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 June 30, 2010





OR





 ̈
            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 333-117367


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 1Lakewood,
      New Jersey
              
              08701(Address
      of Principal Executive Offices)
              
              (Zip
      Code)





(732)
367-0129


(Registrant’s
Telephone Number, Including Area Code)





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


Yes 
   ̈    No   þ





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


Yes
  ̈
     No  ̈





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


Large
      accelerated filer    ̈
              Accelerated
      filer    ̈
              Non-accelerated
      filer    þ




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


Yes 
 ̈  No þ





As of
August 6, 2010, there were 31.8 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




PagePART I
                FINANCIAL
      INFORMATIONItem 1.
                Financial
      StatementsConsolidated
      Balance Sheets as of June 30, 2010 (unaudited) and December 31,
      2009
                3Consolidated
      Statements of Operations (unaudited) for the Three and Six Months Ended
      June 30, 2010 and 2009
                4Consolidated
      Statement of Stockholders’ Equity and Comprehensive Income (unaudited) for
      the Six Months Ended June 30, 2010
                5Consolidated
      Statements of Cash Flows (unaudited) for the Six Months Ended June 30,
      2010 and 2009
                6Notes
      to Consolidated Financial Statements
                7Item 2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                27Item 3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                42Item 4T.
                Controls
      and Procedures
                43PART II
                OTHER
      INFORMATIONItem
      1.
                Legal
      Proceedings
                43Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                44Item
      3.
                Defaults
      Upon Senior Securities
                44Item
      4.
                Removed
      and Reserved
                44Item
      5.
                Other
      Information
                44Item
      6.
                Exhibits
                44


2





PART I. FINANCIAL INFORMATION,
CONTINUED:


ITEM
1. FINANCIAL STATEMENTS, CONTINUED:





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


CONSOLIDATED
BALANCE SHEETS


June 30, 2010
                          
                          
                          December 31, 2009(unaudited)AssetsInvestment
      property:Land
                          
                          $
                          50,410,265
                          
                          
                          $
                          50,702,303Building
                          
                          
                          206,807,213
                          
                          
                          
                          211,668,479Construction
      in progress
                          
                          
                          50,365
                          
                          
                          
                          284,952Gross
      investment property
                          
                          
                          257,267,843
                          
                          
                          
                          262,655,734Less
      accumulated depreciation
                          
                          
                          (13,666,330
                          )
                          
                          
                          (15,570,596
                          )Net
      investment property
                          
                          
                          243,601,513
                          
                          
                          
                          247,085,138Investments
      in unconsolidated affiliated real estate entities
                          
                          
                          109,460,592
                          
                          
                          
                          115,972,466Investment
      in affiliate, at cost
                          
                          
                          5,672,996
                          
                          
                          
                          7,658,337Cash
      and cash equivalents
                          
                          
                          6,371,866
                          
                          
                          
                          17,076,320Marketable
      securities
                          
                          
                          160,278
                          
                          
                          
                          840,877Restricted
      escrows
                          
                          
                          7,222,269
                          
                          
                          
                          5,882,766Tenant
      accounts receivable (net of allowance for doubtful account of $305,697 and
      $298,389, respectively)
                          
                          
                          1,368,424
                          
                          
                          
                          892,042Other
      accounts receivable
                          
                          
                          5,419
                          
                          
                          
                          23,182Acquired
      in-place lease intangibles, net
                          
                          
                          495,438
                          
                          
                          
                          641,487Acquired
      above market lease intangibles, net
                          
                          
                          173,900
                          
                          
                          
                          239,360Deferred
      intangible leasing costs, net
                          
                          
                          318,398
                          
                          
                          
                          406,275Deferred
      leasing costs (net of accumulated amortization of $282,854 and $353,331
      respectively)
                          
                          
                          1,479,432
                          
                          
                          
                          1,137,052Deferred
      financing costs (net of accumulated amortization of $947,491 and $862,357
      respectively)
                          
                          
                          1,138,069
                          
                          
                          
                          964,966Interest
      receivable from related parties
                          
                          
                          1,992,525
                          
                          
                          
                          1,886,449Prepaid
      expenses and other assets
                          
                          
                          2,458,766
                          
                          
                          
                          2,574,801Assets
      disposed of (See Note 8)
                          
                          
                          -
                          
                          
                          
                          26,282,358Total
      Assets
                          
                          $
                          381,919,885
                          
                          
                          $
                          429,563,876Liabilities
      and Stockholders' EquityMortgage
      payable
                          
                          $
                          200,421,258
                          
                          
                          $
                          202,179,356Accounts
      payable and accrued expenses
                          
                          
                          3,450,035
                          
                          
                          
                          3,154,371Due
      to sponsor
                          
                          
                          1,408,264
                          
                          
                          
                          1,349,730Loans
      due to affiliates (see Note 3)
                          
                          
                          496,471
                          
                          
                          
                          -Tenant
      allowances and deposits payable
                          
                          
                          995,522
                          
                          
                          
                          896,319Distributions
      payable
                          
                          
                          -
                          
                          
                          
                          5,557,670Prepaid
      rental revenues
                          
                          
                          1,187,283
                          
                          
                          
                          1,049,316Acquired
      below market lease intangibles, net
                          
                          
                          486,150
                          
                          
                          
                          663,414Liabilities
      disposed of (See Note 8)
                          
                          
                          -
                          
                          
                          
                          43,503,349Total
      Liabilities
                          
                          
                          208,444,983
                          
                          
                          
                          258,353,525Commitments
      and contingencies (Note 17)Stockholders'
      equity:Company's
      Stockholders Equity:Preferred
      shares, $1 Par value, 10,000,000 shares authorized,  none
      outstanding
                          
                          
                          -
                          
                          
                          
                          -Common
      stock, $.01 par value; 60,000,000 shares authorized, 31,828,941 and
      31,528,353 shares issued and outstanding in 2010 and 2009,
      respectively
                          
                          
                          318,289
                          
                          
                          
                          315,283Additional
      paid-in-capital
                          
                          
                          283,548,296
                          
                          
                          
                          280,763,558Accumulated
      other comprehensive income
                          
                          
                          12,245
                          
                          
                          
                          326,077Accumulated
      distributions in excess of net loss
                          
                          
                          (146,645,334
                          )
                          
                          
                          (149,702,633
                          )Total
      Company's stockholder’s equity
                          
                          
                          137,233,496
                          
                          
                          
                          131,702,285Noncontrolling
      interests
                          
                          
                          36,241,406
                          
                          
                          
                          39,508,066Total
      Stockholders' Equity
                          
                          
                          173,474,902
                          
                          
                          
                          171,210,351Total
      Liabilities and Stockholders' Equity
                          
                          $
                          381,919,885
                          
                          
                          $
                          429,563,876





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


3





PART
I. FINANCIAL INFORMATION, CONTINUED:


ITEM
1. FINANCIAL STATEMENTS, CONTINUED:




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


CONSOLIDATED
STATEMENTS OF OPERATIONS


(UNAUDITED)





Three Months Ended
                
                
                Six Months EndedJune 30, 2010
                
                
                June 30, 2009
                
                
                June 30, 2010
                
                
                June 30, 2009Revenues:Rental
      income
                
                $
                7,288,988
                
                
                $
                8,014,770
                
                
                $
                14,410,625
                
                
                $
                15,896,815Tenant
      recovery income
                
                
                1,163,083
                
                
                
                1,044,888
                
                
                
                2,361,081
                
                
                
                2,233,632Total
      revenues
                
                
                8,452,071
                
                
                
                9,059,658
                
                
                
                16,771,706
                
                
                
                18,130,447Expenses:Property
      operating expenses
                
                
                3,042,229
                
                
                
                3,237,628
                
                
                
                6,365,320
                
                
                
                6,551,020Real
      estate taxes
                
                
                952,956
                
                
                
                929,238
                
                
                
                1,918,602
                
                
                
                1,887,471Loss
      on long-lived assets
                
                
                1,149,574
                
                
                
                -
                
                
                
                1,423,678
                
                
                
                -General
      and administrative costs
                
                
                2,228,253
                
                
                
                2,311,515
                
                
                
                5,261,572
                
                
                
                3,697,957Depreciation
      and amortization
                
                
                1,412,846
                
                
                
                2,176,023
                
                
                
                2,879,590
                
                
                
                4,305,601Total
      operating expenses
                
                
                8,785,858
                
                
                
                8,654,404
                
                
                
                17,848,762
                
                
                
                16,442,049Operating
      (loss)/income
                
                
                (333,787
                )
                
                
                405,254
                
                
                
                (1,077,056
                )
                
                
                1,688,398Other
      income, net
                
                
                99,672
                
                
                
                142,345
                
                
                
                365,238
                
                
                
                271,920Interest
      income
                
                
                1,046,554
                
                
                
                946,639
                
                
                
                2,133,184
                
                
                
                2,038,055Interest
      expense
                
                
                (3,047,598
                )
                
                
                (3,024,107
                )
                
                
                (5,973,125
                )
                
                
                (5,966,286
                )Gain/(loss)
      on sale of marketable secuirites
                
                
                66,756
                
                
                
                (843,896
                )
                
                
                66,756
                
                
                
                (843,896
                )Other
      than temporary impairment - marketable securities
                
                
                -
                
                
                
                (3,373,716
                )
                
                
                -
                
                
                
                (3,373,716
                )Loss
      from investments in unconsolidated affiliated real estate
      entities
                
                
                (2,034,335
                )
                
                
                (849,155
                )
                
                
                (3,716,476
                )
                
                
                (740,219
                )Net
      loss from continuing operations
                
                
                (4,202,738
                )
                
                
                (6,596,636
                )
                
                
                (8,201,479
                )
                
                
                (6,925,744
                )Net
      income/(loss) from discontinued operations
                
                
                17,070,221
                
                
                
                (397,906
                )
                
                
                16,845,653
                
                
                
                (827,102
                )Net
      income/(loss)
                
                
                12,867,483
                
                
                
                (6,994,542
                )
                
                
                8,644,174
                
                
                
                (7,752,846
                )Less:
      net (income)/loss attributable to noncontrolling interests
                
                
                (200,469
                )
                
                
                90,097
                
                
                
                (126,490
                )
                
                
                93,116Net
      income/(loss) attributable to Company's common shares
                
                $
                12,667,014
                
                
                $
                (6,904,445
                )
                
                $
                8,517,684
                
                
                $
                (7,659,730
                )Basic
      and diluted net income/(loss) per Company's common shareContinuing
      operations
                
                $
                (0.14
                )
                
                $
                (0.21
                )
                
                $
                (0.26
                )
                
                $
                (0.22
                )Discontinued
      operations
                
                
                0.54
                
                
                
                (0.01
                )
                
                
                0.53
                
                
                
                (0.03
                )Net
      income/(loss) per Company's common share, basic and
diluted
                
                $
                0.40
                
                
                $
                (0.22
                )
                
                $
                0.27
                
                
                $
                (0.25
                )Weighted
      average number of common shares outstanding, basic and
    diluted
                
                
                31,833,231
                
                
                
                31,205,067
                
                
                
                31,725,364
                
                
                
                31,157,435





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


4





PART
I. FINANCIAL INFORMATION:


ITEM
1. FINANCIAL STATEMENTS.





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


CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPRESHENSIVE INCOME


(UNAUDITED)





AccumulatedPreferred Shares
                          
                          
                          Common Shares
                          
                          
                          Additional
                          
                          
                          Other
                          
                          
                          AccumulatedPreferred
                          
                          
                          
                          
                          
                          Common
                          
                          
                          
                          
                          
                          Paid-In
                          
                          
                          Comprehensive
                          
                          
                          Distributions in
                          
                          
                          Total Noncontrolling
                          
                          
                          TotalShares
                          
                          
                          Amount
                          
                          
                          Shares
                          
                          
                          Amount
                          
                          
                          Capital
                          
                          
                          Income
                          
                          
                          Excess of Net Income
                          
                          
                          Interests
                          
                          
                          EquityBALANCE, December
      31, 2009
                          
                          
                          -
                          
                          
                          $
                          -
                          
                          
                          
                          31,528,353
                          
                          
                          $
                          315,283
                          
                          
                          $
                          280,763,558
                          
                          
                          $
                          326,077
                          
                          
                          $
                          (149,702,633
                          )
                          
                          $
                          39,508,066
                          
                          
                          $
                          171,210,351Comprehensive
      income:Net
      income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          8,517,684
                          
                          
                          
                          126,490
                          
                          
                          
                          8,644,174Unrealized
      loss on available for sale securities
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (181,133
                          )
                          
                          
                          -
                          
                          
                          
                          (2,866
                          )
                          
                          
                          (183,999
                          )Reclassification
      adjustment for gain realized in net income
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (132,699
                          )
                          
                          
                          
                          
                          
                          
                          (2,101
                          )
                          
                          
                          (134,800
                          )Total
      comprehensive income
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          8,325,375Distributions
      declared
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (5,460,385
                          )
                          
                          
                          -
                          
                          
                          
                          (5,460,385
                          )Distributions
      paid to noncontrolling interests
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (3,388,183
                          )
                          
                          
                          (3,388,183
                          )Redemption
      and cancellation of shares
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (166,919
                          )
                          
                          
                          (1,669
                          )
                          
                          
                          (1,651,903
                          )
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          (1,653,572
                          )Shares
      issued from distribution reinvestment program
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          467,507
                          
                          
                          
                          4,675
                          
                          
                          
                          4,436,641
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          4,441,316BALANCE, June
      30, 2010
                          
                          
                          -
                          
                          
                          $
                          -
                          
                          
                          
                          31,828,941
                          
                          
                          $
                          318,289
                          
                          
                          $
                          283,548,296
                          
                          
                          $
                          12,245
                          
                          
                          $
                          (146,645,334
                          )
                          
                          $
                          36,241,406
                          
                          
                          $
                          173,474,902





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


5





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


(UNAUDITED)


For the Six Months EndedJune 30, 2010
                
                
                June 30, 2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income/(loss)
                
                $
                8,644,174
                
                
                $
                (7,752,846
                )Less
      net income/(loss) - discontinued operations
                
                
                16,845,653
                
                
                
                (827,102
                )Net
      loss from continuing operations
                
                $
                (8,201,479
                )
                
                $
                (6,925,744
                )Adjustments
      to reconcile net income/(loss) to net cash  provided by
      operating activities:Depreciation
      and amortization
                
                
                2,680,995
                
                
                
                4,018,457(Gain)/loss
      on sale of marketable securities
                
                
                (66,756
                )
                
                
                843,896Realized
      loss on impairment of marketable securities
                
                
                -
                
                
                
                3,373,716Amortization
      of deferred financing costs
                
                
                142,664
                
                
                
                153,727Amortization
      of deferred leasing costs
                
                
                198,595
                
                
                
                287,144Amortization
      of above and below-market lease intangibles
                
                
                (28,956
                )
                
                
                (206,906
                )Loss
      on long-lived assets
                
                
                1,423,678
                
                
                
                -Equity
      in loss from investments in unconsolidated affiliated real estate
      entities
                
                
                3,716,476
                
                
                
                740,219Provision
      for bad debts
                
                
                128,922
                
                
                
                447,437Changes
      in assets and liabilities:Increase
      in prepaid expenses and other assets
                
                
                30,901
                
                
                
                398,958(Decrease)/increase
      in tenant and other accounts receivable
                
                
                (587,541
                )
                
                
                1,354,106Increase/(decrease)
      in tenant allowance and security deposits payable
                
                
                25,585
                
                
                
                (24,024
                )Increase/(decrease)
      in accounts payable and accrued expenses
                
                
                393,288
                
                
                
                (2,303,817
                )Decrease
      in due to Sponsor
                
                
                -
                
                
                
                (1,127,514
                )Increase
      in prepaid rents
                
                
                137,967
                
                
                
                137,668Net
      cash (used in)/provided by operating activities - continuing
      operations
                
                
                (5,661
                )
                
                
                1,167,323Net
      cash provided by operating activities - discontinued
      operations
                
                
                1,168,701
                
                
                
                561,046Net
      cash provided by operating activities
                
                
                1,163,040
                
                
                
                1,728,369CASH
      FLOWS USED IN INVESTING ACTIVITIES:Purchase
      of investment property, net
                
                
                (984,046
                )
                
                
                (5,809,110
                )Proceeds
      from sale of marketable securities
                
                
                428,556
                
                
                
                5,521,106Redemption
      payments from investment in affiliate
                
                
                1,985,341
                
                
                
                1,241,665Purchase
      of investment in unconsolidated affiliated real estate
    entity
                
                
                (21,325
                )
                
                
                (12,859,177
                )Funding
      of restricted escrows
                
                
                (1,339,503
                )
                
                
                (397,705
                )Net
      cash provided by/(used in) investing activities - continuing
      operations
                
                
                69,023
                
                
                
                (12,303,221
                )Net
      cash used in investing activities - discontinued
operations
                
                
                (1,541,121
                )
                
                
                (559,388
                )Net
      cash used in investing activities
                
                
                (1,472,098
                )
                
                
                (12,862,609
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Mortgage
      payments
                
                
                (1,758,098
                )
                
                
                (1,738,391
                )Payment
      of loan fees and expenses
                
                
                (329,100
                )
                
                
                (22,911
                )Proceeds
      from loans due to affiliates
                
                
                3,310,295
                
                
                
                -Redemption
      and cancellation of common stock
                
                
                (1,653,572
                )
                
                
                (2,439,760
                )Proceeds
      from issuance of special general partnership units
                
                
                -
                
                
                
                6,982,534Issuance
      of note receivable to noncontrolling interest
                
                
                -
                
                
                
                (1,657,708
                )Distribution
      received from discontinued operations
                
                
                26,345
                
                
                
                -Distributions
      paid to noncontrolling interests
                
                
                (3,388,183
                )
                
                
                (1,775,233
                )Distributions
      paid to Company's common stockholders
                
                
                (6,576,738
                )
                
                
                (6,113,030
                )Net
      cash used in financing activities - continuing operations
                
                
                (10,369,051
                )
                
                
                (6,764,499
                )Net
      cash used in financing activities - discontinued
operations
                
                
                (26,345
                )
                
                
                -Net
      cash used in financing activities
                
                
                (10,395,396
                )
                
                
                (6,764,499
                )Net
      change in cash and cash equivalents
                
                
                (10,704,454
                )
                
                
                (17,898,739
                )Cash
      and cash equivalents, beginning of period
                
                
                17,076,320
                
                
                
                66,106,067Cash
      and cash equivalents, end of period
                
                $
                6,371,866
                
                
                $
                48,207,328Cash
      paid for interest
                
                $
                5,830,301
                
                
                $
                7,026,597Distributions
      declared
                
                $
                5,460,385
                
                
                $
                16,257,530Value
      of shares issued from distribution reinvestment program
                
                $
                4,441,316
                
                
                $
                4,699,779Loan
      due to affiliate converted to a distribution from investment in
      unconsolidated affiliated real estate entity
                
                $
                2,816,724
                
                
                $
                -Issuance
      of units in exchange for investment in unconsolidated affiliated real
      estate entity
                
                $
                -
                
                
                $
                55,988,411





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


6





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


Notes
to Consolidated Financial Statements


(unaudited)





1.
            Organization




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





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





As of
June 30, 2010, on a collective basis, the Company either wholly owned or owned
interests in 23 retail properties containing a total of approximately 7.9
million square feet of retail space, 15 industrial properties containing a total
of approximately 1.3 million square feet of industrial space, 7 multi-family
properties containing a total of 1,805 units, 2 hotel properties containing a
total of 290 rooms and 1 office property containing a total of approximately 1.1
million square feet of office space.  All of its properties are
located within the United States. As of June 30, 2010, the retail properties,
the industrial properties, the multi-family properties and the office property
were 93%, 61%, 89% and 76% occupied based on a weighted average basis,
respectively. Its hotel properties’ average revenue per available room was $27
and occupancy was 70% for the six months ended June 30, 2010.




On
December 8, 2009, the Company signed a definitive agreement to dispose of a
substantial portion of its retail properties; its St. Augustine Outlet center
plus its interests in its investments in Prime Outlets Acquisitions Company
(“POAC”), which includes 18 retail properties and Mill Run, LLC (“Mill Run”),
which includes 2 of its retail properties.  On June 28, 2010, the
aforementioned definitive agreement was modified to remove St. Augustine from
the terms of the agreement.  As result, St. Augustine no longer meets
the criteria as held for sale (see note 7).   Upon closing of the
transaction, the Company is expecting to receive $239.5 million in total
consideration after transaction expenses, of which approximately $187.3 million
will be in the form of cash and the remainder in the form of equity, which may
not be available for sale until July 2013.  The equity will be interests
that are exchangeable for common units of the operating partnership of Simon
Property Group.





We expect
the transaction to be completed during second half of 2010. At a meeting on May
13, 2010, the board of directors of the Company (the “Board”) made the decision
to distribute proceeds to the shareholders equal to the estimated tax
liability, if any, they would accrue from the transaction.  Subject to
change based on market conditions that may prevail when the transaction closes
and the proceeds are received, the Board further determined to direct the
reinvestment of the balance of the cash proceeds.  In reaching its
determination, the board considered that, in the event all proceeds were
distributed, the Company would need to substantially reduce or eliminate the
distribution to shareholders. The Board concluded that reinvesting a significant
portion of the proceeds will allow the Company to take advantage of the current
real estate environment and is consistent with our shareholders’ original
expectation of being invested in the Company’s common shares for seven to ten
years.





During
the three months ended June 30, 2010, as a result of the Company defaulting on
the debt related to two properties due to the properties no longer being
economically beneficial to the Company, the lender foreclosed on these two
properties.  As a result of the foreclosure transactions, the debt
associated with these two properties of $42.3 million was extinguished and the
obligations were satisfied with the transfer of the properties’ assets and
working capital.   As of June 30, 2010, the Company no longer
owns these two properties.  These two properties during the three and
six months ended June 30, 2010 and 2009 have been classified as discontinued
operations on a historical basis.  The transactions resulted in a gain
on debt extinguishment of $17.2 million which is included in discontinued
operations (see note 8).   Accordingly, the assets and
liabilities of these two properties are reclassified as assets and liabilities
disposed of on the consolidated balance sheet as of December 31,
2009.





During
the three months ended June 30, 2010, the Company decided to not make the
required debt service payments of $65,724 in the month of June and thereafter on
a loan collateralized by an apartment property located in North Carolina, which
represents 220 units of the 1,805 units owned in the multifamily
segment.  This loan has an aggregate outstanding principal balance of
$9.1 million as of June 30, 2010.  The Company determined that future
debt service payments on this loan would no longer be economically beneficial to
the Company based upon the current and expected future performance of the
property associated with this loan.  See Notes 9 and
10.


7


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


Notes
to Consolidated Financial Statements


(unaudited)





2.
            Summary
      of Significant Accounting Policies




Basis of
Presentation




The
consolidated financial statements include the accounts of the Company and the
Operating Partnership and its subsidiaries (over which the Company exercises
financial and operating control). As of June 30, 2010, the Company had a 98.4%
general partnership interest in the common units of the Operating Partnership.
All inter-company balances and transactions have been eliminated in
consolidation.




The
accompanying unaudited interim consolidated financial statements and related
notes should be read in conjunction with the audited Consolidated Financial
Statements of  the Company and related notes as contained in the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2009. The unaudited interim financial statements include all adjustments
(consisting only of normal recurring adjustments) and accruals necessary in the
judgment of management for a fair statement of the results for the periods
presented. The accompanying unaudited condensed consolidated financial
statements of Lightstone Value Plus Real Estate Investment Trust, Inc. and its
Subsidiaries have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q and Rule 8-03 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements.





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





Reclassifications




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





New Accounting
Pronouncements





In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)”, which was primarily codified into Topic 810 in the ASC.  This
standard requires ongoing assessments to determine whether an entity is a
variable entity and requires qualitative analysis to determine whether an
enterprise’s variable interest(s) give it a controlling financial interest in a
variable interest entity. In addition, it requires enhanced disclosures about an
enterprise’s involvement in a variable interest entity. This standard is
effective for the fiscal year that begins after November 15, 2009. The Company
adopted this standard on January 1, 2010 and the adoption did not have a
material impact on the Company's consolidated financial statements.





In
January 2010, the FASB issued FASB Accounting Standards Update (“ASU”) No.
2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving
Disclosures about Fair Value Measurements”.  ASU No. 2010-06 amends
ASC 820 and clarifies and provides additional disclosure requirements related to
recurring and non-recurring fair value measurements. This ASU becomes effective
for the Company on January 1, 2010. The adoption of this ASU did not have a
material impact on the Company’s consolidated financial statements.





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


8


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


Notes
to Consolidated Financial Statements


(unaudited)





3.
            Investments
      in Unconsolidated Affiliated Real Estate
  Entities





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





AsofRealEstateEntity
                                        
                                        DatesAcquired
                                        
                                        Ownership
                                          %
                                        
                                        
                                        June30,2010
                                        
                                        
                                        December 31,
      2009Prime
      Outlets Acquistions Company ("POAC")
                                        
                                        March
      30, 2009 & August 25, 2009
                                        
                                        
                                        40.00
                                        %
                                        
                                        $
                                        75,624,611
                                        
                                        
                                        $
                                        84,291,011Mill
      Run LLC ("Mill Run")
                                        
                                        June
      26, 2008 & August 25, 2009
                                        
                                        
                                        36.80
                                        %
                                        
                                        
                                        32,361,140
                                        
                                        
                                        
                                        29,809,6411407
      Broadway Mezz II LLC ("1407 Broadway")
                                        
                                        January
      4, 2007
                                        
                                        
                                        49.00
                                        %
                                        
                                        
                                        1,474,840
                                        
                                        
                                        
                                        1,871,814Total
      Investments in unconsolidated affiliated real estate
    entities
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        $
                                        109,460,592
                                        
                                        
                                        $
                                        115,972,466





Prime
Outlets Acquisitions Company





As of
June 30, 2010, the Operating Partnership owns a 40% membership interest in POAC
(“POAC Interest”).  The POAC Interest is a non-managing interest, with
certain consent rights with respect to major decisions. An affiliate of the
Company’s Sponsor, is the majority owner and manager of POAC.  Profit
and cash distributions will be allocated in accordance with each investor’s
ownership percentage.





As the
Company has recorded this investment in accordance with the equity method of
accounting, its portion of POAC’s total indebtedness of $1.2 billion as of June
30, 2010 is not included in its investment.   In connection with
the acquisition of the investment in POAC, the Company’s advisor charged an
acquisition fee equal to 2.75% of the acquisition price, or approximately $15.4
million.  In addition, the Company incurred other transactions fees
associated with the acquisition of the POAC Interest of approximately $10.4
million.





On
December 8, 2009, the REIT has entered into a definitive agreement to dispose of
its retail outlet center interests that include its investments in Mill Run and
POAC.  See Note 1.





During
March 2010, the Company entered a demand grid note to borrow up to $20 million
from POAC.  During the quarters ended March 31, 2010 and June 30,
2010, the Company received loan proceeds from POAC associated with this demand
grid note in the amount of $2.0 million and $0.8 million, respectively. The loan
bears interest at libor plus 2.5%.  The principal and interest on this
loan is due the earlier of February 28, 2020 or on demand.  On June
30, 2010, the principal balance of $2.8 million, together with accrued and
unpaid interest of $16,724, was converted to be a distribution by POAC to the
Company and is reflected as a reduction in the Company’s investment in
POAC.





POAC
Financial Information





The
Company’s carrying value of its POAC Interest differs from its share of member’s
equity reported in the condensed balance sheet of POAC due to the Company’s cost
of its investments in excess of the historical net book values of
POAC.  The Company’s additional basis allocated to depreciable assets
is recognized on a straight-line basis over the lives of the appropriate
assets.


9





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


Notes
to Consolidated Financial Statements


(unaudited)





The
following table represents the unaudited condensed income statement for POAC for
the three and six months ended June 30, 2010, the three months ended June 30,
2009 and the period March 30, 2009 through June 30, 2009:





For the Three
                          Months Ended
                          June 30, 2010
                        
                        
                        For the Three
                          Months Ended
                          June 30, 2009
                        
                        
                        For the Six
                          Months Ended
                          June 30, 2010
                        
                        
                        For the Period
                          March 30, 2009 to
                          June 30, 2009Revenue
                        
                        $
                        46,412,723
                        
                        
                        $
                        44,568,048
                        
                        
                        $
                        91,814,959
                        
                        
                        $
                        45,553,685Property
      operating expenses
                        
                        
                        21,682,276
                        
                        
                        
                        20,506,710
                        
                        
                        
                        41,618,506
                        
                        
                        
                        21,033,361Depreciation
      and amortization
                        
                        
                        9,699,040
                        
                        
                        
                        10,466,817
                        
                        
                        
                        19,004,593
                        
                        
                        
                        10,622,138Operating
      income
                        
                        
                        15,031,407
                        
                        
                        
                        13,594,521
                        
                        
                        
                        31,191,860
                        
                        
                        
                        13,898,186Interest
      expense and other, net
                        
                        
                        (15,127,042
                        )
                        
                        
                        (11,419,904
                        )
                        
                        
                        (29,350,194
                        )
                        
                        
                        (11,690,297
                        )Net
      income/(loss)
                        
                        
                        (95,635
                        )
                        
                        
                        2,174,617
                        
                        
                        
                        1,841,666
                        
                        
                        
                        2,207,889Company's
      share of net income/(loss)
                        
                        
                        (38,254
                        )
                        
                        
                        543,654
                        
                        
                        
                        736,666
                        
                        
                        
                        551,972Additional
      depreciation and amortization expense (1)
                        
                        
                        (3,168,672
                        )
                        
                        
                        (1,860,000
                        )
                        
                        
                        (6,607,668
                        )
                        
                        
                        (1,860,000
                        )Company's
      loss from investment
                        
                        $
                        (3,206,926
                        )
                        
                        $
                        (1,316,346
                        )
                        
                        $
                        (5,871,002
                        )
                        
                        $
                        (1,308,028
                        )





1.
            Additional
      depreciation and amortization expense relates to the amortization of the
      difference between the cost of the POAC Interest and the amount of the
      underlying equity in net assets of the
POAC.





The
following table represents the unaudited condensed balance sheet for POAC as of
June 30, 2010 and December 31, 2009:





As of
                  
                  
                  As ofJune 30, 2010
                  
                  
                  December 31, 2009Real
      estate, at cost (net)
                  
                  $
                  746,914,904
                  
                  
                  $
                  757,385,791Intangible
      assets
                  
                  
                  9,581,304
                  
                  
                  
                  11,384,965Cash
      and restricted cash
                  
                  
                  39,652,802
                  
                  
                  
                  44,891,427Other
      assets
                  
                  
                  54,662,475
                  
                  
                  
                  59,050,970Total
      Assets
                  
                  $
                  850,811,485
                  
                  
                  $
                  872,713,153Mortgage
      payable
                  
                  
                  1,175,843,314
                  
                  
                  $
                  1,183,285,466Other
      liabilities
                  
                  
                  37,252,463
                  
                  
                  
                  46,447,451Member
      capital
                  
                  
                  (362,284,292
                  )
                  
                  
                  (357,019,764
                  )Total
      liabilities and members' capital
                  
                  $
                  850,811,485
                  
                  
                  $
                  872,713,153





Mill
Run Interest





As of
June 30, 2010, our operating partnership owns a 36.8% membership interest in
Mill Run (“Mill Run Interest”).  The Mill Run Interest includes Class
A and B membership shares and is a non-managing interest, with consent rights
with respect to certain major decisions. The Company’s Sponsor is the managing
member and owns 55% of Mill Run.  Profit and cash distributions will
be allocated in accordance with each investor’s ownership percentage after
consideration of Class B members adjusted capital balance.





As the
Company has recorded this investment in accordance with the equity method of
accounting, its portion of Mill Run’s total indebtedness of $256.7 million as
June 30, 2010 is not included in the Company’s investment.   In
connection with the acquisition of the investment in Mill Run, the Company’s
advisor charged an acquisition fee equal to 2.75% of the acquisition price, or
approximately $3.6 million plus we incurred other transactions fees of $2.9
million.





On
December 8, 2009, the REIT has entered into a definitive agreement to dispose of
its retail outlet center interests that include the investments in Mill Run and
POAC.  See Note 1.


10





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


Notes
to Consolidated Financial Statements


(unaudited)





Mill
Run Financial Information





The
Company’s carrying value of its Mill Run Interest differs from its share of
member’s equity reported in the condensed balance sheet of Mill Run due to the
Company’s cost of its investments in excess of the historical net book values of
Mill Run.  The Company’s additional basis allocated to depreciable
assets is recognized on a straight-line basis over the lives of the appropriate
assets.





The
following table represents the unaudited condensed income statement for Mill Run
for the three and six months ended June 30, 2010 and 2009:





For the Three Months Ended
                  
                  
                  For the Six Months EndedJune 30, 2010
                  
                  
                  June 30, 2009
                  
                  
                  June 30, 2010
                  
                  
                  June 30, 2009Revenue
                  
                  $
                  12,097,477
                  
                  
                  $
                  10,887,821
                  
                  
                  $
                  23,992,911
                  
                  
                  $
                  21,531,573Property
      operating expenses
                  
                  
                  3,244,643
                  
                  
                  
                  3,553,386
                  
                  
                  
                  6,295,727
                  
                  
                  
                  6,974,357Depreciation
      and amortization
                  
                  
                  1,972,174
                  
                  
                  
                  2,368,535
                  
                  
                  
                  5,013,415
                  
                  
                  
                  4,729,688Operating
      income
                  
                  
                  6,880,660
                  
                  
                  
                  4,965,900
                  
                  
                  
                  12,683,769
                  
                  
                  
                  9,827,528Interest
      expense and other, net
                  
                  
                  (1,739,877
                  )
                  
                  
                  (1,161,920
                  )
                  
                  
                  (3,371,781
                  )
                  
                  
                  (3,111,000
                  )Net
      income
                  
                  
                  5,140,783
                  
                  
                  
                  3,803,980
                  
                  
                  
                  9,311,988
                  
                  
                  
                  6,716,528Company's
      share of net income
                  
                  
                  1,891,808
                  
                  
                  
                  857,417
                  
                  
                  
                  3,426,812
                  
                  
                  
                  1,513,905Additional
      depreciation and amortization expense (1)
                  
                  
                  (434,240
                  )
                  
                  
                  (393,933
                  )
                  
                  
                  (875,312
                  )
                  
                  
                  (633,804
                  )Company's
      income from investment
                  
                  $
                  1,457,568
                  
                  
                  $
                  463,484
                  
                  
                  $
                  2,551,500
                  
                  
                  $
                  880,101





1.
            Additional
      depreciation and amortization expense relates to the amortization of the
      difference between the cost of the Mill Run Interest and the amount of the
      underlying equity in net assets of the Mill
Run.





The
following table represents the unaudited condensed balance sheet for Mill Run as
of June 30, 2010 and December 31, 2009:


As of
                    
                    
                    As ofJune 30, 2010
                    
                    
                    December 31, 2009Real
      estate, at cost (net)
                    
                    $
                    252,980,844
                    
                    
                    $
                    257,274,810Intangible
      assets
                    
                    
                    594,891
                    
                    
                    
                    644,421Cash
      and restricted cash
                    
                    
                    12,110,938
                    
                    
                    
                    6,410,480Other
      assets
                    
                    
                    9,564,447
                    
                    
                    
                    9,755,013Total
      Assets
                    
                    $
                    275,251,120
                    
                    
                    $
                    274,084,724Mortgage
      payable
                    
                    $
                    256,669,969
                    
                    
                    $
                    265,195,763Other
      liabilities
                    
                    
                    22,647,652
                    
                    
                    
                    22,267,449Member
      capital
                    
                    
                    (4,066,501
                    )
                    
                    
                    (13,378,488
                    )Total
      liabilities and members' capital
                    
                    $
                    275,251,120
                    
                    
                    $
                    274,084,724





1407
Broadway




As of
June 30, 2010, the Company has a 49% ownership in 1407 Broadway.  As
the Company has recorded this investment in accordance with the equity method of
accounting, its portion of 1407 Broadway’s total indebtedness of $123.3 million
as June 30, 2010 is not included in the Company’s
investment.  Earnings for this investment are recognized in accordance
with this investment agreement and where applicable, based upon an allocation of
the investment’s net assets at book value as if the investment was
hypothetically liquidated at the end of each reporting period.


11





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


Notes
to Consolidated Financial Statements


(unaudited)





During
March 2010, the Company entered a demand grid note to borrow up to $20 million
from 1407 Broadway. As of June 30, 2010, the Company has received loan proceeds
from the 1407 Broadway associated with this demand grid note in the amount of
$0.5 million. The loan bears interest at libor plus 2.5%. The principal and
interest on this loan is due the earlier of February 28, 2020 or on demand. The
principal and interest on the loan is recorded in loans due to affiliates in the
consolidated balance sheets.





1407
Broadway Financial




The
following table represents the condensed income statement derived from unaudited
financial statements for 1407 Broadway for the three and six months ended June
30, 2010 and 2009:





FortheThreeMonthsEnded
                  
                  
                  FortheSixMonthsEndedJune 30, 2010
                  
                  
                  June 30, 2009
                  
                  
                  June 30, 2010
                  
                  
                  June 30, 2009Total
      Revenue
                  
                  $
                  8,484,306
                  
                  
                  $
                  9,226,665
                  
                  
                  $
                  17,346,045
                  
                  
                  $
                  18,834,186Property
      operating expenses
                  
                  
                  6,349,728
                  
                  
                  
                  6,257,064
                  
                  
                  
                  12,828,298
                  
                  
                  
                  13,225,823Depreciation
      & Amortization
                  
                  
                  1,541,905
                  
                  
                  
                  2,318,051
                  
                  
                  
                  3,084,673
                  
                  
                  
                  4,483,673Operating
      income
                  
                  
                  592,673
                  
                  
                  
                  651,550
                  
                  
                  
                  1,433,074
                  
                  
                  
                  1,124,690Interest
      Expense and other, net
                  
                  
                  (1,174,258
                  )
                  
                  
                  (643,984
                  )
                  
                  
                  (2,243,225
                  )
                  
                  
                  (1,762,021
                  )Net
      income/(loss)
                  
                  $
                  (581,585
                  )
                  
                  $
                  7,566
                  
                  
                  $
                  (810,151
                  )
                  
                  $
                  (637,331
                  )Company's share
      of net income/(loss) (49%)
                  
                  $
                  (284,977
                  )
                  
                  $
                  3,707
                  
                  
                  $
                  (396,974
                  )
                  
                  $
                  (312,292
                  )





The
following table represents the condensed balance sheet derived from unaudited
financial statements for 1407 Broadway as of June 30, 2010 and December 31,
2009:





As of
                    
                    
                    As ofJune30,2010
                    
                    
                    December31,2009Real
      estate, at cost (net)
                    
                    $
                    111,682,163
                    
                    
                    $
                    111,803,186Intangible
      assets
                    
                    
                    1,420,578
                    
                    
                    
                    1,845,941Cash
      and restricted cash
                    
                    
                    13,418,139
                    
                    
                    
                    10,226,017Other
      assets
                    
                    
                    13,522,866
                    
                    
                    
                    11,887,040Total
      assets
                    
                    $
                    140,043,746
                    
                    
                    $
                    135,762,184Mortgage
      payable
                    
                    $
                    123,304,302
                    
                    
                    $
                    116,796,263Other
      liabilities
                    
                    
                    13,739,876
                    
                    
                    
                    15,156,202Member
      capital
                    
                    
                    2,999,568
                    
                    
                    
                    3,809,719Total
      liabilities and members' capital
                    
                    $
                    140,043,746
                    
                    
                    $
                    135,762,184




Debt
Compliance for Investments in Unconsolidated Affiliated Real Estate
Entities




The debt
agreements of the unconsolidated affiliated real estate entities, which the
Company has an equity investment in, are subject to various financial and
reporting covenants and requirements.  Noncompliance with these
requirements could constitute an event of default, which could allow the lenders
to accelerate the repayment of the loan, or to exercise other
remedies.  Although all of these real estate entities are current on
payment of their respective debt obligations as of June 30, 2010, certain of
these entities have instances of noncompliance with other requirements
stipulated by their applicable debt agreements.  These noncompliance
issues do not constitute an event of default until the borrower is notified by
the lender.   In certain cases, the borrower has an ability to
cure the noncompliance within a specified period.   To date,
these entities have not been notified by the lenders.  Should the
lender take action to exercise its remedies, it could have an unfavorable impact
on these entities’ cash flows and rights as owner of any investment holdings in
the underlying property.    Management believes that these
entities will satisfactorily resolve these matters with the applicable lender
for each instance where noncompliance has occurred.


12





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


Notes
to Consolidated Financial Statements


(unaudited)





4.
            Investment
      in Affiliate





Park Avenue
Funding





On April
16, 2008, the Company made a preferred equity contribution of $11,000,000 (the
“Contribution”) to PAF-SUB LLC (“PAF”), a wholly-owned subsidiary of Park Avenue
Funding LLC (“Park Avenue”), in exchange for membership interests of PAF with
certain rights and preferences described below (the “Preferred Units”). Park
Avenue is a real estate lending company making loans, including first or second
mortgages, mezzanine loans and collateral pledges of mortgages, to finance real
estate transactions. Property types considered include multi-family, office,
industrial, retail, self-storage, parking and land. Both PAF and Park Avenue are
affiliates of our Sponsor.




PAF’s
limited liability company agreement was amended on April 16, 2008 to create the
Preferred Units and admit the Company as a member. The Preferred Units are
entitled to a cumulative preferred distribution at the rate of 10% per annum,
payable quarterly. In the event that PAF fails to pay such distribution when
due, the preferred distribution rate will increase to 17% per annum. The
Preferred Units are redeemable, in whole or in part, at any time at the option
of the Company upon at least 180 days’ prior written notice (the “Redemption”).
In addition, the Preferred Units are entitled to a liquidation preference senior
to any distribution upon dissolution with respect to other equity interests of
PAF in an amount equal to (x) the Contribution plus any accrued but unpaid
distributions less (y) any Redemption payments.





In
connection with the Contribution, the Company and Park Avenue entered into a
guarantee agreement on April 16, 2008, whereby Park Avenue unconditionally and
irrevocably guarantees payment of the Redemption amounts when due (the
“Guarantee”). Also, Park Avenue agrees to pay all costs and expenses incurred by
the Company in connection with the enforcement of the Guarantee.





The
Company does not have any voting rights for this investment, and does not have
significant influence over this investment. The Company accounts for this
investment under the cost method. Total accrued distributions related to this
investment totaled $47,275 and $65,945 at June 30, 2010 and at December 31,
2009, respectively, and are included in interest receivable from related parties
in the consolidated balance sheets.   Through June 30, 2010, the
Company received redemption payments from PAF of $5.3 million, of which $2.0
million was received during the six months ended June 30, 2010.  As of
June 30, 2010, the Company’s investment in PAF is $5.7 million and is included
in investment in affiliate, at cost in the consolidated balance
sheets.  Subsequent to June 30, 2010, the Company received an
additional redemption payment of $3.0 million.





5.
            Marketable
      Securities and Fair Value
Measurements





The
following is a summary of the Company’s available for sale securities at June
30, 2010 and December 31, 2009:





AsofJune30,2010
                    
                    
                    AsofDecember31,2009AdjustedCost
                    
                    
                    Unrealized
                      Gain/(Loss)
                    
                    
                    FairValue
                    
                    
                    AdjustedCost
                    
                    
                    Unrealized
                      Gain/(Loss)
                    
                    
                    FairValueEquity
      Securities, primarily REITs
                    
                    $
                    104,341
                    
                    
                    
                    55,937
                    
                    
                    $
                    160,278
                    
                    
                    $
                    466,142
                    
                    
                    $
                    374,735
                    
                    
                    $
                    840,877Total
      Marketable Securities - available for sale
                    
                    $
                    104,341
                    
                    
                    $
                    55,937
                    
                    
                    $
                    160,278
                    
                    
                    $
                    466,142
                    
                    
                    $
                    374,735
                    
                    
                    $
                    840,877





In May
2010, the Company sold 20,000 shares of equity securities with an aggregate cost
basis of $361,800 and received net proceeds of $428,556.   As a result
of the sale, the Company reclassified $134,800 of unrealized gain from
accumulated other comprehensive income and recognized a realized gain of
$66,756, which is included in gain/(loss) on sale of marketable securities in
the consolidated statements of operations.





Fair
Value Measurements





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


13





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


Notes
to Consolidated Financial Statements


(unaudited)





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.





Assets
measured at fair value on a recurring basis as of June 30, 2010 are as
follows:





FairValueMeasurementUsingAs of June 30, 2010
                  
                  Level1
                  
                  
                  Level2
                  
                  
                  Level3
                  
                  
                  TotalEquity
      Securities, primiarily REITs
                  
                  $
                  160,278
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  160,278Total
      Marketable securities - available for sale
                  
                  $
                  160,278
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  160,278





Assets
measured at fair value on a recurring basis as of December 31, 2009 are as
follows:





FairValueMeasurementUsingAs of December 31, 2009
                  
                  Level1
                  
                  
                  Level2
                  
                  
                  Level3
                  
                  
                  TotalEquity
      Securities, primiarily REITs
                  
                  
                  840,877
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  840,877Total
      Marketable securities - available for sale
                  
                  $
                  840,877
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  840,877





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





6.
            Intangible
      Assets





At June
30, 2010, the Company had intangible assets relating to above-market leases from
property acquisitions, intangible assets related to leases in place at the time
of acquisition, intangible assets related to leasing costs, and intangible
liabilities relating to below-market leases from property
acquisitions.




The
following table sets forth the Company’s intangible assets/ (liabilities) as of
June 30, 2010 and December 31, 2009:





At June 30, 2010
                  
                  
                  At December 31, 2009Cost
                  
                  
                  Accumulated
                    Amortization
                  
                  
                  Net
                  
                  
                  Cost
                  
                  
                  Accumulated
                    Amortization
                  
                  
                  NetAcquired
      in-place lease intangibles
                  
                  $
                  1,762,527
                  
                  
                  $
                  (1,267,089
                  )
                  
                  $
                  495,438
                  
                  
                  $
                  2,625,791
                  
                  
                  $
                  (1,984,304
                  )
                  
                  $
                  641,487Acquired
      above market lease intangibles
                  
                  
                  538,711
                  
                  
                  
                  (364,811
                  )
                  
                  
                  173,900
                  
                  
                  
                  1,026,821
                  
                  
                  
                  (787,461
                  )
                  
                  
                  239,360Deferred
      intangible leasing costs
                  
                  
                  1,027,784
                  
                  
                  
                  (709,386
                  )
                  
                  
                  318,398
                  
                  
                  
                  1,354,295
                  
                  
                  
                  (948,020
                  )
                  
                  
                  406,275Acquired
      below market lease intangibles
                  
                  
                  (1,332,116
                  )
                  
                  
                  845,966
                  
                  
                  
                  (486,150
                  )
                  
                  
                  (3,012,740
                  )
                  
                  
                  2,349,326
                  
                  
                  
                  (663,414
                  )





During
the three and six months ended June 30, 2010, the Company wrote off fully
amortized acquired intangible assets of approximately $0.2 million and $1.1
million resulting in a reduction of cost and accumulated amortization of
intangible assets at June 30, 2010 compared to the December 31,
2009.  There were no additions during the three and six months ended
June 30, 2010.


14





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


Notes
to Consolidated Financial Statements


(unaudited)





The
following table presents the projected amortization benefit of the acquired
above market lease costs and the below market lease costs during the next five
years and thereafter at June 30, 2010:





Amortization expense/(benefit) of:
                              
                              Remainder
                                of2010
                              
                              
                              2011
                              
                              
                              2012
                              
                              
                              2013
                              
                              
                              2014
                              
                              
                              Thereafter
                              
                              
                              TotalAcquired
      above market lease value
                              
                              $
                              35,377
                              
                              
                              $
                              52,826
                              
                              
                              $
                              23,379
                              
                              
                              $
                              14,425
                              
                              
                              $
                              14,425
                              
                              
                              $
                              33,468
                              
                              
                              $
                              173,900Acquired
      below market lease value
                              
                              
                              (100,144
                              )
                              
                              
                              (125,832
                              )
                              
                              
                              (87,911
                              )
                              
                              
                              (86,625
                              )
                              
                              
                              (42,819
                              )
                              
                              
                              (42,819
                              )
                              
                              
                              (486,150
                              )Projected
      future net rental income increase
                              
                              $
                              (64,767
                              )
                              
                              $
                              (73,006
                              )
                              
                              $
                              (64,532
                              )
                              
                              $
                              (72,200
                              )
                              
                              $
                              (28,394
                              )
                              
                              $
                              (9,351
                              )
                              
                              $
                              (312,250
                              )





Amortization
benefit of acquired above and below market lease values is included in total
revenues in our consolidated statement of operations was $11,239 and $0.1
million  for the three months ended June 30, 2010 and 2009,
respectively and $28,957and $0.2 million for the six months ended June 30, 2010
and 2009, respectively.





The
following table presents the projected amortization expense of the acquired
in-place lease intangibles and acquired leasing costs during the next five years
and thereafter at June 30, 2010:





Amortization expense of:
                              
                              Remainder
                                of2010
                              
                              
                              2011
                              
                              
                              2012
                              
                              
                              2013
                              
                              
                              2014
                              
                              
                              Thereafter
                              
                              
                              TotalAcquired
      in-place leases value
                              
                              $
                              77,919
                              
                              
                              $
                              109,287
                              
                              
                              $
                              72,836
                              
                              
                              $
                              66,883
                              
                              
                              $
                              65,565
                              
                              
                              $
                              102,948
                              
                              
                              $
                              495,438Deferred
      intangible leasing costs value
                              
                              
                              52,919
                              
                              
                              $
                              76,368
                              
                              
                              $
                              46,358
                              
                              
                              $
                              41,219
                              
                              
                              
                              38,922
                              
                              
                              $
                              62,612
                              
                              
                              
                              318,398Projected
      future amortization expense
                              
                              $
                              130,838
                              
                              
                              $
                              185,655
                              
                              
                              $
                              119,194
                              
                              
                              $
                              108,102
                              
                              
                              $
                              104,487
                              
                              
                              $
                              165,560
                              
                              
                              $
                              813,836





Actual
total amortization expense included in depreciation and amortization expense in
our consolidated statement of operations was $0.2 million and $0.2 million for
the three months ended June 30, 2010 and 2009, respectively and $0.2 million and
$0.3 million for the six months ended June 30, 2010 and 2009,
respectively.





7.
            Assets
      and Liabilities Previously Classified as Held for Sale and Discontinued
      Operations





On
December 8, 2009, the Company signed a definitive agreement to dispose of its
St. Augustine Outlet center (“St. Augustine”) as part of an agreement to dispose
of its interests in its investments in POAC and Mill Run. On June 28, 2010, the
definitive agreement was modified to remove St. Augustine from the terms of the
agreement. As a result of such removal, the St. Augustine assets and liabilities
no longer meet the criteria for classification as held for sale as of June 30,
2010 since management does not have an active plan to market this outlet center
for sale. Therefore, the Company has reclassified the assets and liabilities
related to St. Augustine from assets and liabilities held for sale to held and
used on the consolidated balance sheets for all periods presented. The
reclassification resulted in an adjustment of $1.2 million to St. Augustine’s
assets balance to the lower of its carrying value net of any depreciation
(amortization) expense that would have been recognized had the assets been
continuously classified as held and used or the fair value on June 28, 2010, and
the $1.2 million adjustment is included in loss on long-lived assets in the
consolidated statements of operations for the three and six months period ended
June 30, 2010. St. Augustine’s results of operations for all periods presented
have been reclassified from discontinued operations to the Company’s continuing
operations.





To date,
the Company has not recorded an impairment charge related to the expected sale
of its investments in POAC and Mill Run, as the Company’s carrying value of
these two investments are lower than the expected proceeds, after consideration
of debt to be assumed by buyer.


15





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


Notes
to Consolidated Financial Statements


(unaudited)





The
following is a summary of the financial information related to St. Augustine
which were previously classified as held for sale and discontinued
operations.





For the Three Months ended
                          
                          
                          For the Six Months endedJune 30,
                            2010
                          
                          
                          June 30,
                            2009
                          
                          
                          June 30,
                            2010
                          
                          
                          June 30,
                            2009Revenue
                          
                          $
                          1,708,882
                          
                          
                          $
                          1,769,390
                          
                          
                          $
                          3,408,833
                          
                          
                          $
                          3,423,002Expenses:Property
      operating expenses
                          
                          
                          510,069
                          
                          
                          
                          641,897
                          
                          
                          
                          1,161,905
                          
                          
                          
                          1,283,195Real
      estate taxes
                          
                          
                          131,484
                          
                          
                          
                          132,737
                          
                          
                          
                          259,548
                          
                          
                          
                          265,074Loss
      on long-lived asset
                          
                          
                          1,193,233
                          
                          
                          
                          -
                          
                          
                          
                          1,193,233
                          
                          
                          
                          -General
      and administrative costs
                          
                          
                          9,704
                          
                          
                          
                          70,840
                          
                          
                          
                          16,533
                          
                          
                          
                          98,466Depreciation
      and amortization
                          
                          
                          -
                          
                          
                          
                          570,155
                          
                          
                          
                          -
                          
                          
                          
                          1,131,441Total
      Operating Expense
                          
                          
                          1,844,490
                          
                          
                          
                          1,415,629
                          
                          
                          
                          2,631,219
                          
                          
                          
                          2,778,176Operating
      Income
                          
                          
                          (135,608
                          )
                          
                          
                          353,761
                          
                          
                          
                          777,614
                          
                          
                          
                          644,826Other
      income
                          
                          
                          16,681
                          
                          
                          
                          44,452
                          
                          
                          
                          155,687
                          
                          
                          
                          46,508Interest
      income
                          
                          
                          5,218
                          
                          
                          
                          5,016
                          
                          
                          
                          7,698
                          
                          
                          
                          7,985Interest
      expense
                          
                          
                          (404,237
                          )
                          
                          
                          (416,164
                          )
                          
                          
                          (805,457
                          )
                          
                          
                          (838,298
                          )Net
      income/(loss)
                          
                          $
                          (517,946
                          )
                          
                          $
                          (12,935
                          )
                          
                          $
                          135,542
                          
                          
                          $
                          (138,979
                          )





As ofJune 30,
                    2010
                  
                  
                  December 31,
                    2009Net
      investment property
                  
                  $
                  54,797,288
                  
                  
                  $
                  55,787,190Intangible
      assets, net
                  
                  
                  732,593
                  
                  
                  
                  801,818Restricted
      escrows
                  
                  
                  4,347,592
                  
                  
                  
                  4,015,945Other
      assets
                  
                  
                  966,550
                  
                  
                  
                  944,631Total
      assets
                  
                  $
                  60,844,023
                  
                  
                  $
                  61,549,584Mortgage
      note payable
                  
                  $
                  26,220,943
                  
                  
                  $
                  26,400,159Other
      liabilities
                  
                  
                  1,293,760
                  
                  
                  
                  1,030,901Total
      liabilities
                  
                  $
                  27,514,703
                  
                  
                  $
                  27,431,060





8.
            Assets
      and Liabilities Disposed of and Discontinued
  Operations





During
the three months ended June 30, 2010, the Company disposed of two properties
within its multifamily segment through foreclosure.  During 2009, the
Company defaulted on the debt obligations related to these two properties due to
the properties no longer being economically beneficial to the
Company.  The lender during the three months ended June 30, 2010
foreclosed on these two properties.  As a result of the foreclosure
transactions, the debt obligations associated with these two properties of $42.3
million were extinguished and the obligations were satisfied with the transfer
of the properties’ assets and working capital.





These
two properties during the three months ended June 30, 2010 have been classified
as discontinued operations on a historical basis.  The transactions
resulted in a gain on debt extinguishment of $17.2 million which is included in
discontinued operations.  The Company during 2009 recorded an asset
impairment charge of $26.0 million associated with these
properties.  During the three and six months ended June 30, 2010, no
additional impairment charge has been recorded as the net book values of the
assets approximated the current estimated fair market value, on a net aggregate
basis.


16





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


Notes
to Consolidated Financial Statements


(unaudited)





The
following summary presents the operating results of the two properties within
the multifamily segment included in discontinued operations in the Consolidated
Statements of Operations for the three and six months ended June 30, 2010 and
2009.





For the Three Months Ended
                                  
                                  
                                  For the Six Months EndedJune 30, 2010
                                  
                                  
                                  June 30, 2009
                                  
                                  
                                  June 30, 2010
                                  
                                  
                                  June 30, 2009Revenue
                                  
                                  $
                                  504,366
                                  
                                  
                                  $
                                  1,356,108
                                  
                                  
                                  $
                                  1,838,573
                                  
                                  
                                  $
                                  2,739,418Expenses:Property
      operating expense
                                  
                                  
                                  221,522
                                  
                                  
                                  
                                  627,587
                                  
                                  
                                  
                                  862,615
                                  
                                  
                                  
                                  1,327,283Real
      estate taxes
                                  
                                  
                                  66,672
                                  
                                  
                                  
                                  169,555
                                  
                                  
                                  
                                  221,246
                                  
                                  
                                  
                                  339,109General
      and administrative costs
                                  
                                  
                                  497
                                  
                                  
                                  
                                  114,352
                                  
                                  
                                  
                                  17,912
                                  
                                  
                                  
                                  228,765Depreciation
      and amortization
                                  
                                  
                                  56,224
                                  
                                  
                                  
                                  285,195
                                  
                                  
                                  
                                  204,449
                                  
                                  
                                  
                                  568,071Total
      operating expense
                                  
                                  
                                  344,915
                                  
                                  
                                  
                                  1,196,689
                                  
                                  
                                  
                                  1,306,222
                                  
                                  
                                  
                                  2,463,228Operating
      income
                                  
                                  
                                  159,451
                                  
                                  
                                  
                                  159,419
                                  
                                  
                                  
                                  532,351
                                  
                                  
                                  
                                  276,190Other
      income/(loss)
                                  
                                  
                                  (24,616
                                  )
                                  
                                  
                                  44,062
                                  
                                  
                                  
                                  (27,666
                                  )
                                  
                                  
                                  93,101Interest
      income
                                  
                                  
                                  -
                                  
                                  
                                  
                                  91
                                  
                                  
                                  
                                  673
                                  
                                  
                                  
                                  176Interest
      expense
                                  
                                  
                                  (234,277
                                  )
                                  
                                  
                                  (601,478
                                  )
                                  
                                  
                                  (829,368
                                  )
                                  
                                  
                                  (1,196,569
                                  )Gain
      on debt extinguishment
                                  
                                  
                                  17,169,663
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  17,169,663
                                  
                                  
                                  
                                  -Net
      income/(loss) from discontinued operations
                                  
                                  $
                                  17,070,221
                                  
                                  
                                  $
                                  (397,906
                                  )
                                  
                                  $
                                  16,845,653
                                  
                                  
                                  $
                                  (827,102
                                  )





Cash
flows generated from discontinued operations are presented separately on the
Company’s Consolidated Statements of Cash Flows.





The
following summary presents the major components of assets and liabilities
disposed of as of June 30, 2010 and December 31, 2009.





AsofJune30,2010
                  
                  
                  December31,2009Net
      investment property
                  
                  $
                  -
                  
                  
                  $
                  25,514,161Intangible
      assets, net
                  
                  
                  -
                  
                  
                  
                  397,020Restricted
      escrows
                  
                  
                  -
                  
                  
                  
                  167,953Other
      assets
                  
                  
                  -
                  
                  
                  
                  203,224Total
      assets
                  
                  $
                  -
                  
                  
                  $
                  26,282,358Mortgage
      payable
                  
                  $
                  -
                  
                  
                  $
                  42,272,300Other
      liabilities
                  
                  
                  -
                  
                  
                  
                  1,231,049Total
      liabilities
                  
                  $
                  -
                  
                  
                  $
                  43,503,349





9.
            Assets
      and Liabilities of Property Held as Collateral on Loan in Default
      Status





During
the three months ended June 30, 2010, the Company decided to not make the
required debt service payments of $65,724 in the month of June and thereafter on
a loan collateralized by an apartment property located in North Carolina that is
within the Company’s multifamily segment.  This loan has an aggregate
outstanding principal balance of $9.1 million as of June 30,
2010.  The Company determined that future debt service payments on
this loan would no longer be economically beneficial to the Company based upon
the current and expected future performance of the property associated with the
loan.  In June 2010, the lender notified the Company that the Company
is in default on this loan. The Company is in discussions with the lender
regarding its default status and potential future remedies, which include
transferring the property to the lender. As of June 30, 2010, the operating
results of this property are included in continuing operations.  The
Company during 2009 recorded an asset impairment charge of $4.3 million
associated with this property.  During the three and six months ended
June 30, 2010, no additional impairment charge has been recorded as the net book
values of the assets are slightly lower than the current estimated fair market
value.


17





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


Notes
to Consolidated Financial Statements


(unaudited)





The
following summary presents the operating results of the property that is
collateral on the loan in default status within the multifamily segment, which
are included in continuing operations in the Consolidated Statements of
Operations for the three and six months ended June 30, 2010 and
2009.





For the Three Months Ended
                                
                                
                                For the Six Months EndedJune 30, 2010
                                
                                
                                June 30, 2009
                                
                                
                                June 30, 2010
                                
                                
                                June 30, 2009Revenue
                                
                                $
                                317,131
                                
                                
                                $
                                406,677
                                
                                
                                $
                                657,923
                                
                                
                                $
                                794,177Expenses:Property
      operating expense
                                
                                
                                189,088
                                
                                
                                
                                186,534
                                
                                
                                
                                433,595
                                
                                
                                
                                392,621Real
      estate taxes
                                
                                
                                32,571
                                
                                
                                
                                32,571
                                
                                
                                
                                65,142
                                
                                
                                
                                65,142Impairment
      on Long Lived Assets
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                300,000
                                
                                
                                
                                -General
      and administrative costs
                                
                                
                                13,062
                                
                                
                                
                                41,769
                                
                                
                                
                                32,024
                                
                                
                                
                                69,684Depreciation
      and amortization
                                
                                
                                39,349
                                
                                
                                
                                63,027
                                
                                
                                
                                80,165
                                
                                
                                
                                124,981Total
      Operating expense
                                
                                
                                274,070
                                
                                
                                
                                323,901
                                
                                
                                
                                910,926
                                
                                
                                
                                652,428Operating
      income/(loss)
                                
                                
                                43,061
                                
                                
                                
                                82,776
                                
                                
                                
                                (253,003
                                )
                                
                                
                                141,749Other
      income, net
                                
                                
                                7,983
                                
                                
                                
                                14,159
                                
                                
                                
                                19,790
                                
                                
                                
                                29,213Interest
      expense
                                
                                
                                (128,773
                                )
                                
                                
                                (128,773
                                )
                                
                                
                                (256,164
                                )
                                
                                
                                (256,164
                                )Net
      loss
                                
                                $
                                (77,729
                                )
                                
                                $
                                (31,838
                                )
                                
                                $
                                (489,377
                                )
                                
                                $
                                (85,202
                                )





The
following summary presents the major components of the property within the
multifamily segment that is collateral on the loan in default status, which is
included in continuing operations as of June 30, 2010 and December 31,
2009.





AsofJune30,2010
                  
                  
                  December31,2009Net
      investment property
                  
                  $
                  6,529,589
                  
                  
                  $
                  6,830,787Cash
      and cash equivalents
                  
                  
                  43,031
                  
                  
                  
                  77,197Restricted
      escrows
                  
                  
                  78,706
                  
                  
                  
                  6,801Other
      assets
                  
                  
                  115,406
                  
                  
                  
                  118,343Total
      assets
                  
                  $
                  6,766,732
                  
                  
                  $
                  7,033,128Mortgage
      payable
                  
                  $
                  9,147,000
                  
                  
                  $
                  9,147,000Other
      liabilities
                  
                  
                  308,617
                  
                  
                  
                  144,711Total
      liabilities
                  
                  $
                  9,455,617
                  
                  
                  $
                  9,291,711


18





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


Notes
to Consolidated Financial Statements


(unaudited)





10.
            Mortgages
      Payable





Mortgages
payable, totaling approximately $200.4 million at June 30, 2010 and $202.2
million at December 31, 2009 consists of the following:





Weighted Avg
                                            Interest Rate
                                            as of
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          Loan Amount as ofProperty
                                          
                                          Interest Rate
                                          
                                          
                                          June 30,
                                            2010
                                          
                                          
                                          Maturity Date
                                          
                                          
                                          Amount Due at
                                            Maturity
                                          
                                          
                                          June 30,
                                            2010
                                          
                                          
                                          December 31,
                                            2009St.
      Augustine
                                          
                                          
                                          6.09
                                          %
                                          
                                          
                                          6.09
                                          %
                                          
                                          April 2016
                                          
                                          
                                          $
                                          23,747,523
                                          
                                          
                                          $
                                          26,220,943
                                          
                                          
                                          $
                                          26,400,159Southeastern
      Michigan Multi Family Properties
                                          
                                          
                                          5.96
                                          %
                                          
                                          
                                          5.96
                                          %
                                          
                                          July 2016
                                          
                                          
                                          
                                          38,138,605
                                          
                                          
                                          
                                          40,725,000
                                          
                                          
                                          
                                          40,725,000Oakview
      Plaza
                                          
                                          
                                          5.49
                                          %
                                          
                                          
                                          5.49
                                          %
                                          
                                          January 2017
                                          
                                          
                                          
                                          25,583,137
                                          
                                          
                                          
                                          27,500,000
                                          
                                          
                                          
                                          27,500,000Gulf
      Coast Industrial Portfolio
                                          
                                          
                                          5.83
                                          %
                                          
                                          
                                          5.83
                                          %
                                          
                                          February 2017
                                          
                                          
                                          
                                          49,556,985
                                          
                                          
                                          
                                          53,025,000
                                          
                                          
                                          
                                          53,025,000Houston
      Extended Stay Hotels (Two Individual Loans)
                                          
                                          LIBOR
      +
                                            4.50%
                                          
                                          
                                          
                                          4.67
                                          %
                                          
                                          April 2011
                                          
                                          
                                          
                                          9,008,750
                                          
                                          
                                          
                                          9,402,500
                                          
                                          
                                          
                                          10,193,750Brazos
      Crossing Power Center
                                          
                                          Greater
      of
                                            LIBOR
                                            +
      3.50% or
                                            6.75%
                                          
                                          
                                          
                                          7.36
                                          %
                                          
                                          December 2011
                                          
                                          
                                          
                                          6,385,788
                                          
                                          
                                          
                                          6,551,315
                                          
                                          
                                          
                                          7,338,947Camden
      Multi Family Properties - (Two Individual Loans)
                                          
                                          
                                          5.44
                                          %
                                          
                                          
                                          5.44
                                          %
                                          
                                          December 2014
                                          
                                          
                                          
                                          26,334,204
                                          
                                          
                                          
                                          27,849,500
                                          
                                          
                                          
                                          27,849,500Subtotal
      mortgage obligations
                                          
                                          
                                          
                                          
                                          
                                          
                                          5.75
                                          %
                                          
                                          
                                          
                                          
                                          $
                                          178,754,992
                                          
                                          
                                          $
                                          191,274,258
                                          
                                          
                                          $
                                          193,032,356Camden
      Multi Family Properties - (One Individual Loan)
                                          
                                          
                                          5.44
                                          %
                                          
                                          
                                          5.44
                                          %
                                          
                                          Current
                                          
                                          
                                          $
                                          9,147,000
                                          
                                          
                                          $
                                          9,147,000
                                          
                                          
                                          $
                                          9,147,000Total
      mortgage obligations
                                          
                                          
                                          
                                          
                                          
                                          
                                          5.73
                                          %
                                          
                                          
                                          
                                          
                                          $
                                          187,901,992
                                          
                                          
                                          $
                                          200,421,258
                                          
                                          
                                          $
                                          202,179,356





LIBOR at
June 30, 2010 was 0.3484%.  Each of the loans is secured by acquired
real estate and is non-recourse to the Company, with the exception of the
Houston Extended Stay Hotels loan which is 35% recourse to the
Company.





The
following table shows the mortgage payable maturing during the next five years
and thereafter at June 30, 2010 in the consolidated balance sheets:





Remainder
      of
                          2010 (1)
                        
                        
                        2011
                        
                        
                        2012
                        
                        
                        2013
                        
                        
                        2014
                        
                        
                        Thereafter
                        
                        
                        Total$
                        9,648,232
                        
                        
                        $
                        16,559,011
                        
                        
                        $
                        2,090,767
                        
                        
                        $
                        2,370,084
                        
                        
                        $
                        28,809,456
                        
                        
                        $
                        140,943,708
                        
                        
                        $
                        200,421,258





1)
            The amount due in
      2010 of $9.6 million includes the principal balance of $9.1 million
      associated with the loan within the Camden portfolio that is in default
      status.




Pursuant
to the Company’s loan agreements, escrows in the amount of approximately $2.9
million were held in restricted escrow accounts at June 30, 2010. These escrows
will be released in accordance with the loan agreements as payments of real
estate taxes, insurance and capital improvement transactions, as
required.  Our mortgage debt also contains clauses providing for
prepayment penalties.


19





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


Notes
to Consolidated Financial Statements


(unaudited)





For the
mortgage payable related to St. Augustine, Lightstone Holdings, LLC
(“Guarantor”), a company wholly owned by the Sponsor, has guaranteed to the
extent of a $27.2 million mortgage loan on the St. Augustine, the payment of
losses that the lender may sustain as a result of fraud, misappropriation,
misuse of loan proceeds or other acts of misconduct by the Company and/or
its principals or affiliates.  Such losses are recourse to
the Guarantor under the guaranty regardless of whether the lender has
attempted to procure payment from the Company or any other party.  Further,
in the event of the Company's voluntary bankruptcy, reorganization or
insolvency, or the interference by the Company or its affiliates in any
foreclosure proceedings or other remedy exercised by the lender, the
Guarantor has guaranteed the payment of any unpaid loan amounts.  The
Company has agreed, to the maximum extent permitted by its Charter, to
indemnify Guarantor for any liability that it incurs under
this guaranty.





In
connection with the acquisition of the Hotels, the Houston Partnership along
with ESD #5051 - Houston - Sugar Land, LLC and ESD #5050 - Houston - Katy
Freeway, LLC, its wholly owned subsidiaries (the “Houston Borrowers”) secured a
mortgage loan from Bank of America, N.A. in the principal amount of $12.85
million which matured on April 16, 2010 and during April 2010 has been amended
and extended to mature April 16, 2011.  As part of the April 2010
amendment, the Company made a lump sum principal payment of $0.5 million. The
amended mortgage loan bears interest on a daily basis expressed as a floating
rate equal to the lesser of (i) the maximum non-usurious rate of interest
allowed by applicable law or (ii) the British Bankers Association Libor Daily
Floating Rate plus 450 basis points (4.50%) per annum rate and requires monthly
installments of interest plus a principal payment of $43,750. The remaining
principal balance, together with all accrued and unpaid interest and all other
amounts payable there under will be due on April 16, 2011.  The
mortgage loan is secured by the Hotels and 35% of the obligation is guaranteed
by the Company.   In addition, the Company has entered into an
interest rate swap agreement to cap the libor rate at 1% until the maturity of
the loan.





In
December 2008, the Company converted its construction loan to fund and the
development of the Brazos Crossing Power Center, in Lake Jackson, Texas Location
to a term loan maturing on December 4, 2009 which has been amended and extended
to mature December 4, 2011.  As part of the amendment to the mortgage,
the Company made a lump sum principal payment of $0.7 million in February
2010.   The amended mortgage loan bears interest at the greater
of 6.75% or libor plus 350 basis points (3.50%) per annum rate and requires
monthly installments of interest plus a principal payment of
$9,737.  The loan is secured by acquired real estate.





On
November 16, 2007, in connection with the acquisition of the Camden Properties,
the Company through its wholly owned subsidiaries obtained from Fannie Mae five
substantially similar fixed rate mortgages aggregating $79.3
million.  Of the $79.3 million, only three of the five original loans
remain outstanding for an aggregate balance of $37.0 million (the “Loans”) as
$42.3 million was extinguished as part of a foreclosure (see note 8 for further
discussion). The Loans have a 30 year amortization period, mature in 7 years,
and bear interest at a fixed rate of 5.44% per annum. The Loans require monthly
installments of interest only through December 2010 and monthly installments of
principal and interest throughout the remainder of their stated terms. The Loans
will mature on December 1, 2014.  During June 2010, the Company
decided to not make its required debt service payment of $65,724 on one of these
three remaining loans, which has an outstanding principal balance of $9.1
million as of June 30, 2010.  The Company determined that future debt
service payments on this loan would no longer be economically beneficial to the
Company based upon the current and expected future performance of the property
associated with this loan.   The Company is in discussions with
the lender regarding its default status and potential future remedies, which
include transferring the property to the lender. Through June 30, 2010, the
Company has not recorded any potential prepayment penalties that it may be
assessed by the lender as the Company believes that the payment of this
potential liability is remote.





Certain
of our debt agreements require the maintenance of certain ratios, including debt
service coverage.  We have historically been and currently are in
compliance with all of our debt covenants or have obtained waivers from our
lenders, with the exception of the debt service coverage ratio on the debt
associated with the Hotels which the Company did not meet for the quarter ended
June 30, 2010.  Under the terms of the loan agreement, the Company
once notified by the lender of noncompliance has five days to cure by making a
principal payment to bring the debt service coverage ratio to at least the
minimum.  As of the date of this filing, the Company has not been
notified by the bank as per the loan agreement; however if the bank does notify
the Company and does not provide a waiver, then the Company will be required to
pay approximately $1.6 million as a lump sum payment to avoid
default.  We expect to remain in compliance with all our other
existing debt covenants; however, should circumstances arise that would cause us
to be in default, the various lenders would have the ability to accelerate the
maturity on our outstanding debt.





11.
            Distributions
      and Share Redemption Plan




Distributions





The
Board of Directors of the Company declared a dividend for each quarter in since
2006 through the quarter ended March 31, 2010. The distributions have been
calculated based on stockholders of record each day during this three-month
period at a rate of $0.0019178 per day, which, if paid each day for a 365-day
period, would equal a 7.0% annualized rate based on a share price of
$10.00.


20





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


Notes
to Consolidated Financial Statements


(unaudited)





On July
28, 2010, the Board of Directors of the Company declared a distribution for the
three-month period ending June 30, 2010. The distribution will be calculated
based on shareholders of record each day during this three-month period at a
rate of $0.00109589 per day, and will equal a daily amount that, if paid each
day for a 365-day period, would equal a 4.0% annualized rate based on a share
price of $10.00. The distribution was paid in cash on August 6, 2010 to
shareholders of record during the three-month period ended June 30,
2010.





At this
time, our Board of Directors has decided to temporarily lower the distribution
rate until the closing of the disposition of our investment in POAC and Mill Run
(the “Disposition”) (see Note 1 for further discussion).  Additionally, the
Board has decided to meet as soon as a closing date for the Disposition is set
(the “Closing Date”) with the intention of declaring an additional distribution
equal to 4% annualized rate, payable around the closing Date.  This will
bring the distribution for the three months ended June 30, 2010 to a grand total
of an 8% annualized rate, which is an increase over the prior quarterly
distributions of an annualized rate of 7%.




In
addition, on July 28, 2010, the Board of Directors of the Company temporarily
suspended the distribution reinvestment program pending final approval of the
registration statement by the Securities and Exchange Commission.





The
amount of distributions paid to our stockholders in the future will be
determined by our Board of Directors 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.





Share
Redemption Plans





Effective
March 2, 2010, the Board voted to temporarily suspend future share redemptions
under the Share Redemption Plan.  The Board will revisit this
decision, when the Disposition closes and anticipates that after that time it
will resume redeeming shares during the second half of 2010.





12.
            Net
      Income/(Loss) per Share




Net
Income/(Loss) per Share




Net
income/(loss) per share is computed by dividing the net income/(loss) by the
weighted average number of shares of common stock outstanding. As of June 30,
2010, the Company has 27,000 options issued and outstanding. The 27,000 options
are not included in the dilutive calculation as they are anti dilutive as a
result of the net loss from continuing operations attributable to Company’s
common shares.  As such, the numerator and the denominator used in
computing both basic and diluted net income/(loss) per share allocable to common
stockholders for each period presented are equal due to the net operating loss
from continuing operations for all periods presented.





13.
            Noncontrolling
      Interests




The
noncontrolling interests of the Company hold shares in the Operating
Partnership.  These shares include SLP units, limited partner units,
Series A Preferred Units and Common Units.





Distributions





During
the three and six months ended June 30, 2010, the Company paid distributions to
noncontrolling interests of $1.7 million and $3.4 million,
respectively.  As of June 30, 2010,  no distributions were
declared and not paid to noncontrolling interests.





Note
Receivable due from Noncontrolling Interests





In
connection with the contribution of the Mill Run and POAC membership interests,
the Company made loans to Arbor Mill Run JRM, LLC (“Arbor JRM”), Arbor National,
LLC CJ (“Arbor CJ”), AR Prime Holding, LLC (“AR Prime”), Central Jersey, LLC
(“TRAC”), Central Jersey Holdings II, LLC (“Central Jersey”), and JT Prime, LLC
(“JT Prime”) (collectively, “Noncontrolling Interest Borrowers”) in the
aggregate principal amount of $88.5 million (the “Noncontrolling Interest
Loans”).  These loans are payable semi-annually and accrue interest at
an annual rate of 4%. The loans mature through September 2017 and contain
customary events of default and default remedies.  The loans require
the Noncontrolling Interest Borrowers to prepay their respective loans in full
upon redemption of the Series A Preferred Units by the Operating
Partnership.  The loans are secured by the Series A Preferred Units
and Common Units issued in connection with the respective contribution of the
Mill Run and the POAC membership interests, as such these loans are classified
as a reduction to noncontrolling interests in the consolidated balance
sheets.


21





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


Notes
to Consolidated Financial Statements


(unaudited)





Accrued
interest related to these loans totaled $1.9 million and $1.8 million at June
30, 2010 and December 31, 2009 and are included in interest receivable from
related parties in the consolidated balance sheets.





Noncontrolling
Interest of Subsidiary within the Operating Partnerships





On August
25, 2009, the Operating Partnership acquired an additional 15% membership
interest in POAC and an additional 14.26% membership interest in Mill
Run.  In connection with the transactions, the Advisor charged an
acquisition fee equal to 2.75% of the acquisition price, which was approximately
$6.9 million ($5.6 million related POAC and $1.3 million related to Mill Run,
see Note 4).  On August 25, 2009, the Operating Partnership
contributed its investments of the 15% membership interest in POAC and the
14.26% membership interest in Mill Run to the newly formed PRO-DFJV Holdings,
LLC, a Delaware limited liability company (“PRO”) in exchange for a 99.99%
managing membership interest in PRO.  In addition, the Company
contributed $2,900 cash for a 0.01% non- managing membership interest in
PRO.  As the Operating Partnership is the managing member with
control, PRO is consolidated into the results and financial position of the
Company.   On September 15, 2009, the Advisor accepted, in lieu
of a cash payment of $6.9 million for the acquisition fee, a 19.17% profit
membership interest in PRO and assigned its rights to receive payment to the
Sponsor, who assigned the same to David Lichtenstein.  Under the terms
of the operating agreement of PRO, the 19.17% profit membership interest will
not receive any distributions until the Company receive distributions equivalent
to their capital contributions of approximately $29.0 million, then the 19.17%
profit membership interest shall receive distributions to $6.9
million.  Any remaining distributions shall be split between the three
members in proportion to their profit interests.





14.
            Related
      Party Transactions





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





The
Company pursuant to the related party arrangements has recorded the following
amounts the three and six months ended June 30, 2010 and 2009:





ThreeMonthsEnded
                  
                  
                  SixMonthsEndedJune30,2010
                  
                  
                  June30,2009
                  
                  
                  June30,2010
                  
                  
                  June30,2009(unaudited)
                  
                  
                  (unaudited)Acquisition
      fees
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  9,778,760Asset
      management fees
                  
                  
                  1,397,840
                  
                  
                  
                  1,144,398
                  
                  
                  
                  2,850,649
                  
                  
                  
                  1,804,828Property
      management fees
                  
                  
                  424,195
                  
                  
                  
                  464,678
                  
                  
                  
                  858,671
                  
                  
                  
                  924,234Acquisition
      expenses reimbursed to Advisor
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  902,753Development
      fees and leasing commissions
                  
                  
                  314,273
                  
                  
                  
                  105,139
                  
                  
                  
                  399,094
                  
                  
                  
                  205,331Total
                  
                  $
                  2,136,308
                  
                  
                  $
                  1,714,215
                  
                  
                  $
                  4,108,414
                  
                  
                  $
                  13,615,906





Lightstone
SLP, LLC, an affiliate of our Sponsor, has purchased SLP units in the Operating
Partnership. These SLP units, the purchase price of which will be repaid only
after stockholders receive a stated preferred return and their net investment,
will entitle Lightstone SLP, LLC to a portion of any regular distributions made
by the Operating Partnership. During the six months ended June 30, 2010,
distributions of $0.5 million were declared and distributions of $1.0 million
were paid related to the SLP units and are part of noncontrolling interests.
Since inception through June 30, 2010, cumulative distributions declared were
$4.9 million, of which $4.9 million have been paid.  Such
distributions, paid current at a 7% annualized rate of return to Lightstone SLP,
LLC through March 31, 2010 and will always be subordinated until
stockholders receive a stated preferred return.  For the three months
ended June 30, 2010, the Operating Partnership did not declare a distribution
related to the SLP units as the distribution to the stockholders was less than
7% for this period.





See Notes
3, 4 and 13 for other related party transactions.


22





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


Notes
to Consolidated Financial Statements


(unaudited)





15.
            Financial
      Instruments





The
carrying amounts of cash and cash equivalents, accounts receivable and accounts
payable approximate their fair values because of the short maturity of these
instruments. The fair value of the mortgage payable as of June 30, 2010 was
approximately $202.6 million compared to the book value of approximately $200.4
million. The fair value of the mortgage payable as of December 31, 2009 was
approximately $235.3 million, which includes $42.3 million related debt
classified as liabilities  disposed of compared to the book value of
approximately $244.5 million, including $42.3 related to debt classified as
liabilities disposed of. The fair value of the mortgage payable was determined
by discounting the future contractual interest and principal payments by a
market interest rate.





16.
            Segment
      Information





The
Company currently operates in four business segments as of June 30, 2010: (i)
retail real estate, (ii) residential multifamily real estate, (iii) industrial
real estate and (iv) hospitality. The Company’s advisor and its affiliates
provide leasing, property and facilities management, acquisition, development,
construction and tenant-related services for its portfolio. The Company’s
revenues for the three and six months ended June 30, 2010 and 2009 were
exclusively derived from activities in the United States. No revenues from
foreign countries were received or reported. The Company had no long-lived
assets in foreign locations as of June 30, 2010 and December 31, 2009. The
accounting policies of the segments are the same as those described in Note 2:
Summary of Significant Accounting Policies of the Company’s December 31, 2009
Annual Report on Form 10-K.  Unallocated assets, revenues and expenses
relate to corporate related accounts.





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





Selected
results of operations for the three months ended June 30, 2010 and 2009, and
total assets as of June 30, 2010 and December 31, 2009 regarding the Company’s
operating segments are as follows:





For the Three Months Ended June 30, 2010Retail
                  
                  
                  Multi Family
                  
                  
                  Industrial
                  
                  
                  Hospitality
                  
                  
                  Unallocated
                  
                  
                  TotalTotal
      revenues
                  
                  $
                  2,677,123
                  
                  
                  $
                  3,215,037
                  
                  
                  $
                  1,731,153
                  
                  
                  $
                  828,758
                  
                  
                  $
                  -
                  
                  
                  $
                  8,452,071Property
      operating expenses
                  
                  
                  643,702
                  
                  
                  
                  1,492,617
                  
                  
                  
                  537,423
                  
                  
                  
                  368,593
                  
                  
                  
                  (106
                  )
                  
                  
                  3,042,229Real
      estate taxes
                  
                  
                  319,603
                  
                  
                  
                  356,522
                  
                  
                  
                  219,133
                  
                  
                  
                  57,698
                  
                  
                  
                  -
                  
                  
                  
                  952,956General
      and administrative costs
                  
                  
                  24,363
                  
                  
                  
                  123,872
                  
                  
                  
                  26,172
                  
                  
                  
                  (4,039
                  )
                  
                  
                  2,057,885
                  
                  
                  
                  2,228,253Net
      operating income/(loss)
                  
                  
                  1,689,455
                  
                  
                  
                  1,242,026
                  
                  
                  
                  948,425
                  
                  
                  
                  406,506
                  
                  
                  
                  (2,057,779
                  )
                  
                  
                  2,228,633Depreciation
      and amortization
                  
                  
                  297,250
                  
                  
                  
                  415,054
                  
                  
                  
                  573,888
                  
                  
                  
                  126,654
                  
                  
                  
                  -
                  
                  
                  
                  1,412,846Loss
      on long-lived assets
                  
                  
                  1,193,233
                  
                  
                  
                  -
                  
                  
                  
                  (43,659
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,149,574Operating
      income/(loss)
                  
                  $
                  198,972
                  
                  
                  $
                  826,972
                  
                  
                  $
                  418,196
                  
                  
                  $
                  279,852
                  
                  
                  $
                  (2,057,779
                  )
                  
                  $
                  (333,787
                  )As
      of June 30, 2010:Total
      Assets
                  
                  $
                  99,690,017
                  
                  
                  $
                  70,101,330
                  
                  
                  $
                  71,691,675
                  
                  
                  $
                  18,044,649
                  
                  
                  $
                  122,392,214
                  
                  
                  $
                  381,919,885


23


LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 (unaudited)
  For the Three Months Ended June 30, 2009Retail
                      
                      
                      Multi Family
                      
                      
                      Industrial
                      
                      
                      Hospitality
                      
                      
                      Unallocated
                      
                      
                      TotalTotal
      revenues
                      
                      
                      2,796,396
                      
                      
                      $
                      3,439,009
                      
                      
                      $
                      1,808,342
                      
                      
                      $
                      1,015,911
                      
                      
                      $
                      -
                      
                      
                      $
                      9,059,658Property
      operating expenses
                      
                      
                      744,534
                      
                      
                      
                      1,479,778
                      
                      
                      
                      549,230
                      
                      
                      
                      464,086
                      
                      
                      
                      -
                      
                      
                      
                      3,237,628Real
      estate taxes
                      
                      
                      295,686
                      
                      
                      
                      350,334
                      
                      
                      
                      233,215
                      
                      
                      
                      50,003
                      
                      
                      
                      -
                      
                      
                      
                      929,238General
      and administrative costs
                      
                      
                      93,807
                      
                      
                      
                      116,506
                      
                      
                      
                      (11,489
                      )
                      
                      
                      7,286
                      
                      
                      
                      2,105,405
                      
                      
                      
                      2,311,515Net
      operating income/(loss)
                      
                      
                      1,662,369
                      
                      
                      
                      1,492,391
                      
                      
                      
                      1,037,386
                      
                      
                      
                      494,536
                      
                      
                      
                      (2,105,405
                      )
                      
                      
                      2,581,277Depreciation
      and amortization
                      
                      
                      928,342
                      
                      
                      
                      491,078
                      
                      
                      
                      636,748
                      
                      
                      
                      119,302
                      
                      
                      
                      553
                      
                      
                      
                      2,176,023Loss
      on long lived asset
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Operating
      income/(loss)
                      
                      
                      734,027
                      
                      
                      $
                      1,001,313
                      
                      
                      $
                      400,638
                      
                      
                      $
                      375,234
                      
                      
                      $
                      (2,105,958
                      )
                      
                      $
                      405,254As
      of December 31, 2009:Total
      Assets
                      
                      
                      101,842,972
                      
                      
                      $
                      97,733,447
                      
                      
                      $
                      72,032,250
                      
                      
                      $
                      18,043,757
                      
                      
                      $
                      139,911,450
                      
                      
                      $
                      429,563,876
 
 Selected
results of operations for the six months ended June 30, 2010 and 2009 regarding
the Company’s operating segments are as follows:
 
 For the Six Months Ended June 30, 2010Retail
                      
                      
                      Multi Family
                      
                      
                      Industrial
                      
                      
                      Hospitality
                      
                      
                      Unallocated
                      
                      
                      TotalTotal
      revenues
                      
                      $
                      5,428,023
                      
                      
                      $
                      6,444,394
                      
                      
                      $
                      3,493,059
                      
                      
                      $
                      1,406,230
                      
                      
                      $
                      -
                      
                      
                      $
                      16,771,706Property
      operating expenses
                      
                      
                      1,439,637
                      
                      
                      
                      3,090,167
                      
                      
                      
                      1,032,998
                      
                      
                      
                      802,518
                      
                      
                      
                      -
                      
                      
                      
                      6,365,320Real
      estate taxes
                      
                      
                      621,089
                      
                      
                      
                      713,061
                      
                      
                      
                      452,659
                      
                      
                      
                      131,793
                      
                      
                      
                      -
                      
                      
                      
                      1,918,602General
      and administrative costs
                      
                      
                      29,380
                      
                      
                      
                      152,107
                      
                      
                      
                      32,344
                      
                      
                      
                      (57
                      )
                      
                      
                      5,047,798
                      
                      
                      
                      5,261,572Net
      operating income/(loss)
                      
                      
                      3,337,917
                      
                      
                      
                      2,489,059
                      
                      
                      
                      1,975,058
                      
                      
                      
                      471,976
                      
                      
                      
                      (5,047,798
                      )
                      
                      
                      3,226,212Depreciation
      and amortization
                      
                      
                      618,460
                      
                      
                      
                      827,698
                      
                      
                      
                      1,181,973
                      
                      
                      
                      251,459
                      
                      
                      
                      -
                      
                      
                      
                      2,879,590Loss
      on long-lived assets
                      
                      
                      1,193,233
                      
                      
                      
                      300,000
                      
                      
                      
                      (69,555
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,423,678Operating
      income/(loss)
                      
                      $
                      1,526,224
                      
                      
                      $
                      1,361,361
                      
                      
                      $
                      862,640
                      
                      
                      $
                      220,517
                      
                      
                      $
                      (5,047,798
                      )
                      
                      $
                      (1,077,056
                      )
 
 For the Six Months Ended June 30, 2009Retail
                      
                      
                      Multi Family
                      
                      
                      Industrial
                      
                      
                      Hospitality
                      
                      
                      Unallocated
                      
                      
                      TotalTotal
      revenues
                      
                      $
                      5,569,925
                      
                      
                      $
                      6,907,370
                      
                      
                      $
                      3,696,980
                      
                      
                      $
                      1,956,172
                      
                      
                      $
                      -
                      
                      
                      $
                      18,130,447Property
      operating expenses
                      
                      
                      1,524,270
                      
                      
                      
                      3,177,135
                      
                      
                      
                      946,951
                      
                      
                      
                      902,664
                      
                      
                      
                      -
                      
                      
                      
                      6,551,020Real
      estate taxes
                      
                      
                      609,646
                      
                      
                      
                      701,708
                      
                      
                      
                      466,427
                      
                      
                      
                      109,690
                      
                      
                      
                      -
                      
                      
                      
                      1,887,471General
      and administrative costs
                      
                      
                      182,050
                      
                      
                      
                      276,551
                      
                      
                      
                      (2,141
                      )
                      
                      
                      3,335
                      
                      
                      
                      3,238,162
                      
                      
                      
                      3,697,957Net
      operating income/(loss)
                      
                      
                      3,253,959
                      
                      
                      
                      2,751,976
                      
                      
                      
                      2,285,743
                      
                      
                      
                      940,483
                      
                      
                      
                      (3,238,162
                      )
                      
                      
                      5,993,999Depreciation
      and amortization
                      
                      
                      1,841,770
                      
                      
                      
                      963,732
                      
                      
                      
                      1,265,126
                      
                      
                      
                      234,143
                      
                      
                      
                      830
                      
                      
                      
                      4,305,601Loss
      on long-lived assets
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Operating
      income/(loss)
                      
                      $
                      1,412,189
                      
                      
                      $
                      1,788,244
                      
                      
                      $
                      1,020,617
                      
                      
                      $
                      706,340
                      
                      
                      $
                      (3,238,992
                      )
                      
                      $
                      1,688,398
 
 17.
              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.
  24
  LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 (unaudited)
 On March
29, 2006, Jonathan Gould, a former member of our Board of Directors and Senior
Vice-President-Acquisitions, filed a lawsuit against us in the District Court
for the Southern District of New York. The suit alleges, among other things,
that Mr. Gould was insufficiently compensated for his services to us as director
and officer. Mr. Gould sought damages of (i) up to $11,500,000 or (ii) a 2.5%
ownership interest in all properties that we acquire and an option to acquire up
to 5% of the membership interests of Lightstone SLP, LLC. We filed a motion to
dismiss the lawsuit. After review of the motion to dismiss, counsel for Mr.
Gould represented that Mr. Gould was dropping his claim for ownership interest
in the properties we acquire and his claim for membership interests. Mr. Gould’s
counsel represented that he would be suing only under theories of quantum merit
and unjust enrichment seeking the value of work he performed.  Counsel for
the Company made motion to dismiss Mr. Gould’s complaint, which was granted by
Judge Sweeney.  Mr. Gould has filed an appeal of the decision dismissing
his case, which is pending.   Management believes that this suit is
frivolous and entirely without merit and intends to defend against these charges
vigorously. The Company believes any unfavorable outcome on this matter will not
have a material effect on the unaudited consolidated financial
statements.
 
 On
January 4, 2007, 1407 Broadway Real Estate LLC ("Office Owner"), an indirect,
wholly owned subsidiary of 1407 Broadway Mezz II LLC ("Mezz II"), consummated
the acquisition of a sub-leasehold interest (the "Sublease Interest") in an
office building located at 1407 Broadway, New York, New York (the "Office
Property"). Mezz II is a joint venture between LVP 1407 Broadway LLC ("LVP
LLC"), a wholly owned subsidiary of our operating partnership, and Lightstone
1407 Manager LLC ("Manager"), which is wholly owned by David Lichtenstein, the
Chairman of our Board of Directors and our Chief Executive Officer, and Shifra
Lichtenstein, his wife.
  The
Sublease Interest was acquired pursuant to a Sale and Purchase of Leasehold
Agreement with Gettinger Associates, L.P. ("Gettinger"). In July 2006, Abraham
Kamber Company, as Sublessor under the sublease ("Sublessor"), served two
notices of default on Gettinger (the "Default Notices"). The first alleged that
Gettinger had failed to satisfy its obligations in performing certain
renovations and the second asserted numerous defaults relating to Gettinger's
purported failure to maintain the Office Property in compliance with its
contractual obligations.
 
 In
response to the Default Notices, Gettinger commenced legal action and obtained
an injunction that extends its time to cure any default, prohibits interference
with its leasehold interest and prohibits Sublessor from terminating its
sublease pending resolution of the litigation. A motion by Sublessor for partial
summary judgment, alleging that certain work on the Office Property required its
prior approval, was denied by the Supreme Court, New York County. Subsequently,
by agreement of the parties, a stay was entered precluding the termination of
the Sublease Interest pending a final decision on Sublessor's claim of defaults
under the Sublease Interest. In addition, the parties stipulated to the
intervention of Office Owner as a party to the proceedings. The parties have
been directed to engage in and complete discovery. We consider the litigation to
be without merit.
  Prior to
consummating the acquisition of the Sublease Interest, Office Owner received a
letter from Sublessor indicating that Sublessor would consider such acquisition
a default under the original sublease, which prohibits assignments of the
Sublease Interest when there is an outstanding default there under. On February
16, 2007, Office Owner received a Notice to Cure from Sublessor stating the
transfer of the Sublease Interest occurred in violation of the Sublease given
Sublessor's position that Office Seller is in default. Office Owner will
commence and vigorously pursue litigation in order to challenge the default,
receive an injunction and toll the termination period provided for in the
Sublease.
 
 On
September 4, 2007, Office Owner commenced a new action against Sublessor
alleging a number claims, including the claims that Sublessor has breached the
sublease and committed intentional torts against Office Owner by (among other
things) issuing multiple groundless default notices, with the aim of prematurely
terminating the sublease and depriving Office Owner of its valuable interest in
the sublease.  The complaint seeks a declaratory judgment that Office Owner
has not defaulted under the sublease, damages for the losses Office Owner has
incurred as a result of Sublessor’s wrongful conduct, and an injunction to
prevent Sublessor from issuing further default notices without valid grounds or
in bad faith.  The Company believes any unfavorable outcome on this
matter will not have a material effect on the consolidated financial
statements.
 
 As of the
date hereof, we are not a party to any other material pending legal
proceedings.
  25
  LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 (unaudited)
  Tax
Protection Agreement
 In connection with the
contribution of the Mill Run Interest (see Note 3) and the POAC Interest (See
Note 3), the Operating Partnership entered into Tax Protection Agreements with
each of Arbor JRM, Arbor CJ, AR Prime, TRAC, Central Jersey and JT Prime
(collectively, the “Contributors”). Under these Tax Protection Agreements, the
Operating Partnership is required to indemnify each of Arbor JRM, Arbor CJ, TRAC
and Central Jersey with respect to the Mill Run Properties, and AR Prime and JT
Prime, with respect to the POAC Properties, from June 26, 2008 for Arbor JRM,
Arbor CJ and AR Prime and from August 25, 2009 for TRAC, Central Jersey and JT
Prime to June 26, 2013 for, among other things, certain income tax liability
that would result from the income or gain which Arbor JRM, Arbor CJ, TRAC,
Central Jersey on the one hand, or AR Prime, JT Prime, on the other hand, would
recognize upon the Operating Partnership’s failure to maintain the current level
of debt encumbering the Mill Run Properties or the POAC Properties,
respectively, or the sale or other disposition by the Operating Partnership of
the Mill Run Properties, the Mill Run Interest, the POAC Properties, or the POAC
Interest (each, an “Indemnifiable Event”). Under the terms of the Tax Protection
Agreements, the Operating Partnership is indemnifying the Contributors for
certain income tax liabilities based on income or gain which the Contributors
are deemed to be required to include in their gross income for federal or state
income tax purposes (assuming the Contributors are subject to tax at the highest
regional, federal, state and local tax rates imposed on individuals residing in
New York City) as a result of an Indemnifiable Event. This indemnity covers
income taxes, interest and penalties and is required to be made on a "grossed
up" basis that effectively results in the Contributors receiving the indemnity
payment on a net, after-tax basis. The amount of the potential tax indemnity to
the Contributors under the Tax Protection Agreements, including a gross-up for
taxes on any such payment, using current tax rates, is estimated to be
approximately $95.7 million. The Company has not recorded a liability in its
consolidated balance sheets as the Company believes that the potential liability
is remote as of June 30, 2010.
 
 Each Tax
Protection Agreement imposes certain restrictions upon the Operating Partnership
relating to transactions involving the Mill Run Properties and the POAC
Properties which could result in taxable income or gain to the Contributors. The
Operating Partnership may not dispose or transfer any Mill Run Property or any
POAC Property without first proving that the Operating Partnership possesses the
requisite liquidity, including the proceeds from any such transaction, to make
any payments that would come due pursuant to the Tax Protection Agreement.
However, the Operating Partnership may take the following actions: (i) (A) as to
the POAC Properties, commencing with the period one year and thirty-one days
following the date of the Tax Protection Agreement, the Operating Partnership
can sell on an annual basis part or all of any of the POAC Properties with an
aggregate value of ten percent (10%) or less of the total value of the POAC
Properties as of the date of contribution (and any amounts of the ten percent
(10%) value not sold can be applied to sales in future years); and (B) as to the
Mill Run Properties either the same ten percent (10%) test as set forth above in
(i)(A) with respect to the Mill Run Properties or the sale of the property known
by Design Outlet Center; and (ii) the Operating Partnership can enter into a
non-recognition transaction with either the consent of the Contributors or an
opinion from an independent law or accounting firm stating that it is “more
likely than not” that the transaction will not give rise to current taxable
income or gain.
 
 Investment
Company Act of 1940
  The
Investment Company Act of 1940 places restrictions on the capital structure and
business activities of companies registered thereunder. The Company intends to
conduct its operations so that it will not be subject to regulation under the
Investment Company Act of 1940. However, based upon changes in the valuation of
the Company’s portfolio of investments as of September 30, 2009, including with
respect to certain investment securities the Company currently holds, the
Company may be deemed to have become an inadvertent investment company under the
Investment Company Act of 1940.  The Company is currently evaluating
its response to this development, including the availability of exemptive or
other relief under the Investment Company Act of 1940, and the Company intends
to take affirmative steps to ensure compliance with applicable regulatory
requirements.
  If the
Company fails to maintain an exemption or exclusion from registration as an
investment company, the Company could, among other things, be required either
(a) to substantially change the manner in which the Company conducts its
operations to avoid being required to register as an investment company, or (b)
to register as an investment company, either of which could have an adverse
effect on the Company and the market price of its common stock. If the Company
were required to register as an investment company under the Investment Company
Act of 1940, the Company would become subject to substantial regulation with
respect to its capital structure (including its ability to use leverage),
management, operations, transactions with affiliated persons (as defined in the
Investment Company Act of 1940), portfolio composition, including restrictions
with respect to diversification and industry concentration and other matters. In
addition, if the SEC or a court takes the view that the Company has operated and
continues to operate as an unregistered investment company in violation of the
Investment Company Act of 1940, and does not provide the Company with a
sufficient period to either register as an investment company, obtain exemptive
relief, or divest itself of investment securities and/or acquire non-investment
securities, the Company may be subject to significant potential penalties and
certain of the contracts to which it is a party may be voidable.
  The
Company intends to continue to monitor its compliance with the exemptions under
the Investment Company Act of 1940 on an ongoing basis.
  From time
to time in the ordinary course of business, the Company may become subject to
legal proceedings, claims or disputes.
  26
 
 PART I. FINANCIAL INFORMATION,
CONTINUED:
 ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
  The
following discussion and analysis should be read in conjunction with the
accompanying financial statements of Lightstone Value Plus Real Estate
Investment Trust, Inc. and the notes thereto. As used herein, the terms “we,”
“our” and “us” refer to Lightstone Value Plus Real Estate Investment Trust,
Inc., a Maryland corporation, and, as required by context, Lightstone Value Plus
REIT, L.P. and its wholly owned subsidiaries, which we collectively refer to as
“the Operating Partnership.”
  Forward-Looking
Statements
  Certain
information included in this Quarterly Report on Form 10-Q contains, and other
materials filed or to be filed by us with the Securities and Exchange
Commission, or the SEC, contain or will contain, forward-looking statements. All
statements, other than statements of historical facts, including, among others,
statements regarding our possible or assumed future results of our business,
financial condition, liquidity, results of operations, plans and objectives, are
forward-looking statements. Those statements include statements regarding the
intent, belief or current expectations of Lightstone Value Plus Real Estate
Investment Trust, Inc. and members of our management team, as well as the
assumptions on which such statements are based, and generally are identified by
the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,”
“estimates,” “expects,” “plans,” “intends,” “should” or similar expressions.
Forward-looking statements are not guarantees of future performance and involve
risks and uncertainties that actual results may differ materially from those
contemplated by such forward-looking statements.
 
 Such
statements are based on assumptions and expectations which may not be realized
and are inherently subject to risks and uncertainties, many of which cannot be
predicted with accuracy and some of which might not even be anticipated. Future
events and actual results, financial and otherwise, may differ from the results
discussed in the forward-looking statements.
 
 Risks and
other factors that might cause differences, some of which could be material,
include, but are not limited to, economic and market conditions, competition,
tenant or joint venture partner(s) bankruptcies, changes in governmental, tax,
real estate and zoning laws and regulations, failure to increase tenant
occupancy and operating income, rejection of leases by tenants in bankruptcy,
financing and development risks, construction and lease-up delays, cost
overruns, the level and volatility of interest rates, the rate of revenue
increases versus expense increases, the financial stability of various tenants
and industries, the failure of the Company (defined herein) to make additional
investments in real estate properties, the failure to upgrade our tenant mix,
restrictions in current financing arrangements, the failure to fully recover
tenant obligations for common area maintenance (“CAM”), insurance, taxes and
other property expenses, the failure of the Company to continue to qualify as a
real estate investment trust (“REIT”), the failure to refinance debt at
favorable terms and conditions, an increase in impairment charges, loss of key
personnel, failure to achieve earnings/funds from operations targets or
estimates, conflicts of interest with the Advisor, Sponsor  and their
affiliates, failure of joint venture relationships, significant costs related to
environmental issues as well as other risks listed from time to time in this
Form 10-Q, our Form 10-K, our Registration Statement on Form S-11 (File No.
333-117367), as the same may be amended and supplemented from time to time, and
in the Company’s other reports filed with the Securities and Exchange Commission
(“SEC”).
  We
believe these forward-looking statements are reasonable; however, undue reliance
should not be placed on any forward-looking statements, which are based on
current expectations. All written and oral forward-looking statements
attributable to us, or persons acting on our behalf, are qualified in their
entirety by these cautionary statements. Further, forward-looking statements
speak only as of the date they are made, and we undertake no obligation to
update or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes to future operating results over
time unless required by law.
  27
 
 Overview
 
 Lightstone
Value Plus Real Estate Investment Trust, Inc. (the “Company”) has acquired and
operates commercial, residential and hospitality properties, principally in the
United States. Principally through the Lightstone Value Plus REIT, LP, (the
“Operating Partnership”), our acquisitions have included both portfolios and
individual properties. Our commercial holdings  consist of retail
(primarily multi-tenant shopping centers), lodging (primarily extended stay
hotels), industrial and office properties and that our residential properties
are principally comprised of ‘‘Class B’’ multi-family complexes.
 
 We
do not have employees. We entered into an advisory agreement dated April 22,
2005 with Lightstone Value Plus REIT LLC, a Delaware limited liability company,
which we refer to as the “Advisor,” pursuant to which the Advisor supervises and
manages our day-to-day operations and selects our real estate and real estate
related investments, subject to oversight by our board of directors. We pay the
Advisor fees for services related to the investment and management of our
assets, and we reimburse the Advisor for certain expenses incurred on our
behalf.
 
 Current
Environment
 
 The
slowdown in the economy coupled with continued job losses and/or lack of job
growth leads us to be cautious regarding the expected performance of 2010 for
our commercial as well as multifamily residential properties.  In
addition, the effect of the current economic downturn is having an impact on
many retailers nationwide, including tenants of our commercial
properties.  There have been many national retail chains that have
filed for bankruptcy.   In addition to those who have filed, or
may file, bankruptcy, many retailers have announced store closings and a
slowdown in their expansion plans. For multifamily residential properties, in
general, evictions have increased and requests for rent reductions and
abatements are becoming more frequent.
 
 U.S. and
global credit and equity markets have recently undergone significant disruption,
making it difficult for many businesses to obtain financing on acceptable terms
or at all. As a result of this disruption, in general there has been an increase
in the costs associated with the borrowings and refinancing as well as limited
availability of funds for refinancing.  If these conditions continue
or worsen, our cost of borrowing may increase and it may be more difficult to
refinance debt obligations as they come due in the ordinary
course.  Our best course of action may be to work with existing
lenders to renegotiate an interim extension until the credit markets
improve.See Note 10
of notes to consolidated financial statements for discussion of maturity dates
of our debt obligations.
 
 As a
result of the current environment and the direct impact it continues to have on
certain properties, during the three months ended June 30, 2010, two of our
properties within our multifamily segment were transferred back to the lender a
part of foreclosure proceedings.    The foreclosure sale for
one of the properties was completed on April 13, 2010 and the other one was
completed on May 18, 2010.  The transactions resulted in a gain on
debt extinguishment of $17.2 million which is included in discontinued
operations.   In addition, during the three months ended, June
30, 2010, we determined that future debt service payments on an additional loan,
with a principal balance due of $9.1 million, in our multifamily portfolio would
no longer be economically beneficial to us based upon the current and expected
future performance of the property associated with this loan. See Notes 9 and 10
of the notes to the consolidated financial statements
 
 Our
operating results are impacted by the health of the North American
economies.  Our business and financial performance, including
collection of our accounts receivable, recoverability of assets including
investments, may be adversely affected by current and future economic
conditions, such as a reduction in the availability of credit, financial markets
volatility, and recession.
 
 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.
  28
 
 Portfolio
Summary –
 
 Year Built
                                        
                                        
                                        Leasable Square
                                        
                                        
                                        Percentage Occupied
                                          as of
                                        
                                        Annualized Revenues based
                                          on rents atLocation
                                        
                                        (Range of years built)
                                        
                                        
                                        Feet
                                        
                                        
                                        June 30, 2010
                                        
                                        June 30, 2010Wholly-Owned
      Real Estate Properties:RetailWholly-owned:St.
      Augustine Outlet Mall
                                        
                                        St.
      Augustine, FL
                                        
                                        1998
                                        
                                        
                                        
                                        337,720
                                        
                                        
                                        
                                        82.5
                                        %
                                        $4.2
      millionOakview
      Power Center
                                        
                                        Omaha,
      NE
                                        
                                        1999
      - 2005
                                        
                                        
                                        
                                        177,103
                                        
                                        
                                        
                                        85.3
                                        %
                                        $2.0
      millionBrazos
      Crossing Power Center
                                        
                                        Lake
      Jackson, TX
                                        
                                        2007-2008
                                        
                                        
                                        
                                        61,213
                                        
                                        
                                        
                                        100.0
                                        %
                                        $0.8
      millionSubtotal
      wholly-owned
                                        
                                        
                                        
                                        576,036
                                        
                                        
                                        
                                        85.2
                                        %Unconsolidated
      Affiliated Real Estate Entities:Orlando Outlet &
      Design Center(1)
                                        
                                        Orlando,
      FL
                                        
                                        1991-2008
                                        
                                        
                                        
                                        978,625
                                        
                                        
                                        
                                        95.4
                                        %
                                        $28.6
      millionPrime Outlets
      Acquisition Company (18 retail outlet malls)(1)
                                        
                                        Various
                                        
                                        
                                        
                                        
                                        
                                        6,394,691
                                        
                                        
                                        
                                        93.7
                                        %
                                        $121.4
      millionSubtotal
      unconsolidated affiliated real estate entities
                                        
                                        
                                        
                                        7,373,316
                                        
                                        
                                        
                                        93.9
                                        %Retail
      Total
                                        
                                        
                                        
                                        7,949,352
                                        
                                        
                                        
                                        93.3
                                        %Industrial7
      Flex/Office/Industrial Bldgs from the Gulf Coast Industrial
      Portfolio
                                        
                                        New
      Orleans, LA
                                        
                                        1980-2000
                                        
                                        
                                        
                                        339,700
                                        
                                        
                                        
                                        75.9
                                        %
                                        $2.3
      million4
      Flex/Industrial Bldgs from the Gulf Coast Industrial
    Portfolio
                                        
                                        San
      Antonio, TX
                                        
                                        1982-1986
                                        
                                        
                                        
                                        484,255
                                        
                                        
                                        
                                        61.1
                                        %
                                        $1.5
      million3
      Flex/Industrial Buildings from the Gulf Coast Industrial
      Portfolio
                                        
                                        Baton
      Rouge, LA
                                        
                                        1985-1987
                                        
                                        
                                        
                                        182,792
                                        
                                        
                                        
                                        94.4
                                        %
                                        $1.2
      millionSarasota
      Industrial Property
                                        
                                        Sarasota,
      FL
                                        
                                        1992
                                        
                                        
                                        
                                        276,987
                                        
                                        
                                        
                                        22.1
                                        %
                                        $0.2
      millionIndustrial
      Total
                                        
                                        
                                        
                                        1,283,734
                                        
                                        
                                        
                                        61.3
                                        %
 
 Year Built
                                  
                                  
                                  
                                  
                                  
                                  Percentage Occupied
                                    as of
                                  
                                  Annualized Revenues based
                                    on rents atResidential:
                                  
                                  Location
                                  
                                  (Range of years built)
                                  
                                  
                                  Leasable Units
                                  
                                  
                                  June 30, 2010
                                  
                                  June 30, 2010Michigan
      Apt's (Four Multi-Family Apartment Buildings)
                                  
                                  Southeast  MI
                                  
                                  1965-1972
                                  
                                  
                                  
                                  1,017
                                  
                                  
                                  
                                  86.7
                                  %
                                  $7.0
      millionSoutheast
      Apt's (Three Multi-Family Apartment Buildings)
                                  
                                  Greensboro
      & Charlotte, NC
                                  
                                  1980-1987
                                  
                                  
                                  
                                  788
                                  
                                  
                                  
                                  91.1
                                  %
                                  $4.5
      millionResidential
      Total
                                  
                                  
                                  
                                  1,805
                                  
                                  
                                  
                                  88.6
                                  %
 
 Year to Date
                                              
                                              
                                              Percentage Occupied
                                                for the Period Ended
                                              
                                              Revenue per Available Room
                                                throughLocation
                                              
                                              Year Built
                                              
                                              
                                              Available Rooms
                                              
                                              
                                              June 30, 2010
                                              
                                              June 30, 2010Wholly-Owned
      Operating Properties:Sugarland
      and Katy Highway Extended Stay Hotels
                                              
                                              Houston,
      TX
                                              
                                              1998
                                              
                                              
                                              
                                              52,671
                                              
                                              
                                              
                                              69.7
                                              %
                                              $
                                              26.70
 
 Leasable Square
                                    
                                    
                                    Percentage Occupied
                                      as of
                                    
                                    Annualized Revenues based
                                      on rents atLocation
                                    
                                    Year Built
                                    
                                    
                                    Feet
                                    
                                    
                                    June 30, 2010
                                    
                                    June 30, 2010Unconsolidated
      Affiliated Real Estate Entities-Office:1407
      Broadway
                                    
                                    New
      York, NY
                                    
                                    1952
                                    
                                    
                                    
                                    1,114,695
                                    
                                    
                                    
                                    76.1
                                    %
                                    $33.1
      million
 
 (1) In
December 2009, Company signed a definitive agreement to dispose its investments
in POAC and Mill Run. See note 1 of notes to consolidated financial
statements.
  29
 
 Critical
Accounting Policies and Estimates
  There
were no material changes during the three and six months ended June 30, 2010 to
our critical accounting policies as reported in our Annual Report on Form 10-K,
for the year ended December 31, 2009.
 
 Results
of Operations
  The
Company’s primary financial measure for evaluating each of its properties is net
operating income (“NOI”).  NOI represents rental income less property
operating expenses, real estate taxes and general and administrative
expenses.  The Company believes that NOI is helpful to investors as a
supplemental measure of the operating performance of a real estate company
because it is a direct measure of the actual operating results of the company’s
properties.
 
 For the Three Months Ended
June 30, 2010 vs. June 30, 2009
 
 Consolidated
 
 Revenues
  Total
revenues decreased by $0.6 million to $8.5 million for the three months ended
June 30, 2010 compared to $9.1 million for the three months ended June 30,
2009.  The decrease is primarily due to a decline in our hospitality
segment of $0.2 million primarily due to overall lower demand and higher longer
term stays which earn a lower rate per room.   Our multifamily
segment also experienced an approximate $0.2 million decline in revenue as a
result of an increase in rent concessions and less resident charges due to
general economic environment.
 
 Property
operating expenses
  Property
operating expenses remained relatively flat for the three months ended June 30,
2010 compared to the same period in 2009.
 
 Real
estate taxes
  Real
estate taxes were relatively flat at $1.0 million for the three months ended
June 30, 2010 compared to the same period in 2009 of $0.9 million.
 
 Loss
on long-lived assets
 
 Loss on
long-lived assets during the three months ended June 30, 2010 primarily includes
the loss recorded of $1.2 million related to St. Augustine which was transferred
from held for sale to held and used during the three months ended June 30,
2010.  The adjustment recorded of $1.2 million was to bring St.
Augustine’s assets balance to the lower of their carrying value net of any
depreciation (amortization) expense that would have been recognized had the
assets been continuously classified as held and used or the fair value on June
28, 2010.  See Note 7 of notes to consolidated financial statements.
During the same period in the prior year, the Company did not incur any similar
losses.
 
 General
and administrative expenses
 
 General
and administrative costs were relatively consistent at $2.2 million for the
three months ended June 30, 2010 compared to the same period in 2009 of $2.3
million.
 
 Depreciation
and Amortization
  Depreciation
and amortization expense decreased by $0.8 million to $1.4 million for the
three months ended June 30, 2010 from $2.2 million during the same period in
2009 primarily due to a change in depreciation expense associated with St.
Augustine.  During the three months ended June 30, 2010, St. Augustine
was classified as held for sale and on June 28, 2010, this property was
reclassified to held and used (see note 7 of notes to consolidated financial
statements). The assets related to St. Augustine were not depreciated during
this period when St. Augustine was classified as held for sale.  The
depreciation expense recorded for St. Augustine during the three months ended
June 30, 2009 was $0.5 million.   In addition, a reduction in the
depreciable asset base as a result of the impairment charges recorded during
2009 in our multifamily and retail segments contributed to the
decline.
  30
  Other
income, net
  Interest
income was relatively flat for the three months ended June 30, 2010 compared to
the same period in 2009.
 
 Interest
Income
  Interest
income was consistent at approximately $1.0 million for the three months ended
June 30, 2010 compared to the same period in 2009.
 
 Interest
expense
  Interest
expense, including amortization of deferred financing costs, was consistent at
$3.0 million for the three months ended June 30, 2010 compared to the same
period in 2009.
 
 Gain/(loss)
on sale of marketable securities
 
 Gain/(loss)
on sale of marketable securities had a net increase of $0.9 million for the
three months ended June 30, 2010 compared to the three months ended June 30,
2009 due to timing of sales of securities and the difference in adjusted cost
basis compared to proceeds received on sale.
 
 Loss
from investments in unconsolidated affiliated real estate entities
 
 This
account represents our portion of the net income/loss of our three investments
in unconsolidated affiliated real estate entities, 1407 Broadway, Mill Run and
POAC.  Our loss from investment in unconsolidated real estate entities
for the three months ended June 30, 2010 was $2.0 million compared to $0.8
million during the three months ended June 30, 2009.   The
majority of the change was due to $1.3 million more depreciation expense
recorded during the period in 2010 compared to 2009 associated with the
difference in our cost of these investments in excess of their historical net
book values primarily related to timing of acquisitions.  We owned 25%
of POAC and 22.54% of Mill Run during the three months ended June 30,
2009.  During the three months ended June 30, 2010, we owned 40% of
POAC and 36.8% of Mill Run.  In addition, we were allocated additional
share of losses from our POAC and 1407 Broadway investment of $0.6 million and
$0.3 million, respectively. Offsetting this additional charge is a higher amount
of income of $1.0 million allocated to us from our Mill Run compared to 2009
primarily due to timing of acquisitions as well as increased revenue at Mill
Run.
 
 Noncontrolling
interests
 
 The loss
allocated to Noncontrolling interests relates to the interest in the Operating
Partnership held by our Sponsor as well as common units held by our limited
partners.
 
 Segment
Results of Operations for the Three Months Ended June 30, 2010 compared to June
30, 2009
 Retail
Segment
 
 For the Three MonthsEnded
                      
                      
                      Variance
                        Increase/(Decrease)June 30,2010
                      
                      
                      June 30,2009
                      
                      
                      $
                      
                      
                      %(unaudited)Revenue
                      
                      $
                      2,677,123
                      
                      
                      $
                      2,796,396
                      
                      
                      $
                      (119,273
                      )
                      
                      
                      -4.3
                      %NOI
                      
                      
                      1,689,455
                      
                      
                      
                      1,662,369
                      
                      
                      
                      27,086
                      
                      
                      
                      1.6
                      %Average
      Occupancy Rate for period
                      
                      
                      86.8
                      %
                      
                      
                      90.3
                      %
                      
                      
                      
                      
                      
                      
                      -3.9
                      %
 
 The
decline in revenue for the three months ended June 30, 2010 compared to the
three months ended June 30, 2009 was primarily due to an expected vacancy from a
larger tenant at one of the properties.  This decline is expected to
be temporary.
 
 NOI
improved slightly, despite the decline in revenue, driven by lower bad debt
expense of approximately $0.1 million and lower management fees based upon lower
revenues.
  31
  Multi
Family Segment
 
 For the Three MonthsEnded
                      
                      
                      Variance
                        Increase/(Decrease)June 30,2010
                      
                      
                      June 30,2009
                      
                      
                      $
                      
                      
                      %(unaudited)Revenue
                      
                      $
                      3,215,037
                      
                      
                      $
                      3,439,009
                      
                      
                      $
                      (223,972
                      )
                      
                      
                      -6.5
                      %NOI
                      
                      
                      1,242,026
                      
                      
                      
                      1,492,391
                      
                      
                      
                      (250,365
                      )
                      
                      
                      -16.8
                      %Average
      Occupancy Rate for period
                      
                      
                      88.7
                      %
                      
                      
                      89.5
                      %
                      
                      
                      
                      
                      
                      
                      -0.9
                      %
 
 Revenue
and NOI decreased by $0.2 million to $3.2 million for the three months ended
June 30, 2010 compared to the three months ended June 30,
2009.   The continued impact of the current economic environment
is negatively impacting this segment.  In order to assist current
tenants and to attract new tenants, we have increased rent abatements of $0.1
million and have been less aggressive with additional resident charges resulting
in $0.1 million less revenue during the three months ended June 30, 2010
compared to the same period in 2009.
 
 Industrial
Segment
 
 FortheThreeMonthsEnded
                      
                      
                      Variance
                        Increase/(Decrease)June30,2010
                      
                      
                      June30,2009
                      
                      
                      $
                      
                      
                      %(unaudited)Revenue
                      
                      $
                      1,731,153
                      
                      
                      $
                      1,808,342
                      
                      
                      $
                      (77,189
                      )
                      
                      
                      -4.3
                      %NOI
                      
                      
                      948,425
                      
                      
                      
                      1,037,386
                      
                      
                      
                      (88,961
                      )
                      
                      
                      -8.6
                      %Average
      Occupancy Rate for period
                      
                      
                      62.1
                      %
                      
                      
                      66.7
                      %
                      
                      
                      
                      
                      
                      
                      -6.9
                      %
 
 Revenue
and NOI decreased slightly by $0.1 million to $1.7 million for the three months
ended June 30, 2010 compared to the three months ended June 30, 2009 as a result
of a decline in the average occupancy rate due to turnover in small business
tenants, which are currently being negatively impacted by the current economic
environment.
 
 Hospitality
 
 FortheThreeMonthsEnded
                      
                      
                      Variance
                        Increase/(Decrease)June30,2010
                      
                      
                      June30,2009
                      
                      
                      $
                      
                      
                      %(unaudited)Revenue
                      
                      $
                      828,758
                      
                      
                      $
                      1,015,911
                      
                      
                      $
                      (187,153
                      )
                      
                      
                      -18.4
                      %NOI
                      
                      
                      406,506
                      
                      
                      
                      494,536
                      
                      
                      
                      (88,030
                      )
                      
                      
                      -17.8
                      %Average
      Occupancy Rate for period
                      
                      
                      79.4
                      %
                      
                      
                      76.3
                      %
                      
                      
                      
                      
                      
                      
                      4.1
                      %Average
      Revenue per Available Room for period
                      
                      $
                      31.11
                      
                      
                      $
                      37.54
                      
                      
                      $
                      (6.43
                      )
                      
                      
                      -17.1
                      %
 
 Revenue
decreased by $0.2 million to $0.8 million for the three months ended June 30,
2010 compared to the three months ended June 30, 2009.  The decline in
revenue is due to lower demand in the quarter related to business travel as well
as construction business which drives demand. In addition, the average Rev PAR
during three months ended June 30, 2010 was lower due to a higher percentage of
rooms occupied under longer term stays which typically earn a lower rate than
short term stays compared to a year ago.
 
 Net
operating income decreased by $0.1 million to $0.4 million for the three months
ended June 30, 2010 compared to the same period in 2009 as a result of the
decrease in revenue, partially offset by approximately $0.1 million decrease in
property operating primarily driven by payroll expense reduction.
  32
  For the Six Months Ended
June 30, 2010 vs. June 30, 2009
 
 Consolidated
 
 Revenues
  Total
revenues decreased by $1.3 million to $16.8 million for the six months ended
June 30, 2010 compared to $18.1 million for the six months ended June 30,
2009.  The decrease is primarily due to a decline in our hospitality
segment of $0.5 million due to overall expected lower demand and higher long
terms stays which earn a lower rate per room, as well as a decline in our
multifamily segment of $0.4 million primarily as a result of an increase in rent
concessions.  In addition, revenue from our industrial segment
declined by $0.2 million due to a decline of the average occupancy rate from
66.6% for the six months ended June 30, 2009 to 62.5% for the six months ended
June 30, 2010, as a result of higher turnover in small business
tenants.
 
 Property
operating expenses
  Property
operating expenses remained relatively flat for the six months ended June 30,
2010 compared to the same period in 2009.
 
 Real
estate taxes
  Real
estate taxes remained relatively flat for the six months ended June 30, 2010
compared to the same period in 2009. .
 
 Loss
on long-lived assets
 
 Loss on
long-lived assets during the six months ended June 30, 2010 primarily relates to
the loss recorded of $1.2 million related to St. Augustine which was transferred
from held for sale to held and used during the three months ended June 30,
2010.  The adjustment recorded of $1.2 million was to bring St.
Augustine’s assets balance to the lower of their carrying value net of any
depreciation (amortization) expense that would have been recognized had the
assets been continuously classified as held and used or the fair value on June
28, 2010.  See Note 7 of notes to consolidated financial statement.
During the same period in the prior year, the Company did not incur any similar
losses.
 
 General
and administrative expenses
 
 General
and administrative costs increased by $1.6 million to $5.3 million due to the
following:
 
 ·
                an
      increase of $1.0 million in asset management fees due to higher average
      asset values at June 30, 2010 compared to June 30, 2009 as a result of our
      investments in affiliates, Prime Outlet Acquisitions Company and Mill Run
      LLC, that we acquired during 2009;
 
 ·
                an
      increase of $0.9 million in accounting, legal and consulting services due
      to additional audit fees incurred during the six months ended June 30,
      2010 related to work performed on new investments in affiliates made
      during 2009 which were not part of the audit process for the six months
      ended June 30, 2009.
 
 These
increases are offset by a decline of $0.3 million in bad debt expense
predominately within our retail and multifamily residential
properties.
 
 Depreciation
and Amortization
  Depreciation
and amortization expense decreased by $1.4 million to $2.9 million for the
six months ended June 30, 2010 compared to same period in 2009 primarily due to
a change in depreciation expense associated with St.
Augustine.  During the three months ended June 30, 2010, St. Augustine
was classified as held for sale and on June 28, 2010, this property was
reclassified to held and used (see note 7 of notes to consolidated financial
statements). The assets related to St. Augustine were not depreciated during the
period January 1 through June 28, 2010 when St. Augustine was classified as held
for sale.  The depreciation expense recorded for St. Augustine during
the three months ended June 30, 2009 was $1.1 million.   In
addition, a reduction in the depreciable asset base as a result of the
impairment charges recorded during 2009 in our multifamily and retail segments
contributed to the decline.
  33
  Other
income, net
  Interest
income was relatively flat for the six months ended June 30, 2010 compared to
the same period in 2009.
 
 Interest
Income
  Interest
income was relatively flat for the six months ended June 30, 2010 compared to
the same period in 2009.
 
 Interest
expense
  Interest
expense, including amortization of deferred financing costs, was consistent
between the six months ended June 30, 2010 and the same period in
2009.
 
 Gain/(loss)
on sale of marketable securities
 
 Gain/(loss)
on sale of marketable securities increased by $0.9 million for the six months
ended June 30, 2010 compared to the six months ended June 30, 2009 due to timing
of sales of securities and the difference in adjusted cost basis compared to
proceeds received on sale.
 
 Income/(loss)
from investments in unconsolidated affiliated real estate entities
 
 This
account represents our portion of the net income/loss of our three investments
in unconsolidated affiliated real estate entities, 1407 Broadway, Mill Run and
POAC.  Our loss from investment in unconsolidated real estate entities
for the six months ended June 30, 2010 was $3.7 million compared to income of
$0.7 million during the six months ended June 30, 2009.   The
majority of the change was due to $5.0 million more depreciation expense
recorded during the period in 2010 compared to 2009 associated with the
difference in our cost of these investments in excess of their historical net
book values primarily related to timing of
acquisitions.    We owned 25% of POAC beginning on March 30,
2009 and 22.54% of Mill Run during the six months ended June 30,
2009.  During the six months ended June 30, 2010, we owned 40% of POAC
and 36.8% of Mill Run.  In addition, we were allocated additional
share of losses from our 1407 Broadway investment of $0.1
million.  Offsetting this additional charge is a higher amount of
income of $2.1 million allocated to us from our Mill Run and POAC investments
compared to 2009 primarily due to timing of acquisitions as well as increased
revenue at Mill Run.
 
 Noncontrolling
interests
 
 The loss
allocated to Noncontrolling interests relates to the interest in the Operating
Partnership held by our Sponsor as well as common units held by our limited
partners.
 
 Segment
Results of Operations for the Six Months Ended June 30, 2010 compared to June
30, 2009
 
 Retail
Segment
 
 FortheSixMonthsEnded
                      
                      
                      VarianceIncrease/(Decrease)June30,2010
                      
                      
                      June30,2009
                      
                      
                      $
                      
                      
                      %(unaudited)Revenue
                      
                      $
                      5,428,023
                      
                      
                      $
                      5,569,925
                      
                      
                      $
                      (141,902
                      )
                      
                      
                      -2.5
                      %NOI
                      
                      
                      3,337,917
                      
                      
                      
                      3,253,959
                      
                      
                      
                      83,958
                      
                      
                      
                      2.6
                      %Average
      Occupancy Rate for period
                      
                      
                      88.3
                      %
                      
                      
                      89.4
                      %
                      
                      
                      
                      
                      
                      
                      -1.2
                      %
 
 The
decline in revenue for the six months ended June 30, 2010 compared to the six
months ended June 30, 2009 was primarily due to an expected vacancy from a
larger tenant at one of the properties.  This decline is expected to
be temporary.
 
 NOI
improved slightly, despite the decline in revenue, driven by lower bad debt
expense of approximately $0.2 million and lower management fees based upon lower
revenues.
  34
  Multi
Family Segment
 
 Variance
                        Increase/(Decrease)June30,2010
                      
                      
                      June30,2009
                      
                      
                      $
                      
                      
                      %(unaudited)Revenue
                      
                      $
                      6,444,394
                      
                      
                      $
                      6,907,370
                      
                      
                      $
                      (462,976
                      )
                      
                      
                      -6.7
                      %NOI
                      
                      
                      2,489,059
                      
                      
                      
                      2,751,976
                      
                      
                      
                      (262,917
                      )
                      
                      
                      -9.6
                      %Average
      Occupancy Rate for period
                      
                      
                      90.4
                      %
                      
                      
                      88.6
                      %
                      
                      
                      
                      
                      
                      
                      2.0
                      %
 
 Revenue
decreased by $0.5 million to $6.4 million for the six months ended June 30, 2010
compared to the six months ended June 30, 2009.   The continued
impact of the current economic environment is negatively impacting this
segment.  In order to assist current tenants and to attract new
tenants, we have increased rent abatements by $0.4 million and have been less
aggressive with additional resident charges during the six months ended June 30,
2010 compared to the same period in 2009.
 
 Net
operating income decreased by $0.3 million to $2.5 million for the six months
ended June 30, 2010 from $2.8 million for the six months ended June 30,
2009.  The decrease is a result of the decrease in revenue offset by
lower bad debt expense of $0.2 million.
 
 Industrial
Segment
 
 FortheSixMonthsEnded
                      
                      
                      Variance
                        Increase/(Decrease)June30,2010
                      
                      
                      June30,2009
                      
                      
                      $
                      
                      
                      %(unaudited)Revenue
                      
                      $
                      3,493,059
                      
                      
                      $
                      3,696,980
                      
                      
                      $
                      (203,921
                      )
                      
                      
                      -5.5
                      %NOI
                      
                      
                      1,975,058
                      
                      
                      
                      2,285,743
                      
                      
                      
                      (310,685
                      )
                      
                      
                      -13.6
                      %Average
      Occupancy Rate for period
                      
                      
                      62.5
                      %
                      
                      
                      66.6
                      %
                      
                      
                      
                      
                      
                      
                      -6.2
                      %
 
 Revenue
decreased slightly by $0.2 million to $3.5 million for the six months ended June
30, 2010 compared to the six months ended June 30, 2009 due to a decline of the
average occupancy rate from 66.6% for the six months ended June 30, 2009 to
62.5% for the six months ended June 30, 2010 due to turnover in small business
tenants, which are currently being negatively impacted by the current economic
environment.
 
 Net
operating income decreased by $0.3 million to $2.0 million for the six months
ended June 30, 2010 compared to the six months ended June 30,
2009.  In addition to the $0.2 million decrease in revenue, this
segment also experienced an increase in repair and maintenance costs associated
with roof repairs during the current period, which did not occur in same period
in 2009.
 
 Hospitality
 
 FortheSixMonthsEnded
                      
                      
                      Variance
                        Increase/(Decrease)June30,2010
                      
                      
                      June30,2009
                      
                      
                      $
                      
                      
                      %(unaudited)Revenue
                      
                      $
                      1,406,230
                      
                      
                      $
                      1,956,172
                      
                      
                      $
                      (549,942
                      )
                      
                      
                      -28.1
                      %NOI
                      
                      
                      471,976
                      
                      
                      
                      940,483
                      
                      
                      
                      (468,507
                      )
                      
                      
                      -49.8
                      %Average
      Occupancy Rate for period
                      
                      
                      69.7
                      %
                      
                      
                      71.7
                      %
                      
                      
                      
                      
                      
                      
                      -2.8
                      %Average
      Revenue per Available Room for period
                      
                      $
                      26.70
                      
                      
                      $
                      36.62
                      
                      
                      $
                      (9.92
                      )
                      
                      
                      -27.1
                      %
 Revenue
decreased by $0.6 million to $1.4 million for the six months ended June 30, 2010
compared to the six months ended June 30, 2009.   The decrease is
largely driven by lower average revenue per available room (“Rev PAR”) coupled
with a lower occupancy rate during the period.  The average Rev PAR
during six months ended June 30, 2010 was lower due to a higher percentage of
rooms occupied under longer term stays which typically earn a lower rate than
short term stays compared to a year ago. Occupancy was lower due to the lower
demand in the overall lodging industry as a result of reduced business and
leisure travel.  In addition, one of the hotels in our segment had a
hot water maintenance problem which impacted the number of stays during the
period.
  35
  Net
operating income decreased by $0.5 million to $0.5 million for the six months
ended June 30, 2010 compared to the same period in 2009 as a result of the
decrease in revenue.
 
 Financial Condition, Liquidity and
Capital Resources
  Overview:
  Rental
revenue and borrowing are our principal source of funds to pay operating
expenses, debt service, capital expenditures and dividends, excluding
non-recurring capital expenditures.
  We expect
to meet our short-term liquidity requirements generally through working capital
and proceeds from our dividend reinvestment plan and
borrowings.   We believe that these cash resources will be
sufficient to satisfy our cash requirements for the foreseeable future, and we
do not anticipate a need to raise funds from other than these sources within the
next twelve months.
 
 We
currently have $200.4 million of outstanding mortgage debt.  We intend
to limit our aggregate long-term permanent borrowings to 75% of the aggregate
fair market value of all properties unless any excess borrowing is approved by a
majority of the independent directors and is disclosed to our stockholders. We
may also incur short-term indebtedness, having a maturity of two years or
less.
 
 Our
charter provides that the aggregate amount of borrowing, both secured and
unsecured, may not exceed 300% of net assets in the absence of a satisfactory
showing that a higher level is appropriate, the approval of our board of
directors and disclosure to stockholders. Net assets means our total assets,
other than intangibles, at cost before deducting depreciation or other non-cash
reserves less our total liabilities, calculated at least quarterly on a basis
consistently applied. Any excess in borrowing over such 300% of net assets level
must be approved by a majority of our independent directors and disclosed to our
stockholders in our next quarterly report to stockholders, along with
justification for such excess. As of June 30, 2010, our total borrowings
represented 106.6% of net assets.
  Our
borrowings consist of single-property mortgages as well as mortgages
cross-collateralized by a pool of properties.   We typically have
obtained level payment financing, meaning that the amount of debt service
payable would be substantially the same each year.  As such, most of
the mortgages on our properties provide for a so-called “balloon” payment and
are at a fixed interest rate.
 
 Any
future properties that we may acquire may be funded through borrowings and/or
expected proceeds from the disposition of certain of our retail assets (see note
1 of notes to consolidated financial statements).  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. These lines of
credit will be at prevailing market terms and will be repaid from offering
proceeds, 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. We may draw upon the lines
of credit to acquire properties pending our receipt of proceeds from our initial
public offering. We expect that such properties may be purchased by our
Sponsor’s affiliates on our behalf, in our name, in order to minimize the
imposition of a transfer tax upon a transfer of such properties to
us.
 
 In
addition to meeting working capital needs and distributions to our stockholders,
our capital resources are used to make certain payments to our Advisor and our
Property Manager, included payments related to asset acquisition fees and asset
management fees, the reimbursement of acquisition related expenses to our
Advisor and property management fees. We also reimburse our Advisor and its
affiliates for actual expenses it incurs for administrative and other services
provided to us. Additionally, the Operating Partnership may be required to make
distributions to Lightstone SLP, LLC, an affiliate of the
Advisor.
  36
  The
following table represents the fees incurred associated with the payments to our
Advisor, our Dealer Manager, and our Property Manager for the three and six
months ended June 30, 2010 and 2009:
 
 Three Months Ended
                      
                      
                      Six Months EndedJune 30,2010
                      
                      
                      June 30,2009
                      
                      
                      June 30,2010
                      
                      
                      June 30,2009(unaudited)
                      
                      
                      (unaudited)Acquisition
      fees
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      9,778,760Asset
      management fees
                      
                      
                      1,397,840
                      
                      
                      
                      1,144,398
                      
                      
                      
                      2,850,649
                      
                      
                      
                      1,804,828Property
      management fees
                      
                      
                      424,195
                      
                      
                      
                      464,678
                      
                      
                      
                      858,671
                      
                      
                      
                      924,234Acquisition
      expenses reimbursed to Advisor
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      902,753Development
      fees and leasing commissions
                      
                      
                      314,273
                      
                      
                      
                      105,139
                      
                      
                      
                      399,094
                      
                      
                      
                      205,331Total
                      
                      $
                      2,136,308
                      
                      
                      $
                      1,714,215
                      
                      
                      $
                      4,108,414
                      
                      
                      $
                      13,615,906
 
 As of
June 30, 2010, we had approximately $6.4 million of cash and cash equivalents on
hand and $0.2 million of marketable securities.
 
 Summary of Cash
Flows
  The
following summary discussion of our cash flows is based on the consolidated
statements of cash flows and is not meant to be an all-inclusive discussion of
the changes in our cash flows for the periods presented below:
 
 For the Six Months EndedJune 30,2010
                      
                      
                      June 30,2009(unaudited)Cash
      flows provided by operating activities
                      
                      $
                      1,163,040
                      
                      
                      $
                      1,728,369Cash
      flows used in investing activities
                      
                      
                      (1,472,098
                      )
                      
                      
                      (12,862,609
                      )Cash
      flows used in financing activities
                      
                      
                      (10,395,396
                      )
                      
                      
                      (6,764,499
                      )Net
      change in cash and cash equivalents
                      
                      
                      (10,704,454
                      )
                      
                      
                      (17,898,739
                      )Cash
      and cash equivalents, beginning of the period
                      
                      
                      17,076,320
                      
                      
                      
                      66,106,067Cash
      and cash equivalents, end of the period
                      
                      $
                      6,371,866
                      
                      
                      $
                      48,207,328
 
 During
the six months ended June 30, 2010, our principal source of cash flow was
derived from the operation of our rental properties as well as loan proceeds and
distributions received from affiliates. We intend that our properties will
provide a relatively consistent stream of cash flow that provides us with
resources to fund operating expenses, debt service and quarterly
dividends.
 
 Our
principal demands for liquidity are our property operating expenses, real estate
taxes, insurance, tenant improvements, leasing costs, acquisition and
development activities, debt service and distributions to our stockholders. The
principal sources of funding for our operations are operating cash flows, the
sale of properties, and the issuance of equity and debt securities and the
placement of mortgage loans.
 
 Operating
activities
 
 During
the six months ended June 30, 2010, cash flows provided by operating activities
was $1.2 million compared to cash provided by operating activities of $1.7
million during the six months ended June 30, 2009 resulting in a total change of
$0.5 million.  The change is primarily driven by an increase in net
loss, adjusted for non cash related items, of $2.8 million and $2.0 million
lower cash inflow impact related to an increase in tenant receivables and
prepaid and other assets due to timing of collection and payments, offset by a
$3.0 million lower cash out flows related to an increase in payables due to
timing of payments.
 
 Investing
activities
 
 Cash used
in investing activities for the six months ended June 30, 2010 of $1.5 million
resulted primarily from capital additions of $1.0 million and additional funding
of restricted escrows of $2.8 million primarily due to timing of funding and
payments of real estate taxes and insurance premiums (including the escrow cash
given back to the lender in connection with the foreclosure of the two
properties in our multifamily segment.  See note 8 of notes to
consolidated financial statements for further discussion).  These are
offset by redemptions payments received related to our investment in affiliate,
at cost of $2.0 million and proceeds from sale of marketable securities of $0.4
million.
 
 Cash used
in investing activities for the six months ended June 30, 2009 of $12.9 million
relates to the following:
 ·
              $12.9
      million of  the transaction costs paid related to our investment
      in POAC
  37
  ·
              $6.0
      million related to the funding of investment property purchases, of which
      $4.0 million relates to funding of tenant allowances.  These
      additional tenant allowances relate to the timing of payments associated
      with our St. Augustine Outlet Mall
expansion.
 ·
              Offset
      by proceeds of $5.5 million associated with proceeds from the maturity of
      a corporate bond of $5.0 million and $0.5 million from the sale of
      marketable securities, plus $1.2 million in redemption payments received
      related to our investment in
affiliate.
 
 Financing
activities
 
 Cash used
in financing activities of $10.4 million during the six months ended June 30,
2010 primarily related to the payments of distributions to common shareholders
and noncontrolling interests of $10.0 million, $1.7 million of payments made for
redemption of common shares and $1.8 million in mortgage payment including a
lump sum payment of $0.7 million associated with the refinancing of our Brazos
Crossing Power Center debt obligation.  These are offset by $3.3
million of proceeds from loans from our affiliates, 1407 Broadway and POAC, of
which $2.8 million has been converted to a distribution from our investment in
POAC (see note 3 of notes to consolidated financial statements for further
discussion).
 
 Cash used
in financing activities of $6.8 million during the six months ended June 30,
2009 primarily related to (i) the payments of distributions to common
shareholders and noncontrolling interests of $7.9 million; (ii) $1.7 million of
principal payments on debt primarily associated with the pay down of $1.2
million related to the amendment to the hotels loan; (iii). $1.7 million
issuance of note receivable to noncontrolling interest (see note 13 of notes to
consolidated financial statements for further discussion); and (iv) $2.4 million
associated with redemption of common shares during the period.  These
outflows were offset by proceeds from issuance of special general partnership
interest units (“SLP Units”) of $7.0 million.
 
 We
anticipate that adequate cash will be available to fund our operating and
administrative expenses, regular debt service obligations, and the payment of
dividends in accordance with REIT requirements in both the short and
long-term.    We believe our current balance sheet position
is financially sound, however due to the current weakness in and
unpredictability of the capital and credit markets we can give no assurance that
affordable access to capital will exist when our debt maturities
occur.
 
 Contractual
Obligations
 
 The
following is a summary of our contractual obligations outstanding over the next
five years and thereafter as of June 30, 2010.
 
 Contractual
                          Obligations
                        
                        Remainder of
                          2010
                        
                        
                        2011
                        
                        
                        2012
                        
                        
                        2013
                        
                        
                        2014
                        
                        
                        Thereafter
                        
                        
                        TotalMortgage Payable
      1
                        
                        $
                        9,648,232
                        
                        
                        $
                        16,559,011
                        
                        
                        $
                        2,090,767
                        
                        
                        $
                        2,370,084
                        
                        
                        $
                        28,809,456
                        
                        
                        $
                        140,943,708
                        
                        
                        $
                        200,421,258Interest
      Payments2
                        
                        
                        5,602,698
                        
                        
                        
                        10,783,140
                        
                        
                        
                        10,190,593
                        
                        
                        
                        10,029,118
                        
                        
                        
                        9,886,252
                        
                        
                        
                        15,163,525
                        
                        
                        
                        61,655,326Total
      Contractual Obligations
                        
                        $
                        15,250,930
                        
                        
                        $
                        27,342,151
                        
                        
                        $
                        12,281,360
                        
                        
                        $
                        12,399,202
                        
                        
                        $
                        38,695,708
                        
                        
                        $
                        156,107,233
                        
                        
                        $
                        262,076,584
 
 1)
              The
      amount due in 2010 of $9.6 million includes the principal balance of $9.1
      million associated with the loan within the Camden portfolio that is in
      default status (see Notes 9 and 10 of notes to consolidated financial
      statements).
 
 2)
              These
      amounts represent future interest payments related to mortgage payable
      obligations based on the fixed and variable interest rates specified in
      the associated debt agreements.  All variable rate debt
      agreements are based on the one month LIBOR rate.  For purposes
      of calculating future interest amounts on variable interest rate debt the
      one month LIBOR rate as of June 30, 2010 was
  used.
 
 Certain
of our debt agreements require the maintenance of certain ratios, including debt
service coverage.  We have historically been and currently are in
compliance with all of our debt covenants or have obtained waivers from our
lenders, with the exception of the debt service coverage ratio on the debt
associated with the hotels which the Company did not meet for the quarter ended
June 30, 2010.  Under the terms of the loan agreement, the Company
once notified by the lender of noncompliance has five days to cure by making a
principal payment to bring the debt service coverage ratio to at least the
minimum.  As of the date of this filing, the Company has not been
notified by the bank as per the loan agreement; however if the bank does notify
the Company and does not provide a waiver, then the Company will be required to
pay approximately $1.6 million as a lump sum payment to avoid
default.  We expect to remain in compliance with all our other
existing debt covenants; however, should circumstances arise that would cause us
to be in default, the various lenders would have the ability to accelerate the
maturity on our outstanding debt. See Note 9 of notes to consolidate
financial statement for discussion of the loan within the Camden portfolio which
is in default as a result of nonpayment of debt service.  The
principal balance of this loan of $9.1 million has been accelerated and is due
immediately.  We have reflected these loans as payments for 2010 based
upon the default status.
  38
  Funds
from Operations and Modified Funds from Operations
  In
addition to measurements defined by accounting principles generally accepted in
the United States of America (“GAAP”), our management also focuses on funds from
operations (“FFO”) and modified funds from operations (“MFFO”) to measure our
performance.   FFO is generally considered to be an appropriate
supplemental non-GAAP measure of the performance of real estate investment
trusts (“REITs”).  FFO is defined by the National Association of Real
Estate Investment Trusts, Inc (“NAREIT”) as net earnings before depreciation and
amortization of real estate assets, gains or losses on dispositions of real
estate, (including such non-FFO items reported in discontinued
operations).   Notwithstanding the widespread reporting of FFO,
changes in accounting and reporting rules under GAAP that were adopted after
NAREIT’s definition of FFO have prompted a significant increase in the magnitude
of non-operating items included in FFO.  For example, acquisition expenses,
acquisition fees and financing fees, which we intend to fund from the proceeds
of this offering and which we do not view as an expense of operating a property,
are now deducted as expenses in the determination of GAAP net income.  As a
result, we intend to consider a modified FFO, or MFFO, when assessing our
operating performance.  We intend to explain all modifications to FFO and
to reconcile MFFO to FFO and FFO to GAAP net income when presenting MFFO
information.
  Our MFFO
is FFO excluding straight-line rental revenue, the net amortization of
above-market and below market leases, other than temporary impairment of
marketable securities, gain/loss on sale of marketable securities, impairment
charges on long-lived assets, gain on debt extinguishment and
acquisition-related costs expensed.  Historical cost accounting for real
estate assets in accordance with GAAP implicitly assumes that the value of real
estate diminishes predictably over time.  Since real estate values have
historically risen or fallen with market conditions, many industry investors and
analysts have considered the presentation of operating results for real estate
companies that use historical cost accounting alone to be
insufficient.
  Accordingly,
we believe that FFO is helpful to stockholders and our management as a measure
of operating performance because it excludes depreciation and amortization,
gains and losses from property dispositions, and extraordinary items, and as a
result, when compared year over year, reflects the impact on operations from
trends in occupancy rates, rental rates, operating costs, general and
administrative expenses, and interest costs, which is not immediately apparent
from net income.  We believe that MFFO is helpful to stockholders and our
management as a measure of operating performance because it excludes charges
that management considers more reflective of investing activities or
non-operating valuation changes.  By providing FFO and MFFO, we present
information that reflects how our management analyzes our long-term operating
activities.  We believe fluctuations in MFFO are indicative of changes in
operating activities and provide comparability in evaluating our performance
over time and as compared to other real estate companies that may not be
affected by impairments or acquisition activities.
  Below is
a reconciliation of net income/(loss) to FFO for the three and six months ended
June 30, 2010 and 2009.
 
 For the Three Months Ended
                                      
                                      
                                      For the Six Months EndedJune 30, 2010
                                      
                                      
                                      June 30, 2009
                                      
                                      
                                      June 30, 2010
                                      
                                      
                                      June 30, 2009Net
      income/(loss)
                                      
                                      $
                                      12,867,483
                                      
                                      
                                      $
                                      (6,994,542
                                      )
                                      
                                      $
                                      8,644,174
                                      
                                      
                                      $
                                      (7,752,846
                                      )Adjustments:Depreciation
      and amortization of real estate assets
                                      
                                      
                                      1,412,846
                                      
                                      
                                      
                                      2,176,023
                                      
                                      
                                      
                                      2,879,590
                                      
                                      
                                      
                                      4,305,601Equity
      in depreciation and amortization for unconsolidated affiliated real estate
      entities
                                      
                                      
                                      8,963,821
                                      
                                      
                                      
                                      6,540,350
                                      
                                      
                                      
                                      18,441,243
                                      
                                      
                                      
                                      8,412,410(Gain)/loss
      on long-lived assets on disposal
                                      
                                      
                                      (43,659
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      230,445
                                      
                                      
                                      
                                      -Gain
      on disposal of investment property for unconsolidated affiliated real
      estate entities
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (8,876
                                      )
                                      
                                      
                                      (4,306
                                      )
                                      
                                      
                                      (9,514
                                      )Discontinued
      Operations:Depreciation
      and amortization of real estate assets
                                      
                                      
                                      56,224
                                      
                                      
                                      
                                      285,195
                                      
                                      
                                      
                                      204,449
                                      
                                      
                                      
                                      568,071FFO
                                      
                                      $
                                      23,256,715
                                      
                                      
                                      $
                                      1,998,150
                                      
                                      
                                      $
                                      30,395,595
                                      
                                      
                                      $
                                      5,523,722Less:
      FFO attributable to noncontrolling interests
                                      
                                      
                                      (362,263
                                      )
                                      
                                      
                                      (25,793
                                      )
                                      
                                      
                                      (473,565
                                      )
                                      
                                      
                                      (39,829
                                      )FFO  attributable
      to Company's common share
                                      
                                      $
                                      22,894,452
                                      
                                      
                                      $
                                      1,972,357
                                      
                                      
                                      $
                                      29,922,030
                                      
                                      
                                      $
                                      5,483,893FFO
      per common share, basic and diluted
                                      
                                      $
                                      0.72
                                      
                                      
                                      $
                                      0.06
                                      
                                      
                                      $
                                      0.94
                                      
                                      
                                      $
                                      0.18Weighted
      average number of common shares outstanding, basic and
    diluted
                                      
                                      
                                      31,616,298
                                      
                                      
                                      
                                      31,205,067
                                      
                                      
                                      
                                      31,725,364
                                      
                                      
                                      
                                      31,157,435
  39
  Below is
the reconciliation of MFFO for the three and six months ended June 30, 2010 and
2009.
 
 For the Three Months Ended
                                    
                                    
                                    For the Six Months EndedJune 30, 2010
                                    
                                    
                                    June 30, 2009
                                    
                                    
                                    June 30, 2010
                                    
                                    
                                    June 30, 2009FFO
                                    
                                    $
                                    23,256,715
                                    
                                    
                                    $
                                    1,998,150
                                    
                                    
                                    $
                                    30,395,595
                                    
                                    
                                    $
                                    5,523,722Adjustments:Noncash
      Adjustments:Amortization
      of above and below market leases(1)
                                    
                                    
                                    (28,858
                                    )
                                    
                                    
                                    (115,718
                                    )
                                    
                                    
                                    (102,275
                                    )
                                    
                                    
                                    (215,059
                                    )Straight-line
      rent adjustment (2)
                                    
                                    
                                    (585,553
                                    )
                                    
                                    
                                    (327,159
                                    )
                                    
                                    
                                    (1,459,516
                                    )
                                    
                                    
                                    (409,728
                                    )Loss
      on long-lived assests-impairemnt
                                    
                                    
                                    1,193,233
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,193,233
                                    
                                    
                                    
                                    -Gain
      on debt extinguishment
                                    
                                    
                                    (17,169,662
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (17,169,662
                                    )
                                    
                                    
                                    -(Gain)/loss
      on sale of marketable securities
                                    
                                    
                                    (66,756
                                    )
                                    
                                    
                                    843,899
                                    
                                    
                                    
                                    (66,756
                                    )
                                    
                                    
                                    843,899Other
      than temporary impairment - marketable securities
                                    
                                    
                                    -
                                    
                                    
                                    
                                    3,373,716
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    3,373,716Total
      non cash adjustments
                                    
                                    
                                    (16,657,596
                                    )
                                    
                                    
                                    3,774,738
                                    
                                    
                                    
                                    (17,604,976
                                    )
                                    
                                    
                                    3,592,828Other
      adjustments:Acquisition/divestiture
      costs expensed (3)
                                    
                                    
                                    988,044
                                    
                                    
                                    
                                    152,508
                                    
                                    
                                    
                                    1,755,999
                                    
                                    
                                    
                                    152,508MFFO
                                    
                                    $
                                    7,587,163
                                    
                                    
                                    $
                                    5,925,396
                                    
                                    
                                    $
                                    14,546,618
                                    
                                    
                                    $
                                    9,269,058Less:
      MFFO attributable to noncontrolling interests
                                    
                                    
                                    (118,216
                                    )
                                    
                                    
                                    (76,488
                                    )
                                    
                                    
                                    (226,623
                                    )
                                    
                                    
                                    (89,799
                                    )MFFO  attributable
      to Company's common share
                                    
                                    $
                                    7,468,947
                                    
                                    
                                    $
                                    5,848,908
                                    
                                    
                                    $
                                    14,319,995
                                    
                                    
                                    $
                                    9,179,259
 
 1)
              Amortization
      of above and below market leases includes amortization for wholly owned
      subsidiaries in continuing operations as well as amortization from
      unconsolidated entities.
 
 2)
              Straight-line rent
      adjustment includes straight-line rent for wholly owned subsidiaries in
      continuing operationsas well asstraight-line rent from
      unconsolidated entities.
 
 3)
              Acquisitions/divestiture costs expenses for the three and six
      months ended June 30, 2010 represent divestiture costs from
      unconsolidated entities.
 
 Sources
of Distribution
 
 The
Board of Directors of the Company declared a distribution for each quarter in
since 2006 through March 31, 2010. The distributions have been calculated based
on stockholders of record each day during this three-month period at a rate of
$0.0019178 per day, which, if paid each day for a 365-day period, would equal a
7.0% annualized rate based on a share price of $10.00.
 
 On July
28, 2010, the Board of Directors of the Company declared a distribution for the
three-month period ending June 30, 2010. The distribution will be calculated
based on shareholders of record each day during this three-month period at a
rate of $0.00109589 per day, and will equal a daily amount that, if paid each
day for a 365-day period, would equal a 4.0% annualized rate based on a share
price of $10.00. The distribution was paid in cash on August 6, 2010 to
shareholders of record during the three-month period ended June 30,
2010.
 
 At this
time, our Board of Directors has decided to temporarily lower the distribution
rate until the closing of the disposition of our investment in POAC and Mill Run
(the “Disposition”) (see Note 1 for further discussions).  Additionally,
the Board has decided to meet as soon as a closing date for the Disposition is
set (the “Closing Date”) with the intention of declaring an additional
distribution equal to 4% annualized rate, payable around the closing Date. 
This will bring the distribution for the three months ended June 30, 2010 to a
grand total of an 8% annualized rate, which is an increase over the prior
quarterly distributions of an annualized rate of 7%.
  In
addition, on July 28, 2010, the Board of Directors of the Company temporarily
suspended the distribution reinvestment program pending final approval of the
registration statement by the Securities and Exchange Commission.
  40
  The
following table provides a summary of the quarterly distributions declared and
the source of distribution based upon cash flows provided by operations for the
three and six months ended June 30, 2010.
 
 Year to Date
                    
                    
                    Quarter ended
                    
                    
                    Quarter endedJune 30, 2010
                    
                    
                    June 30, 2010
                    
                    
                    March 31, 2010Distribution
      period:
                    
                    
                    
                    
                    
                    Q2
      2010
                    
                    
                    
                    Q1
      2010Date
      distribution declared
                    
                    
                    
                    
                    July
      28, 2010
                    
                    
                    March
      2, 2010Date
      distribution paid
                    
                    
                    
                    
                    August
      6, 2010
                    
                    
                    March
      30, 2010Distributions
      Paid
                    
                    $
                    6,509,836
                    
                    
                    $
                    3,176,933
                    
                    
                    $
                    3,332,903Distributions
      Reinvested
                    
                    
                    2,127,482
                    
                    
                    
                    -
                    
                    
                    
                    2,127,482Total
      Distributions
                    
                    $
                    8,637,318
                    
                    
                    $
                    3,176,933
                    
                    
                    $
                    5,460,385Source
      of distributionsCash
      flows used in operations
                    
                    $
                    1,163,040
                    
                    
                    $
                    (74,995
                    )
                    
                    $
                    1,238,035Proceeds
      from investment in affiliates and excess cash
                    
                    
                    5,346,796
                    
                    
                    
                    3,251,928
                    
                    
                    
                    2,094,868Proceeds
      from issuance of common stock
                    
                    
                    2,127,482
                    
                    
                    
                    -
                    
                    
                    
                    2,127,482Total
      Sources
                    
                    $
                    8,637,318
                    
                    
                    $
                    3,176,933
                    
                    
                    $
                    5,460,385
 
 The
following table provides a summary of the quarterly distributions declared and
the source of distribution based upon cash flows provided by operations for the
three and six months ended June 30, 2009
 
 Year to Date
                    
                    
                    Quarter ended
                    
                    
                    Quarter endedJune 30, 2009
                    
                    
                    June 30, 2009
                    
                    
                    March 31, 2009Distribution
      period:
                    
                    
                    
                    
                    
                    Q2
      2009
                    
                    
                    
                    Q1
      2009Date
      distribution declared
                    
                    
                    
                    
                    May
      13, 2009
                    
                    
                    March
      30, 2009Date
      distribution paid
                    
                    
                    
                    
                    July
      15, 2009
                    
                    
                    April
      15, 2009Distributions
      Paid
                    
                    $
                    6,103,090
                    
                    
                    $
                    3,050,200
                    
                    
                    $
                    3,052,890Distributions
      Reinvested
                    
                    
                    4,706,855
                    
                    
                    
                    2,394,520
                    
                    
                    
                    2,312,335Total
      Distributions
                    
                    $
                    10,809,945
                    
                    
                    $
                    5,444,720
                    
                    
                    $
                    5,365,225Source
      of distributionsCash
      flows used in operations
                    
                    $
                    1,728,369
                    
                    
                    $
                    1,006,312
                    
                    
                    $
                    722,057Proceeds
      from issuance of common stock
                    
                    
                    9,081,576
                    
                    
                    
                    4,438,408
                    
                    
                    
                    4,643,168Total
      Sources
                    
                    $
                    10,809,945
                    
                    
                    $
                    5,444,720
                    
                    
                    $
                    5,365,225
 
 The cash
flows provided operations include an adjustment to remove the income from
investments in unconsolidated affiliated real estate entities as any cash
distributions from these investments are recorded through cash flows from
investing activities.
 
 Management
also evaluates the source of distribution funding based upon
MFFO.   Based upon MFFO, for the three months ended June 30, 2010
and 2009, 100% of our distributions to our common stockholders were funded or
will be funded from MFFO.
 
 Based
upon MFFO, for the six months ended June 30, 2010, 100% of our distributions to
our common stockholders were funded or will be funded from
MFFO.   For the six months ended June 30, 2009, approximately 85%
of our distributions to our common stockholder were funded with funds from
MFFO.
  41
 
 New
Accounting Pronouncements
 
 In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)”, which was primarily codified into Topic 810 in the ASC.  This
standard requires ongoing assessments to determine whether an entity is a
variable entity and requires qualitative analysis to determine whether an
enterprise’s variable interest(s) give it a controlling financial interest in a
variable interest entity. In addition, it requires enhanced disclosures about an
enterprise’s involvement in a variable interest entity. This standard is
effective for the fiscal year that begins after November 15, 2009. The Company
adopted this standard on January 1, 2010 and the adoption did not have a
material impact on the Company's consolidated financial statements.
 
 In
January 2010, the FASB issued FASB Accounting Standards Update (“ASU”) No.
2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving
Disclosures about Fair Value Measurements”.  ASU No. 2010-06 amends
ASC 820 and clarifies and provides additional disclosure requirements related to
recurring and non-recurring fair value measurements. This ASU becomes effective
for the Company on January 1, 2010. The adoption of this ASU did not have a
material impact on the Company’s consolidated financial statements.
 
 The
Company has determined that all other recently issued accounting pronouncements
will not have a material impact on its consolidated financial position, results
of operations and cash flows, or do not apply to its operations.
 
 ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  Market
risk includes risks that arise from changes in interest rates, foreign currency
exchange rates, commodity prices, equity prices and other market changes that
affect market sensitive instruments. In pursuing our business plan, we expect
that the primary market risk to which we will be exposed is interest rate
risk.
  We may be
exposed to the effects of interest rate changes primarily as a result of
borrowings used to maintain liquidity and fund the expansion and refinancing of
our real estate investment portfolio and operations. Our interest rate risk
management objectives will be to limit the impact of interest rate changes on
earnings, prepayment penalties and cash flows and to lower overall borrowing
costs while taking into account variable interest rate risk. To achieve our
objectives, we may borrow at fixed rates or variable rates. We may also enter
into derivative financial instruments such as interest rate swaps and caps in
order to mitigate our interest rate risk on a related financial instrument. We
will not enter into derivative or interest rate transactions for speculative
purposes. As of June 30, 2010, we had one interest rate cap outstanding with an
intrinsic value of zero.
 
 We also
hold equity securities for general investment return purposes.  We
regularly review the market prices of these investments for impairment
purposes.  As of June 30, 2010, a hypothetical adverse 10% movement in
market values would result in a hypothetical loss in fair value of approximately
$16,000.
 
 The
following table shows the mortgage payable obligations maturing during the next
five years and thereafter at June 30, 2010:
 
 Remainder of
                            2010 (1)
                          
                          
                          2011
                          
                          
                          2012
                          
                          
                          2013
                          
                          
                          2014
                          
                          
                          Thereafter
                          
                          
                          TotalMortgage
      Payable
                          
                          $
                          9,648,232
                          
                          
                          $
                          16,559,011
                          
                          
                          $
                          2,090,767
                          
                          
                          $
                          2,370,084
                          
                          
                          $
                          28,809,456
                          
                          
                          $
                          140,943,708
                          
                          
                          $
                          200,421,258
 
 1)
              In addition, the
      amount due in 2010 of $9.6 million includes the principal balance of $9.1
      million associated with the loan within the Camden portfolio that are in
      default status (see Note 8 and 9 of notes to consolidated financial
      statements).
 
 As of
June 30, 2010, approximately $16.0 million, or 8%, of our debt are variable rate
instruments and our interest expense associated with these instruments is,
therefore, subject to changes in market interest rates.  A 1% adverse
movement (increase in LIBOR) would increase annual interest expense by
approximately $0.2 million.
 
 The
carrying amounts of cash and cash equivalents, accounts receivable and accounts
payable approximate their fair values because of the short maturity of these
instruments. The fair value of the mortgage payable as of June 30, 2010 was
approximately $202.6 million compared to the book value of approximately $200.4
million. The fair value of the mortgage payable as of December 31, 2009 was
approximately $235.3 million, which includes $42.3 million related debt
classified as liabilities  disposed of compared to the book value of
approximately $244.5 million, including $42.3 related to debt classified as
liabilities disposed of. The fair value of the mortgage payable was determined
by discounting the future contractual interest and principal payments by a
market interest rate.
  42
  In
addition to changes in interest rates, the value of our real estate and real
estate related investments is subject to fluctuations based on changes in local
and regional economic conditions and changes in the creditworthiness of lessees,
which may affect our ability to refinance our debt if necessary. As of June 30,
2010, the only off-balance sheet arrangements we had outstanding was an interest
rate cap with an intrinsic value of zero.
 
 We cannot predict the
effect of adverse changes in interest rates on our debt and, therefore, our
exposure to market risk, nor can we provide any assurance that long-term debt
will be available at advantageous pricing. Consequently, future results may
differ materially from the estimated adverse changes discussed
above.
 
 ITEM 4 (T). CONTROLS AND
PROCEDURES.
  As of the
end of the period covered by this report, management, including our chief
executive officer and chief financial officer, evaluated the effectiveness of
the design and operation of our disclosure controls and procedures. Based upon,
and as of the date of, the evaluation, our chief executive officer and chief
financial officer concluded that the disclosure controls and procedures were
effective to ensure that information required to be disclosed in the reports we
file and submit under the Exchange Act is recorded, processed, summarized and
reported as and when required.
  There
have been no changes in our internal control over financial reporting that
occurred during our last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting. There were no significant deficiencies or material weaknesses
identified in the evaluation, and therefore, no corrective actions were
taken.
 
 PART II. OTHER INFORMATION:
 ITEM 1. LEGAL PROCEEDINGS
 
 From time
to time in the ordinary course of business, the Company may become subject to
legal proceedings, claims or disputes.
 
 On March
29, 2006, Jonathan Gould, a former member of our Board of Directors and Senior
Vice-President-Acquisitions, filed a lawsuit against us in the District Court
for the Southern District of New York. The suit alleges, among other things,
that Mr. Gould was insufficiently compensated for his services to us as director
and officer. Mr. Gould sought damages of (i) up to $11,500,000 or (ii) a 2.5%
ownership interest in all properties that we acquire and an option to acquire up
to 5% of the membership interests of Lightstone SLP, LLC. We filed a motion to
dismiss the lawsuit. After review of the motion to dismiss, counsel for Mr.
Gould represented that Mr. Gould was dropping his claim for ownership interest
in the properties we acquire and his claim for membership interests. Mr. Gould’s
counsel represented that he would be suing only under theories of quantum merit
and unjust enrichment seeking the value of work he performed.  Management
believes that this suit is frivolous and entirely without merit and intends to
defend against these charges vigorously. The Company believes any unfavorable
outcome on this matter will not have a material effect on the consolidated
financial statements.
 
 On
January 4, 2007, 1407 Broadway Real Estate LLC ("Office Owner"), an indirect,
wholly owned subsidiary of 1407 Broadway Mezz II LLC ("Mezz II"), consummated
the acquisition of a sub-leasehold interest (the "Sublease Interest") in an
office building located at 1407 Broadway, New York, New York (the "Office
Property"). Mezz II is a joint venture between LVP 1407 Broadway LLC ("LVP
LLC"), a wholly owned subsidiary of our operating partnership, and Lightstone
1407 Manager LLC ("Manager"), which is wholly owned by David Lichtenstein, the
Chairman of our Board of Directors and our Chief Executive Officer, and Shifra
Lichtenstein, his wife.
  The
Sublease Interest was acquired pursuant to a Sale and Purchase of Leasehold
Agreement with Gettinger Associates, L.P. ("Gettinger"). In July 2006, Abraham
Kamber Company, as Sublessor under the sublease ("Sublessor"), served two
notices of default on Gettinger (the "Default Notices"). The first alleged that
Gettinger had failed to satisfy its obligations in performing certain
renovations and the second asserted numerous defaults relating to Gettinger's
purported failure to maintain the Office Property in compliance with its
contractual obligations.
 
 In
response to the Default Notices, Gettinger commenced legal action and obtained
an injunction that extends its time to cure any default, prohibits interference
with its leasehold interest and prohibits Sublessor from terminating its
sublease pending resolution of the litigation. A motion by Sublessor for partial
summary judgment, alleging that certain work on the Office Property required its
prior approval, was denied by the Supreme Court, New York County. Subsequently,
by agreement of the parties, a stay was entered precluding the termination of
the Sublease Interest pending a final decision on Sublessor's claim of defaults
under the Sublease Interest. In addition, the parties stipulated to the
intervention of Office Owner as a party to the proceedings. The parties have
been directed to engage in and complete discovery. We consider the litigation to
be without merit.
  43
  Prior to
consummating the acquisition of the Sublease Interest, Office Owner received a
letter from Sublessor indicating that Sublessor would consider such acquisition
a default under the original sublease, which prohibits assignments of the
Sublease Interest when there is an outstanding default there under. On February
16, 2007, Office Owner received a Notice to Cure from Sublessor stating the
transfer of the Sublease Interest occurred in violation of the Sublease given
Sublessor's position that Office Seller is in default. Office Owner will
commence and vigorously pursue litigation in order to challenge the default,
receive an injunction and toll the termination period provided for in the
Sublease.
 
 On
September 4, 2007, Office Owner commenced a new action against Sublessor
alleging a number claims, including the claims that Sublessor has breached the
sublease and committed intentional torts against Office Owner by (among other
things) issuing multiple groundless default notices, with the aim of prematurely
terminating the sublease and depriving Office Owner of its valuable interest in
the sublease.  The complaint seeks a declaratory judgment that Office Owner
has not defaulted under the sublease, damages for the losses Office Owner has
incurred as a result of Sublessor’s wrongful conduct, and an injunction to
prevent Sublessor from issuing further default notices without valid grounds or
in bad faith.  The Company believes any unfavorable outcome on this
matter will not have a material effect on the consolidated financial
statements.
 
 As of the
date hereof, we are not a party to any other material pending legal
proceedings.
 
 ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  During
the period covered by this Form 10-Q, we did not sell any equity securities that
were not registered under the Securities Act of 1933, and we did repurchase
approximately 0.2 million shares.
 
 Effective
March 2, 2010, our board of directors voted to temporarily suspend future share
redemptions under the Share Redemption Plan.  The board of directors
will revisit this decision when the previously announced disposition of retail
outlet assets transaction closes and anticipates that after that time it will
resume redeeming shares during the second half of 2010.
 
 In addition, on July 28, 2010, the Board of Directors of
the Company temporarily suspended the distribution reinvestment program pending
final approval of the registration statement by the Securities and Exchange
Commission.
 
 ITEM 3. DEFAULTS UPON SENIOR
SECURITIES
  None.
 
 ITEM
4. REMOVED AND RESERVED
 
 ITEM
5. OTHER INFORMATION.
  None.
 
 ITEM 6. EXHIBITS
 
 Exhibit
                        Number
                      
                      Description31.1*
                      
                      Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
      of the Securities Exchange Act, as amended.31.2*
                      
                      Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15 d-14(a)
      of the Securities Exchange Act, as amended.32.1*
                      
                      Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC
      Release 34-47551 this Exhibit is furnished to the SEC and shall not be
      deemed to be “filed.”32.2*
                      
                      Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC
      Release 34-47551 this Exhibit is furnished to the SEC and shall not be
      deemed to be
“filed.”
  *Filed
herewith
  44
  SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
  LIGHTSTONE
      VALUE PLUS REAL ESTATE
                    INVESTMENT
      TRUST, INC.Date: August
      16, 2010
                  By:
                  /s/ David
  LichtensteinDavid
      LichtensteinChairman
      and Chief Executive Officer
                    (Principal
      Executive Officer)Date:
      August 16, 2010
                  By:
                  /s/ Donna BrandinDonna
      BrandinChief
      Financial Officer and Treasurer
                    (Duly
      Authorized Officer and Principal Financial and
                    Accounting
      Officer)
 45