UNITED STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D. C. 20549





FORM
10-Q


(Mark
One)


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





For the
quarterly period ended September 30, 2009





OR





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





For the
transition period from 
to





Commission
file number 333-117367


LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.


(Exact
Name of Registrant as Specified in Its Charter)





Maryland
            
            20-1237795(State
      or Other Jurisdiction of
              Incorporation
      or Organization)
            
            (I.R.S.
      Employer
              Identification
      No.)





1985
      Cedar Bridge Avenue, Suite 1Lakewood,
      New Jersey
            
            08701(Address
      of Principal Executive Offices)
            
            (Zip
      Code)





(732)
367-0129


(Registrant’s
Telephone Number, Including Area Code)





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


Yes 
   ̈
    No   þ




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


Large
      accelerated filer    ̈
            
            Accelerated
      filer    ̈
            
            Non-accelerated
      filer    þ




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


Yes 
 ̈  No þ





As of
November 6, 2009, there were 31.5 million outstanding shares of common stock of
Lightstone Value Plus Real Estate Investment Trust, Inc., including shares
issued pursuant to the dividend reinvestment plan.








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





INDEX




PagePART I
                FINANCIAL
      INFORMATIONItem 1.
                Financial
      StatementsConsolidated
      Balance Sheets as of September 30, 2009 (unaudited) and December 31,
      2008
                3Consolidated
      Statements of Operations (unaudited) for the Three and Nine Months Ended
      September 30, 2009 and 2008
                4Consolidated
      Statement of Stockholders’ Equity and Other Comprehensive Loss (unaudited)
      for the Nine Months Ended September 30, 2009
                5Consolidated
      Statements of Cash Flows (unaudited) for the Nine Months Ended September
      30, 2009 and 2008
                6Notes
      to Consolidated Financial Statements
                7Item 2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                34Item 3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                51Item 4T.
                Controls
      and Procedures
                52PART II
                OTHER
      INFORMATIONItem
      1.
                Legal
      Proceedings
                52Item
      1A.
                Risk
      Factors
                53Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                54Item
      3.
                Defaults
      Upon Senior Securities
                55Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                55Item
      5.
                Other
      Information
                55Item
      6.
                Exhibits
                56


2





PART I. FINANCIAL INFORMATION,
CONTINUED:


ITEM
1. FINANCIAL STATEMENTS, CONTINUED:





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


CONSOLIDATED
BALANCE SHEETS





September
      30, 2009
                                                          
                                                          
                                                          December
      31, 2008(unaudited)AssetsInvestment
      property:Land
                                                          
                                                          $
                                                          55,979,164
                                                          
                                                          
                                                          $
                                                          65,050,624Building
                                                          
                                                          
                                                          231,832,643
                                                          
                                                          
                                                          
                                                          273,255,468Construction
      in progress
                                                          
                                                          
                                                          347,181
                                                          
                                                          
                                                          
                                                          3,318,021Gross
      investment property
                                                          
                                                          
                                                          288,158,988
                                                          
                                                          
                                                          
                                                          341,624,113Less
      accumulated depreciation
                                                          
                                                          
                                                          (14,051,674
                                                          )
                                                          
                                                          
                                                          (17,287,242
                                                          )Net
      investment property
                                                          
                                                          
                                                          274,107,314
                                                          
                                                          
                                                          
                                                          324,336,871Investments
      in unconsolidated affiliated real estate
      entities
                                                          
                                                          
                                                          132,333,242
                                                          
                                                          
                                                          
                                                          21,375,908Investment
      in affiliate, at cost
                                                          
                                                          
                                                          8,283,336
                                                          
                                                          
                                                          
                                                          10,150,000Cash
      and cash equivalents
                                                          
                                                          
                                                          22,705,537
                                                          
                                                          
                                                          
                                                          66,106,067Marketable
      securities
                                                          
                                                          
                                                          879,996
                                                          
                                                          
                                                          
                                                          11,450,565Restricted
      escrows
                                                          
                                                          
                                                          7,185,113
                                                          
                                                          
                                                          
                                                          7,773,705Tenant
      accounts receivable, net
                                                          
                                                          
                                                          1,203,686
                                                          
                                                          
                                                          
                                                          2,073,756Other
      accounts receivable, primarily escrow receivable
                                                          
                                                          
                                                          17,763
                                                          
                                                          
                                                          
                                                          1,238,894Note
      receivable, related party
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          48,500,000Acquired
      in-place lease intangibles (net of accumulated amortization of $1,924,752
      and $1,849,234, respectively)
                                                          
                                                          
                                                          732,522
                                                          
                                                          
                                                          
                                                          1,141,538Acquired
      above market lease intangibles (net of accumulated amortization of
      $813,675 and $710,720, respectively)
                                                          
                                                          
                                                          274,155
                                                          
                                                          
                                                          
                                                          439,939Deferred
      intangible leasing costs (net of accumulated amortization of $919,288 and
      $832,824, respectively)
                                                          
                                                          
                                                          459,954
                                                          
                                                          
                                                          
                                                          695,016Deferred
      leasing costs (net of accumulated amortization of $288,268 and $158,792,
      respectively)
                                                          
                                                          
                                                          1,247,013
                                                          
                                                          
                                                          
                                                          1,019,225Deferred
      financing costs (net of accumulated amortization of $931,225 and $634,612,
      respectively)
                                                          
                                                          
                                                          1,461,347
                                                          
                                                          
                                                          
                                                          1,723,093Interest
      receivable from related parties
                                                          
                                                          
                                                          1,001,884
                                                          
                                                          
                                                          
                                                          1,815,279Prepaid
      expenses and other assets
                                                          
                                                          
                                                          2,776,162
                                                          
                                                          
                                                          
                                                          1,969,384Total
      Assets
                                                          
                                                          $
                                                          454,669,024
                                                          
                                                          
                                                          $
                                                          501,809,240Liabilities
      and EquityMortgage
      payable
                                                          
                                                          $
                                                          237,287,774
                                                          
                                                          
                                                          $
                                                          239,243,982Note
      payable
                                                          
                                                          
                                                          7,358,445
                                                          
                                                          
                                                          
                                                          7,416,941Accounts
      payable and accrued expenses
                                                          
                                                          
                                                          4,489,283
                                                          
                                                          
                                                          
                                                          8,518,275Due
      to sponsor and other affiliates
                                                          
                                                          
                                                          11,696,163
                                                          
                                                          
                                                          
                                                          1,145,890Tenant
      allowances and deposits payable
                                                          
                                                          
                                                          1,255,732
                                                          
                                                          
                                                          
                                                          5,673,760Distributions
      payable
                                                          
                                                          
                                                          5,519,406
                                                          
                                                          
                                                          
                                                          -Prepaid
      rental revenues
                                                          
                                                          
                                                          1,291,907
                                                          
                                                          
                                                          
                                                          978,648Acquired
      below market lease intangibles (net of accumulated amortization of
      $2,476,823 and $2,258,021, respectively)
                                                          
                                                          
                                                          752,008
                                                          
                                                          
                                                          
                                                          1,204,434Total
      Liabilities
                                                          
                                                          
                                                          269,650,718
                                                          
                                                          
                                                          
                                                          264,181,930Commitments
      and contingenciesEquityCompany's
      stockholders' equity:Preferred
      shares, $1 Par value, 10,000,000 shares authorized,  none
      outstanding
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -Common
      stock, $0.01 par value; 60,000,000 shares authorized, 31,279,146 and
      30,985,544 shares issued and outstanding,
      respectively
                                                          
                                                          
                                                          312,791
                                                          
                                                          
                                                          
                                                          309,855Additional
      paid-in-capital
                                                          
                                                          
                                                          278,408,582
                                                          
                                                          
                                                          
                                                          275,589,300Accumulated
      other comprehensive gain/(loss)
                                                          
                                                          
                                                          364,582
                                                          
                                                          
                                                          
                                                          (4,212,454
                                                          )Accumulated
      distributions in addition to net loss
                                                          
                                                          
                                                          (135,255,187
                                                          )
                                                          
                                                          
                                                          (57,173,374
                                                          )Total
      Company's stockholder’s equity
                                                          
                                                          
                                                          143,830,768
                                                          
                                                          
                                                          
                                                          214,513,327Noncontrolling
      interests
                                                          
                                                          
                                                          41,187,538
                                                          
                                                          
                                                          
                                                          23,113,983Total
      Equity
                                                          
                                                          
                                                          185,018,306
                                                          
                                                          
                                                          
                                                          237,627,310Total Liabilities and
      Equity
                                                          
                                                          $
                                                          454,669,024
                                                          
                                                          
                                                          $
                                                          501,809,240





The
Company’s notes are an integral part of these consolidated financial
statements.


3





PART I. FINANCIAL INFORMATION,
CONTINUED:


ITEM
1. FINANCIAL STATEMENTS, CONTINUED:




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


CONSOLIDATED
STATEMENTS OF OPERATIONS


(UNAUDITED)





Three
      Months Ended
                                                    
                                                    
                                                    Nine
      Months EndedSeptember
      30, 2009
                                                    
                                                    
                                                    September
      30,
                                                      2008
                                                    
                                                    
                                                    September
      30,
                                                      2009
                                                    
                                                    September
      30, 2008Revenues:Rental
      income
                                                    
                                                    $
                                                    8,863,816
                                                    
                                                    
                                                    $
                                                    9,191,180
                                                    
                                                    
                                                    $
                                                    27,326,273
                                                    
                                                    
                                                    $
                                                    26,841,456Tenant
      recovery income
                                                    
                                                    
                                                    1,277,035
                                                    
                                                    
                                                    
                                                    1,075,673
                                                    
                                                    
                                                    
                                                    3,684,443
                                                    
                                                    
                                                    
                                                    3,136,626Total
      revenues
                                                    
                                                    
                                                    10,140,851
                                                    
                                                    
                                                    
                                                    10,266,853
                                                    
                                                    
                                                    
                                                    31,010,716
                                                    
                                                    
                                                    
                                                    29,978,082Expenses:Property
      operating expenses
                                                    
                                                    
                                                    4,029,502
                                                    
                                                    
                                                    
                                                    4,712,463
                                                    
                                                    
                                                    
                                                    11,907,805
                                                    
                                                    
                                                    
                                                    12,951,925Real
      estate taxes
                                                    
                                                    
                                                    1,093,325
                                                    
                                                    
                                                    
                                                    1,030,937
                                                    
                                                    
                                                    
                                                    3,319,905
                                                    
                                                    
                                                    
                                                    3,117,564General
      and administrative costs
                                                    
                                                    
                                                    1,891,522
                                                    
                                                    
                                                    
                                                    1,335,185
                                                    
                                                    
                                                    
                                                    5,818,245
                                                    
                                                    
                                                    
                                                    8,299,384Impairment
      of long lived assets, net of gain on disposal
                                                    
                                                    
                                                    44,960,800
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    44,960,800
                                                    
                                                    
                                                    
                                                    -Depreciation
      and amortization
                                                    
                                                    
                                                    2,694,337
                                                    
                                                    
                                                    
                                                    2,136,873
                                                    
                                                    
                                                    
                                                    7,568,009
                                                    
                                                    
                                                    
                                                    6,539,587Total
      operating expenses
                                                    
                                                    
                                                    54,669,486
                                                    
                                                    
                                                    
                                                    9,215,458
                                                    
                                                    
                                                    
                                                    73,574,764
                                                    
                                                    
                                                    
                                                    30,908,460Operating
      (loss) income
                                                    
                                                    
                                                    (44,528,635
                                                    )
                                                    
                                                    
                                                    1,051,395
                                                    
                                                    
                                                    
                                                    (42,564,048
                                                    )
                                                    
                                                    
                                                    (930,378
                                                    )Other
      income, net
                                                    
                                                    
                                                    145,453
                                                    
                                                    
                                                    
                                                    120,873
                                                    
                                                    
                                                    
                                                    510,474
                                                    
                                                    
                                                    
                                                    385,512Interest
      income
                                                    
                                                    
                                                    1,038,464
                                                    
                                                    
                                                    
                                                    1,550,433
                                                    
                                                    
                                                    
                                                    3,076,695
                                                    
                                                    
                                                    
                                                    3,528,156Interest
      expense
                                                    
                                                    
                                                    (3,653,893
                                                    )
                                                    
                                                    
                                                    (3,492,802
                                                    )
                                                    
                                                    
                                                    (10,816,747
                                                    )
                                                    
                                                    
                                                    (10,473,022
                                                    )Gain/(loss)
      on sale of marketable securities
                                                    
                                                    
                                                    1,187,620
                                                    
                                                    
                                                    
                                                    (7,454
                                                    )
                                                    
                                                    
                                                    343,724
                                                    
                                                    
                                                    
                                                    (7,454
                                                    )Other
      than temporary impairment - marketable securities
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (9,733,015
                                                    )
                                                    
                                                    
                                                    (3,373,716
                                                    )
                                                    
                                                    
                                                    (9,733,015
                                                    )Loss
      from investments in unconsolidated affiliated real estate
      entities
                                                    
                                                    
                                                    (3,508,079
                                                    )
                                                    
                                                    
                                                    (676,194
                                                    )
                                                    
                                                    
                                                    (4,248,298
                                                    )
                                                    
                                                    
                                                    (2,236,511
                                                    )Net
      loss
                                                    
                                                    
                                                    (49,319,070
                                                    )
                                                    
                                                    
                                                    (11,186,764
                                                    )
                                                    
                                                    
                                                    (57,071,916
                                                    )
                                                    
                                                    
                                                    (19,466,712
                                                    )Less:
      net loss attributable to noncontrolling interests
                                                    
                                                    
                                                    673,924
                                                    
                                                    
                                                    
                                                    173
                                                    
                                                    
                                                    
                                                    767,040
                                                    
                                                    
                                                    
                                                    322Net
      loss attributable to Company's common shares
                                                    
                                                    $
                                                    (48,645,146
                                                    )
                                                    
                                                    $
                                                    (11,186,591
                                                    )
                                                    
                                                    $
                                                    (56,304,876
                                                    )
                                                    
                                                    $
                                                    (19,466,390
                                                    )Net
      loss per Company's common share, basic and diluted
                                                    
                                                    $
                                                    (1.55
                                                    )
                                                    
                                                    $
                                                    (0.44
                                                    )
                                                    
                                                    $
                                                    (1.80
                                                    )
                                                    
                                                    $
                                                    (0.97
                                                    )Weighted
      average number of common shares outstanding, basic and
    diluted
                                                    
                                                    
                                                    31,297,445
                                                    
                                                    
                                                    
                                                    25,464,696
                                                    
                                                    
                                                    
                                                    31,204,618
                                                    
                                                    
                                                    
                                                    20,058,683





The
Company’s notes are an integral part of these consolidated financial
statements.


4





PART I. FINANCIAL INFORMATION:


ITEM
1. FINANCIAL STATEMENTS.





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


CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY AND OTHER COMPREHENSIVE
GAIN/(LOSS)


(UNAUDITED)





Preferred
      Shares
                                            
                                            
                                            Common
      SharesPreferred
                                              Shares
                                            
                                            
                                            Amount
                                            
                                            
                                            Common
                                              Shares
                                            
                                            
                                            Amount
                                            
                                            
                                            Additional
                                              Paid-In
                                              Capital
                                            
                                            
                                            Accumulated
      Other
                                              Comprehensive
                                              Gain/(Loss)
                                            
                                            
                                            Accumulated
                                              Distributions
      in
                                              Excess
      of Net Loss
                                            
                                            
                                            Total
                                              Noncontrolling
                                              Interests
                                            
                                            
                                            Total
                                              EquityBALANCE,    December
      31, 2008
                                            
                                            
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            
                                            30,985,544
                                            
                                            
                                            $
                                            309,855
                                            
                                            
                                            $
                                            275,589,300
                                            
                                            
                                            $
                                            (4,212,454
                                            )
                                            
                                            $
                                            (57,173,374
                                            )
                                            
                                            $
                                            23,113,983
                                            
                                            
                                            $
                                            237,627,310Comprehensive
      loss:Net
      loss
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (56,304,876
                                            )
                                            
                                            
                                            (767,040
                                            )
                                            
                                            
                                            (57,071,916
                                            )Unrealized
      gain on available for sale securities
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            499,314
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            49,395
                                            
                                            
                                            
                                            548,709Reclassification
      adjustment for loss realized in net loss
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            4,077,722
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (122
                                            )
                                            
                                            
                                            4,077,600Total
      comprehensive loss
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (52,445,607
                                            )Distributions
      declared
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (21,776,937
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (21,776,937
                                            )Distributions
      paid to noncontrolling interests
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (3,200,003
                                            )
                                            
                                            
                                            (3,200,003
                                            )Proceeds
      from special general partner interest units
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            6,982,534
                                            
                                            
                                            
                                            6,982,534Redemption
      and cancellation of shares
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (453,167
                                            )
                                            
                                            
                                            (4,532
                                            )
                                            
                                            
                                            (4,267,550
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (4,272,082
                                            )Shares
      issued from distribution reinvestment program
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            746,769
                                            
                                            
                                            
                                            7,468
                                            
                                            
                                            
                                            7,086,832
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            7,094,300Issuance
      of equity in subsidiary in exchange for payment of acquisition fee (see
      Note 13)
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            6,878,087
                                            
                                            
                                            
                                            6,878,087Units
      issued to noncontrolling interest in exchange for investment in
      unconsolidated affiliated real estate entity
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            78,988,411
                                            
                                            
                                            
                                            78,988,411Note
      receivable secured by noncontrolling interest units
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (70,857,707
                                            )
                                            
                                            
                                            (70,857,707
                                            )BALANCE,  September
      30, 2009
                                            
                                            
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            
                                            31,279,146
                                            
                                            
                                            $
                                            312,791
                                            
                                            
                                            $
                                            278,408,582
                                            
                                            
                                            $
                                            364,582
                                            
                                            
                                            $
                                            (135,255,187
                                            )
                                            
                                            $
                                            41,187,538
                                            
                                            
                                            $
                                            185,018,306





The
Company’s notes are an integral part of these consolidated financial
statements.


5





PART I. FINANCIAL INFORMATION,
CONTINUED:


ITEM
1. FINANCIAL STATEMENTS, CONTINUED:




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


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(UNAUDITED)





Nine
      Months Ended
                                            
                                            
                                            Nine
      Months EndedSeptember
      30, 2009
                                            
                                            
                                            September
      30, 2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                                            
                                            $
                                            (57,071,916
                                            )
                                            
                                            $
                                            (19,466,712
                                            )Adjustments
      to reconcile net loss to net cash  provided by operating
      activities:Depreciation
      and amortization
                                            
                                            
                                            7,140,070
                                            
                                            
                                            
                                            6,100,190Impairment
      of long lived assets, net of gain on disposal
                                            
                                            
                                            44,960,800
                                            
                                            
                                            
                                            -(Gain)/loss
      on sale of marketable securities
                                            
                                            
                                            (343,724
                                            )
                                            
                                            
                                            7,454Realized
      loss on impairment of marketable securities
                                            
                                            
                                            3,373,716
                                            
                                            
                                            
                                            9,733,015Amortization
      of deferred financing costs
                                            
                                            
                                            284,657
                                            
                                            
                                            
                                            368,625Amortization
      of deferred leasing costs
                                            
                                            
                                            427,939
                                            
                                            
                                            
                                            439,397Amortization
      of above and below-market lease intangibles
                                            
                                            
                                            (286,641
                                            )
                                            
                                            
                                            (632,518
                                            )Equity
      in loss from investments in unconsolidated affiliated real estate
      entities
                                            
                                            
                                            4,248,298
                                            
                                            
                                            
                                            2,236,511Provision
      for bad debts
                                            
                                            
                                            785,987
                                            
                                            
                                            
                                            990,613Changes
      in assets and liabilities:Decrease/(increase)
      in prepaid expenses and other assets
                                            
                                            
                                            154,085
                                            
                                            
                                            
                                            (1,567,703
                                            )Decrease/(increase)
      in tenant and other accounts receivable
                                            
                                            
                                            980,160
                                            
                                            
                                            
                                            (1,032,029
                                            )Increase
      in tenant allowance and security deposits payable
                                            
                                            
                                            250,023
                                            
                                            
                                            
                                            31,335Decrease)/increase
      in accounts payable and accrued expenses
                                            
                                            
                                            (2,450,934
                                            )
                                            
                                            
                                            9,882,151Increase/(decrease)
      in due to sponsor
                                            
                                            
                                            132,485
                                            
                                            
                                            
                                            (3,209,190
                                            )(Decrease)/increase
      in prepaid rental revenues
                                            
                                            
                                            313,259
                                            
                                            
                                            
                                            (26,645
                                            )Net
      cash provided by operating activities
                                            
                                            
                                            2,898,264
                                            
                                            
                                            
                                            3,854,494CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of investment property, net
                                            
                                            
                                            (7,875,155
                                            )
                                            
                                            
                                            (22,656,237
                                            )Purchase
      of marketable securities
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (9,290,458
                                            )Proceeds
      from sale of marketable securities
                                            
                                            
                                            12,166,886
                                            
                                            
                                            
                                            83,562Issuance
      of note receivables, related party
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (49,500,000
                                            )Investment
      in unconsolidated affiliated real estate entity
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (10,150,000
                                            )Distribution
      from investments in unconsolidated affiliate
                                            
                                            
                                            1,866,664
                                            
                                            
                                            
                                            -Purchase
      of investment in unconsolidated affiliated real estate
    entity
                                            
                                            
                                            (18,997,677
                                            )
                                            
                                            
                                            -Funding
      of restricted escrows
                                            
                                            
                                            588,592
                                            
                                            
                                            
                                            (407,832
                                            )Net
      cash used in investing activities
                                            
                                            
                                            (12,250,690
                                            )
                                            
                                            
                                            (91,920,965
                                            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from mortgage financing
                                            
                                            
                                            -
                                            
                                            
                                            
                                            3,187,177Mortgage
      payments
                                            
                                            
                                            (2,014,703
                                            )
                                            
                                            
                                            (230,947
                                            )Payment
      of loan fees and expenses
                                            
                                            
                                            (22,911
                                            )
                                            
                                            
                                            (441,509
                                            )Proceeds
      from issuance of common stock
                                            
                                            
                                            -
                                            
                                            
                                            
                                            152,146,559Redemption
      and cancellation of common stock
                                            
                                            
                                            (4,272,082
                                            )
                                            
                                            
                                            -Proceeds
      from issuance of special general partnership units
                                            
                                            
                                            6,982,534
                                            
                                            
                                            
                                            12,292,129Payment
      of offering costs
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (15,853,449
                                            )Issuance
      of note receivable to noncontrolling interest
                                            
                                            
                                            (22,357,708
                                            )
                                            
                                            
                                            (17,640,000
                                            )Distributions
      paid to noncontrolling interests
                                            
                                            
                                            (3,200,003
                                            )
                                            
                                            
                                            (482,697
                                            )Distributions
      paid to Company's common stockholders
                                            
                                            
                                            (9,163,231
                                            )
                                            
                                            
                                            (4,951,117
                                            )Net
      cash (used in) provided by financing activities
                                            
                                            
                                            (34,048,104
                                            )
                                            
                                            
                                            128,026,146Net
      change in cash and cash equivalents
                                            
                                            
                                            (43,400,530
                                            )
                                            
                                            
                                            39,959,675Cash
      and cash equivalents, beginning of period
                                            
                                            
                                            66,106,067
                                            
                                            
                                            
                                            29,589,815Cash
      and cash equivalents, end of period
                                            
                                            $
                                            22,705,537
                                            
                                            
                                            $
                                            69,549,490Cash
      paid for interest
                                            
                                            $
                                            10,633,573
                                            
                                            
                                            $
                                            10,667,126Dividends
      declared
                                            
                                            $
                                            21,776,937
                                            
                                            
                                            $
                                            10,645,812Non
      cash purchase of investment property
                                            
                                            $
                                            232,952
                                            
                                            
                                            $
                                            5,725,735Value
      of shares issued from distribution reinvestment program
                                            
                                            $
                                            7,094,300
                                            
                                            
                                            $
                                            3,447,577Issuance
      of equity for payment of acquisition fee obligation (See Note
      13)
                                            
                                            $
                                            6,878,087
                                            
                                            
                                            $
                                            -Issuance
      of units in exchange for investment in unconsolidated affiliated real
      estate entities
                                            
                                            $
                                            78,988,411
                                            
                                            
                                            $
                                            19,600,000





The
Company’s notes are an integral part of these consolidated financial
statements.


6


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


Notes
to Consolidated Financial Statements


(unaudited)





1.
            Organization




Lightstone
Value Plus Real Estate Investment Trust, Inc., a Maryland corporation
(“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.





The
Company commenced an initial public offering to sell a maximum of 30,000,000
shares of common shares on May 23, 2005, at a price of $10 per share (exclusive
of 4 million shares available pursuant to the Company’s dividend reinvestment
plan, 600,000 shares that could be obtained through the exercise of selling
dealer warrants when and if issued and 75,000 shares that are reserved for
issuance under the Company’s stock option plan). The Company’s Registration
Statement on Form S-11 (the “Registration Statement”) was declared effective
under the Securities Act of 1933 on April 22, 2005, and on May 24, 2005, the
Lightstone REIT began offering its common shares for sale to the public.
Lightstone Securities, LLC (the “Dealer Manager”), an affiliate of the Sponsor,
is serving as the dealer manager of the Company’s public offering (the
“Offering”).




The
Company sold 20,000 shares to the Advisor on July 6, 2004, for $10 per share.
The Company invested the proceeds from this sale in the Operating Partnership,
and as a result, held a 99.9% general partnership interest in the Operating
Partnership.





The
Offering terminated on October 10, 2008 when all shares offered where
sold.   However, the shares continued to be sold to existing
stockholders pursuant to the Company’s dividend reinvestment
plan.   As of September 30, 2009, cumulative gross offering
proceeds of approximately $308.9 million, which includes redemptions and $14.8
million of proceeds from the dividend reinvestment plan, have been released to
the Lightstone REIT and used for the purchase of a 98.4% general partnership
interest in the common units of the Operating Partnership.




Noncontrolling
Interest – Partners of Operating Partnership





On July
6, 2004, the Advisor also contributed $2,000 to the Operating Partnership in
exchange for 200 limited partner units in the Operating Partnership. The limited
partner has the right to convert operating partnership units into cash or, at
the option of the Company, an equal number of common shares of the Company, as
allowed by the limited partnership agreement.





Lightstone
SLP, LLC, an affiliate of the Advisor, purchased special general partner
interests (“SLP Units”) in the Operating Partnership at a cost of $100,000 per
unit for each $1.0 million in offering subscriptions. As of September 30, 2009,
the Company has received proceeds of $30.0 million from the sale of SLP Units,
of which approximately $7.0 million was received during the three months ended
March 31, 2009 and none thereafter.





On  June
26,  2008, the Operating Partnership issued (i) 96,000 units of common
limited partnership interest in the Operating Partnership (“Common Units”) and
18,240 Series A preferred limited partnership units in the Operating Partnership
(the “Series A Preferred Units”) with an aggregate liquidation preference of
$18,240,000 to Arbor Mill Run JRM, LLC, a Delaware limited liability company
(“Arbor JRM”) and (ii) 2,000 Common Units and 380 Series A Preferred Units with
an aggregate liquidation preference of $380,000 to Arbor National CJ, LLC, a New
York limited liability company (“Arbor CJ”) in exchange for a 22.54% membership
interest in Mill Run LLC (Mill Run) (See Note 3). The total aggregate value of
the Common Units and Series A Preferred Units issued by the Operating
Partnership in exchange for the 22.54% membership interest in Mill Run was
$19,600,000.





On March
30, 2009, the Operating Partnership issued 284,209 Common Units and 53,146
Series A Preferred Units with an aggregate liquidation preference of $53,146,000
to AR Prime Holdings LLC, a Delaware limited liability company (“AR Prime”) in
exchange for a 25% membership interest in Prime Outlets Acquisitions Company
(“POAC”) (See Note 3).


7


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


Notes
to Consolidated Financial Statements


(unaudited)





On August
25, 2009, the Operating Partnership issued  a total of 115,000 Common
Units and 21,850 Series A Preferred Units with an aggregate liquidation
preference of $21,850,000 to TRAC Central Jersey LLC, a Delaware limited
liability company (“TRAC”), Central Jersey Holdings II, LLC, a New York limited
liability company (“Central Jersey”) and  JT Prime LLC, a Delaware
limited liability company (“JT Prime”), in exchange for an additional 14.26%
membership interest in Mill Run and for an additional 15% membership interest in
POAC (See Note 3).





See Note
13 for further discussion of noncontrolling interests.





Operating
Partnership Activity


Through
its Operating Partnership, the Company will seek to acquire and operate
commercial, residential, and hospitality properties, principally in the
United States. The Company’s commercial holdings will consist of retail
(primarily multi-tenanted shopping centers), lodging (primarily extended stay
hotels), industrial and office properties.   All such properties
may be acquired and operated by the Company alone or jointly with another party.
Since inception, the Company has completed the following acquisitions and
investments:





2006


The
Company completed the acquisition of the Belz Factory Outlet World in St.
Augustine, Florida, four multi-family communities in Southeast Michigan, a
retail power center and raw land in Omaha, Nebraska and a portfolio of
industrial and office properties located in New Orleans, LA (5 industrial and 2
office properties), Baton Rouge, LA (3 industrial properties) and San
Antonio, TX (4 industrial properties).





2007


The
Company has made an investment in a sub-leasehold interest in a ground lease to
an office building located at 1407 Broadway in New York, NY, purchased a land
parcel in Lake Jackson, TX on which it completed the development of a retail
power center in the first quarter of 2008, an 8.5-acre parcel of undeveloped
land, including development rights, which is intended to be used for further
development of the adjacent Belz Factory Outlet World in St. Augustine, Florida,
five apartment communities located in Tampa, FL (one property), Charlotte, North
Carolina (two properties) and Greensboro, North Carolina (two properties), and
two hotels located in Houston, TX .





2008


The
Company has made a preferred equity contribution in exchange for membership
interests of a wholly owned subsidiary of Park Avenue Funding, LLC, an
affiliated real estate lending company and acquired a 22.54% interest in Mill
Run, which consists of two retail properties located in Orlando,
Florida.





2009


On March
30, 2009, the Company acquired a 25% interest in POAC which has a portfolio of
18 retail outlet malls and two development projects located in 15 different
states across the United States.  On August 25, 2009, the Company
acquired an additional 14.26% interest in Mill Run and an additional 15%
interest in POAC.  As of September 30, 2009, the Company’s membership
interest in Mill Run was 36.8% and 40% in POAC.





All of
the acquired properties and development activities are managed by affiliates of
Lightstone Value Plus REIT Management LLC (the “Property Manager”).





The
Company’s Advisor, Property Manager and Dealer Manager are each related parties.
Each of these entities has received compensation and fees for services related
to the offering and will continue to receive compensation and fees and services
for the investment and management of the Company’s assets. These entities will
receive fees during the offering (which was completed on October 10, 2008),
acquisition, operational and liquidation stages. The compensation levels during
the offering, acquisition and operational stages are based on percentages of the
offering proceeds sold, the cost of acquired properties and the annual revenue
earned from such properties, and other such fees outlined in each of the
respective agreements (See Note 14).





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 September 30, 2009, the Company had a
98.4% general partnership interest in the common units of the Operating
Partnership. All inter-company balances and transactions have been eliminated in
consolidation.


8


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


Notes
to Consolidated Financial Statements


(unaudited)





The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP).
GAAP requires the Company’s management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities and the reported amounts of revenues and
expenses during a reporting period. The most significant assumptions and
estimates relate to the valuation of real estate, depreciable lives of fixed
assets, amortizable lives of intangibles, revenue recognition, the
collectability of trade accounts receivable and the realizability of deferred
tax assets. Application of these assumptions requires the exercise of judgment
as to future uncertainties and, as a result, actual results could differ from
these estimates.





The
unaudited consolidated statements of operations for interim periods are not
necessarily indicative of results for the full year.  The December 31,
2008 consolidated balance sheet data was derived from audited financial
statements, but does not include all disclosures required by
GAAP.  For further information, refer to consolidated financial
statements and notes thereto included in the Company’s annual report on Form
10-K filed with the Securities and Exchange Commission for the year ended
December 31, 2008.





Investments
in real estate entities where the Company has the ability to exercise
significant influence, but does not exercise financial and operating control,
are accounted for using the equity method.





Cash and Cash
Equivalents




The
Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents. All cash and cash
equivalents are held in money market funds or commercial paper.  To
date, the Company has not experienced any losses on its cash and cash
equivalents.




Marketable
Securities





Marketable
securities consist of equity securities and corporate bonds that are designated
as available-for-sale and are recorded at fair value. Unrealized holding gains
or losses are reported as a component of accumulated other comprehensive income
(loss). Realized gains or losses resulting from the sale of these securities are
determined based on the specific identification of the securities sold. An
impairment charge is recognized when the decline in the fair value of a security
below the amortized cost basis is determined to be other-than-temporary. We
consider various factors in determining whether to recognize an impairment
charge, including the duration and severity of any decline in fair value below
our amortized cost basis, any adverse changes in the financial condition of the
issuers’ and our intent and ability to hold the investment for a period of time
sufficient to allow for any anticipated recovery in market value. The Board has
authorized the Company from time to time to invest the Company’s available cash
in marketable securities of real estate related companies. The Board of
Directors has approved investments up to 30% of the Company’s total assets to be
made at the Company’s discretion, subject to compliance with any REIT or other
restrictions.  See Note 5.





Revenue
Recognition




Minimum
rents are recognized on a straight-line accrual basis, over the terms of the
related leases. The capitalized above-market lease values and the capitalized
below-market lease values are amortized as an adjustment to rental income over
the initial lease term. Percentage rents, which are based on commercial tenants’
sales, are recognized once the sales reported by such tenants exceed any
applicable breakpoints as specified in the tenants’ leases. Recoveries from
commercial tenants for real estate taxes, insurance and other operating
expenses, and from residential tenants for utility costs, are recognized as
revenues in the period that the applicable costs are incurred.  Room
revenue for the hotel properties are recognized as stays occur, using the
accrual method of accounting. Amounts paid in advance are deferred until stays
occur.





Accounts
Receivable




The
Company makes estimates of the uncollectability of its accounts receivable
related to base rents, expense reimbursements and other revenues. The Company
analyzes accounts receivable and historical bad debt levels, customer credit
worthiness and current economic trends when evaluating the adequacy of the
allowance for doubtful accounts. In addition, tenants in bankruptcy are analyzed
and estimates are made in connection with the expected recovery of pre-petition
and post-petition claims. The Company’s reported net income or loss is directly
affected by management’s estimate of the collectability of accounts receivable.
The total allowance for doubtful accounts was approximately $0.3 million and
$0.2 million at September 30, 2009 and December 31, 2008,
respectively.


9


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


Notes
to Consolidated Financial Statements


(unaudited)





Investment in Real
Estate




Accounting
for Acquisitions




The fair
value of the real estate acquired is allocated to the acquired tangible assets,
consisting of land, building and tenant improvements, and identified intangible
assets and liabilities, consisting of the value of above-market and below-market
leases for acquired in-place leases and the value of tenant relationships, based
in each case on their fair values. Purchase accounting is applied to assets and
liabilities related to real estate entities acquired based upon the percentage
of interest acquired. Fees incurred related to acquisitions are expensed as
incurred within general and administrative costs within the consolidated
statements of operation.  Transaction costs incurred related to the
Company’s investment in unconsolidated real estate entities, accounted for under
the equity method of accounting, and are capitalized as part of the cost of the
investment.





Upon the
acquisition of real estate operating properties, the Company estimates the fair
value of acquired tangible assets and identified intangible assets and
liabilities and assumed debt at the date of acquisition, based on evaluation of
information and estimates available at that date. Based on these estimates, the
Company allocates the initial purchase price to the applicable assets,
liabilities and noncontrolling interests, if any.  As final
information regarding fair value of the assets acquired, liabilities assumed and
noncontrolling interests is received and estimates are refined, appropriate
adjustments are made to the purchase price allocation. The allocations are
finalized as soon as all the information necessary is available and in no case
later than within twelve months from the acquisition date.





In
determining the fair value of the identified intangible assets and liabilities
of an acquired property, above-market and below-market in-place lease values are
recorded based on the present value (using an interest rate which reflects the
risks associated with the leases acquired) of the difference between (i) the
contractual amounts to be paid pursuant to the in-place leases and (ii)
management’s estimate of fair market lease rates for the corresponding in-place
leases, measured over a period equal to the remaining non-cancelable term of the
lease. The capitalized above-market lease values and the capitalized
below-market lease values are amortized as an adjustment to rental income over
the initial non-cancelable lease term.




The
aggregate value of in-place leases is determined by evaluating various factors,
including an estimate of carrying costs during the expected lease-up periods,
current market conditions and similar leases. In estimating carrying costs,
management includes real estate taxes, insurance and other operating expenses,
and estimates of lost rental revenue during the expected lease-up periods based
on current market demand. Management also estimates costs to execute similar
leases including leasing commissions, legal and other related costs. The value
assigned to this intangible asset is amortized over the remaining lease terms
ranging from one month to approximately 11 years. Optional renewal periods are
not considered.




The
aggregate value of other acquired intangible assets includes tenant
relationships. Factors considered by management in assigning a value to these
relationships include: assumptions of probability of lease renewals, investment
in tenant improvements, leasing commissions and an approximate time lapse in
rental income while a new tenant is located. The value assigned to this
intangible asset is amortized over the remaining lease terms ranging from one
month to approximately 11 years.




Carrying
Value of Assets




The
amounts to be capitalized as a result of periodic improvements and additions to
real estate property, and the periods over which the assets are depreciated or
amortized, are determined based on the application of accounting standards that
may require estimates as to fair value and the allocation of various costs to
the individual assets. Differences in the amount attributed to the assets can be
significant based upon the assumptions made in calculating these
estimates.





Impairment Evaluation




Management
evaluates the recoverability of its investments in real estate assets at the
lowest identifiable level. Long-lived assets are tested for recoverability
whenever events or changes in circumstances indicate that their carrying amount
may not be recoverable. An impairment loss is recognized only if the carrying
amount of a long-lived asset is not recoverable and exceeds its fair
value.


10


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


Notes
to Consolidated Financial Statements


(unaudited)





The
Company evaluates the long-lived assets on a quarterly basis and will record an
impairment charge when there is an indicator of impairment and the undiscounted
projected cash flows are less than the carrying amount for a particular
property. The estimated cash flows used for the impairment analysis and the
determination of estimated fair value are based on the Company’s plans for the
respective assets and the Company’s views of market and economic conditions. The
estimates consider matters such as current and historical rental rates,
occupancies for the respective properties and comparable properties, and recent
sales data for comparable properties. Changes in estimated future cash flows due
to changes in the Company’s plans or views of market and economic conditions
could result in recognition of impairment losses, which, under the applicable
accounting guidance, could be substantial.  See Note 7.





Depreciation and
Amortization




Depreciation
expense for real estate assets is computed based on the straight-line method
using a weighted average composite life of thirty-nine years for buildings and
improvements and five to ten years for equipment and fixtures. Expenditures for
tenant improvements and construction allowances paid to commercial tenants are
capitalized and amortized over the initial term of each lease, currently one
month to 11 years. Maintenance and repairs are charged to expense as
incurred.




Deferred
Costs




The
Company capitalizes initial direct costs.  The costs are capitalized
upon the execution of the loan or lease and amortized over the initial term of
the corresponding loan or lease. Amortization of deferred loan costs begins in
the period during which the loan was originated. Deferred leasing costs are not
amortized to expense until the earlier of the store opening date or the date the
tenant’s lease obligation begins.




Investments in
Unconsolidated Affiliated Real Estate Entities





The
Company evaluates all joint venture arrangements for
consolidation.  The percentage interest in the joint venture,
evaluation of control and whether a variable interest entity (“VIE”) exists are
all considered in determining if the arrangement qualifies for
consolidation.





The
Company accounts for its investments in unconsolidated real estate entities
using the equity or cost method of accounting.  Under the equity
method, the cost of an investment is adjusted for the Company’s share of equity
in net income or loss beginning on the date of acquisition and reduced by
distributions received.  The income or loss of each joint venture
investor is allocated in accordance with the provisions of the applicable
operating agreements.  The allocation provisions in these agreements
may differ from the ownership interest held by each
investor.  Differences between the carrying amount of the Company’s
investment in the respective joint venture and the Company’s share of the
underlying equity of such unconsolidated entities are amortized over the
respective lives of the underlying assets as applicable.   These
items are reported as a single line item in the consolidated statements of
operations as income or loss from investments in unconsolidated affiliated real
estate entities.  Under the cost of accounting, the dividends earned
from the underlying entities are recorded to interest income.





The
Company annually reviews its investment in unconsolidated real estate entities
for other than temporary declines in market value.  Any decline that
is not considered temporary will result in the recording of an impairment charge
to the investment.





Income
Taxes





The
Company made an election in 2006 to be taxed as a real estate investment trust
(a “REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986,
as amended (the “Code”), beginning with its first taxable year, which ended
December 31, 2005.




The
Company elected and qualified to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code in conjunction with the filing of the
2006 federal tax return. To maintain its status as a REIT, the Company must meet
certain organizational and operational requirements, including a requirement to
distribute at least 90% of its ordinary taxable income to stockholders. As a
REIT, the Company generally will not be subject to federal income tax on taxable
income that it distributes to its stockholders. If the Company fails to qualify
as a REIT in any taxable year, it will then be subject to federal income taxes
on its taxable income at regular corporate rates and will not be permitted to
qualify for treatment as a REIT for federal income tax purposes for four years
following the year during which qualification is lost unless the Internal
Revenue Service grants the Company relief under certain statutory provisions.
Such an event could materially adversely affect the Company’s net income and net
cash available for distribution to stockholders. Through September 30, 2009, the
Company has complied with the requirements for maintaining its REIT
status.


11


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


Notes
to Consolidated Financial Statements


(unaudited)





The
Company has net operating loss carryforwards for Federal income tax purposes
through the year ended December 31, 2006. The availability of such loss
carryforwards will begin to expire in 2026. As the Company does not consider it
likely that it will realize any future benefit from its loss carry-forward, any
deferred asset resulting from the final determination of its tax loss
carryforwards will be fully offset by a valuation allowance of the same
amount.





In 2007,
to maintain the Company’s qualification as a REIT, the Company engages in
certain activities through LVP Acquisitions Corp. (“LVP Corp”), a wholly-owned
taxable REIT subsidiary (“TRS”).  As such, the Company is subject to
federal and state income and franchise taxes from these activities.





As of
September 30, 2009, the Company had no material uncertain income tax positions.
The tax years 2005 through 2008 remain open to examination by the major taxing
jurisdictions to which the Company is subject.




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 debt and notes payable as of
September 30, 2009 was approximately $237.7 million compared to the book value
of approximately $244.7 million. The fair value of the mortgage debt and notes
payable as of December 31, 2008 was approximately $239.8 million compared to the
book value of approximately $246.7 million. The fair value of the mortgage debt
and notes payable was determined by discounting the future contractual interest
and principal payments by a market interest rate.





Accounting for Derivative
Financial Investments and Hedging Activities.





The
Company may enter into derivative financial instrument transactions in order to
mitigate interest rate risk on a related financial instrument. We may designate
these derivative financial instruments as hedges and apply hedge accounting. The
Company will account for derivative and hedging activities, following Topic 815
- “Derivative and Hedging” in the Accounting Standards Codification
(“ASC”).  The Company records all derivative instruments at fair value
on the consolidated balance sheet.





Derivative
instruments designated in a hedge relationship to mitigate exposure to
variability in expected future cash flows, or other types of forecasted
transactions, will be considered cash flow hedges. The Company will formally
document all relationships between hedging instruments and hedged items, as well
as our risk- management objective and strategy for undertaking each hedge
transaction. The Company will periodically review the effectiveness of each
hedging transaction, which involves estimating future cash flows. Cash flow
hedges will be accounted for by recording the fair value of the derivative
instrument on the consolidated balance sheet as either an asset or liability,
with a corresponding amount recorded in other comprehensive income (loss) within
stockholders’ equity. Amounts will be reclassified from other comprehensive
income (loss) to the consolidated statement of operations in the period or
periods the hedged forecasted transaction affects earnings. Derivative
instruments designated in a hedge relationship to mitigate exposure to changes
in the fair value of an asset, liability, or firm commitment attributable to a
particular risk, such as interest rate risk, will be considered fair value
hedges.  The effective portion of the derivatives gain or loss is
initially reported as a component of other comprehensive income and subsequently
reclassified into earnings when the transaction affects earnings. The
ineffective portion of the gain or loss is reported in earnings
immediately.





Stock-Based
Compensation





The
Company has a stock-based incentive award plan for our directors.  The
Company accounts for the incentive award plan in accordance with Topic 718 –
“Compensation-Stock Compensation” in the ASC.  Awards are granted at
the fair market value on the date of the grant with fair value estimated using
the Black-Scholes-Merton option valuation model, which incorporates assumptions
surrounding the volatility, dividend yield, the risk-free interest rate,
expected life, and the exercise price as compared to the underlying stock price
on the grant date.  The tax benefits associated with these share-based
payments are classified as financing activities in the consolidated statement of
cash flows as required under previous regulations.  For the three and
nine months ended September 30, 2009 and 2008, the Company had no material
compensation costs related to the incentive award plan.





Concentration of
Risk




The
Company maintains its cash in bank deposit accounts, which, at times, may exceed
federally insured limits.  The Company has not experienced any losses
in such accounts.  The Company believes it is not exposed to any
significant credit risk on cash and cash equivalents.


12


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


Notes
to Consolidated Financial Statements


(unaudited)





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 September 30, 2009, the Company has
27,000 options issued and outstanding, and does not have any warrants
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.




New Accounting
Pronouncements





In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141R, a revision of
SFAS No. 141, “Accounting for Business Combinations,” which was primarily
codified into Topic 805 – “Business Combinations” in the ASC.  This
standard establishes principles and requirements for how the acquirer shall
recognize and measure in its financial statements the identifiable assets
acquired, liabilities assumed, any noncontrolling interest in the acquiree and
goodwill acquired in a business combination. One significant change includes
expensing acquisition fees instead of capitalizing these fees as part of the
purchase price.  This will impact the Company’s recording of
acquisition fees associated with the purchase of wholly-owned entities on a
prospective basis.  This statement is effective for business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  The Company adopted this standard on January 1, 2009 and the
adoption of this statement did not have a material effect on the consolidated
results of operations or financial position.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements an amendment to ARB No. 51” which was
primarily codified into Topic 810 - “Consolidation” in the ASC.  This
standard establishes and expands accounting and reporting standards for minority
interests, which will be recharacterized as noncontrolling interests, in a
subsidiary and the deconsolidation of a subsidiary. The Company will also be
required to present net income allocable to the noncontrolling interests and net
income attributable to the stockholders of the Company separately in its
consolidated statements of operations. Prior to the implementation
of  this standard, noncontrolling interests (minority interests) were
reported between liabilities and stockholders’ equity in the Company’s statement
of financial position and the related income attributable to minority interests
was reflected as an expense/income in arriving at net income/loss. This standard
requires retroactive adoption of the presentation and disclosure requirements
for existing minority interests. All other requirements of this standard are to
be applied prospectively. The Company adopted this standard on January 1, 2009
and the presentation and disclosure requirements were applied retrospectively.
Other than the change in presentation of noncontrolling interests, the adoption
of this standard did not have a material effect on the consolidated results of
operations or financial position.





In
February 2008, the FASB issued Staff Position No. FAS 157-2 which provides for a
one-year deferral of the effective date of SFAS No. 157, “Fair Value
Measurements,”  which was primarily codified into Topic 820 - “Fair
Value Measurements and Disclosures” in the ASC.  This guidance is for
non-financial assets and liabilities that are recognized or disclosed at fair
value in the financial statements on a nonrecurring basis, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis.  The Company adopted this guidance and it did not have a
material impact to the Company’s financial position or consolidated results of
operations.





In
November 2008, the FASB ratified EITF Issue No.  08-6, “Equity Method
Investment Accounting Considerations”, which was primarily codified into Topic
323 – “Investments-Equity Method” in the ASC.  This guidance clarifies
the accounting for certain transactions and impairment considerations involving
equity method investments and is effective for fiscal years beginning on or
after December 15, 2008 to be applied on a prospective basis. The Company
adopted the provisions of this standard on January 1, 2009.  The
adoption of this guidance changed the Company’s accounting for transaction costs
related to equity investments.  Prior to the adoption of this
guidance, the Company expensed these transaction costs to general and
administrative expense as incurred.  Beginning January 1,
2009,  transaction costs incurred related to the Company’s investment
in unconsolidated affiliated real estate entities accounted for under the equity
method of accounting  are capitalized as part of the cost
of  the investment.  For the three  and nine
months ended September 30, 2009, the Company capitalized $13.3 million and $25.8
million, respectively of transaction costs incurred during the related period
related to its investments in POAC and Mill Run (see Note 3).


13


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


Notes
to Consolidated Financial Statements


(unaudited)





In April
2009, FASB, issued FASB Staff Position, or FSP, No. FAS 115-2 and FAS
124-2,Recognition and
Presentation of Other-Than-Temporary Impairments, which was primarily
codified into Topic 320 – “Investments-Debt and Equity Securities” in the
ASC.  This guidance is intended to provide greater clarity to
investors about the credit and noncredit component of an other-than-temporary
impairment event and to more effectively communicate when an
other-than-temporary impairment event has occurred.  The guidance
applies to fixed maturity securities only and requires separate display of
losses related to credit deterioration and losses related to other market
factors.  When an entity does not intend to sell the security and it
is more likely than not that an entity will not have to sell the security before
recovery of its cost basis, it must recognize the credit component of an
other-than-temporary impairment in earnings and the remaining portion in other
comprehensive income.  In addition, upon adoption of the guidance, an
entity will be required to record a cumulative-effect adjustment as of the
beginning of the period of adoption to reclassify the noncredit component of a
previously recognized other-than-temporary impairment from retained earnings to
accumulated other comprehensive income.  The guidance is effective for
the Company for the quarter ended June 30, 2009.  The Company adopted
the guidance during the quarter ended June 30, 2009 and the adoption did not
have a material effect on the consolidated results of operations or financial
position.





In May
2009, the FASB issued SFAS No. 165, “Subsequent Events”, which was primarily
codified into Topic 855 - “Subsequent Events” in the ASC. This standard sets
forth: 1) the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements; 2) the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements; and 3) the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The standard is effective for interim and
annual periods ending after June 15, 2009. The Company adopted the standard in
the quarter ended June 30, 2009. The standard did not impact the consolidated
results of operations or financial position. See Note 17.





In June
2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles", which was
primarily codified into Topic 105 - "Generally Accepted Accounting Standards" in
the ASC. This standard will become the single source of authoritative
nongovernmental U.S. GAAP, superseding existing FASB, American Institute of
Certified Public Accountants, EITF, and other related accounting literature.
This standard condenses the thousands of GAAP pronouncements into approximately
90 accounting topics and displays them using a consistent structure. Also
included is relevant Securities and Exchange Commission guidance organized using
the same topical structure in separate sections. This guidance became effective
for financial statements issued for reporting periods that ended after September
15, 2009. Beginning in the third quarter of 2009, this guidance impacts the
Company's financial statements and related disclosures as all references to
authoritative accounting literature reflect the newly adopted
codification.





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





3.
            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 as of September 30, 2009 and December 31, 2008 is as
follows:





As
      ofReal
      Estate Entity
                                                
                                                Dates
      Acquired
                                                
                                                Ownership
                                                  %
                                                
                                                
                                                September
      30,
                                                  2009
                                                
                                                
                                                December
      31,
                                                  2008Prime
      Outlets Acquistions Company
                                                
                                                March
      30, 2009 & August 25, 2009
                                                
                                                
                                                40.00
                                                %
                                                
                                                $
                                                92,271,514
                                                
                                                
                                                $
                                                -Mill
      Run LLC
                                                
                                                June
      26, 2008 & August 25, 2009
                                                
                                                
                                                36.80
                                                %
                                                
                                                
                                                39,275,600
                                                
                                                
                                                
                                                19,279,4061407
      Broadway Mezz II LLC
                                                
                                                January
      4, 2007
                                                
                                                
                                                49.00
                                                %
                                                
                                                
                                                786,128
                                                
                                                
                                                
                                                2,096,502Total
      Investments in unconsolidated affiliated real estate
    entities
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                $
                                                132,333,242
                                                
                                                
                                                $
                                                21,375,908





Prime
Outlets Acquisitions Company





On March
30, 2009, the Operating Partnership acquired a 25% membership interest in POAC
from AR Prime in exchange for units in the Operating Partnership (see Note
1).  The acquisition price before transaction costs for the 25%
membership interest in POAC was approximately $356 million, $56 million in the
form of equity and approximately $300 million in the form of indebtedness
secured by the POAC properties (18 retail outlet malls and two development
projects).


14


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


Notes
to Consolidated Financial Statements


(unaudited)





On August
25, 2009, the Operating Partnership acquired an additional 15% membership
interest in POAC from JT Prime in exchange for units in the Operating
Partnership (see Note 1).  The acquisition price before transaction
costs for the 15% membership interest in POAC was approximately $195 million,
$17 million in the form of equity and approximately $178 million in the form of
indebtedness secured by the POAC properties.





As of
September 30, 2009, 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 the
Company has recorded this investment in accordance with the equity method of
accounting, the indebtedness is not included in the Company’s
investment.   In connection with the transaction, our advisor
charged an acquisition fee equal to 2.75% of the acquisition price, or
approximately $15.4 million, of which $5.6 million was recorded during the three
months ended September 30, 2009 related to the acquisition of the 15% membership
interest in POAC (See Note 13). In addition, during the three and nine months
ended September 30, 2009, the Company incurred additional transactions costs
related to accounting, brokerage, legal and other transaction fees of $5.3
million and $8.0 million respectively.  The total transaction costs
incurred during the three and nine months ended September 30, 2009 of $10.9
million and $23.4 million, respectively were capitalized as part of the cost of
the Company’s investment in unconsolidated affiliated real estate
entity.  Prior to January 1, 2009, the Company incurred and expensed
to general and administrative expense transaction costs associated with the
investment in POAC of $2.2 million.  Total transactions fees
associated with the acquisition of the POAC Interest including the advisor
acquisition fee as of September 30, 2009 were $25.6 million.





See Note
13 for discussion of loans issued in connection with the contribution of the
POAC Interest and see Note 16 for discussion of the tax protection
agreement.





Mill
Run Interest





On June
26, 2008, the Operating Partnership acquired a 22.54% membership interest in
Mill Run from Arbor JRM and Arbor CJ in exchange for units in the Operating
Partnership (see Note 1).  The acquisition price before transaction
costs for the 22.54% membership interest in Mill Run was approximately $85
million, $19.6 million in the form of equity and approximately $65.4 million in
the form of indebtedness, which matures November 2010 and is secured by the Mill
Run properties.





On August
25, 2009, the Operating Partnership acquired an additional 14.26% membership
interest in Mill Run from TRAC and Central Jersey in exchange for units in the
Operating Partnership (see Note 1).  The acquisition price before
transaction costs for the 14.26% membership interest in Mill Run was
approximately $56.0 million, $6.0 million in the form of equity, approximately
$39.6 million in the form of indebtedness, which matures November 2010 and is
secured by the Mill Run properties, plus $10.4 million assumption of TRAC and
Central Jersey member interest loans due to Mill Run. These member interest
loans are recorded as part of due to sponsor and other affiliates in the
consolidated balance sheet as of September 30, 2009. Any distributions to the
Company from Mill Run related to the 14.26% membership interest will require the
Company to make an equal amount of mandatory repayment on the member interest
loans.





As of
September 30, 2009, the Operating Partnership owns a 36.8% membership interest
in Mill Run (“Mill Run Interest”).  The Mill Run Interest includes
Class A and B membership shares and is a non-managing interest, with consent
rights with respect to certain major decisions. The Company’s sponsor is the
managing member and owns 55% of Mill Run LLC.  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, the indebtedness is not included in the Company’s
investment.   In connection with the transaction, our advisor
charged an acquisition fee equal to 2.75% of the acquisition price, or
approximately $3.6 million, of which $1.3 million was recorded during the three
months ended September 30, 2009 related to the acquisition of the 14.26%
membership interest in Mill Run (See Note 13). In addition, during the three and
nine months ended September 30, 2009, the Company incurred additional
transactions costs related to accounting, brokerage, legal and other transaction
fees of $1.1 million.  The total transaction costs incurred during the
three and nine months ended September 30, 2009 of $2.4 million were capitalized
as part of the cost of the Company’s investment in unconsolidated affiliated
real estate entity.  Prior to January 1, 2009, the Company incurred
and expensed to general and administrative expense transaction costs associated
with the investment in Mill Run of $4.1 million.  Total transactions
fees associated with the acquisition of the Mill Run Interest including the
advisor acquisition fee as of September 30, 2009 were $8.8
million.


15


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


Notes
to Consolidated Financial Statements


(unaudited)





See Note
13 for discussion loans issued in connection with the contribution of the Mill
Run Interest and see Note 16 for discussion of the tax protection
agreement.





In
connection with the contribution of the 14.26% membership interest in Mill Run
and the 15% membership interest in POAC, the Company entered into certain letter
agreements with the owners of the membership interests of JT Prime, TRAC and
Central Jersey pursuant to which the Company agreed to pay an aggregate amount
equal to $6.0 million in consideration for certain restrictive covenants and for
brokerage services received by the Company in connection with the contribution
of the 14.26% membership interest in Mill Run and the 15% membership interest in
POAC.  The $6.0 million related to these agreements are included in
the total transactions fees discussed above.  $1.1million of the $6.0
million is included in the total transaction fees of $8.8 million for the Mill
Run Interest and $4.9 million of the $6.0 million is included in the total
transaction fees of $25.6 million for the POAC Interest discussed
above.




1407
Broadway




On
January 4, 2007, the Company, through LVP 1407 Broadway LLC, a wholly owned
subsidiary of the Operating Partnership, entered into a joint venture with an
affiliate of the Sponsor (the “Joint Venture”). On the same date, an indirect,
wholly owned subsidiary acquired a sub-leasehold interest in a ground lease to
an office building located at 1407 Broadway, New York, New York (the “Sublease
Interest”).





Initial
equity from the Sponsor, the Company’s co-venturer totaled $13.5 million
(representing a 51% ownership interest).  The Company’s initial
capital investment of $13.0 million (representing a 49% ownership interest) was
funded with proceeds from the Company’s common stock offering.  The
acquisition was funded through a combination of $26.5 million of capital and a
$106.0 million advance on a $127.3 million variable rate mortgage loan funded by
Lehman Brothers Holding, Inc. (“Lehman”).  This mortgage loan matures
on January 9, 2010.  The mortgage loan has two one-year extension
options for a fee of 0.125% of the amount of the respective loan for each
extension, which the Company plans to exercise. Additionally, Lehman will
receive a 35% net profit interest in the project, which is contingent upon a
capital transaction, as defined as any transaction involving the sale,
assignment, transfer, liquidation, condemnation or settlement in lieu thereof,
disposition, financing, refinancing or any other conversion to cash of all or
any portion of the property or equity or membership interests in Borrower,
directly, other than the leasing of space for occupancy and/or any other
transaction with respect to the Property or the direct or indirect ownership
interests in Borrower outside the ordinary course of business.  To
date, the Lender did not share in any net profits of the project.  All
other income and cash distributions will be allocated in accordance with each
investor’s ownership percentage of the venture.  The Joint
Venture plans to continue an ongoing renovation project at the property
that consists of lobby, elevator and window redevelopment projects.





Under the
mortgage loan, the Joint Venture has available credit of approximately $10.5
million, as of September 30, 2009.  See Note 16.





The
original investment was $13.0 million and will be subsequently adjusted for cash
contributions and distributions, and the Company’s share of earnings and losses.
The Company and the co-venturer contributed an additional $0.6 million in 2007.
In addition, during 2008, the Company and the co-venturer each received a
distribution of approximately $1.2 million. 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.





Combined
Financial Information





The
Company’s carrying value of its Mill Run Interest and POAC Interest differs from
its share of member’s equity reported in the condensed combined balance sheet of
the unconsolidated affiliated real estate entities due to the Company’s cost of
its investments in excess of the historical net book values of the
unconsolidated affiliated real estate entities.  The Company’s
additional basis allocated to depreciable assets is recognized on a
straight-line basis over the lives of the appropriate
assets.    The Company’s POAC Interest additional basis
allocation to depreciable assets is a preliminary estimate and could change
based upon the final fair value to net book value analysis, which is expected to
be completed within twelve months from the date of acquisition.


16


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


Notes
to Consolidated Financial Statements


(unaudited)





The
following table represents the condensed combined income statement for
unconsolidated affiliated real estate entities for the three and nine month
period ended September 30, 2009 and September 30, 2008:





For
      the Three Months Ended
                                  
                                  
                                  For
      the Nine Months EndedSeptember
      30, 2009
                                  
                                  
                                  September
      30, 2008 (1)
                                  
                                  
                                  September
      30, 2009 (2)
                                  
                                  
                                  September
      30, 2008 (3)(unaudited)
                                  
                                  
                                  (unaudited)Revenue
                                  
                                  $
                                  66,917,202
                                  
                                  
                                  $
                                  20,057,911
                                  
                                  
                                  $
                                  152,836,646
                                  
                                  
                                  $
                                  39,738,193Property
      operating expenses
                                  
                                  
                                  35,419,965
                                  
                                  
                                  
                                  10,720,876
                                  
                                  
                                  
                                  76,653,506
                                  
                                  
                                  
                                  23,772,362Depreciation
      and amortization
                                  
                                  
                                  16,534,485
                                  
                                  
                                  
                                  5,491,540
                                  
                                  
                                  
                                  36,369,984
                                  
                                  
                                  
                                  12,112,701Operating
      income
                                  
                                  
                                  14,962,752
                                  
                                  
                                  
                                  3,845,495
                                  
                                  
                                  
                                  39,813,156
                                  
                                  
                                  
                                  3,853,130Interest
      expense and other, net
                                  
                                  
                                  (15,334,759
                                  )
                                  
                                  
                                  (4,918,293
                                  )
                                  
                                  
                                  (31,898,077
                                  )
                                  
                                  
                                  (8,127,027
                                  )Net
      (loss)/income
                                  
                                  $
                                  (372,007
                                  )
                                  
                                  $
                                  (1,072,798
                                  )
                                  
                                  $
                                  7,915,079
                                  
                                  
                                  $
                                  (4,273,897
                                  )The
      Company's share of net income/(loss), net of excess basis depreciation of
      $2.9 million, zero, $5.4 million and zero, respectively
                                  
                                  $
                                  (3,508,079
                                  )
                                  
                                  $
                                  (676,194
                                  )
                                  
                                  $
                                  (4,248,298
                                  )
                                  
                                  $
                                  2,236,511





(1)
            Amounts
      include the three months ended September 30, 2008 for 1407 Broadway Mezz
      II LLC and Mill Run LLC.


(2)
            Amounts
      include the nine months ended September 30, 2009 for 1407 Broadway Mezz II
      LLC and Mill Run LLC plus the period March 30, 2009 through September 30,
      2009 related to Prime Outlets Acquisitions
  Company.


(3)
            Amounts
      include the nine months ended September 30, 2008 for 1407 Broadway Mezz II
      LLC and the period June 26, 2008 through September 30, 2008 for Mill Run
      LLC.





The following table represents the condensed
combined balance sheet for the unconsolidated affiliated real estate entities as
of September 30, 2009 and December 31, 2008:





As
      of
                          
                          
                          As
      ofSeptember 30, 2009
                          
                          
                          December 31, 2008(1)(unaudited)Real
      estate, at cost, net
                          
                          $
                          1,166,060,976
                          
                          
                          $
                          381,016,535Intangible
      assets, net
                          
                          
                          17,827,431
                          
                          
                          
                          5,500,334Cash
      and restricted cash
                          
                          
                          73,497,484
                          
                          
                          
                          18,146,318Other
      assets
                          
                          
                          63,702,505
                          
                          
                          
                          34,736,039Total
      Assets
                          
                          $
                          1,321,088,396
                          
                          
                          $
                          439,399,226Mortgage
      note payable(2)
                          
                          $
                          1,576,272,795
                          
                          
                          $
                          396,971,167Other
      liabilities
                          
                          
                          60,145,904
                          
                          
                          
                          40,661,034Member
      capital
                          
                          
                          (315,330,303
                          )
                          
                          
                          1,767,025Total
      liabilities and members' capital
                          
                          $
                          1,321,088,396
                          
                          
                          $
                          439,399,226





(1)
            Amounts
      include the combined balance sheets for 1407 Broadway Mezz II LLC and Mill
      Run LLC.


(2)
            As
      of September 30, 2009, the Company’s portion of the $1.6 billion mortgage
      note payable outstanding is approximately $632.3
  million.


17


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 $11.0 million (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 September 30, 2009 and $0.3 million at
December 31, 2008, and are included in interest receivable from related
parties.   Through September 30, 2009, the Company received
redemption payments from PAF of $2.7 million, of which $1.9 million was received
during the nine months ended September 30, 2009.  As of September 30,
2009, the Company’s investment in PAF is $8.3 million and is included in
investment in affiliate, at cost in the consolidated balance sheet.





5.
            Marketable
      Securities and Fair Value
Measurements





The
following is a summary of the Company’s available for sale securities at
September 30, 2009 and December 31, 2008:





As
      of September 30, 2009
                          
                          
                          As
      of December 31, 2008Adjusted
      Cost
                          
                          
                          Unrealized
      Gain
                          
                          
                          Fair
      Value
                          
                          
                          Adjusted
      Cost
                          
                          
                          Unrealized
                            Gain/(Loss)
                          
                          
                          Fair
      ValueCorporate
      Bonds
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          9,508,760
                          
                          
                          $
                          147,740
                          
                          
                          $
                          9,656,500Equity
      Securities, primarily REITs
                          
                          
                          466,141
                          
                          
                          
                          413,855
                          
                          
                          
                          879,996
                          
                          
                          
                          6,154,259
                          
                          
                          
                          (4,360,194
                          )
                          
                          
                          1,794,065Total
      Marketable Securities - available for sale
                          
                          $
                          466,141
                          
                          
                          $
                          413,855
                          
                          
                          $
                          879,996
                          
                          
                          $
                          15,663,019
                          
                          
                          $
                          (4,212,454
                          )
                          
                          $
                          11,450,565





The
Company, in 2008, during the three months ended September 30, 2008 and December
31, 2008 recorded a write down of $9.7 million and $0.1 million, respectively
for other than temporary declines on certain
available-for-securities.  During the six months ended June 30, 2009,
the Company’s marketable securities and the overall REIT market continued to
experience significant declines, which increased the duration and magnitude of
the Company’s unrealized losses.  The overall challenges in the
economic environment, including near term prospects for certain of the Company’s
securities makes a recovery period difficult to project.  Although the
Company has the ability to hold these securities until potential recovery, the
Company believes certain of the losses for these securities are other than
temporary.  As a result, during the three months ended June 30, 2009,
the Company recorded a write-down of $3.4 million for other than temporary
declines on certain available-for-sale securities, which are included in Other
than temporary impairment – marketable securities on the consolidated statements
of operations to reflect the additional reduction from 2008 that is considered
to be other than temporary. During the three months ended September 30, 2009, no
additional impairment charge has been recorded.


18


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


Notes
to Consolidated Financial Statements


(unaudited)





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 September 30, 2009 are as
follows:





Fair
      Value Measurement UsingAs
      of September 30, 2009
                                          
                                          Level
      1
                                          
                                          
                                          Level
      2
                                          
                                          
                                          Level
      3
                                          
                                          
                                          TotalCorporate
      bonds
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -Equity
      Securities, primiarily REITs
                                          
                                          
                                          879,996
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          879,996Total
      Marketable securities - available for sale
                                          
                                          $
                                          879,996
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          879,996





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
September 30, 2009, 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
September 30, 2009 and December 31, 2008:





At
      September 30, 2009
                      
                      
                      At
      December 31, 2008Cost
                      
                      
                      Accumulated
                        Amortization
                      
                      
                      Net
                      
                      
                      Cost
                      
                      
                      Accumulated
                        Amortization
                      
                      
                      NetAcquired
      in-place lease intangibles
                      
                      $
                      2,657,274
                      
                      
                      $
                      (1,924,752
                      )
                      
                      $
                      732,522
                      
                      
                      $
                      2,990,772
                      
                      
                      $
                      (1,849,234
                      )
                      
                      $
                      1,141,538Acquired
      above market lease intangibles
                      
                      
                      1,087,830
                      
                      
                      
                      (813,675
                      )
                      
                      
                      274,155
                      
                      
                      
                      1,150,659
                      
                      
                      
                      (710,720
                      )
                      
                      
                      439,939Deferred
      intangible leasing costs
                      
                      
                      1,379,242
                      
                      
                      
                      (919,288
                      )
                      
                      
                      459,954
                      
                      
                      
                      1,527,840
                      
                      
                      
                      (832,824
                      )
                      
                      
                      695,016Acquired
      below market lease intangibles
                      
                      
                      (3,228,831
                      )
                      
                      
                      2,476,823
                      
                      
                      
                      (752,008
                      )
                      
                      
                      (3,462,455
                      )
                      
                      
                      2,258,021
                      
                      
                      
                      (1,204,434
                      )


19


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


Notes
to Consolidated Financial Statements


(unaudited)





During
the three and nine months ended  September 30, 2009, the Company wrote
off fully amortized acquired intangible assets of approximately $0.3 million
and  $0.8 million, respectively, resulting in a reduction of cost and
accumulated amortization of intangible assets at September 30, 2009 compared to
the December 31, 2008.  There were no additions during the three and
nine months ended September 30, 2009.





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 September 30, 2009:





Balance
                                            2009
                                          
                                          
                                          2010
                                          
                                          
                                          2011
                                          
                                          
                                          2012
                                          
                                          
                                          2013
                                          
                                          
                                          Thereafter
                                          
                                          
                                          TotalAmortization
      expense/(benefit) of:Acquired
      above market lease value
                                          
                                          $
                                          39,297
                                          
                                          
                                          $
                                          96,735
                                          
                                          
                                          $
                                          52,826
                                          
                                          
                                          $
                                          23,379
                                          
                                          
                                          $
                                          14,425
                                          
                                          
                                          $
                                          47,493
                                          
                                          
                                          $
                                          274,155Acquired
      below market lease value
                                          
                                          
                                          (102,403
                                          )
                                          
                                          
                                          (264,789
                                          )
                                          
                                          
                                          (125,832
                                          )
                                          
                                          
                                          (87,911
                                          )
                                          
                                          
                                          (86,625
                                          )
                                          
                                          
                                          (84,448
                                          )
                                          
                                          
                                          (752,008
                                          )Projected
      future net rental income increase
                                          
                                          $
                                          (63,106
                                          )
                                          
                                          $
                                          (168,054
                                          )
                                          
                                          $
                                          (73,006
                                          )
                                          
                                          $
                                          (64,532
                                          )
                                          
                                          $
                                          (72,200
                                          )
                                          
                                          $
                                          (36,955
                                          )
                                          
                                          $
                                          (477,853
                                          )





Amortization
benefit of acquired above and below market lease values is included in total
revenues in our consolidated statements of operations was $0.1 million and $0.3
million for the three months ended September 30, 2009 and 2008, respectively and
was $0.2 million and $0.6 million for the nine months ended September 30, 2009
and 2008, 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 September 30, 2009:





Balance2009
                                                    
                                                    
                                                    2010
                                                    
                                                    
                                                    2011
                                                    
                                                    
                                                    2012
                                                    
                                                    
                                                    2013
                                                    
                                                    Thereafter
                                                    
                                                    
                                                    TotalAmortization
      expense of:Acquired
      in-place leases value
                                                    
                                                    $
                                                    97,638
                                                    
                                                    
                                                    $
                                                    219,186
                                                    
                                                    
                                                    $
                                                    109,287
                                                    
                                                    
                                                    $
                                                    72,836
                                                    
                                                    
                                                    $
                                                    66,883
                                                    
                                                    
                                                    $
                                                    166,692
                                                    
                                                    
                                                    $
                                                    732,522Deferred
      intangible leasing costs value
                                                    
                                                    
                                                    57,202
                                                    
                                                    
                                                    $
                                                    138,354
                                                    
                                                    
                                                    $
                                                    76,368
                                                    
                                                    
                                                    $
                                                    46,358
                                                    
                                                    
                                                    $
                                                    41,219
                                                    
                                                    
                                                    $
                                                    100,453
                                                    
                                                    
                                                    
                                                    459,954Projected
      future amortization expense
                                                    
                                                    $
                                                    154,840
                                                    
                                                    
                                                    $
                                                    357,540
                                                    
                                                    
                                                    $
                                                    185,655
                                                    
                                                    
                                                    $
                                                    119,194
                                                    
                                                    
                                                    $
                                                    108,102
                                                    
                                                    
                                                    $
                                                    267,145
                                                    
                                                    
                                                    $
                                                    1,192,476





Actual
total amortization expense included in depreciation and amortization expense in
our consolidated statements of operations was $0.2 million, and $0.2 million for
the three months ended September 30, 2009 and 2008, respectively and was
$0.8million, and $1.0 million for the nine months ended September 30, 2009 and
2008, respectively.





7.
            Impairment
      of Long- Lived Assets





For the
three and nine months ended September 30, 2009, the Company recorded an asset
impairment charge of $45.2 million primarily related to the impairment within
the multi-family segment of $43.2 million associated with the five properties
within the Camden portfolio and $2.0 million within the retail segment
associated with our Brazos Crossing power center.  The Company
identified certain indicators of impairment related to these properties such as
negative cash flow expectations and change in management’s expectations
regarding the length of the holding period, which occurred during the three
months ended September 30, 2009.   These indicators did not exist
during the Company’s prior reviews of the properties through June 30, 2009. The
Company performed a cash flow valuation analysis and determined that the
carrying value of the property exceeded the weighted probability of their
undiscounted cash flows.  Therefore, the Company has recorded an
impairment charge of $45.2 million related to these properties consisting of the
excess carrying value of the asset over its estimated fair values as part of
line item impairment of long lived assets, net of gain on disposal within the
accompanying consolidated statements of operations.  The fair value
for these assets was determined to be $60.0 million. The Company’s debt
obligations outstanding on these properties are approximately $86.7 million. For
the three and nine months ended September 30, 2008, the Company did not record
an impairment charge.


20


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


Notes
to Consolidated Financial Statements


(unaudited)





8.
            Future
      Minimum Rentals





As of
September 30, 2009, the approximate fixed future minimum rentals from the
Company’s commercial real estate properties are as follows for the remainder of
2009 and thereafter:





Remainder of
                            2009
                          
                          
                          2010
                          
                          
                          2011
                          
                          
                          2012
                          
                          
                          2013
                          
                          
                          Thereafter
                          
                          
                          Total$
                          3,209,866
                          
                          
                          $
                          11,224,304
                          
                          
                          $
                          9,086,765
                          
                          
                          $
                          7,603,283
                          
                          
                          $
                          6,412,516
                          
                          
                          $
                          21,828,582
                          
                          
                          $
                          59,365,316





Pursuant
to the lease agreements, tenants of the property may be required to reimburse
the Company for some or all of the particular tenant's pro rata share of the
real estate taxes and operating expenses of the property. Such amounts are not
included in the future minimum lease payments above, but are included in tenant
recovery income on the accompanying consolidated statements of
operations.





9.
            Mortgages
      Payable





Mortgages
payable, totaling approximately $237.3 million and $239.2 million at September
30, 2009 and December 31, 2008, respectively, consists of the
following:





Loan Amount as ofProperty
                                      
                                      Interest Rate
                                      
                                      Maturity Date
                                      
                                      Amount Due at
                                        Maturity
                                      
                                      
                                      September 30,
                                        2009
                                      
                                      
                                      December 31,
                                        2008St.
      Augustine
                                      
                                      
                                      6.09
                                      %
                                      April
      2016
                                      
                                      $
                                      23,747,523
                                      
                                      
                                      $
                                      26,487,724
                                      
                                      
                                      $
                                      26,738,211Southeastern
      Michigan Multi Family Properties
                                      
                                      
                                      5.96
                                      %
                                      July
      2016
                                      
                                      
                                      38,138,605
                                      
                                      
                                      
                                      40,725,000
                                      
                                      
                                      
                                      40,725,000Oakview
      Plaza
                                      
                                      
                                      5.49
                                      %
                                      January
      2017
                                      
                                      
                                      25,583,137
                                      
                                      
                                      
                                      27,500,000
                                      
                                      
                                      
                                      27,500,000Gulf
      Coast Industrial Portfolio
                                      
                                      
                                      5.83
                                      %
                                      February
      2017
                                      
                                      
                                      49,556,985
                                      
                                      
                                      
                                      53,025,000
                                      
                                      
                                      
                                      53,025,000Houston
      Extended Stay Hotels (Two Individual Loans)
                                      
                                      LIBOR
      + 4.50
                                      %
                                      April
      2010
                                      
                                      
                                      10,018,750
                                      
                                      
                                      
                                      10,281,250
                                      
                                      
                                      
                                      11,986,971Camden
      Multi Family Properties - (Five Individual Loans)
                                      
                                      
                                      5.44
                                      %
                                      December
      2014
                                      
                                      
                                      74,955,771
                                      
                                      
                                      
                                      79,268,800
                                      
                                      
                                      
                                      79,268,800Total
      mortgage obligations
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      222,000,771
                                      
                                      
                                      $
                                      237,287,774
                                      
                                      
                                      $
                                      239,243,982





LIBOR at
September 30, 2009 and at December 31, 2008 was 0.24563% and 0.43625%,
respectively.  Monthly installments of principal and interest are
required throughout the remainder of its stated term for the St. Augustine loan
and the Houston Extended Stay Hotels loans.  Monthly installments of
interest only are required through the first 60 months (through July 2011) for
the Southeastern Michigan multi-family properties, through the first 60 months
(through November 2012) for the Oakview Plaza loan, through the first 60 months
(through March 2012) for the Gulf Coast Industrial Portfolio loan, and through
the first 48 months (through December 2010) for the Camden Multi-Family
properties’ loans and monthly installments of principal and interest are
required throughout the remainder of its stated term.  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 debt maturing during the next five years and
thereafter at September 30, 2009:





Remainder
      of
                            2009
                          
                          
                          2010
                          
                          
                          2011
                          
                          
                          2012
                          
                          
                          2013
                          
                          
                          Thereafter
                          
                          
                          Total$
                          175,065
                          
                          
                          $
                          10,553,276
                          
                          
                          $
                          1,586,957
                          
                          
                          $
                          2,781,012
                          
                          
                          $
                          3,107,355
                          
                          
                          $
                          219,084,109
                          
                          
                          $
                          237,287,774




21


LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 (unaudited)




Pursuant
to the Company’s loan agreements, escrows in the amount of approximately $7.2
million were held in restricted escrow accounts at September 30, 2009. These
escrows will be released in accordance with the loan agreements as payments of
real estate taxes, insurance and capital improvement transactions, as required.
Our mortgage debt also contains clauses providing for prepayment
penalties.





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,
Florida property, the payment of losses that the lender (“Wachovia”) 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 Wachovia 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 Wachovia, the Guarantor has guaranteed the payment of any unpaid loan
amounts.  The Company has agreed, to the maximum extent permitted by its
Charter, to indemnify Guarantor for any liability
that it incurs under this guaranty.




In
connection with the acquisition of the Hotels, the Houston Partnership along
with ESD #5051 - Houston - Sugar Land, LLC and ESD #5050 - Houston - Katy
Freeway, LLC, its wholly owned subsidiaries (the “Houston Borrowers”) secured a
mortgage loan from Bank of America, N.A. in the principal amount of $12.85
million which matured on April 16, 2009.  At maturity, this mortgage
loan agreement was amended extending the term for one-year to April 16, 2010 on
a principal amount of $10,500,000.  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 one hundred
seventy-five 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, 2010.  The
mortgage loan is secured by the Hotels and is guaranteed by the
Company.  The weighted average interest rate related to this variable
interest rate loan for three and nine months ended September 30, 2009 was 4.77%
and 3.75%, respectively.





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 the first three years 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 September 30, 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.   The Company is in
current discussions with the lender regarding its default status and potential
future remedies.  For the three months ended September 30, 2009, the
Company recorded an impairment charge on long lived assets of $43.2 million
associated with all five properties within the Camden
portfolio.    See Note 7.





Interest
costs capitalized related to the renovation and expansion projects during the
three months ended September 30, 2009 and 2008 amounted to zero and $0.2
million, respectively and during the nine months ended September 30, 2009 and
2008 amounted to zero and $0.5 million, respectively.





10.
            Note
      Payable




On
December 5, 2007, the Company entered into a construction loan to fund the
development of the Brazos Crossing Power Center, in Lake Jackson,
Texas.  The loan allowed the Company to draw up to $8.2 million, and
requires monthly installments of interest only through the first 12 months and
bears interest at the greater of 6.75% or 150 basis points (1.5%) in excess of
LIBOR.  For the second twelve months, principal payments shall be made
in monthly installments in amounts equal to one-twelfth of the principal
component of an annual amortization of the principal of the loan on the basis of
an assumed interest rate of 6.82% and a thirty year term.  The loan is
secured by acquired real estate and is guaranteed by the Company, in certain
events.  The balance at September 30, 2009 and December 31, 2008 was
$7.4 million. The construction phase of the loan matured on December 4,
2008.  The Company exercised its right to convert the loan from the
construction phase to the term phase.  The term phase of the loan
matures on December 4, 2009.  The weighted average interest rate for
three and nine months ended September 30, 2009 was 6.75%.





The
agreement also required the Company to obtain an interest rate cap of LIBOR at
6.0% for the term of the loan. Due to the fact that interest rates were below
the 6.0% interest rate cap, the interest rate cap had a zero fair value at
September 30, 2009 and December 31, 2008.




22




LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 (unaudited)




11.
            Distributions
      Payable




On
September 17, 2009, the Company declared a dividend for the three-month period
ending September 30, 2009 of $5.5 million. The dividend 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 September 30, 2009 dividend was paid in full in October 2009 using a
combination of cash ($3.1 million) and shares ($2.4 million) which represents
0.3 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.





12.
            Company’s
      Stockholders’ Equity




Preferred
Shares




Shares of
preferred stock may be issued in the future in one or more series as authorized
by the Lightstone REIT’s board of directors. Prior to the issuance of shares of
any series, the board of directors is required by the Lightstone REIT’s charter
to fix the number of shares to be included in each series and the terms,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption for each series. Because the Lightstone REIT’s board of
directors has the power to establish the preferences, powers and rights of each
series of preferred stock, it may provide the holders of any series of preferred
stock with preferences, powers and rights, voting or otherwise, senior to the
rights of holders of our common stock. The issuance of preferred stock could
have the effect of delaying, deferring or preventing a change in control of the
Lightstone REIT, including an extraordinary transaction (such as a merger,
tender offer or sale of all or substantially all of our assets) that might
provide a premium price for holders of the Lightstone REIT’s common stock. As of
September 30, 2009 and December 31, 2008, the Lightstone REIT had no
outstanding preferred shares.




Common Shares




All of
the common stock being offered by the Lightstone REIT will be duly authorized,
fully paid and nonassessable. Subject to the preferential rights of any other
class or series of stock and to the provisions of its charter regarding the
restriction on the ownership and transfer of shares of our stock, holders of the
Lightstone REIT’s common stock will be entitled to receive distributions if
authorized by the board of directors and to share ratably in the Lightstone
REIT’s assets available for distribution to the stockholders in the event of a
liquidation, dissolution or winding-up.




Each
outstanding share of the Lightstone REIT’s common stock entitles the holder to
one vote on all matters submitted to a vote of stockholders, including the
election of directors. There is no cumulative voting in the election of
directors, which means that the holders of a majority of the outstanding common
stock can elect all of the directors then standing for election, and the holders
of the remaining common stock will not be able to elect any
directors.





Holders
of the Lightstone REIT’s common stock have no conversion, sinking fund,
redemption or exchange rights, and have no preemptive rights to subscribe for
any of its securities. Maryland law provides that a stockholder has appraisal
rights in connection with some transactions. However, the Lightstone REIT’s
charter provides that the holders of its stock do not have appraisal rights
unless a majority of the board of directors determines that such rights shall
apply. Shares of the Lightstone REIT’s common stock have equal dividend,
distribution, liquidation and other rights.




Under its
charter, the Lightstone REIT cannot make some material changes to its business
form or operations without the approval of stockholders holding at least a
majority of the shares of our stock entitled to vote on the matter. These
include (1) amendment of its charter, (2) its liquidation or dissolution, (3)
its reorganization, and (4) its merger, consolidation or the sale or other
disposition of its assets. Share exchanges in which the Lightstone REIT is the
acquirer, however, do not require stockholder approval. The Lightstone REIT had
approximately 31.3 million and 31.0 million shares of common stock outstanding
as of September 30, 2009 and December 31, 2008, respectively.




23




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


Notes
to Consolidated Financial Statements


(unaudited)




Dividends





The
Board of Directors of the Lightstone REIT declared a dividend for each quarter
in 2006, 2007, 2008 and 2009. The dividends 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.





The
amount of dividends distributed 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.





Stock-Based
Compensation





We have
adopted a stock option plan under which our independent directors are eligible
to receive annual nondiscretionary awards of nonqualified stock options. Our
stock option plan is designed to enhance our profitability and value for the
benefit of our stockholders by enabling us to offer independent directors stock
based incentives, thereby creating a means to raise the level of equity
ownership by such individuals in order to attract, retain and reward such
individuals and strengthen the mutuality of interests between such individuals
and our stockholders.





We have
authorized and reserved 75,000 shares of our common stock for issuance under our
stock option plan. The board of directors may make appropriate adjustments to
the number of shares available for awards and the terms of outstanding awards
under our stock option plan to reflect any change in our capital structure or
business, stock dividend, stock split, recapitalization, reorganization, merger,
consolidation or sale of all or substantially all of our assets.





Our stock
option plan provides for the automatic grant of a nonqualified stock option to
each of our independent directors, without any further action by our board of
directors or the stockholders, to purchase 3,000 shares of our common stock on
the date of each annual stockholder’s meeting.  In July 2007, August
2008 and September 2009, options to purchase 3,000 shares were granted to each
of our three independent directors at the annual stockholders meeting on the
respective dates.   As of September 30, 2009, options to purchase
27,000 shares of stock were outstanding, 9,000 were fully vested, at an exercise
price of $10. Through September 30, 2009, there were no forfeitures related to
stock options previously granted.





The
exercise price for all stock options granted under the stock option plan will be
fixed at $10 per share until the termination of the Lightstone REIT’s initial
public offering which occurred in October 2008, and thereafter the exercise
price for stock options granted to the independent directors will be equal to
the fair market value of a share on the last business day preceding the annual
meeting of stockholders. The term of each such option will be 10 years. Options
granted to non-employee directors will vest and become exercisable on the second
anniversary of the date of grant, provided that the independent director is a
director on the board of directors on that date. Notwithstanding any other
provisions of the Lightstone REIT’s stock option plan to the contrary, no stock
option issued pursuant thereto may be exercised if such exercise would
jeopardize the Lightstone REIT’s status as a REIT under the Internal Revenue
Code.





Compensation
expense associated with our stock option plan was not material for the three and
nine months ended September 30, 2009 and 2008.





13.
            Noncontrolling
      Interests




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





Share Description


See Note
14 for discussion of rights related to SLP units.  The limited partner
and Common Units of the Operating Partnership have similar rights as those of
the Company’s stockholders including distribution rights.





The
Series A Preferred Units holders are entitled to receive cumulative preferential
distributions equal to an annual rate 4.6316%, if and when declared by the
Company. The Series A Preferred Units have no mandatory redemption or maturity
date. The Series A Preferred Units are not redeemable by the Operating
Partnership prior to the Lockout Date of June 26, 2013. On or after the Lockout
Date, the Series A Preferred Units may be redeemed at the option of the
Operating Partnership (which notice may be delivered prior to the Lockout Date
as long as the redemption does not occur prior to the Lockout Date), in whole
but not in part, on thirty (30) days’ prior written notice at the option of the
Operating Partnership, at a redemption price per Series A Preferred Unit equal
to the sum of the Series A Liquidation Preference plus an amount equal to all
distributions (whether or not earned or declared) accrued and unpaid thereon to
the date of redemption, and the redemption price shall be payable in cash.
During any redemption notice period, the holders of the Series A Preferred Units
shall retain any conversion rights with respect to the Series A Preferred Units.
The Series A Preferred Units shall not be subject to any sinking fund or other
obligation of the Operating Partnership to redeem or retire the Series A
Preferred Units.




24




LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 (unaudited)




Distributions





During
the nine months ended September 30, 2009, the Company paid distributions to
noncontrolling interests of $3.2 million.  In addition, as of
September 30, 2009, the total distributions declared and not paid to
noncontrolling interests was $1.5 million, which were subsequently paid during
October 2009.





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 JRM, Arbor CJ, AR Prime, TRAC, Central Jersey
and JT Prime (collectively, “Noncontrolling Interest Borrowers”) in the
aggregate principal amount of $88.5 million (the “Noncontrolling Interest
Loans”), of which $20.7 million was issued during the three months ended
September 30, 2009 and $22.4 million during the nine months ended September 30,
2009.  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
sheet.





Accrued
interest related to these loans totaled $0.9 million at September 30, 2009 and
$1.4 million at December 31, 2008, and is included in interest receivable from
related parties in the consolidated balance sheet.





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 3).  On August 25, 2009, the Operating Partnership
contributed its investments of the 15% membership interest in POAC and the
14.26% membership interest in Mill Run to the newly formed PRO-DFJV Holdings,
LLC, a Delaware limited liability company (“PRO”) in exchange for a 99.99%
managing membership interest in PRO.  In addition, 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.




25


LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 (unaudited)


14.
            Related
      Party Transactions





The
Lightstone REIT has agreements with the Dealer Manager, Advisor and Property
Manager to pay certain fees, as follows, 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, Dealer Manager and their affiliates to perform such
services as provided in these agreements.





Fees
                            
                            AmountSelling
      Commission
                            
                            The
      Dealer Manager was paid up to 7% of the gross offering proceeds, or
      approximately $21.0 million, before reallowance of commissions earned by
      participating broker-dealers.Dealer
                              Management
      Fee
                            
                            The
      Dealer Manager was paid up to 1% of gross offering proceeds, or
      approximately $3.0 million, before reallowance to participating
      broker-dealers.Reimbursement
      of
                              Offering
      Expenses
                            
                            Reimbursement
      of all offering costs, including the commissions and dealer management
      fees indicated above, up to $30 million based upon maximum offering of 30
      million shares. The Lightstone REIT sold a special general partnership
      interest in the Operating Partnership to Lightstone SLP, LLC (an affiliate
      of the Sponsor) and applied all the sales proceeds to offset such
      costs.Acquisition
      Fee
                            
                            The
      Advisor will be paid an acquisition fee equal to 2.75% of the gross
      contract purchase price (including any mortgage assumed) of each property
      purchased. The Advisor will also be reimbursed for expenses that it incurs
      in connection with the purchase of a property. The Lightstone REIT
      anticipates that acquisition expenses will be between 1% and 1.5% of a
      property's purchase price, and acquisition fees and expenses are capped at
      5% of the gross contract purchase price of the property. The actual
      amounts of these fees and reimbursements depend upon results of operations
      and, therefore, cannot be determined at the present time. However,
      $33,000,000 may be paid as an acquisition fee and for the reimbursement of
      acquisition expenses if the maximum offering is sold, assuming aggregate
      long-term permanent leverage of approximately 75%.Property
      Management - Residential/Retail/
                              Hospitality
                            
                            The
      Property Manager will be paid a monthly management fee of up to 5% of the
      gross revenues from residential, hospitality and retail properties.
      Lightstone REIT may pay the Property Manager a separate fee for i) the
      development of, ii) the one-time initial rent-up or iii) the leasing-up of
      newly constructed properties in an amount not to exceed the fee
      customarily charged in arm’s length transactions by others rendering
      similar services in the same geographic area for similar properties as
      determined by a survey of brokers and agents in such
  area.




26




LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 (unaudited)


Fees
                            
                            AmountProperty
      Management - Office/Industrial
                            
                            The
      Property Manager will be paid monthly property management and leasing fees
      of up to 4.5% of gross revenues from office and industrial properties. In
      addition, the Lightstone REIT may pay the Property Manager a separate fee
      for the one-time initial rent-up or leasing-up of newly constructed
      properties in an amount not to exceed the fee customarily charged in arm’s
      length transactions by others rendering similar services in the same
      geographic area for similar properties as determined by a survey of
      brokers and agents in such area.Asset
      Management Fee
                            
                            The
      Advisor or its affiliates will be paid an asset management fee of 0.55% of
      the Lightstone REIT’s average invested assets, as defined, payable
      quarterly in an amount equal to 0.1375 of 1% of average invested assets as
      of the last day of the immediately preceding quarter.Reimbursement
      ofOther
      expenses
                            
                            For
      any year in which the Lightstone REIT qualifies as a REIT, the Advisor
      must reimburse the Lightstone REIT for the amounts, if any, by which the
      total operating expenses, the sum of the advisor asset management fee plus
      other operating expenses paid during the previous fiscal year exceed the
      greater of 2% of average invested assets, as defined, for that fiscal
      year, or, 25% of net income for that fiscal year. Items such as property
      operating expenses, depreciation and amortization expenses, interest
      payments, taxes, non-cash expenditures, the special liquidation
      distribution, the special termination distribution, organization and
      offering expenses, and acquisition fees and expenses are excluded from the
      definition of total operating expenses, which otherwise includes the
      aggregate expense of any kind paid or incurred by the Lightstone
      REIT.The
      Advisor or its affiliates will be reimbursed for expenses that may include
      costs of goods and services, administrative services and non-supervisory
      services performed directly for the Lightstone REIT by independent
      parties.




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 nine months ended September 30, 2009,
distributions of $2.1 million were declared and distributions of $1.6 million
were paid related to the SLP units and are part of noncontrolling interests.
Since inception through September 30, 2009, cumulative distributions declared
were $3.9 million, of which $3.4 million have been paid.  Such
distributions, paid current at a 7% annualized rate of return to Lightstone SLP,
LLC through September 30, 2009 and will always be subordinated until
stockholders receive a stated preferred return, as described below.




27




LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 (unaudited)




The
special general partner interests will also entitle Lightstone SLP, LLC to a
portion of any liquidating distributions made by the Operating Partnership. The
value of such distributions will depend upon the net sale proceeds upon the
liquidation of the Lightstone REIT and, therefore, cannot be determined at the
present time. Liquidating distributions to Lightstone SLP, LLC will always be
subordinated until stockholders receive a distribution equal to their initial
investment plus a stated preferred return, as described below:




Operating StageDistributions
                  
                  Amount of Distribution7%
      stockholder Return Threshold
                  
                  Once
      a cumulative non-compounded return of 7% return on their net investment is
      realized by stockholders, Lightstone SLP, LLC is eligible to receive
      available distributions from the Operating Partnership until it has
      received an amount equal to a cumulative non-compounded return of 7% per
      year on the purchase price of the special general partner interests. “Net
      investment” refers to $10 per share, less a pro rata share of any proceeds
      received from the sale or refinancing of the Lightstone REIT’s
      assets.12%
      Stockholder Return Threshold
                  
                  Once
      a cumulative non-compounded return of 12% per year is realized by
      stockholders on their net investment (including amounts equaling a 7%
      return on their net investment as described above), 70% of the aggregate
      amount of any additional distributions from the Operating Partnership will
      be payable to the stockholders, and 30% of such amount will be payable to
      Lightstone SLP, LLC.Returns
      in Excess of12%
                  
                  After
      the 12% return threshold is realized by stockholders and Lightstone SLP,
      LLC, 60% of any remaining distributions from the Operating Partnership
      will be distributable to stockholders, and 40% of such amount will be
      payable to Lightstone SLP,
LLC.




Liquidating Stage
                    Distributions
                  
                  Amount of Distribution7%
      Stockholder Return Threshold
                  
                  Once
      stockholders have received liquidation distributions, and a cumulative
      non-compounded 7% return per year on their initial net investment,
      Lightstone SLP, LLC will receive available distributions until it has
      received an amount equal to its initial purchase price of the special
      general partner interests plus a cumulative non-compounded return of 7%
      per year.12%
      Stockholder Return Threshold
                  
                  Once
      stockholders have received liquidation distributions, and a cumulative
      non-compounded return of 12% per year on their initial net investment
      (including amounts equaling a 7% return on their net investment as
      described above), 70% of the aggregate amount of any additional
      distributions from the Operating Partnership will be payable to the
      stockholders, and 30% of such amount will be payable to Lightstone SLP,
      LLC.Returns
      in Excess of 12%
                  
                  After
      stockholders and Lightstone LP, LLC have received liquidation
      distributions, and a cumulative non-compounded return of 12% per year on
      their initial net investment, 60% of any remaining distributions from the
      Operating Partnership will be distributable to stockholders, and 40% of
      such amount will be payable to Lightstone SLP,
  LLC.




28




LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 (unaudited)




The
Lightstone REIT pursuant to the related party arrangements described above has
recorded the following amounts the three and nine months ended September 30,
2009 and 2008:





For the Three Months Ended
                                
                                
                                For the Nine Months EndedSeptember 30,
                                  2009
                                
                                
                                September 30,
                                  2008
                                
                                
                                September 30,
                                  2009
                                
                                
                                September 30,
                                  2008(unaudited)Acquisition
      fees
                                
                                $
                                6,878,087
                                
                                
                                $
                                -
                                
                                
                                $
                                16,656,847
                                
                                
                                $
                                2,336,565Asset
      management fees
                                
                                
                                1,259,999
                                
                                
                                
                                560,170
                                
                                
                                
                                3,064,827
                                
                                
                                
                                1,582,009Property
      management fees
                                
                                
                                447,564
                                
                                
                                
                                432,814
                                
                                
                                
                                1,371,798
                                
                                
                                
                                1,264,879Acquisition
      expenses reimbursed to Advisor
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                902,753
                                
                                
                                
                                1,265,528Development
      fees and leasing commissions
                                
                                
                                106,187
                                
                                
                                
                                645,455
                                
                                
                                
                                311,518
                                
                                
                                
                                1,041,795Total
                                
                                $
                                8,691,837
                                
                                
                                $
                                1,638,439
                                
                                
                                $
                                22,307,743
                                
                                
                                $
                                7,490,776





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





15.
            Segment
      Information





The
Company currently operates in four business segments as of September 30, 2009:
(i) retail real estate, (ii) residential multifamily real estate, (iii)
industrial real estate and (iv) hospitality. The Company’s advisor and its
affiliates provide leasing, property and facilities management, acquisition,
development, construction and tenant-related services for its portfolio. The
Company’s revenues for the three and nine months ended September 30, 2009 and
2008 were exclusively derived from activities in the United States. No revenues
from foreign countries were received or reported. The Company had no long-lived
assets in foreign locations as of September 30, 2009 and December 31, 2008. The
accounting policies of the segments are the same as those described in Note 2:
Summary of Significant Accounting Policies.  Unallocated assets,
revenues and expenses relate to corporate related accounts.





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





Selected
results of operations for the three months ended September 30, 2009 and 2008,
and total assets as of September 30, 2009 and 2008 regarding the Company’s
operating segments are as follows:





For the Three Months Ended September 30, 2009(unaudited)Retail
                                                              
                                                              
                                                              Multi
      Family
                                                              
                                                              
                                                              Industrial
                                                              
                                                              
                                                              Hospitality
                                                              
                                                              
                                                              Unallocated
                                                              
                                                              
                                                              TotalTotal
      revenues
                                                              
                                                              $
                                                              2,716,180
                                                              
                                                              
                                                              $
                                                              4,627,957
                                                              
                                                              
                                                              $
                                                              1,972,123
                                                              
                                                              
                                                              $
                                                              824,591
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              10,140,851Property
      operating expenses
                                                              
                                                              
                                                              783,074
                                                              
                                                              
                                                              
                                                              2,345,321
                                                              
                                                              
                                                              
                                                              429,430
                                                              
                                                              
                                                              
                                                              471,290
                                                              
                                                              
                                                              
                                                              387
                                                              
                                                              
                                                              
                                                              4,029,502Real
      estate taxes
                                                              
                                                              
                                                              304,095
                                                              
                                                              
                                                              
                                                              487,743
                                                              
                                                              
                                                              
                                                              249,318
                                                              
                                                              
                                                              
                                                              52,169
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              1,093,325General
      and administrative costs
                                                              
                                                              
                                                              (75,813
                                                              )
                                                              
                                                              
                                                              179,389
                                                              
                                                              
                                                              
                                                              17,112
                                                              
                                                              
                                                              
                                                              7,913
                                                              
                                                              
                                                              
                                                              1,762,921
                                                              
                                                              
                                                              
                                                              1,891,522Net
      operating income (loss)
                                                              
                                                              
                                                              1,704,824
                                                              
                                                              
                                                              
                                                              1,615,504
                                                              
                                                              
                                                              
                                                              1,276,263
                                                              
                                                              
                                                              
                                                              293,219
                                                              
                                                              
                                                              
                                                              (1,763,308
                                                              )
                                                              
                                                              
                                                              3,126,502Impairment
      of long lived assets, net of (gain) on disposal
                                                              
                                                              
                                                              2,002,465
                                                              
                                                              
                                                              
                                                              43,196,149
                                                              
                                                              
                                                              
                                                              (237,814
                                                              )
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              44,960,800Depreciation
      and amortization
                                                              
                                                              
                                                              1,125,310
                                                              
                                                              
                                                              
                                                              831,287
                                                              
                                                              
                                                              
                                                              616,112
                                                              
                                                              
                                                              
                                                              121,628
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              2,694,337Operating
      income (loss)
                                                              
                                                              $
                                                              (1,422,951
                                                              )
                                                              
                                                              $
                                                              (42,411,932
                                                              )
                                                              
                                                              $
                                                              897,965
                                                              
                                                              
                                                              $
                                                              171,591
                                                              
                                                              
                                                              $
                                                              (1,763,308
                                                              )
                                                              
                                                              $
                                                              (44,528,635
                                                              )Total
      purchases of investment property
                                                              
                                                              $
                                                              (40,848
                                                              )
                                                              
                                                              $
                                                              321,735
                                                              
                                                              
                                                              $
                                                              294,311
                                                              
                                                              
                                                              $
                                                              28,927
                                                              
                                                              
                                                              $
                                                              (237,809
                                                              )
                                                              
                                                              $
                                                              366,316As
      of September 30, 2009:Total
      Assets
                                                              
                                                              $
                                                              103,185,064
                                                              
                                                              
                                                              $
                                                              98,686,912
                                                              
                                                              
                                                              $
                                                              73,332,797
                                                              
                                                              
                                                              $
                                                              17,881,137
                                                              
                                                              
                                                              $
                                                              161,583,114
                                                              
                                                              
                                                              $
                                                              454,669,024




29




LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 (unaudited)




For
      the Three Months Ended September 30, 2008(unaudited)Retail
                                                                        
                                                                        
                                                                        Multi
      Family
                                                                        
                                                                        
                                                                        Industrial
                                                                        
                                                                        
                                                                        Hospitality
                                                                        Unallocated
                                                                        
                                                                        
                                                                        TotalTotal
      revenues
                                                                        
                                                                        $
                                                                        2,070,368
                                                                        
                                                                        
                                                                        $
                                                                        5,180,930
                                                                        
                                                                        
                                                                        $
                                                                        1,948,375
                                                                        
                                                                        
                                                                        $
                                                                        1,067,180
                                                                        
                                                                        
                                                                        $
                                                                        -
                                                                        
                                                                        
                                                                        $
                                                                        10,266,853Property
      operating expenses
                                                                        
                                                                        
                                                                        699,427
                                                                        
                                                                        
                                                                        
                                                                        2,510,043
                                                                        
                                                                        
                                                                        
                                                                        716,383
                                                                        
                                                                        
                                                                        
                                                                        786,610
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        4,712,463Real
      estate taxes
                                                                        
                                                                        
                                                                        225,310
                                                                        
                                                                        
                                                                        
                                                                        521,371
                                                                        
                                                                        
                                                                        
                                                                        241,072
                                                                        
                                                                        
                                                                        
                                                                        43,184
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        1,030,937General
      and administrative costs
                                                                        
                                                                        
                                                                        1,244
                                                                        
                                                                        
                                                                        
                                                                        596,693
                                                                        
                                                                        
                                                                        
                                                                        15,931
                                                                        
                                                                        
                                                                        
                                                                        16,199
                                                                        
                                                                        
                                                                        
                                                                        705,118
                                                                        
                                                                        
                                                                        
                                                                        1,335,185Net
      operating income
                                                                        
                                                                        
                                                                        1,144,387
                                                                        
                                                                        
                                                                        
                                                                        1,552,823
                                                                        
                                                                        
                                                                        
                                                                        974,989
                                                                        
                                                                        
                                                                        
                                                                        221,187
                                                                        
                                                                        
                                                                        
                                                                        (705,118
                                                                        )
                                                                        
                                                                        
                                                                        3,188,268Depreciation
      and amortization
                                                                        
                                                                        
                                                                        583,477
                                                                        
                                                                        
                                                                        
                                                                        746,018
                                                                        
                                                                        
                                                                        
                                                                        690,773
                                                                        
                                                                        
                                                                        
                                                                        116,605
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        2,136,873Operating
      income (loss)
                                                                        
                                                                        $
                                                                        560,910
                                                                        
                                                                        
                                                                        $
                                                                        806,805
                                                                        
                                                                        
                                                                        $
                                                                        284,216
                                                                        
                                                                        
                                                                        $
                                                                        104,582
                                                                        
                                                                        
                                                                        $
                                                                        (705,118
                                                                        )
                                                                        
                                                                        $
                                                                        1,051,395Total
      purchases of investment property
                                                                        
                                                                        $
                                                                        14,596,105
                                                                        
                                                                        
                                                                        $
                                                                        144,485
                                                                        
                                                                        
                                                                        $
                                                                        49,179
                                                                        
                                                                        
                                                                        $
                                                                        318,809
                                                                        
                                                                        
                                                                        $
                                                                        -
                                                                        
                                                                        
                                                                        $
                                                                        15,108,578As
      of September 30, 2008Total
      Assets
                                                                        
                                                                        $
                                                                        98,219,074
                                                                        
                                                                        
                                                                        $
                                                                        143,406,072
                                                                        
                                                                        
                                                                        $
                                                                        79,222,007
                                                                        
                                                                        
                                                                        $
                                                                        18,425,287
                                                                        
                                                                        
                                                                        $
                                                                        168,683,873
                                                                        
                                                                        
                                                                        $
                                                                        507,956,313





Selected results of
operations for the nine months ended September 30, 2009 and 2008 regarding the
Company’s operating segments are as follows:





For the Nine Months Ended September 30, 2009(unaudited)Retail
                                                                
                                                                
                                                                Multi
      Family
                                                                
                                                                
                                                                Industrial
                                                                
                                                                
                                                                Hospitality
                                                                
                                                                
                                                                Unallocated
                                                                
                                                                
                                                                TotalTotal
      revenues
                                                                
                                                                $
                                                                8,286,105
                                                                
                                                                
                                                                $
                                                                14,274,745
                                                                
                                                                
                                                                $
                                                                5,669,103
                                                                
                                                                
                                                                $
                                                                2,780,763
                                                                
                                                                
                                                                $
                                                                -
                                                                
                                                                
                                                                $
                                                                31,010,716Property
      operating expenses
                                                                
                                                                
                                                                2,307,344
                                                                
                                                                
                                                                
                                                                6,849,739
                                                                
                                                                
                                                                
                                                                1,376,381
                                                                
                                                                
                                                                
                                                                1,373,954
                                                                
                                                                
                                                                
                                                                387
                                                                
                                                                
                                                                
                                                                11,907,805Real
      estate taxes
                                                                
                                                                
                                                                913,741
                                                                
                                                                
                                                                
                                                                1,528,560
                                                                
                                                                
                                                                
                                                                715,744
                                                                
                                                                
                                                                
                                                                161,860
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                3,319,905General
      and administrative costs
                                                                
                                                                
                                                                106,237
                                                                
                                                                
                                                                
                                                                684,706
                                                                
                                                                
                                                                
                                                                14,972
                                                                
                                                                
                                                                
                                                                11,247
                                                                
                                                                
                                                                
                                                                5,001,083
                                                                
                                                                
                                                                
                                                                5,818,245Net
      operating income (loss)
                                                                
                                                                
                                                                4,958,783
                                                                
                                                                
                                                                
                                                                5,211,740
                                                                
                                                                
                                                                
                                                                3,562,006
                                                                
                                                                
                                                                
                                                                1,233,702
                                                                
                                                                
                                                                
                                                                (5,001,470
                                                                )
                                                                
                                                                
                                                                9,964,761Impairment
      of long lived assets, net of (gain) on disposal
                                                                
                                                                
                                                                2,002,465
                                                                
                                                                
                                                                
                                                                43,196,149
                                                                
                                                                
                                                                
                                                                (237,814
                                                                )
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                44,960,800Depreciation
      and amortization
                                                                
                                                                
                                                                2,967,080
                                                                
                                                                
                                                                
                                                                2,363,090
                                                                
                                                                
                                                                
                                                                1,881,238
                                                                
                                                                
                                                                
                                                                355,771
                                                                
                                                                
                                                                
                                                                830
                                                                
                                                                
                                                                
                                                                7,568,009Operating
      income (loss)
                                                                
                                                                $
                                                                (10,762
                                                                )
                                                                
                                                                $
                                                                (40,347,499
                                                                )
                                                                
                                                                $
                                                                1,918,582
                                                                
                                                                
                                                                $
                                                                877,931
                                                                
                                                                
                                                                $
                                                                (5,002,300
                                                                )
                                                                
                                                                $
                                                                (42,564,048
                                                                )Total
      purchases of investment property
                                                                
                                                                $
                                                                1,243,056
                                                                
                                                                
                                                                $
                                                                1,006,597
                                                                
                                                                
                                                                $
                                                                534,173
                                                                
                                                                
                                                                $
                                                                (525,442
                                                                )
                                                                
                                                                $
                                                                (237,809
                                                                )
                                                                
                                                                $
                                                                2,020,575





For the Nine Months Ended September 30, 2008(unaudited)Retail
                                                              
                                                              
                                                              Multi
      Family
                                                              
                                                              
                                                              Industrial
                                                              
                                                              
                                                              Hospitality
                                                              
                                                              
                                                              Unallocated
                                                              
                                                              
                                                              TotalTotal
      revenues
                                                              
                                                              $
                                                              6,079,080
                                                              
                                                              
                                                              $
                                                              15,262,432
                                                              
                                                              
                                                              $
                                                              5,900,433
                                                              
                                                              
                                                              $
                                                              2,736,137
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              29,978,082Property
      operating expenses
                                                              
                                                              
                                                              1,983,111
                                                              
                                                              
                                                              
                                                              7,519,823
                                                              
                                                              
                                                              
                                                              1,785,204
                                                              
                                                              
                                                              
                                                              1,663,787
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              12,951,925Real
      estate taxes
                                                              
                                                              
                                                              676,327
                                                              
                                                              
                                                              
                                                              1,566,345
                                                              
                                                              
                                                              
                                                              736,053
                                                              
                                                              
                                                              
                                                              138,839
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              3,117,564General
      and administrative costs
                                                              
                                                              
                                                              43,215
                                                              
                                                              
                                                              
                                                              858,278
                                                              
                                                              
                                                              
                                                              74,725
                                                              
                                                              
                                                              
                                                              24,234
                                                              
                                                              
                                                              
                                                              7,298,932
                                                              
                                                              
                                                              
                                                              8,299,384Net
      operating income (loss)
                                                              
                                                              
                                                              3,376,427
                                                              
                                                              
                                                              
                                                              5,317,986
                                                              
                                                              
                                                              
                                                              3,304,451
                                                              
                                                              
                                                              
                                                              909,277
                                                              
                                                              
                                                              
                                                              (7,298,932
                                                              )
                                                              
                                                              
                                                              5,609,209Depreciation
      and amortization
                                                              
                                                              
                                                              1,780,757
                                                              
                                                              
                                                              
                                                              2,225,018
                                                              
                                                              
                                                              
                                                              2,202,144
                                                              
                                                              
                                                              
                                                              331,668
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              6,539,587Operating
      income (loss)
                                                              
                                                              $
                                                              1,595,670
                                                              
                                                              
                                                              $
                                                              3,092,968
                                                              
                                                              
                                                              $
                                                              1,102,307
                                                              
                                                              
                                                              $
                                                              577,609
                                                              
                                                              
                                                              $
                                                              (7,298,932
                                                              )
                                                              
                                                              $
                                                              (930,378
                                                              )Total
      purchases of investment property
                                                              
                                                              $
                                                              19,732,982
                                                              
                                                              
                                                              $
                                                              337,844
                                                              
                                                              
                                                              $
                                                              496,295
                                                              
                                                              
                                                              $
                                                              2,089,115
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              22,656,236




30




LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 (unaudited)


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.





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




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





In
response to the Default Notices, Gettinger commenced legal action and obtained
an injunction that extends its time to cure any default, prohibits interference
with its leasehold interest and prohibits Sublessor from terminating its
sublease pending resolution of the litigation. A motion by Sublessor for partial
summary judgment, alleging that certain work on the Office Property required its
prior approval, was denied by the Supreme Court, New York County. Subsequently,
by agreement of the parties, a stay was entered precluding the termination of
the Sublease Interest pending a final decision on Sublessor's claim of defaults
under the Sublease Interest. In addition, the parties stipulated to the
intervention of Office Owner as a party to the proceedings. The parties have
been directed to engage in and complete discovery. We consider the litigation to
be without merit.




Prior to
consummating the acquisition of the Sublease Interest, Office Owner received a
letter from Sublessor indicating that Sublessor would consider such acquisition
a default under the original sublease, which prohibits assignments of the
Sublease Interest when there is an outstanding default there under. On February
16, 2007, Office Owner received a Notice to Cure from Sublessor stating the
transfer of the Sublease Interest occurred in violation of the Sublease given
Sublessor's position that Office Seller is in default. Office Owner will
commence and vigorously pursue litigation in order to challenge the default,
receive an injunction and toll the termination period provided for in the
Sublease.





On
September 4, 2007, Office Owner commenced a new action against Sublessor
alleging a number claims, including the claims that Sublessor has breached the
sublease and committed intentional torts against Office Owner by (among other
things) issuing multiple groundless default notices, with the aim of prematurely
terminating the sublease and depriving Office Owner of its valuable interest in
the sublease.  The complaint seeks a declaratory judgment that Office Owner
has not defaulted under the sublease, damages for the losses Office Owner has
incurred as a result of Sublessor’s wrongful conduct, and an injunction to
prevent Sublessor from issuing further default notices without valid grounds or
in bad faith.




31




LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 (unaudited)




Office
Owner is the borrower under a Loan Agreement dated January 4, 2007 and amended
on September 10, 2007 and April 17, 2009 with Lehman Brothers Holdings Inc.
(“Lehman”).  Pursuant to that loan agreement, Lehman agreed to
loan to Office Owner a total of $127,250,000, of which as of
September 30, 2009 $10,453,737 remains left to fund.  Lehman has
not funded six monthly draws commencing with the April 21, 2009 draw,
and the aggregate amount of these draws  are well within Office Owner’s
borrowing limits.  In addition, Lehman has claimed that it has assigned
certain of its interests in the loan to Swedbank AB
and Lehman Brothers Bankhaus AG, although Lehman has provided
no signed documentation evidencing the transfers.  In
response to the foregoing, Office Owner filed a  motion on November 5,
2009  in Lehman’s bankruptcy case, asking the Bankruptcy Court
to enter an order compelling Lehman to comply with its obligations to lend,
or alternatively, to grant Office Owner relief from the bankruptcy stay to
declare Lehman in default of the loan and related documents, suspend payments
under the loan and related net profits interest, seek a replacement  lender
for the remaining unfunded portion of the loan, and pursue other
remedies.




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
approximately $155.9 million.





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.




32




LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 (unaudited)




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.





17.
            Subsequent
      Events





The
Company has evaluated subsequent events for the period from September 30, 2009,
the date of these financial statements, through November 16, 2009, which
represents the date these financial statements are being filed with the
SEC.  Pursuant to the requirements of Topic 855 – “Subsequent Events”
in the ASC, the Company disclosed its voluntary choosing to not make its October
2009 monthly debt service in payment of $0.2 million related to two loans with a
total outstanding principal balance of $42.3 million, see Note
9.  There were not any other events or transactions occurring during
this subsequent event reporting period that require recognition or disclosure in
the financial statements.  The Company evaluated all events and
transactions that occurred subsequent to September 30, 2009 through November 16,
2009.  During this period, no other material subsequent events came to
the Company’s attention.




33





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, 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 and its 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.




34




Overview





Lightstone
Value Plus Real Estate Investment Trust, Inc. (the “Lightstone REIT” or
“Company”) intends to acquire and operate commercial, residential and
hospitality properties, principally in the United States. Principally through
the Lightstone Value Plus REIT, LP, (the “Operating Partnership”), our
acquisitions may include both portfolios and individual properties. We expect
that our commercial holdings will consist of retail (primarily multi-tenanted
shopping centers), lodging (primarily extended stay hotels), industrial and
office properties and that our residential properties will be 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 will reimburse the Advisor for certain expenses incurred on our
behalf.





Beginning
with the year ended December 31, 2006, the Company qualified to be taxed as a
real estate investment trust (a “REIT”), under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended (the “Code”). To qualify as a REIT,
the Company must meet certain organizational and operational requirements,
including a requirement to distribute at least 90% of its ordinary taxable
income to stockholders. As a REIT, the Company generally will not be subject to
federal income tax on taxable income that it distributes to its stockholders. If
the Company fails to qualify as a REIT in any taxable year, it will then be
subject to federal income taxes on its taxable income at regular corporate rates
and will not be permitted to qualify for treatment as a REIT for federal income
tax purposes for four years following the year during which qualification is
lost unless the Internal Revenue Service grants the Company relief under certain
statutory provisions. Such an event could materially adversely affect the
Company’s net income and net cash available for distribution to stockholders. As
of September 30, 2009, the Company has complied with the requirements for
maintaining its REIT status.





To
maintain our qualification as a REIT, we engage in certain activities through
LVP Acquisitions Corp. (“LVP Corp”), a wholly-owned taxable REIT subsidiary
(“TRS”). As such, we are subject to federal and state income and franchise taxes
from these activities.





Acquisitions
and Investment Strategy





We intend
to acquire fee interests in multi-tenanted, community, power and lifestyle
shopping centers, and in malls located in highly trafficked retail corridors,
high-barrier to entry markets, and sub- markets with constraints on the amount
of additional property supply. Additionally, we seek to acquire mid-scale,
extended stay lodging properties and multi-tenanted industrial properties
located near major transportation arteries and distribution corridors;
multi-tenanted office properties located near major transportation arteries; and
market-rate, middle market multifamily properties at a discount to replacement
cost. We do not intend to invest in single family residential properties;
leisure home sites; farms; ranches; timberlands; unimproved properties not
intended to be developed; or mining properties.





Investments
in real estate will be made through the purchase of all or part of a fee simple
ownership, or all or part of a leasehold interest. We may also purchase limited
partnership interests, limited liability company interests and other equity
securities. We may also enter into joint ventures with affiliated entities for
the acquisition, development or improvement of properties as well as general
partnerships, co-tenancies and other participations with real estate developers,
owners and others for the purpose of developing, owning and operating real
properties. We will not enter into a joint venture to make an investment that we
would not be permitted to make on our own. Not more than 10% of our total assets
will be invested in unimproved real property. For purposes of this paragraph,
“unimproved real properties” does not include properties acquired for the
purpose of producing rental or other operating income, properties under
construction and properties for which development or construction is planned
within one year. Additionally, we will not invest in contracts for the sale of
real estate unless in recordable form and appropriately recorded.





Through
September 30, 2009, Lightstone REIT has completed eight acquisitions: the Belz
Factory Outlet World, a retail outlet shopping mall in St. Augustine, Florida,
on March 31, 2006; four multi-family communities in Southeast Michigan on June
29, 2006; the Oakview Plaza, a retail shopping mall located in Omaha, Nebraska,
on December 21, 2006 a portfolio of 12 industrial and 2 office buildings in
Louisiana and Texas, on February 1, 2007; and a land parcel in Lake Jackson, TX,
intended for immediate development as a power retail center, on June 29, 2007,
two hotels in Houston, Texas on October 17, 2007, five multi family apartment
communities, one in Tampa, Florida, two in Greensboro, North Carolina and two in
Charlotte, North Carolina on November 16, 2007, and an industrial building in
Sarasota, Florida on November 13, 2007.




35




In
addition, as of September 30, 2009, Lightstone REIT has acquired three
investments in unconsolidated affiliated real estate entities: a 49% equity
interest in a joint venture, formed to purchase a sub-leasehold interest in a
ground lease to an office building in New York, NY, on January 4, 2007; a
36.8% membership interest in a limited liability corporation which owns two
factory outlet centers in Orlando, Florida, of which 22.54% was acquired on June
26, 2008 and 14.26% was acquired on August 25, 2009; and  a 40%
membership interest in an affiliated limited liability company which owns 18
factory outlet centers located in 15 different states in the United States, of
which 25% was acquired on March 30, 2009 and 15% was acquired on August 25,
2009.  In addition on April 16, 2008, Lightstone REIT made a preferred
equity contribution in exchange for membership interests of a wholly owned
subsidiary of Park Avenue Funding, LLC, an affiliated real estate lending
company.





Although
we are not limited as to the geographic area where we may conduct our
operations, we intend to invest in properties located near the existing
operations of our Sponsor, in order to achieve economies of scale where
possible. Our Sponsor currently maintains operations throughout the United
States (Hawaii, South Dakota, Vermont and Wyoming excluded), the District of
Columbia, Puerto Rico and Canada.





We may
finance our property acquisitions through a variety of means, including but not
limited to individual non-recourse mortgages and through the exchange of an
interest in the property for limited partnership units of the Operating
Partnership. We plan to own substantially all of our assets and conduct our
operations through the Operating Partnership.




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 2009 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.  Analysts expect that more retailers will file
for bankruptcy during 2009.  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 notes 9
and 10 of notes to consolidated financial statements for discussion of maturity
dates of our debt obligations.





As a
result of the current environment and the direct impact it is having to certain
properties, we recorded an impairment charge to our long-lived assets of $45.2
million which represents the excess of carrying value compared to fair value
during the three and nine months ended September 30, 2009.  This
charge is netted with a gain on disposal in the line item impairment of
long-lived assets, net of gain on disposal within our consolidated statements of
operations. In addition, during October 2009, we choose not to make our required
debt service payments of $0.2 million on two of the five loans within the Camden
portfolio, which had an outstanding principal balance of $42.3 million as of
September 30, 2009.  We determined that future debt service payments
on these loans would no longer be economically beneficial to us based upon the
current and expected future performance of the locations associated with these
two loans.   We are in current discussions with the lender
regarding our default status and potential future remedies.   See
Notes 7 and 9 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.




36





Portfolio
Summary –





Annualized RevenuesbasedYear Built(Range of
                                                                                      
                                                                                      LeasableSquare
                                                                                      
                                                                                      Percentage Occupied as
                                                                                      
                                                                                      
                                                                                      on rents atLocation
                                                                                      
                                                                                      years built)
                                                                                      
                                                                                      Feet
                                                                                      
                                                                                      of September 30, 2009
                                                                                      
                                                                                      
                                                                                      September 30, 2009Wholly-Owned
      Real Estate Properties:RetailWholly-owned:St.
      Augustine Outlet Mall
                                                                                      
                                                                                      St.
      Augustine, FL
                                                                                      
                                                                                      1998
                                                                                      
                                                                                      
                                                                                      337,732
                                                                                      
                                                                                      
                                                                                      84.2
                                                                                      %
                                                                                      $
                                                                                      4.4
      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
                                                                                      
                                                                                      
                                                                                      90.5
                                                                                      %Unconsolidated
      Affiliated Real Estate Entities:Orlando
      Outlet & Design Center
                                                                                      
                                                                                      Orlando,
      FL
                                                                                      
                                                                                      1991-2008
                                                                                      
                                                                                      
                                                                                      978,254
                                                                                      
                                                                                      
                                                                                      92.8
                                                                                      %
                                                                                      $
                                                                                      28.2
      millionPrime
      Outlets Acquisition Company (18 retail outlet malls)
                                                                                      
                                                                                      Various
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      6,394,158
                                                                                      
                                                                                      
                                                                                      93.4
                                                                                      %
                                                                                      $
                                                                                      118.6
      millionSubtotal
      unconsolidated affiliated real estateentities
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      7,372,412
                                                                                      
                                                                                      
                                                                                      93.4
                                                                                      %Retail
      Total
                                                                                      
                                                                                      
                                                                                      7,948,460
                                                                                      
                                                                                      
                                                                                      9.2
                                                                                      %Industrial7
      Flex/Office/Industrial Bldgs from the Gulf Coast
IndustrialPortfolio
                                                                                      
                                                                                      New
      Orleans, LA
                                                                                      
                                                                                      1980-2000
                                                                                      
                                                                                      
                                                                                      339,700
                                                                                      
                                                                                      
                                                                                      84.4
                                                                                      %
                                                                                      $
                                                                                      3.0
      million4
      Flex/Industrial Bldgs from the Gulf Coast IndustrialPortfolio
                                                                                      
                                                                                      San
      Antonio, TX
                                                                                      
                                                                                      1982-1986
                                                                                      
                                                                                      
                                                                                      484,255
                                                                                      
                                                                                      
                                                                                      70.2
                                                                                      %
                                                                                      $
                                                                                      1.9
      million3
      Flex/Industrial Buildings from the Gulf Coast IndustrialPortfolio
                                                                                      
                                                                                      Baton
      Rouge, LA
                                                                                      
                                                                                      1985-1987
                                                                                      
                                                                                      
                                                                                      182,792
                                                                                      
                                                                                      
                                                                                      96.2
                                                                                      %
                                                                                      $
                                                                                      1.2
      millionSarasota
      Industrial Property
                                                                                      
                                                                                      Sarasota,
      FL
                                                                                      
                                                                                      1992
                                                                                      
                                                                                      
                                                                                      276,316
                                                                                      
                                                                                      
                                                                                      4.2
                                                                                      %
                                                                                      $
                                                                                      0.1
      millionIndustrial
      Total
                                                                                      
                                                                                      
                                                                                      1,283,063
                                                                                      
                                                                                      
                                                                                      63.5
                                                                                      %





Percentage Occupied as
                                                                
                                                                
                                                                Annualized
      Revenues basedYear
      Built (Range of
                                                                
                                                                
                                                                
                                                                of
                                                                
                                                                
                                                                on
      rents atResidential:
                                                                
                                                                Location
                                                                
                                                                years
      built)
                                                                
                                                                Leasable
      Units
                                                                
                                                                September
      30, 2009
                                                                
                                                                
                                                                September
      30, 2009Michigan
      Apt's (Four Multi-Family Apartment Buildings)
                                                                
                                                                Southeast
      MI
                                                                
                                                                1965-1972
                                                                
                                                                
                                                                1,017
                                                                
                                                                
                                                                86.3
                                                                %
                                                                $
                                                                7.4
      millionGreensboro/Charlotte,
      NC &Southeast
      Apt's (Five Multi-Family Apartment Buildings)
                                                                
                                                                Tampa,
      FL
                                                                
                                                                1980-1987
                                                                
                                                                
                                                                1,576
                                                                
                                                                
                                                                92.7
                                                                %
                                                                $
                                                                11.0
      millionResidential
      Total
                                                                
                                                                
                                                                2,593
                                                                
                                                                
                                                                90.2
                                                                %




Percentage Occupied forthe
                                              
                                              Revenue
      per AvailableYear
      to date
                                              
                                              Nine
      Months Ended
                                              
                                              Room
      through SeptemberLocation
                                              
                                              Year
      Built
                                              
                                              Available
      Rooms
                                              
                                              September
      30, 2009
                                              
                                              30,
      2009Wholly-Owned
      Operating Properties:Sugarland
      and Katy Highway Extended Stay Hotels
                                              
                                              Houston,
      TX
                                              
                                              1998
                                              
                                              79,443
                                              
                                              69.4
                                              %
                                              $
                                              34.55





Percentage Occupied as
                                                                                  
                                                                                  
                                                                                  
                                                                                  Annualized
      Revenues basedLeasable
      Square
                                                                                  
                                                                                  of
                                                                                  
                                                                                  
                                                                                  
                                                                                  on
      rents atLocation
                                                                                  
                                                                                  Year
      Built
                                                                                  
                                                                                  Feet
                                                                                  
                                                                                  September
      30, 2009
                                                                                  
                                                                                  
                                                                                  
                                                                                  September
      30, 2009Unconsolidated
      Affiliated Real Estate Entities-Office:1407
      Broadway
                                                                                  
                                                                                  New
      York, NY
                                                                                  
                                                                                  1952
                                                                                  
                                                                                  1,114,695
                                                                                  
                                                                                  80.7
                                                                                  %
                                                                                  
                                                                                  $
                                                                                  31.8
      million





37





Critical
Accounting Policies and Estimates




During
the nine months ended September 30, 2009, we implemented new accounting
standards which changed the accounting for business combinations and investments
under the equity method, as well as the reporting of noncontrolling interests,
formerly titled minority interests.  See New Accounting Pronouncements
below for discussion of impact to our policies.  These were the only
changes during the nine months ended September 30, 2009 to our critical
accounting policies as reported in our Annual Report on Form 10-K, for the year
ended December 31, 2008.




Inflation




Our
long-term leases are expected to contain provisions to mitigate the adverse
impact of inflation on our operating results. Such provisions will include
clauses entitling us to receive scheduled base rent increases and base rent
increases based upon the consumer price index.  In addition, our leases are
expected to require tenants to pay a negotiated share of operating expenses,
including maintenance, real estate taxes, insurance and utilities, thereby
reducing our exposure to increases in cost and operating expenses resulting from
inflation.





Treatment
of Management Compensation and Expense Reimbursements




Management
of our operations is outsourced to our Advisor and certain other affiliates of
our Sponsor. Fees related to each of these services are accounted for based on
the nature of such service and the relevant accounting literature. Fees for
services performed that represent period costs of the Lightstone REIT are
expensed as incurred. Such fees include acquisition fees associated with the
purchase of interests in affiliated real estate entities; asset management fees
paid to our Advisor and property management fees paid to our Property
Manager.  These fees are expensed or capitalized to the basis of
acquired assets, as appropriate.




Our
Property Manager may also perform fee-based construction management services for
both our re-development activities and tenant construction projects. These fees
are considered incremental to the construction effort and will be capitalized to
the associated real estate project as incurred. Costs incurred for tenant
construction will be depreciated over the shorter of their useful life or the
term of the related lease. Costs related to redevelopment activities will be
depreciated over the estimated useful life of the associated
project.




Leasing
activity at our properties has also been outsourced to our Property Manager. Any
corresponding leasing fees we pay will be capitalized and amortized over the
life of the related lease.





Expense
reimbursements made to both our Advisor and Property Manager will be expensed or
capitalized to the basis of acquired assets, as appropriate.




Income Taxes




We
elected to be taxed as a REIT under Sections 856 through 860 of the
Internal Revenue Code in conjunction with the filing of our 2006 federal tax
return. In order to qualify as a REIT, an entity must meet certain
organizational and operational requirements, including a requirement to
distribute at least 90% of its annual ordinary taxable income to stockholders.
REITs are generally not subject to federal income tax on taxable income that
they distribute to their stockholders. It is our intention to adhere to these
requirements and maintain our REIT status. As a REIT, we still may be subject to
certain state, local and foreign taxes on our income and property and to federal
income and excise taxes on our undistributed taxable income.





We have
net operating loss carryforwards for Federal income tax purposes through the
year ended December 31, 2006. The availability of such loss carryforwards will
begin to expire in 2026. As we do not consider it likely that we will realize
any future benefit from our loss carry-forward, any deferred asset resulting
from the final determination of our tax loss carryforwards will be fully offset
by a valuation allowance of the same amount.





In 2007,
to maintain our qualification as a REIT, we engage in certain activities through
LVP Acquisitions Corp. (“LVP Corp”), a wholly-owned taxable REIT subsidiary
(“TRS”). As such, we are subject to federal and state income and franchise taxes
from these activities.





As of
September 30, 2009, the Company had no material uncertain income tax positions.
The tax years 2005 through 2008 remain open to examination by the major taxing
jurisdictions to which the Company is subject.


38


Results
of Operations




The
Company’s primary financial measure for evaluating each of its properties is net
operating income (“NOI”).  NOI represents rental income less property
operating expenses, real estate taxes and general and administrative
expenses.  The Company believes that NOI is helpful to investors as a
supplemental measure of the operating performance of a real estate company
because it is a direct measure of the actual operating results of the company’s
properties.





For the Three Months Ended
September 30, 2009 vs. September 30, 2008





Consolidated





Revenues




Total
revenues decreased by $0.2 million to $10.1 million for the three months ended
September 30, 2009 compared to $10.3 million for the three months ended
September 30, 2008.  The decrease is primarily related to a decline of
approximately $0.6 million within our Multi Family segment due to increased rent
concessions during the current period compared to the same period a year
ago.  In addition, our Hospitality segment declined by $0.2 million
due to lower occupancy rates during 2009 as a result of higher than normal
demand in 2008 which resulted after Hurricane Ike.  The decrease is
offset by an increase of $0.6 million within our Retail segment primarily
associated with the expansion at our St. Augustine Outlet Mall, which was
substantially completed in November 2008.





Property
operating expenses




Property
operating expenses decreased by $0.7 million to approximately $4.0 million, for
the three months ended September 30, 2009, compared to $4.7 million for the same
period in 2008 primarily as a result of a decline in insurance
expense.  During the three months ended September 30, 2008, we
recorded insurance deductible charges of approximately $0.5 million related to
damage sustained at various locations from Hurricanes Ike and Gustav, which did
not occur in the current year.





Real
estate taxes




Real
estate taxes increased slightly by $0.1 million to $1.1 million, for the three
months ended September 30, 2009 compared to the same period in 2008 primarily
due to an increase within our Retail segment.





General
and administrative expenses





General
and administrative costs increased by $0.6 million to $1.9 million for the three
months ended September 30, 2009 compared to $1.3 million during the three months
ended September 30, 2008 due to an increase in asset management fees of $0.7
million due to an increase in our average asset value compared to a year ago as
well as additional accounting and consulting fees associated with increased
activity over the prior year and valuation analysis.   Our total
bad debt expense recorded during the three months ended September 30, 2009
declined by $0.5 million compared to a year ago, predominately within our
multifamily residential properties, which offset a portion of the increase in
other general and administrative costs.





Impairment
on long lived assets, net of  gain on disposal




For the
three months ended September 30, 2009, we recorded an asset impairment charge of
$45.2 million primarily related to the impairment within the multi-family
segment of $43.2 million associated with the five properties within the Camden
portfolio and $2.0 million within the retail segment associated with our Brazos
Crossing power center.  In addition, we recorded $0.2 million gain on
disposal of assets offsetting the $45.2 asset impairment charge.





We
identified certain indicators of impairment related to the properties within our
Camden portfolio and our Brazos Crossing power center such as negative cash flow
expectations and change in management’s expectations regarding the length of the
holding period, which occurred during the three months ended September 30,
2009.  These indicators did not exist during our prior reviews of the
properties through June 30, 2009. We performed a cash flow valuation analysis
and determined that the carrying value of the property exceeded the weighted
probability of their undiscounted cash flows.  Therefore, we recorded
an impairment charge of $45.2 million related to these properties consisting of
the excess carrying value of the asset over its estimated fair values as part of
impairment of long lived assets, net of gain on disposal within the accompanying
consolidated statements of operations.  The fair value for these
assets was determined to be approximately $60.0 million.   Our
debt obligations outstanding on these properties are approximately $86.7 million
(See note 9 of the notes to consolidated financial statements).  If we
should extinguish the debt obligations associated with these properties, we
should realize a gain on extinguishment at that time based upon the difference
in the recorded fair value of assets and the debt obligations
outstanding.  For the three months ended September 30, 2008, we did
not record an impairment charge.




39




Depreciation
and Amortization




Depreciation
and amortization expense increased by $0.6 million to $2.7 million for the
three months ended September 30, 2009 compared to same period in 2008 primarily
due to additional depreciation expense recorded for our St. Augustine Outlet,
which substantially completed its expansion during November 2008.




Interest
income




Interest
income declined by $0.5 million primarily due to a decrease in interest and
dividends on our money market and marketable securities investments due to a
decline in interest rates compared to the same period in the prior year as well
as decline in average cash invested of approximately $17.3 million.





Interest
expense




Interest
expense, including amortization of deferred financing costs, increased by $0.2
million for the three months ended September 30, 2009 compared to 2008. The
increase is due to interest capitalized of $0.2 million during the three months
ended September 30, 2008 compared to $0 during 2009.





Gain/(loss)
on sale of marketable securities




Gain/(loss)
on sale of marketable securities increased by $1.2 million for the three months
ended September 30, 2009 compared to the three months ended September 30, 2008
due to timing of sales of securities and the difference in adjusted cost basis
compared to proceeds received on sale. During the three months ended September
30, 2009, we sold marketable securities for a gain of $1.2
million.  During the three months ended September 30, 2008, we sold
securities for a slight loss.





Other
than temporary impairment – marketable securities





During
the three months ended September 30, 2008, we recorded a non-cash charge of $9.7
million related to a decline in value of certain investment securities which
were determined to be other than temporary.  No such impairments were
recorded during the three months ended September 30, 2009 (See note 5 of notes
to consolidated financial statements).





Loss
from investments in unconsolidated affiliated real estate entities





Our loss
from investment in unconsolidated affiliated real estate entities for the three
months ended September 30, 2009 was $3.5 million compared to a $0.7 million
during the three months ended September 30, 2008.   The change of
$2.8 million is due to the addition of our portion of the loss related to our
investment in POAC and the additional depreciation expense recorded of $2.2
million related to the difference in our cost of the POAC investment in excess
of POAC’s historical net book values.





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 (See Note 1 of the notes to the consolidated financial
statements).





Segment
Results of Operations for the Three Months Ended September 30, 2009 compared to
September 30, 2008





Retail
Segment





VarianceFor
      the Three Months Ended
                                  
                                  
                                  Increase/(Decrease)September
      30,
                                  
                                  September
      30,2009
                                  
                                  
                                  2008
                                  
                                  
                                  $
                                  
                                  
                                  %(unaudited)Revenue
                                  
                                  $
                                  2,716,180
                                  
                                  
                                  $
                                  2,070,368
                                  
                                  
                                  $
                                  645,812
                                  
                                  
                                  
                                  31.2
                                  %NOI
                                  
                                  
                                  1,704,824
                                  
                                  
                                  
                                  1,144,387
                                  
                                  
                                  
                                  560,437
                                  
                                  
                                  
                                  49.0
                                  %Average
      Occupancy Rate for period
                                  
                                  
                                  91.0
                                  %
                                  
                                  
                                  86.1
                                  %
                                  
                                  
                                  
                                  
                                  
                                  
                                  5.7
                                  %





Revenue
increased $0.6 million to $2.7 million for the three months ended September 30,
2009 compared to the three months ended September 30, 2008 primarily as a result
of additional revenues of $0.8 million associated with the expansion at our St.
Augustine Outlet Center.




40


Net
operating income increased by $0.6 million to $1.7 million primarily as a result
of the increase in revenue offset by increased property expenses associated with
maintaining the additional leasable square feet at our St. Augustine Outlet
center as a result of the expansion.





Multi
Family Segment





VarianceFor
      the Three Months Ended
                        
                        
                        Increase/(Decrease)September
      30,
                        
                        September
      30,2009
                        
                        2008
                        
                        
                        $
                        
                        
                        %(unaudited)Revenue
                        
                        $
                        4,627,957
                        
                        
                        $
                        5,180,930
                        
                        
                        $
                        (552,973
                        )
                        
                        
                        -10.7
                        %NOI
                        
                        
                        1,615,504
                        
                        
                        
                        1,552,823
                        
                        
                        
                        62,681
                        
                        
                        
                        4.0
                        %Average
      Occupancy Rate for period
                        
                        
                        89.0
                        %
                        
                        
                        89.8
                        %
                        
                        
                        
                        
                        
                        
                        -0.9
                        %




Revenue
decreased by $0.6 million to $4.6 million for the three months ended September
30, 2009 compared to the three months ended September 30, 2008. As a result of
the current economic environment, the number of job losses has increased which
is negatively impacting this segment. In order to assist current tenants and to
attract new tenants, we have increased rent concessions during the three months
ended September 30, 2009 compared to the same period in 2008.  The
rent concessions provided to tenants is approximately one additional month
compared to a year ago and decreased total revenue by approximately $0.3
million.  The reminder of the decrease is a result of the decline in
the average occupancy rate.





Net
operating income increased slightly to $1.6 million for the three months ended
September 30, 2009 from the three months ended September 30,
2008.  The increase is a result a decline in repairs and maintenance
expense compared to the prior year and a lower bad debt expense incurred during
the 2009 period of approximately $0.4 million which offset the decline in
revenue.





Industrial
Segment





VarianceFor the Three Months Ended
                    
                    
                    Increase/(Decrease)September
      30,
                    
                    September
      30,2009
                    
                    2008
                    
                    
                    $
                    
                    
                    %(unaudited)Revenue
                    
                    $
                    1,972,123
                    
                    
                    $
                    1,948,375
                    
                    
                    $
                    23,748
                    
                    
                    
                    1.2
                    %NOI
                    
                    
                    1,276,263
                    
                    
                    
                    974,989
                    
                    
                    
                    301,274
                    
                    
                    
                    30.9
                    %Average
      Occupancy Rate for period
                    
                    
                    64.3
                    %
                    
                    
                    66.8
                    %
                    
                    
                    
                    
                    
                    
                    -3.7
                    %





Net
operating income increased by $0.3 million during the three months ended
September 30, 2009 compared to the three months September 30, 2008 on constant
revenues during the periods.  The NOI increase is primarily due to a
decline in insurance expense.  During the three months ended September
30, 2008, we recorded insurance deductible charges of approximately $0.2 million
related to damage sustained at various locations from Hurricanes Gustav, which
did not occur in the current year.





Hospitality





VarianceFor the Three Months Ended
                          
                          
                          Increase/(Decrease)September
      30,
                          
                          September
      30,2009
                          
                          2008
                          
                          
                          $
                          
                          
                          %(unaudited)Revenue
                          
                          $
                          824,591
                          
                          
                          $
                          1,067,180
                          
                          
                          $
                          (242,589
                          )
                          
                          
                          -22.7
                          %NOI
                          
                          
                          293,219
                          
                          
                          
                          221,187
                          
                          
                          
                          72,032
                          
                          
                          
                          32.6
                          %Average
      Occupancy Rate for period
                          
                          
                          65.0
                          %
                          
                          
                          72.4
                          %
                          
                          
                          
                          
                          
                          
                          -10.2
                          %Average
      Revenue per Available Room for period
                          
                          $
                          30.90
                          
                          
                          $
                          39.58
                          
                          
                          $
                          (9.00
                          )
                          
                          
                          -22.7
                          %





Revenue
decreased by $0.2 million for the three months ended September 30, 2009 compared
to the three months ended September 30, 2008.  The Hospitality segment
during the three months ended September 30, 2008 experienced unusual demand for
their rooms due to the damage caused by Hurricane Ike, which displaced area
residents from their homes.


41





Net
operating income increased by $0.1 million for the three months ended September
30, 2009 compared to the same period in 2008 partially as a result of lower
insurance expense offset by the decline in revenue.  During the three
months ended September 30, 2008, we recorded insurance deductible charges of
approximately $0.3 million related to damage sustained at various locations from
Hurricanes Ike, which did not occur in the current year.





For the Nine Months Ended
September 30, 2009 vs. September 30, 2008





Consolidated





Revenues




Total
revenues increased by $1.0 million to $31.0 million for the nine months ended
September 30, 2009 compared to $30.0 million for the nine months ended September
30, 2008. The increase is related to additional revenues of $2.2 million within
our Retail segment primarily associated with our Brazos Crossing Power Center,
which opened during March 2008 and the expansion at our St. Augustine Outlet
Mall, which was substantially completed in November 2008.  This
increase was offset by a decline of approximately $1.0 million within our Multi
Family segment due to increased rent concessions during the current period
compared to the same period a year ago.





Property
operating expenses




Property
operating expenses decreased by $1.1 million to approximately $11.9 million, for
the nine months ended September 30, 2009, compared to $13.0 million for the same
period in 2008 primarily as a result of a decline in insurance
expense.  During the nine months ended September 30, 2008, we recorded
insurance deductible charges of approximately $0.5 million related to damage
sustained at various locations from Hurricanes Ike and Gustav, which did not
occur in the current year.  In addition, our repair and maintenance
expense within our Multi Family segment declined.  In the prior year,
this segment incurred additional costs associated due to a significant turnover
in tenants at the beginning of 2008.





Real
estate taxes




Real
estate taxes increased by $0.2 million to approximately $3.3 million, for the
nine months ended September 30, 2009 compared to the same period in 2008
primarily due to an increase within our Retail segment as a result of the grand
opening of our Brazos Crossing Power Center as well as the recent expansion at
our St. Augustine Outlet Mall.





General
and administrative expenses





General
and administrative costs decreased by $2.5 million to $5.8 million for the nine
months ended September 30, 2009 compared to $8.3 million during the nine months
ended September 30, 2008 primarily due to a reduction of $4.1 million in
acquisition fees expensed, including closing costs, related to our investment in
unconsolidated affiliated real estate entities. These type of costs were
expensed during 2008 and effective January 1, 2009, in accordance with
accounting guidance,  these type of costs incurred during 2009 were
capitalized as part of the investment as discussed above in 2009 Acquisitions
and Investments section.   Offsetting this decline was an
increase of $1.5 million related to asset management fees due to an increase in
the average asset value at September 30, 2009 compared to September 30,
2008.





Impairment
on long lived assets, net of gain on disposal




For the
nine months ended September 30, 2009, we recorded an asset impairment charge of
$45.2 million primarily related to the impairment within the multi-family
segment of $43.2 million associated with the five properties within the Camden
portfolio and $2.0 million within the retail segment associated with our Brazos
Crossing power center.  In addition, we recorded $0.2 million gain on
disposal of assets offsetting the $45.2 asset impairment charge.





We
identified certain indicators of impairment related to the properties within our
Camden portfolio and our Brazos Crossing power center such as negative cash flow
expectations and change in management’s expectations regarding the length of the
holding period, which occurred during the three months ended September 30,
2009.  These indicators did not exist during our prior reviews of the
properties through June 30, 2009. We performed a cash flow valuation analysis
and determined that the carrying value of the property exceeded the weighted
probability of their undiscounted cash flows.  Therefore, we recorded
an impairment charge of $45.2 million related to these properties consisting of
the excess carrying value of the asset over its estimated fair values as part of
impairment of long lived assets, net of gain on disposal within the accompanying
consolidated statements of operations.  The fair value for these
assets was determined to be approximately $60.0 million.   Our
debt obligations outstanding on these properties are  approximately
$86.7 million (See note 9 of the notes to consolidated financial
statements).  If we should extinguish the debt obligations associated
with these properties, we should realize a gain on extinguishment at that time
based upon the difference in the recorded fair value of assets and the debt
obligations outstanding.  For the nine months ended September 30,
2008, we did not record an impairment charge.


42





Depreciation
and Amortization




Depreciation
and amortization expense increased by $1.0 million to $7.6 million for the
nine months ended September 30, 2009 compared to same period in 2008 primarily
due to depreciation expense recorded for our Brazos Crossing Power Center, which
opened in March 2008, and our St. Augustine Outlet, which substantially
completed its expansion during November 2008.




Interest
income




Interest
income declined by $0.5 million primarily due to a decrease in interest and
dividends on our money market and marketable securities investments due to a
decline in interest rates compared to the same period in the prior year as well
as decline in average cash invested of approximately $6.0 million.





Interest
expense




Interest
expense, including amortization of deferred financing costs, increased by $0.3
million for the three months ended September 30, 2009 compared to 2008. The
increase is due to interest capitalized of $0.5 million during the nine months
ended September 30, 2008 compared to $0 during 2009.





Gain/(loss)
on sale of marketable securities




Gain/(loss)
on sale of marketable securities increased by $0.3 million for the nine months
ended September 30, 2009 compared to the nine months ended September 30, 2008
due to timing of sales of securities and the difference in adjusted cost basis
compared to proceeds received on sale. During the nine months ended September
30, 2009, we sold marketable securities for a net gain of $0.3
million.  During the nine months ended September 30, 2008, we sold
securities for a slight loss.





Other
than temporary impairment – marketable securities





During
the nine months ended September 30, 2009, we recorded a non-cash charge of $3.4
million related to a decline in value of certain investment securities which
were determined to be other than temporary and during the nine months ended
September 30, 2008 we recorded an impairment charge of $9.7
million.  (See note 5 of notes to consolidated financial
statements).





Loss
from investments in unconsolidated affiliated real estate entities





Our loss
from investment in unconsolidated affiliated real estate entities for the nine
months ended September 30, 2009 was $4.2 million compared to a $2.2 million
during the nine months ended September 30, 2008.   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 additional loss recorded represents the
additional depreciation expense recorded of $5.4 million associated with the
difference in our cost of these investments in excess of their historical net
book values during 2009 compared to 2008 primarily related to timing of
acquisitions (See note 3 of notes to consolidated financial
statements).  Offsetting this additional charge is a higher dollar
amount of income allocated to us from our  Mill Run investment
compared to 2008 due to timing of acquisition (June 2008) and lower interest
expense due to lower libor rates.





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 (See Note 1 of the notes to the consolidated financial
statements).


43





Segment
Results of Operations for the Nine Months Ended September 30, 2009 compared to
September 30, 2008





Retail
Segment




VarianceFor the Nine Months Ended
                    
                    
                    Increase/(Decrease)September
      30,
                    
                    September
      30,2009
                    
                    2008
                    
                    
                    $
                    
                    
                    %(unaudited)Revenue
                    
                    $
                    8,286,105
                    
                    
                    $
                    6,079,080
                    
                    
                    $
                    2,207,025
                    
                    
                    
                    36.3
                    %NOI
                    
                    
                    4,958,783
                    
                    
                    
                    3,376,427
                    
                    
                    
                    1,582,356
                    
                    
                    
                    46.9
                    %Average
      Occupancy Rate for period
                    
                    
                    89.9
                    %
                    
                    
                    89.9
                    %
                    
                    
                    
                    
                    
                    
                    0.0
                    %





Revenue
increased $2.2 million to $8.3 million for the nine months ended September 30,
2009 compared to the nine months ended September 30, 2008 primarily as a result
of additional revenues of $2.0 million associated with the expansion at our St.
Augustine Outlet Center and the remaining increase is associated the opening of
our Brazos Crossing Power Center during March 2008.   The average
occupancy rate per period remained the same for the nine months ended September
30, 2009 compared to 2008 and revenue increased as a result of an increase of
approximately 87,000 in leasable square feet at our St. Augustine Outlet center
as part of the expansion which was substantially completed in November
2008.





Net
operating income increased by $1.6 million to $5.0 million primarily as a result
of the increase in revenue offset by increased property expenses associated with
our Brazos Crossing Power Center being open for a full quarter in 2009 compared
to 2008 and additional costs associated with maintaining the additional leasable
square feet at our St. Augustine Outlet center as a result of the
expansion.





Multi
Family Segment





For the Nine Months Ended
                        
                        
                        Variance
                          Increase/(Decrease)September
      30,
                        
                        September
      30,2009
                        
                        2008
                        
                        
                        $
                        
                        
                        %(unaudited)Revenue
                        
                        $
                        14,274,745
                        
                        
                        $
                        15,262,432
                        
                        
                        $
                        (987,687
                        )
                        
                        
                        -6.5
                        %NOI
                        
                        
                        5,211,740
                        
                        
                        
                        5,317,986
                        
                        
                        
                        (106,246
                        )
                        
                        
                        -2.0
                        %Average
      Occupancy Rate for period
                        
                        
                        88.8
                        %
                        
                        
                        87.5
                        %
                        
                        
                        
                        
                        
                        
                        1.5
                        %




Revenue
decreased by $1.0 million to $14.3 million for the nine months ended September
30, 2009 compared to the nine months ended September 30,
2008.   As a result of the current economic environment, the
number of job losses has increased which is negatively impacting this
segment.  In order to assist current tenants and to attract new
tenants, we have increased rent abatements during the nine months ended
September 30, 2009 compared to the same period in 2008.  The rent
concessions provided to tenants is approximately one additional month compared
to a year ago and decreased total revenue by approximately $0.8
million.





Net
operating income decreased by $0.1 million to $5.2 million for the nine months
ended September 30, 2009 from $5.3 million for the nine months ended September
30, 2008.  The decrease is a result of the decline in revenue of $1.0
million plus higher bad debt expense incurred during the 2009 period of
approximately $0.2 million offset by a decrease in repair and maintenance costs
during 2009 due to significant turnover in tenants at the beginning of 2008 and
lower utilities due to lower rates than the prior year.


44





Industrial
Segment





VarianceFor the Nine Months Ended
                          
                          
                          Increase/(Decrease)September
      30,
                          
                          September
      30,2009
                          
                          2008
                          
                          
                          $
                          
                          
                          %(unaudited)Revenue
                          
                          $
                          5,669,103
                          
                          
                          $
                          5,900,433
                          
                          
                          $
                          (231,330
                          )
                          
                          
                          -3.9
                          %NOI
                          
                          
                          3,562,006
                          
                          
                          
                          3,304,451
                          
                          
                          
                          257,555
                          
                          
                          
                          7.8
                          %Average
      Occupancy Rate for period
                          
                          
                          65.8
                          %
                          
                          
                          69.4
                          %
                          
                          
                          
                          
                          
                          
                          -5.2
                          %





Revenue
decreased by $0.2 million to $5.7 million for the nine months ended September
30, 2009 compared to the nine months ended September 30, 2008 as a result of a
decline in the average occupancy rate and a reduction in tenant recoveries of
$0.2 million.  The reduction in tenant recoveries is due to lower
property expenses incurred that are reimbursed by the tenants during the nine
months ended September 30, 2009 compared to the 2008 period.





Net
operating income increased by $0.3 million for the nine months ended September
30, 2009 compared to the nine months ended September 30, 2008 as a
result of a decline in insurance expense of $0.3 million and bad debt
expense of $0.1 million.  During the nine months ended September 30,
2008, we recorded insurance deductible charges of approximately $0.2 million
related to damage sustained at various locations from Hurricanes Gustav, which
did not occur in the current year.





Hospitality





VarianceFor the Nine Months Ended
                          
                          
                          Increase/(Decrease)September
      30,
                          
                          September
      30,2009
                          
                          2008
                          
                          
                          $
                          
                          
                          %(unaudited)Revenue
                          
                          $
                          2,780,763
                          
                          
                          $
                          2,736,137
                          
                          
                          $
                          44,626
                          
                          
                          
                          1.6
                          %NOI
                          
                          
                          1,233,702
                          
                          
                          
                          909,277
                          
                          
                          
                          324,425
                          
                          
                          
                          35.7
                          %Average
      Occupancy Rate for period
                          
                          
                          69.4
                          %
                          
                          
                          65.4
                          %
                          
                          
                          
                          
                          
                          
                          6.1
                          %Average
      Revenue per Available Room for period
                          
                          $
                          34.55
                          
                          
                          $
                          33.97
                          
                          
                          $
                          1.00
                          
                          
                          
                          2.9
                          %





Net
operating income increased by $0.3 million during the nine months ended
September 30, 2009 compared to the nine months September 30, 2008 on constant
revenues during the periods.  The NOI increase is primarily due to a
decline in insurance expense.  During the nine months ended September
30, 2008, we recorded insurance deductible charges of approximately $0.3 million
related to damage sustained at various locations from Hurricanes Ike, which did
not occur in the current year.





Financial Condition, Liquidity and
Capital Resources




Overview:




We intend
that rental revenue will be the principal source of funds to pay operating
expenses, debt service, capital expenditures and dividends, excluding
non-recurring capital expenditures. To the extent that our cash flow from
operating activities is insufficient to finance non-recurring capital
expenditures such as property acquisitions, development and construction costs
and other capital expenditures, we are dependent upon the net proceeds received
from our public offering to conduct such proposed activities. We have financed
such activities through debt and equity financings.   We expect
that future financing will be through debt financings and proceeds from our
dividend reinvestment plan.  The capital required to purchase real
estate investments has been obtained from our offering and from any indebtedness
that we may incur in connection with the acquisition and operations of any real
estate investments thereafter.




We expect
to meet our short-term liquidity requirements generally through funds received
in our public offering, working capital, and net cash provided by operating
activities. We frequently examine potential property acquisitions and
development projects and, at any given time, one or more acquisitions or
development projects may be under consideration. Accordingly, the ability to
fund property acquisitions and development projects is a major part of our
financing requirements. We expect to meet our financing requirements through
funds generated from our public offering and long-term and short-term
borrowings.


45





Our
public offering terminated on October 10, 2008 when all shares offered where
sold.   However, the shares continued to be sold to existing
stockholders pursuant to our dividend reinvestment plan.  For the
three and a nine months ended September 30, 2009, we received proceeds from our
dividend reinvestment plan of $2.4 million and $7.1 million,
respectively.  Our cumulative gross offering proceeds through
September 30, 2009 were $308.9 million, which includes redemptions and $14.8
million of proceeds from the dividend reinvestment plan since its
inception.





We intend
to utilize leverage in acquiring our properties. The number of different
properties we will acquire will be affected by numerous factors, including, the
amount of funds available to us. When interest rates on mortgage loans are high
or financing is otherwise unavailable on terms that are satisfactory to us, we
may purchase certain properties for cash with the intention of obtaining a
mortgage loan for a portion of the purchase price at a later time.





Our
source of funds in the future will primarily be the net proceeds of our
offering, operating cash flows 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 $237.3 million of outstanding mortgage debt, and an additional
$7.4 million of outstanding notes payable. We intend to limit our aggregate
long-term permanent borrowings to 75% of the aggregate fair market value of all
properties unless any excess borrowing is approved by a majority of the
independent directors and is disclosed to our stockholders. We may also incur
short-term indebtedness, having a maturity of two years or less.





Our
charter provides that the aggregate amount of borrowing, both secured and
unsecured, may not exceed 300% of net assets in the absence of a satisfactory
showing that a higher level is appropriate, the approval of our board of
directors and disclosure to stockholders. Net assets means our total assets,
other than intangibles, at cost before deducting depreciation or other non-cash
reserves less our total liabilities, calculated at least quarterly on a basis
consistently applied. Any excess in borrowing over such 300% of net assets level
must be approved by a majority of our independent directors and disclosed to our
stockholders in our next quarterly report to stockholders, along with
justification for such excess. As of September 30, 2009, our total borrowings
represented 96.3% of net assets.




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 intend
to obtain level payment financing, meaning that the amount of debt service
payable would be substantially the same each year. Accordingly, we expect that
some of the mortgages on our property will provide for fixed interest rates.
However, we expect that most of the mortgages on our properties will provide for
a so-called “balloon” payment and that certain of our mortgages will provide for
variable interest rates. Any mortgages secured by a property will comply with
the restrictions set forth by the Commissioner of Corporations of the State of
California.




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 avoid the
imposition of a transfer tax upon a transfer of such properties to
us.





In
addition to making investments in accordance with our investment objectives, we
expect to use our capital resources to make certain payments to our Advisor, our
Dealer Manager, and our Property Manager during the various phases of our
organization and operation. During our organizational and offering stage, these
payments included payments to our Dealer Manager for selling commissions and the
dealer manager fee, and payments to our Advisor for the reimbursement of
organization and offering costs. During the acquisition and development stage,
these payments will include asset acquisition fees and asset management fees,
and the reimbursement of acquisition related expenses to our
Advisor.  During the operational stage, we will pay our Property
Manager a property management fee and our Advisor an asset management fee. We
will 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.


46





The
following table represents the fees incurred associated with the payments to our
Advisor, our Dealer Manager, and our Property Manager for the three and nine
months ended September 30, 2009 and 2008:





For the Three Months Ended
                                
                                
                                For the Nine Months EndedSeptember 30,
                                  2009
                                
                                
                                September 30,
                                  2008
                                
                                
                                September 30,
                                  2009
                                
                                
                                September 30,
                                  2008(unaudited)Acquisition
      fees
                                
                                $
                                6,878,087
                                
                                
                                $
                                -
                                
                                
                                $
                                16,656,847
                                
                                
                                $
                                2,336,565Asset
      management fees
                                
                                
                                1,259,999
                                
                                
                                
                                560,170
                                
                                
                                
                                3,064,827
                                
                                
                                
                                1,582,009Property
      management fees
                                
                                
                                447,564
                                
                                
                                
                                432,814
                                
                                
                                
                                1,371,798
                                
                                
                                
                                1,264,879Acquisition
      expenses reimbursed to Advisor
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                902,753
                                
                                
                                
                                1,265,528Development
      fees and leasing commissions
                                
                                
                                106,187
                                
                                
                                
                                645,455
                                
                                
                                
                                311,518
                                
                                
                                
                                1,041,795Total
                                
                                $
                                8,691,837
                                
                                
                                $
                                1,638,439
                                
                                
                                $
                                22,307,743
                                
                                
                                $
                                7,490,776





As of
September 30, 2009, we had approximately $22.7 million of cash and cash
equivalents on hand and $0.9 million of marketable securities. Our cash and cash
equivalents on hand and our marketable securities resulted primarily from
proceeds from our Offering.





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:




Nine
      Months
                        
                        
                        Nine
      MonthsEnded September
      30,
                        
                        
                        Ended September
      30,2009
                        
                        
                        2008(unaudited)Cash
      flows provided by operating activities
                        
                        $
                        2,898,264
                        
                        
                        $
                        3,854,494Cash
      flows used in investing activities
                        
                        
                        (12,250,690
                        )
                        
                        
                        (91,920,965
                        )Cash
      flows (used in) provided by  financing
activities
                        
                        
                        (34,048,104
                        )
                        
                        
                        128,026,146Net
      change in cash and cash equivalents
                        
                        
                        (43,400,530
                        )
                        
                        
                        39,959,675Cash
      and cash equivalents, beginning of the period
                        
                        
                        66,106,067
                        
                        
                        
                        29,589,815Cash
      and cash equivalents, end of the period
                        
                        $
                        22,705,537
                        
                        
                        $
                        69,549,490




During
the nine months ended September 30, 2009, our principal source of cash flow was
derived from proceeds from the issuance of SLP units and 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 and
noncontrolling interests. 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 nine months ended September 30, 2009, cash flows provided by operating
activities decreased by $1.0 million during the nine months ended September 30,
2009 to $2.9 million compared to the same period a year ago.  The
decline driven by timing of accounts payable offset by the increase of $3.7
million in net income, adjusted for non cash charges.





Investing
activities





Cash used
in investing activities for the nine months ended September 30, 2009 of $12.3
million relates to the following:


·
            $19.0
      million of the transaction costs paid related to our investments in POAC
      and Mill Run.


·
            $7.9
      million related to the funding of investment property purchases, of which
      $4.9 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.  We expect
      additional tenant allowances to be funded during
  2009.


·
            Offsetting
      these outflows, we received $12.2 million related to proceeds from sale of
      marketable securities and proceeds from maturity of corporate
      bonds.


47





Cash used
in investing activities for the nine months ended September 30, 2008 of $91.9
million resulted primarily from the following:


·
            $49.5
      million note receivable issued in connection to the signing of a material
      agreement to enter into a contribution and conveyance agreement to acquire
      a 25% interest in POAC;


·
            A
      preferred equity contribution of $11.0 million into a real estate lending
      company which is an affiliate of our Sponsor offset by redemptions
      payments received of $0.9 million.


·
            $22.7
      million on investments in real estate, primarily related to the renovation
      and expansion project at our St. Augustine Outlet Mall;
  and


·
            $9.2
      million in net purchases of marketable securities and corporate
      bonds.





Financing
activities





Cash used
in financing activities of $34.0 million during the nine months ended September
30, 2009 primarily related to (i) the  payments of distributions to
common shareholders and noncontrolling interests of $12.4 million; (ii) $2.0
million of principal payments on debt primarily associated with the pay down of
$1.2 million related to the amendment to the
hotels  loan.  The original loan matured in April 2009;
(iii) $22.4 million issuance of note receivable to noncontrolling interest (see
Note 13 of notes to consolidated financial statements for further discussion);
(iv) and $4.3 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.





Cash
provided by financing activities during the nine months ended September 30, 2008
of $128.0 million is primarily from the issuance of common stock ($152.1
million), proceeds from issuance of SLP units ($12.3 million), offset by the
payment of offering costs ($15.9 million); distribution paid to common
shareholders and noncontrolling interests of $5.4 million and the issuance of a
note receivable ($17.6 million) entered into in connection with our investment
in Mill Run (two retail outlet malls in Orlando, Florida).





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 September 30, 2009.





ContractualObligations
                            
                            Remainder of
                              2009
                            
                            
                            2010
                            
                            
                            2011
                            
                            
                            2012
                            
                            
                            2013
                            
                            
                            Thereafter
                            
                            
                            TotalMortgage Payable
      1
                            
                            $
                            175,065
                            
                            
                            $
                            10,553,276
                            
                            
                            $
                            1,586,957
                            
                            
                            $
                            2,781,012
                            
                            
                            $
                            3,107,355
                            
                            
                            $
                            219,084,109
                            
                            
                            $
                            237,287,774Note Payable2
                            
                            
                            7,358,445
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            7,358,445Interest
      Payments3
                            
                            
                            3,482,106
                            
                            
                            
                            13,261,753
                            
                            
                            
                            13,067,707
                            
                            
                            
                            12,980,592
                            
                            
                            
                            12,772,092
                            
                            
                            
                            27,751,042
                            
                            
                            
                            83,315,292Total
      Contractual Obligations
                            
                            $
                            11,015,616
                            
                            
                            $
                            23,815,029
                            
                            
                            $
                            14,654,664
                            
                            
                            $
                            15,761,604
                            
                            
                            $
                            15,879,447
                            
                            
                            $
                            246,835,151
                            
                            
                            $
                            327,961,511





1)
            These
      amounts represent mortgage payable obligations outstanding as of September
      30, 2009.


2)
            Amount
      represents note payable obligation outstanding as of September 30,
      2009.


3)
            These
      amounts represent future interest payments related to mortgage and note
      payable obligations based on the fixed and variable interest rates
      specified in the associated debt agreement.  All variable rate
      debt agreements are based on the one month LIBOR rate.  For
      purposes of calculating future interest amounts on variable interest rate
      debt the one month LIBOR rate as of September 30, 2009 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.  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.


48


Funds
from Operations





We
consider Funds from Operations, or FFO, a widely accepted and appropriate
measure of performance for a REIT.  FFO provides a non-GAAP
supplemental measure to compare our performance and operations to other
REIT’s.  Due to certain unique operating characteristics of real
estate companies, The National Association of Real Estate Investment Trusts,
Inc. (NAREIT) has promulgated a standard known as FFO, which it believes more
accurately reflects the operating performance of a REIT such as
ours.  As defined by NAREIT, FFO means net income computed in
accordance with GAAP, excluding gains (or losses) from sales of operating
property, plus depreciation and amortization and after adjustment for
unconsolidated partnership and joint ventures in which the REIT holds an
interest.  We have adopted the NAREIT definition of computing
FFO.





We
believe that FFO and FFO available to common shares are helpful to investors as
supplemental measures of the operating performance of a real estate company,
because they are recognized measures of performance by the real estate industry
and by excluding gains or losses related to dispositions of depreciable property
and excluding real estate depreciation (which can vary among owners of identical
assets in similar condition based on historical cost accounting and useful life
estimates), 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 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 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 FFO available to common shares 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.




Below is
a reconciliation of net loss to FFO for the three and nine months ended
September 30, 2009 and 2008:





For the Three Months
                      Ended September 30,
                    
                    
                    For the Nine Months
                      Ended September 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008(unaudited)
                    
                    
                    
                    
                    
                    (unaudited)Net
      loss
                    
                    $
                    (49,319,070
                    )
                    
                    $
                    (11,186,764
                    )
                    
                    $
                    (57,071,916
                    )
                    
                    $
                    (19,466,712
                    )Adjustments:Depreciation
      and amortization of real estate assets
                    
                    
                    2,694,337
                    
                    
                    
                    2,136,873
                    
                    
                    
                    7,568,009
                    
                    
                    
                    6,539,587Equity
      in depreciation and amortization for unconsolidated affiliated real estate
      entities
                    
                    
                    8,287,673
                    
                    
                    
                    1,915,249
                    
                    
                    
                    16,700,083
                    
                    
                    
                    5,126,014Gain
      on disposal of investment property
                    
                    
                    (237,808
                    )
                    
                    
                    -
                    
                    
                    
                    (237,808
                    )
                    
                    
                    -FFO
                    
                    
                    (38,574,868
                    )
                    
                    
                    (7,134,642
                    )
                    
                    
                    (33,041,632
                    )
                    
                    
                    (7,801,111
                    )Less:  FFO
      attributable to noncontrolling interests
                    
                    
                    527,109
                    
                    
                    
                    110
                    
                    
                    
                    487,200
                    
                    
                    
                    101FFO
      attributable to Company's common shares
                    
                    $
                    (38,047,759
                    )
                    
                    $
                    (7,134,532
                    )
                    
                    $
                    (32,554,432
                    )
                    
                    $
                    (7,801,010
                    )FFO
      per Company's common share, basic and diluted
                    
                    $
                    (1.22
                    )
                    
                    $
                    (0.28
                    )
                    
                    $
                    (1.04
                    )
                    
                    $
                    (0.39
                    )Weighted
      average number of common shares outstanding, basic and
    diluted
                    
                    
                    31,297,445
                    
                    
                    
                    25,464,696
                    
                    
                    
                    31,204,618
                    
                    
                    
                    20,058,683





Included
in FFO for the three months ended September 30, 2009 are non cash related item
of $45.2 million related to the impairment charge on long lived assets offset by
the gain on sale of marketable securities of $1.2 million.  For the
nine months ended September 30, 2009,  non cash related items included
in FFO are $45.2 million related to the impairment charge on long lived
assets,  $3.4 million related to an other than temporary impairment
charge for marketable securities offset by $0.3 million gain related to the
sale of equity securities.


49


Included
in FFO for the three months ended September 30, 2008, $9.7 million related to an
other than temporary impairment charge for marketable
securities.   Included in FFO for the nine months ended
September 30, 2008 are acquisition fees expensed of $4.1 million associated with
the investment in Mill Run and non cash charge of $9.7 million related to an
other than temporary impairment charge for marketable securities. Effective
January 1, 2009, under current accounting guidance, these acquisitions fees
associated with investments under the equity method are recorded as part of the
cost of the investment and not expensed through the consolidated statements of
operations.





For the
three months ended September 30, 2009, 100% of our distributions declared for
the period to our common shareholders were funded or will be funded with funds
from operations, adjusted for non cash related items.





For the
nine months ended September 30, 2009, approximately 93% of our distributions to
our common shareholders were funded or will be funded with funds from
operations, adjusted for non cash related items and 7% were funded or will
be funded from the uninvested proceeds from the sale of shares from our
offering.




New
Accounting Pronouncements




In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141R, a revision of
SFAS No. 141, “Accounting for Business Combinations,” which was primarily
codified into Topic 805 – “Business Combinations” in the ASC.  This
standard establishes principles and requirements for how the acquirer shall
recognize and measure in its financial statements the identifiable assets
acquired, liabilities assumed, any noncontrolling interest in the acquiree and
goodwill acquired in a business combination. One significant change includes
expensing acquisition fees instead of capitalizing these fees as part of the
purchase price.  This will impact the Company’s recording of
acquisition fees associated with the purchase of wholly-owned entities on a
prospective basis.  This statement is effective for business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  The Company adopted this standard on January 1, 2009 and the
adoption of this statement did not have a material effect on the consolidated
results of operations or financial position.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements an amendment to ARB No. 51” which was
primarily codified into Topic 810 - “Consolidation” in the ASC.  This
standard establishes and expands accounting and reporting standards for minority
interests, which will be recharacterized as noncontrolling interests, in a
subsidiary and the deconsolidation of a subsidiary. The Company will also be
required to present net income allocable to the noncontrolling interests and net
income attributable to the stockholders of the Company separately in its
consolidated statements of operations. Prior to the implementation
of  this standard, noncontrolling interests (minority interests) were
reported between liabilities and stockholders’ equity in the Company’s statement
of financial position and the related income attributable to minority interests
was reflected as an expense/income in arriving at net income/loss. This standard
requires retroactive adoption of the presentation and disclosure requirements
for existing minority interests. All other requirements of this standard are to
be applied prospectively. The Company adopted this standard on January 1, 2009
and the presentation and disclosure requirements were applied retrospectively.
Other than the change in presentation of noncontrolling interests, the adoption
of this standard did not have a material effect on the consolidated results of
operations or financial position.





In
February 2008, the FASB issued Staff Position No. FAS 157-2 which provides for a
one-year deferral of the effective date of SFAS No. 157, “Fair Value
Measurements,”  which was primarily codified into Topic 820 - “Fair
Value Measurements and Disclosures” in the ASC.  This guidance is for
non-financial assets and liabilities that are recognized or disclosed at fair
value in the financial statements on a nonrecurring basis, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis.  The Company adopted this guidance and it did not have a
material impact to the Company’s financial position or consolidated results of
operations.





In
November 2008, the FASB ratified EITF Issue No.  08-6, “Equity Method
Investment Accounting Considerations”, which was primarily codified into Topic
323 – “Investments-Equity Method” in the ASC.  This guidance clarifies
the accounting for certain transactions and impairment considerations involving
equity method investments and is effective for fiscal years beginning on or
after December 15, 2008 to be applied on a prospective basis. The Company
adopted the provisions of this standard on January 1, 2009.  The
adoption of this guidance changed the Company’s accounting for transaction costs
related to equity investments.  Prior to the adoption of this
guidance, the Company expensed these transaction costs to general and
administrative expense as incurred.  Beginning January 1,
2009,  transaction costs incurred related to the Company’s investment
in unconsolidated affiliated real estate entities accounted for under the equity
method of accounting  are capitalized as part of the cost
of  the investment.  For the three  and nine
months ended September 30, 2009, the Company capitalized $13.3 million and $25.8
million, respectively of transaction costs incurred during the related period
related to its investments in POAC and Mill Run (see Note 3).


50


In April
2009, FASB, issued FASB Staff Position, or FSP, No. FAS 115-2 and FAS
124-2,Recognition and
Presentation of Other-Than-Temporary Impairments, which was primarily
codified into Topic 320 – “Investments-Debt and Equity Securities” in the
ASC.  This guidance is intended to provide greater clarity to
investors about the credit and noncredit component of an other-than-temporary
impairment event and to more effectively communicate when an
other-than-temporary impairment event has occurred.  The guidance
applies to fixed maturity securities only and requires separate display of
losses related to credit deterioration and losses related to other market
factors.  When an entity does not intend to sell the security and it
is more likely than not that an entity will not have to sell the security before
recovery of its cost basis, it must recognize the credit component of an
other-than-temporary impairment in earnings and the remaining portion in other
comprehensive income.  In addition, upon adoption of the guidance, an
entity will be required to record a cumulative-effect adjustment as of the
beginning of the period of adoption to reclassify the noncredit component of a
previously recognized other-than-temporary impairment from retained earnings to
accumulated other comprehensive income.  The guidance is effective for
the Company for the quarter ended June 30, 2009.  The Company adopted
the guidance during the quarter ended June 30, 2009 and the adoption did not
have a material effect on the consolidated results of operations or financial
position.





In May
2009, the FASB issued SFAS No. 165, “Subsequent Events”, which was primarily
codified into Topic 855 - “Subsequent Events” in the ASC.  This
standard sets forth: 1) the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements; 2)
the circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements; and 3) the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The standard is effective for interim and
annual periods ending after June 15, 2009. The Company adopted the standard in
the quarter ended June 30, 2009. The standard did not impact the consolidated
results of operations or financial position. See Note 17 to the notes of the
consolidated financial statements.





In June
2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles", which was
primarily codified into Topic 105 - "Generally Accepted Accounting Standards" in
the ASC. This standard will become the single source of authoritative
nongovernmental U.S. GAAP, superseding existing FASB, American Institute of
Certified Public Accountants, EITF, and other related accounting literature.
This standard condenses the thousands of GAAP pronouncements into approximately
90 accounting topics and displays them using a consistent structure. Also
included is relevant Securities and Exchange Commission guidance organized using
the same topical structure in separate sections. This guidance became effective
for financial statements issued for reporting periods that ended after September
15, 2009. Beginning in the third quarter of 2009, this guidance impacts the
Company's financial statements and related disclosures as all references to
authoritative accounting literature reflect the newly adopted
codification.





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 September 30, 2009, we had an interest rate cap agreement
outstanding for LIBOR at 6.0% related to our note payable obligation as per our
debt agreement. At September 30, 2009, the fair value of this interest rate cap
agreement was zero.  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 September 30, 2009, a hypothetical adverse 10%
movement in market values would result in a hypothetical loss in fair value of
approximately $0.1 million.


51





The
following table shows the mortgage and note payable obligations maturing during
the next five years and thereafter at September 30, 2009:





Remainder
      of
                                2009
                              
                              
                              2010
                              
                              
                              2011
                              
                              
                              2012
                              
                              
                              2013
                              
                              
                              Thereafter
                              
                              
                              TotalMortgage
      Payable
                              
                              $
                              175,065
                              
                              
                              $
                              10,553,276
                              
                              
                              $
                              1,586,957
                              
                              
                              $
                              2,781,012
                              
                              
                              $
                              3,107,355
                              
                              
                              $
                              219,084,109
                              
                              
                              $
                              237,287,774Note
      Payable
                              
                              
                              7,358,445
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              7,358,445Total
      maturities
                              
                              $
                              7,533,510
                              
                              
                              $
                              10,553,276
                              
                              
                              $
                              1,586,957
                              
                              
                              $
                              2,781,012
                              
                              
                              $
                              3,107,355
                              
                              
                              $
                              219,084,109
                              
                              
                              $
                              244,646,219





As of
September 30, 2009, approximately $17.6 million, or 7%, of our debt (mortgage
and note payable obligations combined) 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 debt and notes payable as of September 30, 2009 was
approximately $237.7 million compared to the book value of approximately $244.7
million.  The fair value of the mortgage debt and notes payable as of
December 31, 2008 was approximately $239.8 million compared to the book value of
approximately $246.7 million.




In
addition to changes in interest rates, the value of our real estate and real
estate related investments is subject to fluctuations based on changes in local
and regional economic conditions and changes in the creditworthiness of lessees,
which may affect our ability to refinance our debt if necessary. As of September
30, 2009, 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.





ITEM
4T. CONTROLS AND PROCEDURES.




As of the
end of the period covered by this report, management, including our chief
executive officer and chief financial officer, evaluated the effectiveness of
the design and operation of our disclosure controls and procedures. Based upon,
and as of the date of, the evaluation, our chief executive officer and chief
financial officer concluded that the disclosure controls and procedures were
effective to ensure that information required to be disclosed in the reports we
file and submit under the Exchange Act is recorded, processed, summarized and
reported as and when required.




There
have been no changes in our internal control over financial reporting that
occurred during our last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting. There were no significant deficiencies or material weaknesses
identified in the evaluation, and therefore, no corrective actions were
taken.





PART
II. OTHER INFORMATION:


ITEM 1. LEGAL PROCEEDINGS





From time
to time in the ordinary course of business, the 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.


52





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




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





In
response to the Default Notices, Gettinger commenced legal action and obtained
an injunction that extends its time to cure any default, prohibits interference
with its leasehold interest and prohibits Sublessor from terminating its
sublease pending resolution of the litigation. A motion by Sublessor for partial
summary judgment, alleging that certain work on the Office Property required its
prior approval, was denied by the Supreme Court, New York County. Subsequently,
by agreement of the parties, a stay was entered precluding the termination of
the Sublease Interest pending a final decision on Sublessor's claim of defaults
under the Sublease Interest. In addition, the parties stipulated to the
intervention of Office Owner as a party to the proceedings. The parties have
been directed to engage in and complete discovery. We consider the litigation to
be without merit.




Prior to
consummating the acquisition of the Sublease Interest, Office Owner received a
letter from Sublessor indicating that Sublessor would consider such acquisition
a default under the original sublease, which prohibits assignments of the
Sublease Interest when there is an outstanding default there under. On February
16, 2007, Office Owner received a Notice to Cure from Sublessor stating the
transfer of the Sublease Interest occurred in violation of the Sublease given
Sublessor's position that Office Seller is in default. Office Owner will
commence and vigorously pursue litigation in order to challenge the default,
receive an injunction and toll the termination period provided for in the
Sublease.





On
September 4, 2007, Office Owner commenced a new action against Sublessor
alleging a number claims, including the claims that Sublessor has breached the
sublease and committed intentional torts against Office Owner by (among other
things) issuing multiple groundless default notices, with the aim of prematurely
terminating the sublease and depriving Office Owner of its valuable interest in
the sublease.  The complaint seeks a declaratory judgment that Office Owner
has not defaulted under the sublease, damages for the losses Office Owner has
incurred as a result of Sublessor’s wrongful conduct, and an injunction to
prevent Sublessor from issuing further default notices without valid grounds or
in bad faith.





Office
Owner is the borrower under a Loan Agreement dated January 4, 2007 and amended
on September 10, 2007 and April 17, 2009 with Lehman Brothers Holdings Inc.
(“Lehman”).  Pursuant to that loan agreement, Lehman agreed to
loan to Office Owner a total of $127,250,000, of which as of
September 30, 2009 $10,453,737 remains left to fund.  Lehman has
not funded six monthly draws commencing with the April 21, 2009 draw,
and the aggregate amount of these draws  are well within Office Owner’s
borrowing limits.  In addition, Lehman has claimed that it has assigned
certain of its interests in the loan to Swedbank AB
and Lehman Brothers Bankhaus AG, although Lehman has provided
no signed documentation evidencing the transfers.  In
response to the foregoing, Office Owner filed a  motion on November 5,
2009  in Lehman’s bankruptcy case, asking the Bankruptcy Court
to enter an order compelling Lehman to comply with its obligations to lend,
or alternatively, to grant Office Owner relief from the bankruptcy stay to
declare Lehman in default of the loan and related documents, suspend payments
under the loan and related net profits interest, seek a replacement  lender
for the remaining unfunded portion of the loan, and pursue other
remedies





As of the
date hereof, we are not a party to any other material pending legal
proceedings.





ITEM 1A.
RISK FACTORS





Except as
described below, there have been no material changes during the nine months
ended September 30, 2009 to the risk factors discussed in Item 1A. Risk Factors
in our Annual Report on Form 10-K for the year ended December 31,
2008.




Our operations
could be restricted if we become subject to the Investment Company Act of
1940.




We intend
to conduct our operations so that we will  not be subject to regulation
under the Investment Company Act of 1940. We may therefore have to forego
certain investments that could produce a more favorable return. Should we fail
to qualify for an exemption from registration under the Investment Company Act
of 1940, we would be subject to numerous restrictions under this Act, which
would have a material adverse affect on our ability to deliver returns to our
stockholders.


53




Our
intention is that neither we nor our operating partnership will be considered an
“investment company” as defined in the Investment Company Act of 1940, and we do
not intend to engage in the types of business that characterize an investment
company under that law. We intend that investments in real estate will generally
represent the substantial majority of our business. While a company that owns
investment securities having a value exceeding 40 percent of its total assets
could be considered an investment company, we believe that if we make
investments in joint ventures they will be structured so that they are not
considered “investment securities” for purposes of the law.




Based
upon changes in the valuation of our portfolio of investments as of September
30, 2009 described in Item 5. Other Information, including with respect to
certain investment securities we currently hold, we may be deemed to
have  inadvertently become an investment company under the Investment
Company Act of 1940.  We are currently evaluating our response to this
development, including the availability of exemptive or other relief under the
Investment Company Act of 1940, and we intend to take affirmative steps to
comply with applicable regulatory requirements. However, if an examination of
our investments by the SEC or a court should deem us to hold investment
securities in excess of the amount that would require us to register under the
Investment Company Act of 1940, we could be deemed to be an investment company
and be subject to additional restrictions.




If we
fail to maintain an exemption or exclusion from registration as an investment
company, we could, among other things, be required either (a) to substantially
change the manner in which we conduct our 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 us and the market price of our
common stock. If we were required to register as an investment company under the
Investment Company Act of 1940, we would become subject to substantial
regulation with respect to our capital structure (including our 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
we have operated and continue to operate as an unregistered investment company
in violation of the Investment Company Act of 1940, and does not provide us with
a sufficient period to either register as an investment company, obtain
exemptive relief, or divest of our investment securities and/or acquire
non-investment securities, we may be subject to significant potential penalties
and certain of the contracts to which we are a party may be
voidable.




We intend
to continue to monitor our compliance with the exemptions under the Investment
Company Act of 1940 on an ongoing basis.





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.





On April
22, 2005, our Registration Statement on Form S-11 (File No. 333-117367),
covering a public offering, which we refer to as the “Offering,” of up to
30,000,000 common shares for $10 per share (exclusive of 4,000,000 shares
available pursuant to the Company’s dividend reinvestment plan, 600,000 shares
that could be obtained through the exercise of selling dealer warrants when and
if issued, and 75,000 shares that are reserved for issuance under the Company’s
stock option plan) was declared effective under the Securities Act of 1933. On
October 17, 2005, the Company’s filing of a Post-Effective Amendment to its
Registration Statement was declared effective. The Post-Effective Amendment
reduced the minimum offering from 1,000,000 shares of common stock to 200,000
shares of common stock.




The
Offering terminated on October 10, 2008 when all shares offered where
sold.   However, shares continued to be sold to existing
stockholders pursuant to the dividend reinvestment plan.   As of
September 30, 2009, cumulative gross offering proceeds were approximately $308.9
million, which includes redemptions and $14.8 million of proceeds from the
dividend reinvestment plan since its inception.  Below is a summary of
the expenses we incurred in connection with the issuance and distribution of the
registered securities.  As the offering is closed as of October 2008,
we will not have any future expenses.





Type
      of Expense AmountUnderwriting
      discounts and commissions
                  
                  $
                  23,847,655Other
      expenses paid to non-affiliates
                  
                  
                  6,340,647Total  offering
      expenses
                  
                  $
                  30,188,302


54


With net
offering proceeds of $308.9 million as of September 30, 2009, and mortgage debt
in the amount of $237.3 million, and note payable obligation of $7.4 million
outstanding as of September 30, 2009, we acquired approximately $451.3 million
in real estate investments and related assets. Cumulatively, we have used the
net offering proceeds as follows:





At
      September 30, 2009Construction
      of plant, building and facilities
                    
                    $
                    32,749,953Purchase
      of real estate
    interests
                    
                    
                    215,766,037Repayment
      of indebtedness
                    
                    
                    2,410,821Cash
      and cash equivalents (as of September 30, 2009)
                    
                    
                    22,705,537Gross
      Temporary investments (as of September 30,
      2009)
                    
                    
                    2,173,554Other
      uses
                    
                    
                    33,103,772Total
      uses
                    
                    $
                    308,909,674





As of
November 6, 2009, we have sold approximately 31.5 million shares at an aggregate
of price of approximately $311.3 million, which includes proceeds from our
Dividend Reinvestment Plan and redemptions.





ITEM
3. DEFAULTS UPON SENIOR SECURITIES




None.





ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




Our
annual meeting of shareholders was held on September 17, 2009.  The
shareholders voted on one proposal related to board of director
nominees.  The shareholders elected to the board all five director
nominees for a term expiring at the 2010 annual meeting or until their
successors are elected and qualify, with the vote of each director being
reflected below:





Nominee
                    
                    For
                    
                    
                    WithheldDavid
      Lichtenstein (Director)
                    
                    
                    16,051,169
                    
                    
                    
                    381,711Edwin
      J. Glickman (Independent Director)
                    
                    
                    16,062,768
                    
                    
                    
                    370,112George
      R. Whittemore (Independent Director)
                    
                    
                    16,070,378
                    
                    
                    
                    362,503Shawn
      R. Tominus (Independent Director)
                    
                    
                    16,070,209
                    
                    
                    
                    362,671Bruno
      de Vinck ( Director)
                    
                    
                    16,065,488
                    
                    
                    
                    367,392




ITEM
5. OTHER INFORMATION.




There is
no established public trading market for our shares of common stock.  In
order for qualified plans to report account values as required by ERISA,
beginning with the fiscal year ended December 31, 2009, we will be providing an
estimated share value on an annual basis.   We are required to report
the annual statement of value to our shareholder as part of our December 31,
2009 reporting; however, we performed an interim valuation in light of the
current economic conditions, as well as, current asset impairment charges that
we recorded through the nine months ended September 30, 2009 (See Notes 5 and 7
of the notes to the consolidated financial statements).   As of
November 16, 2009, the value for shareholders is estimated to be $9.97 per
share.




The value
for shareholder is only an estimate and may not reflect the actual value of our
shares. The value is based on the estimated value of each share of common stock
based as of the close of our quarter ended September 30, 2009.  The board
of directors, in part, relied upon a third party source and advice in arriving
at this estimated value, which reflects, among other things, the impact of the
recent adverse trends in the economy and the real estate industry.  The
value represents an average price per share within a range of prices we
estimated utilizing various assumptions.  Our estimated value of $9.97 per
share is also within the range estimated by our third party source.


55





PART II. OTHER INFORMATION,
CONTINUED:




We cannot
assure that:




·
            this
      estimate of value could actually be realized by us or by our shareholders
      upon liquidation;





·
            shareholders
      could realize this estimate of value if they were to attempt to sell their
      shares of common stock now or in the
future;





·
            this
      estimate of value reflects the price or prices at which our common stock
      would or could trade if it were listed on a national stock exchange or
      included for quotation on a national market system; or the annual
      statement of value complies with any reporting and disclosure or annual
      valuation requirements under ERISA or other applicable
  law.




In
conjunction with our estimate of the value of a share of our stock for purposes
of ERISA, the board of directors reconfirmed the purchase price under our
distribution reinvestment program as $9.50 per share.  Under our
distribution reinvestment program, a shareholder may acquire, from time to time,
additional shares of our stock by reinvesting cash distributions payable by us
to such shareholder, without incurring any brokerage commission, fees or service
charges.





ITEM
6. EXHIBITS





Exhibit
              Number
            
            Description31.1*
            
            Certification
      Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2*
            
            Certification
      Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1*
            
            Certification
      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
      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


56





SIGNATURES




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




LIGHTSTONE
      VALUE PLUS REAL ESTATE
              INVESTMENT
      TRUST, INC.Date: November
      16, 2009
            By:
            /s/ David
  LichtensteinDavid
      LichtensteinChairman,
      President and Chief Executive Officer
              (Principal
      Executive Officer)




Date:
      November 16, 2009
            By:
            /s/ Donna BrandinDonna
      BrandinChief
      Financial Officer and Treasurer
              (Duly
      Authorized Officer and Principal Financial and
              Accounting
      Officer)


57