UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D. C. 20549





FORM
10-Q


(Mark
One)


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





For the
quarterly period ended March 31, 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 
  þ
    No    ̈




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


Large
      accelerated filer    ̈
              
              Accelerated
      filer    ̈
              
              Non-accelerated
      filer    þ




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


Yes 
 ̈  No þ





As of May
6, 2009, there were 31.2 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 March 31, 2009 (unaudited) and December 31,
      2008
                  
                  3Consolidated
      Statements of Operations (unaudited) for the Three Months Ended March 31,
      2009 and 2008
                  
                  4Consolidated
      Statement of Stockholders’ Equity and Other Comprehensive Loss (unaudited)
      for the Three Months Ended March 31, 2009
                  
                  5Consolidated
      Statements of Cash Flows (unaudited) for the Three Months Ended March 31,
      2009 and 2008
                  
                  6Notes
      to Consolidated Financial Statements
                  
                  7Item 2.
                  
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  
                  29Item 3.
                  
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  
                  42Item 4.
                  
                  Controls
      and Procedures
                  
                  43PART II
                  
                  OTHER
      INFORMATIONItem
      1.
                  
                  Legal
      Proceedings
                  
                  43Item
      2.
                  
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  
                  44Item
      3.
                  
                  Defaults
      Upon Senior Securities
                  
                  45Item
      4.
                  
                  Submission
      of Matters to a Vote of Security Holders
                  
                  45Item
      5.
                  
                  Other
      Information
                  
                  45Item
      6.
                  
                  Exhibits
                  
                  45


2





PART I. FINANCIAL INFORMATION,
CONTINUED:


ITEM
1. FINANCIAL STATEMENTS, CONTINUED:





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


CONSOLIDATED
BALANCE SHEETS





March
      31, 2009
                                    
                                    
                                    December
      31, 2008Assets
                                    
                                    (unaudited)Investment
      property:Land
                                    
                                    $
                                    65,064,246
                                    
                                    
                                    $
                                    65,050,624Building
                                    
                                    
                                    275,988,446
                                    
                                    
                                    
                                    273,255,468Construction
      in progress
                                    
                                    
                                    1,096,835
                                    
                                    
                                    
                                    3,318,021Gross
      investment property
                                    
                                    
                                    342,149,527
                                    
                                    
                                    
                                    341,624,113Less
      accumulated depreciation
                                    
                                    
                                    (19,210,926
                                    )
                                    
                                    
                                    (17,287,242
                                    )Net
      investment property
                                    
                                    
                                    322,938,601
                                    
                                    
                                    
                                    324,336,871Investments
      in unconsolidated affiliated real estate entities
                                    
                                    
                                    89,132,354
                                    
                                    
                                    
                                    21,375,908Investment
      in affiliate, at cost
                                    
                                    
                                    9,533,334
                                    
                                    
                                    
                                    10,150,000Cash
      and cash equivalents
                                    
                                    
                                    51,570,663
                                    
                                    
                                    
                                    66,106,067Marketable
      securities
                                    
                                    
                                    10,804,102
                                    
                                    
                                    
                                    11,450,565Restricted
      escrows
                                    
                                    
                                    7,411,360
                                    
                                    
                                    
                                    7,773,705Tenant
      accounts receivable
                                    
                                    
                                    1,611,014
                                    
                                    
                                    
                                    2,073,756Other
      accounts receivable, primarily escrow receivable
                                    
                                    
                                    128,523
                                    
                                    
                                    
                                    1,238,894Note
      receivable, related party
                                    
                                    
                                    -
                                    
                                    
                                    
                                    48,500,000Acquired
      in-place lease intangibles (net of accumulated amortization of $1,904,683
      and $1,849,234, respectively)
                                    
                                    
                                    989,929
                                    
                                    
                                    
                                    1,141,538Acquired
      above market lease intangibles (net of accumulated amortization of
      $768,206 and $710,720, respectively)
                                    
                                    
                                    379,871
                                    
                                    
                                    
                                    439,939Deferred
      intangible leasing costs (net of accumulated amortization of $870,133 and
      $832,824, respectively)
                                    
                                    
                                    604,661
                                    
                                    
                                    
                                    695,016Deferred
      leasing costs (net of accumulated amortization of $201,649 and $158,792,
      respectively)
                                    
                                    
                                    1,069,354
                                    
                                    
                                    
                                    1,019,225Deferred
      financing costs (net of accumulated amortization of $743,237 and $634,612,
      respectively)
                                    
                                    
                                    1,649,335
                                    
                                    
                                    
                                    1,723,093Interest
      receivable from related parties
                                    
                                    
                                    485,388
                                    
                                    
                                    
                                    1,815,279Prepaid
      expenses and other assets
                                    
                                    
                                    2,862,770
                                    
                                    
                                    
                                    1,969,384Total
      Assets
                                    
                                    $
                                    501,171,259
                                    
                                    
                                    $
                                    501,809,240Liabilities
      and EquityMortgage
      payable
                                    
                                    $
                                    238,962,204
                                    
                                    
                                    $
                                    239,243,982Note
      payable
                                    
                                    
                                    7,397,442
                                    
                                    
                                    
                                    7,416,941Accounts
      payable and accrued expenses
                                    
                                    
                                    5,883,516
                                    
                                    
                                    
                                    8,518,275Due
      to sponsor
                                    
                                    
                                    633,920
                                    
                                    
                                    
                                    1,145,890Tenant
      allowances and deposits payable
                                    
                                    
                                    2,216,263
                                    
                                    
                                    
                                    5,673,760Distributions
      payable
                                    
                                    
                                    5,365,225
                                    
                                    
                                    
                                    -Prepaid
      rental revenues
                                    
                                    
                                    1,217,704
                                    
                                    
                                    
                                    978,648Acquired
      below market lease intangibles (net of accumulated amortization of
      $2,356,443 and $2,258,021, respectively)
                                    
                                    
                                    1,040,198
                                    
                                    
                                    
                                    1,204,434Total
      Liabilites
                                    
                                    
                                    262,716,472
                                    
                                    
                                    
                                    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, 31,116,630 and
      30,985,544 shares issued and outstanding, respectively
                                    
                                    
                                    311,166
                                    
                                    
                                    
                                    309,855Additional
      paid-in-capital
                                    
                                    
                                    276,833,301
                                    
                                    
                                    
                                    275,589,300Accumulated
      other comprehensive loss
                                    
                                    
                                    (4,856,334
                                    )
                                    
                                    
                                    (4,212,454
                                    )Accumulated
      distributions in addition to net loss
                                    
                                    
                                    (68,741,469
                                    )
                                    
                                    
                                    (57,173,374
                                    )Total
      Company's stockholder’s equity
                                    
                                    
                                    203,546,664
                                    
                                    
                                    
                                    214,513,327Noncontrolling
      interests
                                    
                                    
                                    34,908,123
                                    
                                    
                                    
                                    23,113,983Total
      Equity
                                    
                                    
                                    238,454,787
                                    
                                    
                                    
                                    237,627,310Total
      Liabilities and  Equity
                                    
                                    $
                                    501,171,259
                                    
                                    
                                    $
                                    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
                                          
                                          
                                          Three
      Months EndedMarch 31, 2009
                                          
                                          
                                          March 31, 2008Revenues:Rental
      income
                                          
                                          $
                                          9,177,390
                                          
                                          
                                          $
                                          8,704,282Tenant
      recovery income
                                          
                                          
                                          1,276,709
                                          
                                          
                                          
                                          1,069,527Total
      revenues
                                          
                                          
                                          10,454,099
                                          
                                          
                                          
                                          9,773,809Expenses:Property
      operating expenses
                                          
                                          
                                          4,013,088
                                          
                                          
                                          
                                          4,116,309Real
      estate taxes
                                          
                                          
                                          1,127,787
                                          
                                          
                                          
                                          1,038,193General
      and administrative costs
                                          
                                          
                                          1,500,819
                                          
                                          
                                          
                                          1,036,216Depreciation
      and amortization
                                          
                                          
                                          2,417,090
                                          
                                          
                                          
                                          2,160,570Total
      operating expenses
                                          
                                          
                                          9,058,784
                                          
                                          
                                          
                                          8,351,288Operating
      income
                                          
                                          
                                          1,395,315
                                          
                                          
                                          
                                          1,422,521Other
      income, net
                                          
                                          
                                          178,614
                                          
                                          
                                          
                                          146,091Interest
      income
                                          
                                          
                                          1,091,501
                                          
                                          
                                          
                                          884,597Interest
      expense
                                          
                                          
                                          (3,532,670
                                          )
                                          
                                          
                                          (3,571,978
                                          )Income/(loss)
      from investments in unconsolidated affiliated real estate
      entities
                                          
                                          
                                          108,936
                                          
                                          
                                          
                                          (942,488
                                          )Net
      loss
                                          
                                          
                                          (758,304
                                          )
                                          
                                          
                                          (2,061,257
                                          )Less:
      net loss attributable to noncontrolling interests
                                          
                                          
                                          3,019
                                          
                                          
                                          
                                          55Net
      loss attributable to Company's common shares
                                          
                                          $
                                          (755,285
                                          )
                                          
                                          $
                                          (2,061,202
                                          )Net
      loss per Company's common share, basic and diluted
                                          
                                          $
                                          (0.02
                                          )
                                          
                                          $
                                          (0.14
                                          )Weighted
      average number of common shares outstanding, basic and
    diluted
                                          
                                          
                                          31,109,274
                                          
                                          
                                          
                                          15,239,189





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 LOSS


(UNAUDITED)





Company's StockholdersPreferred Shares
                                          
                                          
                                          Common Shares
                                          
                                          
                                          
                                          
                                          
                                          Accumulated
                                          
                                          
                                          AccumulatedAdditional
                                          
                                          
                                          Other
                                          
                                          
                                          Distributions in
                                          
                                          
                                          TotalPreferred
                                          
                                          
                                          
                                          
                                          
                                          Common
                                          
                                          
                                          
                                          
                                          
                                          Paid-In
                                          
                                          
                                          Comprehensive
                                          
                                          
                                          Excess of Net
                                          
                                          
                                          Noncontrolling
                                          
                                          
                                          TotalShares
                                          
                                          
                                          Amount
                                          
                                          
                                          Shares
                                          
                                          
                                          Amount
                                          
                                          
                                          Capital
                                          
                                          
                                          Loss
                                          
                                          
                                          Loss
                                          
                                          
                                          Interests
                                          
                                          
                                          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
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (755,285
                                          )
                                          
                                          
                                          (3,019
                                          )
                                          
                                          
                                          (758,304
                                          )Unrealized
      loss on available for sale securities
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (643,880
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (2,584
                                          )
                                          
                                          
                                          (646,464
                                          )Total
      comprehensive loss
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          (1,404,768
                                          )Distributions
      declared
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (10,812,810
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (10,812,810
                                          )Distributions
      paid to noncontrolling interests
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (1,013,494
                                          )
                                          
                                          
                                          (1,013,494
                                          )Proceeds
      from special general parnter interest units
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          6,982,534
                                          
                                          
                                          
                                          6,982,534Redemption
      and cancellation of shares
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          (120,224
                                          )
                                          
                                          
                                          (1,202
                                          )
                                          
                                          
                                          (1,140,930
                                          )
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (1,142,132
                                          )Shares
      issued from distribution reinvestment program
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          251,310
                                          
                                          
                                          
                                          2,513
                                          
                                          
                                          
                                          2,384,931
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2,387,444Units
      issued to noncontrolling interest in exchange for investment in
      unconsolidated affiliated real estate entity
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          55,988,411
                                          
                                          
                                          
                                          55,988,411Note
      receivable secured by noncontrolling interest units
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (50,157,708
                                          )
                                          
                                          
                                          (50,157,708
                                          )BALANCE,  March
      31, 2009
                                          
                                          
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          
                                          31,116,630
                                          
                                          
                                          $
                                          311,166
                                          
                                          
                                          $
                                          276,833,301
                                          
                                          
                                          $
                                          (4,856,334
                                          )
                                          
                                          $
                                          (68,741,469
                                          )
                                          
                                          $
                                          34,908,123
                                          
                                          
                                          $
                                          238,454,787





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)





Three Months Ended
                                                          
                                                          
                                                          Three Months EndedMarch 31, 2009
                                                          
                                                          
                                                          March 31, 2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                                                          
                                                          $
                                                          (758,304
                                                          )
                                                          
                                                          $
                                                          (2,061,257
                                                          )Adjustments
      to reconcile net loss to net cash  provided by operating
      activities:Depreciation
      and amortization
                                                          
                                                          
                                                          2,276,397
                                                          
                                                          
                                                          
                                                          2,006,747Amortization
      of deferred financing costs
                                                          
                                                          
                                                          96,669
                                                          
                                                          
                                                          
                                                          119,542Amortization
      of deferred leasing costs
                                                          
                                                          
                                                          140,693
                                                          
                                                          
                                                          
                                                          153,823Amortization
      of above and below-market lease intangibles
                                                          
                                                          
                                                          (104,167
                                                          )
                                                          
                                                          
                                                          (231,718
                                                          )Equity
      in (income)/loss from investments in unconsolidated affiliated real estate
      entities
                                                          
                                                          
                                                          (108,936
                                                          )
                                                          
                                                          
                                                          942,488Provision
      for bad debts
                                                          
                                                          
                                                          356,838
                                                          
                                                          
                                                          
                                                          176,974Changes
      in assets and liabilities:Increase
      in prepaid expenses and other assets
                                                          
                                                          
                                                          544,816
                                                          
                                                          
                                                          
                                                          286,866Increase/(decrease)
      in tenant and other accounts receivable
                                                          
                                                          
                                                          1,216,275
                                                          
                                                          
                                                          
                                                          (410,772
                                                          )Increase
      in tenant allowance and security deposits payable
                                                          
                                                          
                                                          3,794
                                                          
                                                          
                                                          
                                                          6,825(Decrease)/increase
      in accounts payable and accrued expenses
                                                          
                                                          
                                                          (2,669,104
                                                          )
                                                          
                                                          
                                                          135,645(Decrease)/increase
      in due to sponsor
                                                          
                                                          
                                                          (511,970
                                                          )
                                                          
                                                          
                                                          238,111Increase/(decrease)
      in prepaid rents
                                                          
                                                          
                                                          239,056
                                                          
                                                          
                                                          
                                                          (113,722
                                                          )Net
      cash provided by operating activities
                                                          
                                                          
                                                          722,057
                                                          
                                                          
                                                          
                                                          1,249,552CASH
      FLOWS USED IN INVESTING ACTIVITIES:Purchase
      of investment property, net
                                                          
                                                          
                                                          (4,032,081
                                                          )
                                                          
                                                          
                                                          (2,692,071
                                                          )Purchase
      of marketable securities
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          (4,055,794
                                                          )Distribution
      from investments in unconsolidated affiliate
                                                          
                                                          
                                                          616,666
                                                          
                                                          
                                                          
                                                          -Purchase
      of investment in unconsolidated affiliated real estate
    entity
                                                          
                                                          
                                                          (11,989,263
                                                          )
                                                          
                                                          
                                                          -Funding
      of restricted escrows
                                                          
                                                          
                                                          362,345
                                                          
                                                          
                                                          
                                                          (99,956
                                                          )Net
      cash used in investing activities
                                                          
                                                          
                                                          (15,042,333
                                                          )
                                                          
                                                          
                                                          (6,847,821
                                                          )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from mortgage financing
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          685,561Proceeds
      from notes payable
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          561,084Mortgage
      payments
                                                          
                                                          
                                                          (301,276
                                                          )
                                                          
                                                          
                                                          (78,785
                                                          )Payment
      of loan fees and expenses
                                                          
                                                          
                                                          (22,911
                                                          )
                                                          
                                                          
                                                          (6,071
                                                          )Proceeds
      from issuance of common stock
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          36,544,332Redemption
      and cancellation of common stock
                                                          
                                                          
                                                          (1,142,132
                                                          )
                                                          
                                                          
                                                          -Proceeds
      from issuance of special general partnership units
                                                          
                                                          
                                                          6,982,534
                                                          
                                                          
                                                          
                                                          3,716,367Payment
      of offering costs
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          (3,467,726
                                                          )Issuance
      of note receivable to noncontrolling interest
                                                          
                                                          
                                                          (1,657,708
                                                          )
                                                          
                                                          
                                                          -Distributions
      paid to noncontrolling interests
                                                          
                                                          
                                                          (1,013,494
                                                          )
                                                          
                                                          
                                                          (221,308
                                                          )Distributions
      paid to Company's common stockholders
                                                          
                                                          
                                                          (3,060,141
                                                          )
                                                          
                                                          
                                                          (1,353,187
                                                          )Net
      cash (used in) provided by financing activities
                                                          
                                                          
                                                          (215,128
                                                          )
                                                          
                                                          
                                                          36,380,267Net
      change in cash and cash equivalents
                                                          
                                                          
                                                          (14,535,404
                                                          )
                                                          
                                                          
                                                          30,781,998Cash
      and cash equivalents, beginning of period
                                                          
                                                          
                                                          66,106,067
                                                          
                                                          
                                                          
                                                          29,589,815Cash
      and cash equivalents, end of period
                                                          
                                                          $
                                                          51,570,663
                                                          
                                                          
                                                          $
                                                          60,371,813Cash
      paid for interest
                                                          
                                                          $
                                                          3,438,945
                                                          
                                                          
                                                          $
                                                          3,416,746Dividends
      declared
                                                          
                                                          $
                                                          10,812,810
                                                          
                                                          
                                                          $
                                                          2,923,055Unrealized
      loss on available for sale securities
                                                          
                                                          $
                                                          646,464
                                                          
                                                          
                                                          $
                                                          3,580,575Non
      cash purchase of investment property
                                                          
                                                          $
                                                          364,505
                                                          
                                                          
                                                          $
                                                          -Value
      of shares issued from distribution reinvestment program
                                                          
                                                          $
                                                          2,387,444
                                                          
                                                          
                                                          $
                                                          888,865Issuance
      of units in exchange for investment in unconsolidated affiliated real
      estate entity
                                                          
                                                          $
                                                          55,988,411
                                                          
                                                          
                                                          $
                                                          -





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


6


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


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 March 31, 2009, cumulative gross offering proceeds
of approximately $307.3 million, which includes redemptions and $10.1 million of
proceeds from the dividend reinvestment plan, have been released to the
Lightstone REIT and used for the purchase of a 98.7% 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 March 31, 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.





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 Interest”) (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 Mill Run Interest was $19,600,000.





On March
30, 2009, the Operating Partnership issued (i) 284,209 Common Units and 53,146
Series A Preferred Units with an aggregate liquidation preference of $55,988,411
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 Interest”) (See Note 3).





See Note
12 for further discussion of noncontrolling interests.


7


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


Notes
to Consolidated Financial Statements


(unaudited)





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 LLC, which consists of two retail properties located in Orlando,
Florida.





2009


On March
30, 2009, the Company acquired a 25% interest in Prime Outlets Acquisitions
Company which has a portfolio of 18 retail outlet malls and two development
projects located in 15 different states across the United States.





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 13).





2.
            Summary of
      Significant Accounting
Policies




Basis of
Presentation




The
consolidated financial statements include the accounts of the Company and the
Operating Partnership and its subsidiaries (over which Lightstone REIT exercises
financial and operating control). As of March 31, 2009, the Company had a 98.7%
general partnership interest in the common units of the Operating Partnership.
All inter-company balances and transactions have been eliminated in
consolidation.




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, 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.


8


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


Notes
to Consolidated Financial Statements


(unaudited)





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, in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments
in Debt and Equity Securities. 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. The Company
recognizes differences between estimated recoveries and the final billed amounts
in the subsequent year.  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 March 31, 2009 and December 31, 2008, respectively.





Investment in Real
Estate




Accounting
for Acquisitions




Beginning
on January 1, 2009, the Company accounts for acquisitions of Properties in
accordance with SFAS No. 141R, “BusinessCombinations (Revised)”. 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, are capitalized as part of
the cost of the investment.


9


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


Notes
to Consolidated Financial Statements


(unaudited)





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 in accordance with SFAS No. 141R, 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 investment in real estate assets in
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets”. This statement requires that long-lived assets be reviewed
for impairment whenever events or changes in circumstances indicate that
recoverability of the asset is not assured.




The
Company evaluates the long-lived assets, in accordance with SFAS No. 144 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. Management concluded no impairment
adjustment was required for the three months ended March 31, 2009. 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.





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.


10




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


Notes
to Consolidated Financial Statements


(unaudited)





Deferred
Costs




The
Company capitalizes initial direct costs in accordance with SFAS No. 91,
“Accounting for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases.” 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.




Income or Losses from
Investments in Unconsolidated Affiliated Real Estate
Entities





The
Company invests in real estate entities and joint ventures that are formed to
acquire, develop, and/or sell real estate assets. These entities are not
majority owned or controlled by the Company, and are not consolidated in its
financial statements. These investments are recorded under either the equity or
cost method of accounting as appropriate. Under the equity method, the Company
records its share of the net income and losses from the underlying entities on 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 method of accounting, the dividends earned from the underlying entities
are recorded to interest income. The Company determines whether or not
consolidation of these entities is recorded through the appropriate evaluation
of FIN No. 46, Consolidation
of Variable Interests.





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 March 31, 2009, the
Company has complied with the requirements for maintaining its REIT
status.





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.





Effective
January 1, 2007, the Company adopted FIN No. 48, Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109. The adoption of FIN 48
did not have a material impact on the Company’s financial position, results of
operation, or cash flows. As of March 31, 2009, the Company had no material
uncertain income tax positions. The tax years 2004 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 March
31, 2009 was approximately $239.5 million compared to the book value of
approximately $246.4 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 rate.


11


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


Notes
to Consolidated Financial Statements


(unaudited)





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 our derivative and hedging activities, if any, using
SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” as
amended by SFAS 137, “Accounting for Derivative Instruments and Hedging
Activities—Deferral of the Effective Date of FASB Statement No. 133,” and SFAS
149, “Amendment of Statement 133 on Derivative Instruments and Hedging
Activities,” which require all derivative instruments to be carried at fair
value on the 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 balance sheet as either an asset or liability, with a
corresponding amount recorded in other comprehensive income within stockholders’
equity. Amounts will be reclassified from other comprehensive income to the
income statement 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 under SFAS 133.  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 SFAS No. 123R,
“Share-Based Payment.”  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.  SFAS No. 123R also requires the tax benefits associated with
these share-based payments to be classified as financing activities in the
consolidated statement of cash flows as required under previous
regulations.  For the three months ended March 31, 2009 and 2008, the
Company had no significant 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.





Net Loss per
Share




Net loss
per share is computed in accordance with SFAS No. 128, Earnings per Share by
dividing the net loss by the weighted average number of shares of common stock
outstanding. The Company has 18,000 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 18,000 options are not included in the dilutive calculation
as they are anti dilutive as a result of the net operating loss applicable to
stockholders.




New Accounting
Pronouncements





In
December 2007, the FASB issued SFAS No. 141R which 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 SFAS No. 141R 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.


12


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


Notes
to Consolidated Financial Statements


(unaudited)





In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements an amendment to ARB No. 51”, which 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  SFAS No. 160,
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. SFAS No. 160 requires retroactive
adoption of the presentation and disclosure requirements for existing minority
interests. All other requirements of SFAS No. 160 are to be applied
prospectively. The Company adopted SFAS No. 160 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 SFAS No. 160 did not have a material effect on the
consolidated results of operations or financial position.





In
February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2,
“Effective Date of FASB Statement No. 157,” which delays the effective date
of SFAS No. 157, Fair Value
Measurementsto fiscal years beginning after November 15, 2008 for
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed in the financial statements at fair value at least
annually. SFAS No. 157 applies under other accounting pronouncements that
require or permit fair value measurements. Accordingly, this statement does not
require any new fair value measurements. However, for some entities, the
application of this statement will change current practice. This statement
clarifies that market participant assumptions include assumptions about risk,
for example, the risk inherent in a particular valuation technique used to
measure fair value (such as a pricing model) and/or risk inherent in the inputs
to the valuation technique. This Statement clarifies that market participant
assumptions also include assumptions about the effect of a restriction on the
sale or use of an asset. This Statement also clarifies that a fair value
measurement for a liability reflects its nonperformance risk. The Company
adopted FAS 157-2 on January 1, 2009 and the adoption  did not have a
material effect on the consolidated results of operations or financial
position.





In
November 2008, the FASB ratified EITF Issue No.  08-6, “Equity Method
Investment Accounting Considerations" ("EITF No. 08-6"). EITF No. 08-6 clarifies
the accounting for certain transactions and impairment considerations involving
equity method investments.  EITF No.  08-6 is effective for
fiscal years beginning on or after December 15, 2008 and is to be applied on a
prospective basis. The Company adopted the provisions of this standard on
January 1, 2009.  The adoption of EITF No.  08-6 changed the
Company’s accounting for transaction costs related to equity
investments.  Prior to the adoption of EITF No. 08-6, the Company
expensed these transaction costs to general and administrative expense as
incurred.  Beginning January 1, 2009, under the guidance of EITF No.
08-6, 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 months ended March 31,
2009, the Company capitalized $11.7 million of transaction costs incurred during
the period related to its investment in Prime Outlets Acquisitions Company (see
Note 3).





In April
2009, FASB, issued FASB Staff Position, or FSN, No. FAS 115-2 and FAS
124-2,Recognition and
Presentation of Other-Than-Temporary Impairments, or the
FSP.  The FSP 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 FSP 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 FSP, 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 FSP will be effective for the Company for
the quarter ended June 30, 2009.  The Company is currently evaluating
the impact of adopting the FSP.





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.


13


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


Notes
to Consolidated Financial Statements


(unaudited)





3.
            Investments
      in Unconsolidated Affiliated Real Estate
  Entities





The
entities listed below are partially owned by the Company.  The Company
accounted for these investments under the equity method of accounting as the
Company exercises significant influence, but does not control these entities. A
summary of the Company’s investments in unconsolidated affiliated real estate
entities as of March 31, 2009 and December 31, 2008 is as follows:





AsofReal Estate Entity
                        
                        DateAcquired
                        
                        Ownership
                          %
                        
                        
                        March31,2009
                        
                        
                        December31,
                          2008Prime
      Outlets Acquistions Company
                        
                        March 30, 2009
                        
                        
                        25.00
                        %
                        
                        $
                        67,655,351
                        
                        
                        $
                        -Mill
      Run LLC
                        
                        June 26, 2008
                        
                        
                        22.54
                        %
                        
                        
                        19,696,023
                        
                        
                        
                        19,279,4061407
      Broadway Mezz II LLC
                        
                        January 4, 2007
                        
                        
                        49.00
                        %
                        
                        
                        1,780,980
                        
                        
                        
                        2,096,502Total
      Investment in unconsolidated affiliated real estate
    entities
                        
                        
                        
                        
                        
                        
                        
                        $
                        89,132,354
                        
                        
                        $
                        21,375,908





Prime
Outlets Acquisitions Company





On June
26, 2008, the Operating Partnership entered into a Contribution and Conveyance
Agreement with AR Prime Holdings LLC, a Delaware limited liability company (“AR
Prime”), pursuant to which on March 30, 2009, AR Prime contributed to the
Operating Partnership a 25% membership interest (the “POAC Interest”) in Prime
Outlets Acquisitions Company (“POAC”) in exchange for units in the Operating
Partnership (See Note 1).    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.





The
acquisition price before transaction costs for the POAC Interest 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).  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 received an acquisition fee equal
to 2.75% of the acquisition price, or approximately $9.8 million. In addition,
during the three months ended March 31, 2009, the Company incurred additional
transactions costs related to accounting and legal fees of $1.9
million.  In accordance with EITF No. 08-6, the total transaction
costs incurred during the three months ended March 31, 2009 of $11.7 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 POAC of $2.2
million.





See Note
12 for discussion of loans issued in connection with the contribution of the
POAC Interest and see Note 15 for discussion of the tax protection
agreement.





Mill
Run Interest





On June
26, 2008, the Company, through the Operating Partnership, entered into
Contribution and Conveyance Agreements between the Operating Partnership and (i)
Arbor JRM and (ii) Arbor CJ, pursuant to which Arbor JRM and Arbor CJ
contributed to the Operating Partnership an aggregate 22.54% membership interest
(the “Mill Run Interest”) in Mill Run LLC in exchange for units in the Operating
Partnership (See Note 1). The acquisition price for the Mill Run Interest was
approximately $85 million, $19.6 million of which was in the form of equity and
$65.4 million in the form of indebtedness secured by the Mill Run Properties. 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.  The Mill Run Interest is a Class A member and 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.





See Note
12 for discussion loans issued in connection with the contribution of the POAC
Interest and see Note 15 for discussion of the tax protection
agreement.


14


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


Notes
to Consolidated Financial Statements


(unaudited)





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. 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 $13.5
million, as of March 31, 2009.  See Note 15.





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
following table represents the condensed combined income statement for
unconsolidated affiliated real estate entities for the three month period ended
March 31, 2009 and March 31, 2008:





For the Three
                        Months Ended
                        March 31, 2009(1)
                      
                      
                      For the Three
                        Months Ended
                        March 31, 2008(2)(unaudited)Revenue
                      
                      $
                      21,236,910
                      
                      
                      $
                      9,815,133Property
      operating expenses
                      
                      
                      10,916,381
                      
                      
                      
                      6,329,600Depreciation
      and amortization
                      
                      
                      5,135,402
                      
                      
                      
                      3,247,463Operating
      income
                      
                      
                      5,185,127
                      
                      
                      
                      238,070Interest
      expense and other, net
                      
                      
                      (3,337,510
                      )
                      
                      
                      (2,161,516
                      )Net
      income/(loss)
                      
                      $
                      1,847,617
                      
                      
                      $
                      (1,923,446
                      )The
      Company's share of net income/(loss), net of excess basis depreciation of
      $0.2 million and zero, respectively
                      
                      $
                      108,936
                      
                      
                      $
                      (942,488
                      )





(1)
Amounts include the three months ended March 31, 2009 for 1407 Broadway Mezz II
LLC and Mill Run LLC plus the period March 30 through 31, 2009 related to Prime
Outlets Acquisitions Company.





(2)
Amounts include the three months ended March 31, 2008 for 1407 Broadway Mezz II
LLC.




15


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


Notes
to Consolidated Financial Statements


(unaudited)





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





As
      of
                            
                            
                            As
      ofMarch 31,2009
                            
                            
                            December 31,2008(1)(unaudited)Real
      estate, at cost, net
                            
                            $
                            1,206,079,012
                            
                            
                            $
                            381,016,535Intangible
      assets, net
                            
                            
                            7,634,423
                            
                            
                            
                            5,500,334Cash
      and restricted cash
                            
                            
                            58,769,758
                            
                            
                            
                            18,146,318Other
      assets
                            
                            
                            104,098,021
                            
                            
                            
                            34,736,039Total
      Assets
                            
                            $
                            1,376,581,214
                            
                            
                            $
                            439,399,226Mortgage
      note payable
                            
                            $
                            1,591,847,303
                            
                            
                            $
                            396,971,167Other
      liabilities
                            
                            
                            77,108,076
                            
                            
                            
                            40,661,034Member
      capital
                            
                            
                            (292,374,165
                            )
                            
                            
                            1,767,025Total
      liabilities and members' capital
                            
                            $
                            1,376,581,214
                            
                            
                            $
                            439,399,226





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





4.
            Investment in
      Affiliate





Park Avenue
Funding





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




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





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





The
Company does not have any voting rights for this investment, and does not have
significant influence over this investment. The Company accounts for this
investment under the cost method. Total accrued distributions related to this
investment totaled $0.1 million at March 31, 2009 and $0.3 million at December
31, 2008, and are included in interest receivable from related
parties.   Through March 31, 2009, the Company received
redemption payments from PAF of $1.5 million, of which $0.6 million was received
during the three months ended March 31, 2009.  As of March 31, 2009,
the Company’s investment in PAF is $9.5 million and is included in investment in
affiliate, at cost in the consolidated balance sheet.


16


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


Notes
to Consolidated Financial Statements


(unaudited)





5.
            Marketable Securities and Fair
      Value Measurements





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





AsofMarch31,
2009
                          
                          
                          AsofDecember31,
2008As
      of March 31, 2009
                          
                          AdjustedCost
                          
                          
                          Unrealized
                            Gain/(Loss)
                          
                          
                          Fair
      Value
                          
                          
                          Adjusted
      Cost
                          
                          
                          Unrealized
                            Gain/(Loss)
                          
                          
                          Fair
      ValueCorporate
      Bonds
                          
                          $
                          9,508,760
                          
                          
                          $
                          390,240
                          
                          
                          $
                          9,899,000
                          
                          
                          $
                          9,508,760
                          
                          
                          $
                          147,740
                          
                          
                          $
                          9,656,500Equity
      Securities, primarily REITs
                          
                          
                          6,154,260
                          
                          
                          
                          (5,249,158
                          )
                          
                          
                          905,102
                          
                          
                          
                          6,154,259
                          
                          
                          
                          (4,360,194
                          )
                          
                          
                          1,794,065Total
      Marketable Securities - available for sale
                          
                          $
                          15,663,020
                          
                          
                          $
                          (4,858,918
                          )
                          
                          $
                          10,804,102
                          
                          
                          $
                          15,663,019
                          
                          
                          $
                          (4,212,454
                          )
                          
                          $
                          11,450,565





The
Company has two corporate bonds outstanding as of March 31, 2009. One bond
valued at $5.0 million matures on August 1, 2009 and the other bond valued at
$4.9 million is callable on June 16, 2009 and has a maturity date of December
31, 2037.





Fair
Value Measurements





Fair
value is defined under SFAS No. 157 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 under SFAS No. 157 must maximize the
use of observable inputs and minimize the use of unobservable inputs. The
standard describes a fair value hierarchy based on three levels of inputs, of
which the first two are considered observable and the last unobservable, that
may be used to measure fair value:





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





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





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





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





FairValueMeasurementUsingAs
      of March 31, 2009
                    
                    Level1
                    
                    
                    Level2
                    
                    
                    Level3
                    
                    
                    TotalCorporate
      bonds
                    
                    $
                    9,899,000
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    9,899,000Equity
      Securities, primiarily REITs
                    
                    
                    905,102
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    905,102Total
      Marketable securities - available for sale
                    
                    $
                    10,804,102
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    10,804,102





The
Company did not have any other significant financial assets or liabilities,
which would require revised valuations under SFAS No. 157 that are
recognized at fair value.


17


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


Notes
to Consolidated Financial Statements


(unaudited)





6.
            Intangible
      Assets





At March
31, 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
March 31, 2009 and December 31, 2008:





AtMarch31,2009
                  
                  
                  AtDecember31,2008Cost
                  
                  
                  Accumulated
                    Amortization
                  
                  
                  Net
                  
                  
                  Cost
                  
                  
                  Accumulated
                    Amortization
                  
                  
                  NetAcquired
      in-place lease intangibles
                  
                  $
                  2,894,612
                  
                  
                  $
                  (1,904,683
                  )
                  
                  $
                  989,929
                  
                  
                  $
                  2,990,772
                  
                  
                  $
                  (1,849,234
                  )
                  
                  $
                  1,141,538Acquired
      above market lease intangibles
                  
                  
                  1,148,077
                  
                  
                  
                  (768,206
                  )
                  
                  
                  379,871
                  
                  
                  
                  1,150,659
                  
                  
                  
                  (710,720
                  )
                  
                  
                  439,939Deferred
      intangible leasing costs
                  
                  
                  1,474,794
                  
                  
                  
                  (870,133
                  )
                  
                  
                  604,661
                  
                  
                  
                  1,527,840
                  
                  
                  
                  (832,824
                  )
                  
                  
                  695,016Acquired
      below market lease intangibles
                  
                  
                  (3,396,641
                  )
                  
                  
                  2,356,443
                  
                  
                  
                  (1,040,198
                  )
                  
                  
                  (3,462,455
                  )
                  
                  
                  2,258,021
                  
                  
                  
                  (1,204,434
                  )





During
the three months ended March 31, 2009, the Company wrote off fully amortized
acquired intangible assets of approximately $0.2 million resulting in a
reduction of cost and accumulated amortization of intangible assets at March 31,
2009 compared to the December 31, 2008.  There were no additions
during the three months ended March 31, 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 March 31, 2009:





Amortization
      expense/(benefit) of:
                    
                    Balance
                      2009
                    
                    
                    2010
                    
                    
                    2011
                    
                    
                    2012
                    
                    
                    2013
                    
                    
                    Thereafter
                    
                    
                    TotalAcquired
      above market lease value
                    
                    $
                    142,658
                    
                    
                    $
                    97,974
                    
                    
                    $
                    53,943
                    
                    
                    $
                    23,379
                    
                    
                    $
                    14,425
                    
                    
                    $
                    47,492
                    
                    
                    $
                    379,871Acquired
      below market lease value
                    
                    
                    (390,549
                    )
                    
                    
                    (264,833
                    )
                    
                    
                    (125,832
                    )
                    
                    
                    (87,911
                    )
                    
                    
                    (86,625
                    )
                    
                    
                    (84,448
                    )
                    
                    
                    (1,040,198
                    )Projected
      future net rental income increase
                    
                    $
                    (247,891
                    )
                    
                    $
                    (166,859
                    )
                    
                    $
                    (71,889
                    )
                    
                    $
                    (64,532
                    )
                    
                    $
                    (72,200
                    )
                    
                    $
                    (36,956
                    )
                    
                    $
                    (660,327
                    )





Amortization
benefit of acquired above and below market lease values is included in total
revenues in our consolidated statement of operations was $0.1 million and $0.2
million for the three months ended March 31, 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 March 31, 2009:





BalanceAmortization
      expense of:
                  
                  2009
                  
                  
                  2010
                  
                  
                  2011
                  
                  
                  2012
                  
                  
                  2013
                  
                  
                  Thereafter
                  
                  
                  TotalAcquired
      in-place leases value
                  
                  $
                  349,845
                  
                  
                  $
                  222,197
                  
                  
                  $
                  111,477
                  
                  
                  $
                  72,836
                  
                  
                  $
                  66,883
                  
                  
                  $
                  166,691
                  
                  
                  $
                  989,929Deferred
      intangible leasing costs value
                  
                  
                  198,861
                  
                  
                  $
                  140,179
                  
                  
                  $
                  77,590
                  
                  
                  $
                  46,358
                  
                  
                  $
                  41,219
                  
                  
                  $
                  100,454
                  
                  
                  
                  604,661Projected
      future amortization expense
                  
                  $
                  548,706
                  
                  
                  $
                  362,376
                  
                  
                  $
                  189,067
                  
                  
                  $
                  119,194
                  
                  
                  $
                  108,102
                  
                  
                  $
                  267,145
                  
                  
                  $
                  1,594,590





Actual
total amortization expense included in depreciation and amortization expense in
our consolidated statement of operations was $0.3 million, and $0.4 million for
the three months ended March 31, 2009 and 2008, respectively.


18


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


Notes
to Consolidated Financial Statements


(unaudited)





7.
            Future
      Minimum Rentals





As of
March 31, 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$
                          9,306,894
                          
                          
                          $
                          10,092,354
                          
                          
                          $
                          7,975,266
                          
                          
                          $
                          6,579,960
                          
                          
                          $
                          5,579,242
                          
                          
                          $
                          18,752,399
                          
                          
                          $
                          58,286,115





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.





8.
              Mortgages
      Payable





Mortgages
payable, totaling approximately $239.0 million and $239.2 million at March 31,
2009 and December 31, 2008, respectively, consists of the
following:





Loan Amount as ofProperty
                        
                        Interest Rate
                        
                        
                        Maturity Date
                        
                        
                        Amount Due at
                          Maturity
                        
                        
                        March 31,
                          2009
                        
                        
                        December
      31,
                          2008St.
      Augustine
                        
                        
                        6.09%
                        
                        
                        April 2016
                        
                        
                        $
                        23,747,523
                        
                        
                        $
                        26,650,063
                        
                        
                        $
                        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 + 1.75%
                        
                        
                        April 2009
                        
                        
                        
                        11,728,168
                        
                        
                        
                        11,793,341
                        
                        
                        
                        11,986,971Camden
      Multi Family Properties - (Five Individual Loans)
                        
                        
                        5.44%
                        
                        
                        December 2014
                        
                        
                        
                        74,955,771
                        
                        
                        
                        79,268,800
                        
                        
                        
                        79,268,800Total
      mortgage obligations
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        223,710,189
                        
                        
                        $
                        238,962,204
                        
                        
                        $
                        239,243,982





LIBOR at
March 31, 2009 and at December 31, 2008 was 0.50063% 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.




The
following table shows the mortgage debt maturing during the next five years and
thereafter at March 31, 2009:





Remainderof
                            2009
                          
                          
                          2010
                          
                          
                          2011
                          
                          
                          2012
                          
                          
                          2013
                          
                          
                          Thereafter
                          
                          
                          Total$
                          12,043,245
                          
                          
                          $
                          359,526
                          
                          
                          $
                          1,586,957
                          
                          
                          $
                          2,781,012
                          
                          
                          $
                          3,107,355
                          
                          
                          $
                          219,084,109
                          
                          
                          $
                          238,962,204





Pursuant
to the Company’s loan agreements, escrows in the amount of approximately $7.4
million were held in restricted escrow accounts at March 31, 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.


19


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


Notes
to Consolidated Financial Statements


(unaudited)





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. The mortgage loan has a term of one year with the option of a 6-month
term extension, 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 (1.75%) per annum rate and requires
monthly installments of interest only through the first 12 months. The mortgage
loan matured on October 16, 2008 and the Company exercised its 6-month extension
option, as described above.  During the extension period, monthly
installments of principal and interest payments are due.  Principal
payments will be equal to the principal component of an amortization of the
principal of the loan on the basis of an assumed interest rate of 8.0% per annum
on a 360 months term. The remaining principal balance, together with all accrued
and unpaid interest and all other amounts payable there under will be due on
April 16, 2009.  The Company is in the process of refinancing this
loan with its current lender.  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 months ended
March 31, 2009 was 2.17%.





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. Although the loans were allocated among
the Camden Properties, the aggregate loan amount is secured by all of the
Properties.





The
Company is required to maintain minimum debt service coverage ratios as defined
in the loan documents for the St. Augustine; Houston extended stay hotels, Gulf
Coast Industrial Portfolio and Southeastern Michigan multifamily
properties.  The Company was in compliance with its financial
covenants at March 31, 2009.





Interest
costs capitalized related to the renovation and expansion projects during the
three months ended March 31, 2009 and 2008 amounted to zero and $0.1 million,
respectively.





9.      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.  The
balance at March 31, 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 months ended March
31, 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 March
31, 2009 and December 31, 2008.


20




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


Notes
to Consolidated Financial Statements


(unaudited)




10.
              Distributions
      Payable




On March
30, 2009, the Company declared a dividend for the three-month period ending
March 31, 2009 of $5.4 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 March 31, 2009 dividend was paid in full in April 2009 using a
combination of cash ($3.1 million) and shares ($2.3 million) which represents
0.2 million shares of the Company’s common stock issued pursuant to the
Company’s Distribution Reinvestment Program, at a discounted price of $9.50 per
share.




11.
              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
March 31, 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 31.1 million and 31.0 million shares of common stock outstanding
as of March 31, 2009 and December 31, 2008, respectively.




21




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


Dividends





The
Board of Directors of the Lightstone REIT declared a dividend for each quarter
in 2006, 2007, and 2008 and for the three months ended March 31, 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 options
to purchase 3,000 shares were granted to each of our three independent directors
at the annual stockholders meeting.  At the annual stockholders
meeting in August 2008 additional options for the purchase of 3,000 shares were
granted to each of our three independent directors.  As of March 31,
2009, options to purchase 18,000 shares of stock were outstanding, none of which
are fully vested, at an exercise price of $10. Through March 31, 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
months ended March 31, 2009 and 2008.




12.
              Noncontrolling
      Interests




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





Share Description




See Note
13 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 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 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 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 Partnership to redeem or retire
the Series A Preferred Units.




22


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




Distributions





During
the three months March 31, 2009, the Company paid distributions to
noncontrolling interests of $1.0 million.  In addition, as of March
31, 2009, the Company declared total distributions to noncontrolling interests
of $0.8 million, which were paid during April 2009.





Note
Receivable due from Noncontrolling Interests





In
connection with the contribution of the Mill Run Interest, the Company made
loans to Arbor JRM and Arbor CJ in the aggregate principal amount of $17.6
million (the “Mill Loans”).  In addition, in connection with the
contribution of the POAC Interest, the Company made a loan to AR Prime in the
principal amount of $49.5 million (the “POAC Loan”) on June 26, 2008 and $1.7
(“Additional POAC Loan”) million on March 30, 2009, collectively the POAC
Loans.  These loans are payable semi-annually and accrue interest at
an annual rate of 4%. The loans mature on July 1, 2016 and contain customary
events of default and default remedies.  The loans required Arbor JRM,
Arbor CJ and AR Prime 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 Interest and the
POAC Interest, as such these loans are classified as a reduction to
Noncontrolling interests in the consolidated balance sheet.





Accrued
interest related to these loans totaled $0.4 million at March 31, 2009 and $2.1
million at December 31, 2008, and is included in interest receivable from
related parties in the consolidated balance sheet.


13.
              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 will be paid up to 7% of the gross offering proceeds before
      reallowance of commissions earned by participating broker-dealers. Selling
      commissions are expected to be approximately $21,000,000 if the maximum
      offering of 30 million shares is sold.Dealer
                          Management
      Fee
                        
                        The
      Dealer Manager will be paid up to 1% of gross offering proceeds before
      reallowance to participating broker-dealers. The estimated dealer
      management fee is expected to be approximately $3,000,000 if the maximum
      offering of 30 million shares is sold.Soliciting
                          Dealer
      Warrants
                        
                        The
      Dealer Manager may buy up to 600,000 warrants at a purchase price of
      $.0008 per warrant. Each warrant will be exercisable for one share of the
      Lightstone REIT’s common stock at an exercise price of $12.00 per
      share.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 will sell a special general
      partnership interest in the Operating Partnership to Lightstone SLP, LLC
      (an affiliate of the Sponsor) and apply all the sales proceeds to offset
      such
costs.




23


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


Fees
                                        
                                        AmountAcquisition
      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.Property
      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
      of
                                          Other
      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.




24


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


Lightstone
SLP, LLC, an affiliate of our Sponsor, has purchased SLP units in the Operating
Partnership. These SLP units, the purchase price of which will be repaid only
after stockholders receive a stated preferred return and their net investment,
will entitle Lightstone SLP, LLC to a portion of any regular distributions made
by the Operating Partnership. During the three months ended March 31, 2009,
distributions of $1.0 million were declared and distributions of $0.5 million
were paid related to the SLP units. Through March 31, 2009, cumulative
distributions declared were $2.8 million, of which $2.3 million have been
paid.  Such distributions, paid current at a 7% annualized rate of
return to Lightstone SLP, LLC through March 31, 2009 and will always be
subordinated until stockholders receive a stated preferred return, as described
below.




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 of 12%
                  
                  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
      StageDistributions
                        
                        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.




25


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


The
Lightstone REIT pursuant to the related party arrangements described above has
recorded the following amounts the three months ended March 31, 2009 and
2008:





Three MonthsEnded March 31,2009
                          
                          
                          Three MonthsEnded March 31,2008(unaudited)Acquisition
      fees
                          
                          $
                          9,778,760
                          
                          
                          $
                          -Asset
      management fees
                          
                          
                          660,430
                          
                          
                          
                          508,183Property
      management fees
                          
                          
                          459,556
                          
                          
                          
                          413,624Acquisition
      expenses reimbursed to Advisor
                          
                          
                          902,753
                          
                          
                          
                          -Development
      fees
                          
                          
                          19,226
                          
                          
                          
                          9,386Leasing
      commissions
                          
                          
                          80,966
                          
                          
                          
                          145,288Total
                          
                          $
                          11,901,691
                          
                          
                          $
                          1,076,481




See Notes
3, 4 and 12 for other related party transactions.




14.
              Segment
      Information





The
Company currently operates in four business segments as of March 31, 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 months ended March 31, 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 March 31, 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 March 31, 2009 and 2008, and
total assets as of March 31, 2009 and 2008 regarding the Company’s operating
segments are as follows:


For the Three Months Ended March 31, 2009(unaudited)Retail
                                                                                        
                                                                                        
                                                                                        Multi Family
                                                                                        
                                                                                        
                                                                                        Industrial
                                                                                        
                                                                                        
                                                                                        Hospitality
                                                                                        
                                                                                        
                                                                                        Unallocated
                                                                                        
                                                                                        
                                                                                        TotalTotal
      revenues
                                                                                        
                                                                                        $
                                                                                        2,773,529
                                                                                        
                                                                                        
                                                                                        $
                                                                                        4,851,671
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,888,638
                                                                                        
                                                                                        
                                                                                        $
                                                                                        940,261
                                                                                        
                                                                                        
                                                                                        $
                                                                                        -
                                                                                        
                                                                                        
                                                                                        $
                                                                                        10,454,099Property
      operating expenses
                                                                                        
                                                                                        
                                                                                        779,736
                                                                                        
                                                                                        
                                                                                        
                                                                                        2,397,053
                                                                                        
                                                                                        
                                                                                        
                                                                                        397,721
                                                                                        
                                                                                        
                                                                                        
                                                                                        438,578
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        4,013,088Real
      estate taxes
                                                                                        
                                                                                        
                                                                                        313,960
                                                                                        
                                                                                        
                                                                                        
                                                                                        520,928
                                                                                        
                                                                                        
                                                                                        
                                                                                        233,212
                                                                                        
                                                                                        
                                                                                        
                                                                                        59,687
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,127,787General
      and administrative costs
                                                                                        
                                                                                        
                                                                                        88,243
                                                                                        
                                                                                        
                                                                                        
                                                                                        274,422
                                                                                        
                                                                                        
                                                                                        
                                                                                        9,349
                                                                                        
                                                                                        
                                                                                        
                                                                                        (3,951
                                                                                        )
                                                                                        
                                                                                        
                                                                                        1,132,756
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,500,819Net
      operating income (loss)
                                                                                        
                                                                                        
                                                                                        1,591,590
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,659,268
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,248,356
                                                                                        
                                                                                        
                                                                                        
                                                                                        445,947
                                                                                        
                                                                                        
                                                                                        
                                                                                        (1,132,756
                                                                                        )
                                                                                        
                                                                                        
                                                                                        3,812,405Depreciation
      and amortization
                                                                                        
                                                                                        
                                                                                        913,428
                                                                                        
                                                                                        
                                                                                        
                                                                                        760,166
                                                                                        
                                                                                        
                                                                                        
                                                                                        628,378
                                                                                        
                                                                                        
                                                                                        
                                                                                        114,841
                                                                                        
                                                                                        
                                                                                        
                                                                                        277
                                                                                        
                                                                                        
                                                                                        
                                                                                        2,417,090Operating
      income (loss)
                                                                                        
                                                                                        $
                                                                                        678,162
                                                                                        
                                                                                        
                                                                                        $
                                                                                        899,102
                                                                                        
                                                                                        
                                                                                        $
                                                                                        619,978
                                                                                        
                                                                                        
                                                                                        $
                                                                                        331,106
                                                                                        
                                                                                        
                                                                                        $
                                                                                        (1,133,033
                                                                                        )
                                                                                        
                                                                                        $
                                                                                        1,395,315Total
      purchases of investment property
                                                                                        
                                                                                        $
                                                                                        340,314
                                                                                        
                                                                                        
                                                                                        $
                                                                                        238,772
                                                                                        
                                                                                        
                                                                                        $
                                                                                        14,366
                                                                                        
                                                                                        
                                                                                        $
                                                                                        95,502
                                                                                        
                                                                                        
                                                                                        $
                                                                                        23,242
                                                                                        
                                                                                        
                                                                                        $
                                                                                        712,196As
      of March 31, 2009:Total
      Assets
                                                                                        
                                                                                        $
                                                                                        106,441,793
                                                                                        
                                                                                        
                                                                                        $
                                                                                        143,046,453
                                                                                        
                                                                                        
                                                                                        $
                                                                                        73,710,766
                                                                                        
                                                                                        
                                                                                        $
                                                                                        19,786,503
                                                                                        
                                                                                        
                                                                                        $
                                                                                        158,185,744
                                                                                        
                                                                                        
                                                                                        $
                                                                                        501,171,259
  26
 LIGHTSTONE
VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARES
 Notes
to Consolidated Financial Statements
 (unaudited)
 
 For the Three Months Ended March 31, 2008(unaudited)Retail
                                                                                                        
                                                                                                        
                                                                                                        Multi Family
                                                                                                        
                                                                                                        
                                                                                                        Industrial
                                                                                                        
                                                                                                        
                                                                                                        Hospitality
                                                                                                        
                                                                                                        
                                                                                                        Unallocated
                                                                                                        
                                                                                                        
                                                                                                        TotalTotal
      revenues
                                                                                                        
                                                                                                        $
                                                                                                        2,017,586
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        4,988,938
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        2,026,863
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        740,422
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        9,773,809Property
      operating expenses
                                                                                                        
                                                                                                        
                                                                                                        669,100
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        2,444,097
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        597,144
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        405,968
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        4,116,309Real
      estate taxes
                                                                                                        
                                                                                                        
                                                                                                        212,507
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        530,165
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        242,926
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        52,595
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        1,038,193General
      and administrative costs
                                                                                                        
                                                                                                        
                                                                                                        15,329
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        130,816
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        23,952
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        11,302
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        854,817
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        1,036,216Net
      operating income
                                                                                                        
                                                                                                        
                                                                                                        1,120,650
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        1,883,860
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        1,162,841
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        270,557
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (854,817
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        3,583,091Depreciation
      and amortization
                                                                                                        
                                                                                                        
                                                                                                        551,131
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        736,756
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        768,160
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        104,523
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        2,160,570Operating
      income (loss)
                                                                                                        
                                                                                                        $
                                                                                                        569,519
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        1,147,104
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        394,681
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        166,034
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        (854,817
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        1,422,521Total
      purchases of investment property
                                                                                                        
                                                                                                        $
                                                                                                        1,476,850
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        149,838
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        255,031
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        810,354
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        2,692,073As
      of March 31, 2008Total
      Assets
                                                                                                        
                                                                                                        $
                                                                                                        80,758,082
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        145,104,717
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        79,711,538
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        17,350,516
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        77,454,335
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        400,379,188
  15.
              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.




27


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


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 with Lehman Brothers Holdings Inc. (“Lehman”). 
Pursuant to that loan agreement, Lehman has loaned a total of $127,250,000,
leaving borrowing availability of $13,540,509.  Because Lehman did not
honor October  2008 and January 2009 draws that are well within Office
Owner’s borrowing limits, Office Owner filed a  motion dated February 6,
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, seek a replacement senior lender for the remaining unfunded portion of the
loan, and pursue other remedies.   Lehman funded the pending draw
requests on April 17, 2009, following which we voluntarily dismissed our action
without prejudice.





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 and AR Prime
(collectively, the “Contributors”), each dated as of June 26, 2008. Under these
Tax Protection Agreements, the Operating Partnership is required to indemnify
each of Arbor JRM and Arbor CJ with respect to the Mill Run Properties, and AR
Prime, with respect to the POAC Properties, for a period of five years from June
26, 2008 for, among other things, certain income tax liability that would result
from the income or gain which Arbor JRM and Arbor CJ, on the one hand, or AR
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 $11,600,000, $241,000,
and $59,000,000 to each of Arbor JRM, Arbor CJ and AR Prime,
respectively.





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.


28





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.




29




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 March 31, 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
March 31, 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.




30




In
addition, as of March 31, 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 22.54%
membership interest in a limited liability corporation which owns two factory
outlet centers in Orlando, Florida, on June 26, 2008; and  a 25%
membership interest in an affiliated limited liability company which owns 18
factory outlet centers located in 15 different states in the United States, on
March 30, 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.





We
believe that the quality of our investment properties is strong.  Our
occupancy rates for our retail properties (wholly- owned as well as investments
in unconsolidated affiliated real estate entities) at March 31, 2009 compared to
those at December 31, 2008 remained at approximately 90%, which includes our St.
Augustine outlet mall which recently completed an expansion during the last
quarter of 2008.  For our multifamily properties, occupancy rates at
March 31, 2009 compared to those at December 31, 2008 remained at approximately
the 90% level.   As a result of the current state of the economy,
we expect leasing will be challenging throughout 2009.





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 8
and 9 of notes to consolidated financial statements for discussion of maturity
dates of our debt obligations.





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.




31




Portfolio
Summary –


Location
                                                                                                            
                                                                                                            Year Built (Rangeof
                                                                                                              years built)
                                                                                                            
                                                                                                            
                                                                                                            Leasable SquareFeet
                                                                                                            
                                                                                                            
                                                                                                            PercentageOccupied
                                                                                                              as ofMarch 31, 2009
                                                                                                            
                                                                                                            
                                                                                                            Annualized Revenuesbased
                                                                                                              on rents at
                                                                                                              March 31, 2009Wholly-Owned
      Real Estate Properties:RetailWholly-owned:St. Augustine Outlet
      Mall (1)
                                                                                                            
                                                                                                            St.
      Augustine, FL
                                                                                                            
                                                                                                            1998
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            340,387
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            82.0
                                                                                                            %
                                                                                                            
                                                                                                            $
                                                                                                            4.2
      millionOakview
      Power Center
                                                                                                            
                                                                                                            Omaha,
      NE
                                                                                                            
                                                                                                            
                                                                                                            1999
      - 2005
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            177,103
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            99.3
                                                                                                            %
                                                                                                            
                                                                                                            $
                                                                                                            2.5
      millionBrazos Crossing Power
      Center (2)
                                                                                                            
                                                                                                            Lake
      Jackson, TX
                                                                                                            
                                                                                                            
                                                                                                            2007-2008
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            61,213
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            100.0
                                                                                                            %
                                                                                                            
                                                                                                            $
                                                                                                            0.8
      millionSubtotal
      wholly-owned
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            578,703
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            89.2
                                                                                                            %Unconsolidated
      Affiliated Real Estate Entities:Orlando
      Outlet & Design Center
                                                                                                            
                                                                                                            Orlando,
      FL
                                                                                                            
                                                                                                            
                                                                                                            1991-2008
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            978,261
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            90.5
                                                                                                            %
                                                                                                            
                                                                                                            $
                                                                                                            27.7
      millionPrime Outlets
      Acquisition Company (18 retail outlet malls) (3)
                                                                                                            
                                                                                                            Various
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            6,392,370
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            92.0
                                                                                                            %
                                                                                                            
                                                                                                            $
                                                                                                            118.0
      millionSubtotal
      unconsolidated affiliated real estate entities
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            7,370,631
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            91.8
                                                                                                            %Retail
      Total
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            7,949,334
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            91.6
                                                                                                            %(1)
      Expansion substantially completed November
      2008(2)
      Opened March
2008(3)
      Company acquired 25% interest on March 30,
      2009Industrial7
      Flex/Office/Industrial Bldgs from the Gulf Coast Industrial
      Portfolio
                                                                                                            
                                                                                                            New
      Orleans, LA
                                                                                                            
                                                                                                            
                                                                                                            1980-2000
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            339,700
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            86.2
                                                                                                            %
                                                                                                            
                                                                                                            $
                                                                                                            3.0
      million4
      Flex/Industrial Bldgs from the Gulf Coast Industrial
    Portfolio
                                                                                                            
                                                                                                            San
      Antonio, TX
                                                                                                            
                                                                                                            
                                                                                                            1982-1986
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            484,260
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            76.5
                                                                                                            %
                                                                                                            
                                                                                                            $
                                                                                                            2.0
      million3
      Flex/Industrial Buildings from the Gulf Coast Industrial
      Portfolio
                                                                                                            
                                                                                                            Baton
      Rouge, LA
                                                                                                            
                                                                                                            
                                                                                                            1985-1987
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            182,792
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            96.2
                                                                                                            %
                                                                                                            
                                                                                                            $
                                                                                                            1.2
      millionSarasota
      Industrial Property
                                                                                                            
                                                                                                            Sarasota,
      FL
                                                                                                            
                                                                                                            1992
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            276,316
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            0.0
                                                                                                            %
                                                                                                            
                                                                                                            
                                                                                                            -Industrial
      Total
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            1,283,068
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            65.4
                                                                                                            %Residential:
                                                                                                            
                                                                                                            Location
                                                                                                            
                                                                                                            Year Built (Range of
                                                                                                              years built)
                                                                                                            
                                                                                                            
                                                                                                            Leasable Units
                                                                                                            
                                                                                                            
                                                                                                            Percentage Occupied
                                                                                                              as of March 31, 2009
                                                                                                            
                                                                                                            
                                                                                                            Annualized Revenues based
                                                                                                              on rents at
                                                                                                              March 31, 2009Michigan
      Apt's (Four Multi-Family Apartment Buildings)
                                                                                                            
                                                                                                            Southeast  MI
                                                                                                            
                                                                                                            
                                                                                                            1965-1972
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            1,017
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            88.8
                                                                                                            %
                                                                                                            
                                                                                                            $
                                                                                                            7.6
      millionSoutheast
      Apt's (Five Multi-Family Apartment Buildings)
                                                                                                            
                                                                                                            Greensboro/Charlotte,
      NC & Tampa, FL
                                                                                                            
                                                                                                            
                                                                                                            1980-1987
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            1,576
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            88.9
                                                                                                            %
                                                                                                            
                                                                                                            $
                                                                                                            10.7
      millionResidential
      Total
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            2,593
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            88.9
                                                                                                            %Location
                                                                                                            
                                                                                                            Year Built
                                                                                                            
                                                                                                            
                                                                                                            Available Rooms
                                                                                                            
                                                                                                            
                                                                                                            Percentage Occupied
                                                                                                              as of March 31, 2009
                                                                                                            
                                                                                                            
                                                                                                            Revenue per Available
                                                                                                              Room at 3/31/09Wholly-Owned Operating Properties:Sugarland
      and Katy Highway Extended Stay Hotels
                                                                                                            
                                                                                                            Houston,
      TX
                                                                                                            
                                                                                                            1998
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            26,190
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            67.1
                                                                                                            %
                                                                                                            
                                                                                                            $
                                                                                                            35.41Location
                                                                                                            
                                                                                                            Year Built
                                                                                                            
                                                                                                            
                                                                                                            Leasable Square Feet
                                                                                                            
                                                                                                            
                                                                                                            Percentage Occupied
                                                                                                              as of March 31, 2009
                                                                                                            
                                                                                                            
                                                                                                            Annualized Revenues based
                                                                                                              on rents at
                                                                                                              March 31, 2009Unconsolidated Affiliated Real
      Estate Entities-Office:1407
      Broadway
                                                                                                            
                                                                                                            New
      York, NY
                                                                                                            
                                                                                                            1952
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            1,114,695
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            82.2
                                                                                                            %
                                                                                                            
                                                                                                            $
                                                                                                            35.8
      million




32


2009
Acquisitions and Investments





On June
26, 2008, the Operating Partnership entered into a Contribution and Conveyance
Agreement with AR Prime Holdings LLC, a Delaware limited liability company (“AR
Prime”), pursuant to which on March 30, 2009, AR Prime contributed to the
Operating Partnership a 25% membership interest (the “POAC Interest”) in Prime
Outlets Acquisitions Company (“POAC”) in exchange for units in the Operating
Partnership.    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.





The
acquisition price before transaction costs for the POAC Interest 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). In connection with the
transaction, our advisor received an acquisition fee equal to 2.75% of the
acquisition price, or approximately $9.8 million. In addition, during the three
months ended March 31, 2009, the Company incurred additional transactions costs
related to accounting and legal fees of $1.9 million. In accordance with EITF
Issue No. 08-6, “Equity Method Investment Accounting Considerations" ("EITF No.
08-6"), the total transaction costs incurred during the three months ended March
31, 2009 of $11.7 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 POAC of $2.2
million.





Critical
Accounting Policies and Estimates




During
the three months ended March 31, 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 three months ended March 31, 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 a 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 in accordance with SFAS 67,
Accounting for Costs and
Initial Rental Operations of Real Estate Projects. 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 in accordance with the provisions of SFAS 91,
Accounting for Nonrefundable
Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases.




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.




33




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.





Effective
January 1, 2007, the Company adopted FIN No. 48, Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109. The adoption of FIN 48
did not have a material impact on the Company’s financial position, results of
operation, or cash flows. As of March 31, 2009, the Company had no material
uncertain income tax positions. The tax years 2004 through 2008 remain open to
examination by the major taxing jurisdictions to which the Company is
subject.





Results
of Operations




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





For the Three Months Ended
March 31, 2009 vs. March 31, 2008





Consolidated





Revenues




Total
revenues increased by $0.7 million to $10.5 million for the three months ended
March 31, 2009 compared to $9.8 million for the three months ended March 31,
2008.  The increase is primarily related to additional revenues of
$0.6 million 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.  Excluding these items,
total revenues were flat for the three months ended March 31, 2009 compared to
the same period in 2008.





Property
operating expenses




Property
operating expenses decreased by $0.1 million to approximately $4.0 million, for
the three months ended March 31, 2009, compared to $4.1 million for the same
period in 2008 primarily as a result of a reduction in property
insurance.





Real
estate taxes




Real
estate taxes increased by $0.1 million to approximately $1.1 million, for the
three months ended March 31, 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 increased by $0.5 million to $1.5 million due to the
following:





·
            $0.2
      million related to asset management fees due to an increase in the average
      asset value at March 31, 2009 compared to March 31, 2008
    and,


·
            $0.2
      million related to an increase in bad debt expense predominately within
      our multifamily residential
properties.


34





Depreciation
and Amortization




Depreciation
and amortization expense increased by $0.3 million to $2.4 million for the
three months ended March 31, 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 increased by approximately $0.2 million due to:


·
            Interest
      earned of $0.6 million on note receivable loans issued during
      2008.  (See Note 12 of the notes to consolidated financial
      statements).


·
            Offset
      by a decrease in interest and dividend income recorded on short-term
      investments and marketable securities due to lower interest rates during
      the 2009 period compared to 2008.





Interest
expense




Interest
expense, including amortization of deferred financing costs, decreased slightly
for the three months ended March 31, 2009 compared to 2008. The slight decrease
is a result of a lower libor rate for the 2009 period compared to the same
period in 2008 related to our variable interest debt.  Libor as of
March 31, 2009 was 0.50063% compared to libor at March 31, 2008 of
2.70%.





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





Our
income from investment in unconsolidated real estate entities for the three
months ended March 31, 2009 was $0.1 million compared to a $0.9 million loss
during the three months ended March 31, 2008.   The change of
$1.0 million is primarily related to the inclusion of our portion of the net
income of $0.4 million related to our investment in Mill Run during the three
months ended March 31, 2009.  We acquired this investment on June 26,
2008.  The remaining change is due to a lower net loss realized from
our 49% investment in 1407 Broadway. The improved performance within 1407
Broadway primarily related to a reduction in interest expense as a result of a
lower LIBOR rates during the three months ended March 31, 2009 compared to the
same period in 2008.





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 March 31, 2009 compared to
March 31, 2008





Retail
Segment


For the Three Months Ended
                        
                        
                        VarianceIncrease/(Decrease)March 31,
                        
                        
                        March 31,2009
                        
                        
                        2008
                        
                        
                        $
                        
                        
                        %(unaudited)Revenue
                        
                        $
                        2,773,529
                        
                        
                        $
                        2,017,586
                        
                        
                        $
                        755,943
                        
                        
                        
                        37.5
                        %NOI
                        
                        
                        1,591,590
                        
                        
                        
                        1,120,650
                        
                        
                        
                        470,940
                        
                        
                        
                        42.0
                        %Average
      Occupancy Rate for period
                        
                        
                        88.5
                        %
                        
                        
                        92.8
                        %
                        
                        
                        
                        
                        
                        
                        -4.6
                        %





Revenue
increased $0.8 million to $2.8 million for the three months ended March 31, 2009
compared to the three months ended March 31, 2008 primarily as a result of
additional revenues of $0.6 million associated with the expansion at our St.
Augustine Outlet Center and with the opening of our Brazos Crossing Power Center
during March 2008.   The average occupancy rate per period
decreased for the three months ended March 31, 2009 compared to 2008 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 $0.5 million to $1.6 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.


35





Multi
Family Segment





For the Three Months Ended
                          
                          
                          VarianceIncrease/(Decrease)March 31,
                          
                          
                          March 31,2009
                          
                          
                          2008
                          
                          
                          $
                          
                          
                          %(unaudited)Revenue
                          
                          $
                          4,851,671
                          
                          
                          $
                          4,988,938
                          
                          
                          $
                          (137,267
                          )
                          
                          
                          -2.8
                          %NOI
                          
                          
                          1,659,268
                          
                          
                          
                          1,883,860
                          
                          
                          
                          (224,592
                          )
                          
                          
                          -11.9
                          %Average
      Occupancy Rate for period
                          
                          
                          89.3
                          %
                          
                          
                          85.7
                          %
                          
                          
                          
                          
                          
                          
                          4.2
                          %




Revenue
decreased slightly by $0.1 million to $4.9 million for the three months ended
March 31, 2009 compared to the three months ended March 31,
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 three months ended March
31, 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 $0.2 million.  This
decline has been partially offset by an increase in average
occupancy.





Net
operating income decreased by $0.2 million to $1.7 million for the
three months ended March 31, 2009 from $1.9 million for the three months
ended March 31, 2008.  The decrease is a result of the decline in
revenue of $0.1 million plus higher bad debt expense incurred during the 2009
period of approximately $0.1 million.





Industrial
Segment





For the Three Months Ended
                        
                        
                        VarianceIncrease/(Decrease)March 31,
                        
                        
                        March 31,2009
                        
                        
                        2008
                        
                        
                        $
                        
                        
                        %(unaudited)Revenue
                        
                        $
                        1,888,638
                        
                        
                        $
                        2,026,863
                        
                        
                        $
                        (138,225
                        )
                        
                        
                        -6.8
                        %NOI
                        
                        
                        1,248,356
                        
                        
                        
                        1,162,841
                        
                        
                        
                        85,515
                        
                        
                        
                        7.4
                        %Average
      Occupancy Rate for period
                        
                        
                        66.4
                        %
                        
                        
                        71.8
                        %
                        
                        
                        
                        
                        
                        
                        -7.5
                        %





Revenue
decreased slightly by $0.1 million to $1.9 million for the three months ended
March 31, 2009 compared to the three months ended March 31, 2008 as a result of
a decline in the average occupancy rate and a reduction in tenant recoveries of
$0.1 million.  The reduction in tenant recoveries is due to lower
property expenses incurred that are reimbursed by the tenants during the three
months ended March 31, 2009 compared to the 2008 period.





Net
operating income increased by $0.1 million to $1.2 million for the
three months ended March 31, 2009 compared to the three months ended March
31, 2008.  This increase is due to a reduction in property expenses of
approximately $0.2 million to due lower property insurance expense and lower
utilities as a result of reduced fuel prices during the three months ended March
31, 2009 compared to the same period in 2008.  This reduction in
expenses was offset by a reduction in tenant recoveries of $0.1
million.





Hospitality





For the Three Months Ended
                        
                        
                        VarianceIncrease/(Decrease)March 31,
                        
                        
                        March 31,2009
                        
                        
                        2008
                        
                        
                        $
                        
                        
                        %(unaudited)Revenue
                        
                        $
                        940,261
                        
                        
                        $
                        740,422
                        
                        
                        $
                        199,839
                        
                        
                        
                        27.0
                        %NOI
                        
                        
                        445,947
                        
                        
                        
                        270,557
                        
                        
                        
                        175,390
                        
                        
                        
                        64.8
                        %Average
      Occupancy Rate for period
                        
                        
                        67.1
                        %
                        
                        
                        55.0
                        %
                        
                        
                        
                        
                        
                        
                        22.0
                        %Average
      Revenue per Available Room for period
                        
                        $
                        35.41
                        
                        
                        $
                        27.56
                        
                        
                        $
                        8.00
                        
                        
                        
                        29.0
                        %




36




Revenue
increased by $0.2 million to $0.9 million for the three months ended March 31,
2009 compared to the three months ended March 31, 2008.   The
increase is a result of a combination of an increase in occupancy rates and the
average revenue per available room.  During the beginning part of the
2008 year, the hotels were undergoing renovations which included implementing a
national reservation system, installing new carpeting, upgrading guest room and
constructing swimming pools.  These renovations were completed during
2008 and have directly benefited the revenue generation at our
hotels.





Net
operating income increased by $0.2  million to $0.4 million for the
three months ended March 31, 2009 compared to the same period in 2008 as a
result of an the increase in revenue.




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.





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 months ended March 31, 2009, we received proceeds from our dividend
reinvestment plan of $2.4 million.  Our cumulative gross offering
proceeds through March 31, 2009 were $309.4 million, which includes $10.1
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 $239.0 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.





The
Company does not have any other significant capital plans for 2009.




Our
charter provides that the aggregate amount of borrowing, both secured and
unsecured, may not exceed 300% of net assets in the absence of a satisfactory
showing that a higher level is appropriate, the approval of our board of
directors and disclosure to stockholders. Net assets means our total assets,
other than intangibles, at cost before deducting depreciation or other non-cash
reserves less our total liabilities, calculated at least quarterly on a basis
consistently applied. Any excess in borrowing over such 300% of net assets level
must be approved by a majority of our independent directors and disclosed to our
stockholders in our next quarterly report to stockholders, along with
justification for such excess. As of March 31, 2009, our total borrowings
represented 95.6% 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.




37




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.





The
following table represents the fees incurred associated with the payments to our
Advisor, our Dealer Manager, and our Property Manager for the three months ended
March 31, 2009 and 2008:





Three MonthsEnded March 31,2009
                          
                          
                          Three MonthsEnded March 31,2008(unaudited)Acquisition
      fees
                          
                          $
                          9,778,760
                          
                          
                          $
                          -Asset
      management fees
                          
                          
                          660,430
                          
                          
                          
                          508,183Property
      management fees
                          
                          
                          459,556
                          
                          
                          
                          413,624Acquisition
      expenses reimbursed to Advisor
                          
                          
                          902,753
                          
                          
                          
                          -Development
      fees
                          
                          
                          19,226
                          
                          
                          
                          9,386Leasing
      commissions
                          
                          
                          80,966
                          
                          
                          
                          145,288Total
                          
                          $
                          11,901,691
                          
                          
                          $
                          1,076,481




As of
March 31, 2009, we had approximately $51.6 million of cash and cash equivalents
on hand and $10.8 million of marketable securities.  Our cash and cash
equivalents on hand and our marketable securities resulted primarily from
proceeds from our Offering.


38





Summary of Cash
Flows




The
following summary discussion of our cash flows is based on the consolidated
statements of cash flows and is not meant to be an all-inclusive discussion of
the changes in our cash flows for the periods presented below:


Three Months
                                            
                                            
                                            Three MonthsEnded March 31,
                                            
                                            
                                            Ended March 31,2009
                                            
                                            
                                            2008(unaudited)Cash
      flows provided by operating activities
                                            
                                            $
                                            722,057
                                            
                                            
                                            $
                                            1,249,552Cash
      flows used in investing activities
                                            
                                            
                                            (15,042,333
                                            )
                                            
                                            
                                            (6,847,821
                                            )Cash
      flows (used in) provided by  financing
activities
                                            
                                            
                                            (215,128
                                            )
                                            
                                            
                                            36,380,267Net
      change in cash and cash equivalents
                                            
                                            
                                            (14,535,404
                                            )
                                            
                                            
                                            30,781,998Cash
      and cash equivalents, beginning of the period
                                            
                                            
                                            66,106,067
                                            
                                            
                                            
                                            29,589,815Cash
      and cash equivalents, end of the period
                                            
                                            $
                                            51,570,663
                                            
                                            
                                            $
                                            60,371,813




During
the three months ended March 31, 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. The
principal sources of funding for our operations are operating cash flows, the
sale of properties, and the issuance of equity and debt securities and the
placement of mortgage loans.





Operating
activities





During
the three months ended March 31, 2009, cash flows provided by operating
activities was $0.7 million compared to cash generated from operating activities
of $1.2 million during the three months ended March 31, 2008 resulting in a
total change of $0.5 million.  The change is primarily driven by
timing of payments of payables offset by increased collections on accounts
receivable as a result of increased revenues associated with our Retail
Segment.





Investing
activities





Cash used
in investing activities for the three months ended March 31, 2009 of $15.0
million relates to the following:


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


·
            $4.0
      million related to the funding of investment property purchases, of which
      $3.6 million relates to funding of tenant allowances.  These
      additional tenant allowances relate to the timing of payments associated
      with our St. Augustine Outlet Mall expansion.  We expect
      additional tenant allowances to be funded during
  2009.


·
            In
      addition, we received $0.6 million in redemption payments related to our
      investment in affiliate, at cost which partially offset the cash used in
      investing activities.





Cash used
in investing activities for the three months ended March 31, 2008 of $6.8
million resulted primarily from the development costs at our Brazos Crossing
Power Center and the expansion at our St. Augustine Outlet Mall.





Financing
activities





Cash used
in financing activities of $0.2 million during the three months ended March 31,
2009 primarily related to the  payments of distributions to common
shareholders and noncontrolling interests of $4.1 million, $1.7 million issuance
of note receivable to noncontrolling interest (see note 12 of notes to
consolidated financial statements for further discussion), and $1.1 million
associated with redemption of common shares during the period.  These
outflows were offset by proceeds from issuance of special general partnership
interest units (“SLP Units”) of $7.0 million.





Cash
provided by financing activities during the three months ended March 31, 2008 of
$36.4 million is primarily from the issuance of common stock ($36.5 million),
proceeds from issuance of SLP units ($3.7 million), offset by the payment of
offering costs ($3.5 million).





We
anticipate that adequate cash will be available to fund our operating and
administrative expenses, regular debt service obligations, and the payment of
dividends in accordance with REIT requirements in both the short and
long-term.    We believe our current balance sheet position
is financially sound, however due to the current weakness in and
unpredictability of the capital and credit markets we can give no assurance that
affordable access to capital will exist when our debt maturities
occur.




39




Contractual Obligations





The
following is a summary of our contractual obligations outstanding over the next
five years and thereafter as of March 31, 2009.




ContractualObligations
                    
                    Remainder of2009
                    
                    
                    2010
                    
                    
                    2011
                    
                    
                    2012
                    
                    
                    2013
                    
                    
                    Thereafter
                    
                    
                    TotalMortgage
      Payable 1
                    
                    $
                    12,043,245
                    
                    
                    $
                    359,526
                    
                    
                    $
                    1,586,957
                    
                    
                    $
                    2,781,012
                    
                    
                    $
                    3,107,355
                    
                    
                    $
                    219,084,109
                    
                    
                    $
                    238,962,204Note
      Payable2
                    
                    
                    7,397,442
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    7,397,442Interest
      Payments3
                    
                    
                    10,273,065
                    
                    
                    
                    13,084,302
                    
                    
                    
                    12,851,955
                    
                    
                    
                    12,980,592
                    
                    
                    
                    12,772,092
                    
                    
                    
                    27,751,042
                    
                    
                    
                    89,713,048Total
      Contractual Obligations
                    
                    $
                    29,713,752
                    
                    
                    $
                    13,443,828
                    
                    
                    $
                    14,438,912
                    
                    
                    $
                    15,761,604
                    
                    
                    $
                    15,879,447
                    
                    
                    $
                    246,835,151
                    
                    
                    $
                    336,072,694




1)
            These
      amounts represent mortgage payable obligations outstanding as of March 31,
      2009.


2)
            Amount
      represents note payable obligation outstanding as of March 31,
      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 March 31, 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.





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.


40




Below is
a reconciliation of net loss to FFO for the three months ended March 31, 2009
and 2008:




For
      the Three Months Ended March 31,2009
                                    
                                    
                                    2008(unaudited)Net
      loss
                                    
                                    $
                                    (758,304
                                    )
                                    
                                    $
                                    (2,061,257
                                    )Adjustments:Depreciation
      and amortization of real estate assets
                                    
                                    
                                    2,417,090
                                    
                                    
                                    
                                    2,160,570Equity
      in depreciation and amortization for unconsolidated affiliated real estate
      entities
                                    
                                    
                                    1,872,060
                                    
                                    
                                    
                                    1,591,257FFO
                                    
                                    
                                    3,530,846
                                    
                                    
                                    
                                    1,690,570Less:  FFO
      attributable to noncontrolling interests
                                    
                                    
                                    (14,116
                                    )
                                    
                                    
                                    (45
                                    )FFO
      attributable to Company's common shares
                                    
                                    $
                                    3,516,730
                                    
                                    
                                    $
                                    1,690,525FFO
      per Company's common share, basic and diluted
                                    
                                    $
                                    0.11
                                    
                                    
                                    $
                                    0.11Weighted
      average number of common shares outstanding, basic and
    diluted
                                    
                                    
                                    31,109,274
                                    
                                    
                                    
                                    15,239,189




For the
three months ended March 31, 2009, approximately 60% of our distributions to our
common shareholders were funded or will be funded with funds from operations and
40% 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 Standard (SFAS) No. 141R, “BusinessCombinations (Revised)”,which 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 SFAS No. 141R 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
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  SFAS No. 160, 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. SFAS No. 160
requires retroactive adoption of the presentation and disclosure requirements
for existing minority interests. All other requirements of SFAS No. 160 are to
be applied prospectively. The Company adopted SFAS No. 160 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 SFAS No. 160 did not have a material effect on the
consolidated results of operations or financial position.





In
February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2,
“Effective Date of FASB Statement No. 157,” which delays the effective date
of SFAS No. 157, Fair Value
Measurementsto fiscal years beginning after November 15, 2008 for
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed in the financial statements at fair value at least
annually. SFAS No. 157 applies under other accounting pronouncements that
require or permit fair value measurements. Accordingly, this statement does not
require any new fair value measurements. However, for some entities, the
application of this statement will change current practice. This statement
clarifies that market participant assumptions include assumptions about risk,
for example, the risk inherent in a particular valuation technique used to
measure fair value (such as a pricing model) and/or risk inherent in the inputs
to the valuation technique. This Statement clarifies that market participant
assumptions also include assumptions about the effect of a restriction on the
sale or use of an asset. This Statement also clarifies that a fair value
measurement for a liability reflects its nonperformance risk.  The
Company adopted FAS 157-2 on January 1, 2009 and the adoption did not have a
material effect on the consolidated results of operations or financial
position.




41




In
November 2008, the FASB ratified EITF Issue No. 08-6, “Equity Method Investment
Accounting Considerations" ("EITF No. 08-6"). EITF No. 08-6 clarifies the
accounting for certain transactions and impairment considerations involving
equity method investments. EITF No. 08-6 is effective for fiscal years beginning
on or after December 15, 2008 and is to be applied on a prospective basis. The
Company adopted the provisions of this standard on January 1, 2009. The adoption
of EITF No. 08-6 changed the Company’s accounting for transaction costs related
to equity investments. Prior to the adoption of EITF No. 08-6, the Company
expensed these transaction costs to general and administrative expense as
incurred. Beginning January 1, 2009, under the guidance of EITF No. 08-6,
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
months ended March 31, 2009, the Company capitalized $11.7 million of
transaction costs incurred during the period related to its investment in Prime
Outlets Acquisitions Company (see Note 3 of notes to consolidated financial
statements).





In April
2009, FASB, issued FASB Staff Position, or FSN, No. FAS 115-2 and FAS
124-2,Recognition and
Presentation of Other-Than-Temporary Impairments, or the FSP. The FSP 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 FSP
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 FSP, 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 FSP will be effective for the Company for the
quarter ended June 30, 2009. The Company is currently evaluating the impact of
adopting the FSP.





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





ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.




Market
risk includes risks that arise from changes in interest rates, foreign currency
exchange rates, commodity prices, equity prices and other market changes that
affect market sensitive instruments. In pursuing our business plan, we expect
that the primary market risk to which we will be exposed is interest rate
risk.




We may be
exposed to the effects of interest rate changes primarily as a result of
borrowings used to maintain liquidity and fund the expansion and refinancing of
our real estate investment portfolio and operations. Our interest rate risk
management objectives will be to limit the impact of interest rate changes on
earnings, prepayment penalties and cash flows and to lower overall borrowing
costs while taking into account variable interest rate risk. To achieve our
objectives, we may borrow at fixed rates or variable rates. We may also enter
into derivative financial instruments such as interest rate swaps and caps in
order to mitigate our interest rate risk on a related financial instrument. We
will not enter into derivative or interest rate transactions for speculative
purposes. As of March 31, 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 March 31, 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 March 31, 2009, a hypothetical adverse 10% movement
in market values would result in a hypothetical loss in fair value of
approximately $1.1 million.





The
following table shows the mortgage and note payable obligations maturing during
the next five years and thereafter at March 31, 2009:




Remainder of2009
                              
                              
                              2010
                              
                              
                              2011
                              
                              
                              2012
                              
                              
                              2013
                              
                              
                              Thereafter
                              
                              
                              TotalMortgage
      Payable
                              
                              $
                              12,043,245
                              
                              
                              $
                              359,526
                              
                              
                              $
                              1,586,957
                              
                              
                              $
                              2,781,012
                              
                              
                              $
                              3,107,355
                              
                              
                              $
                              219,084,109
                              
                              
                              $
                              238,962,204Note
      Payable
                              
                              
                              7,397,442
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              7,397,442Total
      maturities
                              
                              $
                              19,440,687
                              
                              
                              $
                              359,526
                              
                              
                              $
                              1,586,957
                              
                              
                              $
                              2,781,012
                              
                              
                              $
                              3,107,355
                              
                              
                              $
                              219,084,109
                              
                              
                              $
                              246,359,646


42




As of
March 31, 2009, approximately $19.2 million, or 8%, 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 March 31, 2009 was
approximately $239.5 million compared to the book value of approximately $246.4
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 March 31,
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
4. 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.





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




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





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




43




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





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





Office
Owner is the borrower under a Loan Agreement dated January 4, 2007 and amended
on September 10, 2007 with Lehman Brothers Holdings Inc. (“Lehman”). 
Pursuant to that loan agreement, Lehman has loaned a total of $127,250,000,
leaving borrowing availability of $13,540,509.  Because Lehman did not
honor October  2008 and January 2009 draws that are well within Office
Owner’s borrowing limits, Office Owner filed a  motion dated February 6,
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, seek a replacement senior lender for the remaining unfunded portion of the
loan, and pursue other remedies.   Lehman funded the pending draw
requests on April 17, 2009, following which we voluntarily dismissed our action
without prejudice.





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





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




During
the period covered by this Form 10-Q, we did not sell any equity securities that
were not registered under the Securities Act of 1933, and we did repurchase
approximately 0.1 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
March 31, 2009, cumulative gross offering proceeds were approximately $309.4
million, which includes $10.1 million of proceeds from the dividend reinvestment
plan. From the effective date of the Offering through its closing, we have
incurred the following expenses in connection with the issuance and distribution
of the registered securities:





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




44


With net
offering proceeds of $309.4 million as of March 31, 2009, and mortgage debt in
the amount of $239.0 million, and note payable obligation of $7.4 million
outstanding as of March 31, 2009, we acquired approximately $419.6 million in
real estate investments and related assets. Cumulatively, we have used the net
offering proceeds as follows:





At March 31, 2009Construction
      of plant, building and facilities
                        
                        $
                        32,397,026Purchase
      of real estate
    interests
                        
                        
                        184,353,678Repayment
      of indebtedness
                        
                        
                        720,305Cash
      and cash equivalents (as of March 31, 2009)
                        
                        
                        51,570,663Gross
      Temporary investments (as of March 31,
      2009)
                        
                        
                        23,614,419Other
      uses
                        
                        
                        16,738,674Total
      uses
                        
                        $
                        309,394,765




As of May
6, 2009, we have sold approximately 31.2 million shares at an aggregate of price
of approximately $311.7 million, which includes proceeds from our Dividend
Reinvestment Plan.





ITEM
3. DEFAULTS UPON SENIOR SECURITIES




None.





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




None.





ITEM
5. OTHER INFORMATION.




None.





PART II. OTHER INFORMATION,
CONTINUED:





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




45




SIGNATURES




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




LIGHTSTONE
      VALUE PLUS REAL ESTATE
                INVESTMENT
      TRUST, INC.Date: May
      15, 2009
              By:
              /s/ David
  LichtensteinDavid
      LichtensteinChairman,
      President and Chief Executive Officer
                (Principal
      Executive Officer)




Date:
      May 15, 2009
              By:
              /s/ Donna BrandinDonna
      BrandinChief
      Financial Officer and Treasurer
                (Duly
      Authorized Officer and Principal Financial andAccounting
      Officer)




46