Lightstone Value Plus REIT I, Inc. - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2019

¨	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)

Securities registered pursuant to Section 12(b) of the Act: None.

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted 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 x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨			Accelerated filer ¨
Non-accelerated filer x			Smaller reporting company x
			Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

Yes ¨ No x

As of November 8, 2019, there were approximately 22.8 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 (unaudited)

	Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	3

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018	4

	Consolidated Statements of Comprehensive (Loss)/Income for the Three and Nine Months Ended September 30, 2019 and 2018	5

	Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018	6

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 4.	Controls and Procedures	37

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	38

Item 6.	Exhibits	38

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

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

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except per share data)

	As of September 30, 2019			As of December 31, 2018
	(unaudited)
Assets
Investment property:
Land and improvements	$	30,664		$	36,786
Building and improvements		101,674			117,852
Furniture and fixtures		2,346			2,265
Construction in progress		148,160			63,519
Gross investment property		282,844			220,422
Less accumulated depreciation		(28,700	)		(30,028	)
Net investment property		254,144			190,394
Investments in related parties		77,223			102,008
Cash and cash equivalents		22,834			35,565
Marketable securities and other investments		55,562			106,949
Restricted cash		1,608			1,017
Notes receivable, net		67,132			-
Prepaid expenses and other assets		2,122			3,050
Assets held for disposition		-			37,226
Total Assets	$	480,625		$	476,209

Liabilities and Stockholders' Equity
Mortgages payable, net	$	139,013		$	118,401
Accounts payable, accrued expenses and other liabilities		2,912			3,024
Due to related parties		337			432
Tenant allowances and deposits payable		587			611
Distributions payable		3,992			4,134
Deferred rental income		523			662
Liabilities held for disposition		-			50,704
Total Liabilities		147,364			177,968

Commitments and contingencies

Stockholders' equity:
Company's Stockholders Equity:
Preferred shares, $0.01 par value, 10.0 million shares authorized, none issued and outstanding		-			-
Common stock, $0.01 par value; 60.0 million shares authorized, 22.8 million and 23.7 million shares issued and outstanding, respectively		228			237
Additional paid-in-capital		174,754			184,469
Accumulated other comprehensive income/(loss)		128			(2,251	)
Accumulated surplus		111,102			101,382
Total Company's stockholders' equity		286,212			283,837
Noncontrolling interests		47,049			14,404
Total Stockholders' Equity		333,261			298,241
Total Liabilities and Stockholders' Equity	$	480,625		$	476,209

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

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

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2019			2018			2019			2018
Revenues:
Rental income	$	3,681		$	3,702		$	10,944		$	10,970
Tenant recovery income		283			328			950			1,077
Total revenues		3,964			4,030			11,894			12,047

Expenses:
Property operating expenses		1,260			1,223			3,523			3,654
Real estate taxes		289			230			1,024			789
General and administrative costs		692			1,084			2,281			3,300
Depreciation and amortization		1,241			1,300			3,822			3,987
Total operating expenses		3,482			3,837			10,650			11,730
Operating income		482			193			1,244			317

Gain on disposition of real estate		1,013			-			1,013			-
Interest and dividend income		4,115			4,589			11,850			14,321
Interest expense		(441	)		(1,236	)		(1,128	)		(4,322	)
Other income, net		193			115			306			191
Unrealized (loss)/gain on marketable equity securities		(582	)		1,436			(2,247	)		1,096
Loss on sale and redemption of marketable securities		(94	)		(3	)		(719	)		(81	)

Net income from continuing operations		4,686			5,094			10,319			11,522

Net (loss)/income from discontinued operations		-			(605	)		13,481			5,085

Net income		4,686			4,489			23,800			16,607

Less: net income attributable to noncontrolling interests		(809	)		(465	)		(1,968	)		(1,108	)

Net income attributable to Company's common shares	$	3,877		$	4,024		$	21,832		$	15,499

Basic and diluted net income/(loss) per Company's common share:
Continuing operations	$	0.17		$	0.19		$	0.36		$	0.42
Discontinued operations		-			(0.02	)		0.58			0.21

Net income per Company’s common share, basic and diluted	$	0.17		$	0.17		$	0.94		$	0.63

Weighted average number of common shares outstanding, basic and diluted		22,859			24,299			23,168			24,575

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

(Amounts in thousands)

(Unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2019			2018			2019			2018
Net income	$	4,686		$	4,489		$	23,800		$	16,607

Other comprehensive income
Holding gain/(loss) on available for sale debt securities		210			127			1,711			(1,370	)
Reclassification adjustment for loss included in net income		94			3			719			81

Other comprehensive income/(loss)		304			130			2,430			(1,289	)

Comprehensive income		4,990			4,619			26,230			15,318

Less: Comprehensive income attributable to noncontrolling interests		(816	)		(468	)		(2,019	)		(1,083	)

Comprehensive income attributable to Company's common shares	$	4,174		$	4,151		$	24,211		$	14,235

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 STOCKHOLDERS’ EQUITY

(Amounts in thousands)

(Unaudited)

										Accumulated
							Additional			Other									Total
	Common						Paid-In			Comprehensive			Accumulated			Noncontrolling			Stockholders'
	Shares			Amount			Capital			Income/(loss)			Surplus			Interests			Equity
BALANCE, June 30, 2018		24,611		$	246		$	192,142		$	(1,400	)	$	105,338		$	17,168		$	313,494
Net income		-			-			-			-			4,024			465			4,489
Transfer of membership interests		-			-			1,500			-			-			(1,500	)		-
Other comprehensive income		-			-			-			127			-			3			130
Distributions declared (a)		-			-			-			-			(4,240	)		-			(4,240	)
Distributions paid to noncontrolling interests		-			-			-			-			-			(909	)		(909	)
Contributions received from noncontrolling interests		-			-			-			-			-			2			2
Redemption and cancellation of shares		(599	)		(6	)		(5,734	)		-			-			-			(5,740	)
BALANCE, September 30, 2018		24,012		$	240		$	187,908		$	(1,273	)	$	105,122		$	15,229		$	307,226

(a) Distributions per share were $0.175.

										Accumulated
							Additional			Other									Total
	Common						Paid-In			Comprehensive			Accumulated			Noncontrolling			Stockholders'
	Shares			Amount			Capital			Income/(loss)			Surplus			Interests			Equity
BALANCE, December 31, 2017		24,847		$	248		$	194,497		$	15,467		$	86,956		$	18,202		$	315,370
Reclassification of other accumulated comprehensive income to accumulated surplus		-			-			-			(15,476	)		15,476			-			-
Net income		-			-			-			-			15,499			1,108			16,607
Transfer of membership interests		-			-			1,500			-			-			(1,500	)		-
Other comprehensive loss		-			-			-			(1,264	)		-			(25	)		(1,289	)
Distributions declared (a)		-			-			-			-			(12,809	)		-			(12,809	)
Distributions paid to noncontrolling interests		-			-			-			-			-			(2,562	)		(2,562	)
Contributions received from noncontrolling interests		-			-			-			-			-			6			6
Redemption and cancellation of shares		(835	)		(8	)		(8,089	)		-			-			-			(8,097	)
BALANCE, September 30, 2018		24,012		$	240		$	187,908		$	(1,273	)	$	105,122		$	15,229		$	307,226

(a) Distributions per share were $0.525.

	Common						Additional Paid-In			Accumulated Other Comprehensive			Accumulated			Noncontrolling			Total Stockholders'
	Shares			Amount			Capital			Income/(loss)			Surplus			Interests			Equity
BALANCE, June 30, 2019		23,052		$	231		$	177,559		$	(169	)	$	111,215		$	25,848		$	314,684
Net income		-			-			-			-			3,877			809			4,686
Other comprehensive income		-			-			-			297			-			7			304
Distributions declared (a)		-			-			-			-			(3,990	)		-			(3,990	)
Distributions paid to noncontrolling interests		-			-			-			-			-			(785	)		(785	)
Contributions received from noncontrolling interests		-			-			-			-			-			21,170			21,170
Redemption, cancellation and tender of shares		(266	)		(3	)		(2,879	)		-			-			-			(2,882	)
Shares issued from distribution reinvestment program		7			-			74			-			-			-			74
BALANCE, September 30, 2019		22,793		$	228		$	174,754		$	128		$	111,102		$	47,049		$	333,261

(a) Distributions per share were $0.175.

	Common						Additional Paid-In			Accumulated Other Comprehensive			Accumulated			Noncontrolling			Total Stockholders'
	Shares			Amount			Capital			Income/(loss)			Surplus			Interests			Equity
BALANCE, December 31, 2018		23,708		$	237		$	184,469		$	(2,251	)	$	101,382		$	14,404		$	298,241
Net income		-			-			-			-			21,832			1,968			23,800
Other comprehensive income		-			-			-			2,379			-			51			2,430
Distributions declared (a)		-			-			-			-			(12,112	)		-			(12,112	)
Distributions paid to noncontrolling interests		-			-			-			-			-			(2,496	)		(2,496	)
Contributions received from noncontrolling interests		-			-			-			-			-			33,122			33,122
Redemption, cancellation and tender of shares		(933	)		(9	)		(9,915	)		-			-			-			(9,924	)
Shares issued from distribution reinvestment program		18			-			200			-			-			-			200
BALANCE, September 30, 2019		22,793		$	228		$	174,754		$	128		$	111,102		$	47,049		$	333,261

(a) Distributions per share were $0.525.

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

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)(Unaudited)

	For the Nine Months Ended September 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	23,800		$	16,607
Less net income – discontinued operations		13,481			5,085
Net income – continuing operations		10,319			11,522
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,822			3,987
Mark to market adjustment on derivative financial instruments		162			(163	)
Unrealized loss/(gain) on marketable equity securities, available for sale		2,247			(1,096	)
Loss on sale and redemption of marketable securities, available for sale		719			81
Gain on disposition of real estate		(1,013	)		-
Amortization of deferred financing costs		1,330			401
Other non-cash adjustments		398			(105	)
Noncash interest income		(1,770	)		-
Changes in assets and liabilities:
Increase in prepaid expenses and other assets		(223	)		(195	)
Increase in tenant allowances and deposits payable		(24	)		(30	)
Decrease in accounts payable, accrued expenses and other liabilities		(127	)		(1,008	)
Decrease in due to related parties		(95	)		(203	)
(Decrease)/increase in deferred rental income		(139	)		7
Net cash provided by operating activities – continuing operations		15,606			13,198
Net cash (used in)/provided by operating activities – discontinued operations		(55	)		2,272
Net cash provided by operating activities		15,551			15,470

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment property		(85,130	)		(556	)
Purchase of marketable securities		(10,526	)		(72,477	)
Proceeds from sale of marketable securities		61,376			9,982
Proceeds from sale of investment property		19,502			-
Investment in joint venture		(89	)		(644	)
Proceeds from joint venture		140			765
Funding of notes receivable		(65,363	)		-
Proceeds from investments in related parties		27,000			60,000
Investments in related parties		(2,266	)		(15,120	)
Net cash used in investing activities – continuing operations		(55,356	)		(18,050	)
Net cash used in investing activities – discontinued operations		(239	)		(476	)
Net cash used in investing activities		(55,595	)		(18,526	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage financing		36,685			-
Mortgage principal payments		(14,974	)		(21,568	)
Payment of loan fees and expenses		(2,453	)		-
Redemption and cancellation of common shares		(9,924	)		(8,097	)
Contributions received from noncontrolling interests		33,122			6
Distributions paid to noncontrolling interests		(2,496	)		(2,562	)
Distributions paid to Company's common stockholders		(12,056	)		(12,956	)

Net cash provided by/(used in) financing activities		27,904			(45,177	)

Net change in cash, cash equivalents and restricted cash		(12,140	)		(48,233	)
Cash, cash equivalents and restricted cash, beginning of year		36,582			119,219
Cash, cash equivalents and restricted cash, end of period	$	24,442		$	70,986

See Note 2 for supplemental cash flow information.

The following is a summary of the Company’s cash, cash equivalents, and restricted cash total as presented in our statements of cash flows for the periods presented:
Cash and cash equivalents	$	22,834	$	61,829
Restricted cash		1,608		9,157
Total cash, cash equivalents and restricted cash	$	24,442	$	70,986

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)

1.	*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. The Company currently seeks to originate, acquire and manage a diverse portfolio of real estate-related investments.

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 September 30, 2019.

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 the 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.

As of September 30, 2019, on a collective basis, the Company wholly owned or majority owned and consolidated the operating results and financial condition of one retail property (St. Augustine Outlet Center) containing a total of approximately 0.3 million square feet of retail space, and one multi-family residential property (Gantry Park Landing) containing a total of 199 units. All of the Company’s properties are located within the United States. As of September 30, 2019, the St. Augustine Outlet Center and Gantry Park Landing were 73% and 99% occupied, respectively.

Tender Offer

The Company commenced a tender offer on April 19, 2019, pursuant to which it is offered to acquire up to 0.5 million shares of its common stock at a purchase price of $7.00 per share, or $3.5 million in the aggregate (the “Tender Offer”). Pursuant to the terms of the Tender Offer, which expired on June 14, 2019, the Company repurchased approximately 63,532 of its shares of common stock at $7.00 per share, or an aggregate of approximately $0.4 million.

Discontinued Operations

During the first quarter of 2019, a portfolio comprised of the Company’s industrial properties (the “Gulf Coast Industrial Portfolio”) which were previously included in the Company’s Industrial Segment, met the criteria to be classified as discontinued operations in the consolidated statements of operations for all periods presented. Additionally, the associated assets and liabilities of ten of the properties within the Gulf Coast Industrial Portfolio which are located in Louisiana (the “Louisiana Properties”) have been reclassified as held for disposition in the consolidated balance sheet as of December 31, 2018. The disposition of the Louisiana Properties, which represented all of the Company’s remaining industrial properties, represented a strategic shift that had a major effect on the Company’s operations and financial results and therefore, upon their disposition, the operating results of the entire Gulf Coast Industrial Portfolio were classified as discontinued operations in the Company’s consolidated statements of operations for all periods presented (See Note 8).

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)

Segment Reporting

Since its inception, the Company has owned and managed various commercial and residential properties located throughout the United States. It historically operated within four business segments which were: (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”). Additionally, it presented as unallocated amounts (“Unallocated”) its (i) investments in real estate companies which were unconsolidated, (ii) other real estate-related investments and (iii) corporate operations. However, during 2015 the Company disposed of substantially all of its hospitality properties and subsequently in 2017 sold its only remaining hospitality property and therefore, no longer had a Hospitality Segment. Additionally, during the first quarter of 2019, the Company disposed of all of its remaining industrial properties and no longer has an Industrial Segment and during the third quarter of 2019 the Company disposed of DePaul Plaza, a retail property. As a result of these disposition activities, the Company’s only remaining properties are one retail property (St. Augustine Outlet Center) and one multi-family property (Gantry Park Landing).

Because of the changes in the composition of the Company’s real estate investments, the segment financial information is no longer relevant to the Company’s chief operating decision maker and it no longer is a driver of resource allocation decisions. Rather, the Company now evaluates all of its real estate investments as one operating segment and no longer reports any segment information in its consolidated financial statements.

Noncontrolling Interests

Partners of Operating Partnership

On July 6, 2004, the Advisor contributed $2 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. The limited partner has the right to convert operating partnership units into cash or, at the option of the Company, an equal number of shares of common stock of the Company, as allowed by the limited partnership agreement.

In connection with the Company’s initial public offering, Lightstone SLP, LLC, an affiliate of the Advisor, purchased an aggregate of $30.0 million of SLP Units in the Operating Partnership at a cost of $100,000 per unit.

In addition, 497,209 units of common limited partnership interest in the Operating Partnership (“Common Units”) were issued during the years ended December 31, 2008 and 2009 and remain outstanding as of September 30, 2019.

Other Noncontrolling Interests in Consolidated Subsidiaries

As of September 30, 2019, the other noncontrolling interests in consolidated subsidiaries include ownership interests in (i) Pro-DFJV Holdings LLC (“PRO”) held by the Company’s Sponsor, (ii) 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”), held by the Company’s Sponsor and other affiliates and (iii) various joint ventures held by affiliates of our Sponsor that have originated promissory notes to unaffiliated third parties (see Note 5). PRO’s holdings principally consist of Marco OP Units and Marco II OP Units (see Note 4). The 2nd Street Joint Venture owns Gantry Park Landing, a multi-family apartment building located in Queens, New York.

2.	*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. In addition, interests in entities acquired are evaluated based on applicable GAAP, and if deemed to be variable interest entities (“VIE”) in which the Company is the primary beneficiary are also consolidated. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which the Company has control, substantive participating rights or both under the respective ownership agreement. For entities in which the Company has less than a controlling interest but have significant influence, the Company accounts for the investment using the equity method of accounting.

There are judgments and estimates involved in determining if an entity in which the Company has made an investment is a VIE and, if so, whether the Company is the primary beneficiary. The entity is evaluated to determine if it is a VIE by, among other things, calculating the percentage of equity being risked compared to the total equity of the entity. Determining expected future losses involves assumptions of various possibilities of the results of future operations of the entity, assigning a probability to each possibility and using a discount rate to determine the net present value of those future losses. A change in the judgments, assumptions, and estimates outlined above could result in consolidating an entity that should not be consolidated or accounting for an investment using the equity method that should in fact be consolidated, the effects of which could be material to our 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)

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, 2018. 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 and real-estate related investments, marketable securities, notes receivable, 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, 2018 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.

Consolidated VIEs

The Company consolidates the certain joint ventures which have originated nonrecourse loans to unaffiliated third-party borrowers (see Note 5) which are variable interest entities, or VIEs, for which the Company is the primary beneficiary. Generally, a VIE is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A limited partnership, or legal entities such as an LLC, are considered a VIE when the majority of the limited partners unrelated to the general partner possess neither the right to remove the general partner without cause, nor certain rights to participate in the decisions that most significantly affect the financial results of the partnership. In determining whether the Company is the primary beneficiary of a VIE, the Company considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; and the similarity with and significance to our business activities and the business activities of the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions.

Recently Adopted Accounting Pronouncements

In August 2018, the SEC adopted the final rule amending certain disclosure requirements that have become redundant, duplicative, overlapping, outdated, or superseded. In addition, the amendments expand the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statements. The rule was effective on November 5, 2018 and will be effective for the quarter that begins after the effective date. Since the Company already includes a year to date consolidated statement of stockholders’ equity in our interim financial statement filings, the adoption of this guidance resulted in the inclusion of a quarter to date consolidated statement of stockholders equity in our second and third quarter interim financial statement filings and the inclusion of corresponding prior periods statement of stockholders’ equity for all periods presented.

In February 2016, the FASB issued an accounting standards update (“ASU”) that amends the existing lease accounting guidance and requires lessees to recognize a lease liability and a right-of-use asset for all leases on their balance sheets. Lessees of operating leases will continue to recognize lease expense in a manner similar to current accounting. For lessors, accounting for leases under the new guidance is substantially the same as in prior periods, but eliminates current real estate- specific provisions and changes the treatment of initial direct costs. The standard became effective for the Company on January 1, 2019.

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 Company elected the following package of practical expedients provided by the standard: (i) an entity need not reassess whether any expired or existing contract is a lease or contains a lease, (ii) an entity need not reassess the lease classification of any expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases. The Company also elected the short-term lease exception provided for in the standard and therefore will only recognize right-of-use assets and lease liabilities for leases with a term greater than one year.

The Company did not recognize any right-of-use assets or lease liabilities upon adoption of the standard. The Company does not have any material leases such as ground leases or building leases or any material leases for leases with a term greater than one year. From time to time the Company will enter into immaterial leases for office equipment such as copiers. The resulting right-of-use assets or lease liabilities would be immaterial in the aggregate and are recognized in the period they are incurred as lease expense.

The ASU provides a practical expedient which allows lessors to not separate lease and non-lease components in a contract and allocate the consideration in the contract to the separate components if both: (i) the timing and pattern of revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Company elected the practical expedient to account for lease and non-lease components as a single component in lease contracts where we are the lessor. The ASU also provides a transition option that permits entities to not recast the comparative periods presented when transitioning to the standard, which the Company also elected.

The adoption of this standard did not have a material effect on our consolidated financial position or our results of operations.

New Accounting Pronouncements

In June 2016, the FASB issued an accounting standards update which replaces the incurred loss impairment methodology currently in use with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The new guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently in the process of evaluating the impact the adoption of this standard will have on the Company’s consolidated financial statements.

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

Supplemental Cash Flow Information

Supplemental cash flow information for the periods indicated is as follows:

	For the Nine Months Ended September 30,
	2019		2018
Cash paid for interest	$	5,621	$	5,163
Distributions declared but not paid	$	3,992	$	4,240
Investment property acquired but not paid	$	300	$	6
Assets transferred due to foreclosure	$	37,299	$	13,521
Liabilities extinguished/credited in foreclosure	$	50,914	$	20,658
Reclassification of accumulated other comprehensive income and noncontrolling interests to accumulated surplus	$	-	$	15,476
Holding gain/loss on marketable securities	$	2,430	$	1,289
Value of shares issued from distribution reinvestment program	$	200	$	-
Transfer of membership interests from noncontrolling interests to additional paid-in-capital	$	-	$	1,500

Reclassifications

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

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)

3. Development Projects

Lower East Side Moxy Hotel

On December 3, 2018, the Company, through a subsidiary of the Operating Partnership, acquired three parcels of land located at 147-151 Bowery, New York, New York (collectively, the “Bowery Land”) from 151 Emmut Properties LLC and 145-149 Bowery LLC, both unaffiliated third parties, for aggregate consideration of approximately $56.5 million, excluding closing and other acquisition related costs, on which it intends to develop and construct a 296-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”). Additionally, on December 6, 2018, the Company, though a subsidiary of the Operating Partnership, acquired certain air rights located at 329 Broome Street, New York, New York (the “Air Rights”) from B.R.P. Realty Corp., an unaffiliated third party, for approximately $2.4 million, excluding closing and other acquisition related costs. The Company intends to use the Air Rights in connection with the development and construction of the Lower East Side Moxy Hotel. In connection with the acquisition of the Bowery Land and the Air Rights, the Advisor earned an acquisition fee equal to 2.75% of the gross contractual purchase price, which was approximately $1.6 million.

As of September 30, 2019 and December 31, 2018, the Company incurred and capitalized to construction in progress an aggregate of $71.0 million (including the acquisition fee of $1.6 million and capitalized interest of $3.2 million) and $63.3 million (including the acquisition fee of $1.6 million), respectively, consisting of acquisition and other development costs attributable to the Lower East Side Moxy Hotel. During the three and nine months ended September 30, 2019, the Company capitalized interest of approximately $1.4 million and $3.2 million, respectively in connection with the development of the Lower East Side Moxy Hotel.

Exterior Street Project

On February 27, 2019, the Company, through subsidiaries of the Operating Partnership, acquired two adjacent parcels of land located at 355 and 399 Exterior Street, New York, New York (collectively, the “Exterior Street Land”), from Borden Realty Corp and 399 Exterior Street Associates LLC, unaffiliated third parties, for an aggregate purchase price of approximately $59.0 million, excluding closing and other acquisition related costs, on which it intends to develop and construct a multi-family residential property (the “Exterior Street Project”).

On March 29, 2019, the Company entered into a $35.0 million loan (the “Exterior Street Loan”) which bears interest at 4.50% and is scheduled to initially mature on April 9, 2020, but may be further extended through the exercise of two, six-month extension options, subject to certain conditions. The Exterior Street Loan requires monthly interest payments through its maturity date and is collateralized by the Exterior Street Land. In connection with the acquisition of the Exterior Street Land, the Advisor earned an acquisition fee equal to 2.75% of the gross aggregate contractual purchase price, which was approximately $1.6 million.

As of September 30, 2019, the Company incurred and capitalized to construction in progress an aggregate of $64.3 million (including the acquisition fee of $1.6 million and $2.6 million of capitalized interest) consisting of acquisition and other development costs attributable to the Exterior Street Project. During the three and nine months ended September 30, 2019, the Company capitalized interest of approximately $1.6 million and $2.6 million, respectively in connection with the development of the Exterior Street Project.

Santa Clara Data Center

On January 10, 2019, the Company, through subsidiaries of the Operating Partnership, acquired a parcel of land located at 2175 Martin Avenue, Santa Clara, CA (the “Martin Avenue Land”) from The Chioini Living Trust, an unaffiliated third party, for approximately $10.6 million, excluding closing and other acquisition related costs, on which the Company is developing a data center (the “Santa Clara Data Center”). In connection with the acquisition of the Martin Avenue Land, the Advisor earned an acquisition fee equal to 2.75% of the gross contractual purchase price, which was approximately $0.2 million.

As of September 30, 2019, the Company has incurred and capitalized to construction in progress an aggregate of $12.8 million (including the acquisition fee of $0.2 million and $0.3 million of capitalized interest) consisting of acquisition and other development costs attributable to the Santa Clara Data Center. During the three and nine months ended September 30, 2019, the Company capitalized interest of approximately $0.1 million and $0.3 million, respectively in connection with the development of the Santa Clara Data Center.

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)

4. Marketable Securities, Fair Value Measurements and Notes Payable

Marketable Securities:

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

	As of September 30, 2019
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Marketable Securities:
Equity securities:
Equity Securities	$	4,012	$	576	$	(15	)	$	4,573
Marco OP Units and Marco II OP Units		19,227		13,342		-			32,569
		23,239		13,918		(15	)		37,142
Debt securities:
Corporate Bonds		18,287		179		(46	)		18,420

Total	$	41,526	$	14,097	$	(61	)	$	55,562

	As of December 31, 2018
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Marketable Securities:
Equity securities:
Equity Securities	$	1,439	$	230	$	(18	)	$	1,651
Marco OP Units and Marco II OP Units		19,227		15,924		-			35,151
		20,666		16,154		(18	)		36,802
Debt securities:
Corporate Bonds		65,817		124		(2,120	)		63,821
Mortgage Backed Securities ("MBS")		1,615		-		(301	)		1,314
		67,432		124		(2,421	)		65,135
Other Investments:
Certificate of Deposit		5,012		-		-			5,012
		5,012		-		-			5,012
Total	$	93,110	$	16,278	$	(2,439	)	$	106,949

As of both September 30, 2019 and December 31, 2018, the Company held an aggregate of 209,243 Marco OP Units and Marco II OP Units, of which 89,695 were owned by PRO. 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”).

Prior to January 1, 2018, the Company accounted for marketable equity securities at fair value with unrealized gains and losses recognized in AOCI on the consolidated balance sheet. Realized gains and losses on marketable equity securities sold or impaired were recognized on the consolidated statements of operations.

On January 1, 2018, the Company adopted guidance issued by the FASB that required it to change the way it accounts for marketable equity securities. The Company’s marketable equity securities are measured at fair value and starting January 1, 2018 unrealized gains and losses are recognized on the consolidated statements of operations. Upon adoption, the Company reclassified $15.5 million of aggregate net unrealized gains from AOCI to opening accumulated surplus.

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 nine months ended September 30, 2019 and 2018, the Company did not recognize any impairment charges. As of September 30, 2019, the Company does not consider any of its investments to be other-than-temporarily impaired.

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 Company may sell certain of its investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management. At the time of purchase, the maturities of the Company’s MBS generally ranged from 27 years to 30 years.

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

	Fair Value Measurement Using
As of September 30, 2019	Level 1		Level 2		Level 3		Total

Marketable Securities:
Equity Securities, primarily REITs	$	4,573	$	-	$	-	$	4,573
Marco OP and OP II Units		-		32,569		-		32,569
Corporate Bonds		-		18,420		-		18,420
Certificate of Deposit		-		-		-		-
Total	$	4,573	$	50,989	$	-	$	55,562

	Fair Value Measurement Using
As of December 31, 2018	Level 1		Level 2		Level 3		Total

Marketable Securities:
Equity Securities, primarily REITs	$	1,651	$	-	$	-	$	1,651
Marco OP and OP II Units		-		35,151		-		35,151
Corporate Bonds		-		63,821		-		63,821
MBS		-		1,314		-		1,314
Certificate of Deposit		-		5,012		-		5,012
Total	$	1,651	$	105,298	$	-	$	106,949

The fair values of the Company’s investments in Corporate Bonds 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.

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 table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:

	As of September 30, 2019
Due in 1 year	$	2,016
Due in 1 year through 5 years		2,530
Due in 5 years through 10 years		4,303
Due after 10 years		9,571
Total	$	18,420

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

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% (2.87% as of September 30, 2019) 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 September 30, 2019 and December 31, 2018.

Line of Credit

The Company had a non-revolving credit facility (the “Line of Credit”) with a financial institution which previously permitted borrowings up to $25.0 million and was scheduled to expire on June 19, 2019. Effective June 19, 2019, the Line of Credit was extended until June 19, 2021 and the amount available for borrowings was reduced to $20.0 million. The Line of Credit bears interest at Libor plus 1.35% (3.37% as of September 30, 2019). The Line of Credit is collateralized by approximately 209,000 Marco OP Units and PRO has guaranteed the Line of Credit. No amounts were outstanding under the Line of Credit as of September 30, 2019 and December 31, 2018.

Notes Receivable

Beginning in 2019, the Company has formed certain joint ventures (collectively, the “NR Joint Ventures”) between wholly-owned subsidiaries of the Operating Partnership (collectively, the “NR Subsidiaries”) and affiliates of the Sponsor (the “NR Affiliates”) which have originated nonrecourse loans (collectively, the “Joint Venture Promissory Notes”) to unaffiliated third-party borrowers (collectively, the “Joint Venture Borrowers”).

The NR Subsidiaries and NR Affiliates have varying ownership interests in the NR Joint Ventures and certain other wholly-owned subsidiaries of the Operating Partnership serve as the manager and are the sole decision-maker for each of the NR Joint Ventures.

The Company has determined that the NR Joint Ventures are VIEs and the NR Subsidiaries are the primary beneficiaries. Since the NR Subsidiaries are the primary beneficiaries, beginning on the applicable date of formation, the Company has consolidated the operating results and financial condition of the NR Joint Ventures and accounted for the respective ownership interests of the NR Affiliates as noncontrolling interests.

The Joint Venture Promissory Notes provide for monthly interest at a prescribed variable rate, subject to a floor. In connection with funding of the Joint Venture Promissory Notes, the NR Joint Ventures have received origination fees (1.00% -1.50%) based on the principal amount of the loan and retained a portion of the loan proceeds to establish a reserve for interest and other items (the “Loan Reserves”). The Joint Venture Promissory Notes are recorded in notes receivable, net on the consolidated balance sheets.

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

Notes to Consolidated Financial Statements

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

The Joint Venture Promissory Notes generally have an initial term of one year and may provide for an additional one-year extension option subject to satisfaction of certain prescribed conditions, including the funding of an additional reserve for interest and payment of an extension fee. The Joint Venture Promissory Notes are collateralized by either the membership interests of the Joint Venture Borrowers in the borrowing entity or the underlying real property being developed by the Joint Venture Borrower.

The origination fees received are presented in the consolidated balance sheets as a direct deduction from the carrying value of the Joint Venture Promissory Notes and are amortized into interest income, using a straight-line method that approximates the effective interest method, over the initial term of the Joint Venture Promissory Notes. The Loan Reserves are presented in the consolidated balance sheets as a direct deduction from the carrying value of the Joint Venture Promissory Notes and are applied against the monthly interest due over the initial term.

The Notes Receivable are summarized as follows:

	Company's			Original							Initial		Contractual	As of September 30, 2019
Joint Venture/Lender	Ownership Percentage			Loan Amount		Origination Fee			Origination Date		Maturity Date		Interest Rate	Outstanding Principal		Reserves			Unamortized Origination Fee			Carrying Value
LSC 162nd Capital I LLC		45.45	%	$	4,234		1.50	%		February 5, 2019		March 1, 2020	Libor plus 7.50% (Floor of 10%)	$	4,234	$	(191	)	$	(22	)	$	4,021

LSC 162nd Capital II LLC		45.45	%	$	9,166		1.50	%		February 5, 2019		March 1, 2020	Libor plus 7.50% (Floor of 10%)		9,166		(413	)		(48	)		8,705

LSC 47-16 Greenpoint LLC		50	%	$	13,000		1.00	%		April 5, 2019		April 4, 2020	Libor plus 5.75% (Floor of 8.25%)		13,000		(161	)		(66	)		12,773

LSC 1543 7th LLC		50	%	$	20,000		1.00	%		August 27, 2019		August 26, 2020	Libor plus 5.15% (Floor of 7.65%)		20,000		(895	)		(181	)		18,924

LSC 1650 Lincoln LLC		50	%	$	24,000		1.00	%		August 27, 2019		August 26, 2020	Libor plus 5.15% (Floor of 7.65%)		24,000		(1,074	)		(217	)		22,709

Total														$	70,400	$	(2,734	)	$	(534	)	$	67,132

The following summarizes the interest earned (included in interest and dividend income on the consolidated statements of operations) for each of the Joint Venture Promissory Notes during the periods indicated:

	For the Three Months		For the Three Months		For the Nine Months		For the Nine Months
	Ended		Ended		Ended		Ended
Joint Venture/Lender	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
LSC 162nd Capital I LLC	$	118	$	-	$	321	$	-

LSC 162nd Capital II LLC		269		-		695		-

LSC 47-16 Greenpoint LLC		313		-		597		-

LSC 1543 7th LLC		168		-		168		-

LSC 1650 Lincoln LLC		201		-		202		-

Total	$	1,069	$	-	$	1,983	$	-

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 September 30, 2019			Maturity Date	Amount Due at Maturity		As of September 30, 2019			As of December 31, 2018
Gantry Park		4.48%		4.48	%	November 2024	$	65,317	$	72,438		$	73,341

DePaul Plaza			(Repaid in full on September 20, 2019)					-		-			14,072

Bowery Land and Air Rights		LIBOR + 4.25%		6.71	%	December 2020		34,252		34,252			32,567

Exterior Street Land		4.50%		4.50	%	April 2020		35,000		35,000			-

Total mortgages payable				5.02	%		$	134,569		141,690			119,980

Less: Deferred financing costs										(2,677	)		(1,579	)

Total mortgages payable, net									$	139,013		$	118,401

Libor as of September 30, 2019 and December 31, 2018 was 2.02% and 2.52%, respectively. The Company’s loans are secured by the indicated real estate and are non-recourse to the Company, unless otherwise indicated.

On September 20, 2019, approximately $13.8 million of the proceeds from the disposition of DePaul Plaza were used to repay in full the existing non-recourse mortgage loan collateralized by the DePaul Plaza (See note 8).

On March 29, 2019, the Company entered into the $35.0 million Exterior Street Loan which bears interest at 4.50% and is scheduled to initially mature on April 9, 2020 but may be further extended through the exercise of two, six-month extension options, subject to certain conditions. The Exterior Street Loan requires monthly interest payments through its maturity date and is collateralized by the Exterior Street Land.

On December 3, 2018, the Company entered into a mortgage loan collateralized by the Bowery Land and the Air Rights (the “Bowery Mortgage) for approximately $35.6 million. The Bowery Mortgage has a term of two years, bears interest at LIBOR+4.25% and requires monthly interest-only payments through its stated maturity with the entire unpaid balance due upon maturity. Through September 30, 2019, the Company received aggregate proceeds of $34.3 million under the Bowery Mortgage. As a result, the Bowery Mortgage had an outstanding balance and remaining availability of $34.3 million and $1.3 million, respectively, as of September 30, 2019.

The Exterior Street Loan (outstanding principal balance of $35.0 million as of September 30, 2019) initially matures on April 9, 2020 but has two, six-month extension options, subject to certain conditions. The Company intends to seek to exercise the extension options or refinance the Exterior Street Loan on or before its applicable stated maturity date. However, if we are unable to extend or refinance the outstanding indebtedness at favorable terms, we will look to repay the then outstanding balance with available cash and/or proceeds from selective asset sales. The Company has no additional significant maturities of mortgage debt over the next 12 months.

The following table shows the contractually scheduled principal maturities of the Company’s mortgage debt during the next five years and thereafter as of September 30, 2019:

	2019		2020		2021		2022		2023		Thereafter		Total
Principal maturities	$	311	$	70,512	$	1,328	$	1,389	$	1,454	$	66,696	$	141,690

Less: Deferred financing costs														(2,677	)

Total principal maturities, net													$	139,013

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)

7.	*Leases*

The Company’s retail property and multi-family residential property are both leased to tenants under operating leases. Substantially all of our multi-family residential property leases have initial terms of 12 months or less. Our retail space leases expire between 2019 and 2026.

We, as a lessor, retain substantially all of the risks and benefits of ownership of the investment properties and continue to account for our leases as operating leases. We accrue fixed lease income on a straight-line basis over the terms of the leases. Some of our tenants are also required to pay overage rents based on sales over a stated base amount during the lease year. We recognize this variable lease consideration only when each tenant’s sales exceed the applicable sales threshold. We amortize any tenant inducements as a reduction of revenue utilizing the straight-line method over the term of the related lease.

We structure our leases to allow us to recover a portion of our property operating expenses from our tenants. A portion of our leases require the tenant to reimburse us for a portion of our operating expenses, including common area maintenance (“CAM”), real estate taxes and insurance. Such property operating expenses typically include utility, insurance and other administrative expenses. For some of our leases we receive a fixed payment from the tenant for the CAM component which is recognized as revenue on a straight-line basis over the term of the lease. When not reimbursed by the fixed CAM component, CAM expense reimbursements are based on the tenant’s proportionate share of the allocable operating expenses for the property. We accrue reimbursements from tenants for recoverable portions of all of these expenses as variable lease consideration in the period the applicable expenditures are incurred. We recognize differences between estimated recoveries and the final billed amounts in the subsequent year. These differences were not material in any period presented.

As of September 30, 2019, the approximate fixed future minimum rent payments, excluding variable lease consideration, from the Company’s retail property, due to us under non-cancelable leases are as follows:

2019				2020				2021				2022				2023				Thereafter				Total
$	537			$	1,833			$	1,433			$	1,184			$	1,114			$	686			$	6,787

Pursuant to the lease agreements, tenants of the property may be required to reimburse the Company for some or the entire portion of the particular tenant's pro rata share of the real estate taxes and operating expenses of the property. Such amounts are not included in the future minimum lease payments above, but are included in tenant recovery income on the accompanying consolidated statements of operations. Lease income of approximately $0.1 million and $0.8 million for the three and nine months ended September 30, 2019, respectively, and, lease income of approximately $0.5 million and $1.9 million for the three and nine months ended September 30, 2018, respectively, related to variable lease payments was included in tenant recovery income on the accompanying consolidated statements of operations.

The Company has excluded our multi-family residential property leases from this table as substantially all of its multi-family residential property leases have initial terms of 12 months of less.

8.	*Dispositions and* *Discontinued Operations*

Dispositions - Continuing Operations

The following disposition did not represent a strategic shift that had a major effect on the Company’s operations and financial results and therefore did not qualify to be reported as discontinued operations and its operating results are reflected in the Company’s results from continuing operations in the consolidated statements of operations for all periods presented through the date of disposition:

DePaul Plaza

On September 20, 2019, the Company disposed of a retail center located in Bridgeton, Missouri (“DePaul Plaza”), to an unrelated third party for aggregate consideration of approximately $19.8 million, excluding closing and other related costs. In connection with the disposition, the Company recorded a gain on the disposition of real estate of approximately $1.0 million during the third quarter of 2019.

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)

Dispositions - Discontinued Operations

The following dispositions qualified to be reported as discontinued operations and their operating results are classified as discontinued operations in the consolidated statements of operations for all periods presented through their respective dates of disposition:

Disposition Transactions related to Gulf Coast Industrial Portfolio

The Company had an outstanding non-recourse mortgage loan (the “Gulf Coast Industrial Portfolio Mortgage Loan”) which was originated in February 2007 and subsequently transferred during the third quarter of 2012 to a special servicer that discontinued scheduled debt service payments and notified the Company that the loan was in default and due on demand. The Gulf Coast Industrial Portfolio Mortgage Loan was initially cross-collateralized by a portfolio of 14 industrial properties (collectively, the “Gulf Coast Industrial Portfolio”) including ten properties located in Louisiana (seven properties located in New Orleans and three properties located in Baton Rouge, and collectively, the “Louisiana Properties”) and four properties located in San Antonio, Texas (the “San Antonio Properties”).

Foreclosure of San Antonio Assets

On June 5, 2018, the special servicer completed a partial foreclosure of the Gulf Coast Industrial Portfolio pursuant to which it foreclosed on the San Antonio Assets. The San Antonio Assets were sold in a foreclosure sale by the special servicer for an aggregate amount of approximately $20.7 million.

Upon consummation of the foreclosure sale, the buyers assumed the significant risks and rewards of ownership and took legal title and physical possession of the San Antonio Assets for the agreed upon aggregate sales price of $20.7 million. The Company simultaneously received an aggregate credit of approximately $20.7 million which it applied against the total outstanding indebtedness (approximately $19.6 million and $1.1 million of principal and accrued interest payable, respectively) of the Gulf Coast Industrial Portfolio Mortgage.

The aggregate carrying value of the assets transferred and the liabilities extinguished in connection with the foreclosure of the San Antonio Assets were approximately $13.6 million and $20.7 million, respectively.

Since the Company’s performance obligations were met at the closing of the foreclosure sales and the Company had no continuing involvement with the San Antonio Assets an aggregate gain on disposition of real estate of approximately $7.1 million was recognized during the second quarter of 2018.

During 2018, the disposition of the San Antonio Assets did not initially qualify to be reported as discontinued operations since their disposition did not represent a strategic shift that had a major effect on the Company’s operations and financial results.

Assignment of Ownership in Louisiana Assets to Lender

On February 12, 2019, the Company and the lender of the Gulf Coast Industrial Portfolio Mortgage entered into an assignment agreement (the “Assignment Agreement”) pursuant to which the Company assigned its membership interests in the Louisiana Assets to the lender with an effective date of February 7, 2019. Under the terms of the Assignment Agreement, the lender assumed the significant risks and rewards of ownership and took legal title and physical possession of the Louisiana Assets and assumed all the other assets and related liabilities, including the Gulf Coast Industrial Mortgage and its accrued and unpaid interest, and released the Company of any claims against the liabilities assumed.

As a result of the Assignment Agreement, the Company has fully satisfied all of its obligations with respect to the Gulf Coast Industrial Portfolio Mortgage and all amounts accrued but not paid for interest (including default interest) and no amounts are due to the lender. Additionally, the Company has no continuing involvement with the Louisiana Assets.

The aggregate carrying value of the assets transferred and the liabilities extinguished in connection with the Company’s assignment of its ownership interests in the Louisiana Assets to the lender was approximately $37.0 million and $49.6 million, respectively.

Since the Company’s performance obligations were met upon the assignment of its ownership interests in the Louisiana Assets to the lender and the Company has no continuing involvement with the Louisiana Assets, an aggregate gain on debt extinguishment of approximately $13.6 million was recognized during the first quarter of 2019.

The disposition of the Louisiana Assets, which comprised all of the Company’s remaining industrial properties, represented a strategic shift that had a major effect on the Company’s operations and financial results.

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 the disposition transactions related to both the San Antonio Assets and the Louisiana Assets, the Company no longer has any industrial properties. Because the Gulf Coast Industrial Portfolio Mortgage was cross-collateralized by the Gulf Coast Industrial Portfolio, comprised of both the San Antonio Assets and Louisiana Assets, the operating results of the entire Gulf Coast Industrial Portfolio have been classified as discontinued operations in the Company’s consolidated statements of operations for all periods presented.

The following summary presents the operating results of the Gulf Coast Industrial Portfolio included in discontinued operations in the Consolidated Statements of Operations for the periods indicated.

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2019		2018			2019			2018
Revenues	$	-	$	966		$	409		$	3,981
Operating expenses		-		804			317			3,066
Operating income		-		162			92			915

Interest expense and other, net		-		(767	)		(226	)		(2,967	)
		-		-						-
Gain on disposition of real estate		-		-			-			7,137

Gain on debt extinguishment		-		-			13,615			-
Net (loss)/income from discontinued operations	$	-	$	(605	)	$	13,481		$	5,085

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

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

	As of
	December 31, 2018
Net investment property	$	32,778
Restricted escrows		3,274
Other assets		1,174
Total assets held for disposition	$	37,226

Mortgages payable	$	30,642
Accounts payable and accrued expenses		19,069
Other liabilities		993
Total liabilities held for disposition	$	50,704

9.	*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, dilutive net income per share is equivalent to basic net income per share.

10.

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.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Acquisition fees (capitalized and are reflected in the carrying value of the investment)	$	-	$	-	$	1,823	$	-
Asset management fees (general and administrative costs)		303		392		941		1,283
Property management fees (property operating expenses)		67		120		222		409
Development fees and leasing commissions*		-		62		167		182
Total	$	370	$	574	$	3,153	$	1,874
* Generally, capitalized and amortized over the estimated useful life of the associated asset.

In connection with the Company’s initial public offering, Lightstone SLP, LLC, an affiliate of the Company’s Sponsor, previously purchased an aggregate of $30.0 million of 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 and nine months ended September 30, 2019 and 2018, distributions of $0.5 million and $1.5 million were declared and paid on the SLP units.

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 $76.0 million and $100.7 million as of September 30, 2019 and December 31, 2018, 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 nine months ended September 30, 2019, the Company (i) redeemed an aggregate of $17.0 million of the East 11th Street Preferred Investment and the entire 30-02 39th Street Preferred Investment of $10.0 million and (ii) made aggregate contributions of $2.3 million for the Miami Moxy Preferred Investment and as of September 30, 2019, there were no unfunded contributions.

The Preferred Investments are summarized as follows:

				Preferred Investment Balance				Investment Income⁽¹⁾
				As of		As of		Three Months Ended September 30,				Nine Months Ended September 30,
Preferred Investments	Dividend Rate			September 30, 2019		December 31, 2018		2019		2018		2019		2018
40 East End Avenue		12	%	$	30,000	$	30,000	$	920	$	920	$	2,730	$	2,730
30-02 39^th Avenue		12	%		-		10,000		-		307		140		910
485 7th Avenue		12	%		-		-		-		-		-		1,095
East 11th Street		12	%		26,000		43,000		797		1,763		2,705		4,970
Miami Moxy		12	%		20,000		17,733		615		457		1,705		1,229
Total Preferred Investments				$	76,000	$	100,733	$	2,332	$	3,447	$	7,280	$	10,934

Note:

(1)	– Included in interest and dividend income on the consolidated statements of operations.

The Joint Venture

The Company has a 2.5% membership interest in a joint venture (the “Joint Venture”) with Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone II”), a related party REIT also sponsored by our Sponsor. The Joint Venture holds ownership interests in eight hotels as of September 30, 2019.

The Company accounts for its 2.5% membership interest in the Joint Venture under the cost method and as of September 30, 2019 and December 31, 2018, the carrying value of its investment was $1.2 million and $1.3 million, respectively, which is included in investment in related parties on the consolidated balance sheets.

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

Notes to Consolidated Financial Statements

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

11.

Financial Instruments

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted escrows, tenants’ accounts receivable, notes receivable and accounts payable and accrued expenses approximate their fair values because of the short maturity of these instruments. The carrying amount of the note receivable approximates fair value because the interest rate is variable and reflective of the market rate.

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

	As of September 30, 2019				As of December 31, 2018
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Mortgages payable	$	141.7	$	143.1	$	120.0	$	119.8

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

12.

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.

13.

Subsequent Events

Distribution Payment

On October 15, 2019, the distribution for the quarterly period ending September 30, 2019 of $4.0 million was paid in full using a combination of cash and approximately 7,000 shares of the Company’s common stock issued pursuant to the Company’s Distribution Reinvestment Program (“DRIP”), at a discounted price of $11.23 per share.

Distribution Declaration

On November 11, 2019, the Company’s Board of Directors authorized and the Company declared a distribution of $0.175 per share for the quarterly period ending December 31, 2019. The quarterly distribution is the pro rata equivalent of an annual distribution of $0.70 per share, or an annualized rate of 7.0% assuming a purchase price of $10.00 per share. The distribution will be paid on or about the 15th day of the month following the quarter-end to stockholders of record at the close of business on the last day of the quarter-end. The stockholders have an option to elect the receipt of shares under the Company’s DRIP.

Future distributions declared will be at the discretion of the Board of Directors based on their analysis of our performance over the previous periods and expectations of performance for future periods and may differ from the amount of the distribution determined for this period. The Board of Directors will consider various factors in its determination, including but not limited to, the sources and availability of capital, current rental revenues, operating and interest expenses and our ability to refinance near-term debt. In addition, the Company currently intends to continue to comply with the REIT distribution requirement that it annually distribute no less than 90% of its taxable income. The Company cannot assure that regular distributions will continue to be made or that it will maintain any particular level of distributions that it has established or may establish.

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 8 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 and make real estate-related investments, principally in the United States. Our acquisitions and investments are principally conducted through the Operating Partnership, and have included both portfolios and individual properties. Our commercial holdings currently consist of retail (primarily multi-tenant shopping centers), and residential properties comprised of multi-family complexes. All such properties have been and will continue to be acquired and operating by us alone or jointly with others.

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.

Beginning with the year ended December 31, 2006, we qualified to be taxed as a real estate investment trust (a “REIT”), under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our ordinary taxable income to stockholders. As a REIT, we generally will not be subject to U.S. federal income tax on taxable income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, it will then be subject to federal income taxes on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for U.S. federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to our stockholders. As of September 30, 2019, we continue to comply with the requirements for maintaining our REIT status.

To maintain our qualification as a REIT, we engage in certain activities such as providing real estate-related services through taxable REIT subsidiaries (“TRSs”). As such, we are subject to U.S. federal and state income and franchise taxes from these activities.

Current Environment

Our operating results as well as our investment opportunities are generally 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.

Wholly Owned and Consolidated Real Estate Properties:

Location

Year Built
(Range of years built)

Date Acquired

Gross Leasable Area ("GLA")
in Square Feet/Leaseable Units

Percentage Occupied as of
September 30, 2019

Annualized Revenues
based on
rents at
September 30, 2019

Annualized Revenues per square
foot/unit at
September 30, 2019

St. Augustine Outlet Center (Retail Outlet Mall)

St. Augustine, Florida

1998

March 2006

328,120 GLA

73.4

$2.4 million

$9.78 sqft

Gantry Park Landing (Multi-Family Apartment Building)

Queens, New York

2013

August 2013

199 units

98.5

$8.9 million

$45,411 unit

Annualized revenue is defined as the minimum monthly payments due as of September 30, 2019 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.

Results of Operations

Dispositions

Dispositions - Continuing Operations

The following disposition did not represent a strategic shift that had a major effect on our operations and financial results and therefore did not qualify to be reported as discontinued operations and its operating results are reflected in tour results from continuing operations in the consolidated statements of operations for all periods presented through the date of disposition:

DePaul Plaza

On September 20, 2019, we disposed of a retail center located in Bridgeton, Missouri (“DePaul Plaza”), to an unrelated third party for aggregate consideration of approximately $19.8 million, excluding closing and other related costs. In connection with the disposition, we recorded a gain on the disposition of real estate of approximately $1.0 million during the third quarter of 2019.

Dispositions - Discontinued Operations

Disposition Transactions related to Gulf Coast Industrial Portfolio

We had an outstanding non-recourse mortgage loan (the “Gulf Coast Industrial Portfolio Mortgage Loan”) which was originated in February 2007 and subsequently transferred during the third quarter of 2012 to a special servicer that discontinued scheduled debt service payments and notified us that the loan was in default and due on demand. The Gulf Coast Industrial Portfolio Mortgage Loan was initially cross-collateralized by a portfolio of 14 industrial properties (collectively, the “Gulf Coast Industrial Portfolio”) including ten properties located in Louisiana (seven properties located in New Orleans and three properties located in Baton Rouge, and collectively, the “Louisiana Properties”) and four properties located in San Antonio, Texas (the “San Antonio Properties”).

Foreclosure of San Antonio Assets

Upon consummation of the foreclosure sale, the buyers assumed the significant risks and rewards of ownership and took legal title and physical possession of the San Antonio Assets for the agreed upon aggregate sales price of $20.7 million. We simultaneously received an aggregate credit of approximately $20.7 million which we applied against the total outstanding indebtedness (approximately $19.6 million and $1.1 million of principal and accrued interest payable, respectively) of the Gulf Coast Industrial Portfolio Mortgage.

Since our performance obligations were met at the closing of the foreclosure sales and we had no continuing involvement with the San Antonio Assets an aggregate gain on disposition of real estate of approximately $7.1 million was recognized during the second quarter of 2018.

Assignment of Ownership in Louisiana Assets to Lender

On February 12, 2019, we and the lender of the Gulf Coast Industrial Portfolio Mortgage entered into an assignment agreement (the “Assignment Agreement”) pursuant to which we assigned our membership interests in the Louisiana Assets to the lender with an effective date of February 7, 2019. Under the terms of the Assignment Agreement, the lender assumed the significant risks and rewards of ownership and took legal title and physical possession of the Louisiana Assets and assumed all the other assets and related liabilities, including the Gulf Coast Industrial Mortgage and its accrued and unpaid interest, and released us of any claims against the liabilities assumed.

As a result of the Assignment Agreement, we have fully satisfied all of our obligations with respect to the Gulf Coast Industrial Portfolio Mortgage and all amounts accrued but not paid for interest (including default interest) and no amounts are due to the lender. Additionally, we have no continuing involvement with the Louisiana Assets.

The aggregate carrying value of the assets transferred and the liabilities extinguished in connection with our assignment of our ownership interests in the Louisiana Assets to the lender was approximately $37.0 million and $49.6 million, respectively.

Since our performance obligations were met upon the assignment of our ownership interests in the Louisiana Assets to the lender and we have no continuing involvement with the Louisiana Assets, an aggregate gain on debt extinguishment of approximately $13.6 million was recognized during the first quarter of 2019.

The disposition of the Louisiana Assets, which comprised all of our remaining industrial properties, represented a strategic shift that had a major effect on our operations and financial results.

As a result of the disposition transactions related to both the San Antonio Assets and the Louisiana Assets, we no longer have any industrial properties. Because the Gulf Coast Industrial Portfolio Mortgage was cross-collateralized by the Gulf Coast Industrial Portfolio, comprised of both the San Antonio Assets and Louisiana Assets, the operating results of the entire Gulf Coast Industrial Portfolio have been classified as discontinued operations in our consolidated statements of operations for all periods presented.

For the Three Months Ended September 30, 2019 vs. September 30, 2018

Consolidated – Continuing Operations

Revenues

Our revenues are comprised of rental income and tenant recovery income. Total revenues for both the three months ended September 30, 2019 and 2018 were $4.0 million.

Property operating expenses

Property operating expenses increased slightly by approximately $0.1 million to $1.3 million for the three months ended September 30, 2019 compared to $1.2 million for the same period in 2018.

Real estate taxes

Real estate taxes increased slightly by approximately $0.1 million to $0.3 million for the three months ended September 30, 2019 compared to $0.2 million for the same period in 2018.

General and administrative expenses

General and administrative expenses decreased by approximately $0.4 million to $0.7 million for the three months ended September 30, 2019 compared to $1.1 million for the same period in 2018 principally due to a decrease in professional fees and lower asset management fees as a result of the disposition transactions related to the Gulf Coast Industrial Portfolio.

Depreciation and amortization

Depreciation and amortization decreased slightly by approximately $0.1 million to $1.2 million for the three months ended September 30, 2019 compared to $1.3 million for the same period in 2018.

Gain on disposition of real estate

During the three months ended September 30, 2019, we recognized gain on disposition of real estate of approximately $1.0 million related to the disposition of DePaul Plaza.

Interest and dividend income

Interest and dividend income decreased by approximately $0.5 million to $4.1 million for the three months ended September 30, 2019 compared to $4.6 million for the same period in 2018. The decrease primarily reflects lower investment income of $1.1 million from our Preferred Investments and a decrease in dividend income from our investments in marketable securities of $0.4 million partially offset by interest income earned on our notes receivable of $0.9 million and an increase in interest earned on available cash of $0.1 million.

Interest expense

Interest expense, including amortization of deferred financing costs, decreased by approximately $0.8 million to $0.4 million for the three months ended September 30, 2019 compared to $1.2 million for the same period in 2018. This decrease primarily reflects lower interest expense resulting from the capitalization of interest in connection with our development activities and a reduction in outstanding mortgage indebtedness during the 2019 period resulting from the repayment in full of a mortgage that was collateralized by the St. Augustine Outlet Center in May 2018.

Unrealized loss on marketable equity securities

During the three months ended September 30, 2019, we recorded an unrealized loss on marketable equity securities of $0.6 million and during the three months ended September 30, 2018, we recorded an unrealized gain on marketable equity securities of $1.4 million which represents the change in the fair value of our marketable equity securities during the three months ended September 30, 2019 and 2018, respectively.

Noncontrolling interests

The net earnings allocated to noncontrolling interests relates to (i) parties of the Company that hold units in the Operating Partnership, (ii) the interest in PRO-DFJV Holdings LLC (“PRO”) held by our Sponsor, (iii) the ownership interests in 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”) held by our Sponsor and other affiliates, (iv) the ownership interest in various joint ventures held by affiliates of our Sponsor that hold promissory notes collateralized by land parcels being developed by unaffiliated third parties.

For the Nine Months Ended September 30, 2019 vs. September 30, 2018

Consolidated – Continuing Operations

Revenues

Our revenues are comprised of rental income and tenant recovery income. Total revenues decreased slightly by approximately $0.1 million to $11.9 million for the nine months ended September 30, 2019 compared to $12.0 million for the same period in 2018.

Property operating expenses

Property operating expenses decreased by approximately $0.2 million to $3.5 million for the nine months ended September 30, 2019 compared to $3.7 million for the same period in 2018.

Real estate taxes

Real estate taxes increased by approximately $0.2 million to $1.0 million for the nine months ended September 30, 2019 compared to $0.8 million for the same period in 2018. The increase was principally attributable to real estate taxes associated with our two land parcels located at 355 and 399 Exterior Street, New York (collectively, the “Exterior Street Land”) which were acquired in February 2019.

General and administrative expenses

General and administrative expenses decreased by approximately $1.0 million to $2.3 million for the nine months ended September 30, 2019 compared to $3.3 million for the same period in 2018 principally due to a decrease in professional fees and lower asset management fees as a result of the disposition transactions related to the Gulf Coast Industrial Portfolio.

Depreciation and amortization

Depreciation and amortization decreased by approximately $0.2 million to $3.8 million for the nine months ended September 30, 2019 compared to $4.0 million for the same period in 2018.

Gain on disposition of real estate

During the nine months ended September 30, 2019, we recognized a third quarter gain on disposition of real estate of approximately $1.0 million related to the disposition of DePaul Plaza.

Interest and dividend income

Interest and dividend income decreased by approximately $2.4 million to $11.9 million for the nine months ended September 30, 2019 compared to $14.3 million for the same period in 2018. The decrease primarily reflects lower investment income of $3.7 million from our Preferred Investments and a decrease in dividend income from our investments in marketable securities of $1.0 million partially offset by interest on our notes receivable of $1.7 million and an increase in interest earned on available cash of $0.4 million.

Interest expense

Interest expense, including amortization of deferred financing costs, decreased by approximately $3.2 million to $1.1 million for the nine months ended September 30, 2019 compared to $4.3 million for the same period in 2018. This decrease primarily reflects lower interest expense resulting from the capitalization of interest in connection with our development activities and a reduction in outstanding mortgage indebtedness during the 2019 period resulting from the repayment in full of a mortgage that was collateralized by the St. Augustine Outlet Center in May 2018.

Unrealized loss on marketable equity securities

During the nine months ended September 30, 2019, we recorded an unrealized loss on marketable equity securities of $2.2 million and during the nine months ended September 30, 2018, we recorded an unrealized gain on marketable equity securities of $1.1 million which represents the change in the fair value of our marketable equity securities during the nine months ended September 30, 2019 and 2018, respectively.

Noncontrolling interests

The net earnings allocated to noncontrolling interests relates to (i) parties of the Company that hold units in the Operating Partnership, (ii) the interest in PRO-DFJV Holdings LLC (“PRO”) held by our Sponsor, (iii) the ownership interests in 50-01 2nd St. Associates LLC (the “2nd Street Joint Venture”) held by our Sponsor and other affiliates and (iv) the ownership interest in various joint ventures held by affiliates of our Sponsor that have originated promissory notes to unaffiliated third parties.

Financial Condition, Liquidity and Capital Resources

Overview:

Rental income, interest and dividend income 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, including the costs of our expected non-recurring capital expenditures, including development activities, generally through working capital, redemptions of our Preferred Investments, repayments of our outstanding notes receivable, the remaining availability on the Bowery Mortgage ($1.3 million as of September 30, 2019) and new borrowings. As of September 30, 2019, we had approximately $22.8 million of cash and cash equivalents on hand and $55.6 million of marketable securities, available for sale. 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.

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 have access to borrowings under a margin loan and line of credit collateralized by the securities held with the financial institution that provided the margin loan and line of credit as well as a portion of our Marco OP Units. These loans are due on demand and any outstanding balance must be paid upon the liquidation of securities.

Our charter provides that the aggregate amount of borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a satisfactory showing that a higher level is appropriate, the approval of our Board of Directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. As of September 30, 2019, our total borrowings of $141.7 million represented 39% of net assets.

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, if any, to our stockholders, our capital resources are used to make certain payments to our Advisor and our Property Manager, including payments related to asset acquisition fees, development fees and leasing commissions, 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 and our Property Manager for the periods indicated:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Acquisition fees (capitalized and are reflected in the carrying value of the investment)	$	-	$	-	$	1,823	$	-
Asset management fees (general and administrative costs)		303		392		941		1,283
Property management fees (property operating expenses)		67		120		222		409
Development fees and leasing commissions*		-		62		167		182
Total	$	370	$	574	$	3,153	$	1,874

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

Summary of Cash Flows

The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below:

	For the Nine Months Ended September 30,
	2019			2018
Net cash flows provided by operating activities	$	15,551		$	15,470
Net cash flows used in investing activities		(55,595	)		(18,526	)
Net cash flows provided by/(used in) financing activities		27,904			(45,177	)
Net change in cash, cash equivalents and restricted cash		(12,140	)		(48,233	)

Cash, cash equivalents and restricted cash, beginning of year		36,582			119,219
Cash, cash equivalents and restricted cash, end of the period	$	24,442		$	70,986

Our principal sources of cash flow are derived from the operation of our rental properties, interest and dividend income on our marketable securities and real estate-related investments, as well as loan proceeds and proceeds from redemptions of preferred investments in related parties. We intend that our properties and real estate-related investments will provide a relatively consistent stream of cash flow that provides us with resources to fund operating expenses, debt service and quarterly distributions if authorized by our board of directors.

Our principal demands for liquidity are (i) our property operating expenses, (ii) real estate taxes, (iii) insurance costs, (iv) leasing costs and related tenant improvements, (v) capital expenditures, (vi) acquisition and development activities, including our investments in related parties (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 $15.6 million for the nine months ended September 30, 2019 consists of the following:

cash inflows of approximately $16.2 million from our net income after adjustment for non-cash items; and

cash outflows of approximately $0.6 million associated with the net changes in operating assets and liabilities and net cash used in discontinued operations.

Investing activities

The net cash used in investing activities of $55.6 million for the nine months ended September 30, 2019 consists primarily of the following:

net purchases of investment property of approximately $85.1 million;

net funding of notes receivable of $65.4 million;

net proceeds from the sale of DePaul Plaza of $19.5 million;

net proceeds from preferred investments in related parties of $24.7 million;

net proceeds from the sale and purchase of marketable securities of $50.9 million; and

net cash used in discontinued operation of $0.2 million.

Financing activities

The net cash provided by financing activities of approximately $27.9 million for the nine months ended September 30, 2019 is primarily related to the following:

proceeds from mortgage financing, net of fees and expenses of $34.2 million;

debt principal payments $15.0 million;

contributions of $33.1 million received from the noncontrolling interests in our joint ventures which have originated nonrecourse loans to unaffiliated third-party borrowers;

redemptions and cancellation of common stock of $9.9 million;

aggregate distributions to our noncontrolling interests of $2.5 million; and

distributions to our common shareholders of $12.1 million.

Development Activities

Lower East Side Moxy Hotel

On December 3, 2018, we, through a subsidiary of the Operating Partnership, acquired three parcels of land located at 147-151 Bowery, New York, New York (collectively, the “Bowery Land”) from 151 Emmut Properties LLC and 145-149 Bowery LLC, both unaffiliated third parties, for aggregate consideration of approximately $56.5 million, excluding closing and other acquisition related costs, on which it intends to develop and construct a 296-room Marriott Moxy hotel (the “Lower East Side Moxy Hotel”). Additionally, on December 6, 2018, we, though a subsidiary of the Operating Partnership, acquired certain air rights located at 329 Broome Street, New York, New York (the “Air Rights”) from B.R.P. Realty Corp., an unaffiliated third party, for approximately $2.4 million, excluding closing and other acquisition related costs. We intend to use the Air Rights in connection with the development and construction of the Lower East Side Moxy Hotel.

On December 3, 2018, we entered into a mortgage loan collateralized by the Bowery Land and the Air Rights (the “Bowery Mortgage”) for approximately $35.6 million. The Bowery Mortgage has a term of two years, bears interest at LIBOR+4.25% and requires monthly interest-only payments through its stated maturity with the entire unpaid balance due upon maturity. Through September 30, 2019, we received aggregate proceeds of $34.3 million under the Bowery Mortgage. As a result, the Bowery Mortgage had an outstanding balance and remaining availability of $34.3 million and $1.3 million, respectively, as of September 30, 2019.

As of September 30, 2019 and December 31, 2018, we incurred and capitalized to construction in progress an aggregate of $71.0 million and $63.3 million, respectively, consisting of acquisition and other development costs attributable to the Lower East Side Moxy Hotel.

Exterior Street Project

On February 27, 2019, we, through subsidiaries of the Operating Partnership, acquired two adjacent parcels of land located at 355 and 399 Exterior Street, New York, New York (collectively, the “Exterior Street Land”), from Borden Realty Corp and 399 Exterior Street Associates LLC, unaffiliated third parties, for an aggregate purchase price of approximately $59.0 million, excluding closing and other acquisition related costs, on which it intends to develop and construct a multi-family residential property (the “Exterior Street Project”).

On March 29, 2019, we entered into a $35.0 million loan (the “Exterior Street Loan”) which bears interest and 4.50% and is scheduled to initially mature on April 9, 2020, but may be further extended through the exercise of two, six-month extension options, subject to certain conditions. The Exterior Street Loan requires monthly interest payments through its maturity date and is collateralized by the Exterior Street Land.

As of September 30, 2019, we incurred and capitalized to construction in progress an aggregate of $64.3 million consisting of acquisition and other development costs attributable to the Exterior Street Project.

Santa Clara Data Center

On January 10, 2019, we, through subsidiaries of the Operating Partnership, acquired a parcel of land located at 2175 Martin Avenue, Santa Clara, CA (the “Martin Avenue Land”) from The Chioini Living Trust, an unaffiliated third party, for approximately $10.6 million, excluding closing and other acquisition related costs, on which we are developing a data center (the “Santa Clara Data Center”).

As of September 30, 2019, we have incurred and capitalized to construction in progress an aggregate of $12.8 million consisting of acquisition of the Martin Avenue Land and other development costs attributable to the Santa Clara Data Center.

We believe our capital resources are sufficient to fund our expected development activities related to the Lower East Side Moxy Hotel, the Exterior Land and the Santa Clara Data Center for the next 12 months. However, we ultimately expect to finance a substantial portion of our development costs through construction loans. There can be no assurance we will be successful in obtaining construction financing at favorable terms, if at all.

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 $76.0 million and $100.7 million as of September 30, 2019 and December 31, 2018, 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 nine months ended September 30, 2019, we (i) redeemed an aggregate of $17.0 million of the East 11th Street Preferred Investment and the entire 30-02 39th Street Preferred Investment of $10.0 million and (ii) made aggregate contributions of $2.3 million for the Miami Moxy Preferred Investment and as of September 30, 2019, there were no unfunded contributions.

The Preferred Investments are summarized as follows:

				Preferred Investment Balance				Investment Income⁽¹⁾
				As of September 30,		As of December 31,		Three Months Ended September 30,				Nine Months Ended September 30,
Preferred Investments	Dividend Rate			2019		2018		2019		2018		2019		2018
40 East End Avenue		12	%	$	30,000	$	30,000	$	920	$	920	$	2,730	$	2,730
30-02 39^th Avenue		12	%		-		10,000		-		307		140		910
485 7th Avenue		12	%		-		-		-		-		-		1,095
East 11th Street		12	%		26,000		43,000		797		1,763		2,705		4,970
Miami Moxy		12	%		20,000		17,733		615		457		1,705		1,229
Total Preferred Investments				$	76,000	$	100,733	$	2,332	$	3,447	$	7,280	$	10,934

Note:

(1)	– Included in interest and dividend income on the statements of operations.

Notes Receivable

Beginning in 2019, we formed certain joint ventures (collectively, the “NR Joint Ventures”) between wholly-owned subsidiaries of the Operating Partnership (collectively, the “NR Subsidiaries”) and affiliates of the Sponsor (the “NR Affiliates”) which have originated nonrecourse loans (collectively, the “Joint Venture Promissory Notes”) to unaffiliated third-party borrowers (collectively, the “Joint Venture Borrowers”).

We determined that the NR Joint Ventures are VIEs and the NR Subsidiaries are the primary beneficiaries. Since the NR Subsidiaries are the primary beneficiaries, beginning on the applicable date of formation, we consolidated the operating results and financial condition of the NR Joint Ventures and accounted for the respective ownership interests of the NR Affiliates as noncontrolling interests.

The Joint Venture Promissory Notes are recorded in notes receivable, net on the consolidated balance sheets. The origination fees received are presented in the consolidated balance sheets as a direct deduction from the carrying value of the Joint Venture Promissory Notes and are amortized into interest income, using a straight-line method that approximates the effective interest method, over the initial term of the Joint Venture Promissory Notes. The Loan Reserves are presented in the consolidated balance sheets as a direct deduction from the carrying value of the Joint Venture Promissory Notes and are applied against the monthly interest due over the initial term.

The Notes Receivable are summarized as follows:

												As of September 30, 2019
	Company's Ownership			Original Loan		Origination			Origination	Initial Maturity	Contractual Interest	Outstanding					Unamortized Origination			Carrying
Joint Venture/Lender	Percentage			Amount		Fee			Date	Date	Rate	Principal		Reserves			Fee			Value
LSC 162nd Capital I LLC		45.45	%	$	4,234		1.50	%	February 5, 2019	March 1, 2020	Libor plus 7.50% (Floor of 10%)	$	4,234	$	(191	)	$	(22	)	$	4,021

LSC 162nd Capital II LLC		45.45	%	$	9,166		1.50	%	February 5, 2019	March 1, 2020	Libor plus 7.50% (Floor of 10%)		9,166		(413	)		(48	)		8,705

LSC 47-16 Greenpoint LLC		50	%	$	13,000		1.00	%	April 5, 2019	April 4, 2020	Libor plus 5.75% (Floor of 8.25%)		13,000		(161	)		(66	)		12,773

LSC 1543 7th LLC		50	%	$	20,000		1.00	%	August 27, 2019	August 26, 2020	Libor plus 5.15% (Floor of 7.65%)		20,000		(895	)		(181	)		18,924

LSC 1650 Lincoln LLC		50	%	$	24,000		1.00	%	August 27, 2019	August 26, 2020	Libor plus 5.15% (Floor of 7.65%)		24,000		(1,074	)		(217	)		22,709

Total												$	70,400	$	(2,734	)	$	(534	)	$	67,132

	For the Three		For the Three		For the Nine		For the Nine
	Months Ended		Months Ended		Months Ended		Months Ended
Joint Venture/Lender	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
LSC 162nd Capital I LLC	$	118	$	-	$	321	$	-

LSC 162nd Capital II LLC		269		-		695		-

LSC 47-16 Greenpoint LLC		313		-		597		-

LSC 1543 7th LLC		168		-		168		-

LSC 1650 Lincoln LLC		201		-		202		-

Total	$	1,069	$	-	$	1,983	$	-

Distribution Reinvestment Program (“DRIP”), Share Repurchase Program and Tender Offer

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, 2018 we repurchased approximately 5.0 million shares of common stock. For the nine months ended September 30, 2019, we repurchased 869,886 shares of common stock for $10.87 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 and from our operating funds.

On May 10, 2018, the Board of Directors amended the share repurchase program to (i) change to the price for all purchases under our share repurchase program from $10.00 per share to 92% of the estimated net asset value per share of the Company’s common stock (previously the purchase price was $10.00 per share) and (ii) increase the number of shares repurchased during any calendar year from two (2.0%) of the weighted average number of shares outstanding during the prior calendar year to five (5.0%) of the weighted average number of shares outstanding during the previous twelve months.

On January 19, 2015, the Board of Directors suspended our DRIP effective April 15, 2015.

On October 16, 2018, the Company mailed a prospectus related to its amended and restated DRIP to its existing stockholders. The DRIP was reactivated as amended and restated effective on October 25, 2018.

Pursuant to the DRIP following its reactivation, the Company’s stockholders who elect to participate may invest all or a portion of the cash distributions that the Company pays them on shares of the Company’s common stock in additional shares of the Company’s common stock without paying any fees or commissions. The purchase price for shares under the DRIP will be equal to 95% of the Company’s current estimated per-share net asset value (the “Estimated Per-Share NAV”), as determined by the Company’s board of directors and reported by the Company from time to time. On December 13, 2018, our Board of Directors determined our NAV per Share of $11.82 as of September 30, 2018, which resulted in a purchase price for shares under the DRIP of $11.23 per share. As of September 30, 2019, we had approximately 10.0 million shares available for issuance under our DRIP.

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.

Tender Offer

Contractual Obligations

The following is a summary of our contractual obligations outstanding over the next five years and thereafter as of September 30, 2019.

Contractual Obligations	2019		2020		2021		2022		2023		Thereafter		Total
Mortgage Payable	$	311	$	70,512	$	1,328	$	1,389	$	1,454	$	66,696	$	141,690
Interest Payments ¹		1,760		5,993		3,191		3,130		3,065		2,917		20,056

Total Contractual Obligations	$	2,071	$	76,505	$	4,519	$	4,519	$	4,519	$	69,613	$	161,746

These amounts represent future interest payments related to mortgage payable obligations based on the fixed and variable interest rates specified in the associated debt agreement. All variable rate debt agreements are based on the one month LIBOR rate. For purposes of calculating future interest amounts on variable interest rate debt the one month LIBOR rate as of September 30, 2019 was used.

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% (2.87% as of September 30, 2019) 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 September 30, 2019 and December 31, 2018.

Line of Credit

We have a non-revolving credit facility (the “Line of Credit”) with a financial institution which permits borrowings up to $20.0 million. The Line of Credit expires on June 19, 2021 and bears interest at Libor plus 1.35% (3.37% as of September 30, 2019). The Line of Credit is collateralized by approximately 209,000 Marco OP Units and PRO has guaranteed the Line of Credit. No amounts were outstanding under the Line of Credit as of September 30, 2019 and December 31, 2018.

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

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

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

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

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

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

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

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

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

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Net income	$	4,686		$	4,489		$	23,800		$	16,607
FFO adjustments:
Depreciation and amortization:
Depreciation and amortization of real estate assets		1,241			1,300			3,822			3,987
Gain on disposal of investment property		(1,013	)		-			(1,013	)		-
Discontinued operations
Depreciation and amortization of real estate assets		-			338			121			1,229
Gain on disposal of investment property		-			-			(70	)		(7,137	)

FFO		4,914			6,127			26,660			14,686
MFFO adjustments:
Other Adjustment
Acquisition and other transaction related costs expensed⁽¹⁾		-			-			(22	)		-
Amortization of above or below market leases and liabilities⁽²⁾		(35	)		(35	)		(105	)		(105	)
Discontinued operations:
(Gain)loss on debt extinguishment		-			-			(13,615	)		117
Accretion of discounts and amortization of premiums on debt investments		-			-			-			-
Mark-to-market adjustments⁽³⁾		609			(1,448	)		2,408			(1,259	)
Non-recurring gains from extinguishment/sale of debt, derivatives or securities holdings⁽⁴⁾		94			3			719			81

MFFO		5,582			4,647			16,045			13,520
Straight-line rent⁽⁵⁾	$	29		$	13		$	33		$	125
MFFO - IPA recommended format⁽⁶⁾	$	5,611		$	4,660		$	16,078		$	13,645

Net income	$	4,686		$	4,489		$	23,800		$	16,607
Less: income attributable to noncontrolling interests		(809	)		(465	)		(1,968	)		(1,108	)
Net income applicable to Company's common shares	$	3,877		$	4,024		$	21,832		$	15,499
Net income per common share, basic and diluted	$	0.17		$	0.17		$	0.94		$	0.63

FFO	$	4,914		$	6,127		$	26,660		$	14,686
Less: FFO attributable to noncontrolling interests		(764	)		(608	)		(2,307	)		(1,502	)
FFO attributable to Company's common shares	$	4,150		$	5,519		$	24,353		$	13,184
FFO per common share, basic and diluted	$	0.18		$	0.23		$	1.05		$	0.54

MFFO - IPA recommended format	$	5,611		$	4,660		$	16,078		$	13,645
Less: MFFO attributable to noncontrolling interests		(1,026	)		(470	)		(2,402	)		(1,391	)
MFFO attributable to Company's common shares	$	4,585		$	4,190		$	13,676		$	12,254

Weighted average number of common shares outstanding, basic and diluted		22,859			24,299			23,168			24,575

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 equity securities and any other items that GAAP requires we make a mark-to-market adjustment for. The need to reflect mark-to-market adjustments is a continuous process and is analyzed on a quarterly and/or annual basis in accordance with GAAP.

(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.

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

	From inception through
	September 30, 2019
FFO attributable to 0Company’s common shares	$	232,415
Distributions paid	$	228,021

On Oct 15, 2019, the distribution for the three-month period ending September 30, 2019 of $4.0 million was paid in full using a combination of cash and approximately 7,000 shares of the Company’s common stock issued pursuant to the Company’s DRIP, at a discounted price of $11.23 per share.

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 2019, if any, and certain accounting standards that we have not yet been required to implement and may be applicable to our future operations.

ITEM 4. CONTROLS AND PROCEDURES.

As of the end of the period covered by this report, management, including our chief executive officer and principal 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 principal 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 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.

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. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

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 September 30, 2019, filed with the SEC on November 12, 2019, 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

SIGNATURES

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

LIGHTSTONE VALUE PLUS REAL ESTATE
INVESTMENT TRUST, INC.

Date: November 12, 2019	By:	/s/ David Lichtenstein
		David Lichtenstein
		Chairman and Chief Executive Officer (Principal Executive Officer)

Date: November 12, 2019

By:

/s/ Seth Molod

Seth Molod

Chief Financial Officer and Treasurer

(Duly Authorized Officer and Principal Financial and Accounting Officer)