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 March 31, 2010 OR  o

          

          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 ofIncorporation or Organization)

          

          (I.R.S. EmployerIdentification No.)
  1985 Cedar Bridge Avenue, Suite 1 Lakewood, New Jersey

          

          08701(Address of Principal Executive Offices)

          

          (Zip Code)
 (732) 367-0129 (Registrants Telephone Number, Including Area Code) 
 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No x 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 o No o 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 o

          

          Accelerated filer o

          

          Non-accelerated filer x
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x As of May 7, 2010, there were 31.8 million outstanding shares of common stock of Lightstone Value Plus Real Estate Investment Trust, Inc., including shares issued pursuant to the dividend reinvestment plan.
     TABLE OF CONTENTS LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES INDEX  PagePART IFINANCIAL INFORMATIONItem 1.Financial StatementsConsolidated Balance Sheets as of March 31, 2010 (unaudited) and December 31, 2009





1Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 2010 and 2009





2Consolidated Statement of Stockholders Equity and Comprehensive Loss (unaudited) for the Three Months Ended March 31, 2010





3Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2010 and 2009





4Notes to Consolidated Financial Statements





5Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations





24Item 3.Quantitative and Qualitative Disclosures About Market Risk





36Item 4T.Controls and Procedures





37PART IIOTHER INFORMATIONItem 1.Legal Proceedings





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





39Item 3.Defaults Upon Senior Securities





39Item 4.Removed and Reserved





39Item 5.Other Information





39Item 6.Exhibits





39
 i    TABLE OF CONTENTS PART I. FINANCIAL INFORMATION, CONTINUED: ITEM 1. FINANCIAL STATEMENTS, CONTINUED: LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES   CONSOLIDATED BALANCE SHEETS  March 31, 2010

          

          December 31, 2009(unaudited)AssetsInvestment property:Land

          

          $

          44,828,406

          

          

          $

          44,799,646Building

          

          

          183,181,666

          

          

          

          183,330,499Construction in progress

          

          

          147,127

          

          

          

          284,952Gross investment property

          

          

          228,157,199

          

          

          

          228,415,097Less accumulated depreciation

          

          

          (12,855,566

          )

          

          

          (11,602,988

          )Net investment property

          

          

          215,301,633

          

          

          

          216,812,109Investments in unconsolidated affiliated real estate entities

          

          

          114,308,527

          

          

          

          115,972,466Investment in affiliate, at cost

          

          

          6,297,995

          

          

          

          7,658,337Cash and cash equivalents

          

          

          9,681,934

          

          

          

          17,076,320Marketable securities

          

          

          736,277

          

          

          

          840,877Restricted escrows

          

          

          2,927,113

          

          

          

          2,034,774Tenant accounts receivable (net of allowance for doubtful account of $191,921 and $189,639, respectively)

          

          

          871,580

          

          

          

          677,753Other accounts receivable

          

          

          5,419

          

          

          

          23,182Acquired in-place lease intangibles, net

          

          

          533,237

          

          

          

          609,487Acquired above market lease intangibles, net

          

          

          169,213

          

          

          

          199,348Deferred intangible leasing costs, net

          

          

          334,510

          

          

          

          377,687Deferred leasing costs (net of accumulated amortization of $237,201 and $204,208 respectively)

          

          

          697,535

          

          

          

          584,973Deferred financing costs (net of accumulated amortization of $952,216 and $949,475 respectively)

          

          

          1,194,494

          

          

          

          1,212,847Interest receivable from related parties

          

          

          1,114,167

          

          

          

          1,886,449Prepaid expenses and other assets

          

          

          2,359,004

          

          

          

          2,047,683Assets held for sale (See Note 7)

          

          

          61,824,739

          

          

          

          61,549,584Total Assets

          

          $

          418,357,377

          

          

          $

          429,563,876Liabilities and Stockholders EquityMortgage payable

          

          $

          217,161,826

          

          

          $

          218,051,497Accounts payable and accrued expenses

          

          

          5,083,242

          

          

          

          3,869,310Due to sponsor

          

          

          1,487,403

          

          

          

          1,349,730Loans due to affiliates (see Note 3)

          

          

          2,493,466

          

          

          

          Tenant allowances and deposits payable

          

          

          940,682

          

          

          

          946,420Distributions payable

          

          

          

          

          

          

          5,557,670Prepaid rental revenues

          

          

          764,663

          

          

          

          767,334Acquired below market lease intangibles, net

          

          

          332,652

          

          

          

          380,504Liabilities held for sale (See Note 7)

          

          

          27,497,492

          

          

          

          27,431,060Total Liabilities

          

          

          255,761,426

          

          

          

          258,353,525Commitments and contingencies (Note 16)Stockholders equity:Companys Stockholders Equity:Preferred shares, $1 Par value, 10,000,000 shares authorized, none outstanding

          

          

          

          

          

          

          Common stock, $.01 par value; 60,000,000 shares authorized, 31,838,066 and 31,528,353 shares issued and outstanding in 2010 and 2009, respectively

          

          

          318,380

          

          

          

          315,283Additional paid-in-capital

          

          

          283,634,895

          

          

          

          280,763,558Accumulated other comprehensive income

          

          

          223,106

          

          

          

          326,077Accumulated distributions in excess of net loss

          

          

          (159,312,348

          )

          

          

          (149,702,633

          )Total Companys stockholders equity

          

          

          124,864,033

          

          

          

          131,702,285Noncontrolling interests

          

          

          37,731,918

          

          

          

          39,508,066Total Stockholders Equity

          

          

          162,595,951

          

          

          

          171,210,351Total Liabilities and Stockholders Equity

          

          $

          418,357,377

          

          

          $

          429,563,876
 The accompanying notes are an integral part of these consolidated financial statements.
 1    TABLE OF CONTENTS 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 March 31, 2010

          

          Three Months Ended March 31, 2009Revenues:Rental income

          

          $

          7,209,964

          

          

          $

          7,992,239Tenant recovery income

          

          

          743,927

          

          

          

          808,248Total revenues

          

          

          7,953,891

          

          

          

          8,800,487Expenses:Property operating expenses

          

          

          3,312,348

          

          

          

          3,371,790Real estate taxes

          

          

          992,156

          

          

          

          995,450Loss on property damaged

          

          

          274,104

          

          

          

          General and administrative costs

          

          

          3,043,905

          

          

          

          1,473,229Depreciation and amortization

          

          

          1,614,969

          

          

          

          1,851,168Total operating expenses

          

          

          9,237,482

          

          

          

          7,691,637Operating (loss)/income

          

          

          (1,283,591

          )

          

          

          1,108,850Other income, net

          

          

          123,510

          

          

          

          176,558Interest income

          

          

          1,084,823

          

          

          

          1,088,532Interest expense

          

          

          (3,119,398

          )

          

          

          (3,115,136

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

          

          

          (1,682,141

          )

          

          

          108,936Net loss from continuing operations

          

          

          (4,876,797

          )

          

          

          (632,260

          )Net income/(loss) from discontinued operations

          

          

          653,488

          

          

          

          (126,044

          )Net loss

          

          

          (4,223,309

          )

          

          

          (758,304

          )Less: net loss attributable to noncontrolling interests

          

          

          73,979

          

          

          

          3,019Net loss attributable to Companys common shares

          

          $

          (4,149,330

          )

          

          $

          (755,285

          )Basic and diluted net loss per Companys common shareContinuing operations

          

          $

          (0.15

          )

          

          $

          (0.01

          )Discontinued operations

          

          

          0.02

          

          

          

          (0.01

          )Net loss per Companys common share, basic and diluted

          

          $

          (0.13

          )

          

          $

          (0.02

          )Weighted average number of common shares outstanding, basic and diluted

          

          

          31,616,298

          

          

          

          31,109,274
 The accompanying notes are an integral part of these consolidated financial statements.
 2    TABLE OF CONTENTS PART I. FINANCIAL INFORMATION: ITEM 1. FINANCIAL STATEMENTS. LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES   CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE LOSS (UNAUDITED)  Preferred Shares

          

          Amount

          

          Common Shares

          

          Amount

          

          Additional Paid-In Capital

          

          Accumulated Other Comprehensive Income

          

          Accumulated Distributions in Excess of Net Loss

          

          Total 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 loss:Net loss

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (4,149,330

          )

          

          

          (73,979

          )

          

          

          (4,223,309

          )Unrealized loss on available for sale securities

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (102,971

          )

          

          

          

          

          

          

          (1,629

          )

          

          

          (104,600

          )Total comprehensive loss

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (4,327,909

          )Distributions declared

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (5,460,385

          )

          

          

          

          

          

          

          (5,460,385

          )Distributions paid to noncontrolling interests

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (1,700,540

          )

          

          

          (1,700,540

          )Redemption and cancellation of shares

          

          

          

          

          

          

          

          

          

          

          (158,127

          )

          

          

          (1,581

          )

          

          

          (1,568,467

          )

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          (1,570,048

          )Shares issued from distribution reinvestment program

          

          

          

          

          

          

          

          

          

          

          467,840

          

          

          

          4,678

          

          

          

          4,439,804

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          4,444,482BALANCE, March 31, 2010

          

          

          

          

          

          $

          

          

          

          

          31,838,066

          

          

          $

          318,380

          

          

          $

          283,634,895

          

          

          $

          223,106

          

          

          $

          (159,312,348

          )

          

          $

          37,731,918

          

          

          $

          162,595,951
 The accompanying notes are an integral part of these consolidated financial statements.
 3    TABLE OF CONTENTS 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 Three Months EndedMarch 31, 2010

          

          March 31, 2009CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

          

          $

          (4,223,309

          )

          

          $

          (758,304

          )Less net income/(loss)  discontinued operations

          

          

          653,488

          

          

          

          (126,044

          )Net loss from continuing operations

          

          $

          (4,876,797

          )

          

          $

          (632,260

          )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization

          

          

          1,512,633

          

          

          

          1,755,834Amortization of deferred financing costs

          

          

          54,604

          

          

          

          90,072Amortization of deferred leasing costs

          

          

          102,336

          

          

          

          99,970Amortization of above and below-market lease intangibles

          

          

          (17,717

          )

          

          

          (29,487

          )Loss on property damaged

          

          

          274,104

          

          

          

          Equity in (income)/loss from investments in unconsolidated affiliated real estate entities

          

          

          1,682,141

          

          

          

          (108,936

          )Provision for bad debts

          

          

          48,431

          

          

          

          329,212Changes in assets and liabilities:Increase in prepaid expenses and other assets

          

          

          505,726

          

          

          

          506,557(Decrease)/increase in tenant and other accounts receivable

          

          

          (224,495

          )

          

          

          275,841Increase/(decrease) in tenant allowance and security deposits payable

          

          

          33,608

          

          

          

          (1,560

          )Increase/(decrease) in accounts payable and accrued expenses

          

          

          1,350,616

          

          

          

          (1,246,448

          )(Decrease)/increase in prepaid rents

          

          

          (2,671

          )

          

          

          5,139Net cash provided by operating activities  continuing operations

          

          

          442,519

          

          

          

          1,043,934Net cash provided by/(used in) operating activities  discontinued operations

          

          

          795,516

          

          

          

          (321,877

          )Net cash provided by operating activities

          

          

          1,238,035

          

          

          

          722,057CASH FLOWS USED IN INVESTING ACTIVITIES:Purchase of investment property, net

          

          

          (454,856

          )

          

          

          (23,719

          )Redemption payments from investments in unconsolidated affiliate

          

          

          1,360,342

          

          

          

          616,666Purchase of investment in unconsolidated affiliated real estate entity

          

          

          (18,202

          )

          

          

          (11,989,263

          )Funding of restricted escrows

          

          

          (892,338

          )

          

          

          (319,558

          )Net cash used in investing activities  continuing operations

          

          

          (5,054

          )

          

          

          (11,715,874

          )Net cash used in investing activities  discontinued operations

          

          

          (257,430

          )

          

          

          (3,326,459

          )Net cash used in investing activities

          

          

          (262,484

          )

          

          

          (15,042,333

          )CASH FLOWS FROM FINANCING ACTIVITIES:Mortgage payments

          

          

          (889,671

          )

          

          

          (213,128

          )Payment of loan fees and expenses

          

          

          (36,250

          )

          

          

          (22,911

          )Proceeds from loans due to affiliates

          

          

          2,493,466

          

          

          

          Redemption and cancellation of common stock

          

          

          (1,570,048

          )

          

          

          (1,142,132

          )Proceeds from issuance of special general partnership units

          

          

          

          

          

          

          6,982,534Issuance of note receivable to noncontrolling interest

          

          

          

          

          

          

          (1,657,708

          )Distribution from/(contributions to) discontinued operations

          

          

          600,000

          

          

          

          (3,350,720

          )Distributions paid to noncontrolling interests

          

          

          (1,700,540

          )

          

          

          (1,013,494

          )Distributions paid to Company's common stockholders

          

          

          (6,573,573

          )

          

          

          (3,060,141

          )Net cash used in financing activities  continuing operations

          

          

          (7,676,616

          )

          

          

          (3,477,700

          )Net cash (used in)/provided by financing activities  discontinued operations

          

          

          (693,321

          )

          

          

          3,262,572Net cash used in financing activities

          

          

          (8,369,937

          )

          

          

          (215,128

          )Net change in cash and cash equivalents

          

          

          (7,394,386

          )

          

          

          (14,535,404

          )Cash and cash equivalents, beginning of period

          

          

          17,076,320

          

          

          

          66,106,067Cash and cash equivalents, end of period

          

          $

          9,681,934

          

          

          $

          51,570,663Cash paid for interest

          

          $

          2,891,585

          

          

          $

          3,438,945Distributions declared

          

          $

          5,460,385

          

          

          $

          10,812,810Value of shares issued from distribution reinvestment program

          

          $

          4,444,482

          

          

          $

          2,387,444Issuance of units in exchange for investment in unconsolidated affiliated real estate entity

          

          $

          

          

          

          $

          55,988,411
 The accompanying notes are an integral part of these consolidated financial statements.
 4    TABLE OF CONTENTS 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 (Lightstone REIT and, together with the Operating Partnership (as defined below), the Company) was formed on June 8, 2004 and subsequently qualified as a real estate investment trust (REIT) during the year ending December 31, 2006. The Company was formed primarily for the purpose of engaging in the business of investing in and owning commercial and residential real estate properties located throughout the United States and Puerto Rico. The Lightstone REIT is structured as an umbrella partnership real estate investment trust, or UPREIT, and substantially all of the Lightstone REIT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 Lightstone REIT 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 March 31, 2010, on a collective basis, the Company either wholly owned or owned interests in 23 retail properties containing a total of approximately 7.9 million square feet of retail space, 15 industrial properties containing a total of approximately 1.3 million square feet of industrial space, 9 multi-family properties containing a total of 2,593 units, 2 hotel properties containing a total of 290 rooms and 1 office property containing a total of approximately 1.1 million square feet of office space. All of its properties are located within the United States. As of March 31, 2010, the retail properties, the industrial properties, the
multi-family properties and the office property were 93%, 63%, 90% and 75% occupied based on a weighted average basis, respectively. Its hotel properties average revenue per available room was $22 and occupancy was 60% for the three months ended March 31, 2010. On December 8, 2009, the Company signed a definitive agreement to dispose of a substantial portion of its retail properties; its St. Augustine Outlet center plus its interests in its investments in Prime Outlets Acquisitions Company (POAC), which includes 18 retail properties and Mill Run, LLC (Mill Run), which includes 2 of its retail properties. Upon closing of the transaction, we are expecting to receive $245.7 million in total consideration before transaction expenses, of which approximately $200.0 million will be in the form of cash and the remaining in the form of equity which may not be available for sale until July
2013. The equity will be common units of the operating partnership of Simon Property Group. We expect the transaction to be completed during mid to late 2010. At a meeting on May 13, 2010, the board of directors of the Company (the Board) made the decision to distribute proceeds to the shareholders equal to the estimated tax liability, if any, they would accrue from the transaction. Subject to change based on market conditions that may prevail when the transaction closes and the proceeds are received, the Board further determined to direct the reinvestment of the balance of the cash proceeds. In reaching its determination, the board considered that, in the event all proceeds were distributed, we would need to substantially
reduce or eliminate our dividend 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 our shares for seven to ten years. During 2009, the Company decided to not make the required debt service payments of $0.2 million in the month of October and thereafter on the two loans collateralized by an apartment property located in North Carolina and one located in Florida. These two loans had an aggregate outstanding principal balance of $42.3 million as of March 31, 2010. The Company determined that future debt service payments on these two loans would no longer be economically beneficial to the Company based upon the current and expected future performance of the properties associated with these two loans. During the three months ended March 31, 2010, the Company has been
notified by the lender that it will be foreclosing on these two properties. The foreclosure sale for one of the properties closed on April 13, 2010 and the other one was completed on May 12, 2010. As of March 31, 2010, these two properties are included in continuing operations and represent 788 of the 2,593 units of multi-family properties owned. See Note 8 for summary financial data related to these two properties.
 5    TABLE OF CONTENTS LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 2. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of the Company and the Operating Partnership and its subsidiaries (over which Lightstone REIT exercises financial and operating control). As of March 31, 2010, the Company had a 98.4% general partnership interest in the common units of the Operating Partnership. All inter-company balances and transactions have been eliminated in consolidation. The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of the Company and related notes as contained in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2009. The unaudited interim financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair statement of the results for the periods presented. The accompanying unaudited condensed consolidated financial statements of and its Subsidiaries (collectively, the
Company) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period. Reclassifications Certain prior period amounts have been reclassified to conform to the current year presentation. New Accounting Pronouncements In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which was primarily codified into Topic 810 in the ASC. This standard requires ongoing assessments to determine whether an entity is a variable entity and requires qualitative analysis to determine whether an enterprises variable interest(s) give it a controlling financial interest in a variable interest entity. In addition, it requires enhanced disclosures about an enterprises involvement in a variable interest entity. This standard is effective for the fiscal year that begins after November 15, 2009. The Company adopted this standard on
January 1, 2010 and the adoption did not have a material impact on the Companys consolidated financial statements. In January 2010, the FASB issued FASB Accounting Standards Update (ASU) No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU No. 2010-06 amends ASC 820 and clarifies and provides additional disclosure requirements related to recurring and non-recurring fair value measurements. This ASU becomes effective for the Company on January 1, 2010. The adoption of this ASU did not have a material impact on the Companys consolidated financial statements. The Company has determined that all other recently issued accounting pronouncements will not have a material impact on its consolidated financial position, results of operations and cash flows, or do not apply to its operations.
 6    TABLE OF CONTENTS LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 3. Investments in Unconsolidated Affiliated Real Estate Entities The entities listed below are partially owned by the Company. The Company accounted for these investments under the equity method of accounting as the Company exercises significant influence, but does not control these entities. A summary of the Companys investments in unconsolidated affiliated real estate entities is as follows:  As ofReal Estate Entity

          

          Dates Acquired

          

          Ownership %

          

          March 31, 2010

          

          December 31, 2009Prime Outlets Acquistions Company (POAC)

          

          

          March 30, 2009 & August 25, 2009

          

          

          

          40.00

          %

          

          $

          81,645,138

          

          

          $

          84,291,011Mill Run LLC (Mill Run)

          

          

          June 26, 2008 & August 25, 2009

          

          

          

          36.80

          %

          

          

          30,903,572

          

          

          

          29,809,6411407 Broadway Mezz II LLC (1407 Broadway)

          

          

          January 4, 2007

          

          

          

          49.00

          %

          

          

          1,759,817

          

          

          

          1,871,814Total Investments in unconsolidated affiliated real estate entities

          

          

          

          

          

          

          

          

          

          $

          114,308,527

          

          

          $

          115,972,466
 Prime Outlets Acquisitions Company As of March 31, 2010, the Operating Partnership owns a 40% membership interest in POAC (POAC Interest). The POAC Interest is a non-managing interest, with certain consent rights with respect to major decisions. An affiliate of The Lightstone Group, the Companys sponsor, is the majority owner and manager of POAC. Profit and cash distributions will be allocated in accordance with each investors ownership percentage. As we have recorded this investment in accordance with the equity method of accounting, our portion of POACs total indebtedness of $1.2 billion as of March 31, 2010 is not included in our investment. In connection with the acquisition of the investment in POAC, our advisor charged an acquisition fee equal to 2.75% of the acquisition price, or approximately $15.4 million. In addition, we incurred other transactions fees associated with the acquisition of the POAC Interest of approximately $10.4 million. On December 8, 2009, the REIT has entered into a definitive agreement to dispose of its retail outlet center interests that include St. Augustine outlet center and investments in Mill Run and POAC. See Note 1. During March 2010, the Company entered a demand grid note to borrow up to $20 million from POAC. As of March 31, 2010, the Company has received loan proceeds from POAC associated with this demand grid note in the amount of $2.0 million. The loan bears interest at libor plus 2.5%. The principal and interest on this loan is due the earlier of February 28, 2020 or on demand. The principal and interest on the loan is recorded in loans due to affiliates in the consolidated balance sheets. POAC Financial Information The Companys carrying value of its POAC Interest differs from its share of members equity reported in the condensed balance sheet of POAC due to the Companys cost of its investments in excess of the historical net book values of POAC. The Companys additional basis allocated to depreciable assets is recognized on a straight-line basis over the lives of the appropriate assets.
 7    TABLE OF CONTENTS LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 3. Investments in Unconsolidated Affiliated Real Estate Entities  (continued) The following table represents the unaudited condensed income statement for POAC for the three months ended March 31, 2010 and the period March 30, 2009 through March 31, 2009:  For the Three Months Ended March 31, 2010

          

          For the Period March 30, 2009 to March 31, 2009Revenue

          

          $

          45,402,236

          

          

          $

          985,637Property operating expenses

          

          

          19,936,230

          

          

          

          526,651Depreciation and amortization

          

          

          9,305,553

          

          

          

          155,321Operating income

          

          

          16,160,453

          

          

          

          303,665Interest expense and other, net

          

          

          (14,223,152

          )

          

          

          (270,393

          )Net income

          

          $

          1,937,301

          

          

          $

          33,272Companys share of net income

          

          $

          774,920

          

          

          $

          8,318Additional depreciation and amortization expense(1)

          

          

          (3,438,996

          )

          

          

          Companys (loss)/income from investment

          

          $

          (2,664,076

          )

          

          $

          8,318
  (1)

          Additional depreciation and amortization expense relates to the amortization of the difference between the cost of the POAC Interest and the amount of the underlying equity in net assets of the POAC. The following table represents the unaudited condensed balance sheet for POAC as of March 31, 2010 and December 31, 2009:  As ofMarch 31, 2010

          

          As ofDecember 31, 2009Real estate, at cost (net)

          

          $

          751,629,420

          

          

          $

          757,385,791Intangible assets

          

          

          10,602,030

          

          

          

          11,384,965Cash and restricted cash

          

          

          30,937,510

          

          

          

          44,891,427Other assets

          

          

          63,481,595

          

          

          

          59,050,970Total Assets

          

          $

          856,650,555

          

          

          $

          872,713,153Mortgage payable

          

          $

          1,179,432,145

          

          

          $

          1,183,285,466Other liabilities

          

          

          32,300,873

          

          

          

          46,447,451Member capital

          

          

          (355,082,463

          )

          

          

          (357,019,764

          )Total liabilities and members capital

          

          $

          856,650,555

          

          

          $

          872,713,153
 Mill Run Interest As of March 31, 2010, our operating partnership owns a 36.8% membership interest in Mill Run (Mill Run Interest). The Mill Run Interest includes Class A and B membership shares and is a non-managing interest, with consent rights with respect to certain major decisions. Our sponsor is the managing member and owns 55% of Mill Run. Profit and cash distributions will be allocated in accordance with each investors ownership percentage after consideration of Class B members adjusted capital balance. As the Company has recorded this investment in accordance with the equity method of accounting, our portion of Mill Runs total indebtedness of $259.7 million as March 31, 2010 is not included in the Companys investment. In connection with the acquisition of the investment in Mill Run, our advisor charged an acquisition fee equal to 2.75% of the acquisition price, or approximately $3.6 million plus we incurred other transactions fees of $2.9 million. On December 8, 2009, the REIT has entered into a definitive agreement to dispose of its retail outlet center interests that include St. Augustine outlet center and investments in Mill Run and POAC. See Note 1.
 8    TABLE OF CONTENTS LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 3. Investments in Unconsolidated Affiliated Real Estate Entities  (continued) Mill Run Financial Information The Companys carrying value of its Mill Run Interest differs from its share of members equity reported in the condensed balance sheet of Mill Run due to the Companys cost of its investments in excess of the historical net book values of Mill Run. The Companys additional basis allocated to depreciable assets is recognized on a straight-line basis over the lives of the appropriate assets. The following table represents the unaudited condensed income statement for Mill Run for the three months ended March 31, 2010 and 2009:  For the Three Months EndedMarch 31, 2010

          

          March 31, 2009Revenue

          

          $

          11,895,434

          

          

          $

          10,643,752Property operating expenses

          

          

          3,051,084

          

          

          

          3,420,971Depreciation and amortization

          

          

          3,041,241

          

          

          

          2,361,153Operating income

          

          

          5,803,109

          

          

          

          4,861,628Interest expense and other, net

          

          

          (1,631,904

          )

          

          

          (1,949,080

          )Net income

          

          $

          4,171,205

          

          

          $

          2,912,548Companys share of net income

          

          $

          1,535,003

          

          

          $

          656,488Additional depreciation and amortization expense(1)

          

          

          (441,072

          )

          

          

          (239,870

          )Companys income from investment

          

          $

          1,093,931

          

          

          $

          416,618
  (1)

          Additional depreciation and amortization expense relates to the amortization of the difference between the cost of the Mill Run Interest and the amount of the underlying equity in net assets of the Mill Run. The following table represents the unaudited condensed balance sheet for Mill Run as of March 31, 2010 and December 31, 2009:  As of March 31, 2010

          

          As of December 31, 2009Real estate, at cost (net)

          

          $

          254,465,778

          

          

          $

          257,274,810Intangible assets

          

          

          615,933

          

          

          

          644,421Cash and restricted cash

          

          

          7,968,668

          

          

          

          6,410,480Other assets

          

          

          9,815,071

          

          

          

          9,755,013Total Assets

          

          $

          272,865,450

          

          

          $

          274,084,724Mortgage payable

          

          $

          259,695,763

          

          

          $

          265,195,763Other liabilities

          

          

          22,376,970

          

          

          

          22,267,449Member capital

          

          

          (9,207,283

          )

          

          

          (13,378,488

          )Total liabilities and members capital

          

          $

          272,865,450

          

          

          $

          274,084,724
 1407 Broadway As of March 31, 2010, the Company has a 49% ownership in 1407 Broadway. Earnings for each 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.
 9    TABLE OF CONTENTS LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 3. Investments in Unconsolidated Affiliated Real Estate Entities  (continued) During March 2010, the Company entered a demand grid note to borrow up to $20 million from 1407 Broadway. As of March 31, 2010, the Company has received loan proceeds from the 1407 Broadway associated with this demand grid note in the amount of $0.5 million. The loan bears interest at libor plus 2.5%. The principal and interest on this loan is due the earlier of February 28, 2020 or on demand. The principal and interest on the loan is recorded in loans due to affiliates in the consolidated balance sheets. 1407 Broadway Financial The following table represents the condensed income statement derived from unaudited financial statements for 1407 Broadway for the three months ended March 31, 2010 and 2009:  For the Three Months EndedMarch 31, 2010

          

          March 31, 2009Total Revenue

          

          $

          8,861,739

          

          

          $

          9,607,521Property operating expenses

          

          

          6,478,568

          

          

          

          6,968,759Depreciation & Amortization

          

          

          1,542,768

          

          

          

          2,165,622Operating income

          

          

          840,403

          

          

          

          473,140Interest Expense and other, net

          

          

          (1,068,967

          )

          

          

          (1,118,037

          )Net operating loss

          

          $

          (228,564

          )

          

          $

          (644,897

          )Companys share of net operating loss (49%)

          

          $

          (111,996

          )

          

          $

          (316,000

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

          

          As of December 31, 2009Real estate, at cost (net)

          

          $

          111,553,892

          

          

          $

          111,803,186Intangible assets

          

          

          1,622,121

          

          

          

          1,845,941Cash and restricted cash

          

          

          13,228,029

          

          

          

          10,226,017Other assets

          

          

          12,181,544

          

          

          

          11,887,040Total Assets

          

          $

          138,585,586

          

          

          $

          135,762,184Mortgage payable

          

          $

          121,521,030

          

          

          $

          116,796,263Other liabilities

          

          

          13,483,401

          

          

          

          15,156,202Member capital

          

          

          3,581,155

          

          

          

          3,809,719Total liabilities and members capital

          

          $

          138,585,586

          

          

          $

          135,762,184
 Debt Compliance for Investments in Unconsolidated Affiliated Real Estate Entities The debt agreements of the unconsolidated affiliated real estate entities, which the Company has an equity investment in, are subject to various financial and reporting covenants and requirements. Noncompliance with these requirements could constitute an event of default, which could allow the lenders to accelerate the repayment of the loan, or to exercise other remedies. Although all of these real estate entities are current on payment of their respective debt obligations as of March 31, 2010, certain of these entities have instances of noncompliance with other requirements stipulated by their applicable debt agreements. These noncompliance issues
do not constitute an event of default until the borrower is notified by the lender. In certain cases, the borrower has an ability to cure the noncompliance within a specified period. To date, these entities have not been notified by the lenders. Should the lender take action to exercise its remedies, it could have an unfavorable impact on these entities cash flows and rights as owner of any investment holdings in the underlying property. Management believes that these entities will satisfactorily resolve these matters with the applicable lender for each instance where noncompliance has occurred.
 10    TABLE OF CONTENTS LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 4. Investment in Affiliate Park Avenue Funding On April 16, 2008, the Company made a preferred equity contribution of $11,000,000 (the Contribution) to PAF-SUB LLC (PAF), a wholly-owned subsidiary of Park Avenue Funding LLC (Park Avenue), in exchange for membership interests of PAF with certain rights and preferences described below (the Preferred Units). Park Avenue is a real estate lending company making loans, including first or second mortgages, mezzanine loans and collateral pledges of mortgages, to finance real estate transactions. Property types considered include multi-family, office, industrial, retail, self-storage, parking and land. Both
PAF and Park Avenue are affiliates of our Sponsor. PAFs limited liability company agreement was amended on April 16, 2008 to create the Preferred Units and admit the Company as a member. The Preferred Units are entitled to a cumulative preferred distribution at the rate of 10% per annum, payable quarterly. In the event that PAF fails to pay such distribution when due, the preferred distribution rate will increase to 17% per annum. The Preferred Units are redeemable, in whole or in part, at any time at the option of the Company upon at least 180 days prior written notice (the Redemption). In addition, the Preferred Units are entitled to a liquidation preference senior to any
distribution upon dissolution with respect to other equity interests of PAF in an amount equal to (x) the Contribution plus any accrued but unpaid distributions less (y) any Redemption payments. In connection with the Contribution, the Company and Park Avenue entered into a guarantee agreement on April 16, 2008, whereby Park Avenue unconditionally and irrevocably guarantees payment of the Redemption amounts when due (the Guarantee). Also, Park Avenue agrees to pay all costs and expenses incurred by the Company in connection with the enforcement of the Guarantee. The Company does not have any voting rights for this investment, and does not have significant influence over this investment. The Company accounts for this investment under the cost method. Total accrued distributions related to this investment totaled $0.1 million at March 31, 2010 and at December 31, 2009, and are included in interest receivable from related parties in the consolidated balance sheets. Through March 31, 2010, the Company received redemption payments from PAF of $4.7 million, of which $1.4 million was received during the three months ended March 31, 2010. As of March 31, 2010, the Companys investment in PAF is $6.3 million and
is included in investment in affiliate, at cost in the consolidated balance sheets. 5. Marketable Securities and Fair Value Measurements The following is a summary of the Companys available for sale securities at March 31, 2010 and December 31, 2009:  As of March 31, 2010

          

          As of December 31, 2009Adjusted Cost

          

          Unrealized Gain/(Loss)

          

          Fair Value

          

          Adjusted Cost

          

          Unrealized Gain/(Loss)

          

          Fair ValueEquity Securities, primarily REITs

          

          

          466,142

          

          

          

          270,135

          

          

          

          736,277

          

          

          

          466,142

          

          

          

          374,735

          

          

          

          840,877Total Marketable Securities   available for sale

          

          $

          466,142

          

          

          $

          270,135

          

          

          $

          736,277

          

          

          $

          466,142

          

          

          $

          374,735

          

          

          $

          840,877
 11    TABLE OF CONTENTS LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 5. Marketable Securities and Fair Value Measurements  (continued) Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value: 

          Level 1 Quoted prices in active markets for identical assets or liabilities. 

          Level 2 Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. 

          Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Assets measured at fair value on a recurring basis as of March 31, 2010 are as follows:  Fair Value Measurement UsingAs of March 31, 2010

          

          Level 1

          

          Level 2

          

          Level 3

          

          TotalEquity Securities, primiarily REITs

          

          

          736,277

          

          

          $

          

          

          

          $

          

          

          

          $

          736,277Total Marketable securities  available for sale

          

          $

          736,277

          

          

          $

          

          

          

          $

          

          

          

          $

          736,277
 Assets measured at fair value on a recurring basis as of December 31, 2009 are as follows:  Fair Value Measurement UsingAs of December 31, 2009

          

          Level 1

          

          Level 2

          

          Level 3

          

          TotalEquity Securities, primiarily REITs

          

          

          840,877

          

          

          $

          

          

          

          $

          

          

          

          $

          840,877Total Marketable securities  available for sale

          

          $

          840,877

          

          

          $

          

          

          

          $

          

          

          

          $

          840,877
 The Company did not have any other significant financial assets or liabilities, which would require revised valuations that are recognized at fair value. 6. Intangible Assets At March 31, 2010, the Company had intangible assets relating to above-market leases from property acquisitions, intangible assets related to leases in place at the time of acquisition, intangible assets related to leasing costs, and intangible liabilities relating to below-market leases from property acquisitions. The following table sets forth the Companys intangible assets/ (liabilities) as of March 31, 2010 and December 31, 2009:  At March 31, 2010

          

          At December 31, 2009Cost

          

          Accumulated Amortization

          

          Net

          

          Cost

          

          Accumulated Amortization

          

          NetAcquired in-place lease intangibles

          

          $

          1,938,968

          

          

          $

          (1,405,731

          )

          

          $

          533,237

          

          

          $

          2,115,335

          

          

          $

          (1,505,848

          )

          

          $

          609,487Acquired above market lease intangibles

          

          

          687,686

          

          

          

          (518,473

          )

          

          

          169,213

          

          

          

          841,475

          

          

          

          (642,127

          )

          

          

          199,348Deferred intangible leasing costs

          

          

          1,080,475

          

          

          

          (745,965

          )

          

          

          334,510

          

          

          

          1,161,392

          

          

          

          (783,705

          )

          

          

          377,687Acquired below market lease intangibles

          

          

          (1,165,900

          )

          

          

          833,248

          

          

          

          (332,652

          )

          

          

          (1,614,988

          )

          

          

          1,234,484

          

          

          

          (380,504

          )
 12    TABLE OF CONTENTS LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 6. Intangible Assets  (continued) During the three months ended March 31, 2010, the Company wrote off fully amortized acquired intangible assets of approximately $0.9 million resulting in a reduction of cost and accumulated amortization of intangible assets at March 31, 2010 compared to the December 31, 2009. There were no additions during the three months ended March 31, 2010. The following table presents the projected amortization benefit of the acquired above market lease costs and the below market lease costs during the next five years and thereafter at March 31, 2010:  Amortization expense/(benefit) of:

          

          Remainder of 2010

          

          2011

          

          2012

          

          2013

          

          2014

          

          Thereafter

          

          TotalAcquired above market lease value

          

          $

          44,285

          

          

          $

          39,231

          

          

          $

          23,379

          

          

          $

          14,425

          

          

          $

          14,425

          

          

          $

          33,468

          

          

          $

          169,213Acquired below market lease value

          

          

          (76,133

          )

          

          

          (82,669

          )

          

          

          (44,748

          )

          

          

          (43,462

          )

          

          

          (42,819

          )

          

          

          (42,821

          )

          

          

          (332,652

          )Projected future net rental income increase

          

          $

          (31,848

          )

          

          $

          (43,438

          )

          

          $

          (21,369

          )

          

          $

          (29,037

          )

          

          $

          (28,394

          )

          

          $

          (9,353

          )

          

          $

          (163,439

          )
 Amortization benefit of acquired above and below market lease values is included in total revenues in our consolidated statement of operations was $17,717 and $29,487 for the three months ended March 31, 2010 and 2009, respectively. The following table presents the projected amortization expense of the acquired in-place lease intangibles and acquired leasing costs during the next five years and thereafter at March 31, 2010:  Amortization expense of:

          

          Remainder of 2010

          

          2011

          

          2012

          

          2013

          

          2014

          

          Thereafter

          

          TotalAcquired in-place leases value

          

          $

          123,049

          

          

          $

          104,441

          

          

          $

          71,444

          

          

          $

          65,790

          

          

          $

          65,565

          

          

          $

          102,948

          

          

          $

          533,237Deferred intangible leasing costs value

          

          

          78,547

          

          

          $

          70,973

          

          

          $

          44,209

          

          

          $

          39,247

          

          

          $

          38,922

          

          

          $

          62,612

          

          

          

          334,510Projected future amortization expense

          

          $

          201,596

          

          

          $

          175,414

          

          

          $

          115,653

          

          

          $

          105,037

          

          

          $

          104,487

          

          

          $

          165,560

          

          

          $

          867,747
 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 March 31, 2010 and 2009, respectively. 7. Assets and Liabilities Held for Sale and Discontinued Operations On December 8, 2009, the Company signed a definitive agreement to sell its St. Augustine Outlet center (St. Augustine) as part of an agreement to dispose of its interests in its investments in POAC and Mill Run. See Note 1 for further discussion. The Company expects the transaction to be completed during 2010. The St. Augustine assets and liabilities meet the criteria for classification as held for sale and discontinued operations. To date, the Company has not recorded an impairment charge related to the expected sale as the St. Augustines net asset carrying value plus the Companys carrying value of the investments in POAC and
Mill Run are lower than the expected proceeds, after consideration of debt to be assumed by buyer.
 13    TABLE OF CONTENTS LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 7. Assets and Liabilities Held for Sale and Discontinued Operations  (continued) The following summary presents the operating results of St. Augustine included in discontinued operations in the Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009.  For the Three Months EndedMarch 31, 2010

          

          March 31, 2009Revenue

          

          $

          1,699,951

          

          

          $

          1,653,612Expenses:Property operating expense

          

          

          651,836

          

          

          

          641,298Real estate taxes

          

          

          128,064

          

          

          

          132,337General and administrative costs

          

          

          6,829

          

          

          

          27,626Depreciation and amortization

          

          

          

          

          

          

          561,286Total operating expense

          

          

          786,729

          

          

          

          1,362,547Operating income

          

          

          913,222

          

          

          

          291,065Other income, net

          

          

          139,006

          

          

          

          2,056Interest income

          

          

          2,480

          

          

          

          2,969Interest expense

          

          

          (401,220

          )

          

          

          (422,134

          )Net income/(loss) loss from discontinued operations

          

          $

          653,488

          

          

          $

          (126,044

          )
 Cash flows generated from discontinued operations are presented separately on the Companys Consolidated Statements of Cash Flows. The following summary presents the major components of assets and liabilities held for sale as of March 31, 2010 and December 31, 2009.  As ofMarch 31, 2010

          

          December 31, 2009Net investment property

          

          $

          55,796,597

          

          

          $

          55,787,190Intangible assets, net

          

          

          827,010

          

          

          

          801,818Restricted escrows

          

          

          4,205,413

          

          

          

          4,015,945Other assets

          

          

          995,719

          

          

          

          944,631Total assets

          

          $

          61,824,739

          

          

          $

          61,549,584Mortgage payable

          

          $

          26,306,838

          

          

          $

          26,400,159Other liabilities

          

          

          1,190,654

          

          

          

          1,030,901Total liabilities

          

          $

          27,497,492

          

          

          $

          27,431,060
 For the mortgage payable related to St. Augustine, Lightstone Holdings, LLC (Guarantor), a company wholly owned by the Advisor, 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.
 14    TABLE OF CONTENTS LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 8. Assets and Liabilities of Properties in Foreclosure During the three months ended March 31, 2010, two of the Companys multifamily properties were part of foreclosure proceedings as a result of the properties being in default on their debt at the end of 2009. During 2009, the Company decided to not make the required debt service payments of $0.2 million in the month of October and thereafter on the two loans collateralized by an apartment property located in North Carolina and one located in Florida. These two loans had an aggregate outstanding principal balance of $42.3 million as of March 31, 2010. The Company determined that future debt service payments on these two loans would no longer be
economically beneficial to the Company based upon the current and expected future performance of the properties associated with these two loans. The foreclosure sale for one of the properties closed on April 13, 2010 and the other one was completed on May 12, 2010. As of March 31, 2010, these two properties are included in continuing operations and once disposed of will be removed from continuing operations and reported as discontinued operations. The Company during 2009 recorded an asset impairment charge of $26.0 million associated with these properties. During the three months ended March 31, 2010, no additional impairment charge has been recorded as the net book values of the assets are not greater than the current estimated fair market value. The following summary presents the operating results of the two properties within the multifamily segment to be disposed of through foreclosure, which are included in continuing operations in the Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009.  For the Three Months EndedMarch 31, 2010

          

          March 31, 2009Revenue

          

          $

          1,334,206

          

          

          $

          1,383,310Expenses:Property operating expense

          

          

          641,091

          

          

          

          699,696Real estate taxes

          

          

          154,575

          

          

          

          169,554General and administrative costs

          

          

          17,415

          

          

          

          114,414Depreciation and amortization

          

          

          148,225

          

          

          

          282,876Total Operating expense

          

          

          961,306

          

          

          

          1,266,540Operating income

          

          

          372,900

          

          

          

          116,770Other income, net

          

          

          (3,050

          )

          

          

          49,038Interest income

          

          

          673

          

          

          

          85Interest expense

          

          

          (595,091

          )

          

          

          (595,091

          )Net loss

          

          $

          (224,568

          )

          

          $

          (429,198

          )
 The following summary presents the major components of the two properties within the multifamily segment to be disposed of through foreclosure which are included in continuing operations as of March 31, 2010 and December 31, 2009.  As ofMarch 31, 2010

          

          December 31, 2009Net investment property

          

          $

          25,384,560

          

          

          $

          25,514,160Intangible assets, net

          

          

          376,833

          

          

          

          397,020Cash and cash equivalents

          

          

          800,190

          

          

          

          398,765Restricted escrows

          

          

          468,939

          

          

          

          167,953Other assets

          

          

          159,702

          

          

          

          203,225Total assets

          

          $

          27,190,224

          

          

          $

          26,681,123Mortgage payable

          

          $

          42,272,300

          

          

          $

          42,272,300Other liabilities

          

          

          1,970,615

          

          

          

          1,231,050Total liabilities

          

          $

          44,242,915

          

          

          $

          43,503,350
 15    TABLE OF CONTENTS LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 9. Mortgages Payable Mortgages payable, totaling approximately $217.2 million at March 31, 2010 and $218.1 million at December 31, 2009 consists of the following:  Interest Rate

          

          Weighted Avg Interest Rate as March 31, 2010

          

          Maturity Date

          

          Amount Due at Maturity

          

          Loan Amount as ofProperty

          

          March 31, 2010

          

          December 31, 2009Southeastern 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

          

          

          LIBOR + 4.50%

          

          

          

          4.80

          %

          

          

          April 2011

          

          

          

          9,008,750

          

          

          

          10,062,500

          

          

          

          10,193,750Brazos Crossing Power Center

          

          

          Greater of LIBOR +3.50% or 6.75%

          

          

          

          6.75

          %

          

          

          December 2011

          

          

          

          6,385,788

          

          

          

          6,580,526

          

          

          

          7,338,947Camden Multi Family Properties  (Three Individual Loans)

          

          

          5.44%

          

          

          

          5.44

          %

          

          

          December 2014

          

          

          

          34,983,514

          

          

          

          36,996,500

          

          

          

          36,996,500Total subtotal mortgage obligations

          

          

          

          

          

          

          7.45

          %

          

          

          

          

          

          

          163,656,779

          

          

          

          174,889,526

          

          

          

          175,779,197Camden Multi Family Propertes  (Two Individual Loans) in default and foreclosure

          

          

          

          

          

          

          5.44

          %

          

          

          Current

          

          

          

          42,272,300

          

          

          

          42,272,300

          

          

          

          42,272,300Total mortgage obligations

          

          

          

          

          

          

          6.96

          %

          

          

          

          

          

          $

          205,929,079

          

          

          $

          217,161,826

          

          

          $

          218,051,497
 LIBOR at March 31, 2010 was 0.2486%. Each of the loans is secured by acquired real estate and is non-recourse to the Company, with the exception of the Houston Extended Stay Hotels loan which is 35% recourse to the Company. The following table shows the mortgage payable maturing during the next five years and thereafter at March 31, 2010 including St. Augustines debt of $26.3 million reported in liabilities held for sale in the Consolidated Balance Sheets:  Remainder of 2010(1)

          

          2011

          

          2012

          

          2013

          

          2014

          

          Thereafter

          

          Total$43,548,637

          

          $

          16,676,569

          

          

          $

          2,213,555

          

          

          $

          2,501,237

          

          

          $

          37,584,958

          

          

          $

          140,943,708

          

          

          $

          243,468,664
  (1)

          The amount due in 2010 of $43.5 million includes the principal balance of $42.3 million associated with two loans within the Camden portfolio that are in default status. Pursuant to the Companys loan agreements, escrows in the amount of approximately $2.9 million were held in restricted escrow accounts at March 31, 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. Of the $2.9 million in restricted escrows as of March 31, 2010, $0.5 million was directly held by the lender for two of the Camden properties (See discussion below). Our mortgage debt also contains clauses providing for prepayment penalties. 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 subsequently amended and extended to mature April 16, 2011. As part of the April 2010 amendment, the Company made a
 16    TABLE OF CONTENTS LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 9. Mortgages Payable  (continued) lump sum principal payment of $0.5 million. The amended mortgage loan bears interest on a daily basis expressed as a floating rate equal to the lesser of (i) the maximum non-usurious rate of interest allowed by applicable law or (ii) the British Bankers Association Libor Daily Floating Rate plus 450 basis points (4.50%) per annum rate and requires monthly installments of interest plus a principal payment of $43,750. The remaining principal balance, together with all accrued and unpaid interest and all other amounts payable there under will be due on April 16, 2011. The mortgage loan is secured by the Hotels and 35% of the obligation is guaranteed by
the Company. In 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 subsequently amended and extended to mature December 4, 2011. As part of the amendment to the mortgage, the Company made a lump sum principal payment of $0.7 million in February 2010. The amended mortgage loan bears interest at the greater of 6.75% or libor plus 350 basis points (3.50%) per annum rate and requires monthly installments of interest plus a principal payment of $9,737. The loan is secured by acquired real estate. On November 16, 2007, in connection with the acquisition of the Camden Properties, the Company through its wholly owned subsidiaries obtained from Fannie Mae five substantially similar fixed rate mortgages aggregating $79.3 million (the Loans). 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, at which time a balance of approximately $75.0 million will be
due. During October 2009, the Company decided to not make its required debt service payments of $0.2 million on two of these five loans, which had an outstanding principal balance of $42.3 million as of December 31, 2009. The Company determined that future debt service payments on these loans would no longer be economically beneficial to the Company based upon the current and expected future performance of the locations associated with these two loans. During the first quarter of 2010, the Company has been notified by the lender that it will be foreclosing on these two properties. The foreclosure sale for one of the properties was completed on April 13, 2010 and the other one was completed on May 12, 2010. Through March 31, 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. 10. Distributions and Share Redemption Plan Distributions The Board of Directors of the Lightstone REIT declared a dividend for each quarter in since 2006. The distributions have been calculated based on stockholders of record each day during this three-month period at a rate of $0.0019178 per day, which, if paid each day for a 365-day period, would equal a 7.0% annualized rate based on a share price of $10.00. On March 2, 2010, the Company declared a distribution for the three-month period ending March 31, 2010 of $5.5 million. The distribution was calculated based on stockholders of record each day during this 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, would equal a 7.0% annualized rate based on a share price of $10.00. The distribution was paid in full on March 30, 2010 using a combination of cash ($3.4 million) and shares ($2.1 million) which represents 0.2 million shares of the Companys common stock issued pursuant to the Companys Distribution Reinvestment
Program, at a discounted price of $9.50 per share. The amount of distributions paid to our stockholders in the future will be determined by our Board of Directors and is dependent on a number of factors, including funds available for payment of dividends, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code.
 17    TABLE OF CONTENTS LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 10. Distributions and Share Redemption Plan  (continued) Share Redemption Plans Effective March 2, 2010, the Board voted to temporarily suspend future share redemptions under the Share Redemption Plan. The Board will revisit this decision when the previously announced disposition of retail outlet assets transaction closes and anticipates that after that time it will resume redeeming shares during the second half of 2010. 11. Net Loss per Share Net Loss per Share Net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding. As of March 31, 2010, the Company has 27,000 options issued and outstanding. As such, the numerator and the denominator used in computing both basic and diluted net loss per share allocable to common stockholders for each year presented are equal due to the net operating loss. The 27,000 options are not included in the dilutive calculation as they are anti dilutive as a result of the net loss attributable to Companys common shares. 12. 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 months ended March 31, 2010, the Company paid distributions to noncontrolling interests of $1.7 million. In addition, as of March 31, 2010, the total distributions declared and not paid to noncontrolling interests was $1.7 million, which were subsequently paid on April 15, 2010. 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 March 31, 2010 and December 31, 2009 and are included in interest receivable from related parties in the consolidated balance sheets. Noncontrolling Interest of Subsidiary within the Operating Partnerships On August 25, 2009, the Operating Partnership acquired an additional 15% membership interest in POAC and an additional 14.26% membership interest in Mill Run. In connection with the transactions, the Advisor charged an acquisition fee equal to 2.75% of the acquisition price, which was approximately $6.9 million ($5.6 million related POAC and $1.3 million related to Mill Run, see Note 4). On August 25, 2009, the Operating Partnership contributed its investments of the 15% membership interest in POAC and the 14.26% membership interest in Mill Run to the newly formed PRO-DFJV Holdings, LLC, a Delaware limited liability
 18    TABLE OF CONTENTS LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 12. Noncontrolling Interests  (continued) company (PRO) in exchange for a 99.99% managing membership interest in PRO. In addition, Lightstone REIT 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 Operating Partnership and Lightstone REIT 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. 13. Related Party Transactions The Lightstone REIT 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 Lightstone REIT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 Lightstone REIT pursuant to the related party arrangements has recorded the following amounts the three months ended March 31, 2010 and 2009:  Three Months EndedMarch 31, 2010

          

          March 31, 2009(unaudited)Acquisition fees

          

          $

          

          

          

          $

          9,778,760Asset management fees

          

          

          1,452,809

          

          

          

          660,430Property management fees

          

          

          434,476

          

          

          

          459,556Acquisition expenses reimbursed to Advisor

          

          

          

          

          

          

          902,753Development fees and leasing commissions

          

          

          84,821

          

          

          

          100,192Total

          

          $

          1,972,106

          

          

          $

          11,901,691
 Lightstone SLP, LLC, an affiliate of our Sponsor, has purchased SLP units in the Operating Partnership. These SLP units, the purchase price of which will be repaid only after stockholders receive a stated preferred return and their net investment, will entitle Lightstone SLP, LLC to a portion of any regular distributions made by the Operating Partnership. During the three months ended March 31, 2010, distributions of $0.5 million were declared and distributions of $0.5 million were paid related to the SLP units and are part of noncontrolling interests. Since inception through March 31, 2010, cumulative distributions declared were $4.9 million, of
which $4.4 million have been paid. Such distributions, paid current at a 7% annualized rate of return to Lightstone SLP, LLC through March 31, 2010 and will always be subordinated until stockholders receive a stated preferred return. See Notes 3, 4 and 12 for other related party transactions.
 19    TABLE OF CONTENTS LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 14. 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 March 31, 2010 was approximately $237.1 million, which includes $26.0 million related to St. Augustine debt classified as liabilities held for sale compared to the book value of approximately $243.5 million, including $26.3 million related to St. Augustine. The fair value of the mortgage payable as of December 31, 2009 was approximately $235.3 million, which includes $25.6 million related to St. Augustine debt classified as liabilities
held for sale compared to the book value of approximately $244.5 million, including $26.4 related to St. Augustine. The fair value of the mortgage payable was determined by discounting the future contractual interest and principal payments by a market interest rate. 15. Segment Information The Company currently operates in four business segments as of March 31, 2010: (i) retail real estate, (ii) residential multifamily real estate, (iii) industrial real estate and (iv) hospitality. The Companys advisor and its affiliates provide leasing, property and facilities management, acquisition, development, construction and tenant-related services for its portfolio. The Companys revenues for the three months ended March 31, 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 March 31,
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 March 31, 2010 and 2009, and total assets as of March 31, 2010 and December 31, 2009 regarding the Companys operating segments are as follows:  For the Three Months Ended March 31, 2010(unaudited)Retail

          

          Multi Family

          

          Industrial

          

          Hospitality

          

          Unallocated

          

          TotalTotal revenues

          

          $

          1,050,949

          

          

          $

          4,563,564

          

          

          $

          1,761,906

          

          

          $

          577,472

          

          

          $

          

          

          

          $

          7,953,891Property operating expenses

          

          

          144,099

          

          

          

          2,238,643

          

          

          

          495,575

          

          

          

          433,925

          

          

          

          106

          

          

          

          3,312,348Real estate taxes

          

          

          173,423

          

          

          

          511,112

          

          

          

          233,526

          

          

          

          74,095

          

          

          

          

          

          

          

          992,156General and administrative costs

          

          

          (1,813

          )

          

          

          45,651

          

          

          

          6,172

          

          

          

          3,982

          

          

          

          2,989,913

          

          

          

          3,043,905Net operating income (loss)

          

          

          735,240

          

          

          

          1,768,158

          

          

          

          1,026,633

          

          

          

          65,470

          

          

          

          (2,990,019

          )

          

          

          605,482Depreciation and amortization

          

          

          321,210

          

          

          

          560,869

          

          

          

          608,085

          

          

          

          124,805

          

          

          

          

          

          

          

          1,614,969Loss of property damaged

          

          

          

          

          

          

          300,000

          

          

          

          (25,896

          )

          

          

          

          

          

          

          

          

          

          

          274,104Operating income (loss)

          

          $

          414,030

          

          

          $

          907,289

          

          

          $

          444,444

          

          

          $

          (59,335

          )

          

          $

          (2,990,019

          )

          

          $

          (1,283,591

          )As of March 31, 2010:Total Assets

          

          $

          101,370,402

          

          

          $

          97,422,425

          

          

          $

          71,735,677

          

          

          $

          17,835,030

          

          

          $

          129,993,843

          

          

          $

          418,357,377
 20    TABLE OF CONTENTS LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 15. Segment Information  (continued)  For the Three Months Ended March 31, 2009(unaudited)Retail

          

          Multi Family

          

          Industrial

          

          Hospitality

          

          Unallocated

          

          TotalTotal revenues

          

          $

          1,119,917

          

          

          $

          4,851,671

          

          

          $

          1,888,638

          

          

          $

          940,261

          

          

          $

          

          

          

          $

          8,800,487Property operating expenses

          

          

          138,438

          

          

          

          2,397,053

          

          

          

          397,721

          

          

          

          438,578

          

          

          

          

          

          

          

          3,371,790Real estate taxes

          

          

          181,623

          

          

          

          520,928

          

          

          

          233,212

          

          

          

          59,687

          

          

          

          

          

          

          

          995,450General and administrative costs

          

          

          60,617

          

          

          

          274,458

          

          

          

          9,349

          

          

          

          (3,951

          )

          

          

          1,132,756

          

          

          

          1,473,229Net operating income (loss)

          

          

          739,239

          

          

          

          1,659,232

          

          

          

          1,248,356

          

          

          

          445,947

          

          

          

          (1,132,756

          )

          

          

          2,960,018Depreciation and amortization

          

          

          352,142

          

          

          

          755,530

          

          

          

          628,378

          

          

          

          114,841

          

          

          

          277

          

          

          

          1,851,168Operating income (loss)

          

          $

          387,097

          

          

          $

          903,702

          

          

          $

          619,978

          

          

          $

          331,106

          

          

          $

          (1,133,033

          )

          

          $

          1,108,850As of December 31, 2009:Total Assets

          

          $

          101,842,972

          

          

          $

          97,733,447

          

          

          $

          72,032,250

          

          

          $

          18,043,757

          

          

          $

          139,911,450

          

          

          $

          429,563,876
 16. Commitments and Contingencies Legal Proceedings From time to time in the ordinary course of business, the Lightstone REIT 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 Lightstone REIT made motion to dismiss Mr. Goulds complaint, which was granted by Judge Sweeney. Mr. Gould has filed an appeal of the decision dismissing his case, which is pending. Management believes that this suit is frivolous and entirely without merit and intends to defend against these charges vigorously. The Company believes any unfavorable outcome on this matter will not have a material effect on the unaudited consolidated financial statements. On January 4, 2007, 1407 Broadway Real Estate LLC (Office Owner), an indirect, wholly owned subsidiary of 1407 Broadway Mezz II LLC (Mezz II), consummated the acquisition of a sub-leasehold interest (the Sublease Interest) in an office building located at 1407 Broadway, New York, New York (the Office Property). Mezz II is a joint venture between LVP 1407 Broadway LLC (LVP LLC), a wholly owned subsidiary of our operating partnership, and Lightstone 1407 Manager LLC (Manager), which is wholly owned by David Lichtenstein, the Chairman of our Board of Directors and our Chief
Executive Officer, and Shifra Lichtenstein, his wife. The Sublease Interest was acquired pursuant to a Sale and Purchase of Leasehold Agreement with Gettinger Associates, L.P. (Gettinger). In July 2006, Abraham Kamber Company, as Sublessor under the sublease (Sublessor), served two notices of default on Gettinger (the Default Notices). The first alleged that Gettinger had failed to satisfy its obligations in performing certain renovations and the second asserted numerous defaults relating to Gettingers purported failure to maintain the Office Property in compliance with its contractual obligations.
 21    TABLE OF CONTENTS LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 16. Commitments and Contingencies  (continued) 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. Tax Protection Agreement In connection with the contribution of the Mill Run Interest (see Note 3) and the POAC Interest (See Note 3), the Operating Partnership entered into Tax Protection Agreements with each of Arbor JRM, Arbor CJ, AR Prime, TRAC, Central Jersey and JT Prime (collectively, the Contributors). Under these Tax Protection Agreements, the Operating Partnership is required to indemnify each of Arbor JRM, Arbor CJ, TRAC and Central Jersey with respect to the Mill Run Properties, and AR Prime and JT Prime, with respect to the POAC Properties, from June 26, 2008 for Arbor JRM, Arbor CJ and AR Prime and from August 25, 2009 for TRAC, Central Jersey and
JT Prime to June 26, 2013 for, among other things, certain income tax liability that would result from the income or gain which Arbor JRM, Arbor CJ, TRAC, Central Jersey on the one hand, or AR Prime, JT Prime, on the other hand, would recognize upon the Operating Partnerships failure to maintain the current level of debt encumbering the Mill Run Properties or the POAC Properties, respectively, or the sale or other disposition by the Operating Partnership of the Mill Run Properties, the Mill Run Interest, the POAC Properties, or the POAC Interest (each, an Indemnifiable Event). Under the terms of the Tax Protection Agreements, the Operating Partnership is indemnifying the Contributors for certain income tax liabilities based on income or gain which the Contributors are deemed to be required to include in their gross income for federal or state income tax purposes (assuming the Contributors are subject to tax at the highest regional, federal, state and local tax rates
imposed on individuals residing in New York City) as a result of an Indemnifiable Event. This indemnity covers income taxes, interest and penalties and is required to be made on a grossed up basis that effectively results in the Contributors receiving the indemnity payment on a net, after-tax basis. The amount of the potential tax indemnity to the Contributors under the Tax Protection Agreements, including a gross-up for taxes on any such payment, using current tax rates, is estimated to be
 22    TABLE OF CONTENTS LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (unaudited) 16. Commitments and Contingencies  (continued) approximately $95.7 million. The Company has not recorded a liability in its consolidated balance sheets as the Company believes that the potential liability is remote as of March 31, 2010. Each Tax Protection Agreement imposes certain restrictions upon the Operating Partnership relating to transactions involving the Mill Run Properties and the POAC Properties which could result in taxable income or gain to the Contributors. The Operating Partnership may not dispose or transfer any Mill Run Property or any POAC Property without first proving that the Operating Partnership possesses the requisite liquidity, including the proceeds from any such transaction, to make any payments that would come due pursuant to the Tax Protection Agreement. However, the Operating Partnership may take the following actions: (i) (A) as to the POAC Properties,
commencing with the period one year and thirty-one days following the date of the Tax Protection Agreement, the Operating Partnership can sell on an annual basis part or all of any of the POAC Properties with an aggregate value of ten percent (10%) or less of the total value of the POAC Properties as of the date of contribution (and any amounts of the ten percent (10%) value not sold can be applied to sales in future years); and (B) as to the Mill Run Properties either the same ten percent (10%) test as set forth above in (i)(A) with respect to the Mill Run Properties or the sale of the property known by Design Outlet Center; and (ii) the Operating Partnership can enter into a non-recognition transaction with either the consent of the Contributors or an opinion from an independent law or accounting firm stating that it is more likely than not that the transaction will not give rise to current taxable income or gain. Investment Company Act of 1940 The Investment Company Act of 1940 places restrictions on the capital structure and business activities of companies registered thereunder. The Company intends to conduct its operations so that it will not be subject to regulation under the Investment Company Act of 1940. However, based upon changes in the valuation of the Companys portfolio of investments as of September 30, 2009, including with respect to certain investment securities the Company currently holds, the Company may be deemed to have become an inadvertent investment company under the Investment Company Act of 1940. The Company is currently evaluating its response to this
development, including the availability of exemptive or other relief under the Investment Company Act of 1940, and the Company intends to take affirmative steps to ensure compliance with applicable regulatory requirements. If the Company fails to maintain an exemption or exclusion from registration as an investment company, the Company could, among other things, be required either (a) to substantially change the manner in which the Company conducts its operations to avoid being required to register as an investment company, or (b) to register as an investment company, either of which could have an adverse effect on the Company and the market price of its common stock. If the Company were required to register as an investment company under the Investment Company Act of 1940, the Company would become subject to substantial regulation with respect to its capital structure
(including its ability to use leverage), management, operations, transactions with affiliated persons (as defined in the Investment Company Act of 1940), portfolio composition, including restrictions with respect to diversification and industry concentration and other matters. In addition, if the SEC or a court takes the view that the Company has operated and continues to operate as an unregistered investment company in violation of the Investment Company Act of 1940, and does not provide the Company with a sufficient period to either register as an investment company, obtain exemptive relief, or divest itself of investment securities and/or acquire non-investment securities, the Company may be subject to significant potential penalties and certain of the contracts to which it is a party may be voidable. The Company intends to continue to monitor its compliance with the exemptions under the Investment Company Act of 1940 on an ongoing basis. From time to time in the ordinary course of business, the Lightstone REIT may become subject to legal proceedings, claims or disputes.
 23    TABLE OF CONTENTS 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 Lightstone REIT 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.
 24    TABLE OF CONTENTS Overview Lightstone Value Plus Real Estate Investment Trust, Inc. (the Lightstone REIT or Company) has acquired and operates commercial, residential and hospitality properties, principally in the United States. Principally through the Lightstone Value Plus REIT, LP, (the Operating Partnership), our acquisitions have included both portfolios and individual properties. Our commercial holdings consist of retail (primarily multi-tenant shopping centers), lodging (primarily extended stay hotels), industrial and office properties and that our residential properties are principally comprised of Class B multi-family
complexes. We do not have employees. We entered into an advisory agreement dated April 22, 2005 with Lightstone Value Plus REIT LLC, a Delaware limited liability company, which we refer to as the Advisor, pursuant to which the Advisor supervises and manages our day-to-day operations and selects our real estate and real estate related investments, subject to oversight by our board of directors. We pay the Advisor fees for services related to the investment and management of our assets, and we reimburse the Advisor for certain expenses incurred on our behalf. Current Environment The slowdown in the economy coupled with continued job losses and/or lack of job growth leads us to be cautious regarding the expected performance of 2010 for our commercial as well as multifamily residential properties. In addition, the effect of the current economic downturn is having an impact on many retailers nationwide, including tenants of our commercial properties. There have been many national retail chains that have filed for bankruptcy. In addition to those who have filed, or may file, bankruptcy, many retailers have announced store closings and a slowdown in their expansion plans. For multifamily residential properties, in general,
evictions have increased and requests for rent reductions and abatements are becoming more frequent. U.S. and global credit and equity markets have recently undergone significant disruption, making it difficult for many businesses to obtain financing on acceptable terms or at all. As a result of this disruption, in general there has been an increase in the costs associated with the borrowings and refinancing as well as limited availability of funds for refinancing. If these conditions continue or worsen, our cost of borrowing may increase and it may be more difficult to refinance debt obligations as they come due in the ordinary course. Our best course of action may be to work with existing lenders to renegotiate an interim extension until the
credit markets improve. See Note 9 of notes to consolidated financial statements for discussion of maturity dates of our debt obligations. As a result of the current environment and the direct impact it is having to certain properties, in 2009, we determined that future debt service payments on two loans in our multifamily portfolio would no longer be economically beneficial to us based upon the current and expected future performance of the locations associated with these two loans. During the first quarter of 2010, we were notified by the lender that it will be foreclosing on these two properties. The foreclosure sale for one of the properties was completed on April 13, 2010 and the other one was completed on May 12, 2010. Upon extinguishment of the debt associated with these
properties under foreclosure, we will realize a gain at that time based upon the difference between the recorded fair value of the assets and the debt obligations outstanding. See Notes 8 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.
 25    TABLE OF CONTENTS Portfolio Summary   Location

          

          Year Built (Range of years built)

          

          Leasable Square Feet

          

          Percentage Occupied as of March 31, 2010

          

          Annualized Revenues based on rents at March 31, 2010Wholly-Owned Real Estate Properties:RetailWholly-owned:St. Augustine Outlet Mall(1)

          

          

          St. Augustine, FL

          

          

          

          1998

          

          

          

          337,732

          

          

          

          82.7

          %

          

          

          $4.1 millionOakview Power Center

          

          

          Omaha, NE

          

          

          

          1999  2005

          

          

          

          177,103

          

          

          

          99.3

          %

          

          

          $2.3 millionBrazos Crossing Power Center

          

          

          Lake Jackson, TX

          

          

          

          2007  2008

          

          

          

          61,213

          

          

          

          100.0

          %

          

          

          $0.8 millionSubtotal wholly-owned

          

          

          

          

          

          

          

          576,048

          

          

          

          89.7%Unconsolidated Affiliated Real Estate Entities:Orlando Outlet & Design Center(1)

          

          

          Orlando, FL

          

          

          

          1991  2008

          

          

          

          978,741

          

          

          

          94.6

          %

          

          

          $28.1 millionPrime Outlets Acquisition Company(1) (18 retail outlet malls)

          

          

          Various

          

          

          

          

          

          

          

          6,393,833

          

          

          

          92.5

          %

          

          

          $118.9 millionSubtotal unconsolidated affiliated real estate entities

          

          

          

          

          

          

          

          7,372,574

          

          

          

          92.8%Retail Total

          

          

          

          7,948,622

          

          

          

          92.6%Industrial7 Flex/Office/Industrial Bldgs from the Gulf Coast Industrial Portfolio

          

          

          New Orleans, LA

          

          

          

          1980  2000

          

          

          

          339,700

          

          

          

          80.7

          %

          

          

          $3.0 million4 Flex/Industrial Bldgs from the Gulf Coast Industrial Portfolio

          

          

          San Antonio, TX

          

          

          

          1982  1986

          

          

          

          484,255

          

          

          

          60.4

          %

          

          

          $1.4 million3 Flex/Industrial Buildings from the Gulf Coast Industrial Portfolio

          

          

          Baton Rouge, LA

          

          

          

          1985  1987

          

          

          

          182,792

          

          

          

          94.4

          %

          

          

          $1.2 millionSarasota Industrial Property

          

          

          Sarasota, FL

          

          

          

          1992

          

          

          

          276,987

          

          

          

          26.3

          %

          

          

          $0.1 millionIndustrial Total

          

          

          

          1,283,734

          

          

          

          63.2%
  Residential:

          

          Location

          

          Year Built (Range of years built)

          

          Leasable Units

          

          Percentage Occupied as of March 31, 2010

          

          Annualized Revenues based on rents at March 31, 2010Michigan Apts (Four Multi-Family Apartment Buildings)

          

          

          Southeast MI

          

          

          

          1965  1972

          

          

          

          1,017

          

          

          

          86.6

          %

          

          

          $7.4 millionSoutheast Apts (Three Multi-Family Apartment Buildings)

          

          

          Greensboro/Charlotte, NC

          

          

          

          1980  1987

          

          

          

          788

          

          

          

          91.2

          %

          

          

          $5.2 millionResidential Total before buildings in foreclosure

          

          

          

          

          

          

          

          1,805

          

          

          

          88.6%Southeast Apts (Two Multi-Family Apartment Buildings)- in foreclosure(2)

          

          

          Greensboro, NC & Tampa, FL

          

          

          

          1980  1987

          

          

          

          788

          

          

          

          91.8

          %

          

          

          $5.8 millionResidential Total

          

          

          

          2,593

          

          

          

          89.5%
  Location

          

          Year Built

          

          Year to date Available Rooms

          

          Percentage Occupied for the Period Ended March 31, 2010

          

          Revenue per Available Room through March 31, 2010Wholly-Owned Operating Properties:Sugarland and Katy Highway Extended Stay Hotels

          

          

          Houston, TX

          

          

          

          1998

          

          

          

          26,190

          

          

          

          59.8

          %

          

          

          $22.05
  Location

          

          Year Built

          

          Leasable Square Feet

          

          Percentage Occupied as of March 31, 2010

          

          Annualized Revenues based on rents at March 31, 2010Unconsolidated Affiliated Real Estate Entities-Office:1407 Broadway

          

          

          New York, NY

          

          

          

          1952

          

          

          

          1,114,695

          

          

          

          75.2

          %

          

          

          $30.7 million
  (1)

          St. Augustine as of December 31, 2009 has been classified as assets held for sale and discontinued operations as the Company has signed a definitive agreement to sell St. Augustine along with its investments in POAC and Mill Run. See Notes 1 and 7 of notes to consolidated financial statements. (2)

          See Note 8 of notes to consolidated financial statement for discussion of foreclosure sales.
 26    TABLE OF CONTENTS Critical Accounting Policies and Estimates There were no material changes during the three months ended March 31, 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 March 31, 2010 vs. March 31, 2009 Consolidated Revenues Total revenues decreased by $0.8 million to $8.0 million for the three months ended March 31, 2010 compared to $8.8 million for the three months ended March 31, 2009. The decrease is primarily due to a decline in our multifamily segment of $0.3 million as a result of an increase in rent concessions, as well as, a decline in our hospitality segment of $0.4 million due to overall lower demand and higher long terms stays which earn a lower rate per room. Property operating expenses Property operating expenses decreased by $0.1 million to approximately $3.3 million, for the three months ended March 31, 2010, compared to $3.4 million for the same period in 2009 primarily as a result of decrease in utilities within our hospitality segment due to a reduction in occupancy. Real estate taxes Real estate taxes were consistent at $1.0 million for the three months ended March 31, 2010 compared to the same period in 2009. Loss on Property Damaged Loss on property damaged of $0.3 million during the three months ended March 31, 2010 represents an estimated loss sustained at one of our multifamily segment properties as a result of a fire. Due to timing of processing the insurance claim and obtaining insurance approval of claim, the total estimated loss was recorded during three months ended March 31, 2010 without consideration of insurance proceeds. We expect that the once the insurance claim is processed, the total loss will approximate our deductible which is $50,000. The insurance recovery will be recorded once approved by our insurance carrier. During the three months ended March 31, 2009,
we did not incur any loss on property damaged. General and administrative expenses General and administrative costs increased by $1.6 million to $3.0 million due to the following: 

          an increase of $0.8 million in asset management fees due to higher average asset values at March 31, 2010 compared to March 31, 2009 as a result of our investments in affiliates, Prime Outlet Acquisitions Company and Mill Run LLC, that we acquired during 2009; 

          an increase of $1.0 million in accounting, legal and consulting services due to additional audit fees incurred during the three months ended March 31, 2010 related to work performed on new investments in affiliates made during 2009 which were not part of the audit process for the three months ended March 31, 2009. These increases are offset by a decline of $0.3 million in bad debt expense predominately within our multifamily residential properties.
 27    TABLE OF CONTENTS Depreciation and Amortization Depreciation and amortization expense decreased by $0.2 million to $1.6 million for the three months ended March 31, 2010 compared to same period in 2009 primarily due to a reduction in the depreciable asset base as a result of the impairment charges recorded during 2009 in our multifamily and retail segments. Other income, net Interest income was relatively flat for the three months ended March 31, 2010 compared to the same period in 2009. Interest Income Interest income was consistent at $1.1 million for the three months ended March 31, 2010 compared to the same period in 2009. Interest expense Interest expense, including amortization of deferred financing costs, was consistent at $3.1 million for the three months ended March 31, 2010 compared to the same period in 2009. Income/(loss) from investments in unconsolidated affiliated real estate entities Our loss from investment in unconsolidated real estate entities for the three months ended March 31, 2010 was $1.7 million compared to income of $0.1 million during the three months ended March 31, 2009. This account represents our portion of the net income/loss of our three investments in unconsolidated affiliated real estate entities, 1407 Broadway, Mill Run and POAC. The majority of the change of $1.8 million represents the additional depreciation expense recorded of $3.9 million associated with the difference in our cost of these investments in excess of their historical net book values during the period in 2010 compared to 2009 primarily related
to timing of acquisitions. We owned 25% of POAC beginning on March 30, 2009 and 22.54% of Mill Run during the three months ended March 31, 2009. During the three months ended March 31, 2010, we owned 40% of POAC and 36.8% of Mill Run. Offsetting this additional charge is a higher amount of income of $1.7 million allocated to us from our Mill Run and POAC investments compared to 2009 primarily due to timing of acquisitions as well as increased revenue at Mill Run. Noncontrolling interests The loss allocated to Noncontrolling interests relates to the interest in the Operating Partnership held by our Sponsor as well as common units held by our limited partners. Segment Results of Operations for the Three Months Ended March 31, 2010 compared to March 31, 2009 Retail Segment  For the Three Months Ended

          

          Variance Increase/(Decrease)March 31, 2010

          

          March 31, 2009

          

          $

          

          %(unaudited)Revenue

          

          $

          1,050,949

          

          

          $

          1,119,917

          

          

          $

          (68,968

          )

          

          

          -6.2

          %NOI

          

          

          735,240

          

          

          

          739,239

          

          

          

          (3,999

          )

          

          

          -0.5

          %Average Occupancy Rate for period

          

          

          99.5

          %

          

          

          99.5

          %

          

          

          

          

          

          

          0.0

          %
 Revenue and NOI were relatively flat for the three months ended March 31, 2010 compared to the three months ended March 31, 2009, based upon consistent average occupancy for each of the years.
 28    TABLE OF CONTENTS Multi Family Segment  For the Three Months Ended

          

          Variance Increase/(Decrease)March 31, 2010

          

          March 31, 2009

          

          $

          

          %(unaudited)Revenue

          

          $

          4,563,564

          

          

          $

          4,851,671

          

          

          $

          (288,107

          )

          

          

          -5.9

          %NOI

          

          

          1,768,158

          

          

          

          1,659,232

          

          

          

          108,926

          

          

          

          6.6

          %Average Occupancy Rate for period

          

          

          89.5

          %

          

          

          89.3

          %

          

          

          

          

          

          

          0.2

          %
 Revenue decreased by $0.3 million to $4.6 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. The continued impact of the current economic environment is negatively impacting this segment. In order to assist current tenants and to attract new tenants, we have increased rent abatements during the three months ended March 31, 2010 compared to the same period in 2009. The rent concessions provided to tenants is approximately one additional month compared to a year ago and decreased total revenue by approximately $0.2 million. Net operating income increased by $0.1 million to $1.8 million for the three months ended March 31, 2010 from $1.7 million for the three months ended March 31, 2009. The increase is a result of lower bad debt expense of $0.2 million offset slightly by the decrease in revenue. Industrial Segment  For the Three Months Ended

          

          Variance Increase/(Decrease)March 31, 2010

          

          March 31, 2009

          

          $

          

          %(unaudited)Revenue

          

          $

          1,761,906

          

          

          $

          1,888,638

          

          

          $

          (126,732

          )

          

          

          -6.7

          %NOI

          

          

          1,026,633

          

          

          

          1,248,356

          

          

          

          (221,723

          )

          

          

          -17.8

          %Average Occupancy Rate for period

          

          

          62.8

          %

          

          

          66.4

          %

          

          

          

          

          

          

          -5.4

          %
 Revenue decreased slightly by $0.1 million to $1.8 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009 as a result of a decline in the average occupancy rate due to turnover in small business tenants. A portion of the tenant base in this portfolio is small businesses, which are currently being negatively impacted by the current economic environment. Net operating income decreased by $0.2 million to $1.0 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. This decrease is due to the reduction in revenue as well as an increase in repair and maintenance costs associated with roof repairs during the current period, which did not occur in same period in 2009. Hospitality  For the Three Months Ended

          

          Variance Increase/(Decrease)March 31, 2010

          

          March 31, 2009

          

          $

          

          %(unaudited)Revenue

          

          $

          577,472

          

          

          $

          940,261

          

          

          $

          (362,789

          )

          

          

          -38.6

          %NOI

          

          

          65,470

          

          

          

          445,947

          

          

          

          (380,477

          )

          

          

          -85.3

          %Average Occupancy Rate for period

          

          

          59.8

          %

          

          

          67.1

          %

          

          

          

          

          

          

          -10.9

          %Average Revenue per Available Room for period

          

          $

          22.05

          

          

          $

          35.41

          

          

          $

          (13.00

          )

          

          

          -36.7

          %
 Revenue decreased by $0.4 million to $0.6 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009. The decrease is driven by a combination of lower occupancy during the period and the lower average revenue per available room (Rev PAR). Occupancy was lower due to the lower demand in the overall lodging industry as a result of reduced business and leisure travel. In addition, one of the hotels in our segment had a hot water maintenance problem which impacted the number
 29    TABLE OF CONTENTS of stays during the period. The average Rev PAR during three months ended March 31, 2010 was lower due to the Hospitality segment had a higher percentage of rooms occupied under longer term stays which typically earn a lower rate than short term stays compared to a year ago. Net operating income decreased by $0.4 million to $0.1 million for the three months ended March 31, 2010 compared to the same period in 2009 as a result of the decrease in revenue. Financial Condition, Liquidity and Capital Resources Overview: Rental revenue and borrowing are our principal source of funds to pay operating expenses, debt service, capital expenditures and dividends, excluding non-recurring capital expenditures. We expect to meet our short-term liquidity requirements generally through working capital and proceeds from our dividend reinvestment plan and borrowings. We believe that these cash resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do not anticipate a need to raise funds from other than these sources within the next twelve months. We currently have $243.5 million of outstanding mortgage debt, which includes $26.3 million related to St. Augustine outlet center debt classified as liabilities held for sale. 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 March 31, 2010, our total borrowings represented 134.9% of net assets. Our borrowings consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. We typically have obtained level payment financing, meaning that the amount of debt service payable would be substantially the same each year. As such, most of the mortgages on our properties provide for a so-called balloon payment and are at a fixed interest rate. Any future properties that we may acquire may be funded through borrowings and/or expected proceeds from the disposition of certain of our retail assets (see note 1 for further discussion). 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.
 30    TABLE OF CONTENTS In addition to meeting working capital needs and distributions to our stockholders, our capital resources are used to make certain payments to our Advisor and our Property Manager, included payments related to asset acquisition fees and asset management fees, the reimbursement of acquisition related expenses to our Advisor and property management fees. We also reimburse our Advisor and its affiliates for actual expenses it incurs for administrative and other services provided to us. Additionally, the Operating Partnership may be required to make distributions to Lightstone SLP, LLC, an affiliate of the Advisor. The following table represents the fees incurred associated with the payments to our Advisor, our Dealer Manager, and our Property Manager for the three months ended March 31, 2010 and 2009:  Three Months EndedMarch 31, 2010

          

          March 31, 2009(unaudited)Acquisition fees

          

          $

          

          

          

          $

          9,778,760Asset management fees

          

          

          1,452,809

          

          

          

          660,430Property management fees

          

          

          434,476

          

          

          

          459,556Acquisition expenses reimbursed to Advisor

          

          

          

          

          

          

          902,753Development fees and leasing commissions

          

          

          84,821

          

          

          

          100,192Total

          

          $

          1,972,106

          

          

          $

          11,901,691
 As of March 31, 2010, we had approximately $9.7 million of cash and cash equivalents on hand and $0.7 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:  Three Months Ended March 31, 2010

          

          Three Months Ended March 31, 2009(unaudited)Cash flows provided by operating activities

          

          $

          1,238,035

          

          

          $

          722,057Cash flows used in investing activities

          

          

          (262,484

          )

          

          

          (15,042,333

          )Cash flows used in financing activities

          

          

          (8,369,937

          )

          

          

          (215,128

          )Net change in cash and cash equivalents

          

          

          (7,394,386

          )

          

          

          (14,535,404

          )Cash and cash equivalents, beginning of the period

          

          

          17,076,320

          

          

          

          66,106,067Cash and cash equivalents, end of the period

          

          $

          9,681,934

          

          

          $

          51,570,663
 During the three months ended March 31, 2010, our principal source of cash flow was derived from the operation of our rental properties. We intend that our properties will provide a relatively consistent stream of cash flow that provides us with resources to fund operating expenses, debt service and quarterly dividends. Our principal demands for liquidity are our property operating expenses, real estate taxes, insurance, tenant improvements, leasing costs, acquisition and development activities, debt service and distributions to our stockholders. The principal sources of funding for our operations are operating cash flows, the sale of properties, and the issuance of equity and debt securities and the placement of mortgage loans. Operating activities During the three months ended March 31, 2010, cash flows provided by operating activities was $1.2 million compared to cash provided by operating activities of $0.7 million during the three months ended March 31, 2009 resulting in a total change of $0.5 million. The change is primarily driven by timing of payments of payables offset by an increase in net loss, adjusted for non cash related items.
 31    TABLE OF CONTENTS Investing activities Cash used in investing activities for the three months ended March 31, 2010 of $0.3 million resulted primarily from capital additions of $0.5 million and an increase in restricted escrows of $0.9 million primarily due to timing of funding and payments of real estate taxes and insurance premiums. These are offset by redemptions payments related to our investment in affiliate, at cost of $1.4 million. Cash used in investing activities for the three months ended March 31, 2009 of $15.0 million relates to the following: 

          $12.0 million of the transaction costs paid related to our investment in POAC 

          $4.0 million related to the funding of investment property purchases, of which $3.6 million relates to funding of tenant allowances. These additional tenant allowances relate to the timing of payments associated with our St. Augustine Outlet Mall expansion. 

          In addition, we received $0.6 million in redemption payments related to our investment in affiliate, at cost which partially offset the cash used in investing activities. Financing activities Cash used in financing activities of $8.4 million during the three months ended March 31, 2010 primarily related to the payments of distributions to common shareholders and noncontrolling interests of $8.3 million, $1.6 million of payments made for redemption of common shares and $0.9 million in mortgage payment including a lump sum payment of $0.7 million associated with the refinancing of our Brazos Crossing Power Center debt obligation. These are offset by $2.5 million of proceeds from loans from affiliates (see note 3 of notes to consolidated financial statements for further discussion). Cash used in financing activities of $0.2 million during the three months ended March 31, 2009 primarily related to the payments of distributions to common shareholders and noncontrolling interests of $4.1 million, $1.7 million issuance of note receivable to noncontrolling interest (see note 12 of notes to consolidated financial statements for further discussion), and $1.1 million associated with redemption of common shares during the period. These outflows were offset by proceeds from issuance of special general partnership interest units (SLP Units) of $7.0 million. We anticipate that adequate cash will be available to fund our operating and administrative expenses, regular debt service obligations, and the payment of dividends in accordance with REIT requirements in both the short and long-term. We believe our current balance sheet position is financially sound, however due to the current weakness in and unpredictability of the capital and credit markets we can give no assurance that affordable access to capital will exist when our debt maturities occur. Contractual Obligations The following is a summary of our contractual obligations outstanding over the next five years and thereafter as of March 31, 2010.  Contractual Obligations

          

          Remainder of 2010

          

          2011

          

          2012

          

          2013

          

          2014

          

          Thereafter

          

          TotalMortgage Payable(1)

          

          $

          43,548,637

          

          

          $

          16,676,569

          

          

          $

          2,213,555

          

          

          $

          2,501,237

          

          

          $

          37,584,958

          

          

          $

          140,943,708

          

          

          $

          243,468,664Interest Payments(2)

          

          

          8,803,534

          

          

          

          11,285,303

          

          

          

          10,686,907

          

          

          

          10,517,067

          

          

          

          10,366,782

          

          

          

          15,163,524

          

          

          

          66,823,117Total Contractual Obligations

          

          $

          52,352,171

          

          

          $

          27,961,872

          

          

          $

          12,900,462

          

          

          $

          13,018,304

          

          

          $

          47,951,740

          

          

          $

          156,107,232

          

          

          $

          310,291,781
  (1)

          These amounts represent mortgage payable obligations outstanding as of March 31, 2010, including $26.3 million related to St. Augustine debt classified within liabilities held for sale on our consolidated balance sheet. In addition, the amount due in 2010 of $43.5 million includes the principal balance of $42.3 million associated with the two of loans within the Camden portfolio that are in default status (see Notes 8 and 9 of notes to consolidated financial statements).
 32    TABLE OF CONTENTS (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 agreement including $9.4 million related to St. Augustine debt classified as held for sale and discontinued operations. All variable rate debt agreements are based on the one month LIBOR rate. For purposes of calculating future interest amounts on variable interest rate debt the one month LIBOR rate as of March 31, 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. We expect to remain in compliance with all our existing debt covenants; however, should circumstances arise that would cause us to be in default, the various lenders would have the ability to accelerate the maturity on our outstanding debt. See Note 9 of notes to consolidate financial statement for discussion of two loans within the Camden portfolio which are in default as a result of nonpayment of debt service. The
principal balance of these two loans of $42.3 million has been accelerated and is due immediately. We have reflected these loans as payments for 2010 based upon the default status. During the first quarter of 2010, we were notified by the lender of that their intent is to foreclose on these two properties. The foreclosure sale for one of the properties was completed on April 13, 2010 and the other one was completed on May 12, 2010. Funds from Operations and Modified Funds from Operations We focus 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, and gains or losses on dispositions of real estate, (including such non-FFO items reported in discontinued operations). We believe that FFO is helpful to investors in measuring our performance because FFO excludes various items included in GAAP net earnings that do not relate to, or are not indicative of, our fundamental operating performance such as gains or losses from property dispositions and depreciation and amortization of real estate assets. In our case, however, GAAP net earnings and FFO include a significant impact related to non cash activity such as impairment of long-lived assets held for use, other than temporary impairment-marketable securities and gain/loss on sale of marketable securities as well as cash related to acquisition fees expensed related to
investments in unconsolidated affiliated real estate entities which are not reflected of our operating performance. In addition GAAP net earnings and FFO include the non cash impact related to straight-line rental revenue and the net amortization of above-market and below-market leases on our recognition of revenue from rental properties. As a result, management pays particular attention to MFFO, a supplemental non-GAAP performance measure that we define as FFO adjusted for straight-line rental revenue, net amortization of above-market and below-market leases, other than temporary impairment of marketable securities, gain/loss on sale of marketable securities, impairment on long-lived assets held for sale and acquisition fee expensed. In managements view, MFFO provides a more accurate depiction than FFO. FFO and FFO available to common shares can help compare the operating performance of a companys real estate between periods or as compared to different companies. FFO and MFFO as well as FFO available to common shares do not represent net income, net income available to common shares or net cash flows from operating activities in accordance with GAAP. Therefore, FFO and MFFO as well as FFO available to common shares should not be exclusively considered as alternatives to net income, net income available to common shares or net cash flows from operating activities as determined by GAAP or as measures of liquidity. The Companys calculation
of FFO and MFFO may differ from other real estate companies due to, among other items, variations in cost capitalization policies for capital expenditures and, accordingly, may not be comparable to such other real estate companies.
 33    TABLE OF CONTENTS Below is a reconciliation of net loss to FFO for the three months ended March 31, 2010 and 2009.  For the Three Months EndedMarch 31, 2010

          

          March 31, 2009Net loss

          

          $

          (4,223,309

          )

          

          $

          (758,304

          )Adjustments:Depreciation and amortization:

          

          

          

          

          

          

          Depreciation and amortization of real estate assets

          

          

          1,614,969

          

          

          

          1,851,168Equity in depreciation and amortization for unconsolidated affiliated real estate entities

          

          

          9,477,422

          

          

          

          1,872,060Loss on property damaged

          

          

          274,104

          

          

          

          Gain on disposal of investment property for unconsolidated affiliated real estate entities

          

          

          (4,306

          )

          

          

          (638

          )Discontinued Operations:Depreciation and amortization of real estate assets

          

          

          

          

          

          

          561,286FFO

          

          $

          7,138,880

          

          

          $

          3,525,572Less: FFO attributable to noncontrolling interests

          

          

          (111,202

          )

          

          

          (14,036

          )FFO attributable to Companys common share

          

          $

          7,027,678

          

          

          $

          3,511,536FFO per common share, basic and diluted

          

          $

          0.22

          

          

          $

          0.11Weighted average number of common shares outstanding, basic and diluted

          

          

          31,616,298

          

          

          

          31,109,274
 Below is the reconciliation of MFFO for the three months ended March 31, 2010 and 2009.  For the Three Months EndedMarch 31, 2010

          

          March 31, 2009FFO

          

          $

          7,138,880

          

          

          $

          3,525,572Adjustments:Noncash Adjustments:Amortization of above and below market leases(1)

          

          

          (73,417

          )

          

          

          (99,342

          )Straight-line rent adjustment(2)

          

          

          (873,963

          )

          

          

          (82,570

          )Total non cash adjustments

          

          

          (947,380

          )

          

          

          (181,912

          )Other adjustments:Acquisition/divestiture costs expensed(3)

          

          

          767,955

          

          

          

          MFFO

          

          $

          6,959,455

          

          

          $

          3,343,660Less: MFFO attributable to noncontrolling interests

          

          

          (108,407

          )

          

          

          (13,312

          )MFFO attributable to Companys common share

          

          $

          6,851,048

          

          

          $

          3,330,348
  (1)

          Amortization of above and below market leases includes amortization for wholly owned subsidiaries in continuing operations of zero and zero; amortization from unconsolidated entities of $0.1 million and zero million; as well as, amortization from discontinued operations of zero and $0.1 million for the three months ended March 31, 2010 and 2009, respectively. (2)

          Straight-line rent adjustment includes straight-line rent for wholly owned subsidiaries in continuing operations of $0.1 million and zero; straight-line rent from unconsolidated entities of $0.7 million and zero; as well as, straight-line rent from discontinued operations of $0.1 million and $0.1 million for the months ended March 31, 2010 and 2009, respectively. (3)

          Acquisitions/divestiture costs expenses for the three months ended March 31, 2010 include divestiture costs of $0.8 million associated from unconsolidated entities.
 34    TABLE OF CONTENTS Sources of Distribution The Board of Directors of the Lightstone REIT declared a distribution for each quarter in since 2006. The distributions have been calculated based on stockholders of record each day during this three-month period at a rate of $0.0019178 per day, which, if paid each day for a 365-day period, would equal a 7.0% annualized rate based on a share price of $10.00. On March 2, 2010, the Company declared a distribution for the three-month period ending March 31, 2010 of $5.5 million. The distribution was calculated based on stockholders of record each day during this 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, would equal a 7.0% annualized rate based on a share price of $10.00. The distribution was paid in full on March 30, 2010 using a combination of cash ($3.4 million) and shares ($2.1 million) which represents 0.2 million shares of the Companys common stock issued pursuant to the Companys Distribution Reinvestment
Program, at a discounted price of $9.50 per share. 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 months ended March 31, 2010 and 2009.  Quarter ended March 31,

          

          Quarter ended March 31,Distribution period

          

          

          Q1 2010

          

          

          

          Q1 2009Date distribution declared

          

          

          March 2, 2010

          

          

          

          March 30, 2009Date distribution paid

          

          

          March 30, 2010

          

          

          

          April 15, 2009Distributions Paid

          

          $

          3,332,903

          

          

          $

          3,052,890Distributions Reinvested

          

          

          2,127,482

          

          

          

          2,312,335Total Distributions

          

          $

          5,460,385

          

          

          $

          5,365,225Source of distributionsCash flows provided by operations

          

          $

          1,238,035

          

          

          $

          722,057Proceeds from investment in affiliates and excess cash

          

          

          2,094,868

          

          

          

          Proceeds from issuance of common stock

          

          

          2,127,482

          

          

          

          4,643,168Total Sources

          

          $

          5,460,385

          

          

          $

          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 March 31, 2010, 100% of our distributions to our common stockholders were funded or will be funded from MFFO. For the three months ended March 31, 2009, approximately 60% of our distributions to our common stockholder were funded with funds from MFFO. New Accounting Pronouncements In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which was primarily codified into Topic 810 in the ASC. This standard requires ongoing assessments to determine whether an entity is a variable entity and requires qualitative analysis to determine whether an enterprises variable interest(s) give it a controlling financial interest in a variable interest entity. In addition, it requires enhanced disclosures about an enterprises involvement in a variable interest entity. This standard is effective for the fiscal year that begins after November 15, 2009. The Company adopted this standard on
January 1, 2010 and the adoption did not have a material impact on the Companys consolidated financial statements. In January 2010, the FASB issued FASB Accounting Standards Update (ASU) No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU No. 2010-06 amends ASC 820 and clarifies and provides additional disclosure requirements related to recurring and non-recurring fair value measurements. This ASU becomes effective for the Company on January 1, 2010. The adoption of this ASU did not have a material impact on the Companys consolidated financial statements.
 35    TABLE OF CONTENTS The Company has determined that all other recently issued accounting pronouncements will not have a material impact on its consolidated financial position, results of operations and cash flows, or do not apply to its operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk. We may be exposed to the effects of interest rate changes primarily as a result of borrowings used to maintain liquidity and fund the expansion and refinancing of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk. To achieve our objectives, we may borrow at fixed rates or variable rates. We may also enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest
rate risk on a related financial instrument. We will not enter into derivative or interest rate transactions for speculative purposes. As of March 31, 2010, we did not have any other swap or derivative agreements outstanding. We also hold equity securities for general investment return purposes. We regularly review the market prices of these investments for impairment purposes. As of March 31, 2010, a hypothetical adverse 10% movement in market values would result in a hypothetical loss in fair value of approximately $0.1 million. The following table shows the mortgage payable obligations maturing during the next five years and thereafter at March 31, 2010, including $26.3 million related to St. Augustine debt classified as liabilities held for sale in the consolidated balance sheet:  Remainder of 2010(1)

          

          2011

          

          2012

          

          2013

          

          2014

          

          Thereafter

          

          TotalMortgage Payable

          

          $

          43,548,637

          

          

          

          16,676,569

          

          

          

          2,213,555

          

          

          

          2,501,237

          

          

          

          37,584,958

          

          

          

          140,943,708

          

          

          $

          243,468,664
  (1)

          In addition, the amount due in 2010 of $43.5 million includes the principal balance of $42.3 million associated with the two loans within the Camden portfolio that are in default status (see Note 8 and 9 of notes to consolidated financial statements). As of March 31, 2010, approximately $16.6 million, or 8%, of our debt are variable rate instruments and our interest expense associated with these instruments is, therefore, subject to changes in market interest rates. A 1% adverse movement (increase in LIBOR) would increase annual interest expense by approximately $0.2 million. The fair value of the mortgage payable as of March 31, 2010 was approximately $237.1 million, which includes $26.0 million related to St. Augustine debt classified as liabilities held for sale compared to the book value of approximately $243.5 million, including $26.3 related to St. Augustine. The fair value of the mortgage payable as of December 31, 2009 was approximately $235.3 million, which includes $25.6 million related to St. Augustine compared to the book value of approximately $244.5 million, including $26.4 related to St. Augustine. 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 March 31, 2010, we had no off-balance sheet arrangements. 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.
 36    TABLE OF CONTENTS 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.
 37    TABLE OF CONTENTS PART II. OTHER INFORMATION: ITEM 1. LEGAL PROCEEDINGS From time to time in the ordinary course of business, the Lightstone REIT may become subject to legal proceedings, claims or disputes. On March 29, 2006, Jonathan Gould, a former member of our Board of Directors and Senior Vice-President-Acquisitions, filed a lawsuit against us in the District Court for the Southern District of New York. The suit alleges, among other things, that Mr. Gould was insufficiently compensated for his services to us as director and officer. Mr. Gould sought damages of (i) up to $11,500,000 or (ii) a 2.5% ownership interest in all properties that we acquire and an option to acquire up to 5% of the membership interests of Lightstone SLP, LLC. We filed a motion to dismiss the lawsuit. After review of the motion to dismiss, counsel for Mr. Gould represented
that Mr. Gould was dropping his claim for ownership interest in the properties we acquire and his claim for membership interests. Mr. Goulds counsel represented that he would be suing only under theories of quantum merit and unjust enrichment seeking the value of work he performed. Management believes that this suit is frivolous and entirely without merit and intends to defend against these charges vigorously. The Company believes any unfavorable outcome on this matter will not have a material effect on the consolidated financial statements. On January 4, 2007, 1407 Broadway Real Estate LLC (Office Owner), an indirect, wholly owned subsidiary of 1407 Broadway Mezz II LLC (Mezz II), consummated the acquisition of a sub-leasehold interest (the Sublease Interest) in an office building located at 1407 Broadway, New York, New York (the Office Property). Mezz II is a joint venture between LVP 1407 Broadway LLC (LVP LLC), a wholly owned subsidiary of our operating partnership, and Lightstone 1407 Manager LLC (Manager), which is wholly owned by David Lichtenstein, the Chairman of our Board of Directors and our Chief
Executive Officer, and Shifra Lichtenstein, his wife. The Sublease Interest was acquired pursuant to a Sale and Purchase of Leasehold Agreement with Gettinger Associates, L.P. (Gettinger). In July 2006, Abraham Kamber Company, as Sublessor under the sublease (Sublessor), served two notices of default on Gettinger (the Default Notices). The first alleged that Gettinger had failed to satisfy its obligations in performing certain renovations and the second asserted numerous defaults relating to Gettingers purported failure to maintain the Office Property in compliance with its contractual obligations. In response to the Default Notices, Gettinger commenced legal action and obtained an injunction that extends its time to cure any default, prohibits interference with its leasehold interest and prohibits Sublessor from terminating its sublease pending resolution of the litigation. A motion by Sublessor for partial summary judgment, alleging that certain work on the Office Property required its prior approval, was denied by the Supreme Court, New York County. Subsequently, by agreement of the parties, a stay was entered precluding the termination of the Sublease Interest pending a final decision on Sublessors claim of defaults under the Sublease
Interest. In addition, the parties stipulated to the intervention of Office Owner as a party to the proceedings. The parties have been directed to engage in and complete discovery. We consider the litigation to be without merit. 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.
 38    TABLE OF CONTENTS On September 4, 2007, Office Owner commenced a new action against Sublessor alleging a number claims, including the claims that Sublessor has breached the sublease and committed intentional torts against Office Owner by (among other things) issuing multiple groundless default notices, with the aim of prematurely terminating the sublease and depriving Office Owner of its valuable interest in the sublease. The complaint seeks a declaratory judgment that Office Owner has not defaulted under the sublease, damages for the losses Office Owner has incurred as a result of Sublessors wrongful conduct, and an injunction to prevent Sublessor from issuing
further default notices without valid grounds or in bad faith. The Company believes any unfavorable outcome on this matter will not have a material effect on the consolidated financial statements. As of the date hereof, we are not a party to any other material pending legal proceedings. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933, and we did repurchase approximately 0.2 million shares. Effective March 2, 2010, our board of directors voted to temporarily suspend future share redemptions under the Share Redemption Plan. The board of directors will revisit this decision when the previously announced disposition of retail outlet assets transaction closes and anticipates that after that time it will resume redeeming shares during the second half of 2010. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. REMOVED AND RESERVED ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS  ExhibitNumber

          

          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 15d-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
 39    TABLE OF CONTENTS 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: May 17, 2010

          

          By:/s/ David LichtensteinDavid LichtensteinChairman and Chief Executive Officer(Principal Executive Officer)Date: May 17, 2010

          

          By:/s/ Donna BrandinDonna BrandinChief Financial Officer and Treasurer(Duly Authorized Officer and Principal Financial and Accounting Officer)
 40