UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D. C. 20549





FORM
10-Q


(Mark
One)


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





For the
quarterly period ended September 30, 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
November 5, 2010, there were approximately 32.0 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 September 30, 2010 (unaudited) and December 31,
      2009
                                          3Consolidated
      Statements of Operations (unaudited) for the Three and Nine Months Ended
      September 30, 2010 and 2009
                                          4Consolidated
      Statement of Stockholders’ Equity and Comprehensive Income (unaudited) for
      the Nine Months Ended September 30, 2010
                                          5Consolidated
      Statements of Cash Flows (unaudited) for the Nine Months Ended September
      30, 2010 and 2009
                                          6Notes
      to Consolidated Financial Statements
                                          8Item 2.
                                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                          32Item 3.
                                          Quantitative
      and Qualitative Disclosures About Market Risk
                                          50Item 4T.
                                          Controls
      and Procedures
                                          51PART II
                                          OTHER
      INFORMATIONItem
      1.
                                          Legal
      Proceedings
                                          52Item
      2.
                                          Unregistered
      Sales of Equity Securities and Use of Proceeds
                                          53Item
      3.
                                          Defaults
      Upon Senior Securities
                                          53Item
      4.
                                          Removed
      and Reserved
                                          53Item
      5.
                                          Other
      Information
                                          53Item
      6.
                                          Exhibits
                                          53







PART I. FINANCIAL INFORMATION,
CONTINUED:


ITEM
1. FINANCIAL STATEMENTS, CONTINUED:





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


CONSOLIDATED
BALANCE SHEETS


As of September 30,
                                    2010
                                  
                                  
                                  As of December 31,
                                    2009(unaudited)AssetsInvestment
      property:Land
                                  
                                  $
                                  50,427,502
                                  
                                  
                                  $
                                  50,702,303Building
                                  
                                  
                                  206,937,335
                                  
                                  
                                  
                                  211,668,479Construction
      in progress
                                  
                                  
                                  66,471
                                  
                                  
                                  
                                  284,952Gross
      investment property
                                  
                                  
                                  257,431,308
                                  
                                  
                                  
                                  262,655,734Less
      accumulated depreciation
                                  
                                  
                                  (15,227,136
                                  )
                                  
                                  
                                  (15,570,596
                                  )Net
      investment property
                                  
                                  
                                  242,204,172
                                  
                                  
                                  
                                  247,085,138Investments
      in unconsolidated affiliated real estate entities
                                  
                                  
                                  13,533,082
                                  
                                  
                                  
                                  115,972,466Investment
      in affiliate, at cost
                                  
                                  
                                  2,256,330
                                  
                                  
                                  
                                  7,658,337Cash
      and cash equivalents
                                  
                                  
                                  46,605,608
                                  
                                  
                                  
                                  17,076,320Marketable
      securities, available for sale
                                  
                                  
                                  180,875,066
                                  
                                  
                                  
                                  840,877Restricted
      marketable securities, available for sale
                                  
                                  
                                  31,831,186
                                  
                                  
                                  
                                  -Restricted
      escrows
                                  
                                  
                                  8,805,821
                                  
                                  
                                  
                                  5,882,766Tenant
      accounts receivable (net of allowance for doubtful account of $350,287 and
      $298,389, respectively)
                                  
                                  
                                  1,522,863
                                  
                                  
                                  
                                  892,042Other
      accounts receivable
                                  
                                  
                                  5,419
                                  
                                  
                                  
                                  23,182Acquired
      in-place lease intangibles, net
                                  
                                  
                                  452,481
                                  
                                  
                                  
                                  641,487Acquired above market lease
      intangibles, net
                                  
                                  
                                  154,191
                                  
                                  
                                  
                                  239,360Deferred
      intangible leasing costs, net
                                  
                                  
                                  289,924
                                  
                                  
                                  
                                  406,275Deferred
      leasing costs (net of accumulated amortization of $348,097 and $353,331
      respectively)
                                  
                                  
                                  1,449,586
                                  
                                  
                                  
                                  1,137,052Deferred
      financing costs (net of accumulated amortization of $1,222,007 and
      $862,357 respectively)
                                  
                                  
                                  1,021,083
                                  
                                  
                                  
                                  964,966Interest
      receivable from related parties
                                  
                                  
                                  1,084,286
                                  
                                  
                                  
                                  1,886,449Prepaid
      expenses and other assets
                                  
                                  
                                  3,096,673
                                  
                                  
                                  
                                  2,574,801Assets
      disposed of (See Note 9)
                                  
                                  
                                  -
                                  
                                  
                                  
                                  26,282,358Total
      Assets
                                  
                                  $
                                  535,187,771
                                  
                                  
                                  $
                                  429,563,876Liabilities
      and Stockholders' EquityMortgage
      payable
                                  
                                  $
                                  200,173,531
                                  
                                  
                                  $
                                  202,179,356Accounts
      payable and accrued expenses
                                  
                                  
                                  4,436,833
                                  
                                  
                                  
                                  3,154,371Due
      to sponsor
                                  
                                  
                                  2,617,776
                                  
                                  
                                  
                                  1,349,730Loans
      due to affiliates (see Note 4)
                                  
                                  
                                  1,485,377
                                  
                                  
                                  
                                  -Tenant
      allowances and deposits payable
                                  
                                  
                                  895,954
                                  
                                  
                                  
                                  896,319Distributions
      payable
                                  
                                  
                                  8,794,164
                                  
                                  
                                  
                                  5,557,670Prepaid
      rental revenues
                                  
                                  
                                  1,227,575
                                  
                                  
                                  
                                  1,049,316Acquired below market lease
      intangibles, net
                                  
                                  
                                  434,686
                                  
                                  
                                  
                                  663,414Deferred Gain on Disposition (See
      Note 3)
                                  
                                  
                                  32,175,788
                                  
                                  
                                  
                                  -Liabilities disposed of (See Note
      9)
                                  
                                  
                                  -
                                  
                                  
                                  
                                  43,503,349Total
      Liabilities
                                  
                                  
                                  252,241,684
                                  
                                  
                                  
                                  258,353,525Commitments and contingencies (See
      Note 18)Stockholders'
      equity:Company's
      Stockholders Equity:Preferred
      shares, $0.01 par value, 10,000,000 shares authorized,  none
      outstanding
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Common
      stock, $.01 par value; 60,000,000 shares authorized, 31,812,431and 31,528,353
      shares issued and outstanding in 2010 and 2009,
    respectively
                                  
                                  
                                  318,124
                                  
                                  
                                  
                                  315,283Additional
      paid-in-capital
                                  
                                  
                                  283,384,594
                                  
                                  
                                  
                                  280,763,558Accumulated
      other comprehensive income
                                  
                                  
                                  3,003,252
                                  
                                  
                                  
                                  326,077Accumulated
      distributions in excess of net earnings
                                  
                                  
                                  (27,087,965
                                  )
                                  
                                  
                                  (149,702,633
                                  )Total
      Company's stockholder’s equity
                                  
                                  
                                  259,618,005
                                  
                                  
                                  
                                  131,702,285Noncontrolling
      interests
                                  
                                  
                                  23,328,082
                                  
                                  
                                  
                                  39,508,066Total
      Stockholders' Equity
                                  
                                  
                                  282,946,087
                                  
                                  
                                  
                                  171,210,351Total
      Liabilities and Stockholders' Equity
                                  
                                  $
                                  535,187,771
                                  
                                  
                                  $
                                  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 September 30,
                                          
                                          
                                          Nine Months Ended September 30,2010
                                          
                                          
                                          2009
                                          
                                          
                                          2010
                                          
                                          
                                          2009Revenues:Rental
      income
                                          
                                          $
                                          7,212,254
                                          
                                          
                                          $
                                          7,631,177
                                          
                                          
                                          $
                                          21,622,879
                                          
                                          
                                          $
                                          23,527,992Tenant
      recovery income
                                          
                                          
                                          1,223,665
                                          
                                          
                                          
                                          1,191,293
                                          
                                          
                                          
                                          3,584,746
                                          
                                          
                                          
                                          3,424,925Total
      revenues
                                          
                                          
                                          8,435,919
                                          
                                          
                                          
                                          8,822,470
                                          
                                          
                                          
                                          25,207,625
                                          
                                          
                                          
                                          26,952,917Expenses:Property
      operating expenses
                                          
                                          
                                          3,253,489
                                          
                                          
                                          
                                          3,248,841
                                          
                                          
                                          
                                          9,618,809
                                          
                                          
                                          
                                          9,799,861Real
      estate taxes
                                          
                                          
                                          947,123
                                          
                                          
                                          
                                          927,840
                                          
                                          
                                          
                                          2,865,725
                                          
                                          
                                          
                                          2,815,311Loss
      on long-lived assets
                                          
                                          
                                          -
                                          
                                          
                                          
                                          18,928,968
                                          
                                          
                                          
                                          1,423,678
                                          
                                          
                                          
                                          18,928,968General
      and administrative costs
                                          
                                          
                                          1,931,768
                                          
                                          
                                          
                                          1,830,625
                                          
                                          
                                          
                                          7,193,340
                                          
                                          
                                          
                                          5,528,582Depreciation
      and amortization
                                          
                                          
                                          1,921,700
                                          
                                          
                                          
                                          2,410,574
                                          
                                          
                                          
                                          4,801,290
                                          
                                          
                                          
                                          6,716,175Total
      operating expenses
                                          
                                          
                                          8,054,080
                                          
                                          
                                          
                                          27,346,848
                                          
                                          
                                          
                                          25,902,842
                                          
                                          
                                          
                                          43,788,897Operating
      income/(loss)
                                          
                                          
                                          381,839
                                          
                                          
                                          
                                          (18,524,378
                                          )
                                          
                                          
                                          (695,217
                                          )
                                          
                                          
                                          (16,835,980
                                          )Other
      income, net
                                          
                                          
                                          364,518
                                          
                                          
                                          
                                          105,892
                                          
                                          
                                          
                                          729,756
                                          
                                          
                                          
                                          377,812Interest
      income
                                          
                                          
                                          999,181
                                          
                                          
                                          
                                          1,038,406
                                          
                                          
                                          
                                          3,132,365
                                          
                                          
                                          
                                          3,076,461Interest
      expense
                                          
                                          
                                          (3,062,169
                                          )
                                          
                                          
                                          (3,046,026
                                          )
                                          
                                          
                                          (9,035,294
                                          )
                                          
                                          
                                          (9,012,312
                                          )Gain
      on disposition of unconsolidated affiliated real estate entities (See Note
      3)
                                          
                                          
                                          142,779,604
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          142,779,604
                                          
                                          
                                          
                                          -Gain
      on sale of marketable securities
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,187,620
                                          
                                          
                                          
                                          66,756
                                          
                                          
                                          
                                          343,724Other
      than temporary impairment - marketable
      securities
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (3,373,716
                                          )Loss
      from investments in unconsolidated affiliated real estate
      entities
                                          
                                          
                                          (7,838,207
                                          )
                                          
                                          
                                          (3,508,079
                                          )
                                          
                                          
                                          (11,554,683
                                          )
                                          
                                          
                                          (4,248,298
                                          )Net
      income/(loss) from continuing operations
                                          
                                          
                                          133,624,766
                                          
                                          
                                          
                                          (22,746,565
                                          )
                                          
                                          
                                          125,423,287
                                          
                                          
                                          
                                          (29,672,309
                                          )Net
      income/(loss) from discontinued operations
                                          
                                          
                                          74
                                          
                                          
                                          
                                          (26,572,505
                                          )
                                          
                                          
                                          16,845,727
                                          
                                          
                                          
                                          (27,399,607
                                          )Net
      income/(loss)
                                          
                                          
                                          133,624,840
                                          
                                          
                                          
                                          (49,319,070
                                          )
                                          
                                          
                                          142,269,014
                                          
                                          
                                          
                                          (57,071,916
                                          )Less:
      net (income)/loss attributable to noncontrolling
      interests
                                          
                                          
                                          (2,064,013
                                          )
                                          
                                          
                                          673,924
                                          
                                          
                                          
                                          (2,190,503
                                          )
                                          
                                          
                                          767,040Net
      income/(loss) attributable to common shares
                                          
                                          $
                                          131,560,827
                                          
                                          
                                          $
                                          (48,645,146
                                          )
                                          
                                          $
                                          140,078,511
                                          
                                          
                                          $
                                          (56,304,876
                                          )Basic
      and diluted income/(loss) per common share:Continuing
      operations
                                          
                                          $
                                          4.13
                                          
                                          
                                          $
                                          (0.71
                                          )
                                          
                                          $
                                          3.88
                                          
                                          
                                          $
                                          (0.93
                                          )Discontinued
      operations
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (0.84
                                          )
                                          
                                          
                                          0.53
                                          
                                          
                                          
                                          (0.87
                                          )Net
      income/(loss) per common share
                                          
                                          $
                                          4.13
                                          
                                          
                                          $
                                          (1.55
                                          )
                                          
                                          $
                                          4.41
                                          
                                          
                                          $
                                          (1.80
                                          )Weighted
      average number of common shares outstanding, basic and
      diluted
                                          
                                          
                                          31,818,482
                                          
                                          
                                          
                                          31,297,445
                                          
                                          
                                          
                                          31,757,597
                                          
                                          
                                          
                                          31,204,618





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


4





PART I. FINANCIAL INFORMATION,
CONTINUED:


ITEM
1. FINANCIAL STATEMENTS, CONTINUED:





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


CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPRESHENSIVE INCOME


(UNAUDITED)




Preferred Shares
                                
                                
                                Common Shares
                                
                                
                                
                                
                                
                                
                                
                                
                                Accumulated
                                
                                
                                TotalNumber of
                                  Shares
                                
                                
                                Amount
                                
                                
                                Number of
                                  Shares
                                
                                
                                Amount
                                
                                
                                Additional Paid-In
                                  Capital
                                
                                
                                Accumulated
      Other Comprehensive Income
                                
                                
                                Distributions in
                                  Excess
      of Net Income
                                
                                
                                Noncontrolling
                                  Interests
                                
                                
                                Total 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
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                140,078,511
                                
                                
                                
                                2,190,503
                                
                                
                                
                                142,269,014Unrealized
      gains on available for sale securities
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                2,809,875
                                
                                
                                
                                -
                                
                                
                                
                                43,869
                                
                                
                                
                                2,853,744Reclassification
      adjustment for gain realized in net income
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (132,700
                                )
                                
                                
                                
                                
                                
                                
                                (2,100
                                )
                                
                                
                                (134,800
                                )Total
      comprehensive income
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                144,987,958Distributions
      declared
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (17,463,843
                                )
                                
                                
                                -
                                
                                
                                
                                (17,463,843
                                )Distributions
      paid to noncontrolling interests
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (18,412,256
                                )
                                
                                
                                (18,412,256
                                )Redemption
      and cancellation of shares
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (182,470
                                )
                                
                                
                                (1,824
                                )
                                
                                
                                (1,822,879
                                )
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                -
                                
                                
                                
                                (1,824,703
                                )Shares
      issued from distribution reinvestment program
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                466,548
                                
                                
                                
                                4,665
                                
                                
                                
                                4,466,357
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                4,471,022Other
      offering costs
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (22,442
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (22,442
                                )BALANCE,
      September 30, 2010
                                
                                
                                -
                                
                                
                                $
                                -
                                
                                
                                
                                31,812,431
                                
                                
                                $
                                318,124
                                
                                
                                $
                                283,384,594
                                
                                
                                $
                                3,003,252
                                
                                
                                $
                                (27,087,965
                                )
                                
                                $
                                23,328,082
                                
                                
                                $
                                282,946,087





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 Nine Months Ended September 30,2010
                
                
                2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income/(loss)
                
                $
                142,269,014
                
                
                $
                (57,071,916
                )Less
      net (income)/loss - discontinued operations
                
                
                (16,845,727
                )
                
                
                27,399,607Net
      income/(loss) from continuing operations
                
                
                125,423,287
                
                
                
                (29,672,309
                )Adjustments
      to reconcile net income/(loss) to net cash provided by operating
      activities:Depreciation
      and amortization
                
                
                4,484,299
                
                
                
                6,288,236Gain
      on sale of marketable securities
                
                
                (66,756
                )
                
                
                (343,724
                )Gain
      on disposition of unconsolidated affiliated real estate
      entities
                
                
                (142,779,604
                )
                
                
                -Realized
      loss on impairment of marketable securities
                
                
                -
                
                
                
                3,373,716Amortization
      of deferred financing costs
                
                
                259,650
                
                
                
                224,095Amortization
      of deferred leasing costs
                
                
                316,991
                
                
                
                427,939Amortization
      of above and below-market lease intangibles
                
                
                (60,711
                )
                
                
                (286,641
                )Loss
      on long-lived assets
                
                
                1,423,678
                
                
                
                18,928,968Equity
      in loss from investments in unconsolidated affiliated real estate
      entities
                
                
                11,554,683
                
                
                
                4,248,298Provision
      for bad debts
                
                
                232,549
                
                
                
                509,736Changes
      in assets and liabilities:Decrease
      in prepaid expenses and other assets
                
                
                291,225
                
                
                
                261,760Decrease/(increase)
      in tenant and other accounts receivable
                
                
                (845,607
                )
                
                
                1,282,498Increase/(decrease)
      in tenant allowance and security deposits payable
                
                
                (19,466
                )
                
                
                238,604Increase/(decrease)
      in accounts payable and accrued expenses
                
                
                3,785,919
                
                
                
                (3,365,753
                )Decrease
      in due to Sponsor
                
                
                1,268,046
                
                
                
                132,485Increase
      in prepaid rents
                
                
                178,259
                
                
                
                298,444Net
      cash provided by operating activities - continuing
    operations
                
                
                5,446,442
                
                
                
                2,546,352Net
      cash provided by operating activities - discontinued
      operations
                
                
                1,168,806
                
                
                
                351,912Net
      cash provided by operating activities
                
                
                6,615,248
                
                
                
                2,898,264CASH
      FLOWS USED IN INVESTING ACTIVITIES:Purchase
      of investment property, net
                
                
                (1,433,083
                )
                
                
                (7,606,758
                )Purchase
      of marketable securities
                
                
                (150,000,000
                )
                
                
                -Proceeds
      from sale of marketable securities
                
                
                428,556
                
                
                
                12,166,886Proceeds
      from disposition of investments in unconsolidated affiliated real
      estate
                
                
                204,430,391
                
                
                
                -Redemption
      payments from investment in affiliate
                
                
                5,402,007
                
                
                
                1,866,664Purchase
      of investment in unconsolidated affiliated real estate
      entities
                
                
                (2,486,981
                )
                
                
                (18,997,677
                )Funding
      of restricted escrows
                
                
                (1,033,785
                )
                
                
                663,468Net
      cash provided by/(used in) investing activities - continuing
      operations
                
                
                55,307,105
                
                
                
                (11,907,417
                )Net
      cash used in investing activities - discontinued
operations
                
                
                (1,541,121
                )
                
                
                (343,273
                )Net
      cash provided by/(used in) investing activities
                
                
                53,765,984
                
                
                
                (12,250,690
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Mortgage
      payments
                
                
                (2,005,826
                )
                
                
                (2,014,703
                )Payment
      of loan fees and expenses
                
                
                (315,767
                )
                
                
                (22,911
                )Proceeds
      from loans due to affiliates
                
                
                1,485,377
                
                
                
                -Redemption
      and cancellation of common stock
                
                
                (1,824,703
                )
                
                
                (4,272,082
                )Proceeds
      from issuance of special general partnership units
                
                
                -
                
                
                
                6,982,534Issuance
      of note receivable to noncontrolling interest
                
                
                -
                
                
                
                (22,357,708
                )Payment
      of offering costs
                
                
                (22,442
                )
                
                
                -Distribution
      received from discontinued operations
                
                
                26,450
                
                
                
                -Distributions
      paid to noncontrolling interests
                
                
                (18,412,256
                )
                
                
                (3,200,003
                )Distributions
      paid to Company's common stockholders
                
                
                (9,756,327
                )
                
                
                (9,163,231
                )Net
      cash used in financing activities - continuing operations
                
                
                (30,825,494
                )
                
                
                (34,048,104
                )Net
      cash used in financing activities - discontinued
operations
                
                
                (26,450
                )
                
                
                -Net
      cash used in financing activities
                
                
                (30,851,944
                )
                
                
                (34,048,104
                )Net
      change in cash and cash equivalents
                
                
                29,529,288
                
                
                
                (43,400,530
                )Cash
      and cash equivalents, beginning of period
                
                
                17,076,320
                
                
                
                66,106,067Cash
      and cash equivalents, end of period
                
                $
                46,605,608
                
                
                $
                22,705,537





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


6





PART
I. FINANCIAL INFORMATION, CONTINUED:


ITEM
1. FINANCIAL STATEMENTS, CONTINUED:





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


CONSOLIDATED
STATEMENTS OF CASH FLOWS - CONTINUED


(UNAUDITED)





For the Nine Months Ended September 30,2010
                            
                            
                            2009Supplemental
      disclosure of cash flow information:Cash
      paid for interest
                            
                            $
                            8,658,306
                            
                            
                            $
                            10,633,573Distributions
      declared
                            
                            $
                            17,463,843
                            
                            
                            $
                            21,776,937Value
      of shares issued from distribution reinvestment program
                            
                            $
                            4,471,022
                            
                            
                            $
                            7,094,300Loan
      due to affiliate converted to a distribution from investment in
      unconsolidated affiliated real estate entity
                            
                            $
                            2,816,724
                            
                            
                            $
                            -Marketable
      equity securities received in connection of disposal of investment in
      unconsolidated affiliated real estate entities
                            
                            $
                            29,221,714
                            
                            
                            $
                            -Restricted
      marketable equity securities received in connection of disposal of
      investment in unconsolidated affiliated real estate
    entities
                            
                            $
                            30,286,518
                            
                            
                            $
                            -Cash
      escrowed in connection of disposal of investment in unconsolidated
      affiliated real estate entities
                            
                            
                            1,889,270
                            
                            
                            
                            -Issuance
      of units in exchange for investment in unconsolidated affiliated real
      estate entity
                            
                            $
                            -
                            
                            
                            $
                            78,988,411Issuance
      of equity for payment of acquisition fee obligations
                            
                            $
                            -
                            
                            
                            $
                            6,878,087





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


7





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”, also referred
to as “we” or “us” herein) 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
September 30, 2010, on a collective basis, the Company (i) wholly owned 3 retail
properties containing a total of approximately 0.6 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 residential properties
containing a total of 1,805 units, and 2 hotel hospitality properties containing
a total of 290 rooms and (ii) owned interests in 1 office property containing a
total of approximately 1.1 million square feet of office space and 2 development
outlet center retail projects. All of its properties are located within the
United States. As of September 30, 2010, the retail properties, the industrial
properties, the multi-family residential properties and the office property were
84%, 61%, 89% and 79% occupied based on a weighted-average basis, respectively.
Its hotel hospitality properties’ average revenue per available room was $28 and
occupancy was 71% for the nine months ended September 30, 2010.




During
the second quarter of2010, as a result of the Company previously 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
and the Company no longer has any ownership interests in these two properties.
The operating results of these two properties through their date of disposition
have been classified as discontinued operations on a historical basis for all
periods presented. The transactions resulted in a gain on debt extinguishment of
$17.2 million which was recorded during the second quarter of 2010 and is
included in discontinued operations for the nine months ended September 30, 2010
(see Note 9). 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.




Beginning
in June 2010, the Company decided to discontinue the monthly required debt
service payments of $65,724 on a loan collateralized by an apartment property
located in North Carolina, which represents 220 units of the 1,805 units owned
in the multi-family segment. This loan has an aggregate outstanding principal
balance of $9.1 million as of September 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 10 and 11.




Additionally,
on August 30, 2010, the Company completed the disposition of certain interests
in investments in unconsolidated real estate entities. See Note 3.





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 September 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.


8


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


Notes
to Consolidated Financial Statements


(unaudited)





The
accompanying unaudited interim consolidated financial statements and related
notes should be read in conjunction with the audited Consolidated Financial
Statements of  the Company and related notes as contained in the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
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 Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 167, “Amendments to FASB
Interpretation No. 46(R)”, which was primarily codified into Topic 810 in the
Accounting Standards Codification (“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 became 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.





3.
            Simon
      Transaction





On
December 8, 2009, the Company, its Operating Partnership and Pro-DFJV Holdings
LLC (“PRO”), a Delaware limited liability company and a wholly-owned subsidiary
of ours (collectively, the “LVP Parties”) entered into a definitive agreement
(“the “Contribution Agreement”) with Simon Property Group, Inc. (“Simon Inc.”),
a Delaware corporation, Simon Property Group, L.P., a Delaware limited
partnership (“Simon OP”), and Marco Capital Acquisition, LLC, a Delaware limited
liability company (collectively, referred to herein as “Simon”) providing for
the disposition of a substantial portion of our retail properties to Simon
including our (i) St. Augustine outlet center (“St. Augustine”), which is wholly
owned, (ii) 40.00% interests in its investment in Prime Outlets Acquisitions
Company (“POAC”), which includes 18 operating outlet center properties (the
“POAC Properties”) and two development projects, Livermore Valley Holdings, LLC
(“Livermore”) and Grand Prairie Holdings, LLC (“Grand Prairie”), and (iii)
36.80% interests in its investment in Mill Run, LLC (“Mill Run”), which includes
2 operating outlet center properties (the “Mill Run Properties”).  On
June 28, 2010, the Contribution Agreement was amended to remove the previously
contemplated dispositions of St. Augustine and the Company’s 40.00% interests in
both Livermore and Grand Prairie.  The transactions contemplated by
the Contribution Agreement, as amended, are referred to herein as the “Simon
Transaction”. Additionally,
certain affiliates of our Sponsor were parties to the Contribution Agreement,
pursuant to which they would dispose of their respective ownership interests in
POAC and Mill Run and certain other outlet center properties, in which we had no
ownership interest, to Simon. Furthermore,as a result of the
aforementioned amendment to the Contribution Agreement, St. Augustine no longer
met the criteria to be classified as held for sale and was reclassified to held
for use effective as of June 28, 2010 (see Note 8).  The Company’s
40.00% and 36.80% interests in investments in POAC, including Grand Prairie and
Livermore, and Mill Run, respectively, have been accounted for as investments in
unconsolidated affiliated real estate entities since their acquisition (see Note
4).


9


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


Notes
to Consolidated Financial Statements


(unaudited)





On August
30, 2010, the Simon Transaction was completed and, as a result, the LVP
Parties received total consideration, before allocations to noncontrolling
interests, of approximately $265.8 million (the “Aggregate Consideration
Value”),after certain
transaction expenses of approximately $9.6 million which was paid at
closing.  The Aggregate Consideration Value consisted of approximately
(i) $204.4 million in the form of cash, (ii) $1.9 million of escrowed cash (the
“Escrowed Cash”) and (iii) $59.5 million in the form of equity interests (“Marco
OP Units”).





The cash
consideration of $204.4 million that the LVP Parties received in connection with
the closing of the Simon Transaction was paid by Simon with the proceeds from a
draw under a revolving credit facility (the “Simon Loan”) that Simon entered
into contemporaneously with the signing of the Contribution Agreement. In
connection with the closing of the Simon Transaction, the LVP Parties have
provided guaranties of collection (the “Simon Loan Collection Guaranties”) with
respect to the Simon Loan.  See Note 17.  The Escrowed Cash
of $1.9 million is included in restricted escrows in the consolidated balance
sheet as of September 30, 2010.   The equity interests that the
LVP Parties received in connection with the closing of the Simon Transaction
consisted of 703,737 Marco OP Units that are exchangeable for a similar number
of common operating partnership units (“Simon OP Units”) of Simon Property
Group, L.P. (“Simon OP”) subject to various conditions as discussed
below.   Subject to the various conditions, the Company may elect
to exchange the Marco OP Units to Simon OP Units which must be immediately
delivered to Simon in exchange for cash or similar number of shares of Simon
common stock, based on the then current weighted-average 5-day closing price of
Simon’s common stock (“Simon Stock”), at Simon’s election.





Although
the Marco OP Units may be immediately exchanged into Simon OP Units, if upon
their delivery to Simon, Simon elects to exchange them for a similar number of
shares of Simon Stock rather than cash, the LVP Parties will be precluded from
selling the Simon Stock for a 6-month period from the date of
issuance.  Additionally, because the Company is required to indemnify
Simon OP and Simon for any liabilities and obligations (the “TPA Obligations”)
that should arise under certain tax protection agreements (the “POAC/Mill Run
Tax Protection Agreements”) through March 1, 2012 (see Note 17), the Company was
required to place 367,778 of the Marco OP Units (the “Escrowed Marco OP Units”)
into an escrow account.





Pursuant
to the Contribution Agreement, as amended, there is a period after closing, of
up to 215 days, for the Aggregate Consideration Value to be finalized between
the LVP Parties and Simon. The Escrowed Cash and The Escrowed Units are reserved
for the final settlement of certain consideration adjustments (collectively, the
“Final Consideration Adjustments”) related to net working capital reserves,
including the true-up of debt assumption costs, certain indemnified
liabilities  and specified transaction costs.  The Escrowed
Marco OP Units may be used to cover any shortfalls resulting from the Final
Consideration Adjustments not covered by the Escrowed Cash.  Remaining
Escrowed Cash, if any, will be released on or about 215 days from the closing
date.  Remaining Escrowed Marco Units, net of any amounts used to
settle shortfalls resulting from the Final Consideration Adjustments and TPA
Obligations, will be released to the Company on March 1, 2012.





The
Escrowed Marco OP Units had an estimated fair value of $30.3 million as of the
closing date of the Simon Transaction and are classified as restricted
marketable securities, which are available for sale, in our consolidated balance
sheet as of September 30, 2010.   The 335,959 Marco OP Units
which were not placed in an escrow had an estimated fair value of $29.2 million
as of the closing date of the Simon Transaction and are classified as marketable
securities, which are available for sale, in our consolidated balance sheet as
of September 30, 2010.  The estimated
fair value of the Marco OP Units and the Escrowed Marco OP Units were based on
the weighted-average closing price of Simon’s common stock for the 5-day period
immediately prior to the closing date, discounted for certain factors, including
the applicable various conditions.   See Note 6.





In
connection with the closing of the Simon Transaction, the Company recognized a
gain on disposition of approximately $142.8 million in the consolidated
statements of operations during the third quarter of 2010.  The
Company also deferred an additional $32.2 million of gain (the “Deferred Gain”)
on the consolidated balance sheet consisting of the total of the (i) $1.9
million of Escrowed Cash and (ii) $30.3 million of Restricted Marco OP Units
received as part of the Aggregate Consideration Value because realization of
these items is subject to the Final Consideration Adjustments and the TPA
Obligations.





At a
meeting on May 13, 2010, the Company’s board of directors (the “Board”) made the
decision to distribute proceeds from the Simon Transaction to our
shareholders in an amount equal to the estimated tax liability, if any, they
would accrue as a result of the closing.  The Board further determined
at that time, subject to change based on market conditions that may prevail when
the Simon Transaction closes and the proceeds are received, 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 future
distributions 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 a
period of seven to ten years.





10


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


Notes
to Consolidated Financial Statements


(unaudited)





At a
subsequent meeting on September 16, 2010, the Board determined no distributions
to our shareholders were currently necessary because of the tax-free nature of
the Simon Transaction and reaffirmed its decision to reinvestment the cash
proceeds.





PRO’s
portion of the aforementioned  $204.4 million of  net cash
proceeds received from the closing of the Simon Transaction were approximately
$73.6 million, which were distributed to its members (the “PRO Distributions”)
during the third quarter of 2010 pursuant to its operating
agreement.  See Note 14.





4.
            Investments
      in Unconsolidated Affiliated Real Estate
  Entities





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





AsofRealEstateEntity
                          
                          Date(s)Acquired
                          
                          Ownership
                            %
                          
                          
                          September30,
                            2010
                          
                          
                          December31,2009Prime
      Outlets Acquistions Company ("POAC")(1)
                          
                          March
      30, 2009 & August 25, 2009
                          
                          
                          40.00
                          %
                          
                          $
                          -
                          
                          
                          $
                          84,291,011Mill
      Run LLC ("Mill Run")
                          
                          June
      26, 2008 & August 25, 2009
                          
                          
                          36.80
                          %
                          
                          
                          -
                          
                          
                          
                          29,809,641Livermore
      Valley Holdings, LLC ("Livermore")(1)
                          
                          March
      30, 2009 & August 25, 2009
                          
                          
                          40.00
                          %
                          
                          
                          5,327,332
                          
                          
                          
                          -Grand
      Prairie Holdings, LLC ("Grand Prairie")(1)
                          
                          March
      30, 2009 & August 25, 2009
                          
                          
                          40.00
                          %
                          
                          
                          7,358,428
                          
                          
                          
                          -1407
      Broadway Mezz II, LLC ("1407 Broadway")
                          
                          January
      4, 2007
                          
                          
                          49.00
                          %
                          
                          
                          847,322
                          
                          
                          
                          1,871,814Total
      Investments in unconsolidated affiliated real estate
      entities
                          
                          
                          
                          
                          
                          
                          
                          $
                          13,533,082
                          
                          
                          $
                          115,972,466





1.
            In
      connection with the closing of the Simon Transaction on August 30, 2010,
      the Company retained its 40.00% ownership interests in both Grand Prairie
      and Livermore, which were previously owned by POAC and historically
      included in the Company’s 40.00% ownership interest in
    POAC.





On
December 8, 2009, the Company entered into a Contribution Agreement with Simon
to dispose of all its retail outlet center interests including St. Augustine,
which is wholly owned, and its 40.00% and 36.80% interests in investments in
both POAC and Mill Run, respectively, which are accounted for under the equity
method of accounting.  The terms of the Contribution Agreement were
subsequently amended on June 28, 2010 providing for the Company to retain St.
Augustine and its interests in certain development properties (Livermore and
Grand Prairie) which were owned by POAC.  On August 30, 2010, the
Company closed on the Simon Transaction pursuant to which it disposed of its
interests in investments in POAC, except for its interests in investments in
both Livermore and Grand Prairie which were retained, and Mill
Run.  See Note 3 for additional information.





Prime
Outlets Acquisitions Company





As
previously discussed, on August 30, 2010, the Company disposed of its interests
in investments in POAC, except for its interests in Livermore and Grand Prairie,
two outlet center development projects (see below).  Prior to
disposition, our Operating Partnership owned a 40.00% membership interest in
POAC (the “POAC Interest”), of which a 25.00% and 15.00% membership interests
were acquired on March 30, 2009 and August 25, 2009,
respectively.  The POAC Interest was a non-managing interest, with
certain consent rights with respect to major decisions. An affiliate of the
Company’s Sponsor, was the majority owner and manager of POAC.  Profit
and cash distributions were allocated in accordance with each investor’s
ownership percentage.  Through the date of disposition, the Company
accounted for this investment in accordance with the equity method of
accounting, and its portion of POAC’s total indebtedness was not included in the
Company’s investment.





During
March 2010, the Company entered a demand grid note to borrow up to $20.0 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
bore interest at LIBOR plus 2.5%.  The principal and interest on this
loan was 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 was reflected as a reduction in the Company’s investment in
POAC.


11


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


Notes
to Consolidated Financial Statements


(unaudited)





POAC
Financial Information





The
Company’s carrying value of its POAC Interest differed from its share of
members’ 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
was recognized on a straight-line basis over the lives of the appropriate assets
through the date of disposition.





The
following table represents the unaudited condensed income statement for POAC for
the periods indicated:





ForthePeriod
                                        July1,2010to
                                        August30,2010
                                      
                                      
                                      FortheThree
                                        MonthsEnded
                                        September30,
                                        2009
                                      
                                      
                                      ForthePeriod
                                        January1,2010to
                                        August30,2010
                                      
                                      
                                      ForthePeriod
                                        March30,2009to
                                        September30,
                                        2009Revenue
                                      
                                      $
                                      31,042,763
                                      
                                      
                                      $
                                      46,375,573
                                      
                                      
                                      $
                                      122,857,722
                                      
                                      
                                      $
                                      91,929,258Property operating
      expenses
                                      
                                      
                                      31,672,270
                                      
                                      
                                      
                                      24,392,778
                                      
                                      
                                      
                                      73,290,776
                                      
                                      
                                      
                                      45,426,139Depreciation and
      amortization
                                      
                                      
                                      6,071,792
                                      
                                      
                                      
                                      10,130,790
                                      
                                      
                                      
                                      25,076,385
                                      
                                      
                                      
                                      20,752,928Operating
      income/(loss)
                                      
                                      
                                      (6,701,299
                                      )
                                      
                                      
                                      11,852,005
                                      
                                      
                                      
                                      24,490,561
                                      
                                      
                                      
                                      25,750,191Interest expense and other,
      net
                                      
                                      
                                      9,772,390
                                      
                                      
                                      
                                      13,408,706
                                      
                                      
                                      
                                      39,122,584
                                      
                                      
                                      
                                      25,099,003Net
      income/(loss)
                                      
                                      $
                                      (16,473,689
                                      )
                                      
                                      $
                                      (1,556,701
                                      )
                                      
                                      $
                                      (14,632,023
                                      )
                                      
                                      $
                                      651,188Company's share of net
      income/(loss)
                                      
                                      $
                                      (6,589,476
                                      )
                                      
                                      $
                                      (593,791
                                      )
                                      
                                      $
                                      (5,852,809
                                      )
                                      
                                      $
                                      (41,820
                                      )Additional depreciation and
      amortization expense(1)
                                      
                                      
                                      (2,047,619
                                      )
                                      
                                      
                                      (2,198,260
                                      )
                                      
                                      
                                      (8,655,287
                                      )
                                      
                                      
                                      (4,058,260
                                      )Company's loss from
      investment
                                      
                                      $
                                      (8,637,095
                                      )
                                      
                                      $
                                      (2,792,051
                                      )
                                      
                                      $
                                      (14,508,096
                                      )
                                      
                                      $
                                      (4,100,080
                                      )





1.
            Additional
      depreciation and amortization expense related 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
December 31, 2009:





AsofDecember31,2009Real estate, at cost
      (net)
                                
                                $
                                757,385,791Intangible
      assets
                                
                                
                                11,384,965Cash and restricted
      cash
                                
                                
                                44,891,427Other
assets
                                
                                
                                59,050,970Total
assets
                                
                                $
                                872,713,153Mortgage
      payable
                                
                                $
                                1,183,285,466Other
      liabilities
                                
                                
                                46,447,451Member
    capital
                                
                                
                                (357,019,764
                                )Total liabilities and members'
      capital
                                
                                $
                                872,713,153





Livermore
Valley Holdings, LLC





Livermore
was wholly owned by POAC through August 30, 2010 and, therefore, was
historically included in the Company’s POAC Interest as discussed
above.  In connection with the closing of the Simon Transaction, the
Company retained its 40.00% interest in investment in Livermore in the amount of
approximately $5.3 million.   Our Operating Partnership owns a
40.00% membership interest in Livermore (the “Livermore
Interest”).  The Livermore 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
Livermore.  Contributions are allocated in accordance with each
investor’s ownership percentage.  Profit and cash distributions, if
any, will be allocated in accordance with each investor’s ownership
percentage.





Livermore
is an outlet center development project expected to be constructed in Livermore,
CA and had no operating results through September 30, 2010 or debt outstanding
as of September 30, 2010.  The Company accounts for its Livermore
Interest in accordance with the equity method of accounting.


12


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


Notes
to Consolidated Financial Statements


(unaudited)





Livermore
Financial Information





The
following table represents the unaudited condensed balance sheet for Livermore
as of September 30, 2010:





AsofSeptember 30, 2010Construction in
      progress
                            
                            $
                            13,138,344Total
assets
                            
                            $
                            13,138,344Other
      liabilities
                            
                            $
                            13Members'
      capital
                            
                            
                            13,318,331Total liabilities and members'
      capital
                            
                            $
                            13,318,344





Grand
Prairie Holdings, LLC





Grand
Prairie was wholly owned by POAC through August 30, 2010 and, therefore, was
historically included in the Company’s POAC Interest as discussed
above.  In connection with the closing of the Simon Transaction, the
Company retained its 40.00% interest in investment in Grand Prairie in the
amount of approximately $4.7 million.   Our Operating Partnership
owns a 40.00% membership interest in Grand Prairie (the “Grand Prairie
Interest”).  The Grand Prairie 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 Grand
Prairie.  Contributions are allocated in accordance with each
investor’s ownership percentage.  Profit and cash distributions, if
any, will be allocated in accordance with each investor’s ownership
percentage.





Grand
Prairie is an outlet center development project expected to be constructed on
land it owns in Grand Prairie, Texas, and had no operating results through
September 30, 2010 or debt outstanding as of September 30, 2010.  The
Company made additional capital contributions of approximately $2.7 million to
Grand Prairie during September 2010.  The Company accounts for its
Grand Prairie Interest in accordance with the equity method of
accounting.





Grand
Prairie Financial Information





The
following table represents the unaudited condensed balance sheet for Grand
Prairie as of September 30, 2010:


AsofSeptember30,2010Construction in
      progress
                              
                              $
                              18,564,640Other
assets
                              
                              
                              3,187Total
assets
                              
                              $
                              18,567,827Other
      liabilities
                              
                              $
                              214,016Members'
      capital
                              
                              
                              18,353,811Total liabilities and members'
      capital
                              
                              $
                              18,567,827




13


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


Notes
to Consolidated Financial Statements


(unaudited)





Mill
Run, LLC





As
previously discussed, on August 30, 2010, the Company disposed of its interests
in investments in Mill Run.  Prior to disposition, our Operating
Partnership owned a 36.80% membership interest in Mill Run (the “Mill Run
Interest”), of which a 24.54% and 14.26% membership interests were acquired on
June 26, 2008 and August 25, 2009, respectively.  The Mill Run
Interest included Class A and B membership shares and was a non-managing
interest, with consent rights with respect to certain major decisions. The
Company’s Sponsor was the managing member and owned 55% of Mill
Run.  Profit and cash distributions were to be allocated in accordance
with each investor’s ownership percentage after consideration of Class B members
adjusted capital balance.  Through the date of disposition, the
Company accounted for this investment in accordance with the equity method of
accounting, and its portion of Mill Run’s total indebtedness was not included in
the Company’s investment.





Mill
Run Financial Information





The
Company’s carrying value of its Mill Run Interest differed 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 was recognized on a straight-line basis over the lives of the appropriate
assets through the date of disposition.





The
following table represents the unaudited condensed income statement for Mill Run
for the periods indicated:





ForthePeriod
                                              fromJuly1,2010
                                              toAugust30,2010
                                            
                                            
                                            ThreeMonths
                                              EndedSeptember
                                              30,2009
                                            
                                            
                                            ForthePeriod
                                              fromJanuary1,
                                              2010toAugust30,
                                              2010
                                            
                                            
                                            NineMonths
                                              EndedSeptember
                                              30,2009Revenue
                                            
                                            $
                                            9,286,808
                                            
                                            
                                            $
                                            12,183,648
                                            
                                            
                                            $
                                            33,279,719
                                            
                                            
                                            $
                                            33,715,221Property operating
      expenses
                                            
                                            
                                            2,265,484
                                            
                                            
                                            
                                            3,672,029
                                            
                                            
                                            
                                            8,561,211
                                            
                                            
                                            
                                            10,646,386Depreciation and
      amortization
                                            
                                            
                                            1,651,483
                                            
                                            
                                            
                                            4,395,825
                                            
                                            
                                            
                                            6,664,898
                                            
                                            
                                            
                                            9,125,513Operating
      income
                                            
                                            
                                            5,369,841
                                            
                                            
                                            
                                            4,115,794
                                            
                                            
                                            
                                            18,053,610
                                            
                                            
                                            
                                            13,943,322Interest expense and other,
      net
                                            
                                            
                                            695,694
                                            
                                            
                                            
                                            892,145
                                            
                                            
                                            
                                            4,067,475
                                            
                                            
                                            
                                            4,003,145Net income
                                            
                                            $
                                            4,674,147
                                            
                                            
                                            $
                                            3,223,649
                                            
                                            
                                            $
                                            13,986,135
                                            
                                            
                                            $
                                            9,940,177Company's share of net
      income
                                            
                                            $
                                            1,720,086
                                            
                                            
                                            $
                                            965,777
                                            
                                            
                                            $
                                            5,146,898
                                            
                                            
                                            $
                                            2,537,779Additional depreciation and
      amortization expense(1)
                                            
                                            
                                            (293,682
                                            )
                                            
                                            
                                            (740,813
                                            )
                                            
                                            
                                            (1,168,994
                                            )
                                            
                                            
                                            (1,374,617
                                            )Company's income from
      investment
                                            
                                            $
                                            1,426,404
                                            
                                            
                                            $
                                            224,964
                                            
                                            
                                            $
                                            3,977,904
                                            
                                            
                                            $
                                            1,163,162





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.





14


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


Notes
to Consolidated Financial Statements


(unaudited)





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





AsofDecember31,2009Real estate, at cost
      (net)
                              
                              $
                              257,274,810Intangible
      assets
                              
                              
                              644,421Cash and restricted
      cash
                              
                              
                              6,410,480Other
assets
                              
                              
                              9,755,013Total
assets
                              
                              $
                              274,084,724Mortgage
      payable
                              
                              $
                              265,195,763Other
      liabilities
                              
                              
                              22,267,449Member
    capital
                              
                              
                              (13,378,488
                              )Total liabilities and members'
      capital
                              
                              $
                              274,084,724





1407
Broadway Mezz II, LLC




As of
September 30, 2010, the Company has a 49.00% ownership in 1407 Broadway Mezz II,
LLC (“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 $124.8 million as September 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.





During
March 2010, the Company entered a demand grid note to borrow up to $20.0 million
from 1407 Broadway.  During the quarters ended June 30, 2010 and
September 30, 2010, the Company has received aggregate loan proceeds from 1407
Broadway associated with this demand grid note in the amount of $0.5 million and
$1.0 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.  As of September 30, 2010, the
outstanding principal and interest of approximately $1.5 million is recorded in
loans due to affiliates in the consolidated balance sheets.





1407
Broadway Financial Information




The
following table represents the condensed income statement derived from unaudited
financial statements for 1407 Broadway for the periods indicated:





For the Three Months Ended
                                September 30,
                              
                              
                              For the Nine Months Ended
                                September 30,2010
                              
                              
                              2009
                              
                              
                              2010
                              
                              
                              2009Total
      revenue
                              
                              $
                              9,297,401
                              
                              
                              $
                              8,357,981
                              
                              
                              $
                              26,643,446
                              
                              
                              $
                              27,192,167Property
      operating expenses
                              
                              
                              7,796,708
                              
                              
                              
                              7,355,158
                              
                              
                              
                              20,625,007
                              
                              
                              
                              20,580,981Depreciation
      and amortization
                              
                              
                              1,558,103
                              
                              
                              
                              2,007,870
                              
                              
                              
                              4,642,776
                              
                              
                              
                              6,491,543Operating
      income/(loss)
                              
                              
                              (57,410
                              )
                              
                              
                              (1,005,047
                              )
                              
                              
                              1,375,663
                              
                              
                              
                              119,643Interest
      expense and other, net
                              
                              
                              (1,223,236
                              )
                              
                              
                              (1,033,908
                              )
                              
                              
                              (3,466,461
                              )
                              
                              
                              (2,795,929
                              )Net
      loss
                              
                              $
                              (1,280,646
                              )
                              
                              $
                              (2,038,955
                              )
                              
                              $
                              (2,090,798
                              )
                              
                              $
                              (2,676,286
                              )Company's share
      of net loss (49%)
                              
                              $
                              (627,517
                              )
                              
                              $
                              (999,088
                              )
                              
                              $
                              (1,024,491
                              )
                              
                              $
                              (1,311,380
                              )




15


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


Notes
to Consolidated Financial Statements


(unaudited)





The
following table represents the condensed balance sheet derived from unaudited
financial statements for 1407 Broadway as of the dates indicated:





As of
                  
                  
                  As ofSeptember 30, 2010
                  
                  
                  December 31, 2009Real
      estate, at cost (net)
                  
                  $
                  111,819,777
                  
                  
                  $
                  111,803,186Intangible
      assets
                  
                  
                  1,238,498
                  
                  
                  
                  1,845,941Cash
      and restricted cash
                  
                  
                  12,357,223
                  
                  
                  
                  10,226,017Other
      assets
                  
                  
                  12,960,377
                  
                  
                  
                  11,887,040Total
      assets
                  
                  $
                  138,375,875
                  
                  
                  $
                  135,762,184Mortgage
      payable
                  
                  $
                  124,778,185
                  
                  
                  $
                  116,796,263Other
      liabilities
                  
                  
                  11,878,770
                  
                  
                  
                  15,156,202Members'
      capital
                  
                  
                  1,718,920
                  
                  
                  
                  3,809,719Total
      liabilities and members' capital
                  
                  $
                  138,375,875
                  
                  
                  $
                  135,762,184





5.
            Investment in Affiliate, at
      Cost





Park
Avenue Funding LLC





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 $18,803 and $65,945 at September 30, 2010 and at December 31,
2009, respectively, and are included in interest receivable from related parties
in the consolidated balance sheets.   Through September 30, 2010,
the Company received cumulative redemption payments from PAF of $8.7 million, of
which $5.4 million was received during the nine months ended September 30,
2010.  As of September 30, 2010, the Company’s investment in PAF is
$2.3 million and is included in investment in affiliate, at cost in the
consolidated balance sheets.  Subsequent to September 30, 2010, the
Company received additional redemption payments aggregating $2.3 million and as
a result, no longer has any remaining investment in PAF.


16


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


Notes
to Consolidated Financial Statements


(unaudited)





6.
            Marketable Securities and Fair
      Value Measurements





Marketable
Securities:





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





As of September 30, 2010
                  
                  
                  As of December 31, 2009Adjusted Cost
                  
                  
                  Unrealized
                    Gain/(Loss)
                  
                  
                  Fair Value
                  
                  
                  Adjusted Cost
                  
                  
                  Unrealized
                    Gain/(Loss)
                  
                  
                  Fair ValueEquity
      Securities, primarily REITs
                  
                  $
                  104,342
                  
                  
                  $
                  120,374
                  
                  
                  $
                  224,716
                  
                  
                  $
                  466,142
                  
                  
                  $
                  374,735
                  
                  
                  $
                  840,877Marco
      OP Units
                  
                  
                  29,221,714
                  
                  
                  
                  1,427,826
                  
                  
                  
                  30,649,540
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -CMBS
                  
                  
                  150,000,000
                  
                  
                  
                  810
                  
                  
                  
                  150,000,810
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  $
                  179,326,056
                  
                  
                  $
                  1,549,010
                  
                  
                  $
                  180,875,066
                  
                  
                  $
                  466,142
                  
                  
                  $
                  374,735
                  
                  
                  $
                  840,877





Restricted
Marketable Securities:





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





As of September 30, 2010
                  
                  
                  As of December 31, 2009Adjusted Cost
                  
                  
                  Unrealized
                    Gain/(Loss)
                  
                  
                  Fair Value
                  
                  
                  Adjusted Cost
                  
                  
                  Unrealized
                    Gain/(Loss)
                  
                  
                  Fair ValueMarco
      OP Units
                  
                  $
                  30,286,518
                  
                  
                  $
                  1,544,668
                  
                  
                  $
                  31,831,186
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Total
                  
                  $
                  30,286,518
                  
                  
                  $
                  1,544,668
                  
                  
                  $
                  31,831,186
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -





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, during the second quarter of 2010 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 on sale of marketable
securities in the consolidated statements of operations for the nine months
ended September 30, 2010





On August
30, 2010, the Company disposed of certain of its interests in investment in
unconsolidated affiliated real estate entities in connection with the closing of
the Simon Transaction and received 367,778 of Escrowed Marco OP Units valued at
$30.3 million and 335,959 Marco OP Units valued at $29.2 million. The Escrowed
Marco OP Units and the Marco OP Units are classified as restricted marketable
securities, available for sale, and marketable securities, available for sale,
respectively, in our consolidated balance sheet as of September 30,
2010.  See Note 3.





On
September 28, 2010, the Company utilized a portion of the net cash proceeds it
received in connection with the closing of the Simon Transaction (see Note 3) to
purchase $150.0 million of collateralized mortgage back securities
(“CMBS”).  All of the CMBS were issued by various U.S.
government-sponsored enterprises and, therefore, are backed by the full faith
and credit of the U.S. government.





Fair Value
Measurements





Fair value isdefined as the exchangeprice 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 measurefair value must maximize the use of
observable inputs and minimize the use of unobservable
inputs.





The standard describes a fair value
hierarchy based on three levels of inputs, of which the first two are considered
observable and the last unobservable, that may be used to measure fair
value:





•
            Level 1–Quoted prices in active markets
      for identical assets or
liabilities.





•
            Level 2–Inputs other than Level 1 that
      are observable, either directly or indirectly, such as quoted prices for
      similar assets orliabilities; 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.




17




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


Notes
to Consolidated Financial Statements


(unaudited)





•
            Level 3–Unobservable inputs that are
      supported by little or no market activity and that are significant to the
      fair value of the assets or
liabilities.





Marketable securities, available for sale,measured at fair value on a recurring
basis as ofthe dates
indicatedare as
follows:





Fair Value Measurement UsingAs of September 30, 2010
                        
                        Level 1
                        
                        
                        Level 2
                        
                        
                        Level 3
                        
                        
                        TotalMarketable Securities:Equity
      Securities, primarily REITs
                        
                        $
                        224,716
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        224,716Marco
      OP Units
                        
                        
                        -
                        
                        
                        
                        30,649,540
                        
                        
                        
                        -
                        
                        
                        
                        30,649,540CMBS
                        
                        
                        -
                        
                        
                        
                        150,000,810
                        
                        
                        
                        -
                        
                        
                        
                        150,000,810Total
                        
                        $
                        224,716
                        
                        
                        $
                        180,650,350
                        
                        
                        $
                        -
                        
                        
                        $
                        180,875,066Restricted Marketable
      Securities:Marco
      OP Units
                        
                        $
                        -
                        
                        
                        $
                        31,831,186
                        
                        
                        $
                        -
                        
                        
                        $
                        31,831,186Total
                        
                        $
                        -
                        
                        
                        $
                        31,831,186
                        
                        
                        $
                        -
                        
                        
                        $
                        31,831,186





Fair Value Measurement UsingAs of December 31, 2009
                      
                      Level 1
                      
                      
                      Level 2
                      
                      
                      Level 3
                      
                      
                      TotalMarketable Securities:Equity
      Securities, primarily REITs
                      
                      $
                      840,877
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      840,877Total
                      
                      $
                      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.





7.
            Intangible
      Assets





The
Company has 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
the dates indicated:




As of September 30, 2010
                  
                  
                  As of December 31, 2009Cost
                  
                  
                  Accumulated
                    Amortization
                  
                  
                  Net
                  
                  
                  Cost
                  
                  
                  Accumulated
                    Amortization
                  
                  
                  NetAcquired
      in-place lease intangibles
                  
                  $
                  1,677,943
                  
                  
                  $
                  (1,225,462
                  )
                  
                  $
                  452,481
                  
                  
                  $
                  2,625,791
                  
                  
                  $
                  (1,984,304
                  )
                  
                  $
                  641,487Acquired
      above market lease intangibles
                  
                  
                  502,982
                  
                  
                  
                  (348,791
                  )
                  
                  
                  154,191
                  
                  
                  
                  1,026,821
                  
                  
                  
                  (787,461
                  )
                  
                  
                  239,360Deferred
      intangible leasing costs
                  
                  
                  985,875
                  
                  
                  
                  (695,951
                  )
                  
                  
                  289,924
                  
                  
                  
                  1,354,295
                  
                  
                  
                  (948,020
                  )
                  
                  
                  406,275Acquired
      below market lease intangibles
                  
                  
                  (1,329,571
                  )
                  
                  
                  894,885
                  
                  
                  
                  (434,686
                  )
                  
                  
                  (3,012,740
                  )
                  
                  
                  2,349,326
                  
                  
                  
                  (663,414
                  )





During
the three and nine months ended September 30, 2010, the Company wrote off fully
amortized acquired intangible assets of approximately $0.2 million and $1.3
million resulting in a reduction of cost and accumulated amortization of
intangible assets at September 30, 2010 compared to the December 31,
2009.  There were no additions during the three and nine months ended
September 30, 2010.


18


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 as of September 30, 2010:




Amortization expense/(benefit) of:
                            
                            Remainder
                              of
      2010
                            
                            
                            2011
                            
                            
                            2012
                            
                            
                            2013
                            
                            
                            2014
                            
                            
                            Thereafter
                            
                            
                            TotalAcquired
      above market lease value
                            
                            $
                            15,668
                            
                            
                            $
                            52,826
                            
                            
                            $
                            23,379
                            
                            
                            $
                            14,425
                            
                            
                            $
                            14,425
                            
                            
                            $
                            33,468
                            
                            
                            $
                            154,191Acquired
      below market lease value
                            
                            
                            (48,680
                            )
                            
                            
                            (125,832
                            )
                            
                            
                            (87,911
                            )
                            
                            
                            (86,625
                            )
                            
                            
                            (42,819
                            )
                            
                            
                            (42,819
                            )
                            
                            
                            (434,686
                            )Projected
      future net rental income increase
                            
                            $
                            (33,012
                            )
                            
                            $
                            (73,006
                            )
                            
                            $
                            (64,532
                            )
                            
                            $
                            (72,200
                            )
                            
                            $
                            (28,394
                            )
                            
                            $
                            (9,351
                            )
                            
                            $
                            (280,495
                            )




Amortization
benefit of acquired above and below market lease values included in total
revenues in our consolidated statement of operations was $31,755 and $0.1
million for the three months ended September 30, 2010 and 2009, respectively and
$0.1 million and $0.3 million for the nine months ended September 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 as of September 30, 2010:




RemainderAmortization expense of:
                              
                              of
      2010
                              
                              
                              2011
                              
                              
                              2012
                              
                              
                              2013
                              
                              
                              2014
                              
                              
                              Thereafter
                              
                              
                              TotalAcquired
      in-place leases value
                              
                              $
                              34,962
                              
                              
                              $
                              109,287
                              
                              
                              $
                              72,836
                              
                              
                              $
                              66,883
                              
                              
                              $
                              65,565
                              
                              
                              $
                              102,948
                              
                              
                              $
                              452,481Deferred
      intangible leasing costs value
                              
                              
                              24,445
                              
                              
                              $
                              76,368
                              
                              
                              $
                              46,358
                              
                              
                              $
                              41,219
                              
                              
                              
                              38,922
                              
                              
                              $
                              62,612
                              
                              
                              
                              289,924Projected
      future amortization expense
                              
                              $
                              59,407
                              
                              
                              $
                              185,655
                              
                              
                              $
                              119,194
                              
                              
                              $
                              108,102
                              
                              
                              $
                              104,487
                              
                              
                              $
                              165,560
                              
                              
                              $
                              742,405




Actual
total amortization expense included in depreciation and amortization expense in
our consolidated statement of operations was $0.1 million and $0.2 million for
the three months ended September 30, 2010 and 2009, respectively and $0.3
million and $0.6 million for the nine months ended September 30, 2010 and 2009,
respectively.





8.
            Assets and Liabilities Previously
      Classified as Held for Sale and Discontinued
    Operations





On
December 8, 2009, the Company entered into the Contribution Agreement providing
for the disposition of a substantial portion of its retail properties to Simon
including St. Augustine, which is wholly owned.  Because St. Augustine
met the criteria for classification for held for sale, the Company reclassified
St. Augustine’s related assets and liabilities from held for use to held for
sale effective as of December 8, 2009 on the consolidated balance sheet and
presented St. Augustine’s results from operations in discontinued operations in
its consolidated statements of operations for all periods
presented.  On June 28, 2010, the Contribution Agreement was amended
to remove the previously contemplated disposition of St.
Augustine.  See Note 3.  As a result of the aforementioned
amendment to the Contribution Agreement, St. Augustine no longer met the
criteria to be classified as held for sale and was reclassified to held for use
effective as of June 28, 2010 as discussed below.





The St.
Augustine assets and liabilities no longer met the criteria for classification
as held for sale effective as of June 28, 2010 because management no longer had
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 back to held for use from held for sale on the
consolidated balance sheets for all periods presented.  This
reclassification from held for sale to held for use of St. Augustine resulted in
an adjustment of $1.2 million to reduce 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 as of June 28, 2010.  The $1.2 million
adjustment was included in loss on long-lived assets in the consolidated
statements of operations during the second quarter of 2010 and is also included
in the nine months ended September 30, 2010.  St. Augustine’s results
of operations for all periods presented have been reclassified from discontinued
operations to the Company’s continuing operations.


19





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


Notes
to Consolidated Financial Statements


(unaudited)





9.
            Assets and Liabilities Disposed
      of and Discontinued
Operations





During
the second quarter of 2010, the Company disposed of two properties within its
multi-family segment.  During 2009, the Company had defaulted on the
debt obligations related to these two properties due to the properties no longer
being economically beneficial to the Company.  The lender foreclosed
on these two properties during the second quarter of 2010 and, 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
upon the transfer of the properties’ assets and working capital.





The
operating results of these two properties have been classified as discontinued
operations in the Consolidated Statements of Operations for all periods
presented.  The foreclosure transactions resulted in a gain on debt
extinguishment of $17.2 million during the second quarter of 2010 which is also
included in discontinued operations.  During 2009, the Company
recorded an asset impairment charge of $26.0 million associated with these
properties.   No additional impairment charges were subsequently
recorded as the net book values of the assets approximated their estimated fair
market values, on a net aggregate basis, through the date of
disposition.





The
following summary presents the operating results of the two properties within
the multi-family segment included in discontinued operations in the Consolidated
Statements of Operations for the periods indicated.





For the Three Months Ended September 30,
                              
                              
                              For the Nine Months Ended September 30,2010
                              
                              
                              2009
                              
                              
                              2010
                              
                              
                              2009Revenue
                              
                              $
                              -
                              
                              
                              $
                              1,318,381
                              
                              
                              $
                              1,838,573
                              
                              
                              $
                              4,057,799Expenses:Property operating
      expense
                              
                              
                              -
                              
                              
                              
                              780,661
                              
                              
                              
                              862,615
                              
                              
                              
                              2,107,944Real estate
      taxes
                              
                              
                              -
                              
                              
                              
                              165,485
                              
                              
                              
                              221,246
                              
                              
                              
                              504,594Loss on long-lived
      assets
                              
                              
                              -
                              
                              
                              
                              26,031,832
                              
                              
                              
                              -
                              
                              
                              
                              26,031,832General and administrative
      costs
                              
                              
                              -
                              
                              
                              
                              60,897
                              
                              
                              
                              17,912
                              
                              
                              
                              289,662Depreciation and
      amortization
                              
                              
                              -
                              
                              
                              
                              283,763
                              
                              
                              
                              204,449
                              
                              
                              
                              851,834Total operating
      expense
                              
                              
                              -
                              
                              
                              
                              27,322,638
                              
                              
                              
                              1,306,222
                              
                              
                              
                              29,785,866Operating
      income/(loss)
                              
                              
                              -
                              
                              
                              
                              (26,004,257
                              )
                              
                              
                              532,351
                              
                              
                              
                              (25,728,067
                              )Other
      income/(loss)
                              
                              
                              -
                              
                              
                              
                              39,561
                              
                              
                              
                              (27,666
                              )
                              
                              
                              132,662Interest
    income
                              
                              
                              -
                              
                              
                              
                              58
                              
                              
                              
                              673
                              
                              
                              
                              234Interest
      expense
                              
                              
                              -
                              
                              
                              
                              (607,867
                              )
                              
                              
                              (829,368
                              )
                              
                              
                              (1,804,436
                              )Gain on debt
      extinguishment
                              
                              
                              74
                              
                              
                              
                              -
                              
                              
                              
                              17,169,737
                              
                              
                              
                              -Net income/(loss) from
      discontinued operations
                              
                              $
                              74
                              
                              
                              $
                              (26,572,505
                              )
                              
                              $
                              16,845,727
                              
                              
                              $
                              (27,399,607
                              )




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 the date indicated.





AsofDecember31,2009Net 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




20


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


Notes
to Consolidated Financial Statements


(unaudited)





10.
            Assets
      and Liabilities of Property Held as Collateral on Loan in Default
      Status





Beginning
in June 2010, the Company decided to discontinue the monthly required debt
service payments of $65,724 on a loan collateralized by an apartment property
located in North Carolina that is within the Company’s multi-family
segment.  This loan has an aggregate outstanding principal balance of
$9.1 million as of September 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 September
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 nine months ended September 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.





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





FortheThreeMonthsEndedSeptember30,
                  
                  
                  FortheNineMonthsEndedSeptember30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Revenue
                  
                  $
                  311,946
                  
                  
                  $
                  383,537
                  
                  
                  $
                  969,869
                  
                  
                  $
                  1,177,713Expenses:Property operating
      expense
                  
                  
                  210,640
                  
                  
                  
                  206,876
                  
                  
                  
                  644,234
                  
                  
                  
                  599,497Real estate
      taxes
                  
                  
                  32,571
                  
                  
                  
                  28,813
                  
                  
                  
                  97,713
                  
                  
                  
                  93,955Loss on long-lived
      assets
                  
                  
                  (212,751
                  )
                  
                  
                  4,303,716
                  
                  
                  
                  87,249
                  
                  
                  
                  4,303,716General and administrative
      costs
                  
                  
                  27,223
                  
                  
                  
                  34,615
                  
                  
                  
                  59,247
                  
                  
                  
                  104,298Depreciation and
      amortization
                  
                  
                  41,034
                  
                  
                  
                  62,409
                  
                  
                  
                  121,200
                  
                  
                  
                  187,390Total operating
      expenses
                  
                  
                  98,717
                  
                  
                  
                  4,636,429
                  
                  
                  
                  1,009,643
                  
                  
                  
                  5,288,856Operating
      income/(loss)
                  
                  
                  213,229
                  
                  
                  
                  (4,252,892
                  )
                  
                  
                  (39,774
                  )
                  
                  
                  (4,111,143
                  )Other income,
      net
                  
                  
                  4,043
                  
                  
                  
                  12,697
                  
                  
                  
                  23,833
                  
                  
                  
                  41,910Interest
      expense
                  
                  
                  (130,155
                  )
                  
                  
                  (130,155
                  )
                  
                  
                  (386,319
                  )
                  
                  
                  (386,319
                  )Net
      income/(loss)
                  
                  $
                  87,117
                  
                  
                  $
                  (4,370,350
                  )
                  
                  $
                  (402,260
                  )
                  
                  $
                  (4,455,552
                  )




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





As ofSeptember 30,
      2010
                    
                    
                    December 31,
      2009Net investment
      property
                    
                    $
                    6,524,834
                    
                    
                    $
                    6,830,787Cash and cash
      equivalents
                    
                    
                    75,691
                    
                    
                    
                    77,197Restricted
      escrows
                    
                    
                    291,494
                    
                    
                    
                    6,801Other
assets
                    
                    
                    139,204
                    
                    
                    
                    118,343Total
assets
                    
                    $
                    7,031,223
                    
                    
                    $
                    7,033,128Mortgage
      payable
                    
                    $
                    9,147,000
                    
                    
                    $
                    9,147,000Other
      liabilities
                    
                    
                    502,991
                    
                    
                    
                    144,711Total
      liabilities
                    
                    $
                    9,649,991
                    
                    
                    $
                    9,291,711




21


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


Notes
to Consolidated Financial Statements


(unaudited)





11.
            Mortgages
      Payable





Mortgages
payable, totaling approximately $200.2 million at September 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
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  September
      30,
                                                                                                                                                                                                    2010
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  Maturity
      Date
                                                                                                                                                                                                  
                                                                                                                                                                                                  Amount
      Due at
                                                                                                                                                                                                    Maturity
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  September
      30,
                                                                                                                                                                                                    2010
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  December
      31,
                                                                                                                                                                                                    2009St.
      Augustine
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  6.09
                                                                                                                                                                                                  %
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  6.09
                                                                                                                                                                                                  %
                                                                                                                                                                                                  
                                                                                                                                                                                                  April
      2016
                                                                                                                                                                                                  
                                                                                                                                                                                                  $
                                                                                                                                                                                                  23,747,523
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  $
                                                                                                                                                                                                  26,133,676
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  $
                                                                                                                                                                                                  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
                                                                                                                                                                                                  %
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  4.78
                                                                                                                                                                                                  %
                                                                                                                                                                                                  
                                                                                                                                                                                                  April
      2011
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  9,008,750
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  9,271,250
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  10,193,750Brazos
      Crossing Power Center
                                                                                                                                                                                                  
                                                                                                                                                                                                  Greater
      of
                                                                                                                                                                                                    LIBOR
                                                                                                                                                                                                    +
      3.50% or
                                                                                                                                                                                                    6.75
                                                                                                                                                                                                  %
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  6.75
                                                                                                                                                                                                  %
                                                                                                                                                                                                  
                                                                                                                                                                                                  December
      2011
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  6,385,788
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  6,522,105
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  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
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  $
                                                                                                                                                                                                  191,026,531
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  $
                                                                                                                                                                                                  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
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  $
                                                                                                                                                                                                  200,173,531
                                                                                                                                                                                                  
                                                                                                                                                                                                  
                                                                                                                                                                                                  $
                                                                                                                                                                                                  202,179,356




LIBOR at
September 30, 2010 was 0.2563%. 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 as of September 30, 2010 in the consolidated balance
sheets:





Remainder of
                                  2010(1)
                                
                                
                                2011
                                
                                
                                2012
                                
                                
                                2013
                                
                                
                                2014
                                
                                
                                Thereafter
                                
                                
                                Total$
                                9,400,504
                                
                                
                                $
                                16,559,012
                                
                                
                                $
                                2,090,767
                                
                                
                                $
                                2,370,084
                                
                                
                                $
                                28,809,456
                                
                                
                                $
                                140,943,708
                                
                                
                                $
                                200,173,531





1)
            The amount due in
      the remainder of 2010 of $9.4 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 $6.9
million were held in restricted escrow accounts at September 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.


22


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  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 cap agreement to cap the British
Bankers Association Daily 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  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.  Beginning in June 2010, the Company
decided to discontinue its required monthly 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 September 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
September 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 covenantsor have obtained waivers from our
lenders, with the exception of(i)the debt service coverage ratio on the
debt associated with the Hotels,which theCompany did not meet for the quarter
ended June 30, 2010and the
quarter ended September 30, 2010and (ii) the debt service coverage
ratioson the debt associated withthe Gulf Coast Industrial
Portfolio,which the
Company did not meet for the quarter ended September 30, 2010.





Under the terms of the loan
agreementfor the
Hotels, 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 $0.3million as a lump sumprincipalpayment to avoid default.Under the terms of theloan agreement for theGulf Coast Industrial Portfolio, the
lender may elect toretain
all excess cash flowfromtheassociated properties.  As of
the date of this filing, the lender has taken no such action.Additionally, both of these affected loans are current
with respect to regularlyscheduled monthlydebt servicepaymentsas of the date of this
filing.


23


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


Notes
to Consolidated Financial Statements


(unaudited)





We expect to remain in compliance with
all ourotherexisting debt covenants; however, should
circumstances arise that wouldconstitute anevent ofdefault, the various lenders would have
the ability toexercise various remedies under the
applicable loan agreements, including the potentialacceleration ofthe maturityoftheoutstanding debt.





12.
            Distributions and Share
      Redemption Plan




Distributions





Since the
period beginning February 1, 2006 through March 31, 2010, our Boarddeclared a distribution
for each three-month period, or quarter. These distributions were calculated
based on stockholders of record each day during the applicable three-month
period at a rate of $0.0019178 per day, which, if paid each day for a 365-day
period, equaled a 7.0% annualized rate based on a share price of $10.00.





On July
28, 2010, our Board declared a distribution for the three-month period ending
June 30, 2010. This distribution was calculated based on shareholders of record
each day during the three-month period at a rate of $0.00109589 per day, and
equaled a daily amount that, if paid each day for a 365-day period, equaled 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.





In
addition, on July 28, 2010, our Board decided to temporarily suspend our
distribution reinvestment program (the “DRIP”) pending final approval of the
related registration statement (the “DRIP Registration Statement”) by the
Securities and Exchange Commission (the “SEC”).  Once the DRIP
Registration Statement was declared effective by the SEC, the Board intended to
resume the DRIP and the Company would pay out any future quarterly distributions
in the form of cash or shares issued under the DRIP, based upon the individual
shareholder’s preference on record.





Furthermore,
on July 28, 2010, our Board decided to temporarily lower the distribution rate
pending the closing of the Simon Transaction (see Note 2 for further
discussion).  Our Board also decided to meet as soon as a closing date for
the Simon Transaction was set with the intention of declaring an additional
distribution for the three-month period ended June 30, 2010 equal to a 4%
annualized rate (the “Additional Distribution”), which would be payable after
the closing of the Simon Transaction.  The Additional Distribution would
bring the aggregate total distributions for the three months ended June 30, 2010
to an amount equal to an 8% annualized rate, based on a share price of $10.00,
which represents an increase over the prior quarterly distributions which were
equal to an annualized rate of 7%.  The Simon Transaction closed on
August 30, 2010 and our Board declared the Additional Distribution, which was
paid in cash on October 15, 2010 to stockholders of record during the
three-month period ended June 30, 2010.





On
September 16, 2010, our Board declared a distribution for the three-month period
ending September 30, 2010.  This distribution was calculated based on
shareholders of record each day during the three-month period at a rate of
$0.0019178 per day, and equaled a daily amount that, if paid each day for a
365-day period, equaled a 7.0% annualized rate based on a share price of
$10.00.   In addition, on October 26, 2010, DRIP Registration
Statement was declared effective by the SEC and the DRIP was reinstated by the
Company.  The distribution was paid on October 29, 2010 to
shareholders of record during the three-month period ended September 30,
2010.





The
amount of distributions paid to our stockholders in the future will be
determined by our Board and is dependent on a number of factors, including funds
available for payment of dividends, our financial condition, capital expenditure
requirements and annual distribution requirements needed to maintain our status
as a REIT under the Internal Revenue Code.





Share
Redemption Plans





Effective
March 2, 2010, our Board voted to temporarily suspend future share redemptions
under the share redemption plan (the “Share Redemption Plan”) pending completion
of the Simon Transaction, at which time the Board would revisit this
decision.  On August 30, 2010, the Simon Transaction closed and on
September 16, 2010, our Board voted to reinstate effective October 1, 2010
future share redemptions, subject to certain restrictions, at a price of $9.00
per share under the Share Redemption Plan.


24


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


Notes
to Consolidated Financial Statements


(unaudited)





13.
            Net Income/(Loss) Per
      Share




Basic net
income/(loss) per share is calculated by dividing net income/(loss) attributable
to common shareholders by the weighted-average number of shares of common stock
outstanding during the applicable period.  As of September 30, 2010,
the Company has 36,000
options issued and outstanding, including an aggregate of 9,000 options granted
to the independent directors of our Board at our annual meeting in September
2010.  Diluted net income/(loss) per share includes
the  potentially dilutive effect, if any, which would occur if our
outstanding options to purchase our common stock were exercised.  For
all periods presented, the effect of these exercises was anti-dilutive and,
therefore, dilutive net income/(loss) per share is equivalent to basic net
income/(loss) per share.





14.
            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 nine months ended September 30, 2010, the Company paid aggregate
distributions to noncontrolling interests of $15.0 million and $18.4 million,
respectively.  These distributions to noncontrolling interests include
the third quarter PRO Distribution of approximately $14.1 million discussed
below.  As of September 30, 2010, distributions declared and not paid
to noncontrolling interests were $2.3 million.





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.





Accrued
interest related to these loans totaled $1.1 million and $1.8 million at
September 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 (“PRO”), a Delaware limited liability company,  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.





Of the
net cash proceeds received from the closing of the Simon Transaction on August
30, 2010, PRO’s portion was approximately $73.6 million.  Pursuant to
the its operating agreement, PRO Distributions of approximately $59.5 million
and approximately $14.1 million were made to the Operating Partnership and to
the noncontrolling interest (David Lichtenstein as a result of the above
discussed assignmetn), respectively, during the third quarter of
2010.  See Note 3.


25





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


Notes
to Consolidated Financial Statements


(unaudited)





15.
            Related
      Party Transactions





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





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





Three Months Ended September
      30,
                  
                  
                  Nine Months Ended September 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009(unaudited)
                  
                  
                  (unaudited)Acquisition
      fees
                  
                  $
                  -
                  
                  
                  $
                  6,878,087
                  
                  
                  $
                  -
                  
                  
                  $
                  16,656,847Asset
      management fees
                  
                  
                  1,219,936
                  
                  
                  
                  1,259,999
                  
                  
                  
                  4,070,585
                  
                  
                  
                  3,064,827Property
      management fees
                  
                  
                  281,246
                  
                  
                  
                  447,564
                  
                  
                  
                  1,139,917
                  
                  
                  
                  1,371,798Acquisition
      expenses reimbursed to Advisor
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  902,753Development
      fees and leasing commissions
                  
                  
                  13,488
                  
                  
                  
                  (11,260
                  )
                  
                  
                  207,628
                  
                  
                  
                  194,071Total
                  
                  $
                  1,514,670
                  
                  
                  $
                  8,574,390
                  
                  
                  $
                  5,418,130
                  
                  
                  $
                  22,190,296





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.





Since our
inception through March 31, 2010, cumulative distributions declared to
Lightstone SLP, LLC were $4.9 million, all of which had been paid as of April
2010. Such distributions, paid current at a 7% annualized rate of return to
Lightstone SLP, LLC through March 31, 2010 and have been 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. However, distributions to Lightstone SLP, LLC
of $0.6 million and $0.5 million for the quarters ended June 30, 2010 and
September 30, 2010, respectively, were declared on August 30, 2010 and September
16, 2010 at a 8% and 7% annualized rate, respectively. Accordingly, during the
nine months ended September 30, 2010, distributions of $1.6 million were
declared and distributions of $1.0 million were paid related to the SLP units
and are part of noncontrolling interests. The distributions to Lightstone SLP,
LLC for the quarters ended June 30, 2010 and September 30, 2010 were paid in
October 2010.





See Notes
4, 5 and 14 for other related party transactions.





16.
            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 September 30, 2010 was
approximately $206.7 million compared to the book value of approximately $200.2
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.





26


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


Notes
to Consolidated Financial Statements


(unaudited)





17.
            Segment
      Information





The
Company currently operates in four business segments as of September 30, 2010:
(i) retail real estate, (ii) residential multi-family real estate, (iii)
industrial real estate and (iv) hotel 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 nine months ended September 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 September 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 September 30, 2010 and 2009,
and total assets as of September 30, 2010 and December 31, 2009 regarding the
Company’s operating segments are as follows:





For
      the Three Months Ended September 30, 2010Retail
                                        
                                        
                                        Multi-Family
                                        
                                        
                                        Industrial
                                        
                                        
                                        Hospitality
                                        
                                        
                                        Unallocated
                                        
                                        
                                        TotalTotal
      revenues
                                        $
                                        2,712,518
                                        
                                        
                                        $
                                        3,198,154
                                        
                                        
                                        $
                                        1,713,049
                                        
                                        
                                        $
                                        812,198
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        8,435,919Property
      operating expenses
                                        
                                        730,243
                                        
                                        
                                        
                                        1,501,554
                                        
                                        
                                        
                                        630,724
                                        
                                        
                                        
                                        390,966
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        3,253,487Real
      estate taxes
                                        
                                        318,878
                                        
                                        
                                        
                                        348,030
                                        
                                        
                                        
                                        240,239
                                        
                                        
                                        
                                        39,976
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        947,123General
      and administrative costs
                                        
                                        24,359
                                        
                                        
                                        
                                        91,157
                                        
                                        
                                        
                                        (3,070
                                        )
                                        
                                        
                                        11,527
                                        
                                        
                                        
                                        1,807,795
                                        
                                        
                                        
                                        1,931,768Net
      operating income/(loss)
                                        
                                        1,639,038
                                        
                                        
                                        
                                        1,257,413
                                        
                                        
                                        
                                        845,156
                                        
                                        
                                        
                                        369,729
                                        
                                        
                                        
                                        (1,807,795
                                        )
                                        
                                        
                                        2,303,541Depreciation
      and amortization
                                        
                                        842,453
                                        
                                        
                                        
                                        421,830
                                        
                                        
                                        
                                        529,828
                                        
                                        
                                        
                                        127,589
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,921,700Operating
      income/(loss)
                                        $
                                        796,585
                                        
                                        
                                        $
                                        835,583
                                        
                                        
                                        $
                                        315,328
                                        
                                        
                                        $
                                        242,140
                                        
                                        
                                        $
                                        (1,807,795
                                        )
                                        
                                        $
                                        381,841As
      of September 30, 2010:Total
      Assets
                                        $
                                        99,639,778
                                        
                                        
                                        $
                                        70,239,622
                                        
                                        
                                        $
                                        71,418,276
                                        
                                        
                                        $
                                        18,231,038
                                        
                                        
                                        $
                                        275,659,057
                                        
                                        
                                        $
                                        535,187,771





For
      the Three Months Ended September 30, 2009Retail
                                
                                
                                Multi-Family
                                
                                
                                Industrial
                                
                                
                                Hospitality
                                
                                
                                Unallocated
                                
                                
                                TotalTotal
      revenues
                                $
                                2,716,180
                                
                                
                                $
                                3,309,576
                                
                                
                                $
                                1,972,123
                                
                                
                                $
                                824,591
                                
                                
                                $
                                -
                                
                                
                                $
                                8,822,470Property
      operating expenses
                                
                                783,074
                                
                                
                                
                                1,564,660
                                
                                
                                
                                429,430
                                
                                
                                
                                471,290
                                
                                
                                
                                387
                                
                                
                                
                                3,248,841Real
      estate taxes
                                
                                304,095
                                
                                
                                
                                322,258
                                
                                
                                
                                249,318
                                
                                
                                
                                52,169
                                
                                
                                
                                -
                                
                                
                                
                                927,840General
      and administrative costs
                                
                                (75,813
                                )
                                
                                
                                118,492
                                
                                
                                
                                17,112
                                
                                
                                
                                7,913
                                
                                
                                
                                1,762,921
                                
                                
                                
                                1,830,625Net
      operating income/(loss)
                                
                                1,704,824
                                
                                
                                
                                1,304,166
                                
                                
                                
                                1,276,263
                                
                                
                                
                                293,219
                                
                                
                                
                                (1,763,308
                                )
                                
                                
                                2,815,164Depreciation
      and amortization
                                
                                1,125,310
                                
                                
                                
                                547,524
                                
                                
                                
                                616,112
                                
                                
                                
                                121,628
                                
                                
                                
                                -
                                
                                
                                
                                2,410,574Loss
      on long-lived assets
                                
                                2,002,465
                                
                                
                                
                                17,164,317
                                
                                
                                
                                (237,814
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                18,928,968Operating
      income/(loss)
                                $
                                (1,422,951
                                )
                                
                                $
                                (16,407,675
                                )
                                
                                $
                                897,965
                                
                                
                                $
                                171,591 $
                                
                                
                                $
                                (1,763,308
                                )
                                
                                $
                                (18,524,378
                                )As
      of December 31, 2009:Total
      Assets
                                $
                                101,842,972
                                
                                
                                $
                                97,733,447
                                
                                
                                $
                                72,032,250
                                
                                
                                $
                                18,043,757
                                
                                
                                $
                                139,911,450
                                
                                
                                $
                                429,563,876




27





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


Notes
to Consolidated Financial Statements


(unaudited)





Selected
results of operations for the nine months ended September 30, 2010 and 2009
regarding the Company’s operating segments are as follows:





For the Nine Months Ended September 30, 2010Retail
                                        
                                        
                                        Multi-Family
                                        
                                        
                                        Industrial
                                        
                                        
                                        Hospitality
                                        
                                        
                                        Unallocated
                                        
                                        
                                        TotalTotal
      revenues
                                        
                                        $
                                        8,140,540
                                        
                                        
                                        $
                                        9,642,549
                                        
                                        
                                        $
                                        5,206,108
                                        
                                        
                                        $
                                        2,218,428
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        25,207,625Property
      operating expenses
                                        
                                        
                                        2,169,881
                                        
                                        
                                        
                                        4,591,722
                                        
                                        
                                        
                                        1,663,722
                                        
                                        
                                        
                                        1,193,484
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        9,618,809Real
      estate taxes
                                        
                                        
                                        939,968
                                        
                                        
                                        
                                        1,061,090
                                        
                                        
                                        
                                        692,898
                                        
                                        
                                        
                                        171,769
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        2,865,725General
      and administrative costs
                                        
                                        
                                        53,738
                                        
                                        
                                        
                                        243,264
                                        
                                        
                                        
                                        29,275
                                        
                                        
                                        
                                        11,470
                                        
                                        
                                        
                                        6,855,593
                                        
                                        
                                        
                                        7,193,340Net
      operating income/(loss)
                                        
                                        
                                        4,976,953
                                        
                                        
                                        
                                        3,746,473
                                        
                                        
                                        
                                        2,820,213
                                        
                                        
                                        
                                        841,705
                                        
                                        
                                        
                                        (6,855,593
                                        )
                                        
                                        
                                        5,529,751Depreciation
      and amortization
                                        
                                        
                                        1,460,914
                                        
                                        
                                        
                                        1,249,528
                                        
                                        
                                        
                                        1,711,801
                                        
                                        
                                        
                                        379,047
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        4,801,290Loss
      on long-lived assets
                                        
                                        
                                        1,193,233
                                        
                                        
                                        
                                        300,000
                                        
                                        
                                        
                                        (69,555
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,423,678Operating
      income/(loss)
                                        
                                        $
                                        2,322,806
                                        
                                        
                                        $
                                        2,196,945
                                        
                                        
                                        $
                                        1,177,967
                                        
                                        
                                        $
                                        462,658
                                        
                                        
                                        $
                                        (6,855,593
                                        )
                                        
                                        $
                                        (695,217
                                        )





For the Nine Months Ended September 30, 2009Retail
                                          
                                          
                                          Multi-Family
                                          
                                          
                                          Industrial
                                          
                                          
                                          Hospitality
                                          
                                          
                                          Unallocated
                                          
                                          
                                          TotalTotal
      revenues
                                          
                                          $
                                          8,286,105
                                          
                                          
                                          $
                                          10,216,946
                                          
                                          
                                          $
                                          5,669,103
                                          
                                          
                                          $
                                          2,780,763
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          26,952,917Property
      operating expenses
                                          
                                          
                                          2,307,344
                                          
                                          
                                          
                                          4,741,795
                                          
                                          
                                          
                                          1,376,381
                                          
                                          
                                          
                                          1,373,954
                                          
                                          
                                          
                                          387
                                          
                                          
                                          
                                          9,799,861Real
      estate taxes
                                          
                                          
                                          913,741
                                          
                                          
                                          
                                          1,023,966
                                          
                                          
                                          
                                          715,744
                                          
                                          
                                          
                                          161,860
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2,815,311General
      and administrative costs
                                          
                                          
                                          106,237
                                          
                                          
                                          
                                          395,044
                                          
                                          
                                          
                                          14,972
                                          
                                          
                                          
                                          11,247
                                          
                                          
                                          
                                          5,001,082
                                          
                                          
                                          
                                          5,528,582Net
      operating income/(loss)
                                          
                                          
                                          4,958,783
                                          
                                          
                                          
                                          4,056,141
                                          
                                          
                                          
                                          3,562,006
                                          
                                          
                                          
                                          1,233,702
                                          
                                          
                                          
                                          (5,001,469
                                          )
                                          
                                          
                                          8,809,163Depreciation
      and amortization
                                          
                                          
                                          2,967,080
                                          
                                          
                                          
                                          1,511,256
                                          
                                          
                                          
                                          1,881,238
                                          
                                          
                                          
                                          355,771
                                          
                                          
                                          
                                          830
                                          
                                          
                                          
                                          6,716,175Loss
      on long-lived assets
                                          
                                          
                                          2,002,465
                                          
                                          
                                          
                                          17,164,317
                                          
                                          
                                          
                                          (237,814
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          18,928,968Operating
      income/(loss)
                                          
                                          $
                                          (10,762
                                          )
                                          
                                          $
                                          (14,619,432
                                          )
                                          
                                          $
                                          1,918,582
                                          
                                          
                                          $
                                          877,931
                                          
                                          
                                          $
                                          (5,002,299
                                          )
                                          
                                          $
                                          (16,835,980
                                          )





18.
            Commitments and
      Contingencies





Legal
Proceedings





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





On March
29, 2006, Jonathan Gould, a former member of our Board 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.




28


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


Notes
to Consolidated Financial Statements


(unaudited)





On
January 4, 2007, 1407 Broadway Real Estate LLC ("Office Owner"), an indirect,
wholly owned subsidiary of 1407 Broadway, consummated the acquisition of a
sub-leasehold interest (the "Sublease Interest") in an office building located
at 1407 Broadway, New York, New York (the "Office Property"). 1407 Broadway is a
joint venture between LVP 1407 Broadway LLC ("LVP LLC"), a wholly owned
subsidiary of our operating partnership, and Lightstone 1407 Manager LLC
("Manager"), which is wholly owned by David Lichtenstein, the Chairman of our
Board of Directors and our Chief Executive Officer, and Shifra Lichtenstein, his
wife.





The
Sublease Interest was acquired pursuant to a Sale and Purchase of Leasehold
Agreement with Gettinger Associates, L.P. ("Gettinger"). In July 2006, Abraham
Kamber Company, as Sublessor under the sublease ("Sublessor"), served two
notices of default on Gettinger (the "Default Notices"). The first alleged that
Gettinger had failed to satisfy its obligations in performing certain
renovations and the second asserted numerous defaults relating to Gettinger's
purported failure to maintain the Office Property in compliance with its
contractual obligations.





In
response to the Default Notices, Gettinger commenced legal action and obtained
an injunction that extends its time to cure any default, prohibits interference
with its leasehold interest and prohibits Sublessor from terminating its
sublease pending resolution of the litigation. A motion by Sublessor for partial
summary judgment, alleging that certain work on the Office Property required its
prior approval, was denied by the Supreme Court, New York County. Subsequently,
by agreement of the parties, a stay was entered precluding the termination of
the Sublease Interest pending a final decision on Sublessor's claim of defaults
under the Sublease Interest. In addition, the parties stipulated to the
intervention of Office Owner as a party to the proceedings. 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.




29




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


Notes
to Consolidated Financial Statements


(unaudited)





POAC/Mill
Run Tax Protection Agreements





In
connection with the contribution of the Mill Run Interest (see Note 4) and the
POAC Interest (See Note 4), our Operating Partnership entered into the POAC/Mill
Run Tax Protection Agreements with each of Arbor JRM, Arbor CJ, AR Prime, TRAC,
Central Jersey and JT Prime (collectively, the “Contributors”). Under the
POAC/Mill Run Tax Protection Agreements, our Operating Partnership is required
to indemnify each of Arbor JRM, Arbor CJ, TRAC and Central Jersey with respect
to 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 POAC/Mill Run Tax Protection Agreements, our
Operating Partnership is indemnifying the Contributors for certain income tax
liabilities based on income or gain which the Contributors are deemed to be
required to include in their gross income for federal or state income tax
purposes (assuming the Contributors are subject to tax at the highest regional,
federal, state and local tax rates imposed on individuals residing in New York
City) as a result of an Indemnifiable Event. This indemnity covers income taxes,
interest and penalties and is required to be made on a "grossed up" basis that
effectively results in the Contributors receiving the indemnity payment on a
net, after-tax basis. The amount of the potential tax indemnity to the
Contributors under the POAC/Mill Run Tax Protection Agreements, including a
gross-up for taxes on any such payment, using current tax rates, is estimated to
be approximately $95.7 million. The Company has not recorded any liability in
its consolidated balance sheets as the Company believes that the potential
liability is remote as of September 30, 2010.





Each of
the POAC/Mill Run Tax Protection Agreements imposes certain restrictions upon
our Operating Partnership relating to transactions involving the Mill Run
Properties and the POAC Properties which could result in taxable income or gain
to the Contributors. Our Operating Partnership may not dispose or transfer any
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
POAC/Mill Run Tax Protection Agreement. However, our Operating Partnership may
take the following actions: (i) (A) as to the POAC Properties, commencing with
the period one year and thirty-one days following the date of the POAC/Mill Run
Tax Protection Agreement, our Operating Partnership can sell on an annual basis
part or all of any of the POAC Properties with an aggregate value of ten percent
(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) our 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.





On August
30, 2010, the LVP Parties completed the Simon Transaction which included the
disposition their interests in the POAC Properties and the Mill Run Properties
and contemporaneously entered into the Simon Tax Matters Agreement.
Additionally, the Company has been advised by an independent law firm that it is
“more likely than not” that the Simon Transaction will not give rise to current
taxable income or loss. Accordingly, the Company believes the Simon Transaction
is a non-recognition transaction and not an Indemnifiable Event under the
POAC/Mill Run TPA. See Note 3 and below for additional information.




Simon
Tax Matters Agreements





In
connection with the closing of the Simon Transaction (see Note 3), the LVP
Parties entered into the Simon Tax Matters Agreement with Simon. Under the Simon
Tax Matters Agreement, Simon generally may not engage in a transaction that
could result in the recognition of the “built-in gain” with respect to POAC and
Mill Run at the time of the closing for specified periods of up to eight years
following the closing date.  Simon has a number of obligations with
respect to the allocation of partnership liabilities to the LVP
Parties.  For example, Simon agreed to maintain certain of the
outstanding mortgage loans that are secured by POAC Properties and Mill Run
Properties until their respective maturities, and the LVP Parties have provided
and will continue to have the opportunity to provide guaranties of collection
with respect to the Simon Loan (or indebtedness incurred to refinance the Simon
Loan) for at least four years following the closing of the Simon Transaction.
The LVP Parties were also given the opportunity to enter into agreements to make
specified capital contributions to Simon OP in the event that it defaults on
certain of its indebtedness. If Simon breach their obligations under the Simon
Tax Matters Agreement, Simon will be required to indemnify the LVP Parties for
certain taxes that they are deemed to incur, including taxes relating to the
recognition of “built-in gains” with respect to POAC Properties and Mill Run
Properties, and gains recognized as a result of a reduction in the allocation of
partnership liabilities. These indemnification payments will be “grossed up”
such that the amount of the payments will equal, on an after-tax basis, the tax
liability deemed incurred because of the breach.


30


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


Notes
to Consolidated Financial Statements


(unaudited)





Simon
generally is required to indemnify the LVP Parties and certain affiliates of the
Lightstone Group for liabilities and obligations under the POAC/Mill Run Tax
Protection Agreements relating to the contributions of the Mill Run Interest and
the POAC Interest (see
POAC/Mill Run Tax Protection Agreements above) that are caused by Simon OP’s and
Simon’s actions subsequent to the closing of the Simon Transaction (the
“Indemnified Liabilities”). The Company and its operating partnership are
required to indemnify Simon OP and Simon for all liabilities and obligations
under the POAC/Mill Run Tax Protection Agreements other than the Indemnified
Liabilities.





Simon
Loan Collection Guaranties





In
connection with the closing of the Simon Transaction (see Note 3), the LVP
Parties have provided Simon Loan Collection Guaranties with respect to the Simon
Loan in connection with the closing of the Simon Transaction.  See
Note 3. Under the terms of the Simon Loan Collection Guaranties, the LVP Parties
are obligated to make payments in respect of principal and interest on the Simon
Loan after Simon OP has failed to make payments, the Simon Loan has been
accelerated, and the lenders have failed to collect the full amount of the Simon
Loan after exhausting other remedies. The Simon Loan Collection Guaranties by
the LVP Parties are limited to a specified aggregate maximum of $201.1 million,
with the maximum of each of the respective LVP Parties limited to an amount that
is at least equal to its respective cash considerations.  The maximum
amounts of the Simon Loan Collection Guaranties will be reduced to the extent of
any payments of principal made by Simon OP or other cash proceeds recovered by
the lenders. In
connection with completion of the Simon Transaction, the Company recorded a
liability (the “Collection Guaranties Liability”) in the amount of $0.1 million,
representing the estimated fair value of the Simon Loan Collection Guaranties as
of the closing date, which is included in accounts payable and accrued expenses
in the consolidated balance sheet as of September 30, 2010.





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





19.
            Subsequent
      Events





In
October and November of 2010, the Company entered  into a hedge of its
Marco OP Units.  The hedge transactions were executed with Morgan
Stanley on 527,803 of the Marco Units (75% of the 703,737 total Marco OP
Units).  The hedges were structured as a collar where a series of 
puts were purchased at an average strike price of $90.32 per share and a series
of calls were sold at an average strike price of $109.95 per share.  Morgan
Stanley is restricted under the agreement from assigning its rights to this
hedge to another counter party.





The
collateral for hedge is the greater of (i) the number of shares hedged times
Simon’s stock price or (ii) 150% of the value of the calls sold times 30% less
the value of the puts purchased.  The initial collateral requirement was
approximately $6.9 million and is subject to change based on changes in the
share price of Simon Stock.  The hedge cost $5.6 million, or $10.70
per share, and expires in December 2013. The dividends, if any, on the hedged
shares continue to accrue to the Company, however Morgan Stanley has the right
to adjust the put strike price for any future increases in the dividend declared
by Simon.




31




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.




32




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 multi-family 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 multi-family 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 also undergone significant disruption,
making it more 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 11
of notes to consolidated financial statements for discussion of maturity dates
of our debt obligations.





During
the second quarter of2010, as a result of the
Company previously 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 and the Company no longer has any
ownership interests in these two properties.  The operating results of
these two properties through their date of disposition have been classified as
discontinued operations on a historical basis for all periods
presented.  The transactions resulted in a gain on debt extinguishment
of $17.2 million which was recorded during the second quarter of 2010 and is
included in discontinued operations for the nine months ended September 30, 2010
(see Note 9).   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.





Beginning
in June 2010, the Company decided to discontinue the monthly required debt
service payments of $65,724 on a loan collateralized by an apartment property
located in North Carolina, which represents 220 units of the 1,805 units owned
in the multi-family segment.  This loan has an aggregate outstanding
principal balance of $9.1 million as of September 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 10 and 11.




33




As a
result of the current environment and the direct impact it has had and continues
to have on certain properties, during the second quarter of 2010, two of our
properties within our multi-family residential segment were transferred back to
the lender as part of foreclosure proceedings.    The
foreclosure sales were completed on April 13, 2010 and May 18, 2010,
respectively.  The transactions resulted in a gain on debt
extinguishment of $17.2 million during the second quarter of 2010 which is
included in discontinued operations.   In addition, beginning in
June 2010, the Company decided to discontinue its required monthly debt service
payment of $65,724 on one of the other properties in our multi-family
residential portfolio, which has an outstanding principal balance of $9.1
million as of September 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
September 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.  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.





Simon
Transaction





On
December 8, 2009, the Company, its Operating Partnership and Pro-DFJV Holdings
LLC (“PRO”), a Delaware limited liability company and a wholly-owned subsidiary
of ours (collectively, the “LVP Parties”) entered into a definitive agreement
(“the “Contribution Agreement”) with Simon Property Group, Inc. (“Simon Inc.”),
a Delaware corporation, Simon Property Group, L.P., a Delaware limited
partnership (“Simon OP”), and Marco Capital Acquisition, LLC, a Delaware limited
liability company (collectively, referred to herein as “Simon”) providing for
the disposition of a substantial portion of our retail properties to Simon
including our (i) St. Augustine outlet center (“St. Augustine”), which is wholly
owned, (ii) 40.00% interests in its investment in Prime Outlets Acquisitions
Company (“POAC”), which includes 18 operating outlet center properties and two
development projects, Livermore Valley Holdings, LLC (“Livermore”) and Grand
Prairie Holdings, LLC (“Grand Prairie”), and (iii) 36.80% interests in its
investment in Mill Run, LLC (“Mill Run”), which includes 2 operating outlet
center properties. The terms of the Contribution Agreement were subsequently
amended on June 28, 2010 providing for the Company to retain St. Augustine and
its interests in certain development properties (Livermore and Grand Prairie)
which were owned by POAC. Additionally,
certain affiliates of our Sponsor were parties to the Contribution Agreement,
pursuant to which they would dispose of their respective ownership interests in
POAC and Mill Run and certain other outlet center properties, in which we had no
ownership interest, to Simon.




On August
30, 2010, the Simon Transaction closed pursuant
to which the LVP Parties disposed their interests in investments
in POAC, except for their interests in investments in both Livermore and Grand
Prairie which were retained, and Mill Run.





See Note
3 of the notes to consolidated financial statements for additional
information.




34




Portfolio
Summary –





Year Built
                                                  
                                                  
                                                  Leasable Square
                                                  
                                                  
                                                  Percentage Occupied
                                                    as of
                                                  
                                                  
                                                  Annualized Revenues
                                                    based on rents atLocation
                                                  
                                                  (Range of years built)
                                                  
                                                  
                                                  Feet
                                                  
                                                  
                                                  September 30, 2010
                                                  
                                                  
                                                  September 30, 2010Wholly-Owned
      Real Estate Properties:RetailSt.
      Augustine Outlet Mall
                                                  
                                                  St.
      Augustine, FL
                                                  
                                                  1998
                                                  
                                                  
                                                  
                                                  337,720
                                                  
                                                  
                                                  
                                                  80.4
                                                  %
                                                  $
                                                  4.2
      millionOakview
      Power Center
                                                  
                                                  Omaha,
      NE
                                                  
                                                  1999
      - 2005
                                                  
                                                  
                                                  
                                                  177,103
                                                  
                                                  
                                                  
                                                  85.3
                                                  %
                                                  $
                                                  2.1
      millionBrazos
      Crossing Power Center
                                                  
                                                  Lake
      Jackson, TX
                                                  
                                                  2007-2008
                                                  
                                                  
                                                  
                                                  61,213
                                                  
                                                  
                                                  
                                                  100.0
                                                  %
                                                  $
                                                  0.8
      millionRetail
      Total
                                                  
                                                  
                                                  
                                                  576,036
                                                  
                                                  
                                                  
                                                  83.9
                                                  %Industrial7
      Flex/Office/Industrial Bldgs from the Gulf Coast Industrial
      Portfolio
                                                  
                                                  New
      Orleans, LA
                                                  
                                                  1980-2000
                                                  
                                                  
                                                  
                                                  339,700
                                                  
                                                  
                                                  
                                                  72.1
                                                  %
                                                  $
                                                  2.9
      million4
      Flex/Industrial Bldgs from the Gulf Coast Industrial
    Portfolio
                                                  
                                                  San
      Antonio, TX
                                                  
                                                  1982-1986
                                                  
                                                  
                                                  
                                                  484,255
                                                  
                                                  
                                                  
                                                  64.0
                                                  %
                                                  $
                                                  1.6
      million3
      Flex/Industrial Buildings from the Gulf Coast Industrial
      Portfolio
                                                  
                                                  Baton
      Rouge, LA
                                                  
                                                  1985-1987
                                                  
                                                  
                                                  
                                                  182,792
                                                  
                                                  
                                                  
                                                  92.0
                                                  %
                                                  $
                                                  1.1
      millionSarasota
      Industrial Property
                                                  
                                                  Sarasota,
      FL
                                                  
                                                  1992
                                                  
                                                  
                                                  
                                                  276,987
                                                  
                                                  
                                                  
                                                  22.1
                                                  %
                                                  $
                                                  0.2
      millionIndustrial
      Total
                                                  
                                                  
                                                  
                                                  1,283,734
                                                  
                                                  
                                                  
                                                  61.1
                                                  %ResidentialMichigan
      Apt's (Four Multi-Family Apartment Buildings)
                                                  
                                                  Southeast  MI
                                                  
                                                  1965-1972
                                                  
                                                  
                                                  
                                                  1,017
                                                  
                                                  
                                                  
                                                  88.0
                                                  %
                                                  $
                                                  7.0
      millionSoutheast
      Apt's (Three Multi-Family Apartment Buildings)
                                                  
                                                  Greensboro
      & Charlotte, NC
                                                  
                                                  1980-1987
                                                  
                                                  
                                                  
                                                  788
                                                  
                                                  
                                                  
                                                  90.1
                                                  %
                                                  $
                                                  4.4
      millionResidential
      Total
                                                  
                                                  
                                                  
                                                  1,805
                                                  
                                                  
                                                  
                                                  88.9
                                                  %





Year to Date
                        
                        
                        Percentage Occupied
                          for the Period Ended
                        
                        
                        Revenue per Available
                          Room throughLocation
                        
                        Year Built
                        
                        Available Rooms
                        
                        
                        September 30, 2010
                        
                        
                        September 30, 2010Wholly-Owned
      Hospitality Properties:Sugarland
      and Katy Highway Extended Stay Hotels
                        
                        Houston,
      TX
                        
                        1998
                        
                        
                        52,671
                        
                        
                        
                        71.4
                        %
                        
                        $
                        27.92




Leasable Square
                      
                      
                      Percentage Occupied
                        as of
                      
                      
                      Annualized Revenues
                        based on rents atLocation
                      
                      Year Built
                      
                      Feet
                      
                      
                      September 30, 2010
                      
                      
                      September 30, 2010Unconsolidated
      Affiliated Real Estate Entities-Office:1407
      Broadway
                      
                      New
      York, NY
                      
                      1952
                      
                      
                      1,114,695
                      
                      
                      
                      78.6
                      %
                      
                      $
                      32.9 million




35




Critical
Accounting Policies and Estimates





There
were no material changes during the three and nine months ended September 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
September 30, 2010 vs. September 30, 2009





Consolidated





Revenues




Total
revenues decreased by $0.4 million to $8.4 million for the three months ended
September 30, 2010 compared to $8.8 million for the same period in
2009.  The decrease reflects declines in revenues in our industrial
segment and multi-family residential segment of $0.3 million and $0.1 million,
respectively.   Revenues in both our retail segment and hotel
hospitality segments remained relatively flat.  See “Segment Results
of Operations for the Three Months Ended September 30, 2010 compared to
September 30, 2009” for additional information on revenues by
segment.




Property
operating expenses




Property
operating expenses remained relatively flat at $3.3 million for the three months
ended September 30, 2010 compared to $3.2 million for the same period in
2009.





Real
estate taxes




Real
estate taxes were relatively unchanged at $0.9 million for both the three months
ended September 30, 2010 and the same period in 2009.





Loss
on long-lived assets





For the
three months ended September 30, 2010, the Company did not record any loss on
long-lived assets.  For the same period in 2009, we recorded an
aggregate loss on long-lived assets of approximately $44.9  million
(of which approximately $18.9 million and $26.0 million are classified in
continuing operations and discontinued operations, respectively, in our
consolidated statements) consisting of impairment charges of (i) $43.2 million
within our multi-family residential segment associated with the five properties
in our Camden portfolio and (ii) $2.0 million within our retail segment
associated with our Brazos Crossing power center; partially offset by a $0.2
million gain on disposal of assets.





The
aforementioned $43.2 million impairment charge associated with the five
properties in our Camden portfolio included impairment charges of (i) $26.0
million related to two properties which were subsequently disposed of through
foreclosure during the second quarter of 2010 (see Note 8 of the notes to
consolidated financial statements) and (ii) $4.3 million associated with one
property that is collateral on a loan currently in default status (see Note 9 to
the notes to consolidated financial statements).  The operating
results of the two properties through the date of their disposition have been
reclassified to discontinued operations in our Consolidated Statements of
Operations for all periods presented.  The operating results of the
one property that is collateral on a loan currently in default status is
included in our operating results from continuing operations in our Consolidated
Statements of Operations for all periods presented.





General
and administrative expenses





General
and administrative costs were relatively flat at $1.9 million for the three
months ended September 30, 2010 compared to $1.8 million for the same period in
2009.




36


Depreciation
and Amortization




Depreciation
and amortization expense decreased by $0.5 million to $1.9 million for the
three months ended September 30, 2010 from $2.4 million during the same period
in 2009.  The reduction in our depreciable asset base during the 2010
period resulted from the aforementioned impairment charges, excluding the
impairment charges associated with disposed properties, substantially
contributed to the decline.





Other
income, net




Other
income, net increased by $0.3 million to $0.4 million for the three months ended
September 30, 2010 compared to $0.1 million for the same period in
2009.  The increase in other income was primarily attributable to $0.2
million of unanticipated insurance settlement proceeds received during the third
quarter of 2010 related to fire damage which previously occurred at one of our
multi-family residential properties during the first quarter of
2010.





Interest
income




Interest
income was consistent at $1.0 million for the three months ended September 30,
2010 compared to $1.0 million the same period in 2009.





Interest
expense




Interest
expense, including amortization of deferred financing costs, was relatively
consistent at $3.1 million for the three months ended September 30, 2010
compared to $3.0 million for the same period in 2009.





Gain
on disposition of investments in unconsolidated affiliated real estate
entities





On August
30, 2010, the Company disposed of certain of its interests in investment in
unconsolidated affiliated real estate entities, and recognized a gain on
disposition of approximately $142.8 million in the consolidated statements of
operations during the third quarter of 2010.  See Notes 3 and 4 of the
notes to the consolidated financial statements.  The Company did not
dispose of any of its interests in unconsolidated affiliated real estate
entities during 2009.





Gain/(loss)
on sale of marketable securities





Gain/(loss)
on sale of marketable securities was zero during the three months ended
September 30, 2010 compared to a $1.2 million gain for the same period
in 2009 due to timing of sales of securities and the differences in adjusted
cost basis compared to proceeds received upon sale.  We sold no
marketable securities during the 2010 period.





Loss
from investments in unconsolidated affiliated real estate entities





This
account represents our portion of the net income/(loss) associated with our
interests in investments in unconsolidated affiliated real estate entities which
consists of our investments in POAC, Mill Run and 1407 Broadway Mezz II, LLC
(“1407 Broadway”).  Our loss from investments in unconsolidated
affiliated real estate entities increased by $4.3 million to $7.8 million for
the three months ended September 30, 2010 compared to $3.5 million during the
same period in 2009.





This
increase was primarily due to a higher net allocated loss from POAC and Mill Run
of approximately $5.3 million (which also reflects $9.6 million of Simon
Transaction divestiture costs), partially offset by (i) a decrease in the
allocated loss from 1407 Broadway of $0.4 million and (ii) $0.6 million less
depreciation expense associated with the difference in our cost of the POAC and
Mill investments in excess of their historical net book values.  Our
equity earnings in unconsolidated affiliated real estate entities were also
significantly impacted by the timing of acquisitions and dispositions of our
ownership interests in POAC and Mill Run during the 2009 and 2010 periods,
respectively.  See Notes 3 and 4 of the notes to consolidated
financial statements.





Noncontrolling
interests





The net
(income)/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.




37




Segment
Results of Operations for the Three Months Ended September 30, 2010 compared to
September 30, 2009





Retail
Segment





For the Three Months Ended
                        
                        
                        VarianceSeptember 30,
                        
                        
                        Increase/(Decrease)2010
                        
                        
                        2009
                        
                        
                        $
                        
                        
                        %(unaudited)Revenues
                        
                        $
                        2,712,518
                        
                        
                        $
                        2,716,180
                        
                        
                        $
                        (3,662
                        )
                        
                        
                        -0.1
                        %NOI
                        
                        
                        1,639,038
                        
                        
                        
                        1,704,824
                        
                        
                        
                        (65,786
                        )
                        
                        
                        -3.9
                        %Average
      Occupancy Rate for period
                        
                        
                        84.7
                        %
                        
                        
                        91.0
                        %
                        
                        
                        
                        
                        
                        
                        -6.9
                        %





Revenues
were relatively flat for the three months ended September 30, 2010 compared to
same period in 2009.  The revenues for the 2010 period reflect a
decrease in rental revenues of approximately $0.1 million, resulting primarily
from our lower average occupancy rate, substantially offset by higher
straight-line rental income of approximately $0.1 million.





NOI
decreased slightly by approximately $0.1 million for the three months ended
September 30, 2010 compared to the same period in 2009.  This decrease
was primarily because of higher bad debt expense of approximately $0.1
million.





Multi-
Family Residential Segment





For the Three Months Ended
                        
                        
                        VarianceSeptember 30,
                        
                        
                        Increase/(Decrease)2010
                        
                        
                        2009
                        
                        
                        $
                        
                        
                        %(unaudited)Revenues
                        
                        $
                        3,198,154
                        
                        
                        $
                        3,309,756
                        
                        
                        $
                        (111,602
                        )
                        
                        
                        -3.4
                        %NOI
                        
                        
                        1,257,413
                        
                        
                        
                        1,304,166
                        
                        
                        
                        (46,753
                        )
                        
                        
                        -3.6
                        %Average
      Occupancy Rate for period
                        
                        
                        88.9
                        %
                        
                        
                        89.2
                        %
                        
                        
                        
                        
                        
                        
                        -0.3
                        %





Revenues
decreased by approximately $0.1 million for the three months ended September 30,
2010 compared to the same period in 2009.   This decline reflects
the continued negative impact of the current economic environment which has (i)
reduced our average occupancy rate resulting in lower rental revenues, (ii) led
to us offering additional rent abatements to assist current tenants and attract
new tenants and (iii) forced us to be less aggressive with respect to additional
resident charges.





NOI
declined by slightly by $46,753 during the three months ended September 30, 2010
compared to the same period in 2009.  This decrease is primarily due
to the decrease in revenues discussed above, partially offset by lower property
operating expenses during the 2010 period.





Industrial
Segment





For the Three Months Ended
                        
                        
                        VarianceSeptember 30,
                        
                        
                        Increase/(Decrease)2010
                        
                        
                        2009
                        
                        
                        $
                        
                        
                        %(unaudited)Revenues
                        
                        $
                        1,713,049
                        
                        
                        $
                        1,972,123
                        
                        
                        $
                        (259,074
                        )
                        
                        
                        -13.1
                        %NOI
                        
                        
                        845,156
                        
                        
                        
                        1,276,263
                        
                        
                        
                        (431,107
                        )
                        
                        
                        -33.8
                        %Average
      Occupancy Rate for period
                        
                        
                        61.3
                        %
                        
                        
                        64.3
                        %
                        
                        
                        
                        
                        
                        
                        -4.7
                        %





Revenue
decreased by approximately $0.3 million for the three months ended September 30,
2010 compared to the three same period in 2009.  This decrease is
attributable to the decline in our average occupancy rate due to turnover of
small business tenants, which have been negatively impacted by the current
economic environment.





NOI
decreased by approximately $0.4 million for the three months ended September 30,
2010 compared to the same period in 2009.  This decrease reflects the
revenues decline discussed above and higher property operating expenses of
approximately $0.2 million.




38


Hotel
Hospitality Segment





For the Three Months Ended
                        
                        
                        VarianceSeptember 30,
                        
                        
                        Increase/(Decrease)2010
                        
                        
                        2009
                        
                        
                        $
                        
                        
                        %(unaudited)Revenues
                        
                        $
                        812,198
                        
                        
                        $
                        824,591
                        
                        
                        $
                        (12,393
                        )
                        
                        
                        -1.5
                        %NOI
                        
                        
                        369,729
                        
                        
                        
                        293,219
                        
                        
                        
                        76,510
                        
                        
                        
                        26.1
                        %Average
      Occupancy Rate for period
                        
                        
                        74.7
                        %
                        
                        
                        65.0
                        %
                        
                        
                        
                        
                        
                        
                        14.9
                        %Average
      Revenue per Available Room for period
                        
                        $
                        30.30
                        
                        
                        $
                        30.90
                        
                        
                        $
                        (0.60
                        )
                        
                        
                        -1.9
                        %





Revenues
were relatively flat for the three months ended September 30, 2010 compared to
same period in 2009.  Although we experienced an increase in our
average occupancy rate, the impact was mitigated by the decline in our average
revenue per available room (“Rev PAR”).  The decline in Rev PAR is
attributable to a higher percentage of rooms occupied under longer term stays,
which typically earn a lower rate than short term stays.





NOI
increased by approximately $0.1 million for the three months ended September 30,
2010 compared to the same period in 2009.  This increase reflects
lower property operating expenses attributable mainly to reduced payroll
expense.





For the Nine Months Ended
September 30, 2010 vs. September 30, 2009





Consolidated





Revenues




Total
revenues decreased by $1.8 million to $25.2 million for the nine months ended
September 30, 2010 compared to $27.0 million for the same period in,
2009.  The decrease reflects declines in revenues in our (i) retail
segment of $0.1 million, (ii) multi-family residential segment of $0.6 million,
(iii) industrial segment of $0.5 million and (iv) hotel hospitality segment of
$0.6 million.  See “Segment Results of Operations for the Nine Months
Ended September 30, 2010 compared to September 30, 2009” for additional
information on revenues by segment.





Property
operating expenses




Property
operating expenses remained relatively flat at $9.6 million for the nine months
ended September 30, 2010 compared to $9.8 million for the same period in
2009.





Real
estate taxes




Real
estate taxes remained relatively flat at $2.9 million for the nine months ended
September 30, 2010 compared to $2.8 million for the same period in
2009.





Loss
on long-lived assets





The loss
on long-lived assets during the nine months ended September 30, 2010 of $1.4
million primarily includes an impairment charge of $1.2 million recorded in
connection with the transfer of St. Augustine from held for sale to held and
used during the second quarter of 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 8 of notes to consolidated
financial statements.





For the
same period in 2009, we recorded the previously discussed second quarter
aggregate loss on long-lived assets of approximately $44.9 million (of which
approximately $18.9 million and $26.0 million are classified in continuing
operations and discontinued operations, respectively, in our consolidated
statements).




39




General
and administrative expenses





General
and administrative costs increased by $1.7 million to $7.2 million for the nine
months ended September 30, 2010 compared to $5.5 million for the same period in
2009.  The increase is due to the following:





·
            an
      increase of $1.0 million in asset management fees resulting from higher
      average asset values during the nine months ended September 30, 2010
      compared to the same period in 2009 as a result of the acquisition of
      certain interests in investments in unconsolidated affiliated real estate
      entities, POAC and Mill Run (collectively, the “2009 Acquisitions”) during
      2009  (see Note 4 of the  notes to consolidated
      financial statements); and





·
            an
      increase of $1.0 million in accounting, legal and consulting services due
      to additional audit fees incurred during the nine months ended September
      30, 2010 related to work performed on the aforementioned 2009 Acquisitions
      which were not part of the audit process for the most of the same period
      in 2009.





These
increases were offset by a net decline of approximately $0.3 million for all
other general and administrative costs for the nine months ended September 30,
2010 compared to the same period in 2009.





Depreciation
and amortization




Depreciation
and amortization expense decreased by $1.9 million to $4.8 million for the
nine months ended September 30, 2010 compared to $6.7 million for the same
period in 2009 primarily due to a change in depreciation expense associated with
St. Augustine.  During 2010, St. Augustine was initially 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 because St. Augustine was classified as held for
sale.  The depreciation expense recorded for St. Augustine during the
nine months ended September 30, 2010 was $1.2 million lower compared to the same
period in 2009.   In addition, a reduction in the depreciable
asset base as a result of the aforementioned impairment charges recorded during
2010 and 2009 periods in our multi-family and retail segments also contributed
to the decline.





Other
income, net




Other
income, net increased by $0.3 million to $0.7 million for the nine months ended
September 30, 2010 compared to $0.4 million for the same period in
2009.  The increase in other income was primarily attributable to $0.2
million of unanticipated insurance settlement proceeds received during the third
quarter of 2010 related to fire damage which previously occurred at one of our
multi-family residential properties during the first quarter of
2010.





Interest
income




Interest
income was relatively flat at $3.1 million for the nine months ended September
30, 2010 compared to $3.1 million for the same period in 2009.





Interest
expense




Interest
expense, including amortization of deferred financing costs, was relatively
consistent at $9.0 million for the nine months ended September 30, 2010 compared
to $9.0 million for the same period in 2009.





Gain
on disposition of investments in unconsolidated affiliated real estate
entities





On August
30, 2010, the Company disposed of certain of its interests in investment in
unconsolidated affiliated real estate entities and recognized a gain on
disposition of approximately $142.8 million in the consolidated statements of
operations during the third quarter of 2010.  See Notes 3 and 4 of the
notes to the consolidated financial statements.  The Company did not
dispose of any of its interests in unconsolidated affiliated real estate
entities during 2009.




40




Gain/(loss)
on sale of marketable securities





Gain/(loss)
on sale of marketable securities decreased by $0.2 million to a $0.1
million gain for the nine months ended September 30, 2010 compared to
a $0.3 million gain for the same period in 2009 due to timing of sales
of securities and the differences in adjusted cost basis compared to proceeds
received upon sale.





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





This
account represents our portion of the net income/(loss) associated with our
interests in investments in unconsolidated affiliated real estate entities which
consists of our investments in POAC, Mill Run and 1407 Broadway.  Our
loss from investments in unconsolidated affiliated real estate entities
increased by $7.4 million to $11.6 million for the nine months ended September
30, 2010 compared to $4.2 million during the same period in 2009.





This
increase was primarily due to (i) a higher net allocated loss from POAC and Mill
Run of approximately $3.1 million (which reflects $9.6 million of Simon
Transaction divestiture costs) and (ii) $4.4 million more depreciation expense
associated with the difference in our cost of the POAC and Mill investments in
excess of their historical net book values, partially offset by a decrease in
allocated loss from 1407 Broadway of $0.3 million.  Our equity
earnings in unconsolidated affiliated real estate entities were also
significantly impacted by the timing of acquisitions and dispositions of our
ownership interests in POAC and Mill Run during the 2009 and 2010 periods,
respectively.  See Notes 3 and 4 of the notes to consolidated
financial statements.





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 Nine Months Ended September 30, 2010 compared to
September 30, 2009





Retail
Segment





For the Nine Months Ended
                        
                        
                        VarianceSeptember 30,
                        
                        
                        Increase/(Decrease)2010
                        
                        
                        2009
                        
                        
                        $
                        
                        
                        %(unaudited)Revenues
                        
                        $
                        8,140,540
                        
                        
                        $
                        8,286,105
                        
                        
                        $
                        (145,565
                        )
                        
                        
                        -1.8
                        %NOI
                        
                        
                        4,976,953
                        
                        
                        
                        4,958,783
                        
                        
                        
                        18,170
                        
                        
                        
                        0.4
                        %Average
      Occupancy Rate for period
                        
                        
                        87.1
                        %
                        
                        
                        89.9
                        %
                        
                        
                        
                        
                        
                        
                        -3.1
                        %





The
decline in revenues of approximately $0.1 million for the nine months ended
September 30, 2010 compared to same period in 2009 was primarily due to in
decline in specialty leasing income at one of our centers.





NOI
improved slightly by $18,170 for the nine months ended September 30, 2010
compared to the same period in 2009.  This increase was primarily
driven by lower salary and leasing-related expenses partially offset by the
decline in revenues discussed above.




41


Multi-Family
Residential Segment





For the Nine Months Ended
                          
                          
                          VarianceSeptember 30,
                          
                          
                          Increase/(Decrease)2010
                          
                          
                          2009
                          
                          
                          $
                          
                          
                          %(unaudited)Revenues
                          
                          $
                          9,642,549
                          
                          
                          $
                          10,216,946
                          
                          
                          $
                          (574,397
                          )
                          
                          
                          -5.6
                          %NOI
                          
                          
                          3,746,473
                          
                          
                          
                          4,056,141
                          
                          
                          
                          (309,668
                          )
                          
                          
                          -7.6
                          %Average
      Occupancy Rate for period
                          
                          
                          88.7
                          %
                          
                          
                          90.0
                          %
                          
                          
                          
                          
                          
                          
                          -1.4
                          %





Revenues
decreased by approximately $0.6 million for the nine months ended September 30,
2010 compared to the same period in 2009.   This decline reflects
the continued negative impact of the current economic environment which has (i)
reduced our average occupancy rate resulting in lower rental revenues of
approximately $0.2 million, (ii) led to us offering an additional approximately
$0.2 million of rent abatements to assist current tenants and attract new
tenants and (iii) forced us to be less aggressive by approximately $0.1 million
with respect to additional resident charges.





NOI
decreased by approximately $0.3 million during the nine months ended September
30, 2010 compared to the same period in 2009.  This decrease is
primarily due to the decrease in revenues discussed above, partially offset by
lower bad debt of approximately $0.2 million.





Industrial
Segment





For the Nine Months Ended
                          
                          
                          VarianceSeptember 30,
                          
                          
                          Increase/(Decrease)2010
                          
                          
                          2009
                          
                          
                          $
                          
                          
                          %(unaudited)Revenues
                          
                          $
                          5,206,108
                          
                          
                          $
                          5,669,103
                          
                          
                          $
                          (462,995
                          )
                          
                          
                          -8.2
                          %NOI
                          
                          
                          2,820,213
                          
                          
                          
                          3,562,006
                          
                          
                          
                          (741,793
                          )
                          
                          
                          -20.8
                          %Average
      Occupancy Rate for period
                          
                          
                          62.1
                          %
                          
                          
                          65.8
                          %
                          
                          
                          
                          
                          
                          
                          -5.6
                          %





Revenue
decreased by approximately $0.5 million for the nine months ended September 30,
2010 compared to the three same period in 2009.  This decrease is
attributable to the decline in our average occupancy rate due to turnover of
small business tenants, which have been negatively impacted by the current
economic environment.





NOI
decreased by approximately $0.7 million for the nine months ended September 30,
2010 compared to the same period in 2009.  This decrease reflects the
revenues decline discussed above and higher property operating expenses of
approximately $0.3 million associated with roof repair, painting and insurance
premiums.





Hotel
Hospitality Segment





For the Nine Months Ended
                            
                            
                            VarianceSeptember
      30,
                            
                            
                            Increase/(Decrease)2010
                            
                            
                            2009
                            
                            
                            $
                            
                            
                            %(unaudited)Revenues
                            
                            $
                            2,218,428
                            
                            
                            $
                            2,780,763
                            
                            
                            $
                            (562,335
                            )
                            
                            
                            -20.2
                            %NOI
                            
                            
                            841,705
                            
                            
                            
                            1,233,702
                            
                            
                            
                            (391,997
                            )
                            
                            
                            -31.8
                            %Average
      Occupancy Rate for period
                            
                            
                            71.4
                            %
                            
                            
                            69.4
                            %
                            
                            
                            
                            
                            
                            
                            2.9
                            %Average
      Revenue per Available Room for period
                            
                            $
                            27.92
                            
                            
                            $
                            34.55
                            
                            
                            $
                            (6.63
                            )
                            
                            
                            -19.2
                            %





Revenues
decreased by approximately $0.6 million for the nine months ended September 30,
2010 compared to same period in 2009.  Although we experienced an
increase in our average occupancy rate, the impact was mitigated by the decline
in our average Rev PAR.  The decline in Rev PAR is attributable to a
higher percentage of rooms occupied under longer term stays, which typically
earn a lower rate than short term stays.  Additionally, one of our
hotels had a hot water maintenance issue during the 2010 period, which impacted
its number of stays.




42




NOI
decreased by approximately $0.4 million for the nine months ended September 30,
2010 compared to the same period in 2009.  This decrease reflects the
decrease in revenues discussed above partially offset by lower property
operating expenses mainly attributable to reduced payroll expense.





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 $200.2 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 September 30, 2010, our total borrowings
represented 67.0% 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 a combination of
borrowings and the proceeds received from the disposition of certain of our
retail assets (see Note 3 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.




43


The
following table represents the fees incurred associated with the payments to our
Advisor, our Dealer Manager, and our Property Manager for the periods
indicated:





Three Months Ended September 30,
                  
                  
                  Nine Months Ended September 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009(unaudited)
                  
                  
                  (unaudited)Acquisition
      fees
                  
                  $
                  -
                  
                  
                  $
                  6,878,087
                  
                  
                  $
                  -
                  
                  
                  $
                  16,656,847Asset
      management fees
                  
                  
                  1,219,936
                  
                  
                  
                  1,259,999
                  
                  
                  
                  4,070,585
                  
                  
                  
                  3,064,827Property
      management fees
                  
                  
                  281,246
                  
                  
                  
                  447,564
                  
                  
                  
                  1,139,917
                  
                  
                  
                  1,371,798Acquisition
      expenses reimbursed to Advisor
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  902,753Development
      fees and leasing commissions
                  
                  
                  13,488
                  
                  
                  
                  (11,260
                  )
                  
                  
                  207,628
                  
                  
                  
                  194,071Total
                  
                  $
                  1,514,670
                  
                  
                  $
                  8,574,390
                  
                  
                  $
                  5,418,130
                  
                  
                  $
                  22,190,296




As of
September 30, 2010, we had approximately $46.6 million of cash and cash
equivalents on hand and $180.9 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 Nine Months Ended September 30,2010
                            
                            
                            2009(unaudited)Cash
      flows provided by operating activities
                            
                            $
                            6,615,248
                            
                            
                            $
                            2,898,264Cash
      flows provided by (used in) investing activities
                            
                            
                            53,765,984
                            
                            
                            
                            (12,250,690
                            )Cash
      flows used in financing activities
                            
                            
                            (30,851,944
                            )
                            
                            
                            (34,048,104
                            )Net
      change in cash and cash equivalents
                            
                            
                            29,529,288
                            
                            
                            
                            (43,400,530
                            )Cash
      and cash equivalents, beginning of the period
                            
                            
                            17,076,320
                            
                            
                            
                            66,106,067Cash
      and cash equivalents, end of the period
                            
                            $
                            46,605,608
                            
                            
                            $
                            22,705,537





Our
principal sources of cash flow are 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 (i) our property operating expenses, (ii)
real estate taxes, (iii) insurance costs, (iv) leasing costs and related tenant
improvements, (v) capital expenditures, (vi) acquisition and development
activities, (vii) debt service and (viii) distributions to our stockholders and
noncontrolling interests. The principal sources of funding for our operations
are operating cash flows and proceeds from (i) the disposition of properties or
interests in properties, (ii) the issuance of equity and debt securities and
(iii) the placement of mortgage loans.





For the
nine months ended September 30, 2010, net cash provided by operating activities
was $$6.6 million, net cash provided by investing activities was $53.8 million
and net cash used in financing activities was $30.9 million, resulting in an
increase in our cash and cash equivalent investing to $46.6 million as of
September 30, 2010 from $17.1 million as of December 31, 2009.





Operating
activities





Net cash
flows provided by operating activities of $6.6 million for the nine months ended
September 30, 2010 consists of the following:





·
            net
      income of approximately $1.9 million, after adjustment for non-cash items
      and discontinued operations; and





·
            cash
      inflows of approximately $4.7 million associated with the net changes in
      operating assets and liabilities (primarily attributable to the positive
      cash effect of increases in (i) accounts payable and accrued expenses of
      $3.7 million), (ii) due to Sponsor of $1.3 million, (iii) prepaid expenses
      and other assets of $0.3 million and (iv) prepaid rent of $0.2 million,
      partially offset by the negative cash effect of an increase in tenant
      accounts receivable of $0.8
million).




44


Investing
activities





The net
cash provided by investing activities of $53.8 million for the nine months ended
September 30, 2010 consists of the following:





·
            cash
      proceeds of $204.4 million from the disposition of certain of our
      interests in investments in unconsolidated affiliated real estate entities
      (see Note 3 of the notes to consolidated financial
      statements);





·
            redemption
      payments received of $5.4 million related to our investment in affiliate,
      at cost (see Note 5 of the notes to consolidated financial
      statements);





·
            proceeds
      from the sale of marketable securities of $0.4
  million;





·
            the
      purchase of $150.0 million of collateralized mortgage obligations (see
      Note 6 of  the notes to consolidated financial
      statements;





·
            capital
      contributions of $2.5 million to investments in unconsolidated affiliated
      real estate entities (see Note 4 of the notes to consolidated financial
      statements;





·
            capital
      expenditures of $1.4 million related to our properties;
  and





·
            additional
      funding of restricted escrows of $2.5 million (including $1.5 million of
      escrows returned to the lender in connection with certain second quarter
      foreclosure transactions which are classified as discontinued
      operations).





Financing
activities





The net
cash used in financing activities of approximately $30.9 million during the nine
months ended September 30, 2010 primarily related to the following:





·
            distributions
      to our common shareholders of $9.8
million;





·
            distributions
      to our noncontrolling interests of $18.4 million,(including a $14.1
      million distribution related to the disposition of certain of our
      investments in unconsolidated affiliated real estate entities) (see Notes
      3 and 14 of the notes to consolidated financial
    statements);





·
            common
      share redemptions of $1.8 million made pursuant to our share redemption
      program;





·
            debt
      principal payments $2.0 million, including a lump sum principal payment of
      $0.7 million made in connection with the refinancing of one of our retail
      properties;





·
            loan
      fees and expenses paid of $0.3 million;
and





·
            $1.5
      million of proceeds received under a demand grid loan from 1407 Broadway,
      we also received $2.8 million of proceeds under a demand grid loan from
      POAC but it was converted to a distribution from our investment in POAC on
      June 30, 2010 (see note 4 of notes to consolidated financial statements )
      .





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 financial condition is
sound, however due to the current economic conditions and the continued weakness
in, and unpredictability of, the capital and credit markets, we can give no
assurance that affordable access to capital will exist when our debt maturities
occur.




45


Contractual
Obligations




The
following is a summary of our contractual obligations outstanding over the next
five years and thereafter as of September 30, 2010.





Contractual
                                      Obligations
                                    
                                    Remainder of
                                      2010
                                    
                                    
                                    2011
                                    
                                    
                                    2012
                                    
                                    
                                    2013
                                    
                                    
                                    2014
                                    
                                    
                                    Thereafter
                                    
                                    
                                    TotalMortgage Payable
      1
                                    
                                    $
                                    9,400,504
                                    
                                    
                                    $
                                    16,559,012
                                    
                                    
                                    $
                                    2,090,767
                                    
                                    
                                    $
                                    2,370,084
                                    
                                    
                                    $
                                    28,809,456
                                    
                                    
                                    $
                                    140,943,708
                                    
                                    
                                    $
                                    200,173,531Interest
      Payments2
                                    
                                    
                                    2,785,543
                                    
                                    
                                    
                                    10,783,140
                                    
                                    
                                    
                                    10,190,593
                                    
                                    
                                    
                                    10,029,118
                                    
                                    
                                    
                                    9,886,252
                                    
                                    
                                    
                                    15,163,525
                                    
                                    
                                    
                                    58,838,171Total
      Contractual Obligations
                                    
                                    $
                                    12,186,047
                                    
                                    
                                    $
                                    27,342,152
                                    
                                    
                                    $
                                    12,281,360
                                    
                                    
                                    $
                                    12,399,202
                                    
                                    
                                    $
                                    38,695,708
                                    
                                    
                                    $
                                    156,107,233
                                    
                                    
                                    $
                                    259,011,702





1)
            The
      amount due in 2010 of $9.4 million includes the principal balance of $9.1
      million associated with the loan within the Camden portfolio that is in
      default status (see Notes 10 and 11 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 rate.  For purposes of
      calculating future interest amounts on variable interest rate debt the
      one-month rate as of September 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 (i) the debt service coverage ratio on the debt
associated with our hotels (the “Hotels”), which the Company did not meet for
the quarter ended June 30, 2010 and the quarter ended September 30, 2010 and
(ii) the debt service coverage ratios on the debt associated with the Gulf Coast
Industrial Portfolio, which the Company did not meet for the quarter ended
September 30, 2010.





Under the
terms of the loan agreement for the Hotels, 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 $0.3
million as a lump sum principal payment to avoid default.  Under the
terms of the loan agreement for the Gulf Coast Industrial Portfolio, the lender
may elect to retain all excess cash flow from the associated
properties.  As of the date of this filing, the lender has taken no
such action.  Additionally, both of these affected loans are current
with respect to regularly scheduled monthly debt service payments as of the date
of this filing..





We expect
to remain in compliance with all our other existing debt covenants; however,
should circumstances arise that would constitute an event of default, the
various lenders would have the ability to exercise various remedies under the
applicable loan agreements, including the potential acceleration of the maturity
of the outstanding debt.





See Note
11 of notes to the consolidated financial statements for additional information
regarding our indebtedness.  See Note 10 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 due in 2010
based upon the default status.





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.




46




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 nine months ended
September 30, 2010 and 2009.





For the Three Months Ended September 30,
                      
                      
                      For the Nine Months Ended September 30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009Net
      income/(loss)
                      
                      $
                      133,624,840
                      
                      
                      $
                      (49,319,070
                      )
                      
                      $
                      142,269,014
                      
                      
                      $
                      (57,071,916
                      )Adjustments:Depreciation
      and amortization of real estate assets
                      
                      
                      1,921,700
                      
                      
                      
                      2,410,574
                      
                      
                      
                      4,801,290
                      
                      
                      
                      6,716,175Equity
      in depreciation and amortization for unconsolidated affiliated real estate
      entities
                      
                      
                      6,141,234
                      
                      
                      
                      8,287,673
                      
                      
                      
                      24,582,477
                      
                      
                      
                      16,700,083(Gain)/loss
      on long-lived assets on disposal
                      
                      
                      -
                      
                      
                      
                      (237,808
                      )
                      
                      
                      230,445
                      
                      
                      
                      (237,808
                      )Gain
      on disposal of investment property for unconsolidated affiliated real
      estate entities
                      
                      
                      (142,779,604
                      )
                      
                      
                      (10,186
                      )
                      
                      
                      (142,783,910
                      )
                      
                      
                      (19,700
                      )Discontinued
      Operations:Depreciation
      and amortization of real estate assets
                      
                      
                      -
                      
                      
                      
                      283,763
                      
                      
                      
                      204,449
                      
                      
                      
                      851,834FFO
                      
                      $
                      (1,091,830
                      )
                      
                      $
                      (38,585,054
                      )
                      
                      $
                      29,303,765
                      
                      
                      $
                      (33,061,332
                      )Less:
      FFO attributable to noncontrolling interests
                      
                      
                      16,798
                      
                      
                      
                      527,116
                      
                      
                      
                      (456,674
                      )
                      
                      
                      487,287FFO  attributable
      to Company's common share
                      
                      $
                      (1,075,032
                      )
                      
                      $
                      (38,057,938
                      )
                      
                      $
                      28,847,091
                      
                      
                      $
                      (32,574,045
                      )FFO
      per common share, basic and diluted
                      
                      $
                      (0.03
                      )
                      
                      $
                      (1.22
                      )
                      
                      $
                      0.91
                      
                      
                      $
                      (1.04
                      )Weighted
      average number of common shares outstanding, basic and
    diluted
                      
                      
                      31,818,482
                      
                      
                      
                      31,297,445
                      
                      
                      
                      31,757,597
                      
                      
                      
                      31,204,618




47


Below is
the reconciliation of MFFO for the three and nine months ended September 30,
2010 and 2009.





For the Three Months Ended September 30,
                            
                            
                            For the Nine Months Ended September 30,2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009FFO
                            
                            $
                            (1,091,830
                            )
                            
                            $
                            (38,585,054
                            )
                            
                            $
                            29,303,765
                            
                            
                            $
                            (33,061,332
                            )Adjustments:Noncash
      Adjustments:Amortization of above
      and below market leases(1)
                            
                            
                            (93,256
                            )
                            
                            
                            (101,666
                            )
                            
                            
                            (195,531
                            )
                            
                            
                            (316,725
                            )Straight-line rent
      adjustment (2)
                            
                            
                            (668,929
                            )
                            
                            
                            (245,655
                            )
                            
                            
                            (2,128,445
                            )
                            
                            
                            (655,383
                            )Loss
      on long-lived assests
                            
                            
                            -
                            
                            
                            
                            45,198,614
                            
                            
                            
                            1,193,233
                            
                            
                            
                            45,198,614Gain
      on debt extinguishment
                            
                            
                            (74
                            )
                            
                            
                            -
                            
                            
                            
                            (17,169,736
                            )
                            
                            
                            -(Gain)/loss
      on sale of marketable securities
                            
                            
                            -
                            
                            
                            
                            (1,187,624
                            )
                            
                            
                            (66,756
                            )
                            
                            
                            (343,725
                            )Other
      than temporary impairment - marketable securities
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            3,373,716Total
      non cash adjustments
                            
                            
                            (762,259
                            )
                            
                            
                            43,663,669
                            
                            
                            
                            (18,367,235
                            )
                            
                            
                            47,256,497Other
      adjustments:Acquisition/divestiture
      costs expensed (3)
                            
                            
                            10,470,846
                            
                            
                            
                            1,279,774
                            
                            
                            
                            12,226,845
                            
                            
                            
                            1,432,282MFFO
                            
                            $
                            8,616,757
                            
                            
                            $
                            6,358,389
                            
                            
                            $
                            23,163,375
                            
                            
                            $
                            15,627,447Less:
      MFFO attributable to noncontrolling interests
                            
                            
                            (132,570
                            )
                            
                            
                            (86,854
                            )
                            
                            
                            (359,163
                            )
                            
                            
                            (176,654
                            )MFFO  attributable
      to Company's common share
                            
                            $
                            8,484,187
                            
                            
                            $
                            6,271,535
                            
                            
                            $
                            22,804,212
                            
                            
                            $
                            15,450,793





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 operations as well as straight-line rent from unconsolidated
      entities.





3)
            Acquisitions/divestiture
      costs expenses for the three and nine months ended September 30, 2010
      represents divestiture costs from unconsolidated entities.  In
      connection with the closing of the Simon Transaction (see Note 3 of the
      notes to consolidated financial statements) approximately $9.6 million of
      divestiture costs are included in the Company’s loss on investments on
      unconsolidated affiliated real estate entities during the third quarter of
      2010.





Sources
of Distribution





Since
the period beginning February 1, 2006 through March 31, 2010, our Boarddeclared a distribution
for each three-month period, or quarter. These distributions were calculated
based on stockholders of record each day during the applicable three-month
period at a rate of $0.0019178 per day, which, if paid each day for a 365-day
period, equaled a 7.0% annualized rate based on a share price of $10.00.





On July
28, 2010, our Board declared a distribution for the three-month period ending
June 30, 2010. This distribution was calculated based on shareholders of record
each day during the three-month period at a rate of $0.00109589 per day, and
equaled a daily amount that, if paid each day for a 365-day period, equaled 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.





In
addition, on July 28, 2010, our Board decided to temporarily suspend our
distribution reinvestment program (the “DRIP”) pending final approval of the
related registration statement (the “DRIP Registration Statement”) by the
Securities and Exchange Commission (the “SEC”).  Once the DRIP
Registration Statement was declared effective by the SEC, the Board intended to
resume the DRIP and the Company would pay out any future quarterly distributions
in the form of cash or shares issued under the DRIP, based upon the individual
shareholder’s preference on record.




48


Furthermore,
on July 28, 2010, our Board decided to temporarily lower the distribution rate
pending the closing of the Simon Transaction (see Note 2 of the notes to
financial statements for further discussion).  Our Board also decided to
meet as soon as a closing date for the Simon Transaction was set with the
intention of declaring an additional distribution for the three-month period
ended June 30, 2010 equal to a 4% annualized rate (the “Additional
Distribution”), which would be payable after the closing of the Simon
Transaction.  The Additional Distribution would bring the aggregate total
distributions for the three months ended June 30, 2010 to an amount equal to an
8% annualized rate, based on a share price of $10.00, which represents an
increase over the prior quarterly distributions which were equal to an
annualized rate of 7%.  The Simon Transaction closed on August 30,
2010 and our Board declared the Additional Distribution, which was paid in cash
on October 15, 2010 to stockholders of record during the three-month period
ended June 30, 2010.





On
September 16, 2010, our Board declared a distribution for the three-month period
ending September 30, 2010.  This distribution was calculated based on
shareholders of record each day during the three-month period at a rate of
$0.0019178 per day, and equaled a daily amount that, if paid each day for a
365-day period, equaled a 7.0% annualized rate based on a share price of
$10.00.   In addition, on October 26, 2010, DRIP Registration
Statement was declared effective by the SEC and the DRIP was reinstated by the
Company.  The distribution was paid on October 29, 2010 to
shareholders of record during the three-month period ended September 30,
2010.





The
amount of distributions paid to our stockholders in the future will be
determined by our Board and is dependent on a number of factors, including funds
available for payment of dividends, our financial condition, capital expenditure
requirements and annual distribution requirements needed to maintain our status
as a REIT under the Internal Revenue Code.





The
following table provides a summary of the quarterly distributions declared and
the source of distribution based upon cash flows provided by operations for the
three and nine months ended September 30, 2010.





Year to Date
                              
                              
                              Quarter ended
                              
                              
                              Quarter ended
                              
                              
                              Quarter endedSeptember 30, 2010
                              
                              
                              September 30, 2010
                              
                              
                              June 30, 2010
                              
                              
                              March 31, 2010Distribution
      period:
                              
                              
                              
                              
                              
                              Q3
      2010
                              
                              
                              
                              Q2
      2010
                              
                              
                              
                              Q1
      2010Date(s)
      distribution declared
                              
                              
                              
                              
                              September
      16, 2010
                              
                              
                              July
      28 and
                                August
      30, 2010, 2010
                              
                              
                              March
      2, 2010Date(s)
      distribution paid
                              
                              
                              
                              
                              October
      29, 2010
                              
                              
                              August
      6 and
                                October
      15, 2010
                              
                              
                              March
      30, 2010Distributions
      Paid
                              
                              $
                              13,442,831
                              
                              
                              $
                              3,756,062
                              
                              
                              $
                              6,353,866
                              
                              
                              $
                              3,332,903Distributions
      Reinvested
                              
                              
                              4,020,012
                              
                              
                              
                              1,892,530
                              
                              
                              
                              -
                              
                              
                              
                              2,127,482Total
      Distributions
                              
                              $
                              17,462,843
                              
                              
                              $
                              5,648,592
                              
                              
                              $
                              6,353,866
                              
                              
                              $
                              5,460,385Source
      of distributionsCash
      flows used in operations
                              
                              $
                              6,615,248
                              
                              
                              $
                              5,452,208
                              
                              
                              $
                              (74,995
                              )
                              
                              $
                              1,238,035Proceeds
      from investment in affiliates and excess cash
                              
                              
                              8,720,113
                              
                              
                              
                              196,384
                              
                              
                              
                              6,428,861
                              
                              
                              
                              2,094,868Proceeds
      from issuance of common stock
                              
                              
                              2,127,482
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              2,127,482Total
      Sources
                              
                              $
                              17,462,843
                              
                              
                              $
                              5,648,592
                              
                              
                              $
                              6,353,866
                              
                              
                              $
                              5,460,385




49


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 nine months ended September 30, 2009





Year to Date
                            
                            
                            Quarter ended
                            
                            
                            Quarter ended
                            
                            
                            Quarter endedSeptember 30, 2009
                            
                            
                            September 30, 2009
                            
                            
                            June 30, 2009
                            
                            
                            March 31, 2009Distribution
      period:
                            
                            
                            
                            
                            
                            Q3
      2009
                            
                            
                            
                            Q2
      2009
                            
                            
                            
                            Q1
      2009Date
      distribution declared
                            
                            
                            
                            
                            September
      17, 2009
                            
                            
                            May
      13, 2009
                            
                            
                            March
      30, 2009Date
      distribution paid
                            
                            
                            
                            
                            October
      15, 2009
                            
                            
                            July
      15, 2009
                            
                            
                            April
      15, 2009Distributions
      Paid
                            
                            $
                            9,255,027
                            
                            
                            $
                            3,151,937
                            
                            
                            $
                            3,050,200
                            
                            
                            $
                            3,052,890Distributions
      Reinvested
                            
                            
                            7,074,324
                            
                            
                            
                            2,367,469
                            
                            
                            
                            2,394,520
                            
                            
                            
                            2,312,335Total
      Distributions
                            
                            $
                            16,329,351
                            
                            
                            $
                            5,519,406
                            
                            
                            $
                            5,444,720
                            
                            
                            $
                            5,365,225Source
      of distributionsCash
      flows used in operations
                            
                            $
                            2,898,264
                            
                            
                            $
                            1,169,895
                            
                            
                            $
                            1,006,312
                            
                            
                            $
                            722,057Proceeds
      from issuance of common stock
                            
                            
                            13,431,087
                            
                            
                            
                            4,349,511
                            
                            
                            
                            4,438,408
                            
                            
                            
                            4,643,168Total
      Sources
                            
                            $
                            16,329,351
                            
                            
                            $
                            5,519,406
                            
                            
                            $
                            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 September 30,
2010 and 2009, 100% of our distributions to our common stockholders will be or
were funded from MFFO.





Based
upon MFFO, for the nine months ended September 30, 2010 and 2009, 100% and 95%,
respectively, of our distributions to our common stockholders were funded or
will be funded from MFFO.





New
Accounting Pronouncements





In June
2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 167, “Amendments to FASB
Interpretation No. 46(R)”, which was primarily codified into Topic 810 in the
Accounting standards Codification (“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 became 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.




50


We may be
exposed to the effects of interest rate changes primarily as a result of
borrowings used to maintain liquidity and fund the expansion and refinancing of
our real estate investment portfolio and operations. Our interest rate risk
management objectives will be to limit the impact of interest rate changes on
earnings, prepayment penalties and cash flows and to lower overall borrowing
costs while taking into account variable interest rate risk. To achieve our
objectives, we may borrow at fixed rates or variable rates. We may also enter
into derivative financial instruments such as interest rate swaps and caps in
order to mitigate our interest rate risk on a related financial instrument. We
will not enter into derivative or interest rate transactions for speculative
purposes. As of September 30, 2010, we had one interest rate cap outstanding
with an insignificant intrinsic value.





As of
September 30, 2010, we held various marketable securities of approximately
$180.9 million, which are available for sale for general investment return
purposes (see Note 6 of the notes to consolidated financial
statements).  We regularly review the market prices of these
investments for impairment purposes.  As of September 30, 2010, a
hypothetical adverse 10% movement in market values would result in a
hypothetical loss in fair value of approximately by approximately $18.1 million.





The
following table shows the mortgage payable obligations maturing during the next
five years and thereafter as of September 30, 2010:




Remainder of
                        2010 (1)
                      
                      
                      2011
                      
                      
                      2012
                      
                      
                      2013
                      
                      
                      2014
                      
                      
                      Thereafter
                      
                      
                      TotalMortgage
      Payable
                      
                      $
                      9,400,504
                      
                      
                      $
                      16,559,012
                      
                      
                      $
                      2,090,767
                      
                      
                      $
                      2,370,084
                      
                      
                      $
                      28,809,456
                      
                      
                      $
                      140,943,708
                      
                      
                      $
                      200,173,531




1)
            In
      addition, the amount due in the remainder of 2010 of $9.4 million includes
      the principal balance of $9.1 million associated with a loan within the
      Camden portfolio that is in default status (see Note 9 and 10 of notes to
      consolidated financial statements).





As of
September 30, 2010, approximately $15.8 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.  However,
approximately $6.5 million of our total outstanding variable-rate indebtedness
was subject to a floor rate of 6.75% as of September 30, 2010.  Based
on rates as of September 30, 2010, a 1% adverse movement (increase in LIBOR)
would increase our annual interest expense by approximately $0.1
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 September 30, 2010 was
approximately $206.7 million compared to the book value of approximately $200.2
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.





In
addition to changes in interest rates, the value of our real estate and real
estate related investments is subject to fluctuations based on changes in local
and regional economic conditions and changes in the creditworthiness of lessees,
which may affect our ability to refinance our debt if necessary. As of September
30, 2010, the only off-balance sheet arrangements we had outstanding was an
interest rate cap with an insignificant intrinsic value.





We cannot predict the
effect of adverse changes in interest rates on our debt and, therefore, our
exposure to market risk, nor can we provide any assurance that long-term debt
will be available at advantageous pricing. Consequently, future results may
differ materially from the estimated adverse changes discussed
above.





ITEM 4 (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.




51




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 ("1407 Broadway "),
consummated the acquisition of a sub-leasehold interest (the "Sublease
Interest") in an office building located at 1407 Broadway, New York, New York
(the "Office Property"). 1407 Broadway is a joint venture between LVP 1407
Broadway LLC ("LVP LLC"), a wholly owned subsidiary of our operating
partnership, and Lightstone 1407 Manager LLC ("Manager"), which is wholly owned
by David Lichtenstein, the Chairman of our Board of Directors and our Chief
Executive Officer, and Shifra Lichtenstein, his wife.




The
Sublease Interest was acquired pursuant to a Sale and Purchase of Leasehold
Agreement with Gettinger Associates, L.P. ("Gettinger"). In July 2006, Abraham
Kamber Company, as Sublessor under the sublease ("Sublessor"), served two
notices of default on Gettinger (the "Default Notices"). The first alleged that
Gettinger had failed to satisfy its obligations in performing certain
renovations and the second asserted numerous defaults relating to Gettinger's
purported failure to maintain the Office Property in compliance with its
contractual obligations.





In
response to the Default Notices, Gettinger commenced legal action and obtained
an injunction that extends its time to cure any default, prohibits interference
with its leasehold interest and prohibits Sublessor from terminating its
sublease pending resolution of the litigation. A motion by Sublessor for partial
summary judgment, alleging that certain work on the Office Property required its
prior approval, was denied by the Supreme Court, New York County. Subsequently,
by agreement of the parties, a stay was entered precluding the termination of
the Sublease Interest pending a final decision on Sublessor's claim of defaults
under the Sublease Interest. In addition, the parties stipulated to the
intervention of Office Owner as a party to the proceedings. 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.




52


ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS




During
the period covered by this Form 10-Q, we did not sell any equity securities that
were not registered under the Securities Act of 1933, and we did not repurchase
any shares.





Effective
March 2, 2010, our board of directors (the “Board”) voted to temporarily suspend
future share redemptions under the share redemption plan (the “Share Redemption
Plan”) pending completion of a previously announced transaction relating to the
disposition of certain retail outlet assets to Simon Property Group, Inc. and
certain of its affiliates (collectively, “Simon”).  On August 30,
2010, the transaction with Simon closed and on September 16, 2010, the Company’s
Board voted to reinstate effective October 1, 2010 future share redemptions,
subject to certain restrictions, at a price of $9.00 per share under the Share
Redemption Plan.





In addition, on July 28, 2010, the Board temporarily
suspended the distribution reinvestment program (the Dividend Reinvestment
Program”) pending final approval of the registration statement by the Securities
and Exchange Commission (the “SEC”).  On October 26, 2010, the
registration statement was declared effective by the SEC and the Dividend
Reinvestment Program was reinstated by the Company.





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




53


SIGNATURES





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





LIGHTSTONE
      VALUE PLUS REAL ESTATE
                INVESTMENT
      TRUST, INC.Date: November
      15, 2010
              By:
              /s/ David
  LichtensteinDavid
      LichtensteinChairman
      and Chief Executive Officer(Principal
      Executive Officer)




Date:
      November 15, 2010
              By:
              /s/ Donna BrandinDonna
      BrandinChief
      Financial Officer and Treasurer(Duly
      Authorized Officer and Principal Financial andAccounting
      Officer)





54