Exhibit 99.3          LIGHTSTONE MEMBER LLC PRC MEMBER LLC LIGHTSTONE MEMBER II LLC LIGHTSTONE MEMBER III LLC COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2005        LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

COMBINED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005





TABLE OF CONTENTS






Page No.


Independent Auditors Report
        1


Combined Balance Sheet
        2


Combined Statement of Operations
        3


Combined Statement of Members Equity (Deficit)
        4


Combined Statement of Cash Flows
        5


Notes to Combined Financial Statements
        6






INDEPENDENT AUDITORS REPORT



To the Members

Lightstone Member LLC, PRC Member LLC,

Lightstone Member II LLC and Lightstone Member III LLC

White Plains, New York



We have audited the accompanying combined balance sheet of Lightstone Member LLC, PRC Member LLC, Lightstone Member II LLC and Lightstone Member III LLC (the Companies) as of December 31, 2005, and the related combined statements of operations, members equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Companies management. Our responsibility is to express an opinion on these financial statements based on our audit.



We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companies internal control over financial reporting. Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.



In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of the Companies as of December 31, 2005 and the combined results of operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.







_____________________________________
                The
        Schonbraun McCann Group, LLP



Roseland, New Jersey

February 28, 2006






LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

COMBINED BALANCE SHEET

DECEMBER 31, 2005

(Dollar amounts in thousands)




**ASSETS****Investments
      in real estate, at cost, net of
         accumulated depreciation of $8,765**
    
    
    $
    302,087**Other
      Assets****** Cash and cash equivalents
    
    
    
    3,488**** Escrow deposits
    
    
    
    15,245**** Rents and other receivables, net of allowance
      of $450
    
    
    
    5,466**** In place lease value, net of accumulated amortization
      of $5,137
    
    
    
    13,438**** Acquired lease rights, net of accumulated amortization
      of $1,847
    
    
    
    8,861**** Deferred financing costs, net of accumulated
      amortization of $1,884
    
    
    
    2,202**** Prepaid expenses
    
    
    
    895$
    351,682**LIABILITIES
      AND MEMBERS EQUITY (DEFICIT)****Liabilities****** Mortgage and other notes payable
    
    
    $
    303,350**** Notes payable  related party
    
    
    
    28,200**** Interest payable
    
    
    
    1,497**** Deferred revenue
    
    
    
    1,629**** Accounts payable, accrued expenses and other
      liabilities
    
    
    
    5,185**** Acquired lease obligation, net of accumulated
      amortization of $3,127
    
    
    
    8,512**** Due to affiliates
    
    
    
    4,315352,688******Commitment
      and Contingencies****Members
      Equity (Deficit)**
    
    
    
    (1,006
    )$
    351,682



The accompanying notes are an integral part of the combined financial statement.



2




LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Dollar amounts in thousands)



**Revenue**Rental
    
    
    $
    31,439Tenant
      reimbursements
    
    
    
    13,421Interest
      and other income
    
    
    
    1,49346,353**Expenses**Rental
      property operating and maintenance expenses
    
    
    
    17,035Real
      estate taxes
    
    
    
    3,959Interest,
      including amortization of $1,429
    
    
    
    18,825Depreciation
      and amortization
    
    
    
    12,229General
      and administrative
    
    
    
    2,71354,761**Net
      Loss**
    
    
    $
    (8,408
    )

The accompanying notes are an integral part of the combined financial statement.



3




LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

COMBINED STATEMENT OF MEMBERS EQUITY (DEFICIT)

FOR THE YEAR ENDED DECEMBER 31, 2005

(Dollar amounts in thousands)







Presidential
      Realty Corp.
    
    David
      Lichtenstein
    
    Cedar
      Asset
      Management,
      LLC
    
    Harold
      Rubin
    
    Total**Balance
      at January 1, 2005**PRC
      Member LLC
    
    
    $
    1,374
    
    $
    (155
    )
    $
    (2
    )
    $
    
    
    $
    1,217Lightstone
      Member LLC
    
    
    
    (200
    )
    
    253
    
    
    4
    
    
    
    
    
    57Lightstone
      Member II LLC
    
    
    
    
    
    
    2,480
    
    
    
    
    
    
    
    
    2,480Lightstone
      Member III LLC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,174
    
    
    2,578
    
    
    2
    
    
    
    
    
    3,754Contributions:PRC
      Member LLC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Lightstone
      Member LLC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Lightstone
      Member II LLC
    
    
    
    
    
    
    
    
    
    
    
    
    150
    
    
    150Lightstone
      Member III LLC
    
    
    
    
    
    
    4,579
    
    
    
    
    
    
    
    
    4,579
    
    
    4,579
    
    
    
    
    
    150
    
    
    4,729Distributions:PRC
      Member LLC
    
    
    
    (90
    )
    
    (112
    )
    
    (1
    )
    
    
    
    
    (203
    )Lightstone
      Member LLC
    
    
    
    (186
    )
    
    (471
    )
    
    (6
    )
    
    
    
    
    (663
    )Lightstone
      Member II LLC
    
    
    
    (58
    )
    
    (140
    )
    
    
    
    
    (17
    )
    
    (215
    )Lightstone
      Member III LLC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (334
    )
    
    (723
    )
    
    (7
    )
    
    (17
    )
    
    (1,081
    )Net loss
    
    
    
    (2,438
    )
    
    (5,901
    )
    
    (50
    )
    
    (19
    )
    
    (8,408
    )**Balance
      at December 31, 2005**
    
    
    $
    (1,598
    )
    $
    533
    
    $
    (55
    )
    $
    114
    
    $
    (1,006
    )


The accompanying notes are an integral part of the combined financial statement.








4




LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

COMBINED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Dollar amounts in thousands)

Increase (decrease) in cash and cash equivalents




**Cash
      Flows From Operating Activities:**Net
      loss
    
    
    $
    (8,408
    )**Adjustments
      to reconcile net loss to net cash
        provided by operating activities:**Depreciation
      and amortization
    
    
    
    13,658Net
      change in revenue related to acquired lease
           rights/obligations and deferred rent receivable
    
    
    
    (1,568
    )Bad
      debt write-off
    
    
    
    450Rents
      and other receivables
    
    
    
    (4,375
    )Prepaid
      expenses
    
    
    
    (244
    )Accounts
      payable, accrued expenses and other liabilities
    
    
    
    3,686Interest
      expense payable
    
    
    
    1,474Due
      to affiliates, net
    
    
    
    2,379Deferred
      revenue
    
    
    
    865**Net
      cash provided by operating activities**
    
    
    
    7,917**Cash
      Flows Used In Investing Activities:**Real
      estate acquisition
    
    
    
    (167,006
    )Escrow
      deposits, net
    
    
    
    (6,517
    )Additions
      to properties
    
    
    
    (4,389
    )**Net
      cash used in investing activities**
    
    
    
    (177,912
    )**Cash
      Flows From Financing Activities:**Proceeds
      from mortgage notes payable
    
    
    
    158,850Proceeds
      from notes payable - related party
    
    
    
    9,500Deferred
      financing costs
    
    
    
    (178
    )Capital
      contributions
    
    
    
    4,729Capital
      distributions
    
    
    
    (1,081
    )**Net
      cash provided by financing activities**
    
    
    
    171,820**Net
      increase in cash and cash equivalents**
    
    
    
    1,825**Cash
      and cash equivalents, beginning of year**
    
    
    
    1,663**Cash
      and cash equivalents, end of year**
    
    
    $
    3,488**Supplemental
      Disclosures of Cash Flow Information:**Cash
      paid during the year ended for:Interest
    
    
    $
    15,810

The accompanying notes are an integral part of the combined financial statement.



5




LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2005

(Dollar amounts in thousands)












1.
        ORGANIZATION AND DESCRPTION OF BUSINESS


a.
        Formation

Lightstone Member LLC (Lightstone) and PRC Member LLC (PRC) were both organized under the laws of the Commonwealth of Delaware on September 10, 2004. Lightstone Member II LLC (Lightstone II) and Lightstone Member III LLC (Lightstone III) were formed under the laws of Commonwealth of Delaware on December 1, 2004 and June 30, 2005, respectively. They are collectively the Entities or the Companies.  The purpose of the Companies is to acquire, own, develop and manage retail malls. The Companies own the following retail malls as of December 31, 2005:







Property
      Name
    
    
    Location
    
    
    Approximate
      Square Feet
    
    
    Ownership
    
    
    OccupancyMartinsburg
      Mall
    
    
    Martinsburg,
      WV
    
    
    552,000
    
    
    Fee
    
    
    93%Mt. Berry
      Square Mall
    
    
    Rome, GA
    
    
    478,000
    
    
    Fee
    
    
    87%Bradley
      Square Mall
    
    
    Cleveland,
      TN
    
    
    385,000
    
    
    Fee
    
    
    87%W. Manchester
      Mall
    
    
    York, PA
    
    
    733,000
    
    
    Fee
    
    
    88%Shenango
      Valley Mall
    
    
    Hermitage,
      PA
    
    
    508,000
    
    
    Leasehold
    
    
    95%Shawnee Mall
    
    
    Shawnee,
      OK
    
    
    444,000
    
    
    Fee
    
    
    65%Brazos
      Outlet Center
    
    
    Lake
      Jackson, TX
    
    
    587,000
    
    
    Fee
    
    
    80%Burlington
      Mall
    
    
    Burlington,
      NC
    
    
    412,000
    
    
    Fee
    
    
    94%Macon
      Mall
    
    
    Macon,
      GA
    
    
    1,446,000
    
    
    Fee/Leasehold
    
    
    94%5,545,000




As of December 31, 2005, members of the Companies and their respective percentage interests are as follow:




Lightstone
        and PRC
    OwnershipInterestsPresidential
        Realty Corp.
    29%David
        Lichtenstein (Managing Member)
    70%Cedar
        Asset Management, LLC
    1%


Lightstone
        II
    OwnershipInterestsPresidential
        Realty Corp.
    29%David
        Lichtenstein (Managing Member)
    70%Harold
        Rubin
    1%



6




LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2005

(Dollar amounts in thousands)





1.
        ORGANIZATION AND DESCRPTION OF BUSINESS (Continued)


a.
        Formation (continued)Lightstone
        III
    OwnershipInterestsPresidential
        Realty Corp.
    29%David
        Lichtenstein (Managing Member)
    71%




b.
        Cash Distribution, Profit and Loss Allocations

The Companies shall continue to operate until dissolved per the operating agreements. The liability of each of the members is limited to the amount of capital contributed.



Distributions of proceeds shall be distributed to the members at the discretion of the Managing Member, subject to the terms and conditions of all indebtedness of the Companies; provided that cash flow shall be distributed not less than annually and capital proceeds shall be distributed not later than forty-five days from the closing of the transaction giving rise to such capital proceeds.



Distributions of cash flow shall be made to the members as follows:




(a)
        First, to the Managing Member and its affiliate, Cedar Asset Management, LLC (or Harold Rubin), until the Managing Member and its affiliate (or Harold Rubin) have received an aggregate amount equal to an accrued return of  11% per annum (Preferred Return) on the Managing Members and affiliates unreturned capital contribution.


(b)
        Then, to the members in accordance with their respective ownership interests.

Capital proceeds shall be distributed to the members as follows:




(a)
        First, to the Managing Member and its affiliates, until the Managing Member and its affiliates have received an aggregate amount equal to an accrued return of 11% per annum on the Managing Members and its affiliates unreturned capital contribution.





7




LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2005

(Dollar amounts in thousands)





1.
        ORGANIZATION AND DESCRPTION OF BUSINESS (Continued)


b.
        Cash Distribution, Profit and Loss Allocations (continued)


(b)
        Then, to the Managing Member and its affiliates, until the Managing Member and its affiliates have received an aggregate amount equal the Managing Members and its affiliates capital contribution.


(c)
        Then, to the members in accordance with their respective ownership interests.


c.
        Allocation of Profits and Losses

For financial reporting purposes, income is allocated based upon the cash flow distribution formula above. Losses are allocated pro-rata based upon ownership interests.



2.
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


a.
        Basis of Accounting

The accompanying combined financial statements have been prepared on the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP).




b.
        Principles of Combination

The combined financial statements include the accounts of Lightstone and its wholly owned subsidiaries; Mount Berry Square Mall LLC, Bradley Square Mall LLC, West Manchester Mall LLC and Shenango Valley Mall LLC; PRC and its wholly owned subsidiary; Martinsburg Mall LLC; Lightstone II and its wholly owned subsidiaries; Shawnee Mall LLC and Brazos Outlet Mall LLC; Lightstone III and its wholly owned subsidiaries; Macon Mall LLC and Burlington Mall LLC. All material intercompany balances and transactions have been eliminated in combination. The financial statements were combined due to common ownership and control.






8




LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2005

(Dollar amounts in thousands)




2.
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


c.
        Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. They also affect reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the carrying amount of investments in real estate, valuation of receivables and the allocation of purchase price to acquired lease rights and obligations. Actual results could differ from those estimates.




d.
        Cash and Cash Equivalents

For purposes of the statement of cash flows, the Companies consider short-term investments with maturities of 90 days or less when purchased to be cash equivalents.
The Companies maintain cash accounts at financial institutions, which are insured up to a maximum of $100,000. At various times during the year, balances exceeded the federally insured limit. Due to the stature and high credit quality of the financial institutions, such credit risk is considered to be minimal.




e.
        Marketing

General marketing and advertising costs are expensed as incurred and were approximately $600.




f.
        Revenue Recognition and Tenant Receivables

Base rental revenues from rental retail properties are recognized on a straight-line basis over the noncancelable terms of the related leases, which are all accounted for as operating leases. Percentage rent or rental revenue which is based upon a percentage of the sales recorded by the Companies tenants, is recognized in the period in which the tenants achieve their specified threshold per their lease agreements. These amounts are included in rental revenue in the accompanying financial statements.



Rental income is also recognized in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations, whereby the amortization of acquired favorable leases and acquired unfavorable leases is recognized as a reduction of or an addition to base rental income, respectively, over the terms of the respective leases. The net amount included in base rental income for the year ended December 31, 2005, is as follows:



9




LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2005

(Dollar amounts in thousands)





2.
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


f.
        Revenue Recognition and Tenant Receivables (continued)


Martinsburg
      Mall
    
    $
    (169
    )Bradley Square
      Mall
    
    
    114West
      Manchester Mall
    
    
    476Shenango
      Valley Mall
    
    
    186Mount
      Berry Square Mall
    
    
    181Shawnee Mall
    
    
    54Brazos
      Outlets Center
    
    
    168Burlington
      Mall
    
    
    45Macon
      Mall
    
    
    12$
    1,067

Reimbursements from tenants related to real estate taxes, insurance and other shopping center operating expenses are recognized as revenue, based on a predetermined formula, in the period the applicable costs are incurred. Lease termination fees are recognized when the related leases are canceled, the tenant surrenders the space, and the Companies have no continuing obligation to provide services to such former tenants.



The Companies provide an allowance for doubtful accounts against the portion of tenant receivables which is estimated to be uncollectible. Management of the Companies reviews its allowance for doubtful accounts monthly. Balances that are past due over 90 days and over a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered doubtful. Allowance for doubtful accounts as of December 31, 2005 was approximately $450.




g.
        Deferred Charges

Deferred leasing commissions, acquired in-place lease value, and other direct costs associated with the acquisition of tenants are capitalized and amortized on a straight-line basis over the terms of the related leases. Loan costs are capitalized and amortized to interest expense over the term of the related loan using a method that approximates the effective-interest method.







10




LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2005

(Dollar amounts in thousands)




2.
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


h.
        Real Estate and Depreciation

Real estate is stated at historical cost less accumulated depreciation. The building and improvements thereon are depreciated on the straight-line basis over an estimated useful life of 40 years. Tenant improvements are depreciated on the straight-line basis over the shorter of the lease term or their estimated useful life. Equipment is depreciated on the straight-line basis over estimated useful lives of 5 to 7 years.



Improvements and replacements are capitalized when they extend the useful life or improve the efficiency of the asset. Repairs and maintenance are charged to expense as incurred.




i.
        Impairment of Long-Lived Assets

Management assesses whether there has been impairment in the value of its long-lived assets whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount to the future net cash flows, undiscounted and without interest, expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. Management believes no impairment in the net carrying values of the investments in real estate has occurred.




j.
        Purchase Accounting for Acquisition of Interests in Real Estate Entities

Management allocated the purchase price of properties to tangible and identified intangible assets acquired based on its fair value in accordance with the provisions of SFAS No. 141, Business Combinations. The fair value of the tangible assets of an acquired property (which includes land, building, and improvements) is determined by valuing the properties as if vacant, and the as-if-vacant value is then allocated to land, building and improvements based on managements determination of the relative fair values of these assets. Management determines the as-if-vacant fair value of properties using methods similar to those used by independent appraisers.



Factors considered by management in performing these analyses include an estimate of carrying costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions, legal and other related costs.





11



LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2005

(Dollar amounts in thousands)




2.
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


j.
    Purchase
        Accounting for Acquisition of Interests in Real Estate Entities (Continued)

In allocating the fair value of the identified intangible assets and liabilities of acquired properties, above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) managements estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease values (included in the acquired lease rights in the accompanying combined balance sheet) are amortized as a reduction of rental income over the remaining non-cancelable terms of the respective leases. The capitalized below-market lease values (presented as acquired lease obligations in the
accompanying combined balance sheet) are amortized as an increase to rental income over the initial term and any fixed rate renewal periods in the respective leases.



The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationships, is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property as if vacant, determined as set forth above. This aggregate value is allocated between in-place lease values and tenant relationships based on managements evaluation of the specific characteristics of each tenants lease; however, the value of tenant relationships has not been separated from in-place lease value because such value and its consequence to amortization expense is immaterial for these particular acquisitions. The value of in-place leases exclusive of the value of above-market and below-market in-place leases is amortized to expense over the remaining non-cancelable
periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written off.



Purchase accounting was applied, on a pro-rata basis, to the assets and liabilities related to the Properties. The results of operations of the Properties since acquisition are included in the accompanying combined statement of operations. The purchase price of the Properties, including closing costs, were as follows:




Lightstone
    
    
    $
    84,089PRC
    
    
    
    27,247Lightstone
      II
    
    
    
    45,500Lightstone
      III
    
    
    
    167,006$
    323,842






12




LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2005

(Dollar amounts in thousands)




2.
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


j.
    Purchase
        Accounting for Acquisition of Interests in Real Estate Entities (Continued)

The fair value of the real estate acquired was allocated to the acquired tangible assets, consisting of land, building and improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases and value of tenant relationships, if any, based in each case on their fair values.



The following are the amounts assigned to each major asset and liability caption at the acquisition date:








Lightstone
    
    PRC
    
    Lightstone
      II
    
    Lightstone
      IIILand
    
    
    $
    10,641
    
    $
    6,875
    
    $
    7,086
    
    $
    25,930Buildings
      and tenant
        improvements
    
    
    
    70,378
    
    
    16,546
    
    
    35,797
    
    
    132,946Acquired
      lease rights (1)
    
    
    
    2,426
    
    
    1,843
    
    
    1,851
    
    
    4,588Acquired
      lease obligations (1)
    
    
    
    (6,069
    )
    
    (781
    )
    
    (2,052
    )
    
    (2,737
    )In-place
      lease values (1)
    
    
    
    6,713
    
    
    2,764
    
    
    2,818
    
    
    6,279$
    84,089
    
    $
    27,247
    
    $
    45,500
    
    $
    167,006(1)
        These intangibles are being amortized over the remaining lease terms. The weighted average remaining lease terms are approximately 4.2 years.


k.
        Income Taxes

The Companies are limited liability companies which elected to be treated as partnerships for income tax purposes and are, therefore, not subject to income taxes at the entity level. All income and losses pass through to the members and are reported by them individually for income tax purposes.




3.
        ESCROW DEPOSITS

Escrow deposits include funds and other restricted deposits required in conjunction with the Companies  loan agreements. Such amounts are to be used for specific purposes, such as the payment of real estate taxes, insurance and capital improvements.






13




LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2005

(Dollar amounts in thousands)




4.
        REAL ESTATE


At December 31, 2005, real estate consists of the following:



Land
    
    $
    50,532Buildings
      and improvements
    
    
    235,934Tenant
      improvements
    
    
    24,386Total investment
      in real estate
    
    
    310,852Less
      accumulated depreciation
    
    
    (8,765
    )$
    302,087






5.
        MORTGAGE AND OTHER NOTES PAYABLE

On September 23, 2004, Lightstone, PRC and its subsidiaries borrowed $105,000 from Wachovia Bank,  at an interest rate of LIBOR plus 360 basis points (approximately 7.98% at December 31, 2005).  The loan is payable interest only monthly and is secured by the real estate, assignment of leases, rent and security deposits of Martinsburg Mall, LLC (Martinsburg), Shenango Valley Mall, LLC (Shenango),  Berry Square Mall, LLC (Berry), West Manchester Mall, LLC (West Manchester) and Bradley Mall, LLC (Bradley). The loan matures in October 2006, with three one-year options to extend the loan for an extension fee of .125% of the outstanding principal and repayment of a certain amount of principal.



Management is currently pursuing the refinancing of this note into new fixed rate debt .



Management allocated the mortgage amount to the Properties as follows:




Martinsburg
    
    $
    22,962Bradley
    
    
    12,168Shenango
    
    
    13,750Berry
    
    
    25,176West
      Manchester
    
    
    30,944$
    105,000




On December 16, 2004, Lightstone II borrowed $39,500 from Wachovia at an interest rate the greater of 8.8% or 30 day LIBOR plus 280 basis points (approximately 7.18% at December 31,2005). This loan is payable interest only monthly and matures on January 9, 2007 with three one-year options with an extension fee of .125% of the outstanding principal. This loan is secured by the real estate, assignment of leases, rent and security deposits of Brazos Outlet Center LLC (Brazos) and Shawnee Mall LLC (Shawnee).



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LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2005

(Dollar amounts in thousands)





5.
        MORTGAGE AND OTHER NOTES PAYABLE (Continued)

Management allocated the mortgage amount to the properties as follows:





Brazos
    
    $
    21,725Shawnee
    
    
    17,775$
    39,500





On June 30, 2005, Lightstone III borrowed $141,200 from Wachovia at an interest rate of 5.78% per annum. This loan is payable interest only monthly until July 11, 2006 and then installments of $827 as principal and interest until maturity on June 11, 2015. This loan is secured by the real estate, assignment of leases, rent and security deposits of Macon Mall LLC (Macon) and Burlington Mall LLC (Burlington). On June 30, 2005, Wachovia made an additional mezzanine loan in the amount of $17,650 under the same terms as the first mortgage.



Management allocated the mortgage and mezzanine loans to the properties as follows:





First Mortgage
    
    Mezzanine
      LoanMacon
    
    $
    114,203
    
    $
    14,275Burlington
    
    
    26,997
    
    
    3,375$
    141,200
    
    $
    17,650

Future minimum annual principal payments due, assuming no extension options are exercised, as of December 31, 2005, are as follows:





Mortgage
      Notes Payable
    
    Mezzanine
      Notes Payable2006
    
    $
    105,890
    
    $
    1112007
    
    
    41,359
    
    
    2322008
    
    
    1,970
    
    
    2462009
    
    
    2,086
    
    
    2612010
    
    
    2,210
    
    
    276Thereafter
    
    
    132,185
    
    
    16,524$
    285,700
    
    $
    17,650











15




LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2005

(Dollar amounts in thousands)






6.
        NOTES PAYABLE  RELATED PARTY

Lightstone borrowed $8,600 in 2004 from Presidential Realty Corp., a member of the Companies . The loan bears interest of 11% per annum, payable monthly. The entire loan payable is due in September 2014. The loan is secured by an assignment of the Companies ownership interest in its subsidiaries, subject to the first mortgage lien to Wachovia Bank.



The loan has a prepayment penalty of 3% of principal. In 2005, $959 was recorded as interest expense.



PRC borrowed $2,600 in 2004 from David Lichtenstein and Cedar Asset Management, LLC, members of the Companies. The loans bear interest of 11% per annum, payable interest only monthly. The entire loan balances are due in September 2014. The loans are secured by an assignment of the Companiesownership interest in PRCs subsidiary, subject to the first mortgage lien to Wachovia Bank.



This loan has  a prepayment penalty of 3% of principal. In 2005, $290 was recorded as interest expense.



Lightstone II borrowed $7,500 in 2004 from Presidential Realty Corp.,  a member of the Companies. This loan bears interest only at the rate of 11% per annum payable in monthly installments and matures on December 23, 2014. This loan is secured by interest in certain subsidiaries subject to the first mortgage lien to Wachovia Bank.



This loan has a prepayment penalty of 3% of principal. In 2005, $836 was recorded as interest expense.



On June 30, 2005, Lightstone III borrowed $9,500 from Presidential Realty Corp., a member of the Companies. This loan bears interest only at a rate of 11% per annum payable monthly and matures on June 30, 2015. This loan is secured by membership interests in certain subsidiaries, subject to the first mortgage lien to Wachovia bank.



This loan has a prepayment penalty of 3% of principal. In 2005, $523 was received as interest expense.





16




LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2005

(Dollar amounts in thousands)





7.
        RELATED PARTY TRANSACTIONS

Lightstone Real Estate Partners, the Propertys management company , which is an affiliate of certain members, charged $1,305 for management fees to the Companies, all of which is owed at December 31, 2005. Lightstone Real Estate Partner advanced $745 to the Companies during 2005 for working capital.



A member of the Company advanced $1,947 to fund working capital for certain of the properties.



The net amount due to affiliates represents non-interest bearing advances from affiliated entities and is due upon demand.



See Note 6 for additional related party transactions.



8.
        RENTALS UNDER OPERATING LEASES

The Companies  receive rental income from the leasing of retail shopping center space under operating leases. The Companies  recognize income from tenant operating leases on a straight-line basis over the respective lease terms and, accordingly, rental income in a given period will vary from actual contractual rental amounts due. Rental income recorded in 2005 in excess of amounts contractually due was approximately $501.



The minimum annual future base rentals due under non-cancelable operating leases as of December 31, 2005, are approximately as follows:





2006
    
    
    $
    28,8172007
    
    
    
    25,3352008
    
    
    
    22,5432009
    
    
    
    19,1332010
    
    
    
    10,182Thereafter
    
    
    
    35,488$
    141,498






Minimum annual future rentals due do not include amounts which are payable by certain tenants based upon certain reimbursable operating expenses. The tenants include national and regional chains and local retailers and, consequently, the Companies credit risk is concentrated in the retail industry.





17




LIGHTSTONE MEMBER LLC

PRC MEMBER LLC

LIGHTSTONE MEMBER II LLC

LIGHTSTONE MEMBER III LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2005

(Dollar amounts in thousands)




9.
        COMMITMENT AND CONTINGENCIES

Shenango Valley Mall is subject to a ground lease. The initial term of the ground lease expired on December 31, 2004. Lightstone exercised the first 17 year ground lease agreement option. Lightstone  paid $48 per annum as ground rent through December 31, 2004. As of January 1, 2005, the new ground lease payment is based upon 10% of monthly gross revenues, as defined. The gross revenues, upon which the ground rent is computed, cannot be less than 75% of gross revenues for the year 2005. $353 was expensed as ground rent for Shenango.



A parcel of Macon Mall is under a ground lease that expires in 2071. The ground lease is subject to an annual rent payment of $54 throughout the remainder of its term. The property is responsible for all other costs including real estate taxes and utilities. $30 was expensed as ground rent for Macon.




10.
        FAIR VALUE OF FINANCIAL INSTRUMENTS

As of December 31, 2005, the fair values of the Companies mortgage and other notes and mezzanine notes payable to related parties approximate the carrying values as the terms are similar to those currently available to the Companies  for debt with similar risk and the same remaining maturities. The carrying amounts for cash and cash equivalents, restricted cash, rents and other receivables, due to affiliates, and accounts payable and other liabilities approximate fair value because of the short-term nature of these instruments.





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