UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-K

 

o	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For The Fiscal Year Ended December 31, 2011

or

o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from  to 

Commission file number 333-117367

 

LIGHTSTONE VALUE PLUS
REAL ESTATE INVESTMENT TRUST, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	20-1237795
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1985 Cedar Bridge Avenue, Suite 1, Lakewood, NJ	08701
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: 732-367-0129

 

Securities registered under Section 12(b) of the Exchange Act:

Title of Each Class	Name of Each Exchange on Which Registered
None	None

Securities registered under Section 12(g) of the Exchange Act:
None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Large accelerated filer o Accelerated filer o Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of June 30, 2011, the aggregate market value of the common shares held by non-affiliates of the registrant was $316.3 million. While there is no established market for the Registrant’s common shares, the Registrant has sold its common shares pursuant to a Form S-11 Registration Statement under the Securities Act of 1933 at a price of $10.00 per common share. On March 9, 2012, the board of directors of the Registrant approved an estimated value per share of the Registrant’s common stock of $10.65 per share derived from the estimated value of the Registrant’s assets less the estimated value of the Registrant’s liabilities, divided by the number of shares outstanding, all as of December 31, 2011. For a full description of the methodologies used to value the Registrant’s assets and liabilities in connection with the calculation of the estimated value per share, see Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Market Information.” As of March 15, 2012, there were 29.8 million shares of common stock held by non-affiliates of the registrant.

DOCUMENTS INCORPORATED BY REFERENCE

None.

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.

Table of Contents

	Page
PART I
Item 1. Business		1
Item 1A. Risk Factors		10
Item 1B. Unresolved Staff Comments		46
Item 2. Properties		47
Item 3. Legal Proceedings		48
Item 4. Mine Safety Disclosures		48
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities		49
Item 6. Selected Financial Data		57
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		58
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		82
Item 8. Financial Statements and Supplementary Data		83
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		139
Item 9A. Controls and Procedures		139
Item 9B. Other Information		140
PART III
Item 10. Directors and Executive Officers of the Registrant		141
Item 11. Executive Compensation		144
Item 12. Security Ownership of Certain Beneficial Owners and Management		144
Item 13. Certain Relationships and Related Transactions		145
Item 14. Principal Accounting Fees and Services		148
PART IV
Item 15. Exhibits and Financial Statement Schedules		151
Signatures		155

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Special Note Regarding Forward-Looking Statements

This annual report on Form 10-K, together with other statements and information publicly disseminated by Lightstone Value Plus Real Estate Investment Trust, Inc. contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Lightstone Value Plus Real Estate Investment Trust, Inc. intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe the Lightstone Value Plus Real Estate Investment Trust, Inc.’s future plans, strategies and expectations, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond the Lightstone Value Plus Real Estate Investment Trust, Inc.’s control and which could materially affect actual results, performances or achievements. Factors which may cause actual results to differ materially from current expectations include, but are not limited to, (i) general economic and local real estate conditions, (ii) the inability of major tenants to continue paying their rent obligations due to bankruptcy, insolvency or general downturn in their business, (iii) financing risks, such as the inability to obtain equity, debt, or other sources of financing on favorable terms, (iv) changes in governmental laws and regulations, (v) the level and volatility of interest rates and foreign currency exchange rates, (vi) the availability of suitable acquisition opportunities and (vii) increases in operating costs. Accordingly, there is no assurance that the Lightstone Value Plus Real Estate Investment Trust, Inc.’s expectations will be realized.

All forward-looking statements should be read in light of the factors identified herein at Part 1, Item 1A as well as in the “Risk Factors” section of the Registration Statement on Form S-11 (File No. 333-117367) of Lightstone Value Plus Real Estate Investment Trust, Inc. filed with the Securities and Exchange Commission (the “SEC”), as the same may be amended and supplemented from time to time.

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PART I.

ITEM 1. BUSINESS:

General Description of Business

Structure

Lightstone Value Plus Real Estate Investment Trust, Inc., a Maryland corporation (together with the Operating Partnership (as defined below), the “Company”, also referred to as “we”, “our” or “us” herein) was formed on June 8, 2004 and subsequently qualified as real estate investment trust (“REIT”) during year ending December 31, 2006. We were 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.

We are structured as an umbrella partnership real estate investment trust, or UPREIT, and substantially all of our 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”), we as the general partner, held a 98.4% interest as of December 31, 2011 (See Noncontrolling Interests below for discussion of other owners of the Operating Partnership). We are 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 our Board of Directors and its Chief Executive Officer.

We acquire and manage a diversified (by geographical location and by type and size of property) portfolio of commercial and residential properties located throughout the United States and Puerto Rico. We have acquired and continue to seek to acquire fee interests in multi-tenant, 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 have acquired and will continue to seek to acquire fee interests in lodging properties located near major transportation arteries in urban and suburban areas; multi-tenant industrial properties located near major transportation arteries and distribution corridors; multi-tenant office properties located near major transportation arteries; and market-rate, middle market multifamily properties at a discount to replacement cost.

We operate within four operating segments which are our Retail Segment, Multi-Family Residential Segment, Industrial Segment, Hospitality Segment and Unallocated Segment. The Unallocated Segment includes our investments in real estate companies which are not wholly owned as well as our corporate operations. As of December 31, 2011, on a collective basis, we (i) wholly owned 6 retail properties containing a total of approximately 1.3 million square feet of retail space, 15 industrial properties containing a total of approximately 0.9 million square feet of industrial space, 6 multi-family residential properties containing a total of 1,585 units, and 2 hotel hospitality properties containing a total of 291 rooms and (ii) owned interests in 1 office property containing a total of approximately 1.1 million square feet of office space, 1 hotel hospitality property containing a total of 364 rooms and 2 development outlet center retail projects currently under construction. All of the properties are located within the United States. As of December 31, 2011, the retail properties, the industrial properties, the multi-family residential properties and the office property were 86%, 81%, 93% and 81% occupied based on a weighted-average basis, respectively. Its hotel hospitality properties’ average revenue per available room was $39 and occupancy was 61% for the year ended December 31, 2011.

Dispositions of Investments in Unconsolidated Affiliated Real Estate Entities

Prime Outlets Acquisition Company (“POAC”)/Mill Run LLC (“Mill Run”) Transaction

On December 8, 2009, we, our Operating Partnership and Pro-DFJV Holdings LLC (“PRO”), a Delaware limited liability company and a wholly-owned subsidiary of ours (collectively, the “LVP Parties”) entered into a definitive agreement (“the “Contribution Agreement”) with Simon Property Group, Inc. (“Simon Inc.”), a Delaware corporation, Simon Property Group, L.P., a Delaware limited partnership (“Simon OP”), and Marco Capital Acquisition, LLC, a Delaware limited liability company (collectively, referred to herein as “Simon”) providing for the disposition of a substantial portion of our retail properties to

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Simon including our (i) St. Augustine Outlet Center, which is wholly owned, (ii) 40.0% aggregate interest in its investment in POAC, which includes 18 operating outlet center properties, Grand Prairie Holdings LLC (“GPH”) and Livermore Valley Holdings LLC (“LVH”), and (iii) 36.8% aggregate interests in its investment in Mill Run, which includes 2 operating outlet center properties. The terms of the Contribution Agreement were subsequently amended on June 28, 2010 providing for us to retain the St. Augustine Outlet center and our 40.0% aggregate interests in both GPH and LVH. Additionally, certain affiliates of our Sponsor were parties to the Contribution Agreement, pursuant to which they would dispose of their respective ownership interests in POAC and Mill Run and certain other outlet center properties, in which we had no ownership interests, to Simon. The transactions contemplated by the Contribution Agreement are referred to herein as the “POAC/Mill Run Transaction”.

On August 30, 2010, the POAC/Mill Run Transaction closed pursuant to which the LVP Parties disposed of their interests in investments in Mill Run and POAC, except for their interests in investments in both GPH and LVH, which were retained.

In connection with the POAC/Mill Run Transaction, we recognized a gain on disposition of approximately $142.7 million (consisting of $142.8 million of gain in the third quarter of 2010 offset by $0.1 million of additional transaction expenses incurred in the fourth quarter of 2010) in the consolidated statements of operations during 2010. We also initially deferred an additional $32.2 million of gain on the consolidated balance sheet consisting of the total of the (i) $1.9 million of Escrowed Cash and (ii) $30.3 million of Restricted Marco OP Units received as part of the Aggregate Consideration Value because realization of these items was subject to final adjustment. During the third quarter of 2011, we recognized an additional $2.8 million of gain on the POAC/Mill Run Transaction consisting of the full return of the Escrowed Cash, plus interest, to the Company and certain other items. As a result, the remaining deferred gain reflected on our consolidated balance sheet was $30.3 million as of December 31, 2011.

Outlet Centers Transaction

As discussed above, the Company, through its Operating Partnership and PRO, has an aggregate 40.0% interest in GPH and LVH, which holds ownership interests in various entities, including entities that are developing two outlet centers located in Grand Prairie, Texas (the “Grand Prairie Outlet Center”) and Livermore Valley, California (the “Livermore Valley Outlet Center”). The Grand Prairie Outlet Center, which will consist of approximately 418,000 square feet of Gross Leasable Area (“GLA”), is currently under construction and expected to open during the third quarter of 2012. The Livermore Valley Outlet Center, which will consist of approximately 511,000 square feet of GLA, is currently under construction and expected to open in the fourth quarter of 2012. The Company accounts for its ownership interests in GPH and LVH under the equity method of accounting in its consolidated financial statements. Certain affiliates of the Company’s Sponsor (the “Sponsor’s Affiliates”) own the remaining 60% interest in GPH and LVH.

On December 9, 2011, GPH, LVH and certain of their subsidiaries (collectively, the “Holdings Entities”) entered into definitive agreement (the “2011 Contribution Agreement”) with Simon OP, Simon Inc. and Marco II LP Units, LLC, a Delaware limited liability company (collectively, referred to herein as “Simon” with respect to the 2011 Contribution Agreement) providing for the immediate disposition of 50.0% of their interests in the Grand Prairie Outlet Center and the Livermore Outlet Center, respectively. The transactions contemplated by the 2011 Contribution Agreement are referred to herein as the “Outlet Centers Transaction”. Additionally, on December 9, 2011, certain joint venture agreements (collectively, the “Outlet Center JV Agreements”) were amended and restated with respect to the Grand Prairie Outlet Center and the Livermore Valley Outlet Center.

On December 9, 2011, the Outlet Centers Transaction closed pursuant to which Holdings Entities disposed of 50.0% of their interests in investments in the Grand Prairie Outlet Center and the Livermore Valley Outlet Center.

In connection with the Outlet Centers Transaction, GPH and LVH recognized a combined gain on disposition of approximately $63.3 million during the fourth quarter of 2011. Because we account for our interests in GPH and LVH under the equity method of accounting, we recognized our pro rata share of the combined gain, or approximately $25.3 million, in our consolidated statements of operations during the fourth quarter of 2011.

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Other Transactions

During the year ended December 31, 2010, as a result of our defaulting on the debt related to three properties within our Multi-Family Residential Segment due to the properties no longer being economically beneficial to us, the lender foreclosed on these three properties. As a result of the foreclosure transactions, the debt associated with these three properties of $51.4 million was extinguished and the obligations were satisfied with the transfer of the properties’ assets and working capital and we no longer have any ownership interests in these three properties. The operating results of these three properties through their respective dates of disposition have been classified as discontinued operations on a historical basis for all periods presented. The transactions resulted in a gain on debt extinguishment of $19.9 million, of which $17.2 million was recorded during the three months ended June 30, 2010 and $2.7 million was recorded during the three months ended December 31, 2010, and is included in discontinued operations for the year ended December 31, 2010.

Noncontrolling Interest — Partners of Operating Partnership

On July 6, 2004, the Advisor 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 our option, an equal number of our common shares, as allowed by the limited partnership agreement.

Lightstone SLP, LLC, an affiliate of the Advisor, purchased $30.0 million of special general partner interests (“SLP Units”) in the Operating Partnership at a cost of $100,000 per unit through March 31, 2009 and none thereafter.

In addition, during years ended December 31, 2008 and 2009, the Operating Partnership issued at total of (i) 497,209 units of common limited partnership interest in the Operating Partnership (“Common Units”) and (ii) 93,616 Series A preferred limited partnership units in the Operating Partnership (the “Series A Preferred Units”) with an aggregate liquidation preference of $93.6 million collectively to Arbor Mill Run JRM, LLC, a Delaware limited liability company, Arbor National CJ, LLC, a New York limited liability company, Prime Holdings LLC, a Delaware limited liability company, TRAC Central Jersey LLC, a Delaware limited liability company, Central Jersey Holdings II, LLC, a New York limited liability company and JT Prime LLC, a Delaware limited liability company, in exchange for an aggregate 36.80% membership interest in Mill Run and an aggregate 40.00% membership interest in POAC. These membership interests in Mill Run and POAC were subsequently disposed of during 2010; however the Common Units and Series A Preferred Units remain outstanding as of December 31, 2011.

Operating Partnership Activity

Through our Operating Partnership, we have and will continue to acquire and operate commercial, residential, and hospitality properties, principally in the United States. Our commercial holdings consist of retail (primarily multi-tenant shopping centers), lodging (primarily extended stay hotels), industrial and office properties. All such properties have been and will continue to be acquired and operated by us alone or jointly with another party. Since inception, we have completed the following significant acquisitions and investments:

Acquisitions and Investments

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 Activity:

The Company completed the acquisition of (i) an outlet center located in St. Augustine, Florida (the “St. Augustine Outlet Center”), (ii) four multi-family apartment communities in Southeast Michigan (collectively, the “Southeastern Michigan Multi-Family Properties”), and (iii) a retail power center and raw land in Omaha, Nebraska (collectively, “Oakview Plaza”).

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2007 Activity:

The Company (i) acquired a 49.0% ownership investment in 1407 Broadway Mezz II, LLC (“1407 Broadway”), which has a sub-leasehold interest in a ground lease to an office building located at 1407 Broadway Street in New York, New York, (ii) purchased a land parcel in Lake Jackson, Texas, on which it subsequently completed the development of a retail power center (“Brazos Crossing Power Center”) in the first quarter of 2008, (iii) purchased an 8.5-acre parcel of undeveloped land, including certain development rights, of which a portion was used in connection with the expansion of the adjacent St. Augustine Outlet Center, (iv) purchased a portfolio of industrial and office properties (collectively, the” Gulf Coast Industrial Portfolio”) located in New Orleans, Louisiana (5 industrial and 2 office properties), Baton Rouge, Louisiana (3 industrial properties) and San Antonio, Texas (4 industrial properties), (v) purchased five apartment communities (collectively, the “Camden Multi-Family Properties”) located in Tampa, Florida (one property), Charlotte, North Carolina (two properties) and Greensboro, North Carolina (two properties), (vi) purchased two hotels (collectively, the “Houston Extended Stay Hotels”) located in Houston, Texas and (vii) purchased an industrial building (“Sarasota”) located in Sarasota, Florida. During 2010, three of the apartment communities (one located in Tampa, Florida, one located in Charlotte, North Carolina and one located in Greensboro, North Carolina) within the Camden Multi-Family Properties were disposed through foreclosure transactions.

2008 Activity:

The Company (i) made a preferred equity contribution in exchange for membership interests in a wholly owned subsidiary of Park Avenue Funding, LLC, an affiliated real estate lending company (“Park Avenue”) and (ii) acquired a 22.54% ownership interest in Mill Run, which owned two retail properties located in Orlando, Florida. During 2010, we received our final redemption payments from Park Avenue and therefore, we no longer have an investment in Park Avenue.

2009 Activity:

On March 30, 2009, the Company acquired a 25.0% ownership interest in POAC, which had a portfolio of 18 retail outlet malls and two development projects located in 15 different states across the United States. On August 25, 2009, the Company acquired an additional (i) 14.26% ownership interest in Mill Run and (ii) 15.0% ownership interest in POAC. The Company disposed of its aggregate 36.8% and 40.0% ownership interests in Mill Run and POAC, respectively, on August 30, 2010.

2010 Activity:

In December 2010, the Company acquired a grocery store-anchored retail property (“Everson Pointe”) located in Snellville, Georgia.

2011 Activity:

The Company (i) was given an option to acquire a membership interest of up to 10.0% in A.S. Holdings LLC, a wholly owned entity of Mr. Lichtenstein, which owns Festival Bay Mall, a retail property located in Orlando, Florida; (ii) acquired, through a joint venture partnership, an 80.0% ownership interest in a hotel and water park (the “CP Boston Property”) located in Danvers, Massachusetts; (iii) acquired, through a joint venture partnership, a 90.0% ownership interest in a second mortgage loan secured by a residential apartment complex located in Queens, New York; (iv) acquired Crowes Crossing Shopping Center, (“Crowe’s Crossing”) a 94,000-square-foot retail center located in Stone Mountain, Georgia; (v) acquired The Plaza at DePaul, (the “DePaul Plaza”) a 187,000-square-foot retail center located in Bridgeton, Missouri; (vi) acquired, through a joint venture partnership, a 75.0% ownership interest in a fee interest in land located at 50-01 2^nd Street in Long Island City, Queens, New York; and (vii) acquired 2 mortgage loans, each secured by hotels located in East Brunswick and Parsippany, New Jersey, respectively.

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Related Party

Our business is managed by the Advisor, an affiliate of our Sponsor, under the terms and conditions of an advisory agreement. Our Sponsor and Advisor are owned and controlled by David Lichtenstein, the Chairman of our Board of Directors. Our Sponsor is one of the largest private residential and commercial real estate owners and operators in the United States today, with a diversified portfolio of over 100 properties containing approximately 11,000 multifamily units, 1.3 million square feet of office space, 2.3 million square feet of industrial space, 4 hotels and 4.5 million square feet of retail space. These residential, office, industrial and retail properties are located in 20 states, the District of Columbia and Puerto Rico. Based in New York, and supported by regional offices in New Jersey, Maryland and Illinois, our Sponsor employs approximately 450 staff and professionals including a senior management team with approximately 24 years on average of industry experience. Our Sponsor has extensive experience in the areas of investment selection, underwriting, due diligence, portfolio management, asset management, property management, leasing, disposition, finance, accounting and investor relations. Our Sponsor is also the Sponsor of Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone II”), a program with similar investment objectives as ours.

Acquired properties and development activities may be managed by affiliates of Lightstone Value Plus REIT Management LLC (the “Property Manager”).

Our Advisor and Property Manager are each related parties. Each of these entities receives compensation and fees for services for the investment and management of our assets. These entities receive fees during our offering (which was completed on October 10, 2008), acquisition, operational and liquidation stages. The compensation levels during the acquisition and operational stages are based on the cost of acquired properties and the annual revenue earned from such properties, and other such fees outlined in each of the respective agreements.

Primary Investment Objectives

Our primary investment objectives are:

• Capital appreciation; and

• Income without subjecting principal to undue risk.

Acquisition and Investment Policies

We have to date acquired residential and commercial properties principally, all of which are located in the continental United States. Our acquisitions include both portfolios and individual properties. Our commercial holdings consist of retail (primarily multi-tenant shopping centers), lodging (primarily extended stay hotels), industrial and office properties and that our residential properties are principally comprised of “Class B” multi-family complexes.

We may acquire the following types of real estate interests:

• Fee interests in market-rate, middle market multifamily properties at a discount to replacement cost located either in emerging markets or near major metropolitan areas. We will attempt to identify those sub-markets with job growth opportunities and demand demographics which support potential long-term value appreciation for multifamily properties.

• Fee interests in well-located, multi-tenant, community, power and lifestyle shopping centers and malls located in highly trafficked retail corridors, in selected high-barrier to entry markets and submarkets. We will attempt to identify those sub-markets with constraints on the amount of additional property supply will make future competition less likely.

• Fee interests in improved, multi-tenant, industrial properties located near major transportation arteries and distribution corridors with limited management responsibilities.

• Fee interests in improved, multi-tenant, office properties located near major transportation arteries in urban and suburban areas.

• Fee interests in lodging properties located near major transportation arteries in urban and suburban areas.

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All of the properties are owned by subsidiary limited partnerships or limited liability companies. These subsidiaries are single-purpose entities that we created to own a single property, and each have no assets other than the property it owns. These entities represent a useful means of shielding our Operating Partnership from liability under state laws and will make the underlying properties easier to transfer. However, tax law disregards single-member LLCs and so it will be as if the Operating Partnership owns the underlying properties for tax purposes. Use of single-purpose entities in this manner is customary for REITs. Our independent directors are not required to approve all transactions involving the creation of subsidiary limited liability companies and limited partnerships that we use for investment in properties on our behalf. These subsidiary arrangements are intended to ensure that no environmental or other liabilities associated with any particular property can be attributed against other properties that the Operating Partnership or we will own. The limited liability aspect of a subsidiary’s form will shield parent and affiliated (but not subsidiary) companies, including the Operating Partnership and us, from liability assessed against it. No additional fees are imposed upon the REIT by the subsidiary companies’ managers and these subsidiaries are not affected our stockholders’ voting rights.

We have not and do not intend to make significant investments in single family residential properties; leisure home sites; farms; ranches; timberlands; unimproved properties not intended to be developed; or mining properties.

Not more than 10% of our total assets may 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 do not invest in contracts for the sale of real estate unless in recordable form and appropriately recorded.

Although we are not limited as to the geographic area where we may conduct our operations, we have invested and will continue to invest in properties located near the existing operations of our Sponsor, in order to achieve economies of scale where possible.

Financing Strategy and Policies

We utilize leverage when acquiring our properties. The number of different properties we acquire are 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. 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.

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 December 31, 2011, our total borrowings represented 86% of net assets.

We have financed 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. Generally, though not exclusively, we intend to seek to finance our investments with debt which will be on a non-recourse basis. However, we may, secure recourse financing or provide a guarantee to lenders, if we believe this may result in more favorable terms. We had $224.3 million in outstanding long-term obligations as of December 31, 2011.

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Distribution Objectives

U.S. federal income tax law requires that a REIT distribute annually at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with generally accepted accounting principles in the United States, or GAAP) determined without regard to the deduction for dividends paid and excluding any net capital gain. In order to continue to qualify for REIT status, we may be required to make distributions in excess of cash available.

Distributions are at the discretion of the Board of Directors. We commenced quarterly distributions beginning February 1, 2006. We have generally paid such distributions through a combination of cash proceeds from sale our common stock, as well as cash from operations and through issuance of common shares from our distribution reinvestment program. We may continue to pay such distributions from the sale of our common stock or borrowings if we have not generated sufficient cash flow from our operations to fund such distributions. Our ability to pay regular distributions and the size of these distributions will depend upon a variety of factors. For example, our borrowing policy permits us to incur short-term indebtedness, having a maturity of two years or less, and we may have to borrow funds on a short-term basis to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT. We cannot assure that regular distributions will continue to be made or that we will maintain any particular level of distribution that we have established or may establish.

We are an accrual basis taxpayer, and as such our REIT taxable income could be higher than the cash available to us. We may therefore borrow to make distributions, which could reduce the cash available to us, in order to distribute 90% of REIT taxable income as a condition to our election to be taxed as a REIT. These distributions made with borrowed funds may constitute a return of capital to stockholders. “Return of capital” refers to distributions to investors in excess of net income. To the extent that distributions to stockholders exceed earnings and profits, such amounts constitute a return of capital for U.S. federal income tax purposes, although such distributions might not reduce stockholders’ aggregate invested capital. Because our earnings and profits are reduced for deprecation and other non-cash items, it is likely that a portion of each distribution will constitute a tax deferred return of capital for U.S. federal income tax purposes.

Beginning February 1, 2006, our Board of Directors declared quarterly distributions in the amount of $0.0019178 per share per day payable to stockholders of record at the close of business each day during the applicable period. The annualized rate declared was equal to 7%, which represents the annualized rate of return on an investment of $10.00 per share attributable to these daily amounts, if paid for each day for a 365 day period (the “Annualized Rate”). Subsequently, our Board of Directors has declared regular quarterly distributions at the Annualized Rate, with the exception of the three-month period ended June 30, 2010. The distributions for the three-month period ended June 30, 2010 were at an aggregate annualized rate of 8% based upon a share price of $10.00. Through December 31, 2011, we have paid aggregate distributions in the amount of $85.2 million, which includes cash distributions paid to stockholders and common stock issued under our distribution reinvestment program.

Total distributions declared during the years ended December 31, 2011, 2010 and 2009 were $22.2 million, $23.1 million and $27.3 million, respectively.

On March 30, 2012, our Board of Directors declared the quarterly distribution for the three-month period ended March 31, 2012 in the amount of $0.0019178 per share per day payable to stockholders of record on the close of business each day during the quarter, which is payable on April 13, 2012.

Distribution Reinvestment, Share Repurchase Program and Tender Offer

Our distribution reinvestment program provides our stockholders with an opportunity to purchase additional shares of our common stock at a discount by reinvesting distributions. Our share repurchase program may provide our stockholders with limited, interim liquidity by enabling them to sell their shares back to us, subject to restrictions. Since inception through December 2008, we fully funded all redemption requests. During 2009, we redeemed 0.5 million common shares which was the maximum amount allowed under our share redemption program for the calendar year and represented 31% of redemption requests received during the period. During 2010, we redeemed 0.6 million common shares or 26% of redemption requests received during the period. During 2011, we redeemed approximately 0.6 million common shares or

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69% of redemption requests received during the period, at an average price per share of $9.10 per share. We funded share redemptions for the periods noted above from the cumulative proceeds of the sale of our common shares pursuant to our distribution reinvestment plan.

However, our Board of Directors reserves the right to terminate either program for any reason without cause by providing written notice of termination of the distribution reinvestment program to all participants or written notice of termination of the share repurchase program to all stockholders.

We commenced a tender offer on October 3, 2011, pursuant to which we offered to acquire up to 2.0 million shares of our common stock (the “Shares”) from the holders (“Holders”) of the Shares at a purchase price equal to $9.80 per Share, in cash, less any applicable withholding taxes and without interest, upon the terms and subject to the conditions set forth in an offer to purchase and in the related letter of transmittal, (which together, as amended, constitute the “Offer”).

On December 19, 2011, we completed the Offer repurchasing from the Holders 2.0 million Shares for approximately $20 million. The Offer expired at 12:00 Midnight, Eastern Standard Time, on December 1, 2011 and all payments for the Shares repurchased were distributed to the Holders. A total of 10.0 million Shares were properly tendered and not withdrawn prior to the Offer’s expiration and, in accordance with the proration provisions applicable to the Offer, 2.0 million Shares were repurchased by the Company.

Tax Status

We elected to be taxed as a REIT in conjunction with the filing of our 2006 U.S. federal income tax return. If we remain qualified as a REIT, we generally will not be subject to U.S. federal income tax on our net taxable income that we distribute currently to our stockholders. To maintain our REIT qualification under the Internal Revenue Code of 1986, as amended, or the Code, we must meet a number of organizational and operational requirements, including a requirement that we annually distribute to our stockholders at least 90% of our REIT taxable income (which does not equal net income, as calculated in accordance with generally accepted accounting principles in the United States of America, or GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If we fail to remain qualified for taxation as a REIT in any subsequent year and do not qualify for certain statutory relief provisions, our income for that year will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as a REIT for the four-year period following our failure to qualify as a REIT. Such an event could materially adversely affect our net income and net cash available for distribution to our stockholders. As of December 31, 2011 and 2010, we had no material uncertain income tax positions and our net operating loss carry forward was $12.7 million. The tax years subsequent to and including 2008 remain open to examination by the major taxing jurisdictions to which we are subject. Additionally, even if we qualify as a REIT for U.S. federal income tax purposes, we may still be subject to some U.S. federal, state and local taxes on our income and property and to U.S. federal income taxes and excise taxes on our undistributed income.

To maintain our qualification as a REIT, we engage in certain activities such as providing real estate-related services through wholly-owned taxable REIT subsidiaries (“TRSs”). As such, we are subject to U.S. federal and state income and franchise taxes from these activities.

Competition

The retail, lodging, office, industrial and residential real estate markets are highly competitive. We compete in all of our markets with other owners and operators of retail, lodging, office, industrial and residential real estate. The continued development of new retail, lodging, office, industrial and residential properties has intensified the competition among owners and operators of these types of real estate in many market areas in which we intend to operate. We compete based on a number of factors that include location, rental rates, security, suitability of the property’s design to prospective tenants’ needs and the manner in which the property is operated and marketed. The number of competing properties in a particular market could have a material effect on our occupancy levels, rental rates and on the operating expenses of certain of our properties.

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In addition, we compete with other entities engaged in real estate investment activities to locate suitable properties to acquire and to locate tenants and purchasers for our properties. These competitors include other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, governmental bodies and other entities. There are other REITs with asset acquisition objectives similar to ours that may be organized in the future. Some of these competitors, including larger REITs, have substantially greater marketing and financial resources than we have and generally may be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness of tenants. In addition, these same entities seek financing through similar channels to those sought by us. Therefore, we compete for institutional investors in a market where funds for real estate investment may decrease.

Competition from these and other third party real estate investors may limit the number of suitable investment opportunities available to us. It may also result in higher prices, lower yields and a narrower spread of yields over our borrowing costs, making it more difficult for us to acquire new investments on attractive terms.

We believe that our Sponsor’s experience, coupled with our financing, professionalism, diversity of properties and reputation in the industry enable us to compete with the other real estate investment companies.

Because we are organized as an UPREIT, we are well positioned within the industries in which we intend to operate to offer existing owners the opportunity to contribute those properties to us in tax-deferred transactions using our operating partnership units as transactional currency. As a result, we have a competitive advantage over most of our competitors that are structured as traditional REITs and non-REITs in pursuing acquisitions with tax-sensitive sellers.

Environmental

As an owner of real estate, we are subject to various environmental laws of federal, state and local governments. Compliance with existing laws has not had a material adverse effect on our financial condition or results of operations, and management does not believe it will have such an impact in the future. However, we cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on properties in which we hold an interest, or on properties that may be acquired directly or indirectly in the future.

Employees

We do not have employees. We entered into an advisory agreement with our Advisor on April 22, 2005, pursuant to which our 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 our Advisor fees for services related to the investment and management of our assets, and we reimburse our Advisor for certain expenses incurred on our behalf.

Available Information

Stockholders may obtain copies of our filings with the SEC, free of charge from the website maintained by the SEC at http://www.sec.gov. Our office is located at 1985 Cedar Bridge Avenue, Lakewood, NJ 08701. Our telephone number is 1-866-792-8700. Our web site is www.iconinvestments.com/securities/lightstone.

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ITEM 1A. RISK FACTORS:

Set forth below are the risk factors that we believe are material to our investors. This section contains forward-looking statements. You should refer to the explanation of the qualifications and limitations on forward-looking statements on page ii. If any of the risk events described below actually occurs, our business, financial condition or results of operations could be adversely affected.

Risks Related to the Common Stock

Distributions to stockholders may be reduced or not made at all.

Distributions are based principally on cash available from our properties. The amount of cash available for distributions is affected by many factors, such as the operating performance of the properties we acquire, our ability to buy properties with proceeds from the disposition of our retail outlet assets, and many other variables. We may not be able to pay or maintain distributions or increase distributions over time. Therefore, we cannot determine what amount of cash will be available for distributions. Some of the following factors, which we believe are the material factors that can affect our ability to make distributions, are beyond our control, and a change in any one factor could adversely affect our ability to pay future distributions:

• Cash available for distributions may be reduced if we are required to make capital improvements to properties.

• Cash available to make distributions may decrease if the assets we acquire have lower cash flows than expected.

• Until we invest these proceeds received from the Disposition in new real properties, we may invest in lower yielding short-term instruments, which could result in a lower yield on stockholders’ investment.

• Some of the properties we may acquire may be adversely affected by the recent adverse market conditions that are affecting real property. If our properties are adversely affected by the recent adverse market conditions, our cash flows from operations will decrease and we will have less cash available for distributions.

• In connection with future property acquisitions, we may issue additional shares of common stock and/or operating partnership units or interests in the entities that own our properties. We cannot predict the number of shares of common stock, units or interests that we may issue, or the effect that these additional shares might have on cash available for distributions to stockholders. If we issue additional shares, that issuance could reduce the cash available for distributions to stockholders.

• We make distributions to our stockholders to comply with the distribution requirements of the Internal Revenue Code of 1986, as amended, or the Code, and to eliminate, or at least minimize, exposure to U.S. federal income taxes and the nondeductible REIT excise tax. Differences in timing between the receipt of income and the payment of expenses, and the effect of required debt payments, could require us to borrow funds on a short-term basis to meet the distribution requirements that are necessary to achieve the U.S. federal income tax benefits associated with qualifying as a REIT.

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

We are not registered, and do not intend to register ourselves or any of our subsidiaries, as an investment company under the Investment Company Act. If we or any of our subsidiaries become obligated to register as an investment company, the registered entity would have to comply with a variety of substantive requirements under the Investment Company Act imposing, among other things:

• limitations on capital structure;

• restrictions on specified investments;

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• prohibitions on transactions with affiliates; and

• compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations.

We intend to conduct our operations, directly and through wholly or majority-owned subsidiaries, so that we and each of our subsidiaries are exempt from registration as an investment company under the Investment Company Act. Under Section 3(a)(1)(A) of the Investment Company Act, a company is deemed to be an “investment company” if it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities. Under Section 3(a)(1)(C) of the Investment Company Act, a Company is deemed to be an “investment company” if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or propose to acquire “investment securities” having a value exceeding 40% of the value of its total assets on an unconsolidated basis, which we refer to as the “40% test.”

Since we will be primarily engaged in the business of acquiring real estate, we believe that we and most, if not all, of our wholly and majority-owned subsidiaries will not be considered investment companies under either Section 3(a)(1)(A) or Section 3(a)(1)(C) of the Investment Company Act. If we or any of our wholly or majority-owned subsidiaries would ever inadvertently fall within one of the definitions of “investment company,” we intend to rely on the exception provided by Section 3(c)(5)(C) of the Investment Company Act.

Under Section 3(c)(5)(C), the SEC staff generally requires us to maintain at least 55% of its assets directly in qualifying assets and at least 80% of the entity’s assets in qualifying assets and in a broader category of real estate related assets to qualify for this exception. Mortgage-related securities may or may not constitute such qualifying assets, depending on the characteristics of the mortgage-related securities, including the rights that we have with respect to the underlying loans. Our ownership of mortgage-related securities, therefore, is limited by provisions of the Investment Company Act and SEC staff interpretations.

The method we use to classify our assets for purposes of the Investment Company Act will be based in large measure upon no-action positions taken by the SEC staff in the past. These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations we may face, and a number of these no-action positions were issued more than ten years ago. No assurance can be given that the SEC staff will concur with our classification of our assets. In addition, the SEC staff may, in the future, issue further guidance that may require us to re-classify our assets for purposes of qualifying for an exclusion from regulation under the Investment Company Act. If we are required to re-classify our assets, we may no longer be in compliance with the exclusion from the definition of an “investment company” provided by Section 3(c)(5)(C) of the Investment Company Act.

A change in the value of any of our assets could cause us or one or more of our wholly or majority-owned subsidiaries to fall within the definition of “investment company” and negatively affect our ability to maintain our exemption from regulation under the Investment Company Act. To avoid being required to register as an investment company under the Investment Company Act, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may have to acquire additional income- or loss-generating assets that we might not otherwise have acquired or may have to forgo opportunities to acquire interests in companies that we would otherwise want to acquire and would be important to our investment strategy.

If we were required to register as an investment company but fail to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of us and liquidate our business.

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The price of our common stock is subjective and may not bear any relationship to what a stockholder could receive if it was sold.

Our Board of Directors determined the current net asset value of the common stock at $10.65 per share. This value is based upon an estimated amount, which reflects, among other things, the impact of the recent adverse trends in the economy and the real estate industry, we determined would be received if our properties and other assets were sold as of the close of our fiscal year. Because this is only an estimate, we may subsequently revise any annual valuation that is provided. It is possible that:

• This value may not actually be realized by us or by our stockholders upon liquidation;

• Stockholders may not realize this value if they were to attempt to sell their common stock; or

• This value may not reflect the price at which our common stock would or could trade if it were listed on a national stock exchange or included for quotation on a national market system.

Our common stock is not currently listed on an exchange or trading market and is illiquid.

There is currently no public trading market for the shares. Subsequent to the close of our initial public offering in October 2008, our common stock has not been listed on a stock exchange. Accordingly, we do not expect a public trading market for our shares to develop. We may never list the shares for trading on a national stock exchange or include the shares for quotation on a national market system. The absence of an active public market for our shares could impair your ability to sell our stock at a profit or at all. Therefore, our shares should be purchased as a long term investment only.

Your percentage of ownership may become diluted if we issue new shares of stock.

Stockholders have no rights to buy additional shares of stock in the event we issue new shares of stock. We may issue common stock, convertible debt or preferred stock pursuant to a subsequent public offering or a private placement, upon exercise of options, pursuant to our distribution reinvestment program or to sellers of properties we directly or indirectly acquire instead of, or in addition to, cash consideration. We may also issue common stock upon the exercise of the warrants issued and to be issued to participating broker-dealers. Stockholders who do not participate in any future stock issues will experience dilution in the percentage of the issued and outstanding stock they own.

The special general partner interests entitle Lightstone SLP, LLC, which is directly owned and controlled by our Sponsor, to certain payments and distributions that will significantly reduce the distributions available to stockholders after a 7% return.

Lightstone SLP, LLC receives returns on its special general partner interests that are subordinated to stockholders’ 7% return on their net investment. Distributions to stockholders will be reduced after they have received this 7% return because of the payments and distributions to Lightstone SLP, LLC in connection with its special general partner interests. In addition, we may eventually repay Lightstone SLP, LLC up to $30,000,000 for its investment in the special general partner interests, which will result in a smaller pool of assets available for distribution to stockholders.

Conflicts of Interest

There are conflicts of interest between the Advisor, our property managers and their affiliates and us.

David Lichtenstein, our Sponsor, is the founder of The Lightstone Group, LLC, which he wholly owns and does business in his individual capacity under that name. Through The Lightstone Group, Mr. Lichtenstein controls and indirectly owns our Advisor, our property managers, our Operating Partnership, our dealer manager and affiliates, except for us. Our Advisor does not advise any entity other than us. However, employees of our Advisor are also employed by Lightstone Value Plus REIT II LLC, the advisor to Lightstone II. Mr. Lichtenstein is one of our directors and The Lightstone Group or an affiliated entity controlled by Mr. Lichtenstein employs Bruno de Vinck, our other non-independent director, and each of our officers. As a result, our operation and management may be influenced or affected by conflicts of interest arising out of our relationship with our affiliates.

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There is competition for the time and services of the personnel of our Advisor and its affiliates.

Our Sponsor and its affiliates may compete with us for the time and services of the personnel of our Advisor and its other affiliates in connection with our operation and the management of our assets. Specifically, employees of our Sponsor, the Advisor and our property managers will face conflicts of interest relating to time management and the allocation of resources and investment opportunities.

We do not have employees.

Likewise, our Advisor will rely on the employees of the Sponsor and its affiliates to manage and operate our business. The Sponsor is not restricted from acquiring, developing, operating, managing, leasing or selling real estate through entities other than us and will continue to be actively involved in operations and activities other than our operations and activities. The Sponsor currently controls and/or operates other entities that own properties in many of the markets in which we may seek to invest. The Sponsor spends a material amount of time managing these properties and other assets unrelated to our business. Our business may suffer as a result because we lack the ability to manage it without the time and attention of our Sponsor’s employees.

Our Sponsor and its affiliates are general partners and Sponsors of other real estate programs having investment objectives and legal and financial obligations similar to ours. Because the Sponsor and its affiliates have interests in other real estate programs and also engage in other business activities, they may have conflicts of interest in allocating their time and resources among our business and these other activities. Our officers and directors, as well as those of the Advisor, may own equity interests in entities affiliated with our Sponsor from which we may buy properties. These individuals may make substantial profits in connection with such transactions, which could result in conflicts of interest. Likewise, such individuals could make substantial profits as the result of investment opportunities allocated to entities affiliated with the Sponsor other than us. As a result of these interests, they could pursue transactions that may not be in our best interest. Also, if our Sponsor suffers financial or operational problems as the result of any of its activities, whether or not related to our business, the ability of our Sponsor and its affiliates, our Advisor and property manager to operate our business could be adversely impacted.

Certain of our affiliates who provide services to us may be engaged in competitive activities.

Our Advisor, property managers and their respective affiliates may, in the future, be engaged in other activities that could result in potential conflicts of interest with the services that they will provide to us. In addition, the Sponsor may compete with us for both the acquisition and/or refinancing of properties of a type suitable for our investment after 75% of the total gross proceeds from our initial public offering have been invested or committed for investment in real properties, which occurred during the year ended December 31, 2009.

Our Sponsor’s other public program, Lightstone II, may be engaged in competitive activities.

Our Advisor, property managers and their respective affiliates through activities of Lightstone II may be engaged in other activities that could result in potential conflicts of interest with the services that they will provide to us, including Lightstone II may compete with us for both the acquisition and/or refinancing of properties of a type suitable for our investment.

If we invest in joint ventures, the objectives of our partners may conflict with our objectives.

In accordance with one of our acquisition strategies, we may make investments in joint ventures or other partnership arrangements between us and affiliates of our Sponsor or with unaffiliated third parties. Investments in joint ventures which own real properties may involve risks otherwise not present when we purchase real properties directly. For example, our co-venturer may file for bankruptcy protection, may have economic or business interests or goals which are inconsistent with our interests or goals, or may take actions contrary to our instructions, requests, policies or objectives. Among other things, actions by a co-venturer might subject real properties owned by the joint venture to liabilities greater than those contemplated by the terms of the joint venture or other adverse consequences.

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These diverging interests could result in, among other things, exposing us to liabilities of the joint venture in excess of our proportionate share of these liabilities. The partition rights of each owner in a jointly owned property could reduce the value of each portion of the divided property. Moreover, there is an additional risk that the co-venturers may not be able to agree on matters relating to the property they jointly own. In addition, the fiduciary obligation that our Sponsor or our Board of Directors may owe to our partner in an affiliated transaction may make it more difficult for us to enforce our rights.

We may purchase real properties from persons with whom affiliates of our Advisor have prior business relationships.

If we purchase properties from third parties who have sold, or may sell, properties to our Advisor or its affiliates, our Advisor will experience a conflict between our current interests and its interest in preserving any ongoing business relationship with these sellers.

Property management services are being provided by an affiliated party.

Our property managers are owned by our Sponsor, and are thus subject to an inherent conflict of interest. In addition, our Advisor may face a conflict of interest when determining whether we should dispose of any property we own that is managed by one of our property managers because the property manager may lose fees associated with the management of the property. Specifically, because the property managers will receive significant fees for managing our properties, our Advisor may face a conflict of interest when determining whether we should sell properties under circumstances where the property managers would no longer manage the property after the transaction. As a result of this conflict of interest, we may not dispose of properties when it would be in our best interests to do so.

Our Advisor and its affiliates receive commissions, fees and other compensation based upon our investments.

Some compensation is payable to our Advisor whether or not there is cash available to make distributions to our stockholders. To the extent this occurs, our Advisor and its affiliates benefit from us retaining ownership of our assets and leveraging our assets, while our stockholders may be better served by sale or disposition or not leveraging the assets. In addition, the Advisor’s ability to receive fees and reimbursements depends on our continued investment in real properties. Therefore, the interest of the Advisor and its affiliates in receiving fees may conflict with the interest of our stockholders in earning income on their investment in our common stock. Because asset management fees payable to our Advisor are based on total assets under management, including assets purchased using debt; our Advisor may have an incentive to incur a high level of leverage in order to increase the total amount of assets under management.

Our Sponsor may face conflicts of interest in connection with the management of our day-to-day operations and in the enforcement of agreements between our Sponsor and its affiliates.

The property managers and the Advisor will manage our day-to-day operations and properties pursuant to management agreements and an advisory agreement. These agreements were not negotiated at arm’s length and certain fees payable by us under such agreements are paid regardless of our performance. Our Sponsor and its affiliates may be in a conflict of interest position as to matters relating to these agreements. Examples include the computation of fees and reimbursements under such agreements, the enforcement and/or termination of the agreements and the priority of payments to third parties as opposed to amounts paid to our Sponsor’s affiliates. These fees may be higher than fees charged by third parties in an arm’s length transaction as a result of these conflicts.

Title insurance services are being provided by an affiliated party. From time to time, Lightstone purchases title insurance from an agent in which our Sponsor owns a fifty percent limited partnership interest. Because this title insurance agent receives significant fees for providing title insurance, our Advisor may face a conflict of interest when considering the terms of purchasing title insurance from this agent. However, prior to the purchase by Lightstone of any title insurance, an independent title consultant with more than 25 years of experience in the title insurance industry reviews the transaction, and performs market research and competitive analysis on our behalf. This process results in terms similar to those that would be negotiated at an arm’s-length basis.

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We may compete with other entities affiliated with our Sponsor for tenants.

The Sponsor and its affiliates, as well as Lightstone II, are not prohibited from engaging, directly or indirectly, in any other business or from possessing interests in any other business venture or ventures, including businesses and ventures involved in the acquisition, development, ownership, management, leasing or sale of real estate projects. The Sponsor, its affiliates or Lightstone II may own and/or manage properties in most if not all geographical areas in which we expect to acquire real estate assets. Therefore, our properties may compete for tenants with other properties owned and/or managed by the Sponsor and its affiliates. The Sponsor may face conflicts of interest when evaluating tenant opportunities for our properties and other properties owned and/or managed by the Sponsor, its affiliates and Lightstone II and these conflicts of interest may have a negative impact on our ability to attract and retain tenants.

We have the same legal counsel as our Sponsor and its affiliates.

Proskauer Rose LLP acts as legal counsel to us and our Sponsor and various affiliates including, our Advisor. The interests of our Sponsor and its affiliates, including our Sponsor, may become adverse to ours in the future. Under legal ethics rules, Proskauer Rose LLP may be precluded from representing us due to any conflict of interest between us and our Sponsor and its affiliates, including our Advisor.

Each member of our Board of Directors is also on the Board of Directors of Lightstone Value Plus Real Estate Investment II, Inc.

Each of our directors is also a director of Lightstone II. Accordingly, each of our directors owes fiduciary duties to Lightstone II and its stockholders. The duties of our directors to Lightstone II may influence the judgment of our Board of Directors when considering issues that may affect us. For example, we are permitted to enter into a joint venture or preferred equity investment with Lightstone II for the acquisition of property or real estate-related investments. Decisions of our Board of Directors regarding the terms of those transactions may be influenced by our directors’ duties to Lightstone II and its stockholders. In addition, decisions of our Board of Directors regarding the timing of our property sales could be influenced by concerns that the sales would compete with those of Lightstone II.

Risks Related to our Organization, Structure and Management

Limitations on Changes in Control (Anti-Takeover Provisions).

Our organizational structure makes us a difficult takeover target. Certain provisions in our charter, bylaws, operating partnership agreement, advisory agreement and Maryland law may have the effect of discouraging a third party from making an acquisition proposal and could thereby depress the price of our stock and inhibit a management change. Provisions that may have an anti-takeover effect and inhibit a change in our management include the following listed below.

There are ownership limits and restrictions on transferability and ownership in our charter.

In order for us to qualify as a REIT, no more than 50% of the outstanding shares of our stock may be beneficially owned, directly or indirectly, by five or fewer individuals at any time during the last half of each taxable year. To make sure that we will not fail to qualify as a REIT under this “closely held” test, among other purposes, our charter provides that, subject to some exceptions, no person may beneficially or constructively own, or be deemed to beneficially or constructively own by virtue of attribution provisions of the Code, (i) more than 9.8% in value of our aggregate outstanding shares of capital stock or (ii) capital stock to the extent that such ownership would result in us being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year). Our Board of Directors may exempt a person from the 9.8% ownership limit upon such conditions as the Board of Directors may direct. However, our Board of Directors may not grant an exemption from the 9.8% ownership limit to any proposed transferee if it would result in the termination of our status as a REIT.

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This restriction may:

• have the effect of delaying, deferring or preventing a change in control of us, 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 our common stock; or

• compel a stockholder who had acquired more than 9.8% of our stock to dispose of the additional shares and, as a result, to forfeit the benefits of owning the additional shares.

Our charter permits our Board of Directors to issue preferred stock with terms that may discourage a third party from acquiring us. Our charter authorizes us to issue additional authorized but unissued shares of common stock or preferred stock. In addition, our Board of Directors may classify or reclassify any unissued shares of common stock or preferred stock and may set the preferences, rights and other terms of the classified or reclassified shares. Our Board of Directors could establish a series of Preferred Stock that could delay or prevent a transaction or a change in control that might involve a premium price for the common stock or otherwise be in the best interest of our stockholders.

If our Advisor loses or is unable to obtain key personnel, our ability to implement our investment strategies could be hindered, which could adversely affect our ability to make distributions and the value of your investment.

Our success depends to a significant degree upon the contributions of certain of our executive officers and other key personnel of our Advisor. In particular, we depend on the skills and expertise of David Lichtenstein, the architect of our investment strategies. Neither we nor our Advisor has employment agreements with any of our key personnel, including Mr. Lichtenstein and we cannot guarantee that all, or any particular one, of our employees will remain affiliated with us or our Advisor. If any of our key personnel were to cease their affiliation with our Advisor, our operating results could suffer.

Further, we do not intend to separately maintain key person life insurance that would provide us with proceeds in the event of death or disability of Mr. Lichtenstein or any of our key personnel. We believe our future success depends upon our Advisor’s ability to hire and retain highly skilled managerial, operational and marketing personnel. Competition for such personnel is intense, and we cannot assure you that our Advisor will be successful in attracting and retaining such skilled personnel. If our Advisor loses or is unable to obtain the services of key personnel, our ability to implement our investment strategies could be delayed or hindered, and the value of your investment may decline.

The operating partnership agreement contains provisions that may discourage a third party from acquiring us.

A limited partner in the Operating Partnership has the option to exchange his or her limited partnership units for cash or, at our option, shares of our common stock. Those exchange rights are generally not exercisable until the limited partner has held those limited partnership units for more than one year. However, if we or the Operating Partnership propose to engage in any merger, consolidation or other combination with or into another person or a sale of all or substantially all of our assets, or a liquidation, or any reclassification, recapitalization or change of common and preferred stock into which a limited partnership common unit may be exchanged, each holder of a limited partnership unit will have the right to exchange the partnership unit into cash or, at our option, shares of common stock, prior to the stockholder vote on the transaction. As a result, limited partnership unit holders who timely exchange their units prior to the record date for the stockholder vote on any transaction will be entitled to vote their shares of common stock with respect to the transaction. The additional shares that might be outstanding as a result of these exchanges of limited partnership units may deter an acquisition proposal.

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Maryland law may discourage a third party from acquiring us.

Certain provisions of Maryland law restrict mergers and other business combinations and provide that holders of control shares of a Maryland corporation acquired in a control share acquisition have limited voting rights. The business combination statute could have the effect of discouraging offers from third parties to acquire us, and increasing the difficulty of successfully completing this type of offer. The control share statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of shares of our stock; however, this provision may be amended or eliminated at any time in the future.

Management and Policy Changes

Our rights and the rights of our stockholders to take action against the directors and our Advisor are limited.

Maryland law provides that a director has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the best interests of the corporation and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Subject to the restrictions discussed below, our charter, in the case of our directors, officers, employees and agents, and the advisory agreement, in the case of our Advisor, require us to indemnify our directors, officers, employees and agents and our Advisor for actions taken on our behalf, in good faith and in our best interest and without negligence or misconduct or, in the case of independent directors, without gross negligence or willful misconduct. As a result, the stockholders and we may have more limited rights against our directors, officers, employees and agents, and our Advisor than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by our directors, officers, employees and agents or our Advisor in some cases.

Stockholders have limited control over changes in our policies.

Our Board of Directors determines our major policies, including our investment objectives, financing, growth, debt capitalization, REIT qualification and distributions. Subject to the investment objectives and limitations set forth in our charter, our Board of Directors may amend or revise these and other policies. Although stockholders will have limited control over changes in our policies, our charter requires the concurrence of a majority of our outstanding stock in order for the Board of Directors to amend our charter (except for amendments that do not adversely affect stockholders’ rights, preferences and privileges), sell all or substantially all of our assets other than in the ordinary course of business or in connection with our liquidation or dissolution, cause our merger or other reorganization, or dissolve or liquidate us, other than before our initial investment in property.

Certain of our affiliates will receive substantial fees prior to the payment of distributions to our stockholders.

We have paid and will continue to pay substantial compensation to our Advisor, Property Manager, management and affiliates and their employees. We have paid and will continue to pay various types of compensation to affiliates of our Sponsor and such affiliates’ employees, including salaries, and other cash compensation. In addition, our Advisor and Property Manager receive compensation for acting, respectively, as our Advisor and Property Manager. In general, this compensation is dependent on our success or profitability. These payments are payable before the payment of dividends to the stockholders and none of these payments are subordinated to a specified return to the stockholders. Also, our Property Manager receives compensation under the Management Agreement though, in general, this compensation would be dependent on our gross revenues. In addition, other affiliates may from time to time provide services to us if and as approved by the disinterested directors. It is possible that we could obtain such goods and services from unrelated persons at a lesser price.

We may not be reimbursed by our Advisor for certain operational stage expenses.

Our Advisor may be required to reimburse us for certain operational stage expenses. In the event our Advisor’s net worth or cash flow is not sufficient to cover these expenses, we will not be reimbursed. This may adversely affect our financial condition and our ability to pay distributions.

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Limitations on Liability and Indemnification

The liability of directors and officers is limited.

Our directors and officers will not be liable to us or our stockholders for monetary damages unless the director or officer actually received an improper benefit or profit in money, property or services, or is adjudged to be liable to us or our stockholders based on a finding that his or her action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding.

Our directors are also required to act in good faith in a manner believed by them to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. A director who performs his or her duties in accordance with the foregoing standards should not be liable to us or any other person for failure to discharge his obligations as a director. We are permitted to purchase and maintain insurance or provide similar protection on behalf of any directors, officers, employees and agents, including our Advisor and its affiliates, against any liability asserted which was incurred in any such capacity with us or arising out of such status, except as limited by our charter. This may result in us having to expend significant funds, which will reduce the available cash for distribution to our stockholders.

We may indemnify our directors, officers and agents against loss.

Under our charter, we will, under specified conditions, indemnify and pay or reimburse reasonable expenses to our directors, officers, employees and other agents, including our Advisor and its affiliates, against all liabilities incurred in connection with their serving in such capacities, subject to the limitations set forth in our charter. We may also enter into any contract for indemnity and advancement of expenses in this regard. This may result in us having to expend significant funds, which will reduce the available cash for distribution to our stockholders.

Risks Associated with our Properties and the Market

Real Estate Investment Risks

Operating risks.

Our cash flows from real estate investments may become insufficient to pay our operating expenses and to cover the distributions we have paid and/or declared.

We intend to rely primarily on our cash flow from our investments to pay our operating expenses and to make distributions to our stockholders. The cash flow from equity investments in commercial and residential properties depends on the amount of revenue generated and expenses incurred in operating the properties. If the properties we invest in fail to generate revenue that is sufficient to meet operating expenses, debt service, and capital expenditures, our income and ability to make distributions to stockholders will be adversely affected. We cannot assure you that we will be able to maintain sufficient cash flows to fund operating expenses and debt service payments and dividend at any particular level, if at all. The sufficiency of cash flow to fund future dividend payments will depend on the performance of our real property investments.

Economic conditions may adversely affect our income.

U.S. and international markets are currently experiencing increased levels of volatility due to a combination of many factors, including decreasing values of home prices, limited access to credit markets, higher fuel prices, higher unemployment, less consumer spending and a national and global recession. The effects of the current market dislocation may persist as financial institutions continue to take the necessary steps to restructure their business and capital structures. As a result, this economic downturn has reduced the demand for space and removed support for rents and property values. We cannot predict when the real estate markets will recover. As a result, the value of some of our properties has declined resulting in impairment charges during the year ended December 31, 2011, 2010 and 2009 and these values may decline further if the current market conditions persist or worsen. In addition, for three of our multifamily properties which were impaired during 2009, we stopped future debt service payments on the respective mortgage loans, as we had

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determined that such debt service payments would no longer be economically beneficial to us based upon the current and expected future performance of the locations associated with these three loans. Foreclosure sales by the lender on all three of these properties were completed during the year ended December 31, 2010.

A commercial or residential property’s income and value may be adversely affected by national and regional economic conditions, local real estate conditions such as an oversupply of properties or a reduction in demand for properties, availability of “for sale” properties, competition from other similar properties, our ability to provide adequate maintenance, insurance and management services, increased operating costs (including real estate taxes), the attractiveness and location of the property and changes in market rental rates. The continued rise in energy costs could result in higher operating costs, which may affect our results from operations. Our income will be adversely affected if a significant number of tenants are unable to pay rent or if our properties cannot be rented on favorable terms. Additionally, if tenants of properties that we lease on a triple-net basis fail to pay required tax, utility and other impositions, we could be required to pay those costs, which would adversely affect funds available for future acquisitions or cash available for distributions. Our performance is linked to economic conditions in the regions where our properties will be located and in the market for residential, office, retail and industrial space generally. Therefore, to the extent that there are adverse economic conditions in those regions, and in these markets generally, that impact the applicable market rents, such conditions could result in a reduction of our income and cash available for distributions and thus affect the amount of distributions we can make to you.

The profitability of our acquisitions is uncertain.

We have acquired properties selectively. Acquisition of properties entails risks that investments will fail to perform in accordance with expectations. In undertaking these acquisitions, we will incur certain risks, including the expenditure of funds on, and the devotion of management’s time to, transactions that may not come to fruition. Additional risks inherent in acquisitions include risks that the properties will not achieve anticipated occupancy levels and that estimates of the costs of improvements to bring an acquired property up to standards established for the market position intended for that property may prove inaccurate.

Real estate investments are illiquid.

Because real estate investments are relatively illiquid, our ability to vary our portfolio promptly in response to economic or other conditions will be limited. In addition, certain significant expenditures, such as debt service, real estate taxes, and operating and maintenance costs generally are not reduced in circumstances resulting in a reduction in income from the investment. The foregoing and any other factor or event that would impede our ability to respond to adverse changes in the performance of our investments could have an adverse effect on our financial condition and results of operations.

Rising expenses could reduce cash flow and funds available for future acquisitions.

Properties we invest in are subject to increases in tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance, administrative and other expenses. While some of our properties are leased on a triple-net basis or require the tenants to pay a portion of the expenses, renewals of leases or future leases may not be negotiated on that basis, in which event we will have to pay those costs. If we are unable to lease properties on a triple-net basis or on a basis requiring the tenants to pay all or some of the expenses, we would be required to pay those costs, which could adversely affect funds available for future acquisitions or cash available for distributions.

We will depend on tenants who lease from us on a triple-net basis to pay the appropriate portion of expenses.

If the tenants that lease on a triple-net basis fail to pay required tax, utility and other impositions, we could be required to pay those costs for properties we invest in, which would adversely affect funds available for future acquisitions or cash available for distributions. If we lease properties on a triple-net basis, we run the risk of tenant default or downgrade in the tenant’s credit, which could lead to default and foreclosure on the underlying property.

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If we purchase assets at a time when the commercial and residential real estate market is experiencing substantial influxes of capital investment and competition for properties, the real estate we purchase may not appreciate or may decrease in value.

The commercial and residential real estate markets from time to time experience a substantial influx of capital from investors. This substantial flow of capital, combined with significant competition for real estate, may result in inflated purchase prices for such assets. To the extent we purchase real estate in such an environment, we are subject to the risk that if the real estate market ceases to attract the same level of capital investment in the future as it is currently attracting, or if the number of companies seeking to acquire such assets decreases, our returns will be lower and the value of our assets may not appreciate or may decrease significantly below the amount we paid for such assets.

The bankruptcy or insolvency of a major commercial tenant would adversely impact us.

Any or all of the commercial tenants in a property we invest in, or a guarantor of a commercial tenant’s lease obligations, could be subject to a bankruptcy proceeding. The bankruptcy or insolvency of a significant commercial tenant or a number of smaller commercial tenants would have an adverse impact on our income and our ability to pay dividends because a tenant or lease guarantor bankruptcy could delay efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these sums. Such an event could cause a decrease or cessation of rental payments that would mean a reduction in our cash flow and the amount available for distributions to stockholders.

Generally, under bankruptcy law, a tenant has the option of continuing or terminating any un-expired lease. In the event of a bankruptcy, there is no assurance that the tenant or its trustee will continue our lease. If a given lease, or guaranty of a lease, is not assumed, our cash flow and the amounts available for distributions to stockholders may be adversely affected. If the tenant continues its current lease, the tenant must cure all defaults under the lease and provide adequate assurance of its future performance under the lease. If the tenant terminates the lease, we will lose future rent under the lease and our claim for past due amounts owing under the lease will be treated as a general unsecured claim and may be subject to certain limitations. General unsecured claims are the last claims paid in a bankruptcy and therefore this claim could be paid only in the event funds were available, and then only in the same percentage as that realized on other unsecured claims. While the bankruptcy of any tenant and the rejection of its lease may provide us with an opportunity to lease the vacant space to another more desirable tenant on better terms, there can be no assurance that we would be able to do so.

The terms of new leases may adversely impact our income.

Even if the tenants of the properties we invest in do renew their leases, or we relet the units to new tenants, the terms of renewal or reletting may be less favorable than current lease terms. If the lease rates upon renewal or reletting are significantly lower than expected rates, then our results of operations and financial condition will be adversely affected. As noted above, certain significant expenditures associated with each equity investment in real estate (such as mortgage payments, real estate taxes and maintenance costs) are generally not reduced when circumstances result in a reduction in rental income.

We may depend on commercial tenants for our revenue and therefore our revenue may depend on the success and economic viability of our commercial tenants. Our reliance on single or significant commercial tenants in certain buildings may decrease our ability to lease vacated space.

Our financial results will depend in part on leasing space in the properties we acquire to tenants on economically favorable terms. A default by a commercial tenant, the failure of a guarantor to fulfill its obligations or other premature termination of a lease, or a commercial tenant’s election not to extend a lease upon its expiration could have an adverse effect on our income, general financial condition and ability to pay distributions. Therefore, our financial success is indirectly dependent on the success of the businesses operated by the commercial tenants of our properties.

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Lease payment defaults by commercial tenants would most likely cause us to reduce the amount of distributions to stockholders. In the event of a tenant default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-letting our property. A default by a significant commercial tenant or a substantial number of commercial tenants at any one time on lease payments to us would cause us to lose the revenue associated with such lease(s) and cause us to have to find an alternative source of revenue to meet mortgage payments and prevent a foreclosure if the property is subject to a mortgage. As a result, lease payment defaults by tenants could reduce our profitability and may cause us to reduce the amount of distributions to stockholders.

Even if the tenants of our properties do renew their leases or we relet the units to new tenants, the terms of renewal or reletting may be less favorable than current lease terms. If the lease rates upon renewal or reletting are significantly lower than expected rates, then our results of operations and financial condition will be adversely affected. Commercial tenants may have the right to terminate their leases upon the occurrence of certain customary events of default and, in other circumstances, may not renew their leases or, because of market conditions, may be able to renew their leases on terms that are less favorable to us than the terms of the current leases. If a lease is terminated, there is no assurance that we will be able to lease the property for the rent previously received or sell the property without incurring a loss. Therefore, the weakening of the financial condition of a significant commercial tenant or a number of smaller commercial tenants and vacancies caused by defaults of tenants or the expiration of leases may adversely affect our operations.

A property that incurs a vacancy could be difficult to re-lease.

A property may incur a vacancy either by the continued default of a tenant under its lease or the expiration of one of our leases. If we terminate any lease following a default by a lessee, we will have to re-lease the affected property in order to maintain our qualification as a REIT. If a tenant vacates a property, we may be unable either to re-lease the property for the rent due under the prior lease or to re-lease the property without incurring additional expenditures relating to the property. In addition, we could experience delays in enforcing our rights against, and collecting rents (and, in some cases, real estate taxes and insurance costs) due from a defaulting tenant. Any delay we experience in re-leasing a property or difficulty in re-leasing at acceptable rates may reduce cash available to make distributions to our stockholders.

In many cases, tenant leases contain provisions giving the tenant the exclusive right to sell particular types of merchandise or provide specific types of services within the particular retail center, or limit the ability of other tenants to sell such merchandise or provide such services. When re-leasing space after a vacancy is necessary, these provisions may limit the number and types of prospective tenants for the vacant space.

We also may have to incur substantial expenditures in connection with any re-leasing. A number of the properties we invest in may be specifically suited to the particular needs of our tenants. Therefore, we may have difficulty obtaining a new tenant for any vacant space we have in our properties, particularly if the floor plan of the vacant space limits the types of businesses that can use the space without major renovation. If the vacancy continues for a long period of time, we may suffer reduced revenues resulting in less cash dividends to be distributed to stockholders. As noted above, certain significant expenditures associated with each equity investment (such as mortgage payments, real estate taxes and maintenance costs) are generally not reduced when circumstances cause a reduction in income from the investment. The failure to re-lease or to re-lease on satisfactory terms could result in a reduction of our income, funds from operations and cash available for distributions and thus affect the amount of distributions to stockholders. In addition, the resale value of the property could be diminished because the market value of a particular property will depend principally upon the value of the leases of such property.

We may be unable to sell a property if or when we decide to do so.

We may give some commercial tenants the right, but not the obligation, to purchase their properties from us beginning a specified number of years after the date of the lease. Some of our leases also generally provide the tenant with a right of first refusal on any proposed sale provisions. These policies may lessen the ability of our Advisor and our Board of Directors to freely control the sale of the property.

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Although we may grant a lessee a right of first offer or option to purchase a property, there is no assurance that the lessee will exercise that right or that the price offered by the lessee in the case of a right of first offer will be adequate. In connection with the acquisition of a property, we may agree on restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. Even absent such restrictions, the real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We may not be able to sell any property for the price or on the terms set by us, and prices or other terms offered by a prospective purchaser may not be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. We may be required to expend funds to correct defects or to make improvements before a property can be sold. We may not have funds unavailable to correct such defect or to make such improvements.

We may not make a profit if we sell a property.

The prices that we can obtain when we determine to sell a property will depend on many factors that are presently unknown, including the operating history, tax treatment of real estate investments, demographic trends in the area and available financing. There is a risk that we will not realize any significant appreciation on our investment in a property. Accordingly, stockholders’ ability to recover all or any portion of stockholders’ investment under such circumstances will depend on the amount of funds so realized and claims to be satisfied there from.

We may incur liabilities in connection with properties we acquire.

Our anticipated acquisition activities are subject to many risks. We may acquire properties or entities that are subject to liabilities or that have problems relating to environmental condition, state of title, physical condition or compliance with zoning laws, building codes, or other legal requirements. In each case, our acquisition may be without any recourse, or with only limited recourse, with respect to unknown liabilities or conditions. As a result, if any liability were asserted against us relating to those properties or entities, or if any adverse condition existed with respect to the properties or entities, we might have to pay substantial sums to settle or cure it, which could adversely affect our cash flow and operating results. However, some of these liabilities may be covered by insurance. In addition, we intend to perform customary due diligence regarding each property or entity we acquire. We also will attempt to obtain appropriate representations and indemnities from the sellers of the properties or entities we acquire, although it is possible that the sellers may not have the resources to satisfy their indemnification obligations if a liability arises. Unknown liabilities to third parties with respect to properties or entities acquired might include:

• liabilities for clean-up of undisclosed environmental contamination;

• claims by tenants, vendors or other persons dealing with the former owners of the properties;

• liabilities incurred in the ordinary course of business; and

• claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.

Competition with third parties in acquiring and operating properties may reduce our profitability and the return on stockholders’ investment.

We compete with many other entities engaged in real estate investment activities, many of which have greater resources than we do. Specifically, there are numerous commercial developers, real estate companies, real estate investment trusts and U.S. institutional and foreign investors that operate in the markets in which we may operate, that will compete with us in acquiring residential, office, retail, industrial and other properties that will be seeking investments and tenants for these properties. Many of these entities have significant financial and other resources, including operating experience, allowing them to compete effectively with us.

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Competitors with substantially greater financial resources than us may generally be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness of entities in which investments may be made or risks attendant to a geographic concentration of investments. In addition, those competitors that are not REITs may be at an advantage to the extent they can utilize working capital to finance projects, while we (and our competitors that are REITs) will be required by the annual distribution provisions under the Internal Revenue Code to distribute significant amounts of cash from operations to our stockholders.

Demand from third parties for properties that meet our investment objectives could result in an increase of the price of such properties. If we pay higher prices for properties, our profitability may be reduced and stockholders may experience a lower return on stockholders’ investment. In addition, our properties may be located in close proximity to other properties that will compete against our properties for tenants. Many of these competing properties may be better located and/or appointed than the properties that we will acquire, giving these properties a competitive advantage over our properties, and we may, in the future, face additional competition from properties not yet constructed or even planned. This competition could adversely affect our business. The number of competitive properties could have a material effect on our ability to rent space at our properties and the amount of rents charged.

We could be adversely affected if additional competitive properties are built in locations competitive with our properties, causing increased competition for residential renters, retail customer traffic and creditworthy commercial tenants. In addition, our ability to charge premium rental rates to tenants may be negatively impacted. This increased competition may increase our costs of acquisitions or lower the occupancies and the rent we may charge tenants. This could result in decreased cash flow from tenants and may require us to make capital improvements to properties, which we would not have otherwise made, thus affecting cash available for distributions to stockholders.

We may not have control over costs arising from rehabilitation of properties.

We may elect to acquire properties, which may require rehabilitation. In particular, we may acquire affordable properties that we will rehabilitate and convert to market rate properties. Consequently, we intend to retain independent general contractors to perform the actual physical rehabilitation work and will be subject to risks in connection with a contractor’s ability to control rehabilitation costs, the timing of completion of rehabilitation, and a contractor’s ability to build in conformity with plans and specifications.

We may incur losses as result of defaults by the purchasers of properties we sell in certain circumstances.

If we decide to sell any of our properties, we will use our best efforts to sell them for cash. However, we may sell our properties by providing financing to purchasers. When we provide financing to purchasers, we will bear the risk of default by the purchaser and will be subject to remedies provided by law. There are no limitations or restrictions on our ability to take purchase money obligations. We may incur losses as a result of such defaults, which may adversely affect our available cash and our ability to make distributions to stockholders.

We may experience energy shortages and allocations.

There may be shortages or increased costs of fuel, natural gas, water, electric power or allocations thereof by suppliers or governmental regulatory bodies in the areas where we purchase properties, in which event the operation of our properties may be adversely affected. Increased costs of fuel may reduce discretionary spending on luxury retail items, which may adversely affect our retail tenants if we purchase retail properties. Our revenues will be dependent upon payment of rent by retailers, which may be particularly vulnerable to uncertainty in the local economy and rising costs of energy for their customers. Such adverse economic conditions could affect the ability of our tenants to pay rent, which could have a material adverse effect on our operating results and financial condition, as well as our ability to pay distributions to you.

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We may acquire properties with lockout provisions, which may prohibit us from selling a property, or may require us to maintain specified debt levels for a period of years on some properties.

We may acquire properties in exchange for operating partnership units and agree to restrictions on sales or refinancing, called “lock-out” provisions that are intended to preserve favorable tax treatment for the owners of such properties who sell them to us. Lockout provisions may restrict sales or refinancings for a certain period in order to comply with the applicable government regulations. Lockout provisions could materially restrict us from selling or otherwise disposing of or refinancing properties. This would affect our ability to turn our investments into cash and thus affect cash available to return capital to stockholders. Lockout provisions could impair our ability to take actions during the lockout period that would otherwise be in the best interests of our stockholders and, therefore, might have an adverse impact on the value of the shares, relative to the value that would result if the lockout provisions did not exist. In particular, lockout provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in the best interests of our stockholders.

Changes in applicable laws may adversely affect the income and value of our properties.

The income and value of a property may be affected by such factors as environmental, rent control and other laws and regulations, changes in applicable general and real estate tax laws (including the possibility of changes in the federal income tax laws or the lengthening of the depreciation period for real estate) and interest rates, the availability of financing, acts of nature (such as hurricanes and floods) and other factors beyond our control.

Retail Industry Risks

Our retail properties are subject to the various risks discussed above. In addition, they are subject to the risks discussed below.

Retail conditions may adversely affect our income.

A retail property’s revenues and value may be adversely affected by a number of factors, many of which apply to real estate investment generally, but which also include trends in the retail industry and perceptions by retailers or shoppers of the safety, convenience and attractiveness of the retail property. In addition, to the extent that the investing public has a negative perception of the retail sector, the value of our common stock may be negatively impacted.

Some of our leases provide for base rent plus contractual base rent increases. A number of our retail leases also include a percentage rent clause for additional rent above the base amount based upon a specified percentage of the sales our tenants generate. Under those leases that contain percentage rent clauses, our revenue from tenants may increase as the sales of our tenants increase. Generally, retailers face declining revenues during downturns in the economy. As a result, the portion of our revenue that we may derive from percentage rent leases could decline upon a general economic downturn.

Our revenue will be impacted by the success and economic viability of our anchor retail tenants. Our reliance on single or significant tenants in certain buildings may decrease our ability to lease vacated space.

In the retail sector, any tenant occupying a large portion of the gross leasable area of a retail center, a tenant of any of the triple-net single-user retail properties outside the primary geographical area of investment, commonly referred to as an anchor tenant, or a tenant that is our anchor tenant at more than one retail center, may become insolvent, may suffer a downturn in business, or may decide not to renew its lease. Any of these events would result in a reduction or cessation in rental payments to us and would adversely affect our financial condition.

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A lease termination by an anchor tenant could result in lease terminations or reductions in rent by other tenants whose leases permit cancellation or rent reduction if another tenant’s lease is terminated. We may own properties where the tenants may have rights to terminate their leases if certain other tenants are no longer open for business. These “co-tenancy” provisions may also exist in some leases where we own a portion of a retail property and one or more of the anchor tenants leases space in that portion of the center not owned or controlled by us. If such tenants were to vacate their space, tenants with co-tenancy provisions would have the right to terminate their leases with us or seek a rent reduction from us. In such event, we may be unable to re-lease the vacated space.

Similarly, the leases of some anchor tenants may permit the anchor tenant to transfer its lease to another retailer. The transfer to a new anchor tenant could cause customer traffic in the retail center to decrease and thereby reduce the income generated by that retail center. A lease transfer to a new anchor tenant could also allow other tenants to make reduced rental payments or to terminate their leases at the retail center. In the event that we are unable to re-lease the vacated space to a new anchor tenant, we may incur additional expenses in order to re-model the space to be able to re-lease the space to more than one tenant.

Competition with other retail channels may reduce our profitability and the return on stockholders’ investment.

Retail tenants will face potentially changing consumer preferences and increasing competition from other forms of retailing, such as discount shopping centers, outlet centers, upscale neighborhood strip centers, catalogues, discount shopping clubs, internet and telemarketing. Other retail centers within the market area of properties we invest in will compete with our properties for customers, affecting their tenants’ cash flows and thus affecting their ability to pay rent. In addition, tenants’ rent payments may be based on the amount of sales revenue that they generate. If these tenants experience competition, the amount of their rent may decrease and our cash flow will decrease.

Residential Industry Risks

Our residential properties are subject to the various risks discussed above. In addition, they are subject to the risks discussed below.

The short-term nature of our residential leases may adversely impact our income.

If residents of properties we invest in decide not to renew their leases upon expiration, we may not be able to relet their units. Because substantially all of our residential leases are for apartments, they generally are for terms of no more than one or two years. If we are unable to promptly renew the leases or relet the units then our results of operations and financial condition will be adversely affected. Certain significant expenditures associated with each equity investment in real estate (such as mortgage payments, real estate taxes and maintenance costs) are generally not reduced when circumstances result in a reduction in rental income.

An economic downturn could adversely affect the residential industry and may affect operations for the residential properties that we acquire.

As a result of the effects of the current economic downturn, including increased unemployment rates, the residential industry may experience a significant decline in business caused by a reduction in overall renters. The current economic downturn and increase in unemployment rates may have an adverse affect on our operations if the tenants occupying the residential and office properties we acquire cease making rent payments to us or if there a change in spending patterns resulting in reduced traffic at the retail properties we acquire. Moreover, low residential mortgage interest rates could accompany an economic downturn and encourage potential renters to purchase residences rather than lease them. The residential properties we acquire may experience declines in occupancy rate due to any such decline in residential mortgage interest rates.

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Lodging Industry Risks

We may be subject to the risks common to the lodging industry.

Our hotels are subject to all of the risks common to the hotel industry and subject to market conditions that affect all hotel properties. These risks could adversely affect hotel occupancy and the rates that can be charged for hotel rooms as well as hotel operating expenses, and generally include:

• increases in supply of hotel rooms that exceed increases in demand;

• increases in energy costs and other travel expenses that reduce business and leisure travel;

• reduced business and leisure travel due to continued geo-political uncertainty, including terrorism;

• adverse effects of declines in general and local economic activity;

• adverse effects of a downturn in the hotel industry; and

• risks generally associated with the ownership of hotels and real estate, as discussed below.

We do not have control over the market and business conditions that affect the value of our lodging properties, and adverse changes with respect to such conditions could have an adverse effect on our results of operations, financial condition and cash flows. Hotel properties, including extended stay hotels, are subject to varying degrees of risk generally common to the ownership of hotels, many of which are beyond our control, including the following:

• increased competition from other existing hotels in our markets;

• new hotels entering our markets, which may adversely affect the occupancy levels and average daily rates of our lodging properties;

• declines in business and leisure travel;

• increases in energy costs, increased threat of terrorism, terrorist events, airline strikes or other factors that may affect travel patterns and reduce the number of business and leisure travelers;

• increases in operating costs due to inflation and other factors that may not be offset by increased room rates;

• changes in, and the related costs of compliance with, governmental laws and regulations, fiscal policies and zoning ordinances; and

• adverse effects of international, national, regional and local economic and market conditions.

Adverse changes in any or all of these factors could have an adverse effect on our results of operations, financial condition and cash flows, thereby adversely impacting our ability to service debt and to make distributions to our stockholders.

Third-Party management of lodging properties can adversely affect our properties.

Our lodging properties, such properties will be operated by a third-party management company and could be adversely affected if that third-party management company, or its affiliated brands, experiences negative publicity or other adverse developments, such as financial disagreements between the third party manager and the owner, disagreements about marketing between the third party manager and the owner and the third party manager’s brand falls out of favor. Any lodging properties we may acquire are expected to be operated under brands owned by an affiliate of our Sponsor and managed by a management company that is affiliated with such brands. Because of this concentration, negative publicity or other adverse developments that affect that operator and/or its affiliated brands generally may adversely affect our results of operations, financial condition, and consequently cash flows thereby impacting our ability to service debt, and to make distributions to our stockholders. There can be no assurance that our affiliate continues to manage any lodging properties we acquire.

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As a REIT, we cannot directly operate our lodging properties.

We cannot and will not directly operate our lodging properties and, as a result, our results of operations, financial position, and ability to service debt and our ability to make distributions to stockholders are dependent on the ability of our third-party management companies and our tenants to operate our extended stay hotel properties successfully. In order for us to satisfy certain REIT qualification rules, we cannot directly operate any lodging properties we may acquire or actively participate in the decisions affecting their daily operations. Instead, through a taxable REIT subsidiary, or taxable REIT subsidiary (“TRS”) lessee, we must enter into management agreements with a third-party management company, or we must lease our lodging properties to third-party tenants on a triple-net lease basis. We cannot and will not control this third-party management company or the tenants who operate and are responsible for maintenance and other day-to-day management of our lodging properties, including, but not limited to, the implementation of significant operating decisions. Thus, even if we believe our lodging properties are being operated inefficiently or in a manner that does not result in satisfactory operating results, we may not be able to require the third-party management company or the tenants to change their method of operation of our lodging properties. Our results of operations, financial position, cash flows and our ability to service debt and to make distributions to stockholders are, therefore, dependent on the ability of our third-party management company and tenants to operate our lodging properties successfully.

We will rely on a third-party hotel management company to establish and maintain adequate internal controls over financial reporting at our lodging properties. In doing this, the property manager should have policies and procedures in place which allows them to effectively monitor and report to us the operating results of our lodging properties which ultimately are included in our consolidated financial statements. Because the operations of our lodging properties ultimately become a component of our consolidated financial statements, we evaluate the effectiveness of the internal controls over financial reporting at all of our properties, including our lodging properties, in connection with the certifications we provide in our quarterly and annual reports on Form 10-Q and Form 10-K, respectively, pursuant to the Sarbanes Oxley Act of 2002. However, we will not control the design or implementation of or changes to internal controls at any of our lodging properties. Thus, even if we believe that our lodging properties are being operated without effective internal controls, we may not be able to require the third-party management company to change its internal control structure. This could require us to implement extensive and possibly inefficient controls at a parent level in an attempt to mitigate such deficiencies. If such controls are not effective, the accuracy of the results of our operations that we report could be affected. Accordingly, our ability to conclude that, as a company, our internal controls are effective is significantly dependent upon the effectiveness of internal controls that our third-party management company will implement at our lodging properties. While we do not consider it likely, it is possible that we could have a significant deficiency or material weakness as a result of the ineffectiveness of the internal controls at one or more of our lodging properties.

If we replace a third-party management company or tenant, we may be required by the terms of the relevant management agreement or lease to pay substantial termination fees, and we may experience significant disruptions at the affected lodging properties. While it is our intent to enter into management agreements with a third-party management company or tenants with substantial prior lodging experience, we may not be able to make such arrangements in the future. If we experience such disruptions, it may adversely affect our results of operations, financial condition and our cash flows, including our ability to service debt and to make distributions to our stockholders.

Our use of the taxable REIT subsidiary structure will increase our expenses.

A TRS structure subjects us to the risk of increased lodging operating expenses. The performance of our TRS lessees is based on the operations of our lodging properties. Our operating risks include not only changes in hotel revenues and changes to our TRS lessees’ ability to pay the rent due to us under the leases, but also increased hotel operating expenses, including, but not limited to, the following cost elements:

• wage and benefit costs;

• repair and maintenance expenses;

• energy costs;

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• property taxes;

• insurance costs; and

• other operating expenses.

Any increases in one or more these operating expenses could have a significant adverse impact on our results of operations, cash flows and financial position.

Failure to properly structure our TRS leases could cause us to incur tax penalties.

A TRS structure subjects us to the risk that the leases with our TRS lessees do not qualify for tax purposes as arms-length which would expose us to potentially significant tax penalties. Our TRS lessees will incur taxes or accrue tax benefits consistent with a “C” corporation. If the leases between us and our TRS lessees were deemed by the Internal Revenue Service to not reflect an arms-length transaction as that term is defined by tax law, we may be subject to tax penalties as the lessor that would adversely impact our profitability and our cash flows.

Failure to maintain franchise licenses could decrease our revenues.

Our inability or that of our third-party management company or our third-party tenants to maintain franchise licenses could decrease our revenues. Maintenance of franchise licenses for our lodging properties is subject to maintaining our franchisor’s operating standards and other terms and conditions. Franchisors periodically inspect lodging properties to ensure that we, our third-party tenants or our third-party management company maintain their standards. Failure by us or one of our third-party tenants or our third-party management company to maintain these standards or comply with other terms and conditions of the applicable franchise agreement could result in a franchise license being canceled. If a franchise license terminates due to our failure to make required improvements or to otherwise comply with its terms, we may also be liable to the franchisor for a termination fee. As a condition to the maintenance of a franchise license, our franchisor could also require us to make capital expenditures, even if we do not believe the capital improvements are necessary, desirable, or likely to result in an acceptable return on our investment. We may risk losing a franchise license if we do not make franchisor-required capital expenditures.

If our franchisor terminates the franchise license, we may try either to obtain a suitable replacement franchise or to operate the lodging property without a franchise license. The loss of a franchise license could materially and adversely affect the operations or the underlying value of the lodging property because of the loss associated with the brand recognition and/or the marketing support and centralized reservation systems provided by the franchisor. A loss of a franchise license for one or more lodging properties could materially and adversely affect our results of operations, financial condition and our cash flows, including our ability to service debt and make distributions to our stockholders.

Risks associated with employing hotel employees.

We will generally be subject to risks associated with the employment of hotel employees. Any lodging properties we acquire will be leased to a wholly-owned TRS entity and be subject to management agreements with a third-party manager to operate the properties that we do not lease to a third party under a net lease. Hotel operating revenues and expenses for these properties will be included in our consolidated results of operations. As a result, although we do not directly employ or manage the labor force at our lodging properties, we are subject to many of the costs and risks generally associated with the hotel labor force. Our third-party manager will be responsible for hiring and maintaining the labor force at each of our lodging properties and for establishing and maintaining the appropriate processes and controls over such activities. From time to time, the operations of our lodging properties may be disrupted through strikes, public demonstrations or other labor actions and related publicity. We may also incur increased legal costs and indirect labor costs as a result of the aforementioned disruptions, or contract disputes or other events. Our third-party manager may be targeted by union actions or adversely impacted by the disruption caused by organizing activities. Significant adverse disruptions caused by union activities and/or increased costs affiliated with such activities could materially and adversely affect our results of operations, financial condition and our cash flows, including our ability to service debt and make distributions to our stockholders.

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Travel and hotel industries have been affected by economic slowdowns, terrorist attacks and other world events.

The most recent economic slowdown, terrorist attacks, military activity in the Middle East, natural disasters and other world events impacting the global economy had adversely affected the travel and hotel industries, including extended stay hotel properties, in the past and these adverse effects may continue or occur in the future. As a result of events such as terrorist attacks around the world, the war in Iraq and the effects of the economic recession, the lodging industry experienced a significant decline in business caused by a reduction in both business and leisure travel. We cannot presently determine the impact that future events such as military or police activities in the U.S. or foreign countries, future terrorist activities or threats of such activities, natural disasters or health epidemics could have on our business. Our business and lodging properties may continue to be affected by such events, including our hotel occupancy levels and average daily rates, and, as a result, our revenues may decrease or not increase to levels we expect. In addition, other terrorist attacks, natural disasters, health epidemics, acts of war, prolonged U.S. involvement in Iraq or other significant military activity could have additional adverse effects on the economy in general, and the travel and lodging industry in particular. These factors could have a material adverse effect on our results of operations, financial condition, and cash flows, thereby impacting our ability to service debt and ability to make distributions to our stockholders.

Hotel industry is very competitive.

The hotel industry is intensely competitive, and, as a result, if our third-party management company and our third-party tenants are unable to compete successfully or if our competitors’ marketing strategies are more effective, our results of operations, financial condition, and cash flows including our ability to service debt and to make distributions to our stockholders, may be adversely affected. The hotel industry is intensely competitive. Our lodging properties compete with other existing and new hotels in their geographic markets. Since we do not operate our lodging properties, our revenues depend on the ability of our third-party management company and our-third party tenants to compete successfully with other hotels in their respective markets. Some of our competitors have substantially greater marketing and financial resources than we do. If our third-party management company and our third-party tenants are unable to compete successfully or if our competitors’ marketing strategies are effective, our results of operations, financial condition, ability to service debt and ability to make distributions to our stockholders may be adversely affected.

Hotel industry is seasonal which can adversely affect our hotel properties.

The hotel industry is seasonal in nature, and, as a result, our lodging properties may be adversely affected. The seasonality of the hotel industry can be expected to cause quarterly fluctuations in our revenues. In addition, our quarterly earnings may be adversely affected by factors outside our control, such as extreme or unexpectedly mild weather conditions or natural disasters, terrorist attacks or alerts, outbreaks of contagious diseases, airline strikes, economic factors and other considerations affecting travel. To the extent that cash flows from operations are insufficient during any quarter, due to temporary or seasonal fluctuations in revenues, we may attempt to borrow in order to make distributions to our stockholders or be required to reduce other expenditures or distributions to stockholders.

Expanding use of internet travel websites by customers can adversely affect our profitability.

The increasing use of internet travel intermediaries by consumers may cause fluctuations in operating performance during the year and otherwise adversely affect our profitability and cash flows. Our third party hotel management company will rely upon Internet travel intermediaries such as Travelocity.com, Expedia.com, Orbitz.com, Hotels.com and Priceline.com to generate demand for our lodging properties. As Internet bookings increase, these intermediaries may be able to obtain higher commissions, reduced room rates or other significant contract concessions from our third-party management company. Moreover, some of these Internet travel intermediaries are attempting to offer hotel rooms as a commodity, by increasing the importance of price and general indicators of quality (such as “three-star downtown hotel”) at the expense of brand identification. Consumers may eventually develop brand loyalties to their reservations system rather than to our third-party management company and/or our brands, which could have an adverse effect on our business because we will rely heavily on brand identification. If the amount of sales made through Internet

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intermediaries increases significantly and our third-party management company and our third-party tenants fail to appropriately price room inventory in a manner that maximizes the opportunity for enhanced profit margins, room revenues may flatten or decrease and our profitability may be adversely affected.

Industrial Industry Risks

Potential liability as the result of and the cost of compliance with, environmental matters is greater if we invest in industrial properties or lease our properties to tenants that engage in industrial activities.

Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the cost of removal or remediation of hazardous or toxic substances on such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances.

We may invest in properties historically used for industrial, manufacturing and commercial purposes. Some of these properties are more likely to contain, or may have contained, underground storage tanks for the storage of petroleum products and other hazardous or toxic substances. All of these operations create a potential for the release of petroleum products or other hazardous or toxic substances.

Leasing properties to tenants that engage in industrial, manufacturing, and commercial activities will cause us to be subject to increased risk of liabilities under environmental laws and regulations. The presence of hazardous or toxic substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such property as collateral for future borrowings.

Our industrial properties are subject to fluctuations in manufacturing activity in the United States.

Our industrial properties may be adversely affected if manufacturing activity decreases in the United States. Trade agreements with foreign countries have given employers the option to utilize less expensive non-US manufacturing workers. The outsourcing of manufacturing functions could lower the demand for our industrial properties. Moreover, an increase in the cost of raw materials or decrease in the demand of housing could cause a slowdown in manufacturing activity, such as furniture, textiles, machinery and chemical products, and our profitability may be adversely affected.

Office Industry Risks

The loss of anchor tenants for our office properties could adversely affect our profitability.

We may acquire office properties and, as with our retail properties, we are subject to the risk that tenants may be unable to make their lease payments or may decline to extend a lease upon its expiration. A lease termination by a tenant that occupies a large area of space in one of our office properties (commonly referred to as an anchor tenant) could impact leases of other tenants. Other tenants may be entitled to modify the terms of their existing leases in the event of a lease termination by an anchor tenant or the closure of the business of an anchor tenant that leaves its space vacant, even if the anchor tenant continues to pay rent. Any such modifications or conditions could be unfavorable to us as the property owner and could decrease rents or expense recoveries. In the event of default by an anchor tenant, we may experience delays and costs in enforcing our rights as landlord to recover amounts due to us under the terms of our agreements with those parties.

Declines in overall activity in our markets may adversely affect the performance of our office properties.

Rental income from office properties fluctuates with general market and economic conditions. Our office properties may be adversely affected during periods of diminished economic growth and a decline in white-collar employment. We may experience a decrease in occupancy and rental rates accompanied by increases in the cost of re-leasing space (including for tenant improvements) and in uncollectible receivables. Early lease terminations may significantly contribute to a decline in occupancy of our office properties and may adversely affect our profitability. While lease termination fees increase current period income, future rental income may be diminished because, during periods in which market rents decline, it is unlikely that we will collect from replacement tenants the full contracted amount which had been payable under the terminated leases.

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Risks Related to Real Estate-Related Investments

Risks Associated with Investments in Mezzanine and Mortgage Loans

Our Advisor does not have substantial experience investing in mezzanine and mortgage loans, which could result in losses to us.

Neither our Advisor nor any of its affiliates have substantial experience investing in mezzanine or mortgage loans. If we make or acquire such loans, or participations in them, we may not have the necessary expertise to maximize the return on our investment in these types of loans.

The risk of default on mezzanine and mortgage loans is caused by many factors beyond our control, and our ability to recover our investment in foreclosure may be limited.

The default risk on mezzanine and mortgage loans is caused by factors beyond our control, including local and other economic conditions affecting real estate values, interest rate changes, rezoning and failure by the borrower to maintain the property. We do not know whether the values of the property securing the loans will remain at the levels existing on the dates of origination of the loans. If the values of the underlying properties drop, our risk will increase because of the lower value of the security associated with such loans.

In the event that there are defaults under these loans, we may not be able to quickly repossess and sell the properties securing such loans. An action to foreclose on a property securing a loan is regulated by state statutes and regulations and is subject to many delays and expenses typical of any foreclosure action. In the event of default by a mortgagor, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the loan, which could reduce the value of our investment in the defaulted loan.

The mezzanine loans in which we may invest involve greater risks of loss than senior loans secured by income-producing real properties.

We may invest in mezzanine loans that take the form of subordinated loans secured by second mortgages on the underlying real property or loans secured by a pledge of the ownership interests of either the entity owning the real property or the entity that owns the interest in the entity owning the real property. These types of investments involve a higher degree of risk than long-term senior mortgage lending secured by income producing real property because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of the entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some or all of our investment.

Our mortgage or mezzanine loans will be subject to interest rate fluctuations, which could reduce our returns as compared to market interest rates and reduce the value of the loans in the event we sell them.

If we invest in fixed-rate, long-term mortgage or mezzanine loans and interest rates rise, the loans could yield a return lower than then-current market rates. If interest rates decrease, we will be adversely affected to the extent that mortgage or mezzanine loans are prepaid, because we may not be able to make new loans at the previously higher interest rate. If we invest in variable-rate loans and interest rates decrease, our revenues will also decrease. Fluctuations in interest rates adverse to our loans could adversely affect our returns on such loans.

The liquidation of our assets may be delayed as a result of our investment in mortgage or mezzanine loans, which could delay distributions to our stockholders.

The mezzanine and mortgage loans we may purchase will be illiquid investments due to their short life, their unsuitability for securitization and the greater difficulty of recoupment in the event of a borrower’s default. If we enter into mortgage or mezzanine loans with terms that expire after the date we intend to have sold all of our properties, any intended liquidation of us may be delayed beyond the time of the sale of all of our properties until all mortgage or mezzanine loans expire or are sold.

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Risks Related to Investments in Real Estate-Related Securities

We may invest in various types of real estate-related securities.

We may invest in real estate-related securities, including securities issued by other real estate companies, mortgage-backed securities (“MBS”) or collateralized debt obligations (“CDOs”). We may also invest in real estate-related securities of both publicly traded and private real estate companies. Neither we nor our Advisor may have the expertise necessary to maximize the return on our investment in real estate-related securities. If our Advisor determines that it is advantageous to us to make the types of investments in which our Advisor or its affiliates do not have experience, our Advisor intends to employ persons, engage consultants or partner with third parties that have, in our Advisor’s opinion, the relevant expertise necessary to assist our Advisor in evaluating, making and administering such investments.

Investments in real estate-related securities will be subject to specific risks relating to the particular issuer of the securities and may be subject to the general risks of investing in subordinated real estate securities, which may result in losses to us.

Our investments in real estate-related securities will involve special risks relating to the particular issuer of the securities, including the financial condition and business outlook of the issuer. Issuers of real estate-related securities generally invest in real estate or real estate-related assets and are subject to the inherent risks associated with real estate-related investments including risks relating to rising interest rates.

Real estate-related securities are often unsecured and also may be subordinated to other obligations of the issuer. As a result, investments in real estate-related securities are subject to risks of (1) limited liquidity in the secondary trading market in the case of unlisted or thinly traded securities, (2) substantial market price volatility resulting from changes in prevailing interest rates in the case of traded equity securities, (3) subordination to the prior claims of banks and other senior lenders to the issuer, (4) the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates that could cause the issuer to reinvest redemption proceeds in lower yielding assets, (5) the possibility that earnings of the issuer may be insufficient to meet its debt service and distribution obligations and (6) the declining creditworthiness and potential for insolvency of the issuer during periods of rising interest rates and economic slowdown or downturn. These risks may adversely affect the value of outstanding real estate-related securities and the ability of the issuers thereof to repay principal and interest or make distribution payments.

The mortgage loans in which we may invest and the mortgage loans underlying the mortgage backed securities in which we may investment will be subject to delinquency, foreclosure and loss, which could result in losses to us.

Commercial mortgage loans are secured by multifamily or other types of commercial property, and are subject to risks of delinquency and foreclosure and risks of loss that are greater than similar risks associated with loans made on the security of single family residential property. The ability of a borrower to repay a loan secured by a property typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. Net operating income of an income producing property can be affected by, among other things: tenant mix, success of tenant businesses, property management decisions, property location and condition, competition from comparable types of properties, changes in laws that increase operating expense or limit rents that may be charged, any need to address environmental contamination at the property, the occurrence of any uninsured casualty at the property, changes in national, regional or local economic conditions and/or specific industry segments, declines in regional or local real estate values, declines in regional or local rental or occupancy rates, increases in interest rates, real estate tax rates and other operating expenses, changes in governmental rules, regulations and fiscal policies, including environmental legislation, acts of God, terrorism, social unrest and civil disturbances.

In the event of any default under a mortgage loan held directly by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan, which could have a material adverse effect on our cash flow from operations and limit amounts available for distribution to our stockholders. In the event of the bankruptcy of a mortgage loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the

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value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law. Foreclosure of a mortgage loan can be an expensive and lengthy process which could have a substantial negative effect on our anticipated return on the foreclosed mortgage loan.

The MBS and CDOs in which we may invest are subject to several types of risks.

MBS are bonds which evidence interests in, or are secured by, a single mortgage loan or a pool of mortgage loans. CDOs are a type of collateralized debt obligation that is backed by commercial real estate assets, such as MBS, mortgage loans, B-notes, or mezzanine paper. Accordingly, the MBS and CDOs we invest in are subject to all the risks of the underlying mortgage loans.

In a rising interest rate environment, the value of MBS and CDOs may be adversely affected when payments on underlying mortgages do not occur as anticipated, resulting in the extension of the security’s effective maturity and the related increase in interest rate sensitivity of a longer-term instrument. The value of MBS and CDOs may also change due to shifts in the market’s perception of issuers and regulatory or tax changes adversely affecting the mortgage securities markets as a whole. In addition, MBS and CDOs are subject to the credit risk associated with the performance of the underlying mortgage properties. In certain instances, third party guarantees or other forms of credit support can reduce the credit risk.

MBS and CDOs are also subject to several risks created through the securitization process. Subordinate MBS and CDOs are paid interest only to the extent that there are funds available to make payments. To the extent the collateral pool includes a large percentage of delinquent loans, there is a risk that interest payment on subordinate MBS and CDOs will not be fully paid. Subordinate securities of MBS and CDOs are also subject to greater credit risk than those MBS and CDOs that are more highly rated.

If we use leverage in connection with our investment in MBS or CDOs, the risk of loss associated with this type of investment will increase.

We may use leverage in connection with our investment in MBS or CDOs. Although the use of leverage may enhance returns and increase the number of investments that can be made, it may also substantially increase the risk of loss. There can be no assurance that leveraged financing will be available to us on favorable terms or that, among other factors, the terms of such financing will parallel the maturities of the underlying securities acquired. Therefore, such financing may mature prior to the maturity of the MBS or CDOs acquired by us. If alternative financing is not available, we may have to liquidate assets at unfavorable prices to pay off such financing. We may utilize repurchase agreements as a component of our financing strategy. Repurchase agreements economically resemble short-term, variable-rate financing and usually require the maintenance of specific loan-to-collateral value ratios. If the market value of the MBS or CDOs subject to a repurchase agreement decline, we may be required to provide additional collateral or make cash payments to maintain the loan to collateral value ratio. If we are unable to provide such collateral or cash repayments, we may lose our economic interest in the underlying securities.

Investments in real estate-related preferred equity securities involve a greater risk of loss than traditional debt financing.

We may invest in real estate-related preferred equity securities, which may involve a higher degree of risk than traditional debt financing due to several factors, including that such investments are subordinate to traditional loans and are not secured by property underlying the investment. If the issuer defaults on our investment, we would only be able to take action against the entity in which we have an interest, not the property owned by such entity underlying our investment. As a result, we may not recover some or all of our investment, which could result in losses to us.

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Market conditions and the risk of further market deterioration may cause a decrease in the value of our real estate securities.

The U.S. credit markets and the sub-prime residential mortgage market have experienced severe dislocations and liquidity disruptions. Sub-prime mortgage loans have experienced increased rates of delinquency, foreclosure and loss. These and other related events have had a significant impact on the capital markets associated not only with sub-prime mortgage-backed securities and asset-backed securities and CDOs, but also with the U.S. credit and financial markets as a whole.

We may invest in any real estate securities, including MBS and CDOs, that contain assets that could be classified as sub-prime residential mortgages. The values of many of these securities are sensitive to the volatility of the credit markets, and many of these securities may be adversely affected by future developments. In addition, to the extent there is turmoil in the credit markets, it has the potential to materially affect both the value of our real estate related securities investments and/or the availability or the terms of financing that we may anticipate utilizing in order to leverage our real estate related securities investments.

The market volatility has also made the valuation of these securities more difficult, particularly the MBS and CDO assets. Management’s estimate of the value of these investments incorporates a combination of independent pricing of agency and third-party dealer valuations, as well as comparable sales transactions. However, the methodologies that we will use in valuing individual investments are generally based on a variety of estimates and assumptions specific to the particular investments, and actual results related to the investments therefore often vary materially from such assumptions or estimates.

Because there is significant uncertainty in the valuation of, or in the stability of the value of, certain of these securities holdings, the fair values of such investments as reflected in our results of operations may not reflect the prices that we would obtain if such investments were actually sold. Furthermore, due to market events, many of these investments are subject to rapid changes in value caused by sudden developments which could have a material adverse effect on the value of these investments.

A portion of our real estate securities investments may be illiquid and we may not be able to adjust our portfolio in response to changes in economic and other conditions.

Certain of the real estate securities that we may purchase in the future in connection with privately negotiated transactions may not be registered under the relevant securities laws, resulting in a prohibition against their sale, transfer pledge or other disposition except in a transaction exempt from the registration requirements of those laws. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited.

Interest rate and related risks may cause the value of our real estate securities investments to be reduced.

Interest rate risk is the risk that fixed income securities will decline in value because of changes in market interest rates. Generally, when market interest rates rise, the market value of such securities will decline, and vice versa. Our investment in such securities means that the net asset value and market price of the common shares may tend to decline if market interest rates rise.

During periods of rising interest rates, the average life of certain types of securities may be extended because of slower than expected principal payments. This may lock in a below-market interest rate, increase the security’s duration and reduce the value of the security. This is known as extension risk. During periods of declining interest rates, an issuer may be able to exercise an option to prepay principal earlier than scheduled, which is generally known as call or prepayment risk. If this occurs, we may be forced to reinvest in lower yielding securities. This is known as reinvestment risk. An issuer may redeem an obligation if the issuer can refinance the debt at a lower cost due to declining interest rates or an improvement in the credit standing of the issuer. These risks may reduce the value of our real estate securities investments.

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Real Estate Financing Risks

General Financing Risks

We have incurred mortgage indebtedness and other borrowings, which may increase our business risks.

We acquired and intend to continue to acquire properties subject to existing financing or by borrowing new funds. In addition, we incur or increase our mortgage debt by obtaining loans secured by selected or all of the real properties to obtain funds to acquire additional real properties. We may also borrow funds if necessary to satisfy the requirement that we distribute to stockholders as dividends at least 90% of our annual REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain, or otherwise as is necessary or advisable to assure that we maintain our qualification as a REIT for U.S. federal income tax purposes.

We incur mortgage debt on a particular real property if we believe the property’s projected cash flow is sufficient to service the mortgage debt. However, if there is a shortfall in cash flow, requiring us to use cash from other sources to make the mortgage payments on the property, then the amount available for distributions to stockholders may be affected. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by properties may result in foreclosure actions initiated by lenders and our loss of the property securing the loan, which is in default.

For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. We may, in some circumstances, give a guaranty on behalf of an entity that owns one of our properties. In these cases, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgages contain cross-collateralization or cross-default provisions, there is a risk that more than one real property may be affected by a default.

Our mortgage debt contains clauses providing for prepayment penalties. If a lender invokes these penalties upon the sale of a property or the prepayment of a mortgage on a property, the cost to us to sell the property could increase substantially, and may even be prohibitive. This could lead to a reduction in our income, which would reduce cash available for distribution to stockholders and may prevent us from borrowing more money. Moreover, our financing arrangements involving balloon payment obligations involve greater risks than financing arrangements whose principal amount is amortized over the term of the loan. At the time the balloon payment is due, we may or may not be able to refinance the balloon payment on terms as favorable as the original loan or sell the property at a price sufficient to make the balloon payment.

If we have insufficient working capital reserves, we will have to obtain financing from other sources.

We have established working capital reserves that we believe are adequate to cover our cash needs. However, if these reserves are insufficient to meet our cash needs, we may have to obtain financing to fund our cash requirements. Sufficient financing may not be available or, if available, may not be available on economically feasible terms or on terms acceptable to us. If mortgage debt is unavailable at reasonable rates, we will not be able to place financing on the properties, which could reduce the number of properties we can acquire and the amount of distributions per share.

If we place mortgage debt on the properties, we run the risk of being unable to refinance the properties when the loans come due, or of being unable to refinance on favorable terms. If interest rates are higher when the properties are refinanced, our income could be reduced, which would reduce cash available for distribution to stockholders and may prevent us from borrowing more money. Additional borrowing for working capital purposes will increase our interest expense, and therefore our financial condition and our ability to pay distributions may be adversely affected.

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We may not have funding or capital resources for future improvements.

When a commercial tenant at a property we invest in does not renew its lease or otherwise vacates its space in such properties, it is likely that, in order to attract one or more new tenants, we will be required to expend substantial funds for leasing costs, tenant improvements and tenant refurbishments to the vacated space. We will incur certain fixed operating costs during the time the space is vacant as well as leasing commissions and related costs to re-lease the vacated space. We may also have similar future capital needs in order to renovate or refurbish any of our properties for other reasons.

Also, in the event we need to secure funding sources in the future but are unable to secure such sources or are unable to secure funding on terms we feel are acceptable, we may be required to defer capital improvements or refurbishment to a property. This may cause such property to suffer from a greater risk of obsolescence or a decline in value and/or produce decreased cash flow as the result of our inability to attract tenants to the property. If this happens, we may not be able to maintain projected rental rates for affected properties, and our results of operations may be negatively impacted. Or, we may be required to secure funding on unfavorable terms.

We may be adversely affected by limitations in our charter on the aggregate amount we may borrow.

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.

That limitation could have adverse business consequences such as:

• limiting our ability to purchase additional properties;

• causing us to lose our REIT status if additional borrowing was necessary to pay the required minimum amount of cash distributions to our stockholders to maintain our status as a REIT;

• causing operational problems if there are cash flow shortfalls for working capital purposes; and

• resulting in the loss of a property if, for example, financing was necessary to repay a default on a mortgage.

Our debt financing for acquisitions is frequently determined from appraised values in lieu of acquisition cost. As appraisal values are typically greater than acquisition cost for the type of value assets we seek to acquire, our debt can be expected to exceed certain leverage limitations defined in our charter. Our Board, including all of its independent directors, has approved and will continue to approve any leverage exceptions as required by our Articles of Incorporation.

Any excess borrowing over the 300% level will be disclosed to stockholders in our next quarterly report, along with justification for such excess. As of December 31, 2011, our total borrowings represented 86% of net assets.

Lenders may require us to enter into restrictive covenants relating to our operations.

In connection with obtaining financing, a bank or other lender could impose restrictions on us affecting our ability to incur additional debt and our distribution and operating policies. Loan documents we enter into may contain negative covenants limiting our ability to, among other things, further mortgage our properties, discontinue insurance coverage or replace Lightstone Value Plus REIT, LLC as our Advisor. In addition, prepayment penalties imposed by banks or other lenders could affect our ability to sell properties when we want.

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If lenders are not willing to make loans to our Sponsor because of recent defaults on some of the Sponsor’s properties, lenders may be less inclined to make loans to us and we may not be able to obtain financing for any future acquisitions.

U.S. and international markets are currently experiencing increased levels of volatility due to a combination of factors, including decreasing values of residential and commercial real estate, limited access to credit, the collapse or near collapse of certain financial institutions, higher energy costs, decreased consumer spending and fears of a national and global recession. Certain of our Sponsor’s program and non-program properties have been adversely affected by recent market conditions and their impact on the real estate market. For example, increased unemployment and the resulting decrease in business travel has adversely affected the occupancy rates and revenues per room at our Sponsor’s lodging properties. After an analysis of these factors and other factors, taking into account the increased costs of borrowing, the dislocation in the credit markets and that certain properties are not generating sufficient cash flow to cover their fixed costs, the Sponsor has elected to stop paying payments on the non-recourse debt obligations for certain program and non-program properties. As a result, lenders may be less willing to make loans to our Sponsor or its affiliates. If lenders are unwilling to make loans to us, we may be unable to purchase certain properties or may be required to defer capital improvements or refurbishments to our properties. Additionally, sellers of real property may be less inclined to enter into negotiations with us if they believe that we may be unable to obtain financing. The inability to purchase certain properties may increase the time it takes for us to generate funds from operations. Additionally, the inability to improve our properties may cause such property to suffer from a greater risk of obsolescence or a decline in value, which could result in a decrease in our cash flow from the inability to attract tenants.

Financing Risks on the Property Level

Some of our mortgage loans may have “due on sale” provisions.

In purchasing properties subject to financing, we may obtain financing with “due-on-sale” and/or “due-on-encumbrance” clauses. Due-on-sale clauses in mortgages allow a mortgage lender to demand full repayment of the mortgage loan if the borrower sells the mortgaged property. Similarly, due-on-encumbrance clauses allow a mortgage lender to demand full repayment if the borrower uses the real estate securing the mortgage loan as security for another loan.

These clauses may cause the maturity date of such mortgage loans to be accelerated and such financing to become due. In such event, we may be required to sell our properties on an all-cash basis, to acquire new financing in connection with the sale, or to provide seller financing. It is not our intent to provide seller financing, although it may be necessary or advisable for us to do so in order to facilitate the sale of a property. It is unknown whether the holders of mortgages encumbering our properties will require such acceleration or whether other mortgage financing will be available. Such factors will depend on the mortgage market and on financial and economic conditions existing at the time of such sale or refinancing.

Lenders may be able to recover against our other properties under our mortgage loans.

We will seek secured loans (which are nonrecourse) to acquire properties. However, only recourse financing may be available, in which event, in addition to the property securing the loan, the lender may look to our other assets for satisfaction of the debt. Thus, should we be unable to repay a recourse loan with the proceeds from the sale or other disposition of the property securing the loan, the lender could look to one or more of our other properties for repayment. Also, in order to facilitate the sale of a property, we may allow the buyer to purchase the property subject to an existing loan whereby we remain responsible for the debt.

Our mortgage loans may charge variable interest.

Some of our mortgage loans may be subject to fluctuating interest rates based on certain index rates, such as the prime rate. Future increases in the index rates would result in increases in debt service on variable rate loans and thus reduce funds available for acquisitions of properties and dividends to the stockholders.

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Insurance Risks

We may suffer losses that are not covered by insurance.

If we suffer losses that are not covered by insurance or that are in excess of insurance coverage, we could lose invested capital and anticipated profits. We intend to cause comprehensive insurance to be obtained for our properties, including casualty, liability, fire, extended coverage and rental loss customarily obtained for similar properties in amounts which our Advisor determines are sufficient to cover reasonably foreseeable losses, with policy specifications and insured limits that we believe are adequate and appropriate under the circumstances. Some of our commercial tenants may be responsible for insuring their goods and premises and, in some circumstances, may be required to reimburse us for a share of the cost of acquiring comprehensive insurance for the property, including casualty, liability, fire and extended coverage customarily obtained for similar properties in amounts which our Advisor determines are sufficient to cover reasonably foreseeable losses. Material losses may occur in excess of insurance proceeds with respect to any property as insurance proceeds may not provide sufficient resources to fund the losses. However, there are types of losses, generally of a catastrophic nature, such as losses due to wars, earthquakes, floods, hurricanes, pollution, environmental matters, mold or, in the future, terrorism which are either uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments.

Material losses may occur in excess of insurance proceeds with respect to any property, as insurance proceeds may not provide sufficient resources to fund the losses. However, there are types of losses, generally of a catastrophic nature, such as losses due to wars, earthquakes, floods, hurricanes, pollution, environmental matters, mold or, in the future, terrorism which are either uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments.

Insurance companies have recently begun to exclude acts of terrorism from standard coverage. Terrorism insurance is currently available at an increased premium, and it is possible that the premium will increase in the future or that terrorism coverage will become unavailable. However, mortgage lenders in some cases have begun to insist that commercial owners purchase specific coverage against terrorism as a condition for providing loans. We intend to obtain terrorism insurance if required by our lenders, but the terrorism insurance that we obtain may not be sufficient to cover loss for damages to our properties as a result of terrorist attacks. In addition, we may not be able to obtain insurance against the risk of terrorism because it may not be available or may not be available on terms that are economically feasible. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses.

There is no assurance that we will have adequate coverage for such losses. If such an event occurred to, or caused the destruction of, one or more of our properties, we could lose both our invested capital and anticipated profits from such property. In addition, certain losses resulting from these types of events are uninsurable and others may not be covered by our terrorism insurance. Terrorism insurance may not be available at a reasonable price or at all.

In December 2007, the Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”) was enacted into law. TRIPRA extends the federal terrorism insurance backstop through 2014. The government backstop the extension provides, contributes to the continued stabilization of the terrorism insurance market place allowing us the opportunity to secure coverage at commercially reasonable rates, and thus mitigate certain of the risks described above.

In addition, many insurance carriers are excluding asbestos-related claims from standard policies, pricing asbestos endorsements at prohibitively high rates or adding significant restrictions to this coverage. Because of our inability to obtain specialized coverage at rates that correspond to the perceived level of risk, we may not obtain insurance for acts of terrorism or asbestos-related claims. We will continue to evaluate the availability and cost of additional insurance coverage from the insurance market. If we decide in the future to purchase insurance for terrorism or asbestos, the cost could have a negative impact on our results of operations. If an uninsured loss or a loss in excess of insured limits occurs on a property, we could lose our capital invested in the property, as well as the anticipated future revenues from the property and, in the case of debt that is recourse to us, would remain obligated for any mortgage debt or other financial obligations related to the

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property. Any loss of this nature would adversely affect us. Although we intend to adequately insure our properties, there is no assurance that we will successfully do so.

Compliance with Laws

The costs of compliance with environmental laws and regulations may adversely affect our income and the cash available for any distributions.

All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and aboveground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. Some of these laws and regulations may impose joint and several liability on tenants, owners or operators for the costs of investigation or remediation of contaminated properties, regardless of fault or the legality of the original disposal.

Under various federal, state and local laws, ordinances and regulations, a current or previous owner, developer or operator of real estate may be liable for the costs of removal or remediation of hazardous or toxic substances at, on, under or in its property. The costs of removal or remediation could be substantial. In addition, the presence of these substances, or the failure to properly remediate these substances, may adversely affect our ability to sell or rent such property or to use the property as collateral for future borrowing.

Environmental laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous or toxic materials. Even if more than one person may have been responsible for the contamination, each person covered by the environmental laws may be held responsible for all of the clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages and costs resulting from environmental contamination arising from that site. The presence of hazardous or toxic materials, or the failure to address conditions relating to their presence properly, may adversely affect the ability to rent or sell the property or to borrow using the property as collateral.

Persons who dispose of or arrange for the disposal or treatment of hazardous or toxic materials may also be liable for the costs of removal or remediation of such materials, or for related natural resource damages, at or from an off-site disposal or treatment facility, whether or not the facility is or ever was owned or operated by those persons. In addition, environmental laws today can impose liability on a previous owner or operator of a property that owned or operated the property at a time when hazardous or toxic substances were disposed on, or released from, the property. A conveyance of the property, therefore, does not relieve the owner or operator from liability.

There may be potential liability associated with lead-based paint arising from lawsuits alleging personal injury and related claims. Typically, the existence of lead paint is more of a concern in residential units than in commercial properties. Although a structure built prior to 1978 may contain lead-based paint and may present a potential for exposure to lead, structures built after 1978 are not likely to contain lead-based paint.

Property values may also be affected by the proximity of such properties to electric transmission lines. Electric transmission lines are one of many sources of electro-magnetic fields (“EMFs”) to which people may be exposed. Research completed regarding potential health concerns associated with exposure to EMFs has produced inconclusive results. Notwithstanding the lack of conclusive scientific evidence, some states now regulate the strength of electric and magnetic fields emanating from electric transmission lines and other states have required transmission facilities to measure for levels of EMFs.

On occasion, lawsuits have been filed (primarily against electric utilities) that allege personal injuries from exposure to transmission lines and EMFs, as well as from fear of adverse health effects due to such exposure. This fear of adverse health effects from transmission lines has been considered both when property values have been determined to obtain financing and in condemnation proceedings. We may not, in certain circumstances, search for electric transmission lines near our properties, but are aware of the potential exposure to damage claims by persons exposed to EMFs.

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Recently, indoor air quality issues, including mold, have been highlighted in the media and the industry is seeing mold claims from lessees rising. To date, we have not incurred any material costs or liabilities relating to claims of mold exposure or abating mold conditions. However, due to the recent increase in mold claims and given that the law relating to mold is unsettled and subject to change, we could incur losses from claims relating to the presence of, or exposure to, mold or other microbial organisms, particularly if we are unable to maintain adequate insurance to cover such losses. We may also incur unexpected expenses relating to the abatement of mold on properties that we may acquire.

Limited quantities of asbestos-containing materials are present in various building materials such as floor coverings, ceiling texture material, acoustical tiles and decorative treatments. Environmental laws govern the presence, maintenance and removal of asbestos. These laws could be used to impose liability for release of, and exposure to, hazardous substances, including asbestos-containing materials, into the air. Such laws require that owners or operators of buildings containing asbestos (1) properly manage and maintain the asbestos, (2) notify and train those who may come into contact with asbestos and (3) undertake special precautions, including removal or other abatement, if asbestos would be disturbed during renovation or demolition of a building. Such laws may impose fines and penalties on building owners or operators who fail to comply with these requirements. These laws may allow third parties to seek recovery from owners or operators of real properties for personal injury associated with exposure to asbestos fibers. As the owner of our properties, we may be potentially liable for any such costs.

There is no assurance that properties, which we acquire in the future, will not have any material environmental conditions, liabilities or compliance concerns. Accordingly, we have no way of determining at this time the magnitude of any potential liability to which we may be subject arising out of environmental conditions or violations with respect to the properties we own.

The costs of compliance with laws and regulations relating to our residential properties may adversely affect our income and the cash available for any distributions.

Various laws, ordinances, and regulations affect multi-family residential properties, including regulations relating to recreational facilities, such as activity centers and other common areas. We intend for our properties to have all material permits and approvals to operate. In addition, rent control laws may also be applicable to any of the properties.

Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations, stricter interpretation of existing laws or the future discovery of environmental contamination may require material expenditures by us. Future laws, ordinances or regulations may impose material environmental liabilities, and the current environmental condition of our properties might be affected by the operations of the tenants, by the existing condition of the land, by operations in the vicinity of the properties, such as the presence of underground storage tanks, or by the activities of unrelated third parties.

These laws typically allow liens to be placed on the affected property. In addition, there are various local, state and federal fire, health, life-safety and similar regulations which we may be required to comply with, and which may subject us to liability in the form of fines or damages for noncompliance.

Any newly acquired or developed multi-family residential properties must comply with Title II of the Americans with Disabilities Act (the “ADA”) to the extent that such properties are “public accommodations” and/or “commercial facilities” as defined by the ADA. Compliance with the ADA requires removal of structural barriers to handicapped access in certain public areas of the properties where such removal is “readily achievable.” We intend for our properties to comply in all material respects with all present requirements under the ADA and applicable state laws.

We will attempt to acquire properties, which comply with the ADA or place the burden on the seller to ensure compliance with the ADA. We may not be able to acquire properties or allocate responsibilities in this manner. Noncompliance with the ADA could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages to private litigants. The cost of defending against any claims of liability under the ADA or the payment of any fines or damages could adversely affect our financial condition and affect cash available to return capital and the amount of distributions to stockholders.

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The Fair Housing Act (the FHA) requires, as part of the Fair Housing Amendments Act of 1988, apartment communities first occupied after March 13, 1990 to be accessible to the handicapped. Noncompliance with the FHA could result in the imposition of fines or an award of damages to private litigants. We intend for any of our properties that are subject to the FHA to be in compliance with such law. The cost of defending against any claims of liability under the FHA or the payment of any fines or damages could adversely affect our financial condition.

Changes in applicable laws and regulations may adversely affect the income and value of our properties.

The income and value of a property may be affected by such factors as environmental, rent control and other laws and regulations and changes in applicable general and real estate tax laws (including the possibility of changes in the federal income tax laws or the lengthening of the depreciation period for real estate). For example, the properties we will acquire will be subject to real and personal property taxes that may increase as property tax rates change and as the properties are assessed or reassessed by taxing authorities. We anticipate that most of our leases will generally provide that the property taxes or increases therein, are charged to the lessees as an expense related to the properties that they occupy. As the owner of the properties, however, we are ultimately responsible for payment of the taxes to the government. If property taxes increase, our tenants may be unable to make the required tax payments, ultimately requiring us to pay the taxes. In addition, we will generally be responsible for property taxes related to any vacant space. If we purchase residential properties, the leases for such properties typically will not allow us to pass through real estate taxes and other taxes to residents of such properties. Consequently, any tax increases may adversely affect our results of operations at such properties.

Failure to comply with applicable laws and regulations where we invest could result in fines, suspension of personnel of our Advisor, or other sanctions. Compliance with new laws or regulations or stricter interpretation of existing laws may require us to incur material expenditures, which could reduce the available cash flow for distributions to our stockholders. Additionally, future laws, ordinances or regulations may impose material environmental liability, which may have a material adverse effect on our results of operations.

Risks Related to General Economic Conditions and Terrorism

If we invest our capital in marketable securities of real estate related companies pending an acquisition of real estate, our profits may be adversely affected by the performance of the specific investments we make.

A resolution passed by our Board of Directors allows us from time to time to invest up to 30% of our available cash in marketable securities of real estate related companies. Issuers of real estate securities generally invest in real estate or real estate related assets and are subject to the inherent risks associated with real estate related investments discussed below, including risks relating to rising interest rates or volatility in the credit markets. Our investments in marketable securities of real estate related companies will involve special risks relating to the particular issuer of securities, including the financial condition and business outlook of the issuer. Substantial market price volatility caused by general economic or market conditions, including disruptions in the credit markets, may require us to mark down the value of these investments, and our profits and results of operations may be adversely affected.

Adverse economic conditions have negatively affected our returns and profitability.

The timing, length and severity of any economic slowdown that the nation experiences, including the current economic slowdown, cannot be predicted with certainty. Since we may liquidate within seven to ten years after August 2009, when the proceeds from our initial public offering were fully invested, there is a risk that depressed economic conditions at that time could cause cash flow and appreciation upon the sale of our properties, if any, to be insufficient to allow sufficient cash remaining after payment of our expenses for a significant return on stockholders’ investment.

It is possible that the economic impact of the terrorist attacks may have an adverse effect on the ability of the tenants of our properties to pay rent. In addition, insurance on our real estate may become more costly and coverage may be more limited due to these events. The instability of the U.S. economy may also reduce the number of suitable investment opportunities available to us and may slow the pace at which those investments are made. In addition, armed hostilities and further acts of terrorism may directly impact our properties.

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These developments may subject us to increased risks and, depending on their magnitude, could have a material adverse effect on our business and stockholders’ investment.

Current state of debt markets could limit our ability to obtain financing which may have a material adverse impact on our earnings and financial condition.

The commercial real estate debt markets are currently experiencing volatility as a result of certain factors including the tightening of underwriting standards by lenders and credit rating agencies and the significant inventory of unsold Collateralized Mortgage Backed Securities in the market. Credit spreads for major sources of capital have widened significantly as investors have demanded a higher risk premium. This results in lenders increasing the cost for debt financing. Should the overall cost of borrowings increase, either by increases in the index rates or by increases in lender spreads, we will need to factor such increases into the economics of our acquisitions. This may result in our acquisitions generating lower overall economic returns and potentially reducing cash flow available for distribution.

The recent dislocations in the debt markets has reduced the amount of capital that is available to finance real estate, which, in turn, (a) will no longer allow real estate investors to rely on capitalization rate compression to generate returns and (b) has slowed real estate transaction activity, all of which may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition and operations of real properties and mortgage loans. Investors will need to focus on market-specific growth dynamics, operating performance, asset management and the long-term quality of the underlying real estate.

In addition, the state of the debt markets could have an impact on the overall amount of capital investing in real estate which may result in price or value decreases of real estate assets.

U.S. Federal Income Tax Risks

Stockholders’ investment has various U.S. federal income tax risks.

Stockholders should consult their own tax advisors concerning the effects of U.S. federal, state and local income tax law on an investment and on stockholders’ individual tax situation.

If we fail to maintain our qualification as a REIT, our dividends will not be deductible to us, and our income will be subject to taxation. We intend to maintain our qualification as a REIT under the Internal Revenue Code, which will afford us significant tax advantages. The requirements to maintain this qualification, however, are complex. If we fail to meet these requirements, our dividends will not be deductible to us and we will have to pay a corporate level tax on our income. This would substantially reduce our cash available to pay distributions and stockholders’ yield on stockholders’ investment. In addition, tax liability might cause us to borrow funds, liquidate some of our investments or take other steps, which could negatively affect our operating results.

Moreover, if our REIT status is terminated because of our failure to meet a technical REIT test or if we voluntarily revoke our election, we would be disqualified from electing treatment as a REIT for the four taxable years following the year in which REIT status is lost. This could materially and negatively affect stockholders’ investment by causing a loss of common stock value.

Stockholders may have tax liability on distributions that they elect to reinvest in common stock but would not receive the cash from such distributions to pay such tax liability.

If stockholders participate in our distribution reinvestment program, such stockholders will be deemed to have received, and for U.S. federal income tax purposes will be taxed on, the amount reinvested in common stock to the extent the amount reinvested was not a tax-free return of capital. As a result, unless a stockholder is a tax-exempt entity, it may have to use funds from other sources to pay its tax liability on the value of the common stock received.

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The opinion of Proskauer Rose LLP regarding our status as a REIT does not guarantee our ability to remain a REIT.

We believe that we have qualified as a REIT commencing with our taxable year ending December 31, 2006. Our qualification as a REIT depends upon our ability to meet, through investments, actual operating results, distributions and satisfaction of specific stockholder rules, the various tests imposed by the Internal Revenue Code. Our legal counsel, Proskauer Rose LLP will not review these operating results or compliance with the qualification standards. We may not satisfy the REIT requirements in the future. Also, this opinion represents Proskauer Rose LLP’s legal judgment based on the law in effect as of the date of this prospectus and is not binding on the Internal Revenue Service or the courts, and could be subject to modification or withdrawal based on future legislative, judicial or administrative changes to the federal income tax laws, any of which could be applied retroactively, which could result in our disqualification as a REIT.

Failure to qualify as a REIT or to maintain such qualification could materially and negatively impact stockholders’ investment and its yield to stockholders by causing a loss of common share value and by substantially reducing our cash available to pay distributions.

If the Operating Partnership fails to maintain its status as a partnership, its income may be subject to taxation.

We intend to maintain the status of the Operating Partnership as a partnership for U.S. federal income tax purposes. However, if the Internal Revenue Service were to successfully challenge the status of the Operating Partnership as a partnership for such purposes, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that the Operating Partnership could make to us. This would also result in our failing to qualify as a REIT, and becoming subject to a corporate level tax on our own income. This would substantially reduce our cash available to pay distributions and the yield on stockholders’ investment. In addition, if any of the partnerships or limited liability companies through which the Operating Partnership owns its properties, in whole or in part, loses its characterization as a partnership for U.S. federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to the Operating Partnership. Such a recharacterization of an underlying property owner could also threaten our ability to maintain our REIT qualification.

Even REITS may be subject to U.S. federal, state and local taxes.

Even if we qualify and maintain our status as a REIT, we may become subject to U.S. federal income taxes and related state and local taxes. For example, if we have net income from a “prohibited transaction,” such income will be subject to a 100% tax. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain net capital gain we earn from the sale or other disposition of our property and pay income tax directly on such income. This will result in our stockholders being treated for tax purposes as though they had received their proportionate shares of such retained income and paid the tax on it directly.

However, to the extent we have already paid income taxes directly on such income; our stockholders will also be credited with their proportionate share of such taxes already paid by us. Stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability unless they file U.S. federal income tax returns and thereon seek a refund of such tax. We may also be subject to state and local taxes on our income or property, either directly or at the level of the Operating Partnership or at the level of the other companies through which we indirectly own our assets such as our TRSs, which are subject to full U.S. federal, state and local corporate-level income taxes. Any taxes we pay directly or indirectly will reduce our cash available for distribution to our stockholders.

As a result, we may not be able to continue to satisfy the REIT requirements, and it may cease to be in our best interests to continue to do so in the future.

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Certain of our business activities are potentially subject to the prohibited transaction tax, which could reduce the return on your investment.

For so long as we qualify as a REIT, our ability to dispose of property during the first few years following acquisition may be restricted to a substantial extent as a result of our REIT qualification. Under applicable provisions of the Code regarding prohibited transactions by REITs, while we qualify as a REIT, we will be subject to a 100% penalty tax on any gain recognized on the sale or other disposition of any property (other than foreclosure property) that we own, directly or through any subsidiary entity, including our Operating Partnership, but generally excluding our TRSs, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of trade or business. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. While we qualify as a REIT, we avoid the 100% prohibited transaction tax by (1) conducting activities that may otherwise be considered prohibited transactions through a TRS (but such TRS will incur income taxes), (2) conducting our operations in such a manner so that no sale or other disposition of an asset we own, directly or through any subsidiary, will be treated as a prohibited transaction or (3) structuring certain dispositions of our properties to comply with a prohibited transaction safe harbor available under the Code for properties held for at least two years. However, no assurance can be given that any particular property we own, directly or through any subsidiary entity, including our Operating Partnership, but generally excluding our TRSs, will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.

If we were considered to actually or constructively pay a “preferential dividend” to certain of our stockholders, our status as a REIT could be adversely affected.

In order to qualify as a REIT, we must distribute to our stockholders at least 90% of our annual REIT taxable income (excluding net capital gain), determined without regard to the deduction for dividends paid. In order for distributions to be counted as satisfying the annual distribution requirements for REITs, and to provide us with a REIT-level tax deduction, the distributions must not be “preferential dividends.” A dividend is not a preferential dividend if the distribution is pro rata among all outstanding shares of stock within a particular class, and in accordance with the preferences among different classes of stock as set forth in our organizational documents. Currently, there is uncertainty as to the IRS’s position regarding whether certain arrangements that REITs have with their stockholders could give rise to the inadvertent payment of a preferential dividend (e.g., the pricing methodology for stock purchased under a distribution reinvestment program inadvertently causing a greater than 5% discount on the price of such stock purchased). There is no de minimis exception with respect to preferential dividends; therefore, if the IRS were to take the position that we inadvertently paid a preferential dividend, we may be deemed to have failed the 90% distribution test, and our status as a REIT could be terminated for the year in which such determination is made if we were unable to cure such failure. While we do not believe that the terms of the Program would cause us to be treated as paying preferential dividends, we can provide no assurance to this effect.

We may choose to make distributions in our own stock, in which case you may be required to pay income taxes in excess of the cash dividends you receive.

In connection with our qualification as a REIT, we are required to distribute at least 90% of our taxable income (excluding net capital gains) to our stockholders. In order to satisfy this requirement, we may distribute taxable dividends that are payable in cash and shares of our common stock at the election of each stockholder. Generally, under IRS Revenue Procedure 2010-12, up to 90% of any such taxable dividend with respect to the taxable years 2010 and 2011 could be payable in our common stock. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current or accumulated earnings and profits for U.S. federal income tax purposes. As a result, U.S. stockholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. Accordingly, U.S. stockholders receiving a distribution of our shares may be required to sell shares received in such distribution or may be required to sell other stock or assets owned by them, at a time that may be disadvantageous, in order to satisfy any tax imposed on such distribution. If a U.S. stockholder sells the stock that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our

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stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock, by withholding or disposing of part of the shares in such distribution and using the proceeds of such disposition to satisfy the withholding tax imposed. In addition, if a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, such sale may put downward pressure on the price of our common stock.

Further, while Revenue Procedure 2010-12 generally applies only to taxable dividends payable in a combination of cash and stock with respect to the taxable years 2010 and 2011, it is unclear whether and to what extent we will be able to pay taxable dividends in cash and stock in later years. Moreover, various tax aspects of such a taxable cash/stock dividend are uncertain and have not yet been addressed by the IRS. No assurance can be given that the IRS will not impose additional requirements in the future with respect to taxable cash/stock dividends, including on a retroactive basis, or assert that the requirements for such taxable cash/stock dividends have not been met.

Future changes in the income tax laws could adversely affect our profitability.

In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S. federal income tax laws applicable to investments similar to an investment in shares of our common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot assure you that any such changes will not adversely affect the taxation of our stockholders. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. You are urged to consult with your tax advisor with respect to the impact of recent legislation on your investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares. You also should note that our counsel’s tax opinion is based upon existing law, applicable as of the date of its opinion, all of which will be subject to change, either prospectively or retroactively.

Although REITs generally receive better tax treatment than entities taxed as regular corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax purposes as a corporation. As a result, our charter provides our Board of Directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a regular corporation, without the vote of our stockholders. Our Board of Directors has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.

Employee Benefit Plan Risks

An investment in our common stock may not satisfy the requirements of ERISA or other applicable laws.

When considering an investment in our common stock, an individual with investment discretion over assets of any pension plan, profit-sharing plan, retirement plan, IRA or other employee benefit plan covered by ERISA or other applicable laws should consider whether the investment satisfies the requirements of Section 404 of ERISA or other applicable laws. In particular, attention should be paid to the diversification requirements of Section 404(a)(1)(C) of ERISA in light of all the facts and circumstances, including the portion of the plan’s portfolio of which the investment will be a part. All plan investors should also consider whether the investment is prudent and meets plan liquidity requirements as there may be only a limited market in which to sell or otherwise dispose of our common stock, and whether the investment is permissible under the plan’s governing instrument. We have not, and will not, evaluate whether an investment in our common stock is suitable for any particular plan. Rather, we will accept entities as stockholders if an entity otherwise meets the suitability standards.

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The annual statement of value that we will be sending to stockholders subject to ERISA and stockholders is only an estimate and may not reflect the actual value of our shares. The annual statement of value will report the value of each common share as of the close of our fiscal year. The value will be based upon an estimated amount we determine would be received if our properties and other assets were sold as of the close of our fiscal year and if such proceeds, together with our other funds, were distributed pursuant to liquidation. Our Advisor or its affiliates will determine the net asset value of each share of common stock. Because this is only an estimate, we may subsequently revise any annual valuation that is provided. It is possible that:

• a value included in the annual statement may not actually be realized by us or by our stockholders upon liquidation;

• stockholders may not realize that value if they were to attempt to sell their common stock; or

• an annual statement of value might not comply with any reporting and disclosure or annual valuation requirements under ERISA or other applicable law. We will stop providing annual statements of value if the common stock becomes listed for trading on a national stock exchange or included for quotation on a national market system.

ITEM 1B. UNRESOLVED STAFF COMMENTS:

None applicable.

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ITEM 2. PROPERTIES:

	Location		Year Built (Range of years built)		Leasable Square Feet		Percentage Occupied as of December 31, 2011			Annualized Revenues based on rents at December 31, 2011		Annualized Revenues per square foot December 31, 2011
Wholly Owned Real Estate Properties:
Retail
St. Augustine Outlet Center		St. Augustine, FL		1998		330,246		82.8	%	$	3.9 million	$	14.38
Oakview Plaza		Omaha, NE		1999 – 2005		177,103		91.4	%	$	2.3 million	$	14.36
Brazos Crossing Power Center		Lake Jackson, TX		2007 – 2008		61,213		100.0	%	$	0.8 million	$	12.58
Crowe's Crossing		Stone Mountain, GA		1986		93,728		77.0	%	$	0.6 million	$	8.83
DePaul Plaza		Bridgeton, MO		1985		187,090		86.4	%	$	1.8 million	$	11.03
Everson Pointe		Snellville, GA		1999		81,428		89.1	%	$	0.8 million	$	11.02
				Retail Total		930,808		86.2%
Industrial
7 Flex/Office/Industrial Buildings within the Gulf Coast Industrial Portfolio		New Orleans, LA		1980 – 2000		339,700		75.5	%	$	2.8 million	$	10.98
4 Flex/Industrial Buildings within the Gulf Coast Industrial Portfolio		San Antonio, TX		1982 – 1986		484,364		70.1	%	$	1.6 million	$	4.68
3 Flex/Industrial Buildings within the Gulf Coast Industrial Portfolio		Baton Rouge, LA		1985 – 1987		182,792		91.2	%	$	1.1 million	$	6.56
Sarasota		Sarasota, FL		1992		280,242		100.0	%	$	0.5 million	$	1.70
				Industrial Total		1,287,098		81.0%

Multi-Family Residential	Location		Year Built (Range of years built)		Leasable Units		Percentage Occupied as of December 31, 2011			Annualized Revenues based on rents at December 31, 2011		Annualized Revenues per unit December 31, 2011
Southeastern Michigan Multi-Family Properties (Four Apartment Buildings)		Southeast MI		1965 – 1972		1,017		91.6	%	$	7.4 million	$	7,895
Camden Multi-Family Properties (Two Apartment Communities)		Greensboro/Charlotte, NC		1984 – 1985		568		95.2	%	$	3.8 million	$	6,946
				Residential Total		1,585		92.9%

	Location		Year Built		Year to date Available Rooms		Percentage Occupied for the Year Ended December 31, 2011			Revenue per Available Room through December 31, 2011
Wholly-Owned and Consolidated Hospitality Properties:
Houston Extended Stay Hotels (Two Hotels)		Houston, TX		1998		106,215		74.3	%	$	30.41
CP Boston Property (Hotel and Water Park Resort)		Danvers, Massachusetts		1978		104,153		47.3	%	$	43.50
				Hospitality Total		210,368		60.9%

	Location		Year Built		Leasable Square Feet		Percentage Occupied as of December 31, 2011			Annualized Revenues based on rents at December 31, 2011		Annualized Revenues per square foot December 31, 2011
Unconsolidated Affiliated Real Estate Entities-Office:
1407 Broadway		New York, NY		1952		1,114,695		80.9	%	$	35.8 million	$	39.69

Annualized revenue is defined as the minimum monthly payments due as of December 31, 2011 annualized, excluding periodic contractual fixed increases and rents calculated based on a percentage of tenants’ sales. The annualized base rent disclosed in the table above includes all concessions, abatements and reimbursements of rent to tenants.

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ITEM 3. LEGAL PROCEEDINGS:

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

On March 29, 2006, Jonathan Gould, a former member of our Board 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 has sued for damages under theories of quantum merit and unjust enrichment seeking the value of work he performed. Management believes that this suit is frivolous and entirely without merit and intends to defend against these charges vigorously. The Company believes any unfavorable outcome on this matter will not have a material effect on the consolidated financial statements.

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

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

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

On July 13, 2011, JF Capital Advisors, LLC filed a lawsuit in New York state court against The Lightstone Group, LLC, Lightstone Value Plus Real Estate Investment Trust II, Inc. and us seeking payment for services alleged to have been rendered, and to be rendered prospectively, under theories of unjust enrichment and breach of contract. The plaintiff had a limited business arrangement with The Lightstone Group, LLC; that arrangement has been terminated. On February 8, 2012, the court granted Defendant’s Motion to Dismiss on all counts.

While any proceeding or litigation has an element of uncertainty, management currently believes that the likelihood of an unfavorable outcome with respect to any of the aforementioned legal proceedings is remote. No provision for loss has been recorded in connection therewith.

As of the date hereof, we are not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss.

ITEM 4. Mine Safety Disclosures

Not applicable.

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PART II.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES:

Shareholder Information

As of March 15, 2012, we had approximately 29.8 million common shares outstanding, held by a total of 7,527 stockholders. The number of stockholders is based on the records of DST Systems Inc., which serves as our registrar and transfer agent.

Market Information

The Company’s shares of common stock are not currently listed on a national securities exchange. The Company may seek to list its shares of common stock for trading on a national securities exchange only if a majority of its independent directors believe listing would be in the best interest of its stockholders. The Company does not intend to list its shares of common stock at this time. The Company does not anticipate that there would be any market for its shares of common stock until they are listed for trading. In the event the Company does not obtain listing prior to the tenth anniversary of the completion or termination of its initial public offering, its charter requires that the Board of Directors must either (i) seek stockholder approval of an extension or amendment of this listing deadline; or (ii) seek stockholder approval to adopt a plan of liquidation of the Company.

On December 19, 2011 we completed a tender offer repurchasing from our shareholders approximately 2.0 million shares of our common stock at a price of $9.80 per share, or an aggregate amount of approximately $20 million. Approximately 10.0 million shares of common stock were properly tendered and not withdrawn prior to the tender offer’s expiration and, in accordance with the proration provisions applicable to the tender offer, approximately 2.0 million shares were repurchased.

On March 9, 2012, the Board of Directors of the Company determined and approved an estimated net asset value of $322.0 million and resulting estimated net asset value per share of common stock of the Company (“common stock”) of $10.65, each as of December 31, 2011. Additionally, the Company believes there have been no material changes between December 31, 2011 and the date of this filing to the net values of the Company’s assets and liabilities that existed as of December 31, 2011. In connection with such determination, the Company also engaged an independent third party valuation firm to perform a review of our estimated values of assets and liabilities as of December 31, 2011. The third party valuation firm independently estimated a range of values for our assets and liabilities as of December 31, 2011 and confirmed that the Company’s estimated net asset value was reasonable and within the valuation firm’s estimated range.

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The table below (amounts in thousands, except per share amounts) provides a summary of the key components of the Company’s estimated net asset value as of December 31, 2011:

Net Assets:
Real Estate Properties
Consolidated operating properties(1)	$	270,519
Consolidated development project(1)		17,350
Investment in unconsolidated operating property		3,038
Investment in unconsolidated development projects		56,023
Total real estate properties				$	346,930
Non-Real Estate Assets
Cash and cash equivalents		31,525
Marketable equity securities(1)		101,928
Restricted escrows(1)		30,168
Restricted marketable equity securities(1)		45,897
Mortgage notes receivable(1)		29,440
Other assets		10,415
Total Non-Real Estate Assets					249,373
Total Assets					596,303
Liabilities:
Mortgage debt(1)		(220,895	)
Margin loan		(20,400	)
Other liabilities		(26,209	)
Total Liabilities					(267,504)
Non-controlling Interests					(6,820)
Net Asset Value				$	321,979
Diluted Shares of Common Stock Outstanding(2)					30,244
Net Asset Value per Share of Common Stock				$	10.65

Notes:

(1) Amounts adjusted for non-controlling interests.

(2) Includes 0.5 million shares of common stock assuming the conversion of an equal number of common units of limited partnership interest in our Operating Partnership (“common units”).

Methodology

The Company’s goal in calculating an estimated net asset value and resulting value per common share is to arrive at values that are reasonable and supportable using what the Company deems to be appropriate valuation methodologies and assumptions. The following is a summary of the valuation methodologies used to value the Company’s assets and liabilities by key component:

Real Estate Properties:  The Company has consolidated and unconsolidated investments in real estate properties comprised of operating properties and development projects.

Our real estate assets were valued using valuation methods that we believe are typically used by investors for properties that are similar to ours, including capitalization of each property’s net operating income, discounted cash flow models and/or comparison with sales of similar properties. Primary emphasis was based on the discounted cash flow models, with the other approaches used to confirm the reasonableness of the value conclusion.

As of December 31, 2011, the value of our investments in consolidated operating properties, excluding Crowes Crossing, DePaul Plaza and CP Boston, was $231.2 million which equates to a 7.5% capitalization rate based on their combined historical net operating income for the year ended December 31, 2011.

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Crowes Crossing, a retail property which was acquired on October 18, 2011, was valued at its total acquisition cost of $7.5 million, which equates to a 7.7% capitalization rate based on its 2012 budgeted net operating income. DePaul Plaza, a retail property which was acquired on November 22, 2011, was valued at its total acquisition cost of $19.8 million, which equates to a 7.2% capitalization rate based on its 2012 budgeted net operating income. Our 80% ownership interest in CP Boston, a hospitality property which was acquired on March 21, 2011, was valued at $12.0 million based on the lowest of several unsolicited offers received in late 2011, which also equates to a 10.4% capitalization rate based on 2012 budgeted net operating income. The value of our 75% ownership interest in 50-01 2^nd Street, a residential development project, was valued at $17.3 million representing a 6.5% capitalization rate based on projected net operating income upon stabilization and has been reduced by our proportionate share of its expected mortgage indebtedness and discounted at a rate of 20%.

Our investment in unconsolidated operating property consists of our 49% ownership interest in 1407 Broadway, an office building. The value of our investment in 1407 Broadway represents a 4.5% capitalization rate based on its historical net operating income for the year ended December 31, 2011 and has been reduced by our proportionate share of its outstanding mortgage indebtedness. 1407 Broadway is subject to a leasehold interest and therefore, our valuation is based on a holding period equivalent to the remaining term which was 37 years as of December 31, 2011.

Our investment in unconsolidated development projects represents our ownership interests in outlet center projects located in Grand Prairie, Texas and Livermore, California. The value of our investment in development projects represents a 7.0% capitalization rate based on projected net operating income upon stabilization and has been reduced by our proportionate share of their expected mortgage indebtedness and discounted at rates ranging from 8% to 20%.

The following summarizes the key assumptions that were used in the discounted cash flow models to estimate the value of the Company’s operating properties:

	Weighted-Average Basis
Exit capitalization rate		8.9	%
Discount rate		10.1	%
Annual market rent growth rate		2.0	%
Annual net operating income growth rate		2.4	%
Holding period (years)		5.0

The following summarizes the key assumptions that were used in the discounted cash flow models to estimate the value of the Company’s development properties:

	Weighted-Average Basis
Exit capitalization rate		6.9	%
Discount rate		12.8	%
Holding period (years)		2.4

While the Company believes that its assumptions are reasonable, a change in these assumptions would impact the calculations of the estimated value of our real estate properties. Assuming all other factors remain unchanged, a decrease to the exit capitalization rates of 25 basis points would increase the value of our real estate properties by $13.3 million and an increase in the exit capitalization rates of 25 basis points would decrease the value of our real estate properties by $12.1 million. Similarly, a decrease to the discount rates of 25 basis points would increase the value of our real estate properties by $3.5 million and an increase in the discount rates of 25 basis points would decrease the value of our real estate properties by $3.4 million.

With respect to its investments in real estate properties as of December 31, 2011, the Company had invested approximately $356.0 million, including certain acquisition fees and expenses. As of December 31, 2011, the estimated value of the Company’s investments in real estate properties using the valuation methods described above was $346.9 million. The total real estate fair value as of December 31, 2011 compared to the

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original acquisition price plus subsequent capital improvements to date, results in an overall decrease in the real estate value of approximately 2.5%.

Cash and Cash Equivalents:  The estimated value of the Company’s cash and cash equivalents approximate their carrying values due to their short maturities.

Marketable Securities:  The estimated values of our marketable securities are primarily based on level 2 inputs. Level 2 inputs are inputs 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 inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Restricted Escrows:  The estimated value of the Company’s restricted escrows approximate their carrying values due to their short maturities.

Restricted Marketable Equity Securities:  The estimated values of our restricted marketable securities are primarily based on level 2 inputs. Level 2 inputs are inputs 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 inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Other Assets:  Other assets consists of (i) tenant accounts receivable, net of $2.5 million, (ii) interest receivable from related parties of $2.3 million and (iii) prepaid expenses and other assets of $5.6 million. The carrying values of these balances were considered to equal their fair value due to their short maturities. Certain other balances, primarily intangibles and deferred costs, have been eliminated for the purpose of the valuation because those items are already considered in the valuation of the respective investments in real estate properties or financial instruments.

Mortgage Notes Receivable:  The estimated value of the Company’s mortgage notes receivable approximate their carrying values based upon current market information that would have been used by a market participant to estimate the fair value of such loans.

Mortgage Debt:  The estimated value of the Company’s mortgage debt approximates its carrying value. The estimated value of our debt instruments were estimated using discounted cash flow models, which incorporate assumptions that we believe reflect the terms currently available on similar borrowing arrangements to borrowers with credit profiles similar to ours.

Margin Loan:  The estimated value of the Company’s margin loan approximates its carrying value because of its short maturity.

Other Liabilities:  Other liabilities consists of (i) accounts payable and accrued expenses of $17.7 million, (ii) distributions payable on common shares and units of $5.7 million and (iii) other liabilities of $2.9 million. The carrying values of these balances were considered to equal their fair value due to their short maturities. Certain other balances, primarily intangibles, loans due to affiliates and deferred gain on disposition have been eliminated for the purpose of the valuation because those items are already considered in the valuation of the respective investments in real estate properties or financial instruments.

Non-controlling Interests:  Non-controlling interests consists of Series A preferred limited partnership units in the Operating Partnership (“Series A Preferred Units”) at their liquidation preference of $93.6 million plus accrued distributions on Series A Preferred Units, common units and subordinated profits interests in our Operating Partnership aggregating $1.6 million less notes receivable due from non-controlling interests of $88.5 million, which are secured by the Series A Preferred Units.

Limitations of Estimated Value per Share of Common Stock

This valuation was performed so the Company could provide the relevant information and valuations to broker-dealers to enable them to include a valuation per share of common stock in their customer account statements pursuant to NASD Rule 2340. The current fair value of the shares of common stock may be higher or lower than the valuation. There currently is no public market for the shares of common stock and the Company does not expect one to develop. The Company currently has no plans to list its shares of common stock on a national securities exchange or over-the-counter market, or to include its shares of common stock

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for quotation on any national securities market. Accordingly, it is not possible to determine the market value of the shares of common stock. Privately negotiated sales and sales through intermediaries currently are the only means available to a common shareholder to liquidate an investment in shares of common stock. During the period January 1, 2009 through December 31, 2011, the Company has purchased shares of common stock through our share redemption program and pursuant to an issuer tender offer dated October 3, 2011. In addition, the Company has issued shares of common stock through our distribution reinvestment program.

As with any valuation methodology, our methodology is based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different estimated value per share of common stock. Accordingly, with respect to the estimated value per share of common stock, the Company can give no assurance that:

• a shareholder would be able to resell his or her shares of common stock at this estimated value;

• a shareholder would ultimately realize distributions per share of common stock equal to the Company’s estimated value per share of common stock upon liquidation of the Company’s assets and settlement of its liabilities or a sale of the Company;

• the Company’s shares of common stock would trade at the estimated value per share of common stock on a national securities exchange;

• an independent third-party appraiser or other third-party valuation firm would agree with the Company’s estimated value per share of common stock; or

• the methodology used to estimate the Company’s value per share of common stock would be acceptable to FINRA or for compliance with ERISA reporting requirements.

Further, the estimated value per share of common stock as of December 31, 2011 is based on the estimated value of the Company’s assets less the estimated value of the Company’s liabilities divided by the number of diluted shares of common stock outstanding, all as of December 31, 2011. The value of the shares of common stock will fluctuate over time in response to developments related to individual assets in the portfolio and the management of those assets and in response to the real estate and finance markets. Different parties using different assumptions and estimates could derive a different net asset value and resulting estimated value per share of common stock, and these differences could be significant. Markets for real estate and real estate-related investments can fluctuate and values are expected to change in the future. The Company currently plans to update the estimated value per share of common stock on an annual basis, but is not required to update the estimated value per share of common stock more frequently than every 18 months.

Dividend Reinvestment Program

Our distribution reinvestment program provides our shareholders with an opportunity to purchase additional shares of our common stock at a discount by reinvesting distributions. Our share repurchase program may provide our shareholders with limited, interim liquidity by enabling them to sell their shares back to us, subject to restrictions. On March 9, 2012, in conjunction with our estimate of the value of a share of our common stock as of December 31, 2011 for purposes of ERISA, our Board of Directors confirmed the purchase price under our distribution reinvestment program as $10.12 per common share, which is a 5% discount to the estimated value per share of common stock of $10.65 as of December 31, 2011. Under our distribution reinvestment program, a shareholder may acquire, from time to time, additional shares of our common stock by reinvesting cash distributions payable by us to such shareholder, without incurring any brokerage commission, fees or service charges.

However, our Board of Directors reserves the right to terminate the program for any reason without cause by providing written notice of termination of the distribution reinvestment program to all participants or written notice of termination of the share repurchase program to all shareholders.

Share Redemption Program

Our share redemption program may provide eligible stockholders with limited, interim liquidity by enabling them to sell shares back to us, subject to restrictions and applicable law. A selling stockholder must be unaffiliated with us, and must have beneficially held the shares for at least one year prior to offering the

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shares for sale to us through the share redemption program. Subject to the limitations described in the Registration Statement, we will also redeem shares upon the request of the estate, heir or beneficiary of a deceased stockholder.

The prices at which stockholders who have held shares for the required one-year period may sell shares back to us at the lesser of (i) the share price as determined by our Board of Directors or (ii) the purchase price per share if purchased at a reduced price. As of December 31, 2011, the share price determined by our Board of Directors for the share redemption program is $9.50 per share.

A stockholder must have beneficially held the shares for at least one year prior to offering them for sale to us through the share redemption program, although if a stockholder redeems all of its shares our Board of Directors has the discretion to exempt shares purchased pursuant to the distribution reinvestment plan from this one year requirement. Other affiliates will not be eligible to participate in share redemption program.

Pursuant to the terms of the share redemption program, we will make repurchases, if requested, at least once quarterly. Subject to funds being available, we will limit the number of shares repurchased during any calendar year to two (2.0%) of the weighted average number of shares outstanding during the prior calendar year. Funding for the share redemption program will come exclusively from proceeds we receive from the sale of shares under our distribution reinvestment plan and other operating funds, if any, as the Board of Directors, at its sole discretion, may reserve for this purpose.

Since inception through December 2008, we fully funded all redemption requests. During 2009, we redeemed 0.5 million common shares which was the maximum amount allowed under our share redemption program for the calendar year and represented 31% of redemption requests received during the period. During 2010, we redeemed 0.6 million common shares or 26% of redemption requests received during the period. During 2011, we redeemed 0.6 million common shares or 69% of redemption requests received during the period.

Our Board of Directors, at its sole discretion, has the power to terminate the share redemption program after the end of the offering period, change the price per share under the share redemption program or reduce the number of shares purchased under the program, if it determines that the funds allocated to the share redemption program are needed for other purposes, such as the acquisition, maintenance or repair of properties, or for use in making a declared distribution. A determination by our Board of Directors to eliminate or reduce the share redemption program requires the unanimous affirmative vote of the independent directors.

Distributions

U.S. federal income tax law requires that a REIT distribute annually at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP) determined without regard to the deduction for distributions paid and excluding any net capital gains. In order to continue to qualify for REIT status, we may be required to make distributions in excess of cash available.

Distributions are at the discretion of the Board of Directors. We commenced quarterly distributions beginning February 1, 2006. We have generally paid such distributions through a combination of cash proceeds from sale our common stock, as well as cash from operations and through issuance of common shares from our distribution reinvestment program. We may continue to pay such distributions from the sale of our common stock or borrowings if we have not generated sufficient cash flow from our operations to fund such distributions. Our ability to pay regular distributions and the size of these distributions will depend upon a variety of factors. For example, our borrowing policy permits us to incur short-term indebtedness, having a maturity of two years or less, and we may have to borrow funds on a short-term basis to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT. We cannot assure that regular distributions will continue to be made or that we will maintain any particular level of distribution that we have established or may establish.

We are an accrual basis taxpayer, and as such our REIT taxable income could be higher than the cash available to us. We may therefore borrow to make distributions, which could reduce the cash available to us, in order to distribute 90% of REIT taxable income as a condition to our election to be taxed as a REIT. These distributions made with borrowed funds may constitute a return of capital to stockholders. “Return of capital”

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refers to distributions to investors in excess of net income. To the extent that distributions to stockholders exceed earnings and profits, such amounts constitute a return of capital for U.S. federal income tax purposes, although such distributions might not reduce stockholders’ aggregate invested capital. Because our earnings and profits are reduced for deprecation and other non-cash items, it is likely that a portion of each distribution will constitute a tax deferred return of capital for U.S. federal income tax purposes.

Distributions Declared by our Board of Directors and Source of Distributions

Beginning February 1, 2006, our Board of Directors declared quarterly distributions in the amount of $0.0019178 per share per day payable to stockholders of record at the close of business each day during the applicable period. The annualized rate declared was equal to 7%, which represents the annualized rate of return on an investment of $10.00 per share attributable to these daily amounts, if paid for each day for a 365 day period (the “Annualized Rate”). Subsequently, our Board of Directors has declared regular quarterly distributions at the Annualized Rate, with the exception of the three-month period ended June 30, 2010. The distributions for the three-month period ended June 30, 2010 were at an aggregate annualized rate of 8% based on the share price of $10.00. Through December 31, 2011, we have paid aggregate distribution in the amount of $85.2 million, which includes cash distributions paid to stockholders and common stock issued under our distribution reinvestment program.

Total dividends declared during the years ended December 31, 2011, 2010 and 2009 were $22.2 million, $23.1 million and $27.3 million, respectively.

On March 30, 2012, our Board of Directors declared the quarterly distribution for the three-month period ended March 31, 2012 in the amount of $0.0019178 per share per day payable to stockholders of record on the close of business each day during the quarter, which is payable on April 13, 2012.

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The following table provides a summary of the quarterly distributions declared and the source of distribution based upon cash flows provided by/(used in) operations for the years ended December 31, 2011 and 2010.

	2011
	Year ended December 31,		Quarter ended December 31,		Quarter ended September 30,			Quarter ended June 30,			Quarter ended March 31,
Distribution period		2011 Year		Q4 2011		Q3 2011			Q2 2011			Q1 2011
Date distribution declared				November 11, 2011		August 12, 2011			May 13, 2011			March 4, 2011
Date distribution paid				January 13, 2012		October 14, 2011			July 15, 2011			April 15, 2011
Distribution Paid	$	14,816	$	3,730	$	3,766		$	3,666		$	3,654
Distribution Reinvested	$	7,344		1,827		1,836			1,857			1,824
Total Distribution	$	22,160	$	5,557	$	5,602		$	5,523		$	5,478
Source of distributions
Cash flows provided by/(used in) operations	$	12,700	$	939	$	4,135		$	5,266		$	2,360
Proceeds from investment in affiliates and excess cash		2,116		2,791		(369	)		(1,600	)		1,294
Proceeds from issuance of common stock through distribution reinvestment program		7,344		1,827		1,836			1,857			1,824
Total Sources	$	22,160	$	5,557	$	5,602		$	5,523		$	5,478

	2010
	Year ended December 31,		Quarter ended December 31,		Quarter ended September 30,			Quarter ended June 30,			Quarter ended March 31,
Distribution period		2010 Year		Q4 2010		Q3 2010			Q2 2010			Q1 2010
Date distribution declared				November 15, 2010		September 16, 2010			July 28 and August 30, 2010			March 2, 2010
Date distribution paid				January 14, 2011		October 29, 2010			August 6 and October 15, 2010			March 30, 2010
Distribution Paid	$	17,186	$	3,713	$	3,744		$	6,237		$	3,492
Distribution Reinvested	$	5,900		1,892		1,877			—			2,131
Total Distribution	$	23,086	$	5,605	$	5,621		$	6,237		$	5,623
Source of distributions
Cash flows provided by/(used in) operations	$	6,815	$	200	$	5,452		$	(75	)	$	1,238
Proceeds from investment in affiliates and excess cash		10,371		3,513		(1,708	)		6,312			2,254
Proceeds from issuance of common stock through distribution reinvestment program		5,900		1,892		1,877			—			2,131
Total Sources	$	23,086	$	5,605	$	5,621		$	6,237		$	5,623

The cash flows provided/(used in) operations include an adjustment to remove the income from investments in unconsolidated affiliated real estate entities as any cash distributions from these investments are recorded through cash flows from investing activities.

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On March 30, 2012, our Board of Directors declared the quarterly distribution for the three-month period ended March 31, 2012 in the amount of $0.0019178 per share per day payable to stockholders of record on the close of business each day during the quarter, which is payable on April 13, 2012.

Our stockholders have the option to elect the receipt of shares in lieu of cash under our Distribution Reinvestment Program.

Recent Sales of Unregistered Securities

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

ITEM 6. SELECTED FINANCIAL DATA:

The following selected consolidated and combined financial data are qualified by reference to and should be read in conjunction with our Consolidated Financial Statements and Notes thereto and “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations” below. As discussed in Note 2 to the consolidated financial statements, the selected financial data presented below excludes three properties within our multi-family segment due to their classification as discontinued operations.

(In Thousands, Except Per Share Amounts)	2011			2010			2009			2008			2007
Operating Data:
Revenues	$	45,371		$	32,393		$	33,856		$	33,605		$	24,931
Gain on disposition of unconsolidated affiliated real estate entities		28,109			142,693			—			—			—
Loss from investments in affiliated real estate entities		(184	)		(12,096	)		(10,311	)		(3,357	)		(7,268	)
Net income/(loss) from continuing operations		8,109			122,879			(34,000	)		(26,144	)		(9,220	)
Net income/(loss) from discontinued operations		—			19,062			(32,104	)		(2,081	)		(22	)
Net income/(loss)		8,109			141,941			(66,104	)		(28,225	)		(9,242	)
Less: net (income)/loss attributable to noncontrolling interest		(2,509	)		(12,010	)		909			85			—
Net income/(loss) applicable to Company's common share	$	5,600		$	129,931		$	(65,195	)	$	(28,140	)	$	(9,242	)
Basic and diluted net income/(loss) per Company's common share
Continuing operations	$	0.18		$	3.49		$	(1.06	)	$	(1.15	)	$	(1.00	)
Discontinued operations		—			0.60			(1.02	)		(0.09	)		(0.01	)
Basic and diluted income/(loss) per Company's common shares	$	0.18		$	4.09		$	(2.08	)	$	(1.24	)	$	(1.01	)
Distributions declared for Company's common shares(1)	$	22,160		$	23,086		$	27,335		$	9,912		$	7,125
Weighted average common shares outstanding – basic and diluted		31,648			31,755			31,277			22,658			9,195
Balance Sheet Data:
Total assets	$	564,356		$	517,458		$	429,564		$	501,649		$	369,701
Long-term obligations		224,270			195,523			193,032			195,242			186,191
Liabilities disposed of		—			—			52,795			52,626			52,315
Company's stockholder's equity		228,689			244,031			131,702			214,513			100,112
Other financial data:
Funds from operations (FFO) attributable to Company's common shares(1)	$	(2,338	)	$	32,420		$	16,338		$	(7,000	)	$	4,866

(1) For more information about Funds from Operations, or FFO, and Modified Funds from Operations, or MFFO, please see “Funds from Operations and Modified Funds from Operations.”

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:

You should read the following discussion and analysis together with our consolidated financial statements and notes thereto included in this Annual Report on Form 10-K. The following information contains forward-looking statements, which are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, actual results may differ materially from those expressed or implied by the forward-looking statements. Please see “Special Note Regarding Forward-Looking Statements” above for a description of these risks and uncertainties. Dollar amounts are presented in thousands, except per share data and where indicated in millions.

Overview

Lightstone Value Plus Real Estate Investment Trust, Inc., (together with the Operating Partnership (as defined below), the “Company”, also referred to as “we”, “our” or “us” herein) has and may continue to acquire and operate in the future, commercial, residential and hospitality properties, principally in the United States. Our acquisitions are, principally through the Lightstone Value Plus REIT, LP, (the “Operating Partnership”), and may include both portfolios and individual properties. Our commercial holdings consist of retail (primarily multi-tenant shopping centers), lodging (primarily extended stay hotels), industrial and office properties and our residential properties are principally comprised of “Class B” multi-family complexes.

As discussed in Note 2 to the consolidated financial statements, the results of operations presented below exclude three properties within our multi-family segment due to their classification as discontinued operations.

We do not have employees. We entered into an advisory agreement dated April 22, 2005 with Lightstone Value Plus REIT LLC, a Delaware limited liability company, which we refer to as the “Advisor,” pursuant to which the Advisor supervises and manages our day-to-day operations and selects our real estate and real estate related investments, subject to oversight by our Board of Directors. We pay the Advisor fees for services related to the investment and management of our assets, and we reimburse the Advisor for certain expenses incurred on our behalf.

Beginning with the year ended December 31, 2006, we 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, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our ordinary taxable income to stockholders. As a REIT, we generally will not be subject to U.S. federal income tax on taxable income that we distribute to our stockholders. If we fail 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 U.S. federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to our stockholders. As of December 31, 2011, we continue to comply with the requirements for maintaining our REIT status.

To maintain our qualification as a REIT, we engage in certain activities such as providing real estate-related services through taxable REIT subsidiaries (“TRSs”). As such, we are subject to U.S. federal and state income and franchise taxes from these activities.

Acquisitions and Investment Strategy

We acquire fee interests in multi-tenant, 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 acquired or seek to acquire mid-scale, extended stay lodging properties and multi-tenant industrial properties located near major transportation arteries and distribution corridors; multi-tenant 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.

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Investments in real estate are 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.

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 2012 for our commercial as well as multi-family residential properties. In addition, the effect of the current economic downturn is having an impact on many retailers nationwide, including tenants of our commercial properties. There have been many national retail chains that have filed for bankruptcy. In addition to those who have filed, or may file, bankruptcy, many retailers have announced store closings and a slowdown in their expansion plans. For multi-family residential properties, in general, evictions have increased and requests for rent reductions and abatements are becoming more frequent.

U.S. and global credit and equity markets have recently undergone significant disruption, making it more difficult for many businesses to obtain financing on acceptable terms or at all. As a result of this disruption, in general there has been an increase in the costs associated with the borrowings and refinancing as well as limited availability of funds for refinancing. If these conditions continue or worsen, our cost of borrowing may increase and it may be more difficult to refinance debt obligations as they come due in the ordinary course. Our best course of action may be to work with existing lenders to renegotiate an interim extension until the credit markets improve.

During the year ended December 31, 2010, as a result of our defaulting on the debt related to three properties due to the properties no longer being economically beneficial to us, the lender foreclosed on these three properties. As a result of the foreclosure transactions, the debt associated with these three properties of $51.4 million was extinguished and the obligations were satisfied with the transfer of the properties’ assets and working capital and we no longer have any ownership interests in these three properties. The operating results of these three properties through their date of disposition have been classified as discontinued operations on a historical basis for all periods presented. The transactions resulted in a gain on debt extinguishment of $19.9 million of which $17.2 million was recorded during the second quarter of 2010 and $2.7 million was recorded during the fourth quarter of 2010. The gain on debt extinguishment is included in discontinued operations for the year ended December 31, 2010.

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-K.

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Dispositions of Investments in Unconsolidated Affiliated Real Estate Entities

Prime Outlets Acquisition Company (“POAC”)/Mill Run LLC (“Mill Run”) Transaction

On December 8, 2009, we, our Operating Partnership and Pro-DFJV Holdings LLC (“PRO”), a Delaware limited liability company and a wholly-owned subsidiary of ours (collectively, the “LVP Parties”) entered into a definitive agreement (“the “Contribution Agreement”) with Simon Property Group, Inc. (“Simon Inc.”), a Delaware corporation, Simon Property Group, L.P., a Delaware limited partnership (“Simon OP”), and Marco Capital Acquisition, LLC, a Delaware limited liability company (collectively, referred to herein as “Simon”) providing for the disposition of a substantial portion of our retail properties to Simon including our (i) St. Augustine Outlet Center, which is wholly owned, (ii) 40.0% aggregate interest in its investment in POAC, which includes 18 operating outlet center properties, Grand Prairie Holdings LLC (“GPH”) and Livermore Valley Holdings LLC (“LVH”), and (iii) 36.8% aggregate interests in its investment in Mill Run, which includes 2 operating outlet center properties. The terms of the Contribution Agreement were subsequently amended on June 28, 2010 providing for us to retain the St. Augustine Outlet center and our 40.0% aggregate interests in both GPH and LVH. Additionally, certain affiliates of our Sponsor were parties to the Contribution Agreement, pursuant to which they would dispose of their respective ownership interests in POAC and Mill Run and certain other outlet center properties, in which we had no ownership interests, to Simon. The transactions contemplated by the Contribution Agreement are referred to herein as the “POAC/Mill Run Transaction”.

On August 30, 2010, the POAC/Mill Run Transaction closed pursuant to which the LVP Parties disposed of their interests in investments in Mill Run and POAC, except for their interests in investments in both GPH and LVH, which were retained.

In connection with the POAC/Mill Run Transaction, we recognized a gain on disposition of approximately $142.7 million (consisting of $142.8 million of gain in the third quarter of 2010 offset by $0.1 million of additional transaction expenses incurred in the fourth quarter of 2010) in the consolidated statements of operations during 2010. We also initially deferred an additional $32.2 million of gain on the consolidated balance sheet consisting of the total of the (i) $1.9 million of Escrowed Cash and (ii) $30.3 million of Restricted Marco OP Units received as part of the Aggregate Consideration Value because realization of these items was subject to final adjustment. During the third quarter of 2011, we recognized an additional $2.8 million of gain on the POAC/Mill Run Transaction consisting of the full return of the Escrowed Cash, plus interest, to the Company and certain other items. As a result, the remaining deferred gain reflected on our consolidated balance sheet was $30.3 million as of December 31, 2011.

Outlet Centers Transaction

As discussed above, the Company, through its Operating Partnership and PRO, has an aggregate 40.0% interest in GPH and LVH, which holds ownership interests in various entities, including entities that are developing two outlet centers located in Grand Prairie, Texas (the “Grand Prairie Outlet Center”) and Livermore Valley, California (the “Livermore Valley Outlet Center”). The Grand Prairie Outlet Center, which will consist of approximately 418,000 square feet of GLA, is currently under construction and expected to open during the third quarter of 2012. The Livermore Valley Outlet Center, which will consist of approximately 511,000 square feet of GLA, is currently under construction and expected to open in the fourth quarter of 2012. The Company accounts for its ownership interests in GPH and LVH under the equity method of accounting in its consolidated financial statements. Certain affiliates of the Company’s Sponsor (the “Sponsor’s Affiliates”) own the remaining 60% interest in GPH and LVH.

On December 9, 2011, GPH, LVH and certain of their subsidiaries (collectively, the “Holdings Entities”) entered into definitive agreement (the “2011 Contribution Agreement”) with Simon OP, Simon Inc. and Marco II LP Units, LLC, a Delaware limited liability company (collectively, referred to herein as “Simon” with respect to the 2011 Contribution Agreement) providing for the immediate disposition of 50.0% of their interests in the Grand Prairie Outlet Center and the Livermore Outlet Center, respectively. The transactions contemplated by the 2011 Contribution Agreement are referred to herein as the “Outlet Centers Transaction”. Additionally, on December 9, 2011, certain joint venture agreements (collectively, the “Outlet Center JV Agreements”) were amended and restated with respect to the Grand Prairie Outlet Center and the Livermore Valley Outlet Center.

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On December 9, 2011, the Outlet Centers Transaction closed pursuant to which Holdings Entities disposed of 50.0% of their interests in investments in the Grand Prairie Outlet Center and the Livermore Valley Outlet Center.

In connection with the Outlet Centers Transaction, GPH and LVH recognized a combined gain on disposition of approximately $63.3 million during the fourth quarter of 2011. Because we account for our interests in GPH and LVH under the equity method of accounting, we recognized our pro rata share of the combined gain, or approximately $25.3 million, in our consolidated statements of operations during the fourth quarter of 2011.

Critical Accounting Estimates and Policies

General

Our consolidated financial statements, included in this annual report, include our accounts, the Operating Partnership (over which we exercise financial and operating control). All inter-company balances and transactions have been eliminated in consolidation.

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of our financial statements requires us to make estimates and judgments about the effects of matters or future events that are inherently uncertain. These estimates and judgments may affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

On an ongoing basis, we evaluate our estimates, including contingencies and litigation. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable in the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

To assist in understanding our results of operations and financial position, we have identified our critical accounting policies and discussed them below. These accounting policies are most important to the portrayal of our results and financial position, either because of the significance of the financial statement items to which they relate or because they require our management’s most difficult, subjective or complex judgments.

Revenue Recognition and Valuation of Related Receivables.

Our revenue, which is comprised largely of rental income, includes rents that tenants pay in accordance with the terms of their respective leases reported on a straight-line basis over the initial term of the lease. Since our leases may provide for rental increases at specified intervals, straight-line basis accounting requires us to record as an asset, and include in revenue, unbilled rent that we only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. Accordingly, we determine, in our judgment, to what extent the unbilled rent receivable applicable to each specific tenant is collectible. We review unbilled rent receivables on a quarterly basis and take into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collection of unbilled rent with respect to any given tenant is in doubt, we record an increase in our allowance for doubtful accounts or record a direct write-off of the specific rent receivable, which has an adverse effect on our net income for the year in which the allowance is increased or the direct write-off is recorded and decreases our total assets and stockholders’ equity. Revenues from the operations of the hotel are recognized when the services are provided. Other service income consists of revenues from food and beverage services, water park admissions and arcade income and is recognized when earned.

In addition, we will defer the recognition of contingent rental income, such as percentage rents, until the specific target which triggers the contingent rental income is achieved. Cost recoveries from tenants will be included in tenant reimbursement income in the period the related costs are incurred.

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Investments in Real Estate.

We record investments in real estate at cost and capitalize improvements and replacements when they extend the useful life or improve the efficiency of the asset. We expense costs of repairs and maintenance as incurred. We compute depreciation using the straight-line method over the estimated useful lives of our real estate assets, which are approximately 39 years for buildings and improvements, 5 to 10 years for equipment and fixtures and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.

We make subjective assessments as to the useful lives of our properties for purposes of determining the amount of depreciation to record on an annual basis with respect to our investments in real estate. These assessments have a direct impact on our net income because, if we were to shorten the expected useful lives of our investments in real estate, we would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.

We record assets and groups of assets and liabilities which comprise disposal groups as “held for sale” when all of the following criteria are met: a decision has been made to sell, the assets are available for sale immediately, the assets are being actively marketed at a reasonable price in relation to the current fair value, a sale has been or is expected to be concluded within twelve months of the balance sheet date, and significant changes to the plan to sell are not expected. The assets and disposal groups held for sale are valued at the lower of book value or fair value less disposal costs. Once assets are classified as held for sale, we cease recording depreciation expense on those assets. Additionally, we record the operating results and cash flows related to these assets and liabilities as discontinued operations in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows, respectively, for all periods presented, if the operations and cash flows of the disposal group is expected to be eliminated from ongoing operations as a result of the disposal and we will not have any significant continuing involvement in the operations of the disposal group after disposal.

When circumstances such as adverse market conditions indicate a possible impairment of the value of a property, we will review the recoverability of the property’s carrying value. The review of recoverability is based on our estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. Our forecast of these cash flows considers factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a property, we record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the property.

We make subjective assessments as to whether there are impairments in the values of our investments in real estate. We evaluate our ability to collect both interest and principal related to any real estate related investments in which we may invest. If circumstances indicate that such investment is impaired, we reduce the carrying value of the investment to its net realizable value. Such reduction in value will be reflected as a charge to operations in the period in which the determination is made.

Real Estate Purchase Price Allocation.

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, and certain liabilities such as assumed debt and contingent liabilities 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 operations. Transaction costs, which are incurred related to our investment in unconsolidated real estate entities accounted for under the equity method of accounting, are capitalized as part of the cost of the investment.

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Upon acquisition of real estate operating properties, we estimate the fair value of acquired tangible assets and identified intangible assets and liabilities and assumed debt and contingent liabilities at the date of acquisition, based upon an evaluation of information and estimates available at that date. Based on these estimates, we allocate the initial purchase price to the applicable assets, liabilities and noncontrolling interest, if any. As final information regarding fair value of the assets acquired and liabilities assumed and noncontrolling interest 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.

We allocate the purchase price of an acquired property to tangible assets based on the estimated fair values of those tangible assets assuming the building was vacant. We record above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) 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 including consideration of any bargain renewal periods. We amortize capitalized above-market lease values as a reduction of rental income over the remaining non-cancelable terms of the respective leases. We amortize any capitalized below-market lease values as an increase to rental income over the initial term and any fixed-rate or below-market renewal periods in the respective leases.

We measure the aggregate value of other intangible assets acquired based on the difference between (1) the property valued with existing in-place leases adjusted to market rental rates and (2) the property valued as if vacant. The fair value of in-place leases will include direct costs associated with obtaining a new tenant, opportunity costs associated with lost rentals which will be avoided by acquiring an in-place lease, and tenant relationships. Direct costs associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and will be estimated based upon independent appraisals and management’s consideration of current market costs to execute a similar leases. These direct costs will be included in intangible lease assets in the accompanying consolidated balance sheet and will be amortized over the remaining terms of the respective lease. The value of customer relationship intangibles will be amortized to expense over the initial term in the respective leases, but in no event will the amortization period for intangible assets exceed the remaining depreciable life of the building. Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.

We amortize the value of in-place leases to expense over the initial term of the respective leases. Currently, our leases range from one month to 11 years. The value of customer relationship intangibles will be amortized to expense over the initial term in the respective leases, but in no event will the amortization period for intangible assets exceed the remaining depreciable life of the building. Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.

Unconsolidated Affiliated Real Estate Entities.

We evaluate all joint venture arrangements for consolidation. We consider the percentage interest in the joint venture, evaluation of control and whether a variable interest entity (“VIE”) exists when determining if the investment qualifies for consolidation.

For those investments in affiliated real estate entities which do not meet the criteria for consolidation, we record these investments in unconsolidated real estate entities using the equity or cost method of accounting. Under the equity method, the investment is recorded initially at cost, and subsequently adjusted for equity in net income (loss) and cash contributions and distributions. The net income or loss of each investor is allocated in accordance with the provisions of the applicable operating agreements of the real estate entities. The allocation provisions in these agreements may differ from the ownership interest held by each investor. Differences between the carrying amount of our investment in the respective joint venture and our share of the underlying equity of such unconsolidated entities are amortized over the respective lives of the underlying assets as applicable. These items are reported as a single line item in the consolidated statements of operations as income or loss from investments in unconsolidated affiliated real estate entities. Under the cost method of

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accounting, the investment is recorded initially at cost, and subsequently adjusted for cash contributions and distributions resulting from any capital events. Dividends earned from the underlying entities are recorded as interest income.

On a quarterly basis, we assess whether the value of our investments in unconsolidated real estate entities has been impaired. An investment is impaired only if management’s estimate of the fair value of the investment is less than the carrying value of the investment, and such decline in value is deemed to be other than temporary. The ultimate realization of our investment in partially owned entities is dependent on a number of factors including the performance of that entity and market conditions. If we determine that a decline in the value of a partially owned entity is other than temporary, we record an impairment charge.

Accounting for Derivative Financial Investments and Hedging Activities.

We 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. We record all derivative instruments at fair value on the consolidated balance sheet.

Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, will be considered cash flow hedges. We 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. We will periodically review the effectiveness of each hedging transaction, which involves estimating future cash flows. Cash flow hedges will be accounted for by recording the fair value of the derivative instrument on the consolidated balance sheet as either an asset or liability, with a corresponding amount recorded in other comprehensive income (loss) within stockholders’ equity. Amounts will be reclassified from other comprehensive income (loss) to the consolidated statement of operations in the period or periods the hedged forecasted transaction affects earnings. Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, will be considered fair value hedges. The effective portion of the derivatives gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the transaction affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately. The change in fair value of derivative instruments which have not been formally documented as effective hedges will be reported as a gain or loss in other, net within the consolidated statement of operations.

Inflation

We will be exposed to inflation risk as income from long-term leases is expected to be the primary source of our cash flows from operations. 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, Expense Reimbursements and Operating Partnership Participation Interest

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 our period costs are expensed as incurred. Such fees include acquisition fees associated with the purchase of interests in affiliated real estate entities; asset management fees paid to our Advisor and property management fees paid to our Property Manager. These fees are expensed or capitalized to the basis of acquired assets, as appropriate.

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

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

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

Income Taxes

We elected to be taxed as a REIT in conjunction with the filing of our 2006 U.S. federal income tax return. If we remain qualified as a REIT, we generally will not be subject to U.S. federal income tax on our net taxable income that we distribute currently to our stockholders. To maintain our REIT qualification under the Internal Revenue Code of 1986, as amended, or the Code, we must meet a number of organizational and operational requirements, including a requirement that we annually distribute to our stockholders at least 90% of our REIT taxable income (which does not equal net income, as calculated in accordance with generally accepted accounting principles in the United States of America, or GAAP), determined without regard to the deduction for dividends paid and excluding any net capital gain. If we fail to remain qualified for taxation as a REIT in any subsequent year and do not qualify for certain statutory relief provisions, our income for that year will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as a REIT for the four-year period following our failure to qualify as a REIT. Such an event could materially adversely affect our net income and net cash available for distribution to our stockholders. As of December 31, 2011 and 2010, we had no material uncertain income tax positions and our net operating loss carry forward was $12.7 million. The tax years subsequent to and including 2008 remain open to examination by the major taxing jurisdictions to which we are subject. Additionally, even if we qualify as a REIT for U.S. federal income tax purposes, we may still be subject to some U.S. federal, state and local taxes on our income and property and to U.S. federal income taxes and excise taxes on our undistributed income.

To maintain our qualification as a REIT, we engage in certain activities through taxable REIT subsidiaries (“TRSs”). As such, we are subject to U.S. federal and state income and franchise taxes from these activities. For the year ended December 31, 2011, the tax provision recorded related to TRSs was approximately $23 and is included in other income, net in the consolidated statement of operations. For the years ended December 31, 2010 and 2009, there was no tax provision recorded.

Results of Operations

Our primary financial measure for evaluating each of our properties is net operating income (“NOI”). NOI represents rental income less property operating expenses, real estate taxes and general and administrative expenses. We believe 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 our properties.

Comparison of the year ended December 31, 2011 versus the year ended December 31, 2010

Consolidated

Revenues

Our revenues are comprised of rental revenues, tenant recovery income and other service income. Total revenues increased by approximately $13.0 million to $45.4 million for the year ended December 31, 2011 compared to $32.4 million for the same period in 2010. The increase reflects higher revenues in our (i) Hotel Hospitality Segment of $11.2 million, (ii) Retail Segment of $1.1 million and (iii) Multi-Family Residential Segment of $0.6 million. Revenues in our Industrial Segment remained relatively flat. See “Segment Results of Operations for the Year Ended December 31, 2011 compared to December 31, 2010” for additional information on revenues by segment.

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Property operating expenses

Property operating expenses increased by approximately $10.0 million to $22.1 million for the year ended December 31, 2011 compared to $12.1 million for the same period in 2010. The increase is primarily attributable to property operating expenses of approximately $9.6 million for the CP Boston Property, which was acquired on March 21, 2011 and $0.2 million on Everson Pointe, which was acquired on December 17, 2010.

Real estate taxes

Real estate taxes increased to $3.8 million for the year ended December 31, 2011 compared to $3.4 million in the same period in 2010. The increase is primarily attributable to CP Boston Property which was acquired on March 21, 2011.

Loss on long-lived assets

Loss on long-lived assets increased by approximately $7.2 million to $8.3 million for the year ended December 31, 2011 compared to $1.1 million for the same period in 2010. The loss of long-lived assets of $8.3 million during the year ended December 31, 2011 primarily represents an impairment charge within our Industrial Segment of approximately $8.3 million recorded in connection with the Sealy C portfolio. The loss of long-lived assets of $1.1 million during the year ended December 31, 2010 primarily represents an impairment charge within our Retail Segment recorded in connection with the transfer of our St. Augustine Outlet Center from held for sale to held and used during the second quarter of 2010.

General and administrative expenses

General and administrative increased by $0.5 million to $9.4 million for the year ended December 31, 2011 as compared to $8.9 million for the same period in 2010. This increase reflects higher acquisition fees and related costs in the 2011 period. partially offset by reduced asset management fees and audit fees in the 2011 period primarily resulting from the disposition of our interests in POAC and Mill Run during the third quarter of 2010.

Franchise cancellation expense

The Company incurred a franchise cancellation fee of approximately $1.2 million in the 2011 period related to management’s decision to rebrand the CP Boston Property. There was no franchise cancellation fee in the 2010 period.

Depreciation and amortization

Depreciation and amortization expense increased by approximately $1.8 million to $8.3 million for the year ended December 31, 2011 compared to $6.5 million during the same period in 2010. The increase in depreciation is primarily attributable to increases in our depreciable asset base during the 2011 period resulting from our acquisitions of Everson Pointe and the CP Boston Property plus the reclassification of our St. Augustine Outlet Center to held for use from held for sale during the second quarter of 2010.

Mark to market adjustment on derivative financial instrument

During the year ended December 31, 2011, we recorded a $13.9 million negative mark to market adjustment on derivative financial instrument reflecting an increase of $11.4 million compared to the same period in 2010. This decrease represents the change in the fair value of a collar entered into to protect the value of a portion of our Marco OP Units within a certain range.

Interest income

Interest income increased by approximately $10.4 million to $16.1 million for the year ended December 31, 2011 compared to $5.7 million for the same period in 2010. The increase is primarily attributable to the significant increase in our marketable equity securities during the 2011 period compared to the 2010 period. The increase also reflects approximately $1.4 million of interest income on the Second Mortgage Loan purchased by the Rego Park Joint Venture on April 12, 2011 and approximately $2.4 million of dividend income related to our Marco OP Units.

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Interest expense

Interest expense, including amortization of deferred financing costs, increased by approximately $0.7 million to $12.3 million for the year ended December 31, 2011 compared to $11.6 million for the same period in 2010. The increase is primarily attributable to the debt associated with Everson Pointe.

Gain on disposition of investments in unconsolidated affiliated real estate entities

We recognized an aggregate gain on disposition of unconsolidated affiliated real estate entities of approximately $28.1 million in our consolidated statements of operations during the year ended December 31, 2011. The 2011 aggregate gain consists of (i) $2.8 million gain recognized in the third quarter with respect to the POAC/Mill Run Transaction and (ii) $25.3 million gain recognized in the fourth quarter with respect to the Outlet Centers Transaction. During 2010 we recognized a net gain on disposition of unconsolidated affiliated real estate entities of approximately $142.7 million in the consolidated statements of operations during the year ended December 31, 2010. The 2010 net gain consists of (i) $142.8 million gain recognized in the third quarter with respect to the POAC/Mill Run Transaction and (ii) $0.1 million loss recognized in the fourth quarter with respect to the POAC/Mill Run Transaction.

Gain/(loss) on sale of marketable securities

Loss on sale of marketable securities was approximately $3.1 million during the year ended December 31, 2011 compared to a $0.2 million loss for the same period in 2010 primarily due to timing of sales of securities and the differences in adjusted cost basis compared to proceeds received upon sale.

Loss from investments in unconsolidated affiliated real estate entities

This account represents our portion of the earnings associated with our interests in investments in unconsolidated affiliated real estate entities which consists of our investments in POAC (which was disposed of on August 30, 2010), Mill Run (which was disposed of on August 30, 2010), 1407 Broadway, GPH and LVH. Our loss from investments in unconsolidated affiliated real estate entities decreased by approximately $11.9 million to $0.2 million for the year ended December 31, 2011 compared to $12.1 million during the same period in 2010. This decrease was primarily attributable to the disposition of our interests in POAC and Mill Run during the third quarter of 2010.

Noncontrolling interests

The net income allocated to noncontrolling interests relates to (i) the interests in the Operating Partnership held by our Sponsor as well as common units held by our limited partners, (ii) the interest in PRO held by our Sponsor, (iii) the 20.0% interest in the CP Boston Joint Venture held by Lightstone Value Plus Real estate Investment Trust II, Inc (“REIT II”), (iv) the 10.0% interest in the Rego Park Joint Venture held by REIT II and (iv) the 25.0% interest in the 50-01 2^nd Street Joint Venture held by our Sponsor.

Segment Results of Operations for the year ended December 31, 2011 versus the year ended December 31, 2010

Retail Segment

	For the Year Ended December 31,						Variance Increase/(Decrease)
	2011			2010			$		%
	(unaudited)
Revenues	$	12,027		$	10,889		$	1,138		10.5	%
NOI		7,980			6,782			1,198		17.7	%
Average Occupancy Rate for period		81.0	%		86.3	%				-5.3	%

Revenues in our Retail Segment increased approximately $1.1 million for the year ended December 31, 2011 compared to same period in 2010. The revenues for the 2011 period reflect an increase of approximately $1.4 million attributable to Everson Pointe, DePaul Plaza and Crowes Crossing, partially offset by a decrease of approximately $0.3 million for the St. Augustine Outlet Center, which was primarily due to slightly lower average occupancy during the 2011 period.

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NOI in our Retail Segment increased by approximately $1.2 million for the year ended December 31, 2011 compared to the same period in 2010. This increase is primarily attributable to the aforementioned increase in revenues in the 2011 period and a slight decrease in operating expenses of approximately $0.1 million in the 2011.

Multi-family Residential Segment

	For the Year Ended December 31,						Variance Increase/(Decrease)
	2011			2010			$		%
	(unaudited)
Revenues	$	12,178		$	11,592		$	586		5.1	%
NOI		5,269			4,776			493		10.3	%
Average Occupancy Rate for period		92.9	%		90.2	%				2.7	%

Revenues in our Multi-family Residential Segment increased by approximately $0.6 million for the year ended December 31, 2011 compared to the same period in 2010. This increase is primarily attributable to the higher average occupancy rate in the 2011 period.

NOI in our Multi-family Residential Segment increased by approximately $0.5 million for the year ended December 31, 2011 compared to the same period in 2010. This increase is primarily attributable to the aforementioned increase in revenues in the 2011 period.

Industrial Segment

	For the Year Ended December 31,						Variance Increase/(Decrease)
	2011			2010			$		%
	(unaudited)
Revenues	$	7,017		$	6,960		$	57		0.8	%
NOI		3,991			3,773			218		5.8	%
Average Occupancy Rate for period		85.6	%		61.8	%				23.8	%

Revenues in our Industrial Segment were relatively flat for the year ended December 31, 2011 compared to the same period in 2010. This increase in average occupancy rate did not lead to an increase in revenue due to certain incentives given in connection with new leasing activity during the 2011 period.

NOI in our Industrial Segment increased by approximately $0.2 million for the year ended December 31, 2011 compared to the same period in 2010 as a result of slightly lower operating expenses in the 2011 period.

Hotel Hospitality Segment

	For the Year Ended December 31,						Variance Increase/(Decrease)
	2011			2010			$		%
	(unaudited)
Revenues	$	14,149		$	2,952		$	11,197		379.3	%
NOI		1,969			1,111			858		77.2	%
Average Occupancy Rate for period		60.9	%		71.5	%				-10.6	%
Rev PAR	$	38.57		$	27.80		$	10.77		38.7	%

The revenues in our Hotel Hospitality Segment increased by approximately $11.2 million for the year ended December 31, 2011 compared to the same period in 2010. The increase for the 2011 period reflects rental revenues and other service income of approximately $4.5 million and $6.4 million, respectively, attributable to the CP Boston Property. Other service income consists of revenues of $3.5 million, $2.7 million and $0.2 million from food and beverage services, water park admissions and arcade income, respectively. The lower average occupancy rate and the increased Rev PAR during the 2011 period were primarily driven by the CP Boston Property.

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NOI in our Hotel Hospitality Segment increased by approximately $0.9 million for the year ended December 31, 2011 compared to the same period in 2010. This increase reflects the aforementioned increase in revenues substantially offset by additional operating expenses of approximately $10.3 million during the 2011 period. The increase in operating expenses consists of property operating expenses of $9.6 million attributable to the CP Boston Property.

Comparison of the year ended December 31, 2010 versus the year ended December 31, 2009

Consolidated

Revenues

Total revenues decreased by $1.5 million to $32.4 million for the year ended December 31, 2010 compared to $33.9 million for the same period in 2009. The decrease reflects declines in revenues in our (i) Retail segment of $0.1 million, (ii) Multi-Family Residential segment of $0.4 million, (iii) Industrial segment of $0.5 million and (iv) Hotel Hospitality segment of $0.5 million. See “Segment Results of Operations for the Year December 31, 2010 compared to December 31, 2009” for additional information on revenues by segment.

Property operating expenses

Property operating expenses decreased by $0.6 million to $12.1 million for the year ended December 31, 2010 compared to $12.7 million for the same period in 2009. The decrease is primarily due to a decrease of approximately $0.5 million in repairs and maintenance expense.

Real estate taxes

Real estate taxes remained relatively flat at $3.4 million for the year ended December 31, 2010 compared to $3.5 million for the same period in 2009.

Impairment of long-lived assets, net of (gain)/loss on disposal

Continuing Operations —

The impairment of long-lived assets, net of (gain)/loss on disposal of $1.1 million during the year ended December 31, 2010 primarily consists of an impairment charge of $1.2 million within our Retail Segment recorded in connection with the transfer of our St. Augustine Outlet Center from held for sale to held and used during the second quarter of 2010. An adjustment of $1.2 million was recorded to bring the St. Augustine Outlet Center’s assets balance to the lower of its carrying value net of any depreciation (amortization) expense that would have been recognized had the assets been continuously classified as held and used or the fair value on June 28, 2010.

The impairment of long-lived assets, net of (gain)/loss on disposal of $14.6 million during the year ended December 31, 2009 consisted of aggregate asset impairment charges of $14.9 million, partially offset by a $0.3 million gain on disposal of assets. The asset impairment charges primarily related to the impairment (i) within our Multi-Family Residential Segment of $12.9 million associated with two of the apartment communities (located in Charlotte and Greensboro, North Carolina) in our Camden Multi-Family Properties and (ii) $2.0 million within our Retail Segment associated with our Brazos Crossing Power Center. See discussion below under “Comparison of the year ended December 31, 2009 versus the year ended December 31, 2009” for additional information.

Discontinued Operations —

During the year ended December 31, 2009, we also recorded an impairment charge of $30.3 million related to three of the apartment communities (located in Tampa, Florida) within our Camden Multi-Family Properties which are included in discontinued operations because they were foreclosed on during 2010. See discussion below under “Comparison of the year ended December 31, 2009 versus the year ended December 31, 2008” for additional information.

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General and administrative expenses

General and administrative costs increased by $0.7 million to $8.9 million for the year ended December 31, 2010 compared to $8.2 million for the same period in 2009. The increase is primarily due to the following:

• $0.4 million in acquisition fees expensed related to the acquisition of Everson Pointe in December 2010, and.

• an increase of $0.3 million in accounting, legal and consulting services due to additional audit fees incurred during the year ended December 31, 2010 related to work performed on investments in unconsolidated affiliated real estate entities which were not part of the audit process for most of the same period in 2009.

Depreciation and amortization

Depreciation and amortization expense decreased by $2.0 million to $6.5 million for the year ended December 31, 2010 compared to $8.5 million for the same period in 2009 primarily due to a change in depreciation expense associated with the St. Augustine Outlet Center. During 2010, the St. Augustine Outlet Center was initially classified as held for sale and on June 28, 2010 this property was reclassified to held and used. The assets related to the St. Augustine Outlet Center were not depreciated during the period January 1 through June 28, 2010 because the St. Augustine Outlet Center was classified as held for sale. The depreciation expense recorded for the St. Augustine Outlet Center during the year ended December 31, 2010 was $1.5 million lower compared to the same period in 2009. In addition, a reduction in the depreciable asset base as a result of the aforementioned impairment charges recorded during the years ended December 31, 2010 and 2009 in our Multi-Family and Retail segments also contributed to the decline.

Mark to market adjustment on derivative financial instrument

During the year ended December 31, 2010, we recorded a $2.6 million negative mark to market adjustment on derivative financial instrument entered into to protect the value of a portion of our Marco OP Units within a certain range, which did not exist during the same period in 2009.

Interest income

Interest income increased by $1.5 million to $5.7 million for the year ended December 31, 2010 compared to $4.2 million for the same period in 2009 due to an increase in dividends and interest income earned on investments which were primarily the result of an increase in our investments during 2010 as a result of the Simon Transaction. In addition, the increase also reflects additional interest earned on related party loans of $0.6 million.

Interest expense

Interest expense, including amortization of deferred financing costs, was relatively consistent at $11.6 million for the years ended December 31, 2010 and 2009.

Gain on disposition of investments in unconsolidated affiliated real estate entities

During 2010 we disposed of certain of our interests in investment in unconsolidated affiliated real estate entities in connection with the completion of the Simon Transaction and recognized a gain on disposition of approximately $142.7 million in the consolidated statements of operations during the year ended December 31, 2010. We did not dispose of any of its interests in unconsolidated affiliated real estate entities during the year end December 31, 2009.

Gain/(loss) on sale of marketable securities

Gain/(loss) on sale of marketable securities decreased by $0.5 million to a $0.2 million loss for the year ended December 31, 2010 compared to a $0.3 million gain for the same period in 2009 primarily due to timing of sales of securities and the differences in adjusted cost basis compared to proceeds received upon sale.

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Other than temporary impairment — marketable securities

Other than temporary impairment — marketable securities decreased by $3.4 million to zero during the year ended December 31, 2010 compared to $3.4 million charge during the same period in 2009. During the year ended December 31, 2009, we recorded a non-cash charge of $3.4 million related to a decline in value of certain investment securities which were determined to be other than temporary. During the year ended December 31, 2010 we did not have a similar impairment charge.

Loss from investments in unconsolidated affiliated real estate entities

This account represents our portion of the net earnings associated with our interests in investments in unconsolidated affiliated real estate entities which consisted of our investments in POAC, Mill Run and 1407 Broadway. Our loss from investments in unconsolidated affiliated real estate entities increased by $1.8 million to $12.1 million for the year ended December 31, 2010 compared to $10.3 million during the same period in 2009.

This increase was primarily due to (i) a higher net allocated loss from POAC and Mill Run of approximately $2.1 million (which also reflects $9.6 million of POAC/Mill Run Transaction divestiture costs) and (ii) an increase in allocated loss from 1407 Broadway of $1.3 million, partially offset by a $1.6 million decrease in depreciation expense associated with the difference in our cost of the POAC and Mill investments in excess of their historical net book values. Our equity earnings in unconsolidated affiliated real estate entities were also significantly impacted by the timing of acquisitions and dispositions of our ownership interests in POAC and Mill Run during the 2009 and 2010 periods, respectively.

Net income/(loss) from discontinued operations

Net income from discontinued operations for the year ended December 31, 2010 was approximately $19.1 million compared to a net loss from discontinued operations of $32.1 million for the year ended December 31, 2009. The net income/(loss) from discontinued operations is comprised of the results of operations from three apartment communities in our Camden Multi-Family Properties which were disposed of through foreclosure during the year ended December 31, 2010. The results of operations for these three apartment communities are classified as discontinued operations in all periods presented. The net income from discontinued operations for the year ended December 31, 2010, includes a gain on debt extinguishment of approximately $19.9 million, which did not occur during the same period in 2009. The net loss from discontinued operations for the year ended December 31, 2009 includes the aforementioned asset impairment charge of $30.3 million compared to $0.3 million loss on disposal recorded during the same period in 2010.

Noncontrolling interests

The net income/(loss) allocated to noncontrolling interests relates to (i) the interests in the Operating Partnership held by our Sponsor as well as common units held by our limited partners and (ii) the interest in PRO held by our Sponsor.

Segment Results of Operations for the Year Ended December 31, 2010 compared to December 31, 2009

Retail Segment

	For the Year Ended December 31,						Variance Increase/(Decrease)
	2010			2009			$			%
Revenues	$	10,889		$	10,970		$	(81	)		-0.7	%
NOI		6,782			6,351			431			6.8	%
Average Occupancy Rate for period		86.3	%		90.0	%					-4.1	%

Revenues were stable during the year ended December 31, 2010 compared to same period in 2009. The slight decrease of $0.1 million is attributable to a decline in occupancy at one of our centers due to the expiration of a lease agreement during 2010.

NOI increased by approximately $0.4 million for the year ended December 31, 2010 compared to the same period in 2009. Lower salary, leasing-related expenses as well as a reduction in repairs and maintenance costs were offset slightly by the decrease in revenues discussed above.

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Multi-Family Residential Segment

	For the Year Ended December 31,						Variance Increase/(Decrease)
	2010			2009			$			%
Revenues	$	11,592		$	11,972		$	(380	)		-3.2	%
NOI		4,776			4,882			(106	)		-2.2	%
Average Occupancy Rate for period		90.2	%		89.6	%					0.7	%

Revenues decreased by approximately $0.4 million for the year ended December 31, 2010 compared to the same period in 2009. This decline reflects the continued negative impact of the current economic environment which has (i) led to us offering approximately $0.2 million of additional rent abatements to assist current tenants and attract new tenants and (ii) forced us to be less aggressive by approximately $0.1 million with respect to additional resident charges.

NOI decreased by approximately $0.1 million during the year ended December 31, 2010 compared to the same period in 2009. This decrease is primarily due to the decrease in revenues discussed above, partially offset by lower bad debt expense of approximately $0.2 million during 2010 compared to 2009.

Industrial Segment

	For the Year Ended December 31,						Variance Increase/(Decrease)
	2010			2009			$			%
Revenues	$	6,960		$	7,445		$	(485	)		-6.5	%
NOI		3,773			4,513			(740	)		-16.4	%
Average Occupancy Rate for period		61.8	%		65.1	%					-5.1	%

Revenue decreased by approximately $0.5 million for the year ended December 31, 2010 compared to the same period in 2009. This decrease is attributable to the decline in our average occupancy rate due to turnover of small business tenants, which have been negatively impacted by the current economic environment.

NOI decreased by approximately $0.7 million for the year ended December 31, 2010 compared to the same period in 2009. This decrease reflects the revenues decline discussed above and higher property operating expenses associated with roof repair, painting and insurance premiums.

Hotel Hospitality Segment

	For the Year Ended December 31,						Variance Increase/(Decrease)
	2010			2009			$			%
Revenues	$	2,952		$	3,470		$	(518	)		-14.9	%
NOI		1,111			1,384			(273	)		-19.7	%
Average Occupancy Rate for period		71.5	%		69.2	%					3.3	%
Average Revenue per Available Room for period	$	27.80		$	32.20		$	(4.40	)		-13.7	%

Revenues decreased by approximately $0.5 million for the year ended December 31, 2010 compared to same period in 2009. Although we experienced an increase in our average occupancy rate, the impact was mitigated by the decline in our average revenue per available room (“Rev PAR”). The decline in Rev PAR is attributable to a higher percentage of rooms occupied under longer term stays, which typically earn a lower rate than short term stays. Additionally, one of our hotels had a hot water maintenance issue during the 2010 period, which impacted its number of stays.

NOI decreased by approximately $0.3 million for the year ended December 31, 2010 compared to the same period in 2009. This decrease reflects the decrease in revenues discussed above partially offset by lower property operating expenses mainly attributable to reduced repairs and maintenance costs compared to 2009.

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Financial Condition, Liquidity and Capital Resources

Overview:

Rental revenue and borrowings are our principal source of funds to pay operating expenses, scheduled debt service, capital expenditures and distributions, excluding non-recurring capital expenditures.

We expect to meet our short-term liquidity requirements generally through working capital and proceeds from our distribution reinvestment program 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 $224.3 million of outstanding mortgage debt. We intend to limit our aggregate long-term permanent borrowings to 75% of the aggregate fair market value of all properties unless any excess borrowing is approved by a majority of the independent directors and is disclosed to our stockholders. We may also incur short-term indebtedness, having a maturity of two years or less.

Our charter provides that the aggregate amount of borrowing, both secured and unsecured, may not exceed 300% of net assets in the absence of a satisfactory showing that a higher level is appropriate, the approval of our Board of Directors and disclosure to stockholders. Net assets means our total assets, other than intangibles, at cost before deducting depreciation or other non-cash reserves less our total liabilities, calculated at least quarterly on a basis consistently applied. Any excess in borrowing over such 300% of net assets level must be approved by a majority of our independent directors and disclosed to our stockholders in our next quarterly report to stockholders, along with justification for such excess. As of December 31, 2011, our total borrowings represented 85.6% of net assets.

Our borrowings consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. We typically have obtained level payment financing, meaning that the amount of debt service payable would be substantially the same each year. As such, most of the mortgages on our properties provide for a so-called “balloon” payment and are at a fixed interest rate.

Any future properties that we may acquire may be funded through a combination of borrowings and the proceeds received from the disposition of certain of our retail assets. These borrowings may consist of single-property mortgages as well as mortgages cross-collateralized by a pool of properties. Such mortgages may be put in place either at the time we acquire a property or subsequent to our purchasing a property for cash. In addition, we may acquire properties that are subject to existing indebtedness where we choose to assume the existing mortgages. Generally, though not exclusively, we intend to seek to encumber our properties with debt, which will be on a non-recourse basis. This means that a lender’s rights on default will generally be limited to foreclosing on the property. However, we may, at our discretion, secure recourse financing or provide a guarantee to lenders if we believe this may result in more favorable terms. When we give a guaranty for a property owning entity, we will be responsible to the lender for the satisfaction of the indebtedness if it is not paid by the property owning entity.

We may also obtain lines of credit to be used to acquire properties. These lines of credit will be at prevailing market terms and will be repaid from 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.

In addition to meeting working capital needs and distributions to our stockholders, our capital resources are used to make certain payments to our Advisor and our Property Manager, included payments related to asset acquisition fees and asset management fees, the reimbursement of acquisition related expenses to our Advisor and property management fees. We also reimburse our Advisor and its affiliates for actual expenses it incurs for administrative and other services provided to us. Additionally, the Operating Partnership may be required to make distributions to Lightstone SLP, LLC, an affiliate of the Advisor.

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The following table represents the fees incurred associated with the payments to our Advisor and our Property Manager:

	For the Year Ended
	December 31, 2011		December 31, 2010		December 31, 2009
Acquisition fees	$	1,929	$	279	$	16,657
Asset management fees		1,995		4,521		4,541
Property management fees		1,327		1,475		1,812
Acquisition expenses reimbursed to Advisor		242		1		903
Development fees and leasing commissions		650		267		270
Total	$	6,143	$	6,543	$	24,183

Our charter states that our operating expenses, excluding offering costs, property operating expenses and real estate taxes, as well as acquisition fees and non cash related items (“Qualified Operating Expenses”) are to be less than the greater of 2% of our average invested net assets or 25% of net income. For the year ended December 31, 2011, our Qualified Operating Expenses were less than the greater of 2% of our average invested net assets or 25% of net income.

In addition, our charter states that our acquisition fees and expenses shall not exceed 6% of the contract price or in the case of a mortgage, 6% of funds advanced unless approved by a majority of the independent directors. For the year ended December 31, 2011, the acquisition fees and acquisition expenses were less than 6% of the contract price.

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:

	Year Ended December 31, 2011			Year Ended December 31, 2010			Year Ended December 31, 2009
Cash flows provided by (used in) operating activities	$	12,700		$	6,815		$	1,378
Cash flows used in investing activities		344			39,637			(11,466	)
Cash flows (used in)/provided by financing activities		(5,837	)		(39,210	)		(38,941	)
Net change in cash and cash equivalents		7,207			7,242			(49,029	)

Our principal sources of cash flow are derived from the operation of our rental properties as well as loan proceeds and distributions received from affiliates. We intend that our properties will provide a relatively consistent stream of cash flow that provides us with resources to fund operating expenses, debt service and quarterly dividends.

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

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Operating activities

Net cash flows provided by operating activities of $12.7 million for the year ended December 31, 2011 consists primarily of cash inflows from our net income of $8.1 million after adjustment of approximately $4.6 million for non-cash items;

Investing activities

The net cash provided by investing activities of $0.3 million the year ended December 31, 2011 consists primarily of the following:

• purchases of investments in investment property, mortgages and joint ventures of approximately $103.3 million and proceeds from the disposition of joint venture interests of $33.4 million;

• proceeds from the sale of marketable securities of $171.5 million and the purchase of $98.9 million of marketable securities;

Financing activities

The net cash used by financing activities of approximately $5.8 million for the year ended December 31, 2011 is primarily related to the following:

• distributions to our common shareholders of $14.1 million and common share redemptions of $25.8 million made pursuant to our share redemption program and tender offer;

• distributions to our noncontrolling interests of $9.6 million and contributions from our noncontrolling interests of $9.4 million;

• Proceeds from mortgages and margin loans of $17.8 million; and

• debt principal payments $2.6 million.

CP Boston Property Improvements

The CP Boston Property was purchased “as is” and we are currently renovating and improving the property. During 2011 we spent approximately $1.1 million on renovations and improvements and it is expected that approximately $15.4 million of additional renovations and improvements will be completed during 2012.

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

Contractual Obligations

The following is a summary of our contractual obligations outstanding over the next five years and thereafter as of December 31, 2011.

Contractual Obligations	2012		2013		2014		2015		2016		Thereafter		Total
Mortgage Payable	$	41,379	$	2,600	$	29,044	$	6,864	$	69,179	$	75,204	$	224,270
Interest Payments(1)		12,203		10,637		10,481		8,876		6,534		619		49,350
Total Contractual Obligations	$	53,582	$	13,237	$	39,525	$	15,740	$	75,713	$	75,823	$	273,620

(1) These amounts represent future interest payments related to mortgage payable obligations based on the fixed and variable interest rates specified in the associated debt agreement. 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 December 31, 2011 was used.

We have access to a margin loan from a financial institution that holds custody of certain of the Company’s marketable securities. The amount outstanding under this margin loan was $20.4 million as of December 31, 2011, and is due on demand.

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Certain of our debt agreements require the maintenance of certain ratios, including debt service coverage. We currently are in compliance with all of our debt covenants, with the exception of certain debt service coverage ratios during 2 quarters in 2010 and all 4 quarters of 2011 on the debt associated with the Gulf Coast Industrial Portfolio.

Under the terms of the loan agreement for the Gulf Coast Industrial Portfolio, the lender has elected to retain all excess cash flow from the associated properties because of the aforementioned noncompliance. Through the date of this filing, notwithstanding the fact that the lender has taken such action, we are current with respect to regularly scheduled debt service payments on the loan. Additionally, we believe that the lender’s election to retain all excess cash flow from the associated properties, will not have a material impact on our results of operations or financial position.

Funds from Operations and Modified Funds from Operations

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, Inc., or NAREIT, an industry trade group, has promulgated a measure known as funds from operations, or FFO, which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to net income or loss as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, or the White Paper. In the fourth quarter of 2011 and the first quarter of 2012, NAREIT issued updated guidance on FFO and modified its definition of FFO to specifically exclude real estate impairment losses, including the pro rata share of such losses of unconsolidated subsidiaries. As a result, NAREIT’s White Paper now defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property and asset impairment writedowns, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO. To the extent applicable, NAREIT requested companies restate prior period FFO to conform to the new definition. Accordingly, we have restated our FFO for the years ended December 31, 2010 and 2009 to exclude real estate impairment losses aggregating $1.2 million and $45.2 million respectively. Our FFO calculation complies with NAREIT’s policy described above.

The historical accounting convention used for real estate assets requires depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Additionally, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions which can change over time. An asset will only be evaluated for impairment if certain impairment indications exist and if the carrying, or book value, exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and the relatively limited term of our operations, it could be difficult to recover any impairment charges. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate-related depreciation and amortization and

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impairments, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. However, FFO and MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.

Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that were put into effect in 2009 and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT’s definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses for all industries as items that are expensed under GAAP, that are typically accounted for as operating expenses. Management believes these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start up entities may also experience significant acquisition activity during their initial years, we believe that non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases. We will use the proceeds raised in our offering to acquire properties, and we intend to begin the process of achieving a liquidity event (i.e., listing of our common stock on a national exchange, a merger or sale of the company or another similar transaction) within seven to ten years after August 2009, when the proceeds from our initial public offering were fully invested. Thus, we will not continuously purchase assets and will have a limited life. Due to the above factors and other unique features of publicly registered, non-listed REITs, the Investment Program Association, or IPA, an industry trade group, has standardized a measure known as modified funds from operations, or MFFO, which the IPA has recommended as a supplemental measure for publicly registered non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring our properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our offering has been completed and our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our offering and acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. Investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on our operating performance during the periods in which properties are acquired.

We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the Practice Guideline, issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; nonrecurring gains or

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losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, nonrecurring unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. While we are responsible for managing interest rate, hedge and foreign exchange risk, we do retain an outside consultant to review all our hedging agreements. Inasmuch as interest rate hedges are not a fundamental part of our operations, we believe it is appropriate to exclude such non-recurring gains and losses in calculating MFFO, as such gains and losses are not reflective of ongoing operations.

Our MFFO calculation complies with the IPA’s Practice Guideline described above. In calculating MFFO, we exclude acquisition related expenses, amortization of above and below market leases, fair value adjustments of derivative financial instruments, deferred rent receivables and the adjustments of such items related to noncontrolling interests. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income. These expenses are paid in cash by us, and therefore such funds will not be available to distribute to investors. All paid and accrued acquisition fees and expenses negatively impact our operating performance during the period in which properties are acquired and will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. Therefore, MFFO may not be an accurate indicator of our operating performance, especially during periods in which properties are being acquired. MFFO that excludes such costs and expenses would only be comparable to non-listed REITs that have completed their acquisition activities and have similar operating characteristics as us. Further, under GAAP, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments of derivatives and gains and losses from dispositions of assets as non-recurring items or items which are unrealized and may not ultimately be realized, and which are not reflective of ongoing operations and are therefore typically adjusted for when assessing operating performance. The purchase of properties, and the corresponding expenses associated with that process, is a key operational feature of our business plan to generate operational income and cash flows in order to make distributions to investors. Acquisition fees and expenses will not be reimbursed by the advisor if there are no further proceeds from the sale of shares in our offering, and therefore such fees and expenses will need to be paid from either additional debt, operational earnings or cash flows, net proceeds from the sale of properties or from ancillary cash flows.

Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-listed REITs which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures is useful to investors. For example, acquisition costs are funded from the proceeds of our offering and other financing sources and not from operations. By excluding expensed acquisition costs, the use of MFFO provides information consistent with management’s analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

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Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. MFFO has limitations as a performance measure in an offering such as ours where the price of a share of common stock is a stated value and there is no net asset value determination during the offering stage and for a period thereafter. MFFO is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete and net asset value is disclosed. FFO and MFFO are not useful measures in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO or MFFO.

Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO.

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The below table illustrates the items deducted in the calculation of FFO and MFFO. Items are presented net of non-controlling interest portions where applicable.

	For the years Ended
	December 31, 2011			December 31, 2010			December 31, 2009
Net income/(loss)	$	8,109		$	141,941		$	(66,104	)
FFO adjustments:
Depreciation and amortization:
Depreciation and amortization of real estate assets		8,349			6,546			8,516
Equity in depreciation and amortization for unconsolidated affiliated real estate entities		2,919			25,393			28,059
Impairment loss on long-lived assets		8,319			1,124			14,625
Adjustments to equity in earnings from unconsolidated entities, net		(1,512	)		—			—
Gain on disposal of investment property		—			(70	)		(238	)
Gain on disposal of investment property of unconsolidated affiliated real estate entities		—			(4	)		(121	)
Gain on disposal of unconsolidated affiliated real estate entities		(28,109	)		(142,693	)		—
Discontinued operations:
Depreciation and amortization of real estate assets		—			363			1,228
Impairment loss on long-lived assets		—			69			30,574
Loss on disposal of investment property		—			300			—
FFO		(1,925	)		32,969			16,539
MFFO adjustments:
Noncash adjustments:
Amortization of above and below market leases		(327	)		(293	)		(633	)
Gain on debt extinguishment		—			(19,903	)		—
Straight-line rent adjustment(2)		(748	)		(2,290	)		(2,633	)
Mark to market adjustment on derivative financial instruments		13,943			2,560			—
Amortization of discount on debt investment		(1,367	)		—			—
Other than temporary impairment – marketable securities		—			—			3,373
Gain/(loss) on sale of marketable securities		3,060			167			(344	)
Total non cash adjustments		14,561			(19,759	)		(237	)
Other adjustments:
Acquisition and other transaction related costs		5,361			12,663			3,371
MFFO	$	17,997		$	25,873		$	19,673
Net income/(loss)	$	8,109		$	141,941		$	(66,104	)
Less: income attributable to noncontrolling interests		(2,509	)		(12,010	)		—
Net income/(loss) applicable to company's common shares	$	5,600		$	129,931		$	(66,104	)
Net income/(loss) per common share, basic and diluted	$	0.18		$	4.09		$	(2.11	)
FFO	$	(1,925	)	$	32,969		$	16,539
Less: FFO attributable to noncontrolling interests		(413	)		(549	)		(201	)
FFO attributable to company's common shares	$	(2,338	)	$	32,420		$	16,338
FFO per common share, basic and diluted	$	(0.07	)	$	1.02		$	0.52
MFFO	$	17,997		$	25,873		$	19,673
Less: MFFO attributable to noncontrolling interests		(966	)		(437	)		(286	)
MFFO attributable to company's common shares	$	17,031		$	25,436		$	19,387
Weighted average number of common shares outstanding, basic and diluted		31,648			31,755			31,277

(1) Straight-line rent adjustment includes straight-line rent for wholly owned subsidiaries in continuing operations of $0.4 million, $0.6 million and $0.2 million; as well as, straight-line rent from unconsolidated entities of $0.3 million, $1.7 million and $2.4 million for the years ended December 31, 2011, 2010 and 2009, respectively.

(2) Acquisitions/divestiture costs expenses include divestiture costs of $12.2 million and $3.4 million for the years ended December 31, 2010 and 2009, respectively, associated from unconsolidated entities and are included in the Company’s loss on investments on unconsolidated affiliated real estate entities. These costs are associated with the closing of the Simon Transaction.

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The table below presents our cumulative distributions paid and cumulative FFO:

	From inception through December 31, 2011
FFO	$	45,625
Distributions	$	85,173

For the year ended December 31, 2011, we paid distributions of $22.2 million, including $14.8 million of distributions paid in cash and $7.4 million of distributions reinvested through our dividend reinvestment plan. FFO for the year ended December 31, 2011 was ($2.3) million and cash flow from operations was $12.7 million. See the reconciliation of FFO to net income (loss) above.

Information Regarding Dilution

In connection with the ongoing offering of shares of our common stock under out DRIP, we are providing information about our net tangible book value per share. Our net tangible book value per share is a mechanical calculation using amounts from our audited balance sheet, and is calculated as (1) total book value of our assets (2) minus total liabilities, (3) divided by the total number of shares of common stock outstanding. It assumes that the value of real estate, and real estate related assets and liabilities diminish predictably over time as shown through the depreciation and amortization of real estate investments. Real estate values have historically risen or fallen with market conditions. Net tangible book value is used generally as a conservative measure of net worth that we do not believe reflects our estimated fair value per share. It is not intended to reflect the value of our assets upon an orderly liquidation of the company in accordance with our investment objectives. Our net tangible book value reflects dilution in the value of our common stock from the issue price as a result of (i) operating losses, which reflect accumulated depreciation and amortization of real estate investments and (ii) the funding of distributions from sources other than our cash flow from operations. As of December 31, 2011, our net tangible book value per share was $8.82. On March 9, 2012, in conjunction with our estimate of the value of a share of our common stock as of December 31, 2011 for purposes of ERISA, our Board of Directors confirmed the purchase price under our distribution reinvestment program as $10.12 per common share, which is a 5% discount to the estimated value per share of common stock of $10.65 as of December 31, 2011.

Our offering price under out DRIP was not established on an independent basis and bears no relationship to the net value of our assets. Further, even without depreciation in the value of our assets, the other factors described above with respect to the dilution in the value of our common stock are likely to cause our offering price to be higher than the amount you would receive per share if we were to liquidate at this time.

New Accounting Pronouncements

See Note 2 of the notes to consolidated financial statements for further information of certain accounting standards that have been adopted during 2011 and certain accounting standards that we have not yet been required to implement and may be applicable to our future operations.

Subsequent Events

See Note 21 of the notes to consolidated financial statements for further information related to subsequent events.

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ITEM 7A. 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 December 31, 2011, we had one interest rate cap outstanding with an insignificant intrinsic value.

We also hold equity and debt securities for general investment return purposes. We regularly review the market prices of these investments for impairment purposes. In order to manage risk related to changes in the price of Simon Stock, in October and November of 2010, we entered into a hedge, structured as a collar) on 527,803 (75% of our total Marco OP Units) of our Marco OP Units. As of December 31, 2011, a hypothetical adverse 10% movement in market values (after taking into consideration the effect of out collar) would result in a hypothetical loss in fair value of approximately $15.0 million.

The following table shows the mortgage payable obligations maturing during the next five years and thereafter at December 31, 2011:

	2012		2013		2014		2015		2016		Thereafter		Total		Estimated Fair Value
Mortgages Payable	$	41,379		2,600		29,044		6,864		69,179		75,204	$	224,270	$	224,383
Marco OP Units Collar:
Notional Amount		527,803		Units											$	(10,855	)
Average Cap (Highest)	$	109.49
Average Floor (Lowest)	$	90.32

As of December 31, 2011, approximately $32.2 million, or 14%, of our debt, are variable rate instruments and our interest expense associated with these instruments is, therefore, subject to changes in market interest rates. A 1% adverse movement (increase in LIBOR or Prime rate) would increase annual interest expense by approximately $0.3 million.

The fair value of the mortgage payable as of December 31, 2011 was approximately $224.4 million compared to the book value of approximately $224.3 million. The fair value of the mortgage payable as of December 31, 2010 was approximately $197.6 million compared to the book value of approximately $195.5 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 December 31, 2011, 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.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Lightstone Value Plus Real Estate Investment Trust, Inc. and Subsidiaries
(a Maryland corporation)

Index

	Page
Reports of Independent Registered Public Accounting Firms		84
Financial Statements:
Consolidated Balance Sheets as of December 31, 2011 and 2010		86
Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009		87
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for the years ended December 31, 2011, 2010 and 2009		88
Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009		89
Notes to Consolidated Financial Statements		90
Real Estate and Accumulated Depreciation (Schedule III)		137

Schedules not filed:

All schedules other than the one listed in the Index have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.

83

Report of Independent Registered Public Accounting Firm

The Board and Stockholders
Lightstone Value Plus Real Estate Investment Trust, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Lightstone Value Plus Real Estate Investment Trust, Inc. and Subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity and comprehensive income and cash flows for each of the years in the two-year period ended December 31, 2011. The consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lightstone Value Plus Real Estate Investment Trust, Inc. and Subsidiaries as of December 31, 2011 and 2010, and the consolidated results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.

In connection with our audits of the consolidated financial statements referred to above, we also audited Schedule III — Real Estate and Accumulated Depreciation as of December 31, 2011. In our opinion, this financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information stated therein.

We also have audited the adjustments to the 2009 consolidated statements of operations, stockholders’ equity and comprehensive income and cash flows to retrospectively apply the change in accounting for discontinued operations, as described in Note 10. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2009 consolidated financial statements of the Company other than with respect to the adjustments and accordingly, we do not express an opinion or any other assurance on the 2009 consolidated financial statements taken as a whole.

/s/ EisnerAmper LLP

Edison, New Jersey
March 30, 2012

84

Report of Independent Registered Public Accounting Firm

The Board and Stockholders
Lightstone Value Plus Real Estate Investment Trust, Inc. and Subsidiaries

We have audited, before the effects of the adjustments to retrospectively apply the change in accounting for discontinued operations as described in Note 10, the accompanying consolidated statements of operations, stockholders’ equity and comprehensive income and cash flows for the year ended December 31, 2009 (the 2009 financial statements before the effects of the adjustments discussed in Note 10 are not presented herein). These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated 2009 financial statements, before the effects of the adjustments to retrospectively apply the change in accounting described in Note 10, present fairly, in all material respects, the consolidated results of operations and cash flows of Lightstone Value Plus Real Estate Investment Trust, Inc. and Subsidiaries for the year ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting for discontinued operations as described in Note 10, and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by EisnerAmper LLP.

/s/ Amper, Politziner & Mattia, LLP

Edison, New Jersey
March 30, 2010

85

PART II. CONTINUED:

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, CONTINUED:

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)

	As of December 31, 2011			As of December 31, 2010
Assets
Investment property:
Land and improvements	$	86,953		$	51,481
Building and improvements		218,647			207,228
Furniture and fixtures		3,459			1,704
Construction in progress		1,688			266
Gross investment property		310,747			260,679
Less accumulated depreciation		(22,278	)		(16,883	)
Net investment property		288,469			243,796
Investments in unconsolidated affiliated real estate entities		14,780			14,890
Cash and cash equivalents		31,525			24,318
Marketable securities, available for sale		103,174			172,379
Restricted marketable securities, available for sale		47,256			33,946
Restricted escrows		33,543			16,028
Tenant accounts receivable (net of allowance for doubtful accounts of $173 and $367, respectively)		2,495			1,548
Mortgages receivable		31,062			—
Intangible assets, net		1,475			1,796
Interest receivable from related parties		2,269			1,950
Prepaid expenses and other assets		8,308			6,807
Total Assets	$	564,356		$	517,458
Liabilities and Stockholders’ Equity
Mortgages payable	$	224,270		$	195,523
Margin loan		20,400			—
Accounts payable and accrued expenses		17,608			4,685
Due to sponsor		751			301
Loans due to affiliates		476			1,493
Tenant allowances and deposits payable		1,329			880
Distributions payable		5,557			5,604
Deferred rental income		964			1,285
Acquired below market lease intangibles, net		400			548
Deferred gain on disposition		30,287			32,176
Total Liabilities		302,042			242,495
Commitments and contingencies (See Note 20)
Stockholders’ equity:
Company’s Stockholders Equity:
Preferred shares, $0.01 par value, 10,000 shares authorized, none outstanding		—			—
Common stock, $.01 par value; 60,000 shares authorized, 29,747 and 31,614 shares issued and outstanding in 2011 and 2010, respectively		297			316
Additional paid-in-capital		263,558			281,733
Accumulated other comprehensive income		24,252			4,840
Accumulated distributions in excess of net earnings		(59,418	)		(42,858	)
Total Company’s stockholders’ equity		228,689			244,031
Noncontrolling interests		33,625			30,932
Total Stockholders’ Equity		262,314			274,963
Total Liabilities and Stockholders’ Equity	$	564,356		$	517,458

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

86

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)

	For the Years Ended December 31,
	2011			2010			2009
Revenues:
Rental income	$	33,729		$	27,710			29,387
Tenant recovery income		5,254			4,683			4,469
Other service income		6,388			—			—
Total revenues		45,371			32,393			33,856
Expenses:
Property operating expenses		22,103			12,135			12,688
Real estate taxes		3,843			3,373			3,513
Impairment loss on long-lived assets		8,319			1,124			14,625
General and administrative costs		9,371			8,863			8,226
Franchise cancellation expense		1,235			—			—
Depreciation and amortization		8,349			6,546			8,516
Total operating expenses		53,220			32,041			47,568
Operating (loss)/income		(7,849	)		352			(13,712	)
Other income, net		1,182			568			457
Mark to market adjustment on derivative financial instruments		(13,943	)		(2,560	)		—
Interest income		16,148			5,678			4,200
Interest expense		(12,294	)		(11,589	)		(11,604	)
Gain on disposition of unconsolidated affiliated real estate entities		28,109			142,693			—
Other than temporary impairment – marketable securities		—			—			(3,374	)
Gain/(loss) on sale of marketable securities		(3,060	)		(167	)		344
Loss from investments in unconsolidated affiliated real estate entities		(184	)		(12,096	)		(10,311	)
Net income/(loss) from continuing operations		8,109			122,879			(34,000	)
Net income/(loss) from discontinued operations		—			19,062			(32,104	)
Net income/(loss)		8,109			141,941			(66,104	)
Less: net (income)/loss attributable to noncontrolling interests		(2,509	)		(12,010	)		909
Net income/(loss) attributable to common shares	$	5,600		$	129,931			(65,195	)
Basic and diluted earnings/(loss) per common share:
Continuing operations	$	0.18		$	3.49			(1.06	)
Discontinued operations		—			0.60			(1.02	)
Net earnings/(loss) per common share	$	0.18		$	4.09			(2.08	)
Weighted average number of common shares outstanding, basic and diluted		31,648			31,755			31,277

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

87

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME
(Amounts in thousands)

	Common						Additional Paid-In Capital			Accumulated Other Comprehensive Income/(Loss)			Accumulated Distributions in Excess of Net Earnings			Total Non-controlling Interests			Total Equity
	Shares			Amount
BALANCE, December 31, 2008		30,986		$	310		$	275,589		$	(4,212	)	$	(57,173	)	$	23,113		$	237,627
Comprehensive loss:
Net loss		—			—			—			—			(65,195	)		(909	)		(66,104	)
Unrealized loss on available for sale securities		—			—			—			460			—			50			510
Reclassification adjustment for loss realized in net loss											4,078						—			4,078
Total comprehensive loss																				(61,516	)
Distributions declared		—			—			—			—			(27,335	)		—			(27,335	)
Distributions paid		—			—			—			—			—			(4,737	)		(4,737	)
Proceeds from SLP units		—			—			—			—			—			6,983			6,983
Redemption and cancellation of shares		(454	)		(5	)		(4,277	)		—			—			—			(4,282	)
Shares issued from distribution reinvestment program		996			10			9,452			—			—			—			9,462
Issuance of equity in subsidiary in exchange for payment of acquisition fee		—			—			—			—			—			6,878			6,878
Units issued to noncontrolling interest in exchange for investment in unconsolidated affiliated real estate entity		—			—			—			—			—			78,988			78,988
Note receivable secured by noncontrolling interest units		—			—			—			—			—			(70,858	)		(70,858	)
BALANCE, December 31, 2009		31,528			315			280,764			326			(149,703	)		39,508		$	171,210
Comprehensive income:
Net income		—			—			—			—			129,931			12,010			141,941
Unrealized gain on available for sale securities		—			—			—			4,646			—			73			4,719
Reclassification adjustment for gain realized in net income		—			—			—			(132	)		—			(2	)		(134	)
Total comprehensive income																				146,526
Distributions declared		—			—			—			—			(23,086	)		—			(23,086	)
Distributions paid		—			—			—			—			—			(20,657	)		(20,657	)
Redemption and cancellation of shares		(584	)		(6	)		(5,388	)					—			—			(5,394	)
Shares issued from distribution reinvestment program		670			7			6,357			—			—			—			6,364
BALANCE, December 31, 2010		31,614			316			281,733			4,840			(42,858	)		30,932		$	274,963
Comprehensive income:
Net income		—			—			—			—			5,600			2,509			8,109
Unrealized gain on available for sale securities		—			—			—			19,163			—			317			19,480
Reclassification adjustment for gain realized in net income		—			—			—			249			—			4			253
Total comprehensive income																				27,842
Distributions declared		—			—			—			—			(22,160	)		—			(22,160	)
Distributions paid to noncontrolling interests		—			—			—			—			—			(9,581	)		(9,581	)
Contributions received from noncontrolling interests		—			—			—			—			—			9,444			9,444
Redemption and cancellation of shares		(2,682	)		(27	)		(26,233	)		—			—			—			(26,260	)
Shares issued from distribution reinvestment program		815			8			8,058			—			—			—			8,066
BALANCE, December 31, 2011		29,747		$	297		$	263,558		$	24,252		$	(59,418	)	$	33,625		$	262,314

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

88

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)

	For the Years Ended December 31,
	2011			2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)	$	8,109		$	141,941		$	(66,104	)
Less net income/(loss) – discontinued operations		—			19,062			(32,104	)
Net income/(loss) – continuing operations		8,109			122,879			(34,000	)
Adjustments to reconcile net income/(loss) to net cash from operating activities:
Depreciation and amortization		8,349			6,546			8,516
Loss/(gain) on sale of marketable securities available for sale		3,060			167			(344	)
Gain on disposition of unconsolidated affiliated real estate entities		(28,109	)		(142,693	)		—
Impairment of long lived assets and loss on disposal		8,319			1,124			14,625
Realized loss on impairment of marketable securities available for sale		—			—			3,374
Mark to market adjustment on derivative financial instrument		13,943			2,560			—
Amortization of discount on mortgage receivable		(1,367	)		—			—
Equity in loss from investments in unconsolidated affiliated real estate entities		184			12,096			10,311
Other non-cash adjustments		368			576			457
Changes in assets and liabilities:
Increase in prepaid expenses and other assets		(671	)		(209	)		(548	)
(Increase)/decrease in tenant accounts receivable		(754	)		(974	)		1,542
Increase in tenant allowance and security deposits payable		(219	)		(1	)		(76	)
Increase/(decrease) in accounts payable and accrued expenses		1,247			4,062			(2,276	)
Increase/(decrease) in due to Sponsor		696			(1,049	)		—
(Increase)/decrease in deferred rental income		(455	)		246			139
Net cash provided by operating activities – continuing operations		12,700			5,330			1,720
Net cash provided by/(used in) operating activities – discontinued operations		—			1,485			(342	)
Net cash provided by operating activities		12,700			6,815			1,378
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment property, net		(64,719	)		(10,637	)		(7,801	)
Purchase of marketable securities available for sale		(98,904	)		(200,568	)		—
Proceeds from sale of marketable securities available for sale		171,472			59,010			12,167
Purchase of premium associated with derivative financial instrument		—			(5,648	)		—
Proceeds from disposition of investments in unconsolidated affiliated real estate entities		33,385			204,343			—
Collections on mortgage receivable		53			—			—
Deposit for purchase of real estate		(2,526	)		—			—
Purchase of mortgage receivable		(29,749	)		—			—
Purchase of investment in unconsolidated affiliated real estate entity		(6,368	)		(4,281	)		(30,164	)
Distribution from investments in unconsolidated affiliates		114			7,658			13,037
Funding of restricted escrows		(2,414	)		(8,263	)		1,287
Net cash provided by/(used in) investing activities  – continuing operations		344			41,614			(11,474	)
Net cash (used in)/provided by investing activities  – discontinued operations		—			(1,977	)		8
Net cash provided by/(used in) investing activities		344			39,637			(11,466	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage financing		17,839			5,000			—
Mortgage payments		(2,592	)		(2,509	)		(2,209	)
Payment of loan fees and expenses		(431	)		(407	)		(23	)
Proceeds from loan due to affiliates		(1,017	)		1,493			—
Proceeds from margin loan		20,400			—			—
Redemption and cancellation of common shares		(25,836	)		(5,394	)		(4,282	)
Proceeds from issuance of special general partnership units		—			—			6,983
Payment of offering costs		(422	)		(22	)		—
Proceeds from letter of credit		500			—			—
Contributions received from noncontrolling interests		9,444			—			—
Note receivable from noncontrolling interests		—			—			(22,358	)
Contribution to discontinued operations		—			(16	)		(631	)
Distributions paid to noncontrolling interests		(9,581	)		(20,657	)		(4,737	)
Distributions paid to Company’s stockholders		(14,141	)		(16,714	)		(12,315	)
Net cash used in financing activities – continuing operations		(5,837	)		(39,226	)		(39,572	)
Net cash provided by financing activities – discontinued operations		—			16			631
Net cash used in financing activities		(5,837	)		(39,210	)		(38,941	)
Net change in cash and cash equivalents		7,207			7,242			(49,029	)
Cash and cash equivalents, beginning of year		24,318			17,076			66,105
Cash and cash equivalents, end of year	$	31,525		$	24,318		$	17,076

See Note 2 for supplement cash information.

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

89

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

1. Organization

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

The Company is structured as an umbrella partnership real estate investment trust, or UPREIT, and substantially all of the Company’s current and future business is and will be conducted through Lightstone Value Plus REIT, L.P., a Delaware limited partnership formed on July 12, 2004 (the “Operating Partnership”), the Company as the general partner, held a 98.4% interest as of December 31, 2011 (See Noncontrolling Interests below for discussion of other owners of the Operating Partnership). The Company is managed by Lightstone Value Plus REIT, LLC (the “Advisor”), an affiliate of the Lightstone Group, under the terms and conditions of an advisory agreement. The Lightstone Group previously served as the Company’s sponsor (the “Sponsor”) during its initial public offering, which closed on October 10, 2008. The Sponsor and Advisor are owned and controlled by David Lichtenstein, the Chairman of the Company’s board of directors (the “Board”) and its Chief Executive Officer.

As of December 31, 2011, on a collective basis, the Company (i) owned 6 retail properties containing a total of approximately 0.9 million square feet of retail space, 15 industrial properties containing a total of approximately 1.3 million square feet of industrial space, 6 multi-family residential properties containing a total of 1,585 units, and 2 hotel hospitality properties containing a total of 364 rooms and (ii) owned interests in 1 office property containing a total of approximately 1.1 million square feet of office space, 1 hotel hospitality property containing a total of rooms and 2 outlet center retail projects currently under construction. All of the properties are located within the United States. As of December 31, 2011, the retail properties, the industrial properties, the multi-family residential properties and the office property were 86%, 81%, 93% and 81% occupied based on a weighted-average basis, respectively. Its hotel hospitality properties’ average revenue per available room (“RevPAR”) was $39 and occupancy was 61% for the year ended December 31, 2011.

During the year ended December 31, 2010, as a result of the Company defaulting on the debt related to three properties within its multi-family segment due to the properties no longer being economically beneficial to the Company, the lender foreclosed on these three properties. As a result of the foreclosure transactions, the debt associated with these three properties of $51.4 million was extinguished and the obligations were satisfied with the transfer of the properties’ assets and working capital and the Company no longer has any ownership interests in these three properties. The operating results of these three properties through their respective dates of disposition have been classified as discontinued operations on a historical basis for all periods presented. The transactions resulted in a gain on debt extinguishment of $19.9 million and are included in discontinued operations for the year ended December 31, 2010 (see Note 10).

Noncontrolling Interest — Partners of Operating Partnership

On July 6, 2004, the Advisor 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 shares of common stock of the Company, as allowed by the limited partnership agreement.

In connection with the Company’s initial public offering, through March 2009 Lightstone SLP, LLC, an affiliate of the Advisor, purchased an aggregate of $30 million of special general partner interests (“SLP Units”) in the Operating Partnership at a cost of $100,000 per unit.

90

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

1. Organization  – (continued)

In addition, during years ended December 31, 2008 and 2009, the Operating Partnership issued at total of (i) 497,209 units of common limited partnership interest in the Operating Partnership (“Common Units”) and (ii) 93,616 Series A preferred limited partnership units in the Operating Partnership (the “Series A Preferred Units”) with an aggregate liquidation preference of $93.6 million collectively to Arbor Mill Run JRM, LLC, a Delaware limited liability company (“Arbor JRM”), Arbor National CJ, LLC, a New York limited liability company (“Arbor CJ”), Prime Holdings LLC, a Delaware limited liability company (“AR Prime”) TRAC Central Jersey LLC, a Delaware limited liability company (“TRAC”), Central Jersey Holdings II, LLC, a New York limited liability company (“Central Jersey”) and JT Prime LLC, a Delaware limited liability company (“JT Prime”), in exchange for an aggregate 36.8% membership interest in Mill Run, LLC (“Mill Run”) and an aggregate 40.0% membership interest in Prime Outlets Acquisition Company (“POAC”). These membership interests in Mill Run and POAC were subsequently disposed of during the third quarter of 2010; however the Common Units and Series A Preferred Units remain outstanding.

See Note 14 for further discussion of noncontrolling interests.

Operating Partnership Activity

Acquisitions and Investments:

Through its Operating Partnership, the Company has and will continue to seek to acquire and operate commercial, residential, and hospitality properties, principally in the United States. The Company’s commercial holdings consist of retail (primarily multi-tenanted shopping centers), lodging, industrial and office properties. All such properties have been or will be acquired and operated by the Company alone or jointly with another party.

Related Party:

Properties acquired and development activities may be managed by affiliates of Lightstone Value Plus REIT Management LLC (the “Property Manager”).

The Company’s Advisor and Property Manager are each related parties. Each of these entities has received and will continue to receive compensation and fees for services related to the investment and management of the Company’s assets. These entities have and will continue to receive fees during the Company’s acquisition, operational and liquidation stages. The compensation levels during our acquisition and operational stages are based on 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 15).

2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of the Company and the Operating Partnership and its subsidiaries (over which the Company exercises financial and operating control). As of December 31, 2011, the Company had a 98.4% general partnership interest in 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.

91

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

2. Summary of Significant Accounting Policies  – (continued)

Investments in affiliated real estate entities where the Company has the ability to exercise significant influence, but does not exercise financial and operating control, and is not considered to be the primary beneficiary of a variable interest entity will be accounted for using the equity method. Investments in affiliated real estate entities where the Company has virtually no influence will be accounted for using the cost 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 equivalents are held in commercial paper and money market funds. To date, the Company has not experienced any losses on its cash and cash equivalents.

Supplemental cash flow information for the years ended December 31, 2011, 2010 and 2009 is as follows:

	For the Year Ended
	December 31, 2011		December 31, 2010		December 31, 2009
Cash paid for interest	$	11,449	$	11,734	$	13,590
Distributions declared		22,160		23,086		27,335
Value of shares issued from distribution reinvestment program		8,066		6,324		9,462
Amounts placed in escrow		13,500		—		—
Non cash purchase of investment property		—		—		104
Loan due to affiliate converted to a distribution from investment in unconsolidated affiliated real estate entities		—		2,817		—
Marketable equity securities received in connection with disposal of investment in unconsolidated affiliated real estate entities		—		29,222		—
Restricted marketable equity securities received in connection with disposal of investment in unconsolidated affiliated real estate entities		—		30,287		—
Cash escrowed in connection of disposal of investment in unconsolidated affiliated real estate entities		—		1,889
Issuance of equity for payment of acquisition fee obligation		—		—		6,878
Issuance of units in exchange for investment in unconsolidated affiliated real estate entities	$	—	$	—	$	78,988

Marketable Securities

Marketable securities consist of equity and debt securities that are designated as available-for-sale and are recorded at fair value. Unrealized holding gains or losses are reported as a component of accumulated other comprehensive income (loss). Realized gains or losses resulting from the sale of these securities are determined based on the specific identification of the securities sold. An impairment charge is recognized when the decline in the fair value of a security below the amortized cost basis is determined to be other-than-temporary. The Company considers 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 its 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

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

2. Summary of Significant Accounting Policies  – (continued)

related companies. The Board has approved investments of marketable securities of real estate companies 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.

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, including any below-market renewal periods taken into account. Percentage rents, which are based on commercial tenants’ sales, are recognized once the sales reported by such tenants exceed any applicable breakpoints as specified in the tenants’ leases. Recoveries from commercial tenants for real estate taxes, insurance and other operating expenses, and from residential tenants for utility costs, are recognized as revenues in the period that the applicable costs are incurred. Room revenue for the hotel properties are recognized as stays occur, using the accrual method of accounting. Amounts paid in advance are deferred until stays occur. Other service income consists of revenues from food and beverage services, water park admissions and arcade income and is recognized when earned.

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 $0.2 million and $0.4 million at both December 31, 2011 and 2010.

Mortgages Receivable

From time to time, we may make investments in mortgage loans. Mortgage loans are secured, in part, by mortgages recorded against the underlying properties which are not owned by us. Mortgage loans are carried at cost, net of any premiums or discounts which are accreted or amortized over the life of the related loan receivable utilizing the effective interest method. We evaluate the collectability of both interest and principal of each of these loans quarterly to determine whether the value has been impaired. A loan is deemed to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the existing contractual terms. When a loan is impaired, the amount of the loss accrual is calculated by comparing the carrying amount of the loan held for investment to its estimated realizable value.

Investment in Real Estate

Accounting for Acquisitions

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

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

2. Summary of Significant Accounting Policies  – (continued)

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

In determining the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease including consideration of any bargain renewal periods. 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, including any below-market renewal periods taken into account.

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.

Impairment Evaluation

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

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

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

2. Summary of Significant Accounting Policies  – (continued)

Assets and Liabilities Held for Sale and Discontinued Operations

Assets and groups of assets and liabilities which comprise disposal groups are classified as ‘held for sale’ when all of the following criteria are met: a decision has been made to sell, the assets are available for sale immediately, the assets are being actively marketed at a reasonable price in relation to the current fair value, a sale has been or is expected to be concluded within twelve months of the balance sheet date, and significant changes to the plan to sell are not expected. Assets and disposal groups held for sale are valued at the lower of book value or fair value less disposal costs. Assets held for sale are not depreciated.

Additionally, the operating results and cash flows related to these assets and liabilities are included in discontinued operations in the consolidated statements of operations and consolidated statements of cash flows, respectively, for all periods presented, if the operations and cash flows of the disposal group is expected to be eliminated from ongoing operations as a result of the disposal and the Company will not have any significant continuing involvement in the operations of the disposal group after disposal.

Depreciation and Amortization

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

Deferred Costs

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

Investments in Unconsolidated Affiliated Real Estate Entities

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

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

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

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

2. Summary of Significant Accounting Policies  – (continued)

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 its 2006 U.S. 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 U.S. 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 U.S. federal income taxes on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for U.S. 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 December 31, 2011, the Company has complied with the requirements for maintaining its REIT status.

The Company has net operating loss carryforwards of $12.7 million for U.S. federal income tax purposes through the year ended December 31, 2011. 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.

The Company engages in certain activities through taxable REIT subsidiaries (“TRSs”). As such, the Company is subject to U.S. federal and state income and franchise taxes from these activities.

As of December 31, 2011, the Company had no material uncertain income tax positions and its net operating loss carryforward was approximately $12.7 million. The tax years subsequent to and including 2008 remain open to examination by the major taxing jurisdictions to which the Company is subject.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and margin loan approximate their fair values because of the short maturity of these instruments. The carrying amount of the mortgages receivable approximates their fair value based upon current market information that would have been used by a market participant to estimate the fair value of such loan.

The estimated fair value (in millions) of the Company’s debt is summarized as follows:

	As of December 31, 2011				As of December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Mortgages payable	$	224.3	$	224.4	$	195.5	$	197.6

The fair value of the mortgages payable was determined by discounting the future contractual interest and principal payments by estimated current market interest rates.

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

2. Summary of Significant Accounting Policies  – (continued)

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. The Company may designate these derivative financial instruments as hedges and apply hedge accounting. The Company records all derivative instruments at fair value on the consolidated balance sheet.

Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, will be considered cash flow hedges. The Company will formally document all relationships between hedging instruments and hedged items, as well as our risk- management objective and strategy for undertaking each hedge transaction. The Company will periodically review the effectiveness of each hedging transaction, which involves estimating future cash flows. Cash flow hedges will be accounted for by recording the fair value of the derivative instrument on the consolidated balance sheet as either an asset or liability, with a corresponding amount recorded in other comprehensive income (loss) within stockholders’ equity. Amounts will be reclassified from other comprehensive income (loss) to the consolidated statements of operations in the period or periods the hedged forecasted transaction affects earnings. Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, will be considered fair value hedges. The effective portion of the derivatives gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the transaction affects earnings. The ineffective portion of the gain or loss is reported in earnings immediately. The change in fair value of derivative instruments which have not been formally documented as effective hedges will be reported as a gain or loss in other income, net, within the consolidated statement of operations.

Stock-Based Compensation

The Company has a stock-based incentive award plan for our directors. Awards are granted at the fair market value on the date of the grant with fair value estimated using the Black-Scholes-Merton option valuation model, which incorporates assumptions surrounding the volatility, dividend yield, the risk-free interest rate, expected life, and the exercise price as compared to the underlying stock price on the grant date. The tax benefits associated with these share-based payments are classified as financing activities in the consolidated statement of cash flows. For the years ended December 31, 2011, 2010 and 2009, the Company had no material compensation costs related to the incentive award plan.

Concentration of Risk

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

Net Earnings per Share

Basic net earnings per share is calculated by dividing net income/(loss) attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the applicable period. Income/(loss) per share includes the potentially dilutive effect, if any, which would occur if our outstanding options to purchase our common stock were exercised. For all periods presented, the effect of these exercises was anti-dilutive and, therefore, dilutive net income/(loss) per share is equivalent to basic net income/(loss) per share.

New Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board issued amended guidance for presenting comprehensive income, which will be effective for the Company beginning January 1, 2012. The amended guidance eliminates the option to present other comprehensive income and its components in the statement of

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

2. Summary of Significant Accounting Policies  – (continued)

stockholders’ equity. The Company may elect to present the items of net income and other comprehensive income in a single continuous statement of comprehensive income or in two separate, but consecutive, statements. Under either method the statement would need to be presented with equal prominence as the other primary financial statements. The Company does not expect the adoption of the amended guidance to have a significant impact on its consolidated financial statements.

In May 2011, the FASB issued amended guidance for measuring fair value and required disclosure information about such measures, which will be effective for the Company beginning January 1, 2012, and applied prospectively. The amended guidance requires an entity to disclose all transfers between Level 1 and Level 2 of the fair value hierarchy as well as provide quantitative and qualitative disclosures related to Level 3 fair value measurements. Additionally, the amended guidance requires an entity to disclose the fair value hierarchy level which was used to determine the fair value of financial instruments that are not measured at fair value, but for which fair value information must be disclosed. The Company does not expect the adoption of the amended guidance to have a significant impact on its consolidated financial statements.

In December 2010, the Financial Accounting Standards Board (“FASB”) issued guidance requiring disclosure of pro forma information for business combinations that occurred in the current reporting period. The required disclosures include pro forma revenue and earnings of the combined entity as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the comparable prior annual reporting period. The guidance is effective prospectively for business combinations in which the acquisition date is on or after the first day of the annual period beginning on or after December 15, 2010. The adoption of this guidance had no impact on the consolidated financial statements but could result in the Company providing additional annual pro forma disclosures for significant business combinations that occur subsequent to December 31, 2010, if applicable.

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.

Reclassifications

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

3. Property Acquisitions

The following is summary of the Company’s significant property acquisitions during the years ended December 31, 2011, 2010 and 2009.

2011

Crowe’s Crossing Shopping Center

On October 4, 2011, the Company acquired Crowes Crossing Shopping Center, (“Crowe’s Crossing”) a 94,000-square-foot retail center located in Stone Mountain, Georgia, from IPF/Crowe Limited Partnership for approximately $7.5 million. The Seller was not affiliated with the Company or its affiliates. The acquisition of Crowe’s Crossing was funded from cash and proceeds from a $6.0 million non-recourse mortgage loan. Additionally, in connection with the acquisition, the Company’s Advisor received an acquisition fee equal to 2.75% of the acquisition price, or approximately $0.2 million.

The acquisition was accounted for under the purchase method of accounting with the Company treated as the acquiring entity. Accordingly, the consideration paid by the Company to complete the acquisition has been allocated to the assets acquired based upon their fair values as of the date of the acquisition. The allocation of purchase price is based upon certain preliminary valuations and other analyses that have not been completed as of the date of this filing. Any changes in the estimated fair values of the net assets recorded for these

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

3. Property Acquisitions  – (continued)

acquisitions prior to the finalization of more detailed analyses will change the allocation of the purchase price. As such, the purchase price allocations for this transaction are preliminary estimates, which are subject to change within the measurement period. Any subsequent changes to the purchase price allocations that are material will be adjusted retroactively. There was no contingent consideration related to this acquisition. Approximately $2.1 million was allocated to the land and $5.4 million was allocated to building and improvements.

The capitalization rate for the Crowe’s Crossing as of the closing of the acquisition was 7.7%. We calculate the capitalization rate for a real property by dividing net operating income of the property by the purchase price of the property, excluding costs. For purposes of this calculation, net operating income is determined using the projected or budgeted net operating income of the property based upon then-current projections. Additionally, net operating income is all gross revenues from the property less all operating expenses, including property taxes and management fees but excluding depreciation.

This acquisition did not have a material effect on the Company’s results of operations for the year ended December 31, 2011.

The Plaza at DePaul

On November 22, 2011, the Company acquired The Plaza at DePaul, (the “DePaul Plaza”) a 187,000-square-foot retail center located in Bridgeton, Missouri, from DePaul 2002, LLC, an affiliate of St. Louis, Missouri-based The Love Companies for approximately $19.8 million. The acquisition of DePaul Plaza was funded from cash and the assumption of an $11.8 million non-recourse mortgage loan. Additionally, in connection with the acquisition, the Company’s Advisor received an acquisition fee equal to 2.75% of the acquisition price, or approximately $0.5 million.

The acquisition was accounted for under the purchase method of accounting with the Company treated as the acquiring entity. Accordingly, the consideration paid by the Company to complete the acquisition has been allocated to the assets acquired based upon their fair values as of the date of the acquisition. The allocation of purchase price is based upon certain preliminary valuations and other analyses that have not been completed as of the date of this filing. Any changes in the estimated fair values of the net assets recorded for these acquisitions prior to the finalization of more detailed analyses will change the allocation of the purchase price. As such, the purchase price allocations for this transaction are preliminary estimates, which are subject to change within the measurement period. Any subsequent changes to the purchase price allocations that are material will be adjusted retroactively. There was no contingent consideration related to this acquisition. Approximately $10.8 million was allocated to the land and $9.0 million was allocated to building and improvements.

The capitalization rate for the DePaul Plaza as of the closing of the acquisition was 7.2%. We calculate the capitalization rate for a real property by dividing net operating income of the property by the purchase price of the property, excluding costs. For purposes of this calculation, net operating income is determined using the projected or budgeted net operating income of the property based upon then-current projections. Additionally, net operating income is all gross revenues from the property less all operating expenses, including property taxes and management fees but excluding depreciation.

This acquisition did not have a material effect on the Company’s results of operations for the years ended December 31, 2011.

LVP CP Boston Holdings, LLC

Participation in LVP CP Boston Holdings, LLC (the “CP Boston Joint Venture”), a joint venture in which the Company has an 80.0% ownership interest and consolidates, which, through affiliates, acquired a hotel and water park located in Danvers, Massachusetts, on March 21, 2011 (See Note 6).

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

3. Property Acquisitions  – (continued)

50-01 2nd St Associates LLC

Participation in 50-01 2^nd St Associates LLC (the “2^nd Street Joint Venure”), a joint venture in which the Company has a 75.0% ownership interest and consolidates, which through affiliates purchased a fee interest in land located at 50-01 2^nd Street in Long Island City, Queens, New York for approximately $19.3 million on August 18, 2011 (see Note 14).

LVP Rego Park, LLC

Participation in LVP Rego Park, LLC (the “Rego Park Joint Venture”), a joint venture in which the Company has a 90.0% ownership interest and consolidates, which acquired a second mortgage loan secured by a residential apartment complex located in Queens, New York on April 12, 2011. (See Note 7)

Additionally, the Company acquired 2 mortgage receivables with combined balances of $14.9 million. (See Note 7)

2010:

Everson Pointe

On December 17, 2010, the Company, through LVP Everson Pointe LLC, a wholly owned subsidiary of the Operating Partnership, acquired Everson Pointe from Edens Everson, LLC, a third-party seller, for aggregate consideration of approximately $8.8 million, exclusive of closing costs of $0.2 million. In connection with the transaction, the Company’s Advisor received an acquisition fee equal to 2.75% of the contract price ($8.8 million), or approximately $0.2 million. The aggregate closing costs and acquisition fee of $0.4 million were recorded as general and administrative expense within the consolidated statement of operations. Everson Pointe is a grocery store-anchored retail property located in Snellville, Georgia (part of the Atlanta metropolitan statistical area, or MSA) consisting of 81,428 square feet. The acquisition of Everson Pointe was funded from cash and proceeds from a $5.0 million non-recourse mortgage loan provided by State Bank & Trust Company. The Company has included the operations of Everson Point in its results since the acquisition date.

The acquisition was accounted for under the purchase method of accounting with the Company treated as the acquiring entity. Accordingly, the consideration paid by the Company to complete the acquisition has been allocated to the assets acquired based upon their fair values as of the date of the acquisition. The allocation of purchase price is based upon certain valuations and other analyses that have been completed as of the date of this filing. Approximately $2.5 million was allocated to the land, $5.5 million was allocated to building and the remaining $0.8 million was allocated to intangibles with a weighted average life of 4 years.

This acquisition did not have a material effect on the Company’s results of operations for the years ended December 31, 2011 and 2010.

2009

The Company did not have any property acquisitions during 2009. See Notes 4 and 5 for a discussion of investments in unconsolidated affiliated real estate entities the Company acquired during the years ended December 31, 2009.

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

4. Dispositions of Investments in Unconsolidated Affiliated Real Estate Entities

Prime Outlets Acquisition Company (“POAC”)/Mill Run LLC (“Mill Run”) Transaction

On December 8, 2009, the Company, its Operating Partnership and Pro-DFJV Holdings LLC (“PRO”), a Delaware limited liability company and a wholly-owned subsidiary of the Company (collectively, the “LVP Parties”) entered into a definitive agreement (“the “Contribution Agreement”) with Simon Property Group, Inc. (“Simon Inc.”), a Delaware corporation, Simon Property Group, L.P., a Delaware limited partnership (“Simon OP”), and Marco Capital Acquisition, LLC, a Delaware limited liability company (collectively, referred to herein as “Simon” with respect to the Contribution Agreement) providing for the disposition of a substantial portion of the Company’s retail properties to Simon including the Company’s (i) St. Augustine Outlet Center, which is wholly owned, (ii) 40.0% aggregate interest in its investment in POAC, which included 18 operating outlet center properties (the “POAC Properties”), Grand Prairie Holdings LLC (“GPH”) and Livermore Valley Holdings LLC (“LVH”) and (iii) 36.8% aggregate interest in its investment in Mill Run, which includes 2 operating outlet center properties (the “Mill Run Properties”). On June 28, 2010, the Contribution Agreement was amended to remove the previously contemplated dispositions of St. Augustine and the Company’s 40.0% aggregate interests in both GPH and LVH. The transactions contemplated by the Contribution Agreement are referred to herein as the “POAC/Mill Run Transaction”.

Additionally, certain affiliates of the Company’s Sponsor were parties to the Contribution Agreement pursuant to which they would simultaneously dispose of their respective interests in POAC and Mill Run and certain other outlet center properties, in which the LVP Parties had no ownership interest, to Simon.

Furthermore, as a result of the aforementioned amendment to the Contribution Agreement, the St. Augustine Outlet Center no longer met the criteria to be classified as held for sale and was reclassified to held for use effective as of June 28, 2010. The Company’s 40.0% and 36.8% aggregate interests in investments in POAC, including GPH and LVH, and Mill Run, respectively, were accounted for under the equity method of accounting since their acquisition.

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

The gross cash consideration that the LVP Parties received in connection with the closing of the POAC/Mill Run Transaction was paid by Simon with the proceeds from a draw under a revolving credit facility that Simon entered into contemporaneously with the signing of the Contribution Agreement. In connection with the closing of the POAC/Mill Run Transaction, the LVP Parties provided guaranties of collection (the “POAC/Mill Run Simon Loan Collection Guaranties”) with respect to such revolving credit facility (see Note 20 for additional information). The Escrowed Cash of $1.9 million was included in restricted escrows in our consolidated balance sheet as of December 31, 2010. The equity interests that the LVP Parties received in connection with the closing of the POAC/Mill Run Transaction consisted of 703,737 Marco OP Units that are exchangeable for a similar number of common operating partnership units (“Simon OP Units”) of Simon OP subject to various conditions as discussed below. Subject to the various conditions, the Company may elect to exchange the Marco OP Units to Simon OP Units which must be immediately delivered to Simon in exchange for cash or similar number of shares of Simon Inc. common stock (“Simon Stock”).

Although the Marco OP Units may be immediately exchanged into Simon OP Units, if upon their delivery to Simon, Simon elects to exchange them for a similar number of shares of Simon Stock rather than cash, the LVP Parties may be precluded from selling the Simon Stock for a 6-month period from the date of issuance. Additionally, because the Company was required to indemnify Simon for any liabilities and

101

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

4. Dispositions of Investments in Unconsolidated Affiliated Real Estate Entities  – (continued)

obligations (the “TPA Obligations”) that should arise under certain tax protection agreements (the “POAC/Mill Run Tax Protection Agreements”) through March 1, 2012 (see Note 20 for additional information), the Company was required to place 367,778 of the Marco OP Units (the “Escrowed Marco OP Units”) into an escrow account.

Pursuant to the Contribution Agreement, there was a period after closing, of up to 215 days, for the Aggregate Consideration Value to be finalized between the LVP Parties and Simon. However, the Company and Simon agreed to extend the period and the Aggregate Consideration Value was finalized during the third quarter of 2011. The Escrowed Cash and the Escrowed Units were reserved for the final settlement of certain consideration adjustments (collectively, the “Final Consideration Adjustments”) related to net working capital reserves, including the true-up of debt assumption costs, certain indemnified liabilities and specified transaction costs. The Escrowed Marco OP Units also could have been used to cover any shortfalls resulting from the Final Consideration Adjustments not covered by the Escrowed Cash. In connection with the finalization of the Aggregate Consideration Value, the entire Escrowed Cash, plus interest was, released to the Company during the third quarter of 2011. Additionally, the Escrowed Marco Units were fully released to the Company on March 1, 2012 as no TPA Obligations arose under the POAC/Mill Run Tax Protection Agreements.

The Escrowed Marco OP Units had an estimated fair value of $30.3 million as of the closing date of the POAC/Mill Run Transaction and are classified as restricted marketable securities, which are available for sale, in our consolidated balance sheets as of December 31, 2011 and 2010. The 335,959 Marco OP Units which were not placed in an escrow had an estimated fair value of $29.2 million as of the closing date of the POAC/Mill Run Transaction and are classified as marketable securities, which are available for sale, in our consolidated balance sheets as of December 31, 2011 and 2010. The estimated fair values of the Marco OP Units and the Escrowed Marco OP Units were based on the weighted-average closing price of Simon Stock for the 5-business day period immediately prior to the closing date, discounted for certain factors, including the applicable various conditions.

In connection with the closing of the POAC/Mill Run Transaction, the Company initially recognized a gain on disposition of approximately $142.8 million in its consolidated statements of operations during the third quarter of 2010. The Company also deferred an additional $32.2 million of gain (the “Deferred Gain”) on its consolidated balance sheet consisting of the total of the (i) $1.9 million of Escrowed Cash and (ii) $30.3 million of Restricted Marco OP Units received as part of the Aggregate Consideration Value because realization of these items was subject to the Final Consideration Adjustments and the TPA Obligations. An additional $0.1 million of transaction expenses were incurred by the Company during the fourth quarter of 2010 which reduced the recognized gain to approximately $142.7 million for the year ended December 31, 2010. During the third quarter of 2011, the Company recognized an additional $2.8 million gain on the POAC/Mill Run Transaction consisting of the full return of the Escrowed Cash, plus interest, to the Company and certain other items. As a result, the remaining Deferred Gain reflected on our consolidated balance sheet was $30.3 million as of December 31, 2011, which will be recognized in the first quarter of 2012 as a result of aforementioned release of the Escrowed Marco Units on March 1, 2012.

PRO’s portion of the aforementioned $204.4 million of net cash proceeds received from the closing of the POAC/Mill Run Transaction were approximately $73.5 million, which were distributed to its members during the third quarter of 2010 in accordance with the provisions of its operating agreement.

Outlet Centers Transaction

As discussed above, the Company, through its Operating Partnership and PRO, has an aggregate 40.0% interest in GPH and LVH, which holds ownership interests in various entities, including entities that are developing two outlet centers located in Grand Prairie, Texas (the “Grand Prairie Outlet Center”) and

102

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

4. Dispositions of Investments in Unconsolidated Affiliated Real Estate Entities  – (continued)

Livermore Valley, California (the “Livermore Valley Outlet Center”). The Grand Prairie Outlet Center, which will consist of approximately 418,000 square feet of GLA, is currently under construction and expected to open during the third quarter of 2012. The Livermore Valley Outlet Center, which will consist of approximately 511,000 square feet of GLA, is currently under construction and expected to open in the fourth quarter of 2012. The Company accounts for its ownership interests in GPH and LVH under the equity method of accounting in its consolidated financial statements. Certain affiliates of the Company’s Sponsor (the “Sponsor’s Affiliates”) own the remaining 60% interest in GPH and LVH.

On December 9, 2011, GPH, LVH and certain of their subsidiaries (collectively, the “Holdings Entities”) entered into definitive agreement (the “2011 Contribution Agreement”) with Simon OP, Simon Inc. and Marco II LP Units, LLC, a Delaware limited liability company (collectively, referred to herein as “Simon” with respect to the 2011 Contribution Agreement) providing for the immediate disposition of 50.0% of their interests in the Grand Prairie Outlet Center and the Livermore Outlet Center, respectively, at valuations (the “Initial Valuations”) based on the then projected stabilized net operating income of the respective outlet center divided by a capitalization rate of 7.0%, adjusted for certain other items, including expected indebtedness. The transactions contemplated by the 2011 Contribution Agreement are referred to herein as the “Outlet Centers Transaction”. Additionally, on December 9, 2011, certain joint venture agreements (collectively, the “Outlet Center JV Agreements”) were amended and restated with respect to the Grand Prairie Outlet Center and the Livermore Valley Outlet Center.

On December 9, 2011, the Outlet Centers Transaction was completed and, as a result, GPH and LVH received combined net consideration of approximately $87.6 million (the “Combined Consideration”), after certain transaction expenses of approximately $1.2 million which were paid at closing. The Combined Consideration consisted of approximately (i) $78.7 million in the form of cash and (ii) $8.9 million in the form of equity interests (“Marco II OP Units”). GPH and LVH immediately distributed the net cash proceeds to its members of which the Company’s aggregate share was approximately $31.5 million, before allocations to noncontrolling interests. Simultaneously, PRO distributed its portion of the cash proceeds of $11.8 million to its members in accordance with the provisions of its operating agreement.

The gross cash consideration that GPH and LVH received in connection with the closing of the Outlet Centers Transaction was paid by Simon with the proceeds from a draw under a revolving credit facility. In connection with the closing of the Outlet Center Transaction, the Holdings Entities, the Company, the Operating Partnership, PRO and the Sponsor Affiliates provided certain guaranties of collection (the “Outlet Centers Simon Loan Collection Guaranties”) with respect to such revolving credit facility (see Note 20 for additional information with respect to the Company’s proportionate share). The equity interests that GPH and LVH received in connection with the closing of the Outlet Centers Transaction consisted of 73,428 Marco II OP Units that are exchangeable for a similar number of Simon OP Units. Subject to the various conditions, GPH and LVH may elect to exchange their Marco II OP Units to Simon OP Units which must be immediately delivered to Simon in exchange for cash or similar number of shares of Simon Stock.

The 73,428 Marco II OP Units received by GPH and LVH had an estimated combined fair value of $8.9 million as of the closing date of the Outlet Centers Transaction. The estimated fair value of the Marco II OP Units was based on the weighted-average closing price of Simon Stock for the 10-business day period ending 3 business days prior to the closing date.

In connection with the closing of the Outlet Center Transaction, GPH and LVH recognized a combined gain on disposition of approximately $63.3 million during the fourth quarter of 2011. Because the Company accounts for its interests in GPH and LVH under the equity method of accounting, it recognized its pro rata share of the combined gain on disposition, or approximately $25.3 million, in its consolidated statements of operations during the fourth quarter of 2011.

103

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

4. Dispositions of Investments in Unconsolidated Affiliated Real Estate Entities  – (continued)

Pursuant to the terms of the Outlet Center JV Agreements, commencing fifteen months after the grand opening date (the “Grand Opening Date”), as defined, of the respective outlet center, GPH and LVH have the right to put (the “Put”) their remaining interests in the Grand Prairie Outlet Center and/or Livermore Valley Outlet Center, respectively, to Simon at certain prescribed exit consideration amounts (the “Exit Consideration Amounts”) and Simon has the right to call (the “Call”) the remaining interests from GPH and/or LVH at the Exit Consideration Amounts. The Exit Consideration Amounts consist of (i) a final valuation (the “Final Valuation”) based on respective outlet center’s in-place net operating income, subject to certain adjustments, as of the one-year anniversary of its Grand Opening Date, divided by a capitalization rate of 7.0%, adjusted for certain items, including outstanding indebtedness and (ii) a true-up valuation which represents the change in the Initial Valuations using the in place net operating income.

5. Investments in Unconsolidated Affiliated Real Estate Entities

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

						As of
Real Estate Entity	Date(s) Acquired		Ownership %			December 31, 2011		December 31, 2010
GPH		March 30, 2009 & August 25, 2009		40.0	%	$	5,297	$	7,482
LVH		March 30, 2009 & August 25, 2009		40.0	%		9,483		7,102
1407 Broadway Mezz II, LLC (“1407 Broadway”)		January 4, 2007		49.0	%		.		306
Total Investments in unconsolidated affiliated real estate entities						$	14,780	$	14,890

POAC

On August 30, 2010, the Company disposed of its aggregate 40.0% ownership interest in POAC, except for its interests in GPH and LVH (see below). Prior to disposition, our Operating Partnership and PRO owned 25.0% and 15.0% membership interests in POAC (collectively, the “POAC Interest”), which were acquired on March 30, 2009 and August 25, 2009, respectively. The POAC Interest was a non-managing interest, with certain consent rights with respect to major decisions. An affiliate of the Company’s Sponsor, was the majority owner and manager of POAC. Profit and cash distributions were allocated in accordance with each investor’s ownership percentage. Through the date of disposition, the Company accounted for this investment in accordance with the equity method of accounting, and its portion of POAC’s total indebtedness was not included in the Company’s investment.

POAC Financial Information

The Company’s carrying value of its POAC Interest differed from its share of members’ equity of POAC due to the Company’s cost of its investments in excess of the historical net book values of POAC. The Company’s additional basis allocated to depreciable assets was recognized on a straight-line basis over the lives of the appropriate assets through the date of disposition.

104

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

5. Investments in Unconsolidated Affiliated Real Estate Entities  – (continued)

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

	For the Period January 1, 2010 to August 30, 2010			For the period March 30, 2009 through December 31, 2009
Revenue	$	122,858		$	141,545
Property operating expenses		73,291			73,745
Depreciation and amortization		2,076			29,668
Operating income		47,491			38,132
Interest expense and other, net		39,123			44,196
Net loss	$	8,368		$	(6,064	)
Company’s share of net loss	$	(5,853	)	$	(2,721	)
Additional depreciation and amortization expense(1)		(8,655	)		(9,604	)
Company’s loss from investment	$	(14,508	)	$	(12,325	)

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

Mill Run

On August 30, 2010, the Company disposed of its aggregate 36.8% ownership interest in Mill Run. Prior to disposition, our Operating Partnership and PRO owned 24.54% and 14.26% membership interests in Mill Run (collectively, the “Mill Run Interest”), which were acquired on June 26, 2008 and August 25, 2009, respectively. The Mill Run Interest included Class A and B membership shares and was a non-managing interest, with consent rights with respect to certain major decisions. The Company’s Sponsor was the managing member and owned 55.0% of Mill Run. Profit and cash distributions were to be allocated in accordance with each investor’s ownership percentage after consideration of Class B members adjusted capital balance. Through the date of disposition, the Company accounted for this investment in accordance with the equity method of accounting, and its portion of Mill Run’s total indebtedness was not included in the Company’s investment.

Mill Run Financial Information

The Company’s carrying value of its Mill Run Interest differed from its share of member’s equity of Mill Run due to the Company’s cost of its investments in excess of the historical net book values of Mill Run. The Company’s additional basis allocated to depreciable assets was recognized on a straight-line basis over the lives of the appropriate assets through the date of disposition.

105

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

5. Investments in Unconsolidated Affiliated Real Estate Entities  – (continued)

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

	For the Period from January 1, 2010 to August 30, 2010			For the Year Ended December 31, 2009
Revenue	$	33,280		$	44,970
Property operating expenses		8,561			13,389
Depreciation and amortization		6,665			11,160
Operating income		18,054			20,421
Interest expense and other, net		4,068			6,071
Net income	$	13,986		$	14,350
Company’s share of net income	$	5,147		$	4,064
Additional depreciation and amortization expense(1)		(1,166	)		(1,824	)
Company’s income/(loss) from investment	$	3,981		$	2,240

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

GPH

GPH was wholly owned by POAC through August 30, 2010. In connection with the closing of the POAC/Mill Run Transaction (see Note 4), the Company retained its aggregate 40.0% ownership interest in GPH. The Operating Partnership and PRO own a 25.0% and 15.0% membership interest in GPH, respectively. The Company’s ownership interest is a non-managing interest, with certain consent rights with respect to major decisions. An affiliate of the Company’s Sponsor is the majority owner and manager of GPH. Contributions, profits and cash distributions are allocated in accordance with each investor’s ownership percentage. The Company accounts for its ownership interest in GPH in accordance with the equity method of accounting.

GPH, through subsidiaries, had an ownership interest of 50.0% and 100.0% in the Grand Prairie Outlet Center (see Note 4 for additional information) as of December 31, 2011 and 2010, respectively. GPH, through subsidiaries, also had an ownership interest of 100.0% in certain rights related to the land on which the Grand Prairie Outlet Center is being constructed as December 31, 2011 and 2010.

106

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

5. Investments in Unconsolidated Affiliated Real Estate Entities  – (continued)

GPH Financial Information

GPH had no operating results through December 31, 2010. The following table represents the unaudited condensed income statement for GPH for the year ended December 31, 2011:

	For the Year Ended December 31, 2011
Total revenue	$	286
Operating income		286
Interest expense and other, net		16
Gain on disposition of unconsolidated affiliated entity		20,703
Net income	$	21,005
Company’s share of net income (40%)	$	8,402

The following table represents the unaudited condensed balance sheet for GPH:

	As of December 31, 2011		As of December 31, 2010
Construction in progress	$	—	$	18,697
Investments in unconsolidated affiliated real estate entities		10,114		—
Marketable securities, available for sale		3,350		—
Other assets		127		3
Total assets	$	13,591	$	18,700
Other liabilities	$	142	$	303
Members’ capital		13,449		18,397
Total liabilities and members’ capital	$	13,591	$	18,700

LVH

LVH was wholly owned by POAC through August 30, 2010. In connection with the closing of the POAC/Mill Run Transaction, the Company retained its aggregate 40.0% ownership interest in LVH. The Operating Partnership and PRO own 25.0% and 15.0% membership interests in LVH, respectively. The Company’s ownership interest is a non-managing interest, with certain consent rights with respect to major decisions. An affiliate of the Company’s Sponsor, is the majority owner and manager of LVH. Contributions, profit and cash distributions are allocated in accordance with each investor’s ownership percentage. The Company accounts for its ownership interest in LVH in accordance with the equity method of accounting.

LVH, through subsidiaries, had an ownership interest of 50.0% and 100.0% in the Livermore Outlet Center (see Note 4 for additional information) as of December 31, 2011 and 2010, respectively. LVH, through subsidiaries, had an ownership interest of 100% in a parcel of land adjacent to the Livermore Outlet Center as of December 31, 2011 and 2010. The parcel of land was acquired in December 2010 for a potential expansion to the Livermore Outlet Center.

107

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

5. Investments in Unconsolidated Affiliated Real Estate Entities  – (continued)

LVH Financial Information

LVH had no operating results through December 31, 2010. The following table represents the unaudited condensed income statement for LVH for the year ended December 31, 2011:

	For the Year Ended December 31, 2011
Interest expense and other, net		2
Gain on disposition of unconsolidated affiliated entity		42,589
Net income	$	42,591
Company’s share of net income (40%)	$	17,036

The following table represents the unaudited condensed balance sheet for LVH as of the dates indicated:

	As of December 31, 2011		As of December 31, 2010
Construction in progress	$	3,776	$	18,217
Investments in unconsolidated affiliated real estate entities		14,176		—
Marketable securities, available for sale		6,117		—
Other assets		127		—
Total assets	$	24,196	$	18,217
Other liabilities	$	226	$	1,249
Members’ capital		23,970		16,968
Total liabilities and members’ capital	$	24,196	$	18,217

1407 Broadway Mezz II, LLC

As of December 31, 2011, the Company has a 49.0% ownership in 1407 Broadway Mezz II, LLC (“1407 Broadway”), which has a sub-leasehold interest in a ground lease to an office building located at 1407 Broadway Street in New York, New York. During the second quarter of 2011, the Company’s share of cumulative losses resulting from its ownership interest in 1407 Broadway brought the carrying value of its investment in 1407 Broadway to zero. Since the Company is not obligated to fund 1407 Broadway’s deficits and the balance of the Company’s investment in 1407 Broadway is zero, the Company has suspended the recording of its portion of equity losses or earnings from 1407 Broadway until such time as the Company’s investment in 1407 Broadway is greater than zero.

During March 2010, the Company entered a demand grid note to borrow up to $20.0 million from 1407 Broadway. During 2010 the Company received aggregate loan proceeds from 1407 Broadway associated with this demand grid note in the amount of $1.5 million. During 2011, the Company made principal payments of approximately $1.0 million to 1407 Broadway. The loan bears interest at LIBOR plus 2.5%. The principal and interest on this loan is due the earlier of February 28, 2020 or on demand. As of December 31, 2011 and 2010, the outstanding principal and interest of approximately $0.5 million and $1.5 million, respectively, is recorded in loans due to affiliates in the consolidated balance sheets.

108

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

5. Investments in Unconsolidated Affiliated Real Estate Entities  – (continued)

1407 Broadway Financial

The following table represents the unaudited condensed income statement for 1407 Broadway:

	For the Year Ended December 31, 2011			For the Year Ended December 31, 2010			For the Year Ended December 31, 2009
Total revenue	$	34,423		$	35,360		$	39,350
Property operating expenses		28,440			27,557			27,392
Depreciation and amortization		5,957			6,296			8,582
Operating income		26			1,507			3,376
Interest expense and other, net		3,738			4,703			3,837
Net loss	$	(3,712	)	$	(3,196	)	$	(461	)
Company’s share of net loss (49%)	$	(306	)	$	(1,566	)	$	(226	)

The following table represents the unaudited condensed balance sheet for 1407 Broadway:

	As of December 31, 2011			As of December 31, 2010
Real estate, at cost (net)	$	109,275		$	112,389
Intangible assets		663			1,068
Cash and restricted cash		10,010			9,788
Other assets		16,653			17,371
Total assets	$	136,601		$	140,616
Mortgage payable	$	127,250		$	126,575
Other liabilities		12,581			13,427
Member (deficit) capital		(3,230	)		614
Total liabilities and members’ capital	$	136,601		$	140,616

6. CP Boston Joint Venture

On February 17, 2011, the Lightstone Group (the “Buyer”), made a successful auction bid to acquire a 366-room, eight-story, full-service hotel (the “Hotel”) and a 65,000 square foot water park (the “Water Park”), collectively, the “CP Boston Property”, located at 50 Ferncroft Road, Danvers, Massachusetts (part of the Boston “Metropolitan Statistical Area”) from WPH Boston, LLC (the “Seller”) for an aggregate purchase price of approximately $10.1 million, excluding closing and other related transaction costs. Pursuant to the terms of the Agreement of Purchase and Sale and Joint Escrow Instructions (the “PSA”) dated February 17, 2011, between the Buyer and the Seller, the Buyer made an earnest money deposit of approximately $1.0 million on February 18, 2011 representing 10% of the aggregate purchase price.

On March 4, 2011, the Buyer offered the Company and its other sponsored public program, the Lightstone Value Plus Real Estate Investment Trust II, Inc. (“Lightstone REIT II”), through their respective operating partnerships, the opportunity to purchase, at cost, joint venture ownership interests in the CP Boston Joint Venture which would acquire the CP Boston Property through LVP CP Boston, LLC (“LVP CP Boston”), a wholly owned subsidiary, subject to the Buyer obtaining the Seller’s consent which was obtained on March 21, 2011. The Company’s Board of Directors and Lightstone REIT II’s Board of Directors approved 80.0% and 20.0% participations, respectively, in the CP Boston Joint Venture. During the second quarter of 2011, Lightstone REIT II contributed $2.1 million to the CP Boston Joint Venture.

109

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

6. CP Boston Joint Venture  – (continued)

On March 21, 2011, the CP Boston Joint Venture closed on the acquisition of the CP Boston Property and the Company’s share of the aggregate purchase price was approximately $8.0 million. Additionally, in connection with the acquisition, the Company’s Advisor received an acquisition fee equal to 2.75% of the acquisition price, or approximately $0.2 million. The Company’s portion of the acquisition was funded with cash. During the second quarter of 2011, management of the CP Boston Property decided to rebrand the hotel property and incurred a franchise cancellation fee of approximately $1.2 million.

The CP Boston Joint Venture established a taxable subsidiary, LVP CP Boston Holding Corp., which has entered into an operating lease agreement for the CP Boston Property. At closing, LVP CP Boston Holding Corp. also entered into an interim management agreement with Sage Client 289, LLC, an unrelated third party, for the management of the Hotel and the Water Park.

The Seller was not affiliated with the Company or its affiliates

The capitalization rate for the acquisition of the CP Boston Property during 2011 was 9.0%. The Company calculates the capitalization rate for real property by dividing the net operating income of the property by the purchase price of the property, excluding costs. For purposes of this calculation, net operating income was determined using the projected or budgeted net operating income of the property based upon then-current projections. Additionally, net operating income is all gross revenues from the property less all operating expenses, including property taxes and management fees but excluding depreciation and amortization.

The Company’s interest in the CP Boston Joint Venture is a managing interest. All distributions from the CP Boston Joint Venture will be made on a pro rata basis in proportion to each member’s equity interest percentage. Beginning on March 21, 2011, the Company has consolidated the operating results and financial condition of the CP Boston Joint Venture and accounted for the ownership interest of Lightstone REIT II as a noncontrolling interest.

The acquisition was accounted for under the purchase method of accounting with the Company treated as the acquiring entity. Accordingly, the consideration paid by the Company to complete the acquisition has been allocated to the assets acquired based upon their fair values as of the date of the acquisition.

The Company paid approximately $9.1 million in cash and assumed approximately $0.9 million in net liabilities. Approximately $2.4 million was allocated to land, $6.1 million was allocated to building and improvements, $1.8 million was allocated to furniture and fixtures and other assets.

For the year ended December 31, 2011, $10.9 million of revenue and $9.6 million of property operating expenses are included in operating loss on the Company’s consolidated statements of operations from the CP Boston Joint Venture since the date of acquisition.

The following table provides unaudited pro forma results of operations for the periods indicated, as if CP Boston Joint Venture had been acquired at the beginning of each period presented. Such pro forma results are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the dates indicated, nor are they indicative of the future operating results of the combined company.

	For the Year Ended December 31, 2011
	2011		2010		2011
Pro forma net revenue	$	48,784	$	48,014	$	48,748
Pro forma net income/(loss)	$	5,296	$	104,491	$	(70,119	)
Pro forma earnings/(loss) per share	$	0.17	$	3.29	$	(2.24	)

110

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

7. Mortgages Receivable

Participation in a Joint Venture Acquisition of a Second Mortgage Loan

On April 12, 2011, the Rego Park Joint Venture, in which the Company and Lightstone REIT II have 90.0% and 10.0% ownership interests, respectively, acquired a $19.5 million, nonrecourse second mortgage note (the “Second Mortgage Loan”) for approximately $14.8 million from Kelmar Company, LLC (the “Seller”), an unaffiliated third party. The purchase price reflects a discount of approximately $4.7 million to the outstanding principal balance. The Company’s share of the aggregate purchase price was approximately $13.6 million. Additionally, in connection with the purchase, the Company’s Advisor received an acquisition fee equal to 2.75% of its portion of the acquisition price, or approximately $0.4 million. The Company’s portion of the acquisition was funded with cash. Beginning on April 12, 2011, the Company has consolidated the operating results and financial condition of the Rego Park Joint Venture and accounted for the ownership interest of Lightstone REIT II as a noncontrolling interest. The Second Mortgage Loan is recorded in mortgages receivable on the consolidated balance sheet.

The Second Mortgage Loan was originated by the Seller in May 2008 with an original principal balance of $19.5 million, is due May 31, 2013 and is collateralized by a 417 unit apartment complex located in Queens, New York. The Second Mortgage Loan bears interest at a fixed rate of 5.0% per annum with monthly interest only payments of approximately $0.1 million through maturity. The Second Mortgage Loan is current with respect to debt service payments. The aforementioned discount is being amortized using the effective interest rate method through maturity. During the year ended December 31, 2011, $1.4 million of the discount was amortized into interest income and the remaining unamortized discount was $3.3 million as of December 31, 2011.

Senior Mortgage — Holiday Inn Express Hotel & Suites in East Brunswick, NJ (the “HI-EB”)

On June 21, 2011, the Company acquired an $8.8 million, senior mortgage note (the “Senior Mortgage”) for approximately $5.6 million from LNR Archetype Real Estate Debt Fund (the “Seller”), an unaffiliated third party. The purchase price reflects a discount of approximately $3.2 million to the outstanding principal balance. Additionally, in connection with the purchase, the Company’s Advisor received an acquisition fee equal to 2.75% of the acquisition price, or approximately $0.2 million. The acquisition was funded with cash. The Senior Mortgage is recorded in mortgages receivable on the consolidated balance sheet.

The Senior Mortgage was originated by Banc of America in July 2007 with an original principal balance of $9.1 million, was due August 2017 and is collateralized by the HI-EB. The Mortgage bears interest at a fixed rate of 6.33% per annum with scheduled monthly principal and interest payments of approximately $56 through maturity. The Senior Mortgage was transferred to special servicing on February 1, 2010 due to a payment default (the Senior Mortgage is in payment default for payments since January 1, 2010). Since the Senior Mortgage is in default, the aforementioned discount is not being amortized.

Promissory Note — Courtyard Marriott Parsippany, NJ (the “Marriott”)

On October 28, 2011, the Company acquired a $17.9 million promissory note (the “Promissory Note”) for approximately $9.3 million from Waterford of Parsippany, LLC (the “Marriot Seller”), an unaffiliated third party. The purchase price reflects a discount of approximately $8.6 million to the outstanding principal balance. Additionally, in connection with the purchase, the Company’s Advisor received an acquisition fee equal to 2.75% of the acquisition price, or approximately $0.3 million. The acquisition was funded with cash. The Promissory Note is recorded in mortgages receivable on the consolidated balance sheet.

The Promissory Note was originated by Ixis Real Estate Capital Inc., in July 2005 with an original principal balance of $18.0 million, was due July 2015 and is collateralized by the Marriott. The Promissory Note bears interest at a fixed rate of 5.18% per annum with scheduled monthly principal and interest payments of approximately $99 through maturity. The Promissory Note is in default and the aforementioned discount is not being amortized.

111

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

7. Mortgages Receivable  – (continued)

Since both the Senior Mortgage and the Promissory Note are in default, each respective borrower is required to transfer any excess cash to the Company on a monthly basis. The Company applies the cash receipts method of income recognition, whereby the Company will recognize any excess cash, after the required funding for taxes and insurance and other escrow related disbursements, as interest income until such time as the borrower is current on all amounts owed to the Company for interest and then any remaining cash will be applied to outstanding principal. During the year ended December 31, 2011 the Company recognized approximately $0.3 million and $0.2 million of interest income, on the Senior Mortgage and Promissory Note, respectively.

8. Option Agreement to Acquire an Interest in Festival Bay Mall

On December 8, 2010, FB Orlando Acquisition Company, LLC (the “Owner”), a previously wholly owned entity of David Lichtenstein (“Lichtenstein”), who does business as the Lightstone Group and is the Company’s Sponsor, acquired Festival Bay Mall (the “Property”) for cash consideration of approximately $25.0 million (the “Contract Price”) from BT Orlando LP, an unrelated third party seller. Ownership of the Owner was be transferred to the A.S. Holdings LLC (“A.S. Holdings”), a wholly-owned entity of Lichtenstein, on or about June 26, 2011 (the “Transfer Date”) pursuant to the terms of a transfer and exchange agreement between various entities, including a qualified intermediary.

On March 4, 2011, the Company, through the Operating Partnership, entered into an agreement with A.S. Holdings, providing the Operating Partnership an option to acquire a membership interest of up to 10% in A.S. Holdings. The option is exercisable in whole or in part, up to two times, by the Operating Partnership at any time, but in no event later than June 30, 2012. Although the option may be exercised immediately, if it is exercised in whole or in part before the Transfer Date, the closing on the acquisition of the applicable membership interests in A.S. Holdings will occur within 10 business days after the Transfer Date. The Company has not exercised its option, in whole or in part, as of the date of this filing. There can be no assurance that the Company will elect to exercise its option, in whole or in part, to purchase up to a 10% ownership interest in Festival Bay Mall.

The Property, which opened in 2003, consists of an approximately 751,000 square foot enclosed mall situated on 139 acres of land located at 5250 International Drive in Orlando close to the convergence of I-4 and the Florida Turnpike. The Property was built as a hybrid retail center with entertainment, destination retail and traditional in-line mall tenants. Concurrent with the closing of the acquisition, management of the Property was assumed by Paragon Retail Property Management LLC (“Paragon”), an affiliate of the Company’s Sponsor. Paragon is currently evaluating redevelopment opportunities for the Property.

112

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

9. Marketable Securities and Fair Value Measurements

Marketable Securities:

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

	As of December 31, 2011
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Equity Securities, primarily REITs	$	104	$	—	$	(32	)	$	72
Marco OP Units		29,222		14,097					43,319
Corporate Bonds and Preferred Equities		47,395		—		(6,257	)		41,138
Mortgage Backed Securities		18,730		2		(87	)		18,645
Total	$	95,451	$	14,099	$	(6,376	)	$	103,174

	As of December 31, 2010
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Equity Securities, primarily REITs	$	104	$	122	$			$	226
Marco OP Units		29,222		3,061					32,283
Mortgage Backed Securities		141,753				(1,883	)		139,870
Total	$	171,079	$	3,183	$	(1,883	)	$	172,379

Restricted Marketable Securities:

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

	As of December 31, 2011
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Marco OP Units	$	30,287	$	16,969	$	—	$	47,256
Total	$	30,287	$	16,969	$	—	$	47,256

	As of December 31, 2010
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Marco OP Units	$	30,287	$	3,659	$	—	$	33,946
Total	$	30,287	$	3,659	$	—	$	33,946

In May 2010, the Company sold 20,000 shares of equity securities with an aggregate cost basis of $361,800 and received net proceeds of $428,556. As a result of the sale, during the second quarter of 2010 the Company reclassified $134,800 of unrealized gain from accumulated other comprehensive income and recognized a realized gain of $66,756, which is included in gain on sale of marketable securities in the consolidated statements of operations for the year ended December 31, 2010.

On August 30, 2010, the Company disposed of certain of its interests in investment in unconsolidated affiliated real estate entities in connection with the closing of the POAC/Mill Run Transaction and received 367,778 of Escrowed Marco OP Units, with an adjusted cost basis valued at $30.3 million, and 335,959 Marco OP Units, with an adjusted cost basis valued at $29.2 million. The Escrowed Marco OP Units

113

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

9. Marketable Securities and Fair Value Measurements  – (continued)

and the Marco OP Units are classified as restricted marketable securities, available for sale and marketable securities, available for sale, respectively, in our consolidated balance sheet as of December 31, 2011 and 2010.

The Company may sell certain of its investments prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management. Additionally, for the year ended December 31, 2011, the Company realized $3.1 million of gross losses related to sales of securities and early redemptions of MBS by the security issuer. The maturities of the Company’s MBS generally range from 27 year to 30 years.

The Company has access to a margin loan from a financial institution that holds custody of certain of the Company’s marketable securities. The margin loan is collateralized by the marketable securities in the Company’s account. The amounts available to the Company under the margin loan are at the discretion of the financial institution and not limited to the amount of collateral in its account. The amount outstanding under this margin loan was $20.4 million as of December 31, 2011, and is due on demand. The margin loan bears interest at libor + 0.85% (1.134% at December 31, 2011) and interest expense on the margin loan was $0.3 million for the year ended December 31, 2011.

The Company considers the declines in market value of its investment portfolio to be temporary in nature. When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s amortized cost basis. As of December 31, 2011 and 2010, the Company did not recognize any impairment charges. As of December 31, 2011, the Company does not consider any of its investments to be other-than-temporarily impaired.

Derivative Financial Instruments

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

The collateral for hedge is the greater of (i) the number of shares hedged times Simon stock price or (ii) 150% of the value of the calls sold times 30% less the value of the puts purchased. The initial collateral requirement was approximately $6.9 million and is subject to change based on changes in the share price of Simon stock. The hedge cost $5.6 million, or $10.70 per share, and expires in December 2013. The dividends, if any, on the hedged shares continue to accrue to the Company, however Morgan Stanley has the right to adjust the put or strike price for any future increases in the dividend declared by Simon Inc. and as of December 31, 2011, the strike price of the calls was adjusted to $109.49 per share.

The hedges were classified as fair value hedges and recorded on the consolidated balance sheet under prepaid and other assets with changes in the fair value of the hedge reported as a gain or loss in other income, net within the consolidated statement of operations. As of December 31, 2011 and 2010 the fair value of the hedges was $(10.9) million and $3.1 million, respectively and the collateral requirement was approximately $8.3 million and $6.9 million, respectively. For the years ended December 31, 2011 and 2010 a loss of $13.9 million and $2.6 million was recorded in other income/(loss), net within the consolidated statements of operations.

114

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

9. Marketable Securities and Fair Value Measurements  – (continued)

Fair Value Measurements

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

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

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

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

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

Marketable securities, available for sale, and derivative financial instruments measured at fair value on a recurring basis as of the dates indicated are as follows:

	Fair Value Measurement Using							Total
As of December 31, 2011	Level 1		Level 2			Level 3
Cash equivalents (money market accounts)	$	70	$	—		$	—	$	70
Marketable Securities:
Equity Securities, primarily REITs	$	72	$	—		$	—	$	72
Marco OP Units		—		43,319			—		43,319
Corporate Bonds and Preferred Equities		—		41,138			—		41,138
MBS		—		18,645			—		18,645
Total	$	72	$	103,102		$	—	$	103,174
Restricted Marketable Securities:
Marco OP Units	$	—	$	47,256		$	—	$	47,256
Total	$	—	$	47,256		$	—	$	47,256
Derivative Financial Instruments:
Marco OP Units Collar	$	—	$	(10,855	)	$	—	$	(10,855	)
Total	$	—	$	(10,855	)	$	—	$	(10,855	)

115

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

9. Marketable Securities and Fair Value Measurements  – (continued)

	Fair Value Measurement Using						Total
As of December 31, 2010	Level 1		Level 2		Level 3
Cash equivalents (money market accounts)	$	9,059	$	—	$	—	$	9,059
Marketable Securities:
Equity Securities, primarily REITs	$	226	$	—	$	—	$	226
Marco OP Units		—		32,283		—		32,283
MBS		—		139,870		—		139,870
Total	$	226	$	172,153	$	—	$	172,379
Restricted Marketable Securities:
Marco OP Units	$	—	$	33,946	$	—	$	33,946
Total	$	—	$	33,946	$	—	$	33,946
Derivative Financial Instruments:
Marco OP Units Collar	$	—	$	3,088	$	—	$	3,088
Total	$	—	$	3,088	$	—	$	3,088

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

10. Assets and Liabilities Disposed of and Discontinued Operations

As a result of the Company defaulting on the debt related to three of the five apartment communities (of which one was located in Tampa, Florida, one was located in Charlotte, North Carolina and one was located in Greensboro, North Carolina) within its Camden Multi Family Properties due to the three properties no longer being economically beneficial to the Company, the lender foreclosed on the three properties during the year ended December 31, 2010. As a result of the foreclosure transactions, the debt associated with these three properties of $51.4 million was extinguished and the obligations were satisfied with the transfer of the applicable properties’ assets and working capital and the Company no longer has any ownership interests in these three properties. The operating results of these three properties through their respective dates of disposition have been classified as discontinued operations on a historical basis for all periods presented. The foreclosure transactions resulted in a gain on debt extinguishment of $19.9 million, of which $17.2 million and $2.7 million was recorded during the second quarter and fourth quarter of 2010, respectively, and is included in discontinued operations for the year ended December 31, 2010.

During the year ended December 31, 2009, the Company recorded an asset impairment charge of $30.3 million associated with these three foreclosed properties. No additional impairment charges were subsequently recorded as the net book values of their assets approximated their estimated fair market values, on a net aggregate basis, through their respective dates of disposition.

116

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

10. Assets and Liabilities Disposed of and Discontinued Operations  – (continued)

The following summary presents the operating results of the three foreclosed properties included in discontinued operations in the consolidated statements of operations for the periods indicated.

	For the Year Ended December 31,
	2010			2009
Revenue	$	3,077		$	6,970
Expenses:
Property operating expense		1,694			3,583
Real estate taxes		343			720
Impairment loss on long-lived assets		300			30,335
General and administrative costs		97			468
Depreciation and amortization		363			1,228
Total operating expense		2,797			36,334
Operating income/(loss)		280			(29,364	)
Other income		210			189
Interest income		1			—
Interest expense		(1,332	)		(2,929	)
Gain on debt extinguishment		19,903			—
Net income/(loss) from discontinued operations	$	19,062		$	(32,104	)

Cash flows generated from discontinued operations are presented separately in the consolidated statements of cash flows.

117

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

11. Mortgages Payable

Mortgages payable, totaling approximately $224.3 million and $195.5 million at December 31, 2011 and 2010, respectively, consists of the following:

Property	Interest Rate			Weighted Average Interest Rate as December 31, 2011			Maturity Date		Amount Due at Maturity		Loan Amount as of
											December 31, 2011		December 31, 2010
Southeastern Michigan Multi-Family Properties		5.96	%		5.96	%		July 2016	$	38,139	$	40,539	$	40,725
Oakview Plaza		5.49	%		5.49	%		January 2017		25,583		27,500		27,500
Gulf Coast Industrial Portfolio		5.83	%		5.83	%		February 2017		49,557		53,025		53,025
Houston Extended Stay Hotels (Two Individual Loans)		LIBOR + 4.50	%		4.81	%		June 2012		7,147		7,409		8,890
Brazos Crossing Power Center		Greater of LIBOR +3.50% or 6.75	%		6.75	%		December 2012		6,045		6,336		6,493
Camden Multi-Family Properties (Two Individual Loans)		5.44	%		5.44	%		December 2014		26,334		27,492		27,850
St. Augustine Outlet Center		6.09	%		6.09	%		April 2016		23,748		25,658		26,041
2nd Street Project		LIBOR + 1.00	%		1.25	%		June 2012		13,500		13,500		—
Crowe’s Crossing		5.44	%		5.44	%		November 2016		5,578		5,993		—
DePaul Plaza		6.4825	%		6.4825	%		October 2012		11,632		11,818		—
Everson Pointe		Prime + 1% with a 5.85% floor			5.85	%		December 2015		4,418		5,000		5,000
Total mortgages payable					5.69	%			$	211,681	$	224,270	$	195,524

LIBOR as of December 31, 2011 and 2010 was 0.2953% and 0.2606%, respectively. Each of the loans is secured by acquired real estate and is non-recourse to the Company, with the exception of the Houston Extended Stay Hotels loan which is 35% recourse to the Company.

The following table shows the contractually scheduled principal maturities during the next five years and thereafter as of December 31, 2011:

2012	2013		2014		2015		2016		Thereafter		Total
$41,379	$	2,600	$	29,044	$	6,864	$	69,179	$	75,204	$	224,270

Pursuant to the Company’s loan agreements, escrows in the amount of approximately $7.7 million and $7.2 million were held in restricted escrow accounts as of December 31, 2011 and 2010, respectively. Escrows held in restricted escrow accounts are included in restricted escrows on the consolidated balance sheets. Such escrows will be released in accordance with the applicable loan agreements for payments of real estate taxes, insurance and capital improvement transactions, as required. Additionally, approximately $13.5 million of cash collateral required for the 2^nd street project mortgage loan was held in restricted escrows. Certain of our mortgages payable also contain clauses providing for prepayment penalties.

118

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

11. Mortgages Payable  – (continued)

In connection with the acquisition of the Houston Extended Stay Hotels, the Houston Partnership along with ESD #5051 — Houston — Sugar Land, LLC and ESD #5050 — Houston — Katy Freeway, LLC, its wholly owned subsidiaries (the “Houston Borrowers”) secured a mortgage loan from Bank of America, N.A. in the principal amount of $12.85 million which was initially scheduled to mature on April 16, 2010. During April 2010, the mortgage loan was amended and extended to mature on April 16, 2011. In connection with the amendment and extension of the mortgage loan, the Company made a lump sum principal payment of $0.5 million. The amended mortgage loan bears interest on a daily basis expressed as a floating rate equal to the lesser of (i) the maximum non-usurious rate of interest allowed by applicable law or (ii) the British Bankers Association Daily Floating Rate plus 450 basis points (4.50%) per annum rate and requires monthly installments of interest plus a principal payment of $44. The remaining principal balance, together with all accrued and unpaid interest and all other amounts payable there under will be due on April 16, 2011. The amended mortgage loan is secured by the Houston Extended Stay Hotels and 35% of the obligation is guaranteed by the Company. In addition, the Company has entered into an interest rate cap agreement to cap the British Bankers Association Daily Rate at 1% through the maturity of the amended mortgage loan. In April 2011, the lender extended the maturity date of the amended mortgage loan by 30 days to May 16, 2011 and in May 2011 another 30 days to June 16, 2011. In June 2011 the loan was amended and extended to mature June 16, 2012. As part of the June 2011 amendment, the Company made a lump sum principal payment of $1.0 million in July 2011. The amended mortgage loan bears interest on a daily basis expressed as a floating rate equal to the lesser of (i) the maximum non-usurious rate of interest allowed by applicable law or (ii) the British Bankers Association Libor Daily Floating Rate plus 450 basis points (4.50%) per annum rate and requires monthly installments of interest plus a principal payment of $44. The remaining principal balance, together with all accrued and unpaid interest and all other amounts payable there under will be due on June 16, 2012. As part of the amendment the Company, may request either one or two, one year extensions of the loan. The request must be made thirty to ninety days before the loans maturity and the lender is required to grant the extension as long as the loan is not in default

In December 2008, the Company converted its construction loan, which was used to fund the acquisition of land and the related development of the Brazos Crossing Power Center, in Lake Jackson, Texas, to a term loan initially scheduled to mature on December 4, 2009. During February 2010, the term loan was amended and extended to mature on December 4, 2011. In connection with the amendment and extension of the mortgage, the Company made a lump sum principal payment of $0.7 million. The amended mortgage loan bears interest at the greater of 6.75% or plus 350 basis points (3.50%) per annum rate and requires monthly installments of interest plus a principal payment of $10. The amended mortgage loan is secured by the Brazos Crossing Power Center. In December 2011, the mortgage was amended and extended to mature on December 4, 2012. In connection with the amendment and extension of the mortgage, the Company made a lump sum principal payment of $50 and paid a modification fee of $16. The amended mortgage requires monthly installments of interest plus a principal payment of $26.

On November 16, 2007, in connection with the acquisition of the five apartment communities within our Camden Multi-Family Properties, the Company, through its wholly owned subsidiaries, obtained from Fannie Mae five substantially similar fixed rate mortgages aggregating $79.3 million. Of the $79.3 million, only two of the five original loans remain outstanding as of December 31, 2010 with an aggregate principal balance of $27.8 million (the “Loans”) as an aggregate of $51.5 million was extinguished during 2010 in connection with certain foreclosure transactions (see Note 10 for further discussion). The remaining loans have a 30 year amortization period, mature in 7 years, and bear interest at a fixed rate of 5.44% per annum. The remaining loans required monthly installments of interest only through December 2010 and monthly installments of principal and interest throughout the remainder of their stated terms. The remaining loans will mature on December 1, 2014.

119

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

11. Mortgages Payable  – (continued)

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

For the mortgage payable related to Everson Pointe, the mortgage loan has a term of 5 years, bears interest at a floating rate of Prime plus 1.00%, subject to a 5.85% floor, and requires monthly interest-only payments for the first year. Thereafter, the mortgage loan will require monthly principal payments of $12 plus accrued interest through its stated maturity. The mortgage loan will mature on December 16, 2015, at which time a balloon payment of approximately $4.4 million will be due to the lender, assuming no principal prepayments. The mortgage loan is secured by Everson Pointe and the Company has provided a guaranty to the lender for non-recourse carve-outs.

For the mortgage payable related to the 2^nd Street Project, the mortgage loan bears interest at a floating rate of LIBOR plus 1.00%, and requires monthly interest-only payments through maturity in June 2012, at which time the balance of $13.5 million would be due to the lender, unless the mortgage loan is further extended.

For the mortgage payable related to Crowe’s Crossing, the mortgage loan has a term of 5 years, bears interest at a rate of 5.44%, and requires monthly interest and principal payments of $34 through its stated maturity. The mortgage loan will mature on November 11, 2016, at which time a balloon payment of approximately $5.6 million will be due to the lender, assuming no principal prepayments.

In connection with the acquisition of DePaul Plaza on November 22, 2011, the Company assumed an existing mortgage loan with an outstanding principal balance of $11.8 million. As a condition to the assumption, the Company agreed to allow the lender to retain all excess cash flow from DePaul Plaza and place it into an escrow collateral account through the remaining term of the mortgage loan, which is scheduled to mature on October 1, 2012. Additionally, the mortgage loan bears interest at a rate of 6.4825%, and requires monthly interest and principal payments of $85 through its stated maturity. Assuming no principal repayments, a balloon payment of approximately $11.6 million will be due to the lender at maturity. The Company intends to refinance or repay in full the amount due at maturity.

Certain of the Company’s debt agreements require the maintenance of certain ratios, including debt service coverage. The Company did not meet certain debt service coverage ratios on the debt associated with its Gulf Coast Industrial Portfolio for two quarters in 2010 and all four quarters of 2011. The Company currently is in compliance with all of its other debt covenants.

Under the terms of the loan agreement for the Gulf Coast Industrial Portfolio, beginning in July 2011, the lender has elected to retain all excess cash flow from the associated properties because of the aforementioned noncompliance. Through the date of this filing, notwithstanding the fact that the lender has taken such action, the Company is current with respect to regularly scheduled debt service payments on the loan. Additionally, the Company believes that the lender’s election to retain all excess cash flow from the associated properties will not have a material impact on its results of operations or financial position.

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

12. Distributions Payable

On November 11, 2011, the Company’s Board of Directors declared a distribution for the three-month period ending December 31, 2011. The distribution was calculated based on shareholders of record each day during this three-month period at a rate of $0.0019178 per day, and will equal 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 December 31, 2011 distribution was paid in full on January 13, 2012 using a combination of cash ($3.7 million) and shares ($1.8 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.

On November 15, 2010, the Company Board of Directors declared a distribution for the three-month period ending December 31, 2010 of $5.6 million. The distribution was calculated based on shareholders 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 December 31, 2010 distribution was paid in full on January 15, 2011 using a combination of cash ($3.7 million) and shares ($1.9 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.

13. Company’s Stockholder’s Equity

Preferred Shares

Shares of preferred stock may be issued in the future in one or more series as authorized by the Company’s Board. Prior to the issuance of shares of any series, the Board is required by the Company’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 Company’s Board 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 Company, 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 Company’s common stock. As of December 31, 2011 and 2010, the Company had no outstanding preferred shares.

Common Shares

All of the common stock offered by the Company 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 Company’s common stock will be entitled to receive distributions if authorized by the Board and to share ratably in the Company’s assets available for distribution to the stockholders in the event of a liquidation, dissolution or winding-up.

Each outstanding share of the Company’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 Company’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 Company’ charter

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

13. Company’s Stockholder’s Equity  – (continued)

provides that the holders of its stock do not have appraisal rights unless a majority of the Board determines that such rights shall apply. Shares of the Company’s common stock have equal dividend, distribution, liquidation and other rights.

Under its charter, the Company 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 Company is the acquirer, however, do not require stockholder approval. The Company had approximately 29.7 million and 31.6 million shares of common stock outstanding as of December 31, 2011 and 2010, respectively.

Distributions and Distribution Reinvestment Program

Beginning February 1, 2006, the Company’s Board declared quarterly distributions in the amount of $0.0019178 per share per day payable to stockholders of record at the close of business each day during the applicable period. The annualized rate declared was equal to 7%, which represents the annualized rate of return on an investment of $10.00 per share attributable to these daily amounts, if paid for each day for a 365 day period (the “Annualized Rate”). Subsequently, the Company’s Board has declared regular quarterly distributions at the Annualized Rate, with the exception of the three-month period ended June 30, 2010. The distributions for the three-month period ended June 30, 2010 were at an aggregate annualized rate of 8% based on the share price of $10.00.

The Company’s stockholders have the option to elect the receipt of shares in lieu of cash under the Company’s distribution reinvestment program. On July 28, 2010, the Company’s Board decided to temporarily suspend our distribution reinvestment program pending final approval of the related registration statement (the “DRIP Registration Statement”) by the SEC. On October 26, 2010, the DRIP Registration Statement was declared effective by the SEC and the distribution reinvestment program was reinstated by the Company.

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

Tender Offer

The Company commenced a tender offer on October 3, 2011, pursuant to which it offered to acquire up to 2.0 million shares of its common stock (the “Shares”) from the holders (“Holders”) of the Shares at a purchase price equal to $9.80 per Share, in cash, less any applicable withholding taxes and without interest, upon the terms and subject to the conditions set forth in an offer to purchase and in the related letter of transmittal, (which together, as amended, constitute the “Offer”).

On December 19, 2011, the Company completed the Offer repurchasing from the Holders 2.0 million Shares for approximately $20 million. The Offer expired at 12:00 Midnight, Eastern Standard Time, on December 1, 2011 and all payments for the Shares repurchased were distributed to the Holders. A total of 10.0 million Shares were properly tendered and not withdrawn prior to the Offer’s expiration and, in accordance with the proration provisions applicable to the Offer, 2.0 million Shares were repurchased by the Company.

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

13. Company’s Stockholder’s Equity  – (continued)

Stock-Based Compensation

The Company has adopted a stock option plan under which its independent directors are eligible to receive annual nondiscretionary awards of nonqualified stock options. The Company’s stock option plan is designed to enhance our profitability and value for the benefit of its stockholders by enabling it 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.

The Company has authorized and reserved 75,000 shares of our common stock for issuance under our stock option plan. The Board 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 or the stockholders, to purchase 3,000 shares of our common stock on the date of each annual stockholder’s meeting. In July 2007, August 2008 and September 2009, 2010 and 2011, respectively, options to purchase 3,000 shares were granted to each of our three independent directors at the annual stockholders meeting on the respective dates. As of December 31, 2011, options to purchase 45,000 shares of stock were outstanding, 27,000 were fully vested, at an exercise price of $10. Through December 31, 2011, there were no forfeitures related to stock options previously granted.

The exercise price for all stock options granted under the stock option plan were fixed at $10 per share until the termination of the Company’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 from the date of grant. 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 on that date. Notwithstanding any other provisions of the Company’s stock option plan to the contrary, no stock option issued pursuant thereto may be exercised if such exercise would jeopardize the Company’s status as a REIT under the Internal Revenue Code.

Compensation expense associated with our stock option plan was not material for the years ended December 31, 2011, 2010 and 2009.

14. Noncontrolling Interests

The noncontrolling interests consist of (i) parties of the Company that hold units in the Operating Partnership, (ii) notes receivable from noncontrolling interests and (iii) certain interests in consolidated subsidiaries. The units include SLP units, limited partner units, Series A Preferred Units and Common Units. The noncontrolling interest in consolidated subsidiaries include ownership interests in PRO (see below), the CP Boston Joint Venture (see Note 6), the Rego Park Joint Venture (see Note 7) and the 2^nd Street Joint Venture (see below).

Share Description

See Note 15 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.

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LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

14. Noncontrolling Interests  – (continued)

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

Distributions

During the years ended December 31, 2011, 2010 and 2009, the Company paid distributions to noncontrolling interests of $9.6 million, $20.6 million and $4.7 million, respectively. The 2011 and 2010 distributions to noncontrolling interests include distributions of approximately $2.3 million and $14.1 million, respectively, as discussed in the Noncontrolling Interest of Subsidiary within the Operating Partnerships section below. As of December 31, 2011 and 2010, the total distributions declared and not paid to noncontrolling interests was $1.7 million (paid on January 13, 2012) and $1.7 million (paid on January 15, 2011), respectively.

Noncontrolling Interest of Subsidiary within the Operating Partnership

On August 25, 2009, the Operating Partnership acquired an additional 15.0% membership interest in POAC and an additional 14.26% membership interest in Mill Run. In connection with the transactions, the Advisor charged an acquisition fee equal to 2.75% of the acquisition price, which was approximately $6.9 million ($5.6 million related POAC and $1.3 million related to Mill Run). On August 25, 2009, the Operating Partnership contributed its investments of the 15.0% membership interest in POAC and the 14.26% membership interest in Mill Run to tPRO in exchange for a 99.99% managing membership interest in PRO. In addition, the Company contributed $2,900 cash for a 0.01% non- managing membership interest in PRO. As the Operating Partnership is the managing member with control, PRO is consolidated into the results and financial position of the Company. On September 15, 2009, the Advisor accepted, in lieu of a cash payment of $6.9 million for the acquisition fee, a 19.17% profit membership interest in PRO and assigned its rights to receive payment to the Sponsor, who assigned the same to David Lichtenstein. Under the terms of the operating agreement of PRO, the 19.17% profit membership interest would not receive any distributions until the Operating Partnership and the Company receive distributions equivalent to their capital contributions of approximately $29.0 million, then the 19.17% profit membership interest shall receive distributions of $6.9 million. Any remaining distributions shall be split between the three members in proportion to their profit interests.

With respect to the net cash proceeds received from the closing of the POAC/Mill Run Transaction on August 30, 2010, PRO’s portion was approximately $73.5 million. Pursuant to its operating agreement, distributions of approximately $59.4 million and approximately $14.1 million were made to the Operating Partnership and to the noncontrolling interest (David Lichtenstein as a result of the above discussed assignment), respectively, during the third quarter of 2010.

124

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

14. Noncontrolling Interests  – (continued)

With respect to the net cash proceeds received from the closing of the Outlet Centers Transaction on December 9, 2011, PRO’s portion was approximately $11.8 million. Pursuant to its operating agreement, distributions of approximately $9.5 million and approximately $2.3 million were made to the Operating Partnership and to the noncontrolling interest (David Lichtenstein as a result of the above discussed assignment), respectively, during the fourth quarter of 2011.

Consolidated Joint Venture

On August 18, 2011, the Operating Partnership and its Sponsor formed the 2^nd Street Joint Venture to own and operate 50-01 2^nd Street Associates, LLC (the “2^nd Street Owner”). The Operating Partnership owns a 75.0% membership interest in the 2^nd Street Joint Venture (the “2^nd Street JV Interest”). The 2^nd Street JV Interest is a managing membership interest. The Sponsor has a 25.0% non managing membership interest with certain consent rights with respect to major decisions. Contributions are allocated in accordance with each investor’s ownership percentage. Profit and cash distributions, if any, will be allocated in accordance with each investor’s ownership percentage. In addition, the 2^nd Street JV Interest has a put option (the “Put”) whereby the Operating Partnership can put its interest to the Sponsor through August 18, 2012 in exchange for the dollar value of its capital contributions as of the date of exercise. As of December 31, 2011, the Operating Partnership’s total capital contributions were $15.1 million. As the Operating Partnership through the 2^nd Street JV Interest has the power to direct the activities of the 2^nd Street Joint Venture that most significantly impact the performance, beginning August 18, 2011, the Company has consolidated the operating results and financial condition of the 2^nd Street Joint Venture and has accounted for the ownership interest of the Sponsor as a noncontrolling interest.

On August 18, 2011, the 2^nd Street Owner, which is wholly owned by the 2^nd Street Joint Venture, acquired a parcel of land located in Queens, New York for approximately $19.3 million from an unaffiliated third party. The 2^nd Street Joint Venture contributed approximately $19.3 million in cash to the 2^nd Street Owner to fund the land acquisition. In connection with the acquisition of the land, the 2^nd Street Owner entered into a loan for $13.5 million (the “Interim Loan”) with CIBC, Inc. that bears interest at libor plus 1.0% per annum with monthly interest only payments through its stated maturity. The Interim Loan is collateralized by $13.5 million in cash held in escrow (included in restricted escrows on our consolidated balance sheet as of December 31, 2011) and is guaranteed by our Sponsor. In addition, the 2^nd Street Owner incurred approximately $0.2 million in deferred financing costs associated with the 2^nd Street Project through December 31, 2011. The Company’s Advisor will be entitled to an acquisition fee equal to 2.75% of its portion of the acquisition price, or approximately $0.5 million upon expiration of the Put.

The capitalization rate for the 2^nd Street Joint Venture as of the closing of the acquisition was 6.5%. We calculate the capitalization rate for a real property by dividing net operating income of the property by the purchase price of the property, excluding costs. For purposes of this calculation, net operating income is determined using the projected or budgeted net operating income of the property based upon then-current projections upon stabilization and has been reduced by our proportionate share of its expected mortgage indebtedness and discounted at a rate of 20%. Additionally, net operating income is all gross revenues from the property less all operating expenses, including property taxes and management fees but excluding depreciation.

The acquired land is expected to be used for the future development of a residential project (the “2^nd Street Project”). The 2^nd Street Owner is currently exploring development plans and financing alternatives for the 2^nd Street Project.

Note Receivable due from Noncontrolling Interests

In connection with the contribution of the Mill Run and POAC membership interests, the Company made loans to Arbor JRM, Arbor CJ, AR Prime, TRAC, Central Jersey and JT Prime (collectively, “Noncontrolling

125

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

14. Noncontrolling Interests  – (continued)

Interest Borrowers”) in the aggregate principal amount of $88.5 million (the “Noncontrolling Interest Loans”. These loans are payable semi-annually and accrue interest at an annual rate of 4.0%. The loans mature through September 2017 and contain customary events of default and default remedies. The loans require the Noncontrolling Interest Borrowers to prepay their respective loans in full upon redemption of the Series A Preferred Units by the Operating Partnership. The loans are secured by the Series A Preferred Units and Common Units issued in connection with the respective contribution of the Mill Run and the POAC membership interests, as such these loans are classified as a reduction to noncontrolling interests in the consolidated balance sheets.

Accrued interest related to these loans totaled $2.0 million and $1.9 million at December 31, 2011 and 2010, and are included in interest receivable from related parties in the consolidated balance sheets.

15. Related Party Transactions

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

Fees	Amount
Acquisition Fee	The Advisor is paid an acquisition fee equal to 2.75% of the gross contract purchase price (including any mortgage assumed) of each property purchased. The Advisor is also be reimbursed for expenses that it incurs in connection with the purchase of a property. The acquisition fee and expenses for any particular property, including amounts payable to affiliates, will not exceed, in the aggregate 5% of the gross contract purchase price (including mortgage assumed) of the property.
Property Management –  Residential/Retail/ Hospitality	The Property Manager is paid a monthly management fee of up to 5% of the gross revenues from residential, hospitality and retail properties. The Company pays 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 is 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 pays 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 is paid an asset management fee of 0.55% of the Company’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.

126

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

15. Related Party Transactions  – (continued)

Fees	Amount
Reimbursement of Other expenses	For any year in which the Company qualifies as a REIT, the Advisor must reimburse the Company 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 Company.
	The Advisor or its affiliates are reimbursed for expenses that may include costs of goods and services, administrative services and non-supervisory services performed directly for the Company by independent parties.

Lightstone SLP, LLC, an affiliate of our Sponsor, has purchased SLP units in the Operating Partnership. These SLP units, the purchase price of which will be repaid only after stockholders receive a stated preferred return and their net investment, will entitle Lightstone SLP, LLC to a portion of any regular distributions made by the Operating Partnership. Since our inception through March 31, 2010, cumulative distributions declared to Lightstone SLP, LLC were $4.9 million, all of which had been paid as of April 2010. For the three months ended June 30, 2010, the Operating Partnership did not declare a distribution related to the SLP units as the distribution to the stockholders was less than 7% for this period. On August 30, 2010, the Company declared additional distributions to the stockholders to bring the annualized distribution to at least 7%. As such, the Company as of August 30, 2010 recommenced declaring distribution to Lightstone SLP, LLC at the 7% annualized rate, except for the three months ended June 30, 2010 which was at an 8% annualized rate which represents the same rate paid to the stockholders.

During the years ended December 31, 2011 and 2010, distributions of $2.6 million and $2.2 million, respectively, were declared and distributions of $2.1 million and $2.2 million, respectively, were paid related to the SLP units and are part of noncontrolling interests. Since inception through December 31, 2011, cumulative distributions declared were $8.7 million, of which $8.2 million have been paid. Such distributions, paid current at a 7% annualized rate of return to Lightstone SLP, LLC through December 31, 2011, with the exception of the distribution related to the three months ended June 30, 2010, which was paid at an 8% annualized rate 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:

127

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

15. Related Party Transactions  – (continued)

Operating Stage Distributions	Amount of Distribution
7% 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 Stage Distributions	Amount of Distribution
7% 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.

128

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

15. Related Party Transactions  – (continued)

The Company pursuant to the related party arrangements described above has recorded the following amounts the years ended December 31, 2011, 2010 and 2009:

	For the Year Ended
	December 31, 2011		December 31, 2010		December 31, 2009
Acquisition fees	$	1,929	$	279	$	16,657
Asset management fees		1,995		4,521		4,541
Property management fees		1,327		1,475		1,812
Acquisition expenses reimbursed to Advisor		242		1		903
Development fees and leasing commissions		650		267		270
Total	$	6,143	$	6,543	$	24,183

See Notes 4, 5, 14 and 15 for other related party transactions.

As of December 31, 2011 and 2010, the Company owed the Sponsor $0.8 million and $0.3 million, respectively related to asset management fees for the quarters ended December 31, 2011 and 2010, respectively. The payable to the Sponsor is recorded within the Due to Sponsor line item on the consolidated balance sheet.

16. Impairment of Long-Lived Assets, Net of (Gain)/Loss on Disposal

The impairment of long lived assets during the year ended December 31, 2011 consists of a fourth quarter impairment charge of $8.3 million within our Industrial Segment associated with three properties in our Sealy C Portfolio which are located in San Antonio, Texas.

The Company identified certain indicators of impairment related to the three properties in the Sealy C Portfolio, such as negative cash flow expectations and changes in management’s expectations regarding the length of the holding period of the properties, which occurred during the fourth quarter of 2011. These indicators did not exist during the Company’s prior reviews of the properties during prior periods. Accordingly, the Company performed cash flow valuation analyses and determined that the carrying values of the properties exceeded their expected undiscounted cash flows. As a result, the Company recorded an aggregate impairment charge of $8.3 million related to these properties consisting of the excess carrying value of the asset over its estimated fair values as part of impairment of long lived assets.

The impairment of long-lived assets, net of (gain)/loss on disposal of $1.1 million during the year ended December 31, 2010 primarily consists of an impairment charge of $1.2 million within our Retail Segment recorded in connection with the transfer of our St. Augustine Outlet Center from held for sale to held and used during the second quarter of 2010. An adjustment of $1.2 million was recorded to bring the St. Augustine Outlet Center’s assets balance to the lower of its carrying value net of any depreciation (amortization) expense that would have been recognized had the assets been continuously classified as held and used or the fair value on June 28, 2010. See Note 10 for additional information related to discontinued operations.

The impairment of long-lived assets, net of (gain)/loss on disposal of $14.6 million during the year ended December 31, 2009 consisted of aggregate asset impairment charges of $14.9 million, partially offset by a $0.3 million gain on disposal of assets. The asset impairment charges primarily related to the impairment (i) within our Multi-Family Residential Segment of $12.9 million associated with two of the apartment communities (located in Charlotte and Greensboro, North Carolina) in our Camden Multi-Family Properties and (ii) $2.0 million within our Retail Segment associated with our Brazos Crossing Power Center.

129

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

16. Impairment of Long-Lived Assets, Net of (Gain)/Loss on Disposal  – (continued)

The Company identified certain indicators of impairment related to the five apartment communities which were at that point of time in our Camden Multi-Family Properties and our Brazos Crossing Power Center, such as negative cash flow expectations and changes in management’s expectations regarding the length of the holding period of the properties, which occurred during the third quarter of 2009. These indicators did not exist during the Company’s prior reviews of the properties during prior periods. Accordingly, the Company performed cash flow valuation analyses and determined that the carrying values of the properties exceeded their expected undiscounted cash flows. As a result, the Company recorded an aggregate impairment charge of $45.2 million (of which $14.9 million is included in continuing operations and $30.3 million is included discontinued operations because it related to the three apartment communities in the Camden Multi-Family Properties which were foreclosed on during 2010) related to these properties consisting of the excess carrying value of the asset over its estimated fair values as part of impairment of long lived assets, net of (gain)/loss on disposal within the accompanying consolidated statements of operations.

17. Future Minimum Rentals

As of December 31, 2011, the approximate fixed future minimum rental from the Company’s commercial real estate properties are as follows:

2012	2013		2014		2015		2016		Thereafter		Total
$15,576	$	13,681	$	12,470	$	9,437	$	7799	$	16,765	$	75,728

Pursuant to the lease agreements, tenants of the property may be required to reimburse the Company for some or the entire portion 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.

18. Segment Information

The Company operates in four business segments: (i) retail real estate, (ii) residential 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 years ended December 31, 2011, 2010 and 2009 were exclusively derived from activities in the United States. No revenues from foreign countries were received or reported. The Company had no long-lived assets in foreign locations as of December 31, 2011, 2010 and 2009. The accounting policies of the segments are the same as those described in Note 2, excluding depreciation and amortization. Unallocated assets, revenues and expenses relate to corporate related accounts.

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

The results of operations presented below exclude three properties due to their classification as discontinued operations (see Note 2). Prior to their classification as discontinued operations, the results of operations of three properties were within the multi-family segment.

130

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

18. Segment Information  – (continued)

Selected results of operations regarding the Company’s operating segments are as follows:

	For the Year Ended December 31, 2011
	Retail			Multi Family		Industrial			Hospitality			Unallocated			Total
Total revenues	$	12,027		$	12,178	$	7,017		$	14,149		$	—		$	45,371
Property operating expenses		3,072			5,317		2,179			11,441			94			22,103
Real estate taxes		1,062			1,339		836			415			191			3,843
General and administrative costs		(87	)		253		11			324			8,870			9,371
Net operating income/(loss)		7,980			5,269		3,991			1,969			(9,155	)		10,054
Franchise cancellation expense		—			—		—			1,235			—			1,235
Depreciation and amortization		3,780			1,586		2,175			808			—			8,349
Impairment of long lived assets		—			—		8,319			—			—			8,319
Operating income/(loss)	$	4,200		$	3,683	$	(6,503	)	$	(74	)	$	(9,155	)	$	(7,849	)
Total purchases of investment property	$	28,335		$	4,182	$	1,525		$	10,887		$	19,790		$	64,719
As of December 31, 2011:
Total Assets	$	134,952		$	66,702	$	61,721		$	31,229		$	269,752		$	564,356

	For the Year Ended December 31, 2010
	Retail		Multi Family		Industrial			Hospitality		Unallocated			Total
Total revenues	$	10,889	$	11,592	$	6,960		$	2,952	$	—		$	32,393
Property operating expenses		2,916		5,289		2,319			1,611		—			12,135
Real estate taxes		1,036		1,278		836			223		—			3,373
General and administrative costs		155		249		32			7		8,420			8,863
Net operating income (loss)		6,782		4,776		3,773			1,111		(8,420	)		8,022
Depreciation and amortization		2,305		1,515		2,219			507		—			6,546
Impairment of long lived assets		1,194		—		(70	)		—		—			1,124
Operating income/(loss)	$	3,283	$	3,261	$	1,624		$	604	$	(8,420	)	$	352
Total purchases of investment property	$	9,058	$	580	$	868		$	132	$	—		$	10,638
As of December 31, 2010:
Total Assets	$	108,964	$	63,100	$	70,725		$	17,839	$	256,830		$	517,458

	For the Year Ended December 31, 2009
	Retail		Multi Family			Industrial			Hospitality			Unallocated			Total
Total revenues	$	10,969	$	11,972		$	7,445		$	3,470		$	—		$	33,856
Property operating expenses		3,373		5,472			2,007			1,836			—			12,688
Real estate taxes		1,120		1,267			889			237			—			3,513
General and administrative costs		126		351			36			12			7,701			8,226
Net operating income (loss)		6,350		4,882			4,513			1,385			(7,701	)		9,429
Depreciation and amortization		3,827		1,692			2,517			479			1			8,516
Impairment of long lived assets		2,002		12,861			(238	)		—			—			14,625
Operating income/(loss)	$	521	$	(9,671	)	$	2,234		$	906		$	(7,702	)	$	(13,712	)
Total purchases of investment property	$	926	$	1,237		$	698		$	(362	)	$	—		$	2,499

131

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

19. Quarterly Financial Data (Unaudited)

The following table presents selected unaudited quarterly financial data for each quarter during the years indicated (The data presented below excludes three properties due to their classification as discontinued operations (see Note 2):

	2011
	Quarter ended December 31,			Quarter ended September 30,			Quarter ended June 30,			Quarter ended March 31,
Total revenue	$	12,277		$	12,169		$	12,382		$	8,544
Net income/(loss)		8,726			7,979			(4,796	)		(3,800	)
Less (income)/loss attributable to noncontrolling interest		(2,377	)		(485	)		217			136
Net income/(loss) applicable to Company’s common shares	$	6,349		$	7,494		$	(4,579	)	$	(3,664	)
Net income/(loss) per common share, basic and diluted	$	0.20		$	0.24		$	(0.14	)	$	(0.12	)

	2010
	Quarter ended December 31,			Quarter ended September 30,			Quarter ended June 30,			Quarter ended March 31,
Total revenue	$	8,155		$	8,124		$	8,135		$	7,979
Net income/(loss) from continuing operations		(2,947	)		133,538			(4,125	)		(3,587	)
Net income(loss) from discontinued operations		2,619			87			16,992			(636	)
Net income/(loss)		(328	)		133,625			12,867			(4,223	)
Less (income)/loss attributable to noncontrolling interest		(9,820	)		(2,064	)		(200	)		74
Net income/(loss) applicable to Company’s common shares	$	(10,148	)	$	131,561		$	12,667		$	(4,149	)
Basic and diluted net income/(loss) per Company’s common share:
Continuing operations	$	(0.40	)	$	4.13		$	(0.13	)	$	(0.10	)
Discontinued operations		0.08			—			0.53			(0.02	)
Net income/(loss) per common share, basic and diluted	$	(0.32	)	$	4.13		$	0.40		$	(0.12	)

20. 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 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 has sued for damages under theories of quantum merit and unjust enrichment seeking the value of work he performed. Management believes that this suit is frivolous and entirely without merit and intends to defend against these charges vigorously. The Company believes any unfavorable outcome on this matter will not have a material effect on the consolidated financial statements.

132

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

20. Commitments and Contingencies  – (continued)

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 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.

On July 13, 2011, JF Capital Advisors, LLC filed a lawsuit in New York state court against The Lightstone Group, LLC, Lightstone Value Plus Real Estate Investment Trust II, Inc. and the Company seeking payment for services alleged to have been rendered, and to be rendered prospectively, under theories of unjust enrichment and breach of contract. The plaintiff had a limited business arrangement with The Lightstone Group, LLC; that arrangement has been terminated. On February 8, 2012, the court granted Defendant’s Motion to Dismiss on all counts.

While any proceeding or litigation has an element of uncertainty, management currently believes that the likelihood of an unfavorable outcome with respect to any of the aforementioned legal proceedings is remote. No provision for loss has been recorded in connection therewith.

As of the date hereof, the Company is not a party to any material pending legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss.

POAC/Mill Run Tax Protection Agreements

In connection with the contribution of the Mill Run Interest and the POAC Interest, our Operating Partnership entered into the POAC/Mill Run Tax Protection Agreements with each of Arbor JRM, Arbor CJ, AR Prime, TRAC, Central Jersey and JT Prime (collectively, the “Contributors”). Under the POAC/Mill Run Tax Protection Agreements, our Operating Partnership is required to indemnify each of Arbor JRM, Arbor CJ, TRAC and Central Jersey with respect to the Mill Run Properties, and AR Prime and JT Prime, with respect to the POAC Properties, from June 26, 2008 for Arbor JRM, Arbor CJ and AR Prime and from August 25, 2009 for TRAC, Central Jersey and JT Prime to June 26, 2013 for, among other things, certain income tax liability that would result from the income or gain which Arbor JRM, Arbor CJ, TRAC, Central Jersey on the one hand, or AR Prime, JT Prime, on the other hand, would recognize upon the Operating Partnership’s failure to maintain the current level of debt encumbering the Mill Run Properties or the POAC Properties,

133

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

20. Commitments and Contingencies  – (continued)

respectively, or the sale or other disposition by the Operating Partnership of the Mill Run Properties, the Mill Run Interest, the POAC Properties, or the POAC Interest (each, an “Indemnifiable Event”). Under the terms of the POAC/Mill Run Tax Protection Agreements, our Operating Partnership is indemnifying the Contributors for certain income tax liabilities based on income or gain which the Contributors are deemed to be required to include in their gross income for federal or state income tax purposes (assuming the Contributors are subject to tax at the highest regional, federal, state and local tax rates imposed on individuals residing in New York City) as a result of an Indemnifiable Event. This indemnity covers income taxes, interest and penalties and is required to be made on a “grossed up” basis that effectively results in the Contributors receiving the indemnity payment on a net, after-tax basis. The amount of the potential tax indemnity to the Contributors under the POAC/Mill Run Tax Protection Agreements, including a gross-up for taxes on any such payment, using current tax rates, is estimated to be approximately $95.7 million. The Company has not recorded any liability in its consolidated balance sheets as the Company believes that the potential liability is remote as of December 31, 2011.

Each of the POAC/Mill Run Tax Protection Agreements imposes certain restrictions upon our Operating Partnership relating to transactions involving the Mill Run Properties and the POAC Properties which could result in taxable income or gain to the Contributors. Our Operating Partnership may not dispose or transfer any Mill Run Property or any POAC Property without first proving that the Operating Partnership possesses the requisite liquidity, including the proceeds from any such transaction, to make any payments that would come due pursuant to the POAC/Mill Run Tax Protection Agreement. However, our Operating Partnership may take the following actions: (i) (A) as to the POAC Properties, commencing with the period one year and thirty-one days following the date of the POAC/Mill Run Tax Protection Agreement, our Operating Partnership can sell on an annual basis part or all of any of the POAC Properties with an aggregate value of ten percent (10%) or less of the total value of the POAC Properties as of the date of contribution (and any amounts of the ten percent (10%) value not sold can be applied to sales in future years); and (B) as to the Mill Run Properties either the same ten percent (10%) test as set forth above in (i)(A) with respect to the Mill Run Properties or the sale of the property known by Design Outlet Center; and (ii) our Operating Partnership can enter into a non-recognition transaction with either the consent of the Contributors or an opinion from an independent law or accounting firm stating that it is “more likely than not” that the transaction will not give rise to current taxable income or gain.

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

Simon Tax Matters Agreements

In connection with the closing of the POAC/Mill Transaction, the LVP Parties entered into a tax matters agreement with Simon pursuant to which Simon generally may not engage in a transaction that could result in the recognition of the “built-in gain” with respect to POAC and Mill Run at the time of the closing for specified periods of up to eight years following the closing date. Simon has a number of obligations with respect to the allocation of partnership liabilities to the LVP Parties. For example, Simon agreed to maintain certain of the outstanding mortgage loans that are secured by POAC Properties and Mill Run Properties until their respective maturities, and the LVP Parties have provided and will continue to have the opportunity to provide guaranties of collection with respect to a revolving credit facility (or indebtedness incurred to refinance the revolving credit facility) for at least four years following the closing of the POAC/Mill Run

134

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

20. Commitments and Contingencies  – (continued)

Transaction. The LVP Parties were also given the opportunity to enter into agreements to make specified capital contributions to Simon OP in the event that it defaults on certain of its indebtedness. If Simon breaches its obligations under the tax matters agreement, Simon will be required to indemnify the LVP Parties for certain taxes that they are deemed to incur, including taxes relating to the recognition of “built-in gains” with respect to POAC Properties and Mill Run Properties, and gains recognized as a result of a reduction in the allocation of partnership liabilities. These indemnification payments will be “grossed up” such that the amount of the payments will equal, on an after-tax basis, the tax liability deemed incurred because of the breach.

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

In connection with the closing of the Outlet Centers Transaction, the Holdings Entities, the Company, the Operating Partnership, PRO and the Sponsor’s Affiliates (collectively, the “Outlet Centers Parties”) entered into a tax matters agreement with Simon pursuant to which Simon generally may not engage in a transaction that could result in the recognition of the “built-in gain” with respect to the Grand Prairie Outlet Center and the Livermore Valley Outlet Center at the time of the closing for specified periods of up to eight years following the closing date. Simon has a number of obligations with respect to the allocation of partnership liabilities to the Outlet Centers Parties For example, Simon agreed to maintain a debt level of no less than the cash portion of the proceeds from the Outlet Centers Transaction until at the fourth anniversary of the closing, and the Outlet Centers Parties have provided and will continue to have the opportunity to provide guaranties of collection with respect to a revolving credit facility (or indebtedness incurred to refinance the revolving credit facility) for at least four years following the closing of the Outlet Centers Transaction. The Outlet Centers Parties were also given the opportunity to enter into agreements to make specified capital contributions to Simon OP in the event that it defaults on certain of its indebtedness. If Simon breaches its obligations under the tax matters agreement, Simon will be required to indemnify the Outlet Centers Parties for certain taxes that they are deemed to incur, including taxes relating to the recognition of “built-in gains” with respect to the Grand Prairie Outlet Center and the Livermore Valley Outlet Center, and gains recognized as a result of a reduction in the allocation of partnership liabilities. These indemnification payments will be “grossed up” such that the amount of the payments will equal, on an after-tax basis, the tax liability deemed incurred because of the breach.

POAC/Mill Run Simon Loan Collection Guaranties

In connection with the closing of the POAC/Mill Run Transaction, the LVP Parties have provided POAC/Mill Run Simon Loan Collection Guaranties with respect to the draws under a revolving credit facility made in connection with the closing of the POAC/Mill Run Transaction. Under the terms of the POAC/Mill Run Simon Loan Collection Guaranties, the LVP Parties are obligated to make payments in respect of principal and interest due under the revolving credit facility after Simon OP has failed to make payments, the amount outstanding under the revolving credit facility has been accelerated, and the lenders have failed to collect the full amount outstanding under the revolving credit facility after exhausting other remedies. The POAC/Mill Run Simon Loan Collection Guaranties by the LVP Parties are limited to a specified aggregate maximum of $201.1 million, with the maximum of each of the respective LVP Parties limited to an amount that is at least equal to its respective cash considerations. The maximum amounts of the POAC/Mill Run Transaction Collection Guaranties will be reduced to the extent of any payments of principal made by

135

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2011, 2010 and 2009
(Dollar amounts in thousands, except per share/unit data and where indicated in millions)

20. Commitments and Contingencies  – (continued)

Simon OP or other cash proceeds recovered by the lenders. In connection with completion of the POAC/Mill Run Transaction, the Company recorded a liability in the amount of $0.1 million, representing the estimated fair value of the POAC/Mill Run Simon Loan Collection Guaranties as of the closing date, which is included in accounts payable and accrued expenses in the consolidated balance sheet as of December 31, 2011 and 2010, respectively.

Outlet Centers Simon Loan Collection Guaranties

In connection with the closing of the Outlet Centers Transaction, the Operating Partnership and PRO have provided Outlet Centers Simon Loan Collection Guaranties with respect to the draws under a revolving credit facility made in connection with the closing of the Outlet Centers Transaction. Under the terms of the Outlet Centers Simon Loan Collection Guaranties, the Company, its Operating Partnership and PRO are obligated to make payments in respect of principal and interest due under the revolving credit facility after Simon OP has failed to make payments, the amount outstanding under the revolving credit facility has been accelerated, and the lenders have failed to collect the full amount outstanding under the revolving credit facility after exhausting other remedies. The Outlet Centers Simon Loan Collection Guaranties by the Company, its Operating Partnership and PRO are limited to a specified aggregate maximum of $63.8 million, with the maximum of each of the respective parties limited to an amount that is at least equal to its respective cash considerations. The maximum amounts of the Outlet Centers Simon Loan Collection Guaranties will be reduced to the extent of any payments of principal made by Simon OP or other cash proceeds recovered by the lenders. In connection with completion of the Outlet Centers Transaction, the Company recorded a liability in the amount of $32, representing the estimated fair value of the Outlet Centers Simon Loan Collection Guaranties as of the closing date, which is included in accounts payable and accrued expenses in the consolidated balance sheet as of December 31, 2011.

21. Subsequent Events

Distribution Declaration

On March 30, 2012, the Company declared a distribution for the three-month period ending March 31, 2012. The distribution will be calculated based on shareholders of record each day during this three-month period at a rate of $0.0019178 per day, and will equal a daily amount that, if paid each day for a 365-day period, would equal a 7.0% annualized rate based on a share price of $10.00. The distribution will be paid in cash on April 15, 2012 to shareholders of record as of March 31, 2012. The shareholders have an option to elect the receipt of shares under our Distributions Reinvestment Program.

CP Boston Joint Venture

On February 20, 2012, the Company, completed the acquisition of the remaining 20.0% joint venture ownership interest in the CP Boston Joint Venture, with an effective date of January, 1, 2012, from LVP REIT II, The Company now owns 100.0% of the CP Boston Joint Venture.

Under the terms of the agreement, the Company paid $3.0 million in total consideration, consisting of $0.6 million of cash and a $2.4 million unsecured 10% interest-bearing demand note.

136

Schedule III
Real Estate and Accumulated Depreciation
December 31, 2011

			Initial Cost(A)							Gross amount at which carried at end of period
	Encumbrance		Land		Buildings and Improvements		Costs Capitalized Subsequent to Acquisition			Land and Improvements		Buildings and Improvements		Total(B)		Accumulated Depreciation(C)			Date Acquired		Depreciable Life(D)
St. Augustine Outlet Center St. Augustine, Florida	$	25,658	$	11,206	$	42,103	$	1,622		$	10,892	$	44,039	$	54,931	$	(2,964	)		3/29/2006 & 10/2/2007		(D)
Southeastern Michigan Multi-Family Properties Southeastern, Michigan		40,539		8,051		34,298		1,254			8,307		35,296		43,603		(5,173	)		6/29/2006		(D)
Oakview Plaza Omaha, Nebraska		27,500		6,706		25,463		1,646			7,399		26,416		33,815		(3,724	)		12/21/2006		(D)
Gulfcoast Industrial Portfolio New Orleans/Baton Rouge, Louisiana & San Antonio, Texas		53,025		12,767		51,649		(8,243	)		12,796		43,377		56,173		(5,436	)		2/1/2007		(D)
Brazos Crossing Power Center Lake Jackson, Texas		6,336		1,688		4,338		(208	)		1,268		4,550		5,818		(553	)		6/27/2007		(D)
Houston Extended Stay Hotels Houston, Texas		7,409		1,901		14,360		1,711			1,924		16,047		17,971		(1,659	)		10/17/2007		(D)
Sarasota Sarasota, Florida		—		2,000		11,292		(4,733	)		2,000		6,559		8,559		(452	)		11/15/2007		(D)
Camden Multi-Family Properties (E) Tampa, Florida, Charlotte, North Carolina and Greensboro, North Carolina		27,492		7,030		28,124		(13,543	)		4,513		17,098		21,611		(1,126	)		11/16/2007		(D)
Everson Pointe Snellville, Georgia		5,000		2,492		5,495		30			3,271		4,747		8,018		(196	)		12/17/2010		(D)
Crowne Plaza Boston Hotel Boston, Massachusetts		—		2,400		6,090		—			2,400		6,090		8,490		(117	)		3/21/2011		(D)
50-01 2nd St Long Island City, New York		13,500		19,296		—		—			19,296		—		19,296		—			8/18/2011		(D)
Crowes Crossing Shopping Center Stone Mountain, Georgia		5,993		2,110		5,390		15			2,110		5,405		7,515		(23	)		10/19/2011		(D)
Plaza at DePaul Bridgeton, Missouri		11,818		10,777		9,023		—			10,777		9,023		19,800		(19	)		11/22/2011		(D)
Total	$	224,270	$	88,425	$	237,624	$	(20,449	)	$	86,953	$	218,647	$	305,600	$	(21,442	)

Notes to Schedule III:

(A) The initial cost to the Company represents the original purchase price of the property, including amounts incurred subsequent to acquisition which were contemplated at the time the property was acquired.

(B) Reconciliation of total real estate owned:

	2011			2010			2009
Balance at beginning of year	$	258,709		$	255,500		$	273,352
Purchases of investment properties		55,086			7,988			—
Improvements		2,277			5,090			11,420
Disposals		(133	)		(600	)		(667	)
Reclassifications		(2,020	)		(4,114	)		(6,871	)
Impact of asset impairment – continuing operating properties		(8,319	)		(5,155	)		(21,734	)
Balance at end of year	$	305,600		$	258,709		$	255,500

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(C) Reconciliation of accumulated depreciation is not included for purposes of this disclosure:

	For the years ended December 31,
	2011			2010			2009
Balance at beginning of year	$	16,505		$	15,531		$	15,838
Depreciation expense		7,157			5,688			7,231
Impact of asset impairment – continuing operating properties		(2,020	)		(4,114	)		(6,871	)
Disposals		(200	)		(600	)		(667	)
Balance at end of year	$	21,442		$	16,505		$	15,531

(D) Depreciation is computed based upon the following estimated lives:

Buildings and improvements		15 – 39 years
Tenant improvements and equipment		5 – 10 years

(E) The Camden Multi-Family Properties initially consisted of five apartment communities, of which one was located in Tampa, Florida, two were located in Charlotte, North Carolina and two were located in Greensboro, North Carolina. During 2010, three of the apartment communities (one located in Tampa, Florida, one located in Charlotte, North Carolina and one located in Greensboro, North Carolina) were foreclosed on by the lender. As a result, as of December 31, 2011 the Company only owns two of the five apartment communities initially acquired, and the amounts in the table reflect only the retained properties.

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PART II. CONTINUED:

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE:

None

Item 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures.  As of December 31, 2011, we conducted an evaluation under the supervision and with the participation of the Advisor’s management, including our Chairman and Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chairman and Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2011 that our disclosure controls and procedures were adequate and effective.

Management’s Report on Internal Control over Financial Reporting.  Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control system is a process designed by, or under the supervision of, our Chairman and Chief Executive Officer and Chief Financial Officer and effected by our Board, management and other personnel to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles.

Our internal control over financial reporting includes policies and procedures that:

• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and disposition of assets;

• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. In making this assessment, they used the control criteria framework of the Committee of Sponsoring Organizations, or COSO, of the Treadway Commission published in its report entitled Internal Control — Integrated Framework. Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2011.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm.

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Changes in Internal Control over Financial Reporting.  There were no changes in our internal control over financial reporting during the quarter ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION:

None.

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PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors

The following table presents certain information as of March 15, 2012 concerning each of our directors serving in such capacity:

Name	Age	Principal Occupation and Positions Held	Year Term of Office Will Expire	Served as a Director Since
David Lichtenstein	51	Chief Executive Officer, President and Chairman of the Board of Directors	2012	2004
Edwin J. Glickman	79	Director	2012	2005
George R. Whittemore	62	Director	2012	2006
Shawn R. Tominus	52	Director	2012	2006
Bruno de Vinck	66	Chief Operating Officer, Senior Vice President, Secretary and Director	2012	2005

David Lichtenstein is the Chairman of our Board of Directors and our Chief Executive Officer. Mr. Lichtenstein has been a member of our Board of Directors since June 8, 2004. Mr. Lichtenstein is also the Chairman of the Board of Directors and Chief Executive Officer of Lightstone Value Plus Real Estate Investment Trust II, Inc. Mr. Lichtenstein was the president and/or director of certain subsidiaries of Extended Stay that filed for Chapter 11 protection with Extended Stay. Extended Stay and its subsidiaries filed for bankruptcy protection on June 15, 2009 so they could reorganize their debts in the face of looming amortization payments. Extended Stay emerged from bankruptcy on October 8, 2010. Mr. Lichtenstein is no longer affiliated with Extended Stay. Mr. Lichtenstein is also a member of the International Council of Shopping Centers and NAREIT. Mr. Lichtenstein has been selected to serve as a director due to his extensive experience and networking relationships in the real estate industry, along with his experience in acquiring and financing real estate properties.

Edwin J. Glickman is one of our independent directors and the Chairman of our audit committee. Mr. Glickman is also an independent director of Lightstone Value Plus Real Estate Investment Trust II, Inc. In January 1995, Mr. Glickman co-founded Capital Lease Funding, a leading mortgage lender for properties net leased to investment grade tenants, where he remained as Executive Vice President until May 2003. Mr. Glickman was previously a trustee of publicly traded RPS Realty Trust from October 1980 through May 1996 and Atlantic Realty Trust from May 1996 to March 2006. Mr. Glickman graduated from Dartmouth College. Mr. Glickman has been selected to serve as a director due to his extensive experience in mortgage lending and finance.

George R. Whittemore is one of our independent directors. Mr. Whittemore is also an independent director of Lightstone Value Plus Real Estate Investment Trust II, Inc. Mr. Whittemore also presently serves as Audit Committee Chairman of Prime Group Realty Trust, as a Director of Village Bank Financial Corporation in Richmond, Virginia and as a Director of Supertel Hospitality, Inc. in Norfolk, Nebraska, all publicly traded companies. Mr. Whittemore previously served as President and Chief Executive Officer of Supertel Hospitality Trust, Inc. from November 2001 until August 2004 and as Senior Vice President and Director of both Anderson & Strudwick, Incorporated, a brokerage firm based in Richmond, Virginia, and Anderson & Strudwick Investment Corporation, from October 1996 until October 2001. Mr. Whittemore has also served as a Director, President and Managing Officer of Pioneer Federal Savings Bank and its parent, Pioneer Financial Corporation, from September 1982 until August 1994, and as President of Mills Value Adviser, Inc., a registered investment advisor. Mr. Whittemore is a graduate of the University of Richmond in Virginia. Mr. Whittemore has been selected to serve as a director because of his extensive experience in accounting, banking, finance and real estate.

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Shawn R. Tominus is one of our independent directors. Mr. Tominus is also an independent director of Lightstone Value Plus Real Estate Investment Trust II, Inc. Mr. Tominus is the founder and President of Metro Management, a real estate investment and management company founded in 1994 which specializes in the acquisition, financing, construction and redevelopment of residential, commercial and industrial properties. He also serves as a member of the audit committee of Prime Group Realty Trust, a publicly traded REIT located in Chicago. Mr. Tominus has over 25 years experience in real estate and serves as a national consultant focusing primarily on market and feasibility analysis. Prior to his time at Metro Management, Mr. Tominus held the position of Senior Vice President at Kamson Corporation, where he managed a portfolio of over 5,000 residential units as well as commercial and industrial properties. Mr. Tominus has been selected to serve as a director because of his extensive experience, and networking relationships, in the real estate industry, along with his experience in acquisitions, construction and redevelopment of real estate.

Bruno de Vinck is our Chief Operating Officer, Senior Vice President, Secretary and a Director. Mr. de Vinck is also the Senior Vice President, Secretary and director of Lightstone Value Plus Real Estate Investment Trust II, Inc. Mr. de Vinck is a Senior Vice President with The Lightstone Group, and has been employed by the Lightstone Group since April 1994 to the present. Mr. de Vinck is also a director of the privately held Park Avenue Bank Corp, and he was a director of the privately held Park Avenue Bank that was taken over by the FDIC in March 2010. He was also a director of Prime Group Realty Trust, a publicly registered REIT, from 2005 through 2011. Mr. de Vinck was previously General Manager of JN Management Co. from November 1992 to January 1994, AKS Management Co., Inc. from September 1988 to July 1992 and Heritage Management Co., Inc. from May 1986 to September 1988. In addition, Mr. de Vinck worked as Senior Property Manager at Hekemien & Co. from May 1975 to May 1986, as a Property Manager at Charles H. Greenthal & Co. from July 1972 to June 1975 and in sales and residential development for McDonald & Phillips Real Estate Brokers from May 1970 to June 1972. From July 1982 to July 1984 Mr. de Vinck was the founding President of the Ramsey Homestead Corp., a not-for-profit senior citizen residential health care facility and, from July 1984 until October 2004, was Chairman of its board of directors. Mr. de Vinck studied Architecture at Pratt Institute and then worked for the Bechtel Corporation from February 1966 to May 1970. Mr. de Vinck was also a director of certain subsidiaries of Extended Stay that filed for Chapter 11 protection with Extended Stay. Extended Stay and its subsidiaries filed for bankruptcy protection on June 15, 2009 so they could reorganize their debts in the face of looming amortization payments. Extended Stay emerged from bankruptcy on October 8, 2010. Mr. de Vinck is no longer affiliated with Extended Stay. Mr. de Vinck has been selected to serve as a director because of his extensive experience in the real estate industry.

Executive Officers:

The following table presents certain information as of March 15, 2012 concerning each of our executive officers serving in such capacities:

Name	Age	Principal Occupation and Positions Held
David Lichtenstein	51	Chief Executive Officer and Chairman of the Board of Directors
Bruno de Vinck	66	Chief Operating Officer, Senior Vice President, Secretary and Director
Peyton Owen	54	President
Joseph Teichman	38	General Counsel
Donna Brandin	55	Chief Financial Officer and Treasurer

David Lichtenstein for biographical information about Mr. Lichtenstein, see “Management — Directors.”

Bruno de Vinck for biographical information about Mr. de Vinck, see “Management — Directors.”

Peyton Owen is our President and also serves as President and Chief Operating Officer of Lightstone II and The Lightstone Group. Prior to joining The Lightstone Group in July 2007, Mr. Owen served as President and Chief Executive Officer of Equity Office Properties LLC from February 2007 to June 2007, as Executive Vice President and Chief Operating Officer of Equity Office Properties Trust from October 2003 to February 2007, and as Chief Operating Officer of Jones Lang LaSalle Inc.’s Americas Region from April 1999 to October 2003. Prior to April 1999, Mr. Owen held positions as Executive Vice President and Chief

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Operating Officer, Chief of Staff, and Leasing Director with LaSalle Partners, Inc., and as Regional Sales Director at Liebherr-America, Inc. Mr. Owen earned a Bachelor of Science in Mechanical Engineering at the University of Virginia and a Masters of Business Administration from the University of Virginia’s Darden School. Mr. Owen was also a director of certain subsidiaries of Extended Stay that filed for Chapter 11 protection with Extended Stay. Extended Stay and its subsidiaries filed for bankruptcy protection on June 15, 2009 so they could reorganize their debts in the face of looming amortization payments. Extended Stay emerged from bankruptcy on October 8, 2010. Mr. Owen is no longer affiliated with Extended Stay.

Joseph E. Teichman is our General Counsel and also serves as General Counsel of Lightstone Value Plus Real Estate Investment Trust II, Inc. Mr. Teichman also serves as Executive Vice President and General Counsel of our sponsor and as General Counsel of our advisor. Prior to joining The Lightstone Group in January 2007, Mr. Teichman practiced law at the law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP in New York, NY from September 2001 to January 2007. Mr. Teichman earned a J.D. from the University of Pennsylvania Law School and a B.A. from Beth Medrash Govoha, Lakewood, New Jersey. Mr. Teichman is licensed to practice law in New York and New Jersey. Mr. Teichman was also a director of certain subsidiaries of Extended Stay that filed for Chapter 11 protection with Extended Stay. Extended Stay and its subsidiaries filed for bankruptcy protection on June 15, 2009 so they could reorganize their debts in the face of looming amortization payments. Extended Stay emerged from bankruptcy on October 8, 2010. Mr. Teichman is no longer affiliated with Extended Stay.

Donna Brandin is our Chief Financial Officer and Treasurer and also serves as Chief Financial Officer and treasurer of Lightstone Value Plus Real Estate Investment Trust II, Inc. Ms. Brandin also serves as the Executive Vice President, Chief Financial Officer and Treasurer of our sponsor and as the Chief Financial Officer and Treasurer of our advisor. Prior to joining The Lightstone Group in April 2008, Ms. Brandin held the position of Executive Vice President and Chief Financial Officer of US Power Generation from September 2007 through November 2007 and before that was the Executive Vice President and Chief Financial Officer of Equity Residential, the largest publicly traded apartment REIT in the country, from August 2004 through September 2007. Prior to joining Equity Residential, Ms. Brandin held the position of Senior Vice President and Treasurer for Cardinal Health

Section 16 (a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires each director, officer and individual beneficially owning more than 10% of our common stock to file initial statements of beneficial ownership (Form 3) and statements of changes in beneficial ownership (Forms 4 and 5) of our common stock with the Securities Exchange Commission (“SEC”). Officers, directors and greater than 10% beneficial owners are required by SEC rules to furnish us with copies of all such forms they file. Based solely on a review of the copies of such forms furnished to us during and with respect to the fiscal year ended December 31, 2011, or written representations that no additional forms were required, we believe that all of our officers and directors and persons that beneficially own more than 10% of the outstanding shares of our common stock complied with these filing requirements in 2011.

Information Regarding Audit Committee

Our Board of Directors (the Board”) established an audit committee in April 2005. The charter of audit committee is available at www.iconinvestments.com/securities/lightstone or in print to any shareholder who requests it c/o Lightstone Value Plus REIT, 1985 Cedar Bridge Avenue, Lakewood, NJ 08701. Our audit committee consists of Messrs. Edwin J. Glickman, George R. Whittemore and Shawn Tominus, each of whom is “independent” within the meaning of the NYSE listing standards. The Board determined that Messrs. Glickman and Whittemore are qualified as audit committee financial experts as defined in Item 401 (h) of Regulation S-K. For more information regarding the relevant professional experience of Messrs. Glickman, Whittemore and Tominus, see “Directors”.

Code of Conduct and Ethics

We have adopted a Code of Conduct and Ethics that applies to all of our executive officers and directors, including but not limited to, our principal executive officer and principal financial officer. Our Code of Conduct and Ethics can be found at www.iconinvestments.com/securities/lightstone.

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ITEM 11. EXECUTIVE COMPENSATION

Compensation of Executive Officers

We currently have no employees. Our Advisor performs our day-to-day management functions. Our executive officers are all employees of the Advisor. We do not pay any of these individuals for serving in their respective positions.

Compensation of Board

We pay our independent directors an annual fee of $30,000. Pursuant to our Employee and Director Incentive Share Plan, in lieu of receiving his or her annual fee in cash, an independent director is entitled to receive the annual fee in the form of our common shares or a combination of common shares and cash.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Executive Officers:

The following table presents certain information as of March 15, 2012 concerning each of our directors and executive officers serving in such capacities:

Name and Business Address (where required) of Beneficial Owner	Number of Shares of Common Stock of the Company Beneficially Owned		Percent of All Common Shares of the Company
David Lichtenstein		20,000		0.07	%
Edwin J. Glickman		—		—
George R. Whittemore		—		—
Shawn Tominus		—		—
Bruno de Vinck		6,561		0.02	%
Peyton Owen		—		—
Joseph Teichman		—		—
Donna Brandin		—		—
Our directors and executive officers as a group (8 persons)		26,561		0.09	%

EQUITY COMPENSATION PLAN INFORMATION

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 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 or the stockholders, to purchase 3,000 shares of our common stock on the date of each annual stockholders meeting. The exercise price for all stock options granted under our stock option plan were at $10 per share until the termination of our initial public offering, and thereafter the exercise price for stock options granted to our 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

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exercisable on the second anniversary of the date of grant, provided that the independent director is a director on the Board on that date. At our annual stockholder meetings in July 2007, August 2008 and September 2009, 2010 and 2011, respectively, options were granted to each of our three independent directors. As of December 31, 2011, options to purchase 45,000 shares of stock were outstanding, 27,000 were fully vested, at an exercise price of $10 per share. Compensation expense associated with our stock option plan was not material for the years ended December 31, 2011, 2010 and 2009

Notwithstanding any other provisions of our stock option plan to the contrary, no stock option issued pursuant thereto may be exercised if such exercise would jeopardize our status as a REIT under the Internal Revenue Code.

The following table sets forth information regarding securities authorized for issuance under our Employee and Director Incentive Share Plan as of December 31, 2011:

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
	(a)		(b)		(c)
Equity Compensation Plans approved by security holders		45,000	$	10.00		30,000
Equity Compensation Plans not approved by security holders		N/A		N/A		N/A
Total		45,000	$	9.96		30,000

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

David Lichtenstein serves as the Chairman of our Board, our Chief Executive Officer and our President. Our Advisor and Property Manager are wholly owned subsidiaries of our Sponsor, The Lightstone Group, which is wholly owned by Mr. Lichtenstein. On April 22, 2005, we entered into agreements with our Advisor and Property Manager to pay certain fees, as described below, in exchange for services performed by these and other affiliated entities. As the indirect owner of those entities, Mr. Lichtenstein benefits from fees and other compensation that they receive pursuant to these agreements.

Property Manager

We have agreed to pay our Property Manager a monthly management fee of up to 5% of the gross revenues from our residential, hospitality and retail properties. In addition, for the management and leasing of our office and industrial properties, we will pay, to our Property Manager, property management and leasing fees of up to 4.5% of gross revenues from our office and industrial properties. We may pay our Property Manager a separate fee for i) the development of, ii) the one-time initial rent-up or iii) leasing-up of newly constructed office and industrial 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. Our Property Manager will also be paid a monthly fee for any extra services equal to no more than that which would be payable to an unrelated party providing the services. The actual amounts of these fees are dependent upon results of operations and, therefore, cannot be determined at the present time. We have recorded the following amounts related to the Property Manager for the years ended December 31, 2011, 2010 and 2009:

(in thousands)	2011		2010		2009
Property management fees	$	1,327	$	1,475	$	1,812
Development fees and leasing commissions		650		267		270
Total	$	1,977	$	1,742	$	2,082

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Advisor

We agreed to pay our Advisor an acquisition fee equal to 2.75% of the gross contract purchase price (including any mortgage assumed) of each property purchased and will reimburse our Advisor for expenses that it incurs in connection with the purchase of a property. We anticipate 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 a property. The Advisor will also be paid an advisor asset management fee of 0.55% of our average invested assets and we will reimburse some expenses of the Advisor. We have recorded the following amounts related to the Advisor for the years ended December 31, 2011, 2010 and 2009:

(in thousands)	2011		2010		2009
Acquisition fees	$	1,929	$	279	$	16,657
Asset management fees		1,997		4,521		4,541
Acquisition expenses reimbursed to Advisor		242		1		903
Total	$	4,168	$	4,801	$	22,101

Sponsor

On April 22, 2005, the Operating Partnership entered into an agreement with Lightstone SLP, LLC pursuant to which the Operating Partnership has issued special general partner interests to Lightstone SLP, LLC in an amount equal to all expenses, dealer manager fees and selling commissions that we incurred in connection with our organization and the offering of our common stock. As of December 31, 2011, Lightstone SLP, LLC had contributed $30.0 million to the Operating Partnership in exchange for special general partner interests. As the sole member of our Sponsor, which wholly owns Lightstone SLP, LLC, Mr. Lichtenstein is the indirect, beneficial owner of such special general partner interests and will thus receive an indirect benefit from any distributions made in respect thereof.

These special general partner interests will entitle Lightstone SLP, LLC to a portion of any regular and liquidation distributions that we make to stockholders, but only after stockholders have received a stated preferred return. Although the actual amounts are dependent upon results of operations and, therefore, cannot be determined at the present time, distributions to Lightstone SLP, LLC, as holder of the special general partner interests, could be substantial.

From time to time, Lightstone purchases title insurance from an agent in which our sponsor owns a fifty percent limited partnership interest. Because this title insurance agent receives significant fees for providing title insurance, our advisor may face a conflict of interest when considering the terms of purchasing title insurance from this agent. However, prior to the purchase by Lightstone of any title insurance, an independent title consultant with more than 25 years of experience in the title insurance industry reviews the transaction, and performs market research and competitive analysis on our behalf. This process results in terms similar to those that would be negotiated at an arm’s-length basis.

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”). The Company accounted for the investment in this unconsolidated joint venture under the equity method of accounting as the Company exercises significant influence, but does not control these entities. Initial equity from our co-venturer totaled $13.5 million (representing a 51% ownership interest). Our initial capital investment, funded with proceeds from our common stock offering, was $13.0 million (representing a 49% ownership interest). 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”). The seller of the Sublease Interest, Gettinger Associates, L.P., is not an affiliate of the Company, its Sponsor or its subsidiaries. The property, a 42 story office building built in 1952, fronts on Broadway, 7th Avenue and 39th Street in midtown Manhattan. The property has approximately 915,000 leasable square feet, and as of the acquisition date, was 87.6% occupied (approximately 300 tenants) and leased by tenants generally engaged in the female apparel business. The ground lease, dated as of January 14, 1954, provides for multiple renewal rights, with the last renewal period expiring on December 31, 2048. The Sublease Interest runs concurrently with this ground lease.

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Amper, Politziner and Mattia, LLP (“Amper”) audited our consolidated financial statements for the year ended December 31, 2009. Amper reported directly to our audit committee.

On August 16, 2010, we were notified that Amper, combined its practice with that of Eisner LLP and the name of the combined practice operates under the name EisnerAmper LLP. The Audit Committee of the Company’s Board of Directors engaged EisnerAmper LLP to serve as the Company’s new independent registered public accounting firm. EisnerAmper LLP audited our consolidated financial statements for the years ended December 31, 2011 and 2010. EisnerAmper LLP reports directly to our audit committee.

Principal Accounting Firm Fees

The following table presents the aggregate fees billed to the Company for the years ended December 31, 2011 and 2010 by the Company’s principal accounting firms:

(in thousands)	2011		2010
Audit Fees — Amper(a)	$	—	$	35
Audit Fees — EisnerAmper LLP(a)		328		278
Audit-Related Fees — Amper(b)		—		—
Audit-Related Fees — EisnerAmper LLP(b)		—		—
Tax Fees(c)		—		—
All Other Fees — Amper(d)		—		223
All Other Fees — EisnerAmper LLP(d)		—		156
Total Fees	$	328	$	692

(a) Fees for audit services in 2011 and 2010 consisted of the audit of the Company’s annual consolidated financial statements, reviews of the Company’s quarterly consolidated financial statements and services normally provided in connection with statutory and regulatory filings including registration statement consents.

(b) There were no fees for audit-related services in 2011 and 2010.

(c) There were no fees for tax services billed in 2011 and 2010.

(d) Fees under all other fees in 2010 relate to a three year audit of POAC.

In considering the nature of the services provided by the independent auditor, the audit committee determined that such services are compatible with the provision of independent audit services. The audit committee discussed these services with the independent auditor and the Company’s management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the SEC to implement the related requirements of the Sarbanes-Oxley Act of 2002, as well as the American Institute of Certified Public Accountants.

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PART III, CONTINUED:

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT COMMITTEE REPORT

To the Directors of Lightstone Value Plus Real Estate Investment Trust, Inc.:

We have reviewed and discussed with management Lightstone Value Plus Real Estate Investment Trust, Inc.’s audited consolidated financial statements as of and for the year ended December 31, 2011.

We have discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees, as amended by Statement on Auditing Standards No. 90, Audit Committee Communications, by the Auditing Standards Board of the American Institute of Certified Public Accountants.

We have received and reviewed the written disclosures and the letter from the independent auditors required by the Public Company Accounting Oversight Board Rule 3526, Communication with Audit Committees Concerning Independence and have discussed with the auditors the auditors’ independence.

Based on the reviews and discussions referred to above, we recommend to the Board that the consolidated financial statements referred to above be included in Lightstone Value Plus Real Estate Investment Trust, Inc.’s Annual Report on consolidated Form 10-K for the year ended December 31, 2011.

Audit Committee

George R. Whittemore
Edwin J. Glickman
Shawn R. Tominus

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INDEPENDENT DIRECTORS’ REPORT

To the Stockholders of Lightstone Value Plus Real Estate Investment Trust, Inc.:

We have reviewed the Company’s policies and determined that they are in the best interest of the Company’s stockholders. Set forth below is a discussion of the basis for that determination.

General

The Company’s primary objective is to achieve capital appreciation with a secondary objective of income without subjecting principal to undue risk. The Company intends to achieve this goal primarily through investments in real estate properties.

The Company intends to acquire residential and commercial properties. The Company’s acquisitions may include both portfolios and individual properties. The Company expects that its commercial holdings will consist of retail (primarily multi-tenanted shopping centers), lodging (primarily extended stay hotels), industrial and office properties and that the Company’s residential properties will be principally comprised of “Class B” multi-family complexes.

The following is descriptive of the Company’s investment objectives and policies:

• Reflecting a flexible operating style, the Company’s portfolio is likely to be diverse and include properties of different types (such as retail, office, industrial and residential properties); both passive and active investments; and joint venture transactions. The portfolio is likely to be determined largely by the purchase opportunities that the market offers, whether on an upward or downward trend. This is in contrast to those funds that are more likely to hold investments of a single type, usually as outlined in their charters.

• The Company may invest in properties that are not sold through conventional marketing and auction processes. The Company’s investments may be at a dollar cost level lower than levels that attract those funds that hold investments of a single type.

• The Company may be more likely to make investments that are in need of rehabilitation, redirection, remarketing and/or additional capital investment.

• The Company may place major emphasis on a bargain element in its purchases, and often on the individual circumstances and motivations of the sellers. The Company will search for bargains that become available due to circumstances that occur when real estate cannot support the mortgages securing the property.

• The Company intends to pursue returns in excess of the returns targeted by real estate investors who target a single type of property investment.

Financing Policies

The Company intends to utilize leverage to acquire its properties. The number of different properties the Company 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 the Company, the Company 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. There is no limitation on the amount the Company may invest in any single property or on the amount the Company can borrow for the purchase of any property.

The Company intends to limit its 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 the Company’s stockholders. The Company may also incur short-term indebtedness, having a maturity of two years or less. By operating on a leveraged basis, the Company will have more funds available for investment in properties. This will allow the Company to make more investments than would otherwise be possible, resulting in a more diversified portfolio. Although the Company’s liability for the repayment of indebtedness is expected to be limited to the value of the property securing the liability and the rents or profits derived therefrom, the Company’s use of leveraging increases the

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risk of default on the mortgage payments and a resulting foreclosure of a particular property. To the extent that the Company does not obtain mortgage loans on the Company’s properties, the Company’s ability to acquire additional properties will be restricted. The Company will endeavor to obtain financing on the most favorable terms available.

Policy on Sale or Disposition of Properties

The Company’s Board will determine whether a particular property should be sold or otherwise disposed of after considering the relevant factors, including performance or projected performance of the property and market conditions, with a view toward achieving its principal investment objectives.

The Company currently intends to hold its properties for a minimum of seven to ten years prior to selling them. After seven to ten years, the Company’s Board may decide to liquidate the Company, list its shares on a national stock exchange, sell its properties individually or merge or otherwise consolidate the Company with a publicly-traded REIT. Alternatively, the Company may merge with, or otherwise be acquired by, the Sponsor or its affiliates. The Company may, however, sell properties prior to such time and if so, may invest the proceeds from any sale, financing, refinancing or other disposition of its properties into additional properties. Alternatively, the Company may use these proceeds to fund maintenance or repair of existing properties or to increase reserves for such purposes. The Company may choose to reinvest the proceeds from the sale, financing and refinancing of its properties to increase its real estate assets and its net income. Notwithstanding this policy, the Board, in its discretion, may distribute all or part of the proceeds from the sale, financing, refinancing or other disposition of all or any of the Company’s properties to the Company’s stockholders. In determining whether to distribute these proceeds to stockholders, the Board will consider, among other factors, the desirability of properties available for purchase, real estate market conditions, the likelihood of the listing of the Company’s shares on a national securities exchange and compliance with the applicable requirements under federal income tax laws.

When the Company sells a property, it intends to obtain an all-cash sale price. However, the Company may take a purchase money obligation secured by a mortgage on the property as partial payment, and there are no limitations or restrictions on the Company’s ability to take such purchase money obligations. The terms of payment to the Company will be affected by custom in the area in which the property being sold is located and the then prevailing economic conditions. If the Company receives notes and other property instead of cash from sales, these proceeds, other than any interest payable on these proceeds, will not be available for distributions until and to the extent the notes or other property are actually paid, sold, refinanced or otherwise disposed. Therefore, the distribution of the proceeds of a sale to the stockholders may be delayed until that time. In these cases, the Company will receive payments in cash and other property in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years.

Independent Directors

George R. Whittemore
Edwin J. Glickman
Shawn R. Tominus

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PART IV.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST, INC.
Annual Report on Form 10-K
For the fiscal year ended December 31, 2011

EXHIBIT INDEX

The following exhibits are filed as part of this Annual Report on Form 10-K or incorporated by reference herein:

EXHIBIT NO.	DESCRIPTION
3.1*	Amended and Restated Charter of Lightstone Value Plus Real Estate Investment Trust, Inc.
3.2*	Bylaws of Lightstone Value Plus Real Estate Investment Trust, Inc.
10.1*	Escrow Agreement by and among Lightstone Value Plus Real Estate Investment Trust, Inc., Trust Company of America and Lightstone Securities.
10.2*	Advisory Agreement by and among Lightstone Value Plus Real Estate Investment Trust, Inc., Lightstone Value Plus REIT LLC.
10.3*	Management Agreement, by and among Lightstone Value Plus Real Estate Investment Trust, Inc., Lightstone Value Plus REIT LP and Lightstone Value Plus REIT Management LLC.
10.4*	Form of the Company’s Stock Option Plan.
10.5*	Form of Indemnification Agreement by and between The Lightstone Group and the directors and executive officers of Lightstone Value Plus Real Estate Investment Trust, Inc.
10.6*	Agreement by and among Lightstone Value Plus REIT LP, Lightstone SLP, LLC, and David Lichtenstein
10.7*	Purchase and Sale Agreement between St. Augustine Outlet World, Ltd. and Prime Outlets Acquisition Company LLC
10.8*	Assignment and Assumption of Purchase and Sale Agreement by and between Prime Outlets Acquisition Company LLC and LVP St. Augustine Outlets LLC
10.9*	Note and Mortgage Modification Agreement Evidencing Renewal Promissory Note Including Future Advance and Amended and Restated Mortgage, Security Agreement and Fixture Filing by LVP St. Augustine Outlets LLC in favor of Wachovia Bank, National Association
10.10*	Renewal Promissory Note Including Future Advance by LVP St. Augustine Outlets LLC to the order of Wachovia Bank, National Association
10.11*	Guaranty by Lightstone Holdings, LLC for the benefit of Wachovia Bank, National Association
10.12*	Purchase and Sale Agreement among Home Properties, L.P., Home Properties WMF I, LLC and The Lightstone Group, LLC
10.13*	First Amendment to Purchase and Sale Agreement among Home Properties, L.P., Home Properties WMF I, LLC and The Lightstone Group, LLC
10.14*	Second Amendment to Purchase and Sale Agreement among Home Properties, L.P., Home Properties WMF I, LLC and The Lightstone Group, LLC
10.15*	Contribution Agreement among Scotsdale Borrower, LLC, Carriage Park MI LLC, LLC, Macomb Manor MI LLC, Carriage Hill MI LLC and Citigroup Global Markets Realty Corp.
10.16*	Assignment and Assumption of Agreement for Purchase and Sale of Interests between The Lightstone Group, LLC and LVP Michigan Multifamily Portfolio LLC
10.17*	Loan and Security Agreement among Scotsdale MI LLC, Carriage Park MI LLC, Macomb Manor MI LLC, Carriage Hill MI LLC and Citigroup Global Markets Realty Corp.

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EXHIBIT NO.	DESCRIPTION
10.18*	Promissory Note by Scotsdale MI LLC, Carriage Park MI LLC, Macomb Manor MI LLC and Carriage Hill MI LLC in favor of Citigroup Global Markets Realty Corp.
10.19*	Mortgage by Scotsdale MI LLC in favor of Citigroup Global Markets Realty Corp.
10.20*	Mortgage by Carriage Park MI LLC in favor of Citigroup Global Markets Realty Corp.
10.21*	Mortgage by Macomb Manor MI LLC in favor of Citigroup Global Markets Realty Corp.
10.22*	Mortgage by Carriage Hill MI LLC in favor of Citigroup Global Markets Realty Corp.
10.23*	Environmental Indemnity Agreement among Scotsdale MI LLC, Carriage Park MI LLC, Macomb Manor MI LLC, Carriage Hill MI LLC and Citigroup Global Markets Realty Corp.
10.24*	Exceptions to Non-Recourse Guaranty by Lightstone Value Plus Real Estate Investment Trust, Inc. and Lightstone Value Plus REIT LP for the benefit of Citigroup Global Markets Realty Corp.
10.25*	Conditional Assignment of Management Agreement among Scotsdale MI LLC, Carriage Park MI LLC, Macomb Manor MI LLC, Carriage Hill MI LLC and Citigroup Global Markets Realty Corp.
10.26**	Purchase and Sale Agreement among Oakview Plaza North, LLC, the other sellers identified therein and Lightstone Value Plus REIT LP
10.27**	First Amendment to Purchase and Sale Agreement among Oakview Plaza North, LLC, the other sellers identified therein and Lightstone Value Plus REIT LP
10.28**	Second Amendment to Purchase and Sale Agreement among Oakview Plaza North, LLC, the other sellers identified therein and Lightstone Value Plus REIT LP
10.29***	Promissory Note by LVP Oakview Strip Center LLC in favor of Wachovia Bank, National Association
10.30***	Guaranty by Lightstone Value Plus Real Estate Investment Trust, Inc. in favor of Wachovia Bank, National Association
10.31***	Assignment of Leases and Rents and Security Deposits by LVP Oakview Strip Center LLC in favor of Wachovia Bank, National Association
10.32***	Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing by LVP Oakview Strip Center LLC in favor of Wachovia Bank, National Association
10.33***	Consent and Agreement of Beacon Property Management, LLC
10.34+	Assignment and Assumption of Seller’s Interest in Operating Lease between Gettinger Associates, L.P. and 1407 Broadway Real Estate LLC
10.35+	Participation Agreement between Gettinger Associates, L.P. and 1407 Broadway Real Estate LLC
10.36+	Property Management Agreement between 1407 Broadway Real Estate LLC and Trebor Management Corp.
10.37+	Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Financing Statement by 1407 Broadway Real Estate LLC in favor of Lehman Brothers Holdings Inc.
10.38+	Promissory Note by 1407 Broadway Real Estate LLC in favor of Lehman Brothers Holdings Inc.
10.39+	Guaranty of Recourse Obligations by Lightstone Holdings LLC in favor of Lehman Brothers Holdings Inc.
10.40+	Net Profits Agreement between 1407 Broadway Real Estate LLC in favor and Lehman Brothers Holdings Inc.
10.41++	Agreement of Purchase and Sale
10.42++	First Amendment to Agreement of Purchase and Sale

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EXHIBIT NO.	DESCRIPTION
10.43+++	Assignment and Assumption of Agreement of Purchase and Sale
10.44+++	Mortgage and Security Agreement by LVP Gulf Coast Industrial Portfolio LLC in favor of Wachovia Bank, National Association
10.45+++	Promissory Note by LVP Gulf Coast Industrial Portfolio LLC and the other borrowers identified therein in favor of Wachovia Bank, National Association
10.46#	Form of Limited Liability Company Agreement of 1407 Broadway Mezz II LLC
10.47##	Limited Liability Company Agreement of Whitfield Sarasota LLC.
10.48##	Improved Commercial Property Earnest Money Contract between Camden Operating, L.P. and Lightstone Value Plus REIT, L.P.
10.49##	Form of Multifamily Mortgage, Assignment of Rents and Security Agreement for the Camden Portfolio (each property in the Camden Portfolio had substantially similar mortgages).
10.50###	Consolidated Financial Statements for 1407 Broadway Mezz II, LLC and Subsidiaries as of December 31, 2007.
10.51####	Promissory Note made as of June 26, 2008 by Arbor Mill Run JRM, LLC in favor of Lightstone Value Plus Real Estate Investment Trust, Inc. in the original principal amount of $17,280.00.
10.52###	Promissory Note made as of June 26, 2008 by Arbor National CJ LLC in favor of Lightstone Value Plus Real Estate Investment Trust, Inc. in the original principal amount of $360,000.00.
10.53####	Promissory Note made as of June 26, 2008 by AR Prime Holdings, LLC in favor of Lightstone Value Plus Real Estate Investment Trust, Inc. in the original principal amount of 49,500,000.00.
10.54####	Exchange Rights Agreement, dated as of June 26, 2008, by and among Lightstone Value Plus Real Estate Investment Trust, Inc., Lightstone Value Plus REIT, LP and the persons named therein.
10.55####	First Amendment to Amended and Restated Agreement of Limited Partnership of Lightstone Value Plus REIT LP, dated as of June 26, 2008, by and among Lightstone Value Plus Real Estate Investment Trust, Inc., Lightstone Value Plus REIT LLC, Lightstone SLP, LLC
10.56####	Tax Protection Agreement, dated as of June 26, 2008, by and between Lightstone Value Plus REIT, LP and Arbor Mill Run JRM, LLC.
10.57####	Tax Protection Agreement, dated as of June 26, 2008, by and between Lightstone Value Plus REIT, LP and Arbor Mill National CJ, LLC.
10.58####	Tax Protection Agreement, dated as of June 26, 2008, by and between Lightstone Value Plus REIT, LP, Prime Outlets Acquisition Company LLC and AR Prime Holdings, LLC.
10.59####	Contribution and Conveyance Agreement, dated as of June 26, 2008, by and between Arbor Mill Run JRM LLC and Lightstone Value Plus REIT, LP.
10.60####	Contribution and Conveyance Agreement, dated as of June 26, 2008, by and between Arbor National CJ, LLC and Lightstone Value Plus REIT, LP.
10.61####	Contribution and Conveyance Agreement, dated as of June 26, 2008, by and among AR Prime Holdings, LLC, Lightstone Value Plus REIT, LP and Lightstone Value Plus Real Estate Investment Trust, Inc.

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EXHIBIT NO.	DESCRIPTION
10.62(1)	Contribution Agreement, dated as of December 8, 2009, by and among Simon Property Group Inc, Simon Property Group, L.P, Marco Capital Acquisition, LLC, Lightstone Value Plus REIT, LP, Pro-DFJV Holdings LLC, Lightstone Holdings, LLC, Lightstone Prime, LLC, BRM, LLC, Lightstone Real Property Ventures Limited Liability Company, PR Lightstone Manager, LLC, Prime Outlets Acquisition Company LLC, and Lightstone Value Plus Real Estate Investment Trust, Inc.
10.63(1)	Amendment No. 1 to the Contribution Agreement, dated as of May 13, 2010, by and among Simon Property Group Inc., Simon Property Group, L.P., Marco Capital Acquisition, LLC, Lightstone Prime, LLC and Prime Outlets Acquisition Company, LLC.
10.64(1)	Amendment No. 2 to the Contribution Agreement, dated as of June 28, 2010, by and among Simon Property Group Inc., Simon Property Group, L.P., Marco Capital Acquisition, LLC, Lightstone Prime, LLC and Prime Outlets Acquisition Company, LLC.
10.65(1)	Amendment No. 3 to the Contribution Agreement, dated as of August 30, 2010, by and among Simon Property Group Inc., Simon Property Group, L.P., Marco Capital Acquisition, LLC, Lightstone Prime, LLC and Prime Outlets Acquisition Company, LLC.
21.1	Subsidiaries of the Registrant
31.1	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 Rule 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Pursuant to Rule 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99*	Letter from Lightstone Securities to Subscribers

* Incorporated by reference from Lightstone Value Plus Real Estate Investment Trust, Inc.’s Registration Statement on Form S-11 (File No. 333-117367)

** Incorporated by reference from Lightstone Value Plus Real Estate Investment Trust, Inc.’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on November 6, 2006

*** Incorporated by reference from Lightstone Value Plus Real Estate Investment Trust, Inc.’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 27, 2006

+ Incorporated by reference from Lightstone Value Plus Real Estate Investment Trust, Inc.’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 10, 2007

++ Incorporated by reference from Lightstone Value Plus Real Estate Investment Trust, Inc.’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on January 18, 2007

+++ Incorporated by reference from Lightstone Value Plus Real Estate Investment Trust, Inc.’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 7, 2007

# Incorporated by reference from Lightstone Value Plus Real Estate Invest Trust, Inc’s Annual Report on Form 10-K For The Fiscal Year Ended December 31, 2006.

## Incorporated by reference from Lightstone Value Plus Real Estate Investment Trust, Inc.’s Pre-Effective Amendment No. 1 to Post-Effective Amendment No. 12 to the Registration Statement on Form S-11 filed with the Securities and Exchange Commission on January 15, 2007.

### Incorporated by reference from Lightstone Value Plus Real Estate Invest Trust, Inc.’s Annual Report on Form 10-K For The Fiscal Year Ended December 31, 2007.

#### Incorporated by reference from Lightstone Value Plus Real Estate Invest Trust, Inc.’s Quarterly Report on Form 10-Q For The Quarter Ended June 30, 2008.

(1) Incorporated by reference from Lightstone Value Plus Real Estate Invest Trust, Inc.’s Annual Report on Form 10-K/A For The Fiscal Year Ended December 31, 2009.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: March 30, 2012	By: s/ David Lichtenstein David Lichtenstein Chief Executive Officer and Chairman of the Board (Principal Executive Officer)

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

NAME	CAPACITY	DATE
/s/ David Lichtenstein David Lichtenstein	Chief Executive Officer and Chairman of the Board (Principal Executive Officer)	March 30, 2012
/s/ Donna Brandin Donna Brandin	Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)	March 30, 2012
/s/ Bruno de Vinck Bruno de Vinck	Director	March 30, 2012
/s/ Shawn R. Tominus Shawn R. Tominus	Director	March 30, 2012
/s/ Edwin J. Glickman Edwin J. Glickman	Director	March 30, 2012
/s/ George R. Whittemore George R. Whittemore	Director	March 30, 2012

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