	$	195,931

The debt associated with the Gulf Coast Industrial Portfolio was placed in default by the special service and is due on demand and therefore no future interest payments on this debt are included in these amounts.

Certain of our debt agreements require the maintenance of certain ratios, including debt service coverage. We are currently in compliance with all of our debt covenants; however, the debt associated with our Gulf Coast Industrial Portfolio was placed in default by the special servicer during 2012 and is due on demand as discussed below.

As a result of not meeting certain debt service coverage ratios on the non-recourse mortgage indebtedness secured by the Gulf Coast Industrial Portfolio, the lender elected to retain the excess cash flow from these properties beginning in July 2011. During the third quarter of 2012, the loan was transferred to a special servicer, who discontinued scheduled debt service payments and notified us that the loan was in default and although originally due in February 2017 is now due on demand.

Although the lender is currently not charging or being paid interest at the stated default rate, we are accruing default interest expense pursuant to the terms of the loan agreement. Default interest expense of $0.5 million and $1.0 million was accrued for both the three and six months ended June 30, 2016 and 2015, respectively. As a result, cumulative accrued default interest expense of approximately $8.1 million and $7.1 million is included in accounts payable, accrued expenses and other liabilities on our consolidated balance sheets as of June 30, 2016 and December 31, 2015, respectively. Although we have had various discussions with the special servicer to restructure the terms of the loan, there can be no assurances that we will be successful in these efforts. However, we do not expect to pay any of the accrued default interest expense as this mortgage indebtedness is non-recourse to us. Additionally, we believe the continued loss of excess cash flow from these properties and the special servicer’s placement of the non-recourse mortgage indebtedness in default will not have a material impact on our results of operations or financial position.

Additionally, our mortgage loan (outstanding principal balance of $25.8 million as of June 30, 2016) secured by Oakview Plaza matures in January 2017. We currently intend to seek to refinance and/or repay in full, using cash proceeds from the potential sale of assets or redemptions of our preferred investments in related parties, such existing indebtedness on or before its applicable stated maturity. Other than these financings, we have no additional significant maturities of mortgage debt over the next 12 months.

Notes Payable

Margin Loan

We have access to a margin loan (the “Margin Loan”) from a financial institution that holds custody of certain of our marketable securities. The Margin Loan, which is due on demand, bears interest at Libor plus 0.85% (1.32% as of June 30, 2016) and is collateralized by the marketable securities in our account. The amounts available to us under the Margin Loan are at the discretion of the financial institution and not limited to the amount of collateral in our account. There were no amounts outstanding under the Margin Loan as of June 30, 2016 and December 31, 2016.

Line of Credit

On September 14, 2012, we entered into a non-revolving credit facility (the “Line of Credit”) with a financial institution which permits borrowings up to $25.0 million. The Line of Credit expires on June 19, 2017 and bears interest at Libor plus 1.35% (1.82% as of June 30, 2016). The Line of Credit is collateralized by approximately 252,000 Marco OP Units and PRO guaranteed the Line of Credit. The amount outstanding under the Line of Credit was $18.6 million as of June 30, 2016 and is included in Notes Payable on the consolidated balance sheets. We currently intend to seek to extend or replace the Line of Credit on or before its expiration. If we are unable to extend or replace the Line of Credit, we will repay the then outstanding balance in full at the expiration date using available cash.

Funds from Operations and Modified Funds from Operations

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

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

We define FFO, a non-GAAP measure, consistent with the standards set forth in the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (the "White Paper"). The White Paper defines FFO as net income or loss computed in accordance with GAAP, but excluding gains or losses from sales of property and real estate related impairments, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.

We believe that the use of FFO 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.

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

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

We define MFFO, a non-GAAP measure, consistent with the IPA's Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the "Practice Guideline") issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction-related fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and exclude the following items:

•

acquisition fees and expenses; non-cash amounts related to straight-line rent and the amortization of above- or below-market and in-place intangible lease assets and liabilities (which are adjusted in order to reflect such payments from an accrual basis of accounting under GAAP to a cash basis of accounting);

•

amortization of a premium and accretion of a discount on debt investments;

•

non-recurring impairment of real estate-related investments;

•

realized gains (losses) from the early extinguishment of debt;

•

realized gains (losses) on the extinguishment or sales of hedges, foreign exchange, securities and other derivative holdings except where the trading of such instruments is a fundamental attribute of our business;

•

unrealized gains (losses) from fair value adjustments on real estate securities, including CMBS and other securities, interest rate swaps and other derivatives not deemed hedges and foreign exchange holdings;

•

unrealized gains (losses) from the consolidation from, or deconsolidation to, equity accounting;

•

adjustments related to contingent purchase price obligations; and

•

adjustments for consolidated and unconsolidated partnerships and joint ventures calculated to reflect MFFO on the same basis as above.

Certain of the above adjustments are also made to reconcile net income (loss) to net cash provided by (used in) operating activities, such as for the amortization of a premium and accretion of a discount on debt and securities investments, amortization of fees, any unrealized gains (losses) on derivatives, securities or other investments, as well as other adjustments.

MFFO excludes non-recurring impairment of real estate-related investments. We assess the credit quality of our investments and adequacy of reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. We consider the estimated net recoverable value of a loan as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive situation of the region where the borrower does business.

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

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

Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates

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 Six Months Ended
	June 30, 2016			June 30, 2015			June 30, 2016			June 30, 2015
Net income	$	22,908		$	39,816		$	24,520		$	61,599
FFO adjustments:
Depreciation and amortization:
Depreciation and amortization of real estate assets		2,910			2,818			5,890			5,617
Equity in depreciation and amortization for
unconsolidated affiliated real estate entities		-			304			-			1,295
Adjustments to equity in earnings from
unconsolidated entities, net		-			(6,097	)		-			(6,097	)
Gain on disposal of investment property		(19,906	)		-			(19,906	)		-
Discontinued operations:
Gain on disposal of investment property		-			(3,538	)		-			(17,547	)

FFO		5,912			33,303			10,504			44,867
MFFO adjustments:
Other Adjustment
Acquisition and other transaction related costs expensed⁽¹⁾		8			-			20			(45	)
Amortization of above or below market leases and liabilities⁽²⁾		(28	)		(51	)		(56	)		(125	)
Loss on debt extinguishment		2			376			2			600
Accretion of discounts and amortization of premiums on debt investments		118			83			412			464
Mark-to-market adjustments⁽³⁾		715			(27,817	)		937			(34,740	)
Non-recurring (losses)/gains from extinguishment/sale of debt, derivatives or securities holdings⁽⁴⁾		-			-			-			-

MFFO		6,727			5,894			11,819			11,021
Straight-line rent⁽⁵⁾	$	21		$	(122	)	$	36		$	(355	)
MFFO - IPA recommended format⁽⁶⁾	$	6,748		$	5,772		$	11,855		$	10,666

Net income	$	22,908		$	39,816		$	24,520		$	61,599
Less: loss attributable to noncontrolling interests		(622	)		(3,467	)		(856	)		(4,094	)
Net income applicable to Company's common shares	$	22,286		$	36,349		$	23,664		$	57,505
Net income per common share, basic and diluted	$	0.87		$	1.40		$	0.93		$	2.22

FFO	$	5,912		$	33,303		$	10,504		$	44,867
Less: FFO attributable to noncontrolling interests		(457	)		(3,511	)		(910	)		(4,136	)
FFO attributable to Company's common shares	$	5,455		$	29,792		$	9,594		$	40,731
FFO per common share, basic and diluted	$	0.21		$	1.15		$	0.38		$	1.57

MFFO - IPA recommended format	$	6,748		$	5,772		$	11,855		$	10,666
Less: MFFO attributable to noncontrolling interests		(472	)		(513	)		(930	)		(1,011	)
MFFO attributable to Company's common shares	$	6,276		$	5,259		$	10,925		$	9,655

Weighted average number of common shares outstanding, basic and diluted		25,473			25,894			25,529			25,916

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. Mark-to-market adjustments are made for items such as ineffective derivative instruments, certain marketable securities and any other items that GAAP requires we make a mark-to-market adjustment for. The need to reflect mark-to-market adjustments is a continuous process and is analyzed on a quarterly and/or annual basis in accordance with GAAP.

(4)

Management believes that adjusting for gains or losses related to extinguishment/sale of debt, derivatives or securities holdings is appropriate because they are items that may not be reflective of ongoing operations. By excluding these items, management believes that MFFO provides supplemental information related to sustainable operations that will be more comparable between other reporting periods.

(5)

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

(6)

Our MFFO results include certain unusual items as set forth in the table below. We believe it is helpful to our investors in understanding our operating results to both highlight them and present adjusted MFFO excluding their impact (as shown below).

	For the Three Months Ended						For the Six Months Ended
	June 30, 2016			June 30, 2015			June 30, 2016			June 30, 2015
Gulf Coast Industrial Portfolio - Default interest expense^(a)	$	(486	)	$	(516	)	$	(997	)	$	(1,027	)
Allocations to noncontrolling interests		9			10			19			20
Total after allocations to noncontrolling interests	$	(477	)	$	(506	)	$	(978	)	$	(1,007	)

(a)

Represents default interest expense on our non-recourse mortgage loan collateralized by our Gulf Coast Industrial Portfolio. Although the lender is currently not charging us or being paid interest at the stated default rate, we have accrued interest at the default rate pursuant to the terms of the loan agreement. Additionally, we have had various discussions with the special servicer to restructure the terms of the non-recourse mortgage loan and do not expect to pay any of the default interest.

Excluding the impact of these unusual items from our MFFO, after taking into consideration allocations to noncontrolling interests, our adjusted MFFO would have been $6,753 and $5,765 for the three months ended June 31, 2016 and 2015, respectively and $11,903 and $10,662 for the six months ended June 31, 2016 and 2015, respectively.

The table below presents our cumulative distributions paid and cumulative FFO attributable to the Company’s common shares:

	From inception through
	June 30, 2016

FFO attributable to Company’s common shares	$	165,396
Distributions paid	$	172,141

On July 15, 2016, the distribution for the three-month period ending June 30, 2015 of $4.4 million was paid in cash. The entire distribution was paid from cash flows provided from operations.

On April 15, 2016, the distribution for the three-month period ending March 31, 2016 of $4.5 million was paid in cash. The entire distribution was paid from cash flows provided from operations.

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.

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 2016 and certain accounting standards that we have not yet been required to implement and may be applicable to our future operations.

Subsequent Events

See Note 12 of the Notes to Consolidated Financial Statements for further information related to subsequent events during the period from July 1, 2016 through the date of this filing.

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 June 30, 2016, we held various marketable securities with a fair value of approximately $57.5 million, which are available for sale for general investment return purposes. We regularly review the market prices of these investments for impairment purposes. As of June 30, 2016, a hypothetical adverse 10% movement in market values would result in a hypothetical loss in fair value of approximately $5.8 million.

The following table shows the contractually scheduled principal maturities of our mortgage debt during the next five years and thereafter as of June 30, 2016:

Remainder of 2016		2017		2018		2019		2020		Thereafter		Total

$	50,947	$	25,991	$	1,567	$	1,621	$	14,924	$	70,868	$	165,918

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted escrows, tenants’ accounts receivable, interest receivable from related parties, accounts payable and accrued expenses and the loans due to related parties approximated their fair values because of the short maturity of these instruments. The estimated fair value of the notes payable (line of credit) approximated its carrying value ($18.6 million) because of its floating interest rate. The carrying amount reported in the consolidated balance sheets for the mortgage receivable approximated its fair value 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 of the Company’s mortgage debt is summarized as follows:

	As of June 30, 2016				As of December 31, 2015
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Mortgages payable	$	165.9	$	167.1	$	228.6	$	227.1

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

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.

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, we may become subject to legal proceedings, claims or disputes.

On July 13, 2011, JF Capital Advisors, filed a lawsuit against The Lightstone Group, LLC, us and Lightstone Value Plus Real Estate Investment Trust II, Inc. 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.

As of the date hereof, we are 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.

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.

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.”

101* XBRL (eXtensible Business Reporting Language). The following financial information from Lightstone Value Plus Real Estate Investment Trust, Inc. on Form 10-Q for the quarter ended June 30, 2016, filed with the SEC on August 15, 2016, formatted in XBRL includes: (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations, (3) Consolidated Statements of Comprehensive Income, (4) Consolidated Statements of Stockholders’ Equity, (5) Consolidated Statements of Cash Flows and (6) the Notes to the Consolidated Financial Statement.

*Filed herewith

40

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: August 15, 2016 By: /s/ David Lichtenstein

David Lichtenstein

Chairman and Chief Executive Officer (Principal Executive Officer)

Date: August 15, 2016 By: /s/ Donna Brandin

Donna Brandin

Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial and Accounting Officer)

41

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.”
101*		XBRL (eXtensible Business Reporting Language). The following financial information from Lightstone Value Plus Real Estate Investment Trust, Inc. on Form 10-Q for the quarter ended June 30, 2016, filed with the SEC on August 15, 2016, formatted in XBRL includes: (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations, (3) Consolidated Statements of Comprehensive Income, (4) Consolidated Statements of Stockholders’ Equity, (5) Consolidated Statements of Cash Flows and (6) the Notes to the Consolidated Financial Statement.

	LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.

Date: August 15, 2016	By:	/s/ David Lichtenstein
		David Lichtenstein
		Chairman and Chief Executive Officer (Principal Executive Officer)

Date: August 15, 2016	By:	/s/ Donna Brandin
		Donna Brandin
		Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial and Accounting Officer)