LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST II INC - FORM 10-Q

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EX-31.1 - EXHIBIT 31.1 - LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST II INC	v417699_ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST II INC	v417699_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST II INC	v417699_ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST II INC	v417699_ex32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2015

¨	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 000-54047

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST II, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland

83-0511223

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

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

(732) 367-0129

(Registrant’s Telephone Number, Including Area Code)

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

Yes ¨ No þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No ¨

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

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company þ

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

Yes ¨ No þ

As of August 10, 2015, there were approximately 18.6 million outstanding shares of common stock of Lightstone Value Plus Real Estate Investment Trust II, Inc., including shares issued pursuant to the distribution reinvestment plan.

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

INDEX

		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014	3

	Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2015 and 2014	4

	Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Months Ended June 30, 2015 and 2014	5

	Consolidated Statement of Stockholders’ Equity (unaudited) for the Six Months Ended June 30, 2015	6

	Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2015 and 2014	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	32

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 3.	Defaults Upon Senior Securities	33

Item 4.	Mine Safety Disclosures	33

Item 5.	Other Information	33

Item 6.	Exhibits	33

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

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

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except per share data)

	June 30, 2015			December 31, 2014
	(Unaudited)
Assets
Investment property:
Land and improvements	$	43,761		$	22,726
Building and improvements		167,473			80,392
Furniture and fixtures		33,809			17,223
Construction in progress		2,034			449
Gross investment property		247,077			120,790
Less accumulated depreciation		(9,999	)		(6,111	)
Net investment property		237,078			114,679

Investments in unconsolidated affiliated entity		3,419			3,504
Cash and cash equivalents		20,676			67,502
Marketable securities, available for sale		17,078			18,180
Restricted escrows and deposits		2,376			988
Notes receivable from affiliate		17,798			-
Prepaid expenses and other assets		6,943			2,840
Total Assets	$	305,368		$	207,693

Liabilities and Stockholders' Equity
Accounts payable and other accrued expenses	$	7,759		$	2,868
Margin loan		6,288			5,815
Mortgages payable		115,502			23,761
Due to sponsor		204			199
Distributions payable		3,022			3,028
Total liabilities		132,775			35,671

Commitments and contingencies (Note 10)

Stockholders' Equity:
Company's stockholders' equity:
Preferred shares, $0.01 par value, 10,000 shares authorized, none issued and outstanding		-			-
Common stock, $0.01 par value; 100,000 shares authorized, 18,637 and 18,493 shares issued and outstanding in 2015 and 2014, respectively		186			185
Additional paid-in-capital		159,697			158,330
Subscription receivable		-			(80	)
Accumulated other comprehensive (loss)/income		(850	)		252
Accumulated deficit		(7,635	)		(5,503	)
Total Company stockholders' equity		151,398			153,184

Noncontrolling interests		21,195			18,838
Total Stockholders' Equity		172,593			172,022
Total Liabilities and Stockholders' Equity	$	305,368		$	207,693

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

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

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

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data) (Unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2015			2014			2015			2014

Rental revenue	$	18,330		$	6,408		$	33,121		$	9,676

Expenses:
Property operating expenses		11,317			3,790			20,490			6,086
Real estate taxes		672			248			1,215			334
General and administrative costs		1,378			544			2,679			1,015
Depreciation and amortization		2,145			931			3,894			1,495
Total operating expenses		15,512			5,513			28,278			8,930
Operating income		2,818			895			4,843			746

Interest and dividend income		537			327			958			771
Gain on sale of marketable securities		-			-			-			112
Loss from investments in unconsolidated affiliated entities		(41	)		(22	)		(85	)		(58	)
Interest expense		(1,226	)		(337	)		(2,008	)		(658	)
Other income/(expense), net		28			(18	)		246			(35	)
Net income		2,116			845			3,954			878

Less: net income attributable to noncontrolling interests		(53	)		(31	)		(76	)		(36	)
Net income applicable to Company's common shares	$	2,063		$	814		$	3,878		$	842

Net income per Company's common share, basic and diluted	$	0.11		$	0.08		$	0.21		$	0.09

Weighted average number of common shares outstanding, basic and diluted		18,651			9,887			18,648			9,077

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

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands) (Unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2015			2014			2015			2014

Net income	$	2,116		$	845		$	3,954		$	878

Other comprehensive (loss)/income:
Unrealized (loss)/gain on available for sale securities		(811	)		226			(1,102	)		246

Other comprehensive (loss)/income		(811	)		226			(1,102	)		246

Comprehensive income		1,305			1,071			2,852			1,124

Less: Comprehensive income attributable to noncontrolling interests		(53	)		(31	)		(76	)		(36	)

Comprehensive income attributable to the Company's common shares	$	1,252		$	1,040		$	2,776		$	1,088

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

PART I. FINANCIAL INFORMATION:

ITEM 1. FINANCIAL STATEMENTS.

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

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Amounts in thousands) (Unaudited)

	Common Stock						Additional						Accumulated Other						Total			Total
							Paid-In			Subscription			Comprehensive			Accumulated			Noncontrolling			Stockholders’
	Shares			Amount			Capital			Receivable			Income/(Loss)			Deficit			Interests			Equity

BALANCE, December 31, 2014		18,493		$	185		$	158,330		$	(80	)	$	252		$	(5,503	)	$	18,838		$	172,022

Net income		-			-			-			-			-			3,878			76			3,954
Other comprehensive loss		-			-			-			-			(1,102	)		-			-			(1,102	)
Distributions declared		-			-			-			-			-			(6,010	)		-			(6,010	)
Distributions paid to noncontrolling interests		-			-			-			-			-			-			(28	)		(28	)
Contributions from noncontrolling interests		-			-			-			-			-			-			2,309			2,309
Proceeds from offering		-			-			-			80			-			-			-			80
Other offering costs		-			-			10			-			-			-			-			10
Redemption and cancellation of shares		(37	)		(1	)		(364	)		-			-			-			-			(365	)
Shares issued from distribution reinvestment program		181			2			1,721			-			-			-			-			1,723

BALANCE, June 30, 2015		18,637		$	186		$	159,697		$	-		$	(850	)	$	(7,635	)	$	21,195		$	172,593

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

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 1. FINANCIAL STATEMENTS, CONTINUED:

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands) (Unaudited)

	For the Six Months Ended June 30,
	2015			2014

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,954		$	878
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,894			1,495
Amortization of deferred financing costs		196			36
Gain on sale of marketable securities		-			(112	)
Loss from investments in unconsolidated affiliated entities		85			58
Other non-cash adjustments		(4	)		1
Changes in assets and liabilities, net of acquisitions:
Increase in prepaid expenses and other assets		(477	)		(777	)
Increase in accounts payable and other accrued expenses		2,496			959
Increase/(decrease) in due to sponsor		5			(200	)
Net cash provided by operating activities		10,149			2,338

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment property, net		(95,287	)		(27,851	)
Proceeds from sale of marketable securities		-			9,692
Purchase of marketable securities		-			(19,774	)
Issuance of notes receivable from affiliate		(20,200	)		-
Collections on notes receivable from affiliate		2,402			-
Distributions from unconsolidated affiliated entity		-			97
Release of restricted escrows		1,276			1,211

Net cash used in investing activities		(111,809	)		(36,625	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage financings		59,280			-
Payment on mortgages payable		(380	)		(248	)
Payment of loan fees and expenses		(1,470	)		-
Proceeds on margin loan, net		473			4,529
Proceeds from issuance of common stock		80			33,053
Payment of commissions and offering costs		(116	)		(3,746	)
Contribution of noncontrolling interests		1,653			800
Redemption and cancellation of common shares		(365	)		(377	)
Distributions to noncontrolling interests		(28	)		(11	)
Distributions to common stockholders		(4,293	)		(1,259	)
Net cash provided by financing activities		54,834			32,741

Net change in cash and cash equivalents		(46,826	)		(1,546	)
Cash and cash equivalents, beginning of year		67,502			26,520
Cash and cash equivalents, end of period	$	20,676		$	24,974

See Note 2 for supplemental cash flow information.

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

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

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

Organization

Lightstone Value Plus Real Estate Investment Trust II, Inc. (the “Lightstone REIT II”) is a Maryland corporation formed on April 28, 2008, which has qualified as a real estate investment trust (“REIT”) for U.S. federal income tax purposes since its taxable year ending December 31, 2009. The Lightstone REIT II was formed primarily for the purpose of engaging in the business of investing in and owning commercial and residential real estate properties located principally in North America, as well as other real estate-related securities, such as collateralized debt obligations, commercial mortgage-backed securities and mortgage and mezzanine loans secured, directly or indirectly, by the same types of properties which it may acquire directly.

The Lightstone REIT II is structured as an umbrella partnership REIT, or UPREIT, and substantially all of its current and future business is and will be conducted through Lightstone Value Plus REIT II LP (the “Operating Partnership”), a Delaware limited partnership formed on April 30, 2008.

The Lightstone REIT II and the Operating Partnership and its subsidiaries are collectively referred to as the ‘‘Company’’ and the use of ‘‘we,’’ ‘‘our,’’ ‘‘us’’ or similar pronouns refers to the Lightstone REIT II, its Operating Partnership or the Company as required by the context in which such pronoun is used.

The Company’s sponsor is David Lichtenstein (“Lichtenstein”), who does business as The Lightstone Group (the “Sponsor”) and majority owns the limited liability company of that name. The Company’s advisor is Lightstone Value Plus REIT II LLC (the “Advisor”), which is wholly owned by our Sponsor. Subject to the oversight of the Company’s board of directors (the “Board of Directors”), the Advisor has primary responsibility for making investment decisions and managing the Company’s day-to-day operations. Through his ownership and control of The Lightstone Group, Mr. Lichtenstein is the indirect owner of the Advisor and the indirect owner and manager of Lightstone SLP II LLC, which has subordinated profits interests in the Operating Partnership. Mr. Lichtenstein also acts as the Company’s Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT II or the Operating Partnership.

The Company’s registration statement on Form S-11, pursuant to which it offered to sell up to 51,000,000 shares of its common stock at a price of $10.00 per share, subject to certain volume discounts, (exclusive of 6,500,000 shares which were available pursuant to its distribution reinvestment plan (the “DRIP”) at an initial purchase price of $9.50 per share and 255,000 shares which were reserved for issuance under its Employee and Director Incentive Restricted Share Plan), was declared effective by the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933 on February 17, 2009, and on April 24, 2009 the Company commenced its initial public offering of common stock (the “Offering”). The Offering, which terminated on August 15, 2012, raised aggregate gross proceeds of approximately $49.8 million from the sale of approximately 5.0 million shares of common stock. After allowing for the payment of approximately $5.2 million in selling commissions and dealer manager fees and $4.5 million in organization and other offering expenses, the Offering generated aggregate net proceeds of approximately $40.1 million. In addition, through August 15, 2012 (the termination date of the Offering), the Company had issued approximately 0.3 million shares of common stock under its DRIP, representing approximately $2.9 million of additional proceeds.

The Company’s registration statement on Form S-11 (the “Follow-On Offering”), pursuant to which it is offered to sell up to 30,000,000 shares of its common stock for $10.00 per share, subject to certain volume discounts (exclusive of 2,500,000 shares available pursuant to its DRIP at an initial purchase price of $9.50 per share and 255,000 shares reserved for issuance under its Employee and Director Incentive Restricted Share Plan) was declared effective by SEC under the Securities Act of 1933 on September 27, 2012. The Follow-On Offering, which terminated on September 27, 2014, raised aggregate gross proceeds of approximately $127.5 million from the sale of approximately 12.9 million shares of common stock. After allowing for the payment of approximately $11.0 million in selling commissions and dealer manager fees and $4.0 million in organization and other offering expenses, the Follow-On Offering generated aggregate net proceeds of approximately $112.5 million.

Our DRIP Registration Statement on Form S-3D was filed and became effective under the Securities Act of 1933 on September 26, 2014. On January 19, 2015, the Board of Directors suspended the Company’s DRIP effective April 15, 2015. For so long as the DRIP remains suspended, all future distributions will be in the form of cash.

Effective September 27, 2012, Orchard Securities, LLC (“Orchard Securities”) became the Dealer Manager of the Company’s Follow-On Offering.

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

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

As of June 30, 2015, the Advisor owned 20,000 shares of common stock which were issued on May 20, 2008 for $200, or $10.00 per share. In addition, as of September 30, 2009, the Company had reached the minimum offering under its Offering by receiving subscriptions of its common shares, representing gross offering proceeds of approximately $6.5 million, and effective October 1, 2009 investors were admitted as stockholders and the Operating Partnership commenced operations. Through September 27, 2014 (the termination date of the Follow-On Offering), cumulative gross offering proceeds of $177.3 million were released to the Company. The Company invested the proceeds received from the Offering and from the Advisor in the Operating Partnership, and as a result, held a 99% general partnership interest as of June 30, 2015 in the Operating Partnership’s common units.

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 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 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 corporation.

Noncontrolling Interests

The noncontrolling interests consist of (i) parties of the Company that hold units in the Operating Partnership and (ii) membership interests held by others in the Joint Venture (see Note 3) and the membership interests held by minority owners of certain of our hotels.

Partners of Operating Partnership

On May 20, 2008, the Advisor contributed $2 to the Operating Partnership in exchange for 200 limited partner units in the Operating Partnership. The limited partner has the right to convert operating partnership units into cash or, at the option of the Company, an equal number of common shares of the Company, as allowed by the limited partnership agreement.

Lightstone SLP II LLC, which is wholly owned by the Company’s Sponsor committed to purchase subordinated profits interests in the Operating Partnership (“Subordinated Profits Interests”) at a cost of $100,000 per unit for each $1.0 million in subscriptions up to ten percent of the proceeds from the primary shares under the Offering and the Follow-On Offering on a semi-annual basis beginning with the quarter ended June 30, 2010. Lightstone SLP II LLC had the option to purchase the Subordinated Profits Interests with either cash or an interest in real property of equivalent value.

From our inception through the termination of the Follow-On Offering, the Company’s Sponsor made cash contributions of $12.9 million and contributed equity interests totaling 48.6% in Brownmill, LLC (“Brownmill”), which were valued at $4.8 million, in exchange for a total of 177.0 Subordinated Profits Interests with an aggregate value of $17.7 million in fulfillment of its commitment.

Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Lightstone REIT II and its Operating Partnership and its subsidiaries (over which the Company exercises financial and operating control). As of June 30, 2015, the Lightstone REIT II had a 99% general partnership interest in the common units of the Operating Partnership. All inter-company balances and transactions have been eliminated in consolidation.

The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of the Company and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014. The unaudited interim financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair statement of the results for the periods presented. The accompanying unaudited consolidated financial statements of the Lightstone Value Plus Real Estate Investment Trust II, Inc. and its Subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

The 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, and revenue recognition. Application of these assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates.

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

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

The unaudited consolidated statements of operations for interim periods are not necessarily indicative of results for the full year or any other period.

Supplemental disclosure of cash flow information

	For the Six Months Ended June 30,
	2015			2014

Cash paid for interest	$	1,480		$	626
Distributions declared	$	6,010		$	2,925
Commissions and other offering costs accrued but not paid	$	-		$	172
Subscription receivable	$	-		$	411
Value of shares issued from distribution reinvestment program	$	1,723		$	1,236
Debt assumed for acquisition	$	32,841		$	-
Non controlling interest assumed for acquisition	$	656		$	-
Unrealized (loss) gain in available for sale securities	$	(1,102	)	$	246

Reclassifications

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

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update that completes the joint effort by the FASB and International Accounting Standards Board to improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial Reporting Standards. The update applies to all companies that enter into contracts with customers to transfer goods or services and is effective for us for interim and annual reporting periods beginning after December 15, 2016. Early application is not permitted and companies have the choice to apply the update either retrospectively to each reporting period presented or by recognizing the cumulative effect of applying the update at the date of initial application (January 1, 2017) and not adjusting comparative information. On July 9, 2015, the FASB decided to delay the effective date of the new revenue standard by one year. The Company is currently evaluating the requirements and impact of this update on its consolidated financial statements.

In April 2015, the FASB issued an accounting standards update to simplify the presentation of debt issuance costs. This update requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This new guidance will be effective for the Company beginning January 1, 2016. The Company is currently evaluating the impact of this standard on our consolidated financial statements.

Acquisitions

On January 19, 2015, the Company’s Board of Directors provided approval for the Company to form a joint venture (the “Joint Venture”) with Lightstone Value Plus Real Estate Investment Trust, Inc. (“Lightstone I”), a real estate investment trust also sponsored by the Company’s Sponsor, The Lightstone Group, and for the Joint Venture to acquire Lightstone I’s membership interest in up to 11 limited service hotels (the “LVP REIT Hotels”). The Company’s advisor elected to waive the acquisition fee associated with this transaction.

On January 29, 2015, the Company through the Operating Partnership, entered into an agreement to form the Joint Venture with Lightstone I whereby the Company and Lightstone I have 97.5% and 2.5% membership interests in the Joint Venture, respectively. The Company is the managing member. Each member may receive distributions and make future capital contributions based upon its respective ownership percentage, as required.

On January 29, 2015, the Company, through the Joint Venture, completed the acquisition of 100% membership interest in a portfolio of five limited service hotels (the “Hotel I Portfolio”) for approximately $64.6 million, excluding transaction costs. The five limited service hotels included in the Hotel I Portfolio are as follows:

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

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

a Courtyard by Marriott located in Willoughby, Ohio (the “Courtyard – Willoughby”);

a Fairfield Inn & Suites by Marriott located in West Des Moines, Iowa (the “Fairfield Inn – Des Moines”);

a SpringHill Suites by Marriott located in West Des Moines, Iowa (the SpringHill Suites – Des Moines”);

a Hampton Inn located in Miami, Florida (the “Hampton Inn – Miami”); and

a Hampton Inn & Suites located in Fort Lauderdale, Florida (the “Hampton Inn & Suites – Fort Lauderdale”).

On January 29, 2015, the Company, through two wholly owned subsidiaries, entered into a $60.0 million revolving credit facility (the “Revolving Credit Facility”) with GE Capital Markets, Inc. (“GE Capital”). The Revolving Credit Facility bears interest at Libor plus 4.95% and provides a line of credit over the next three years, with two, one-year options to extend solely at the discretion of GE Capital. The Revolving Credit Facility may be accelerated upon the occurrence of customary events of default. Interest is payable monthly and the entire unpaid principal balance is due upon expiration of the Revolving Credit Facility. Under the terms of the Revolving Credit Facility, the Company may designate properties as collateral that allow the Company to borrow up to a 65.0% loan-to-value ratio of the properties. On January 29, 2015, in connection with the Joint Venture’s acquisition of the Hotel I Portfolio, the Company received an initial advance of $35.0 million under the Revolving Credit Facility which is secured by (i) the Hotel I Portfolio plus (ii) the Aloft – Tucson and the Holiday Inn – Opelika, two other hotels owned by the Company. The Company used the initial proceeds under the Revolving Credit Facility and offering proceeds from the sale of its common stock to fund its contribution related to the acquisition of the Hotel I Portfolio.

On February 11, 2015, the Company, through the Joint Venture, completed the acquisition of Lightstone I’s (i) 100% membership interest in a Courtyard by Marriott located in Parsippany, New Jersey (the “Courtyard – Parsippany”) and (ii) 90% membership interest in a Residence Inn by Marriott located in Baton Rouge, Louisiana (the “Residence Inn - Baton Rouge”) for an aggregate purchase price of $24.1 million. In connection with the acquisition of the Courtyard – Parsippany and the Residence Inn - Baton Rouge, the Joint Venture, through subsidiaries, assumed an aggregate of approximately $11.6 million of debt and paid approximately $12.2 million from cash contributed by the Joint Venture members based upon their respective ownership percentages (the Company $11.9 million and Lightstone I $0.3 million.) The Company’s contribution was funded with offering proceeds from the sale of the Company’s common stock.

The assumed debt consisted of (i) a $7.8 million loan collateralized by the Courtyard-Parsippany, which has a maturity date of August 1, 2018, bears interest at Libor plus 3.50% and requires monthly principal and interest payments through its stated maturity and (ii) a $3.8 million loan collateralized by the Residence Inn - Baton Rouge, which has a maturity date of November 2018, bears interest at 5.36% and requires monthly principal and interest payments through its stated maturity.

On June 10, 2015, the Company through the Joint Venture, completed the acquisition of Lightstone I’s (i) 100% membership interest in a Holiday Inn Express Hotel & Suites located in Auburn, Alabama (the “Holiday Inn Express – Auburn”), (ii) 100% membership interest in an Aloft Hotel located in Rogers, Arkansas (the “Aloft – Rogers”) and (iii) 95% membership interest in a Fairfield Inn & Suites by Marriott located in Jonesboro, Arkansas (the “Fairfield Inn – Jonesboro” and collectively, the “Hotel II Portfolio”) for an aggregate acquisition price of approximately $28.0 million (including approximately $0.3 million which represents the 5% minority interest in the Fairfield Inn – Jonesboro), excluding closing and other related transaction costs. In connection with the acquisition of the Hotel II Portfolio, the Joint Venture, through subsidiaries, assumed approximately $15.1 million of debt and paid approximately $12.9 million from cash contributed by the Joint Venture members based upon their respective ownership percentages (the Company $12.6 million and Lightstone I $0.3 million.) The $15.1 million loan assumed is collateralized by the Hotel II Portfolio, has a maturity date of August 6, 2018, bears interest at 4.94% and requires monthly principal and interest payments through its stated maturity. The Company’s contribution was funded with offering proceeds from the sale of the Company’s common stock.

On June 30, 2015, the Company through the Joint Venture, completed the acquisition of Lightstone I’s (i) 90% membership interest in a Courtyard by Marriott located in Baton Rouge, Louisiana (the “Courtyard – Baton Rouge”) for an aggregate acquisition price of approximately $7.4 million (including approximately $0.7 million which represents the 10% minority interest in the Courtyard - Baton Rouge), excluding closing and other related transaction costs. In connection with the acquisition of the Courtyard - Baton Rouge, the Joint Venture, through subsidiaries, assumed approximately $6.1 million of debt and paid approximately $1.3 million from cash contributed by the Joint Venture members based upon their respective ownership percentages (the Company $1.2 million and Lightstone I $0.1 million) The $6.1 million loan assumed is collateralized by of the Courtyard - Baton Rouge, matures in May 2017, bears interest at 5.56% and requires monthly principal and interest payments through its stated maturity. The Company’s contribution was funded with offering proceeds from the sale of the Company’s common stock.

As of June 30, 2015, the Company, through the Joint Venture, has completed the acquisition of the LVP REIT Hotels as previously approved by its Board of Directors.

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

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

The aggregate purchase price for the LVP REIT Hotels was approximately $124.1 million.

The acquisition of the LVP REIT Hotels 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 preliminary fair values as of the dates of the acquisition. Approximately $21.0 million was allocated to land and improvements, $86.4 million was allocated to building and improvements, and $16.7 million was allocated to furniture and fixtures and other assets.

The aggregate capitalization rate for the LVP REIT Hotels as of the closing of the acquisition was approximately 9.0%. 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 net operating income for the year ended December 31, 2014. Additionally, net operating income is all gross revenues from the property less all operating expenses, including property taxes and management fees but excluding depreciation.

Financial Information

The following table provides the total amount of rental revenue and net income included in the Company’s consolidated statements of operations from the Holiday Inn – Opelika (acquired April 1, 2014), the Aloft – Tucson (acquired April 8, 2014), the Hampton Inn — Ft. Myers (acquired October 1, 2014), the Aloft – Philadelphia and the Four Points by Sheraton - Philadelphia (collectively, the “Philadelphia Airport Hotels”) (both acquired December 22, 2014), the Hotel I Portfolio (acquired January 29, 2015), the Courtyard – Parsippany and the Residence Inn - Baton Rouge (both acquired February 11, 2015), the Hotel II Portfolio (acquired June 10, 2015) and the Courtyard - Baton Rouge (acquired June 30, 2015) since their respective dates of acquisition for the periods indicated:

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2015		2014			2015		2014

Rental revenue	$	13,189	$	1,738		$	24,270	$	1,738
Net income (loss)	$	2,647	$	(75	)	$	4,893	$	(75	)

The following table provides unaudited pro forma results of operations for the periods indicated, as if the Holiday Inn – Opelika, the Aloft – Tucson, the Hampton Inn — Ft. Myers, the Philadelphia Airport Hotels, the Hotel I Portfolio, the Courtyard – Parsippany, the Residence Inn - Baton Rouge, Hotel II Portfolio and the Courtyard - Baton Rouge had been acquired at the beginning of the earliest period presented. Such pro forma results are not necessarily indicative of the results that actually would have occurred had these acquisitions been completed at the beginning of the earliest period presented, nor are they indicative of the future operating results of the combined company.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2015		2014		2015		2014

Pro forma rental revenue	$	21,154	$	19,007	$	41,112	$	36,483
Pro forma net income	$	2,363	$	2,970	$	4,572	$	5,170

Pro forma net income per Company's common share, basic and diluted	$	0.13	$	0.30	$	0.25	$	0.57

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

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

Marketable Securities, Margin Loan 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 June 30, 2015
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Equity Securities	$	17,928	$	278	$	(1,128	)	$	17,078

	As of December 31, 2014
	Adjusted Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Equity Securities	$	17,928	$	408	$	(156	)	$	18,180

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 margin loan bears interest at Libor plus 0.85% (1.03% as of June 30, 2015).

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 June 30, 2015 and December 31, 2014, the Company did not recognize any impairment charges.

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.

As of June 30, 2015 and December 31, 2014, all of the Company’s equity securities and were classified as Level 1 assets and there were no transfers between the level classifications during the six months ended June 30, 2015.

Notes Receivable from Affiliate

On February 4, 2015, the Company entered into a revolving promissory note (the “Des Moines Note Receivable”) of up to $10.0 million with Lightstone Value Plus Real Estate Investment Trust III, Inc. (“Lightstone III”), a real estate investment trust also sponsored by the Company’s sponsor. On the same date, in connection with Lightstone III’s acquisition of a Hampton Inn located in Des Moines, Iowa (the “Hampton Inn – Des Moines”), the Company funded $8.2 million under the Des Moines Note Receivable.

The Des Moines Note Receivable has a term of one year, bears interest at a floating rate of three-month Libor plus 6.0% (6.3% as of June 30, 2015) and requires quarterly interest payments through its stated maturity with the entire unpaid balance due upon maturity. Lightstone III paid the Company an origination fee of $100,000 in connection with the Des Moines Note Receivable and pledged its ownership interest in the Hampton Inn – Des Moines as collateral. The outstanding principal balance and remaining availability under the Des Moines Note Receivable was approximately $7.0 million and $3.0 million, respectively, as of June 30, 2015.

The Des Moines Note Receivable is included in notes receivable from affiliate on our consolidated balance sheet.

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

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

On May 15, 2015, the Company entered into a revolving promissory note (the “Durham Note Receivable”) of up to $13.0 million with Lightstone III. On the same date, in connection with Lightstone III’s acquisition of a Courtyard by Marriott located in Durham, North Carolina (the “Courtyard - Durham”), the Company funded $12.0 million under the Durham Note Receivable.

The Durham Note Receivable has a term of one year, bears interest at a floating rate of three-month Libor plus 6.0% (6.3% as of June 30, 2015) and requires quarterly interest payments through its stated maturity with the entire unpaid balance due upon maturity. Lightstone III will pay the Company an origination fee of $130,000 in connection with the Durham Note Receivable and pledged its ownership interest in the Courtyard - Durham as collateral. The outstanding balance and remaining availability under the Durham Promissory Note was $10.8 million and $2.2 million, respectively, as of June 30, 2015. The Durham Note Receivable is included in is included in notes receivable from affiliate on our consolidated balance sheet.

Mortgages payable

Mortgages payable consisted of the following:

										Loan Amount Outstanding
				Weighted
				Average
				Interest Rate								As of
				as of June 30,				Amount Due		As of		December
Description	Interest Rate			2015			Maturity Date	at Maturity		June 30, 2015		31, 2014

Promissory Note, secured by four properties		4.94	%		4.94	%	August 2018	$	21,754	$	23,500	$	23,761

Revolving Credit Facility, secured by seven properties		LIBOR + 4.95	%		5.23	%	January 2018		59,280		59,280		-

Courtyard - Parsippany		LIBOR + 3.50	%		3.68	%	August 2018		7,126		7,700		-

Residence Inn - Baton Rouge		5.36	%		5.36	%	November 2018		3,480		3,758		-

Promissory Note, secured by three properties		4.94	%		4.94	%	August 2018		14,008		15,133		-

Courtyard - Baton Rouge		5.56	%		5.56	%	May 2017		5,873		6,131		-

					5.05	%		$	111,521	$	115,502	$	23,761

Revolving Credit Facility

On January 29, 2015, the Company, through two wholly owned subsidiaries, entered into the Revolving Credit Facility with GE Capital. The Revolving Credit Facility bears interest at Libor plus 4.95% (5.23% as of June 30, 2015) and provides a line of credit over the next three years, with two, one-year options to extend solely at the discretion of GE Capital. The Revolving Credit Facility may be accelerated upon the occurrence of customary events of default. Interest is payable monthly and the entire unpaid principal balance is due upon expiration of the Revolving Credit Facility. Under the terms of the Revolving Credit Facility, the Company may designate properties as collateral that allow the Company to borrow up to a 65.0% loan-to-value ratio of the properties. On January 29, 2015, the Company received an initial advance of $35.0 million under the Revolving Credit Facility which is secured by the Hotel I Portfolio, plus the Aloft – Tucson and the Holiday Inn – Opelika, two other hotels owned by the Company. During the second quarter of 2015, the Company received additional advances aggregating $24.3 million under the Revolving Credit Facility, which are secured by the same hotels. As a result, the outstanding principal balance and remaining availability under the Revolving Credit Facility were $59.3 million and $0.7 million, respectively, as of June 30, 2015.

Courtyard-Parsippany

The $7.7 million loan collateralized by the Courtyard-Parsippany, has a maturity date of August 2018, bears interest at Libor plus 3.50% and requires monthly principal and interest payments through its stated maturity.

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

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

Residence Inn - Baton Rouge

The $3.8 million loan collateralized by the Residence Inn - Baton Rouge, has a maturity date of November 2018, bears interest at 5.36% and requires monthly principal and interest payments through its stated maturity.

Promissory Note

The $15.1 million promissory note (the “Promissory Note”) has a maturity date of August 2018, bears interest at 4.94%, and requires monthly principal and interest payments through its stated maturity. The Promissory Note is cross-collateralized by the Hotel II Portfolio consisting of the Holiday Inn Express - Auburn, the Aloft – Rogers and the Fairfield Inn - Jonesboro.

Courtyard - Baton Rouge

The $6.1 million loan collateralized by the Courtyard - Baton Rouge, has a maturity date of May 2017, bears interest at 5.56% and requires monthly principal and interest payments through its stated maturity.

Principal Maturities

The following table, based on the initial terms of the mortgages, sets forth their aggregate estimated contractual principal maturities, including balloon payments due at maturity, as of June 30, 2015:

		2015				2016				2017				2018				2019				Thereafter				Total
Principal maturities		$	626			$	1,303			$	7,151			$	106,422			$	-			$	-			$	115,502

Debt Compliance

Pursuant to the Company’s debt agreements, approximately $2.4 million and $1.0 million was held in restricted escrow accounts as of June 30, 2015 and December 31, 2014. Such escrows are subject to release in accordance with the applicable debt agreement for the payment of real estate taxes, insurance and capital improvements, as required. Certain of our debt agreements also contain clauses providing for prepayment penalties and require the maintenance of certain ratios, including debt service coverage and fixed leverage charge ratio. The Company is currently in compliance with respect to all of its debt covenants.

Equity

Earnings per Share

The Company had no potentially dilutive securities outstanding during the periods presented. Accordingly, earnings per share is calculated by dividing net income attributable to common shareholders by the weighted-average number of shares of common stock outstanding during the applicable period.

Related Party Transactions

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

The following table represents the fees incurred associated with the payments to the Company’s Advisor and Property Manager for the periods indicated:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2015		2014		2015		2014
Acquisition Fees	$	-	$	246	$	-	$	246
Development Fees		2		-		2		140
Asset Management Fees		495		-		879		-
Total	$	497	$	246	$	881	$	386

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

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

Pursuant to an Advisory Agreement, our Advisor is entitled to receive an asset management fee equal to 0.95% of our average invested assets, as defined. The asset management fee is payable quarterly and based on balances as of the end of each month in the quarterly period. Commencing with the quarter ended June 30, 2013, the Advisor has elected to waive or reduce its quarterly asset management fee to the extent our non-GAAP measure modified funds from operations available, or MFFO, as defined by the Investment Program Association, or IPA, for the preceding twelve months period ending on the last day of the current quarter is less than the distributions declared with respect to the same twelve month period. As a result, asset management fees of $192 and $327 were waived by the Advisor during three and six months ended June 30, 2014.

9.	*Financial Instruments*

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted escrows and deposits, accounts receivable (included in other assets), note receivable from affiliate, accounts payable and accrued expenses and the margin loan approximated their fair values because of the short maturity of these instruments. The estimated fair value of our mortgages payable is as follows:

As of June 30, 2015

As of December 31, 2014

Carrying

Amount

Estimated Fair

Value

Carrying

Amount

Estimated Fair

Value

Mortgages payable

115,502

115,411

23,761

23,548

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

10.

Commitments and Contingencies

Legal Proceedings

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

On July 13, 2011, JF Capital Advisors, filed a lawsuit against The Lightstone Group, LLC, the Company, and Lightstone Value Plus Real Estate Investment Trust, Inc. in the Supreme Court of the State of New York 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. We filed a motion to dismiss the action and, on January 31, 2012, the Supreme Court dismissed the complaint in its entirety, but granted the plaintiff leave to replead two limited causes of action.

The plaintiff filed an amended complaint on May 18, 2012, bringing limited claims under theories of unjust enrichment and quantum meruit. On November 21, 2012, the court dismissed this second complaint in part, leaving only $164 (plus interest) in potential damages. The plaintiff appealed this decision and Lightstone cross-appealed arguing that the case should have been dismissed in full. The appeals court denied plaintiff’s motion and granted defendants’ motion, as a result of which all claims were dismissed on March 25, 2014. The plaintiff filed a motion requesting the right to re-appeal to the Court of Appeals, which was granted on August 1, 2014. Plaintiff has appealed to the Court of Appeals, which affirmed in part and denied in part, leaving a smaller number of claims available to the Plaintiff. Plaintiff has indicated that it intends to continue to pursue these claims in the trial court. Lightstone continues to believe that these claims to be without merit and will defend the case vigorously.

While any proceeding or litigation has an element of uncertainty, management currently believes that the likelihood of an unfavorable outcome with respect to 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. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

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

Notes to Consolidated Financial Statements

(Dollar amounts in thousands, except per share/unit data and where indicated in millions)(Unaudited)

11.

Subsequent Events

Distribution Payment

On July 15, 2015, the total distribution for the three-month period ending June 30, 2015 of approximately $3.0 million was paid from cash flows provided by operations.

Distribution Declaration

On August 14, 2015, the Board of Directors authorized and the Company declared a distribution for the three-month period ending September 30, 2015. The distribution will be calculated based on shareholders of record each day during this three-month period at a rate of $0.00178082191 per day, and will equal a daily amount that, if paid each day for a 365-day period, would equal a 6.5% annualized rate based on a share price of $10.00. The distribution will be paid in cash on October 15, 2015 to shareholders of record as of September 30, 2015.

PART I. FINANCIAL INFORMATION, CONTINUED:

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Lightstone Value Plus Real Estate Investment Trust II, Inc. and Subsidiaries and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Lightstone Value Plus Real Estate Investment Trust II, Inc., a Maryland corporation, and, as required by context, Lightstone Value Plus REIT II LP and its wholly owned subsidiaries, which we collectively refer to as the “Operating Partnership”. Dollar amounts are presented in thousands, except per share data and where indicated in millions.

Forward-Looking Statements

Certain information included in this Quarterly Report on Form 10-Q contains, and other materials filed or to be filed by us with the Securities and Exchange Commission (the “SEC”), contain or will contain, forward-looking statements. All statements, other than statements of historical facts, including, among others, statements regarding our possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives, are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of Lightstone Value Plus Real Estate Investment Trust II, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements.

Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements.

Risks and other factors that might cause differences, some of which could be material, include, but are not limited to, economic and market conditions, competition, tenant or joint venture partner(s) bankruptcies, our lack of operating history, the availability of cash flows from operations to pay distributions, changes in governmental, tax, real estate and zoning laws and regulations, failure to increase tenant occupancy and operating income, rejection of leases by tenants in bankruptcy, financing and development risks, construction and lease-up delays, cost overruns, the level and volatility of interest rates, the rate of revenue increases versus expense increases, the financial stability of various tenants and industries, the failure of the Company to make additional investments in real estate properties, the failure to upgrade our tenant mix, restrictions in current financing arrangements, the failure to fully recover tenant obligations for common area maintenance, insurance, taxes and other property expenses, the failure of the Company to continue to qualify as a real estate investment trust (“REIT”), the failure to refinance debt at favorable terms and conditions, an increase in impairment charges, loss of key personnel, failure to achieve earnings/funds from operations targets or estimates, conflicts of interest with the Advisor and the Sponsor and their affiliates, failure of joint venture relationships, significant costs related to environmental issues as well as other risks listed from time to time in this Form 10-Q, our Form 10-K, our Registration Statements on Form S-11, as the same may be amended and supplemented from time to time, and in the Company’s other reports filed with the SEC.

We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless required by law.

Overview

Lightstone Value Plus Real Estate Investment Trust II, Inc. (the “Lightstone REIT II”) and Lightstone Value Plus REIT II, LP, (the “Operating Partnership”) and its subsidiaries are collectively referred to as the ‘‘Company’’ and the use of ‘‘we,’’ ‘‘our,’’ ‘‘us’’ or similar pronouns refers to the Lightstone REIT II, its Operating Partnership or the Company as required by the context in which such pronoun is used.

Lightstone REIT II intends to continue to acquire and operate commercial, residential and hospitality properties, principally in North America. Principally through the Operating Partnership, our future acquisitions may include both portfolios and individual properties. We expect that our commercial holdings will consist of retail (primarily multi-tenanted shopping centers), lodging, industrial and office properties and that our residential properties will be located either in or near major metropolitan areas.

The primary source of capital required to fund our future purchases of real estate and/or real estate related investments will principally come from the remaining uninvested proceeds from our public offering of shares of our common stock and from any indebtedness that we may incur either in connection with the acquisition of any real estate and real estate related investments or thereafter.

The Company’s registration statement on Form S-11, pursuant to which it offered to sell a maximum of 51,000,000 shares of its common stock (exclusive of 6,500,000 shares which were available pursuant to its distribution reinvestment plan (the “DRIP”), and 255,000 shares which were reserved for issuance under its Employee and Director Incentive Restricted Share Plan), at a price of $10.00 per share (subject to certain volume discounts), was declared effective by the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933 on February 17, 2009, and on April 24, 2009 the Company commenced its initial public offering of common stock (the “Offering”). The Offering terminated on August 15, 2012.

The Company filed a registration statement on Form S-11 (the “Follow-On Offering”), pursuant to which it was offering to sell a maximum of 30,000,000 shares of its common stock (exclusive of 2,500,000 shares available pursuant to its DRIP) and 255,000 shares reserved for issuance under its Employee and Director Incentive Restricted Share Plan), at a price of $10.00 per share (subject to certain volume discounts). The Follow-On Offering was declared effective by SEC under the Securities Act of 1933 on September 27, 2012. The Follow-On Offering terminated on September 27, 2014.

We do not have employees. We entered into an advisory agreement, dated February 17, 2009, with Lightstone Value Plus REIT II LLC, a Delaware limited liability company, which we refer to as the “Advisor,” pursuant to which the Advisor supervises and manages our day-to-day operations and selects our real estate and real estate related investments, subject to oversight by our board of directors. We pay the Advisor fees for services related to the investment and management of our assets, and we will reimburse the Advisor for certain expenses incurred on our behalf.

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

Current Environment

Our operating results as well as our investment opportunities are impacted by the health of the North American economies. Our business and financial performance may be adversely affected by current and future economic conditions, such as availability of credit, financial markets volatility, and recession.

Our business may be affected by market and economic challenges experienced by the U.S. and global economies. These conditions may materially affect the value and performance of our properties, and may affect our ability to pay distributions, the availability or the terms of financing that we have or may anticipate utilizing, and our ability to make principal and interest payments on, or refinance, any outstanding debt when due.

We are not aware of any other material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting real estate generally, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from the acquisition and operation of real estate and real estate related investments, other than those referred to in this Form 10-Q.

Portfolio Summary –

Location

Year Built

Leasable
Square Feet

Percentage
Occupied as of
June 30, 2015

Annualized Revenues
based on rents as of
June 30, 2015

Annualized Revenues
per square foot
as of June 30, 2015

Unconsolidated Affiliated Real Estate Entities:

Retail

Brownmill LLC (2 retail properties)

Old Bridge and Vauxhall, New Jersey

1962

155,928

2.5 million

16.20

Consolidated Properties:
Hospitality				Year to Date		Percentage Occupied for the Six Months Ended			Revenue per Available Room for the Six Months Ended		Average Daily Rate For the Six Months Ended
	Location	Year Built		Available Rooms		June 20, 2015			June 30, 2015		June 30, 2015

TownePlace Suites - Metairie	Harahan, Louisiana		2000		22,444		77	%	$	88.52	$	115.61

SpringHill Suites - Peabody	Peabody, Massachusetts		2002		29,684		70	%	$	75.88	$	109.07

Fairfield Inn - East Rutherford	East Rutherford, New Jersey		1990		25,521		81	%	$	95.74	$	118.51

TownePlace Suites - Fayetteville	Johnson/Springdale, Arkansas		2009		16,652		69	%	$	63.06	$	90.98

TownePlace Suites - Little Rock	Little Rock, Arkansas		2009		16,652		64	%	$	52.65	$	82.94

Holiday Inn - Opelika	Opelika, Alabama		2009		15,747		75	%	$	77.92	$	104.21

Aloft - Tucson	Tucson, Arizona		1971		27,874		78	%	$	97.06	$	124.85

Hampton Inn – Fort Myers Beach	Fort Myers Beach, Florida		2001		21,720		90	%	$	125.32	$	138.86

Aloft - Philadelphia	Philadelphia, Pennsylvania		2008		24,616		80	%	$	88.81	$	111.32

Four Points by Sheraton - Philadelphia	Philadelphia, Pennsylvania		1985		32,037		73	%	$	72.38	$	98.76

Courtyard - Willoughby (1)	Willoughby, Ohio		1999		13,680		83	%	$	101.63	$	123.09

Fairfield Inn - DesMoines (1)	West Des Moines, Iowa		1997		15,504		75	%	$	79.34	$	105.60

SpringHill Suites - DesMoines (1)	West Des Moines, Iowa		1999		14,744		74	%	$	76.49	$	103.67

Hampton Inn - Miami (1)	Miami, Florida		1996		19,152		82	%	$	111.00	$	134.74

Hampton Inn & Suites - Fort Lauderdale (1)	Fort Lauderdale, Florida		1996		15,808		83	%	$	126.95	$	153.70

Courtyard - Parsippany (2)	Parsippany, New Jersey		2001		20,989		68	%	$	96.04	$	141.71

Residence Inn - Baton Rouge (2)	Baton Rouge, Louisiana		2000		15,012		82	%	$	82.80	$	101.18

Holiday Inn Express - Auburn (3)	Auburn, Alabama		2002		1,640		79	%	$	88.91	$	112.74

Aloft - Rogers (3)	Rogers, Arkansas		2008		2,600		76	%	$	95.53	$	125.66

Fairfield Inn - Jonesboro (3)	Jonesboro, Arkansas		2009		1,660		85	%	$	88.71	$	104.99

Courtyard - Baton Rouge (4)	Baton Rouge, Louisiana		1997		N/A		N/A			N/A		N/A


			Hospitality Total		353,736		77	%	$	86.53	$	120.60

(1) hotels acquired on January 29, 2015

(2) hotels acquired on February 11, 2015

(3) hotels acquired on June 10, 2015

(4) hotel acquired on June 30, 2015

Annualized base rent is defined as the minimum monthly base rent due as of June 30, 2015 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.

Critical Accounting Policies and Estimates

There were no material changes during the three months ended June 30, 2015 to our critical accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2014.

Results of Operations

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

For the Three Months Ended June 30, 2015 vs. June 30, 2014

For the three months ended June 30, 2015, the Company’s consolidated results of operations included the operating results from (i) the TownePlace Suites - Metairie, (ii) the SpringHill Suites - Peabody, (iii) the Fairfield Inn – East Rutherford, (iv) the TownePlace Suites – Fayetteville and the TownePlace Suites – Little Rock (collectively, the “Arkansas Hotel Portfolio”), (v) the Holiday Inn - Opelika (acquired April 1, 2014) (vi) the Aloft – Tucson (acquired April 8, 2014), (vii) Hampton Inn – Fort Myers Beach (acquired October 1, 2014), (viii) the Aloft – Philadelphia and the Four Points by Sheraton - Philadelphia (collectively, the “Philadelphia Airport Hotels”) (both acquired December 22, 2014), (ix) the Hotel I Portfolio (acquired January 29, 2015), (x) the Courtyard – Parsippany and the Residence Inn - Baton Rouge (both acquired February 11, 2015), (xi) Hotel II Portfolio (acquired June 10, 2015) and (xii) the Courtyard - Baton Rouge (acquired June 30, 2015).

For the three months ended June 30, 2014, the Company’s consolidated results of operations included the operating results from (i) the TownePlace Suites - Metairie, (ii) the SpringHill Suites - Peabody, (iii) the Fairfield Inn – East Rutherford, (iv) the TownePlace Suites – Fayetteville and the TownePlace Suites – Little Rock (collectively, the “Arkansas Hotel Portfolio”), (v) the Holiday Inn - Opelika from the date it was acquired (April 1, 2014) and (vi) the Aloft – Tucson from the date it was acquired (April 8, 2014).

2015 Consolidated

Rental revenue

Rental revenue increased by $11.9 million to $18.3 million during the three months ended June 30, 2015 compared to $6.4 million for the same period in 2014. The increase is primarily attributable to the acquisition of the hotels described above as well as higher revenue at several of our hotels which underwent brand-required property improvement plans during 2014.

Property operating expenses

Property operating expenses increased by $7.5 million to $11.3 million during the three months ended June 30, 2015 compared to $3.8 million for the same period in 2014. The increase is primarily attributable to the acquisition of the hotels noted above.

Real estate taxes

Real estate taxes increased by $0.5 million to $0.7 million during the three months ended June 30, 2015 compared to $0.2 million for the same period in 2014. The increase is primarily attributable to the acquisition of the hotels described above.

General and administrative expenses

General and administrative expenses increased by $0.9 million to $1.4 million during the three months ended June 30, 2015 compared to $0.5 million for the same period in 2014. The increase is primarily attributable to the acquisition of the hotels described above partially offset by our Sponsor’s waiver of asset management fees in the first half of 2014 (see Note 8 of the Notes to Consolidated Financial Statements for additional information).

Depreciation and amortization

Depreciation and amortization expense increased by $1.2 million to $2.1 million during the three months ended June 30, 2015 compared to $0.9 million for the same period in 2014. The increase is primarily attributable to the acquisition of the hotels described above.

Interest and dividend income

Interest and dividend income increased by $0.2 million to $0.5 million during the three months ended June 30, 2015 compared to $0.3 million for the same period in 2014. The increase is primarily attributable to the interest income from our notes receivable from affiliate.

Earnings from investments in unconsolidated affiliated entities

Our loss from investments in unconsolidated affiliated entities during the three months ended June 30, 2015 was $41 compared to $22 for the same period in 2014. Our earnings from investments in unconsolidated affiliated entities are attributable to our ownership interests in certain unconsolidated affiliated entities, which we account for under the equity method of accounting.

Interest expense

Interest expense was $1.2 million during the three months ended June 30, 2015 compared to $0.3 million for the same period in 2014. Interest expense during both periods primarily consisted of interest related to our mortgage indebtedness and increased during 2015 due to the financing of the acquisition of the hotels described above.

Noncontrolling interests

The income or loss allocated to noncontrolling interests relates to (i) the interest in our Operating Partnership held by our Sponsor and (ii) membership interests held by others in the Joint Venture and the interests held by minority owners of certain of our hotels.

For the Six Months Ended June 30, 2015 vs. June 30, 2014

For the six months ended June 30, 2015, the Company’s consolidated results of operations included the operating results from (i) the TownePlace Suites - Metairie, (ii) the SpringHill Suites - Peabody, (iii) the Fairfield Inn – East Rutherford, (iv) the TownePlace Suites – Fayetteville and the TownePlace Suites – Little Rock (collectively, the “Arkansas Hotel Portfolio”), (v) the Holiday Inn - Opelika (acquired April 1, 2014) (vi) the Aloft – Tucson (acquired April 8, 2014), (vii) Hampton Inn – Fort Myers Beach (acquired October 1, 2014), (viii) the Aloft – Philadelphia and the Four Points by Sheraton - Philadelphia (collectively, the “Philadelphia Airport Hotels”) (both acquired December 22, 2014), (ix) the Hotel I Portfolio (acquired January 29, 2015), (x) the Courtyard – Parsippany and the Residence Inn - Baton Rouge (both acquired February 11, 2015), (xi) Hotel II Portfolio (acquired June 10, 2015) and (xii) the Courtyard - Baton Rouge (acquired June 30, 2015).

For the six months ended June 30, 2014, the Company’s consolidated results of operations included the operating results from (i) the TownePlace Suites - Metairie, (ii) the SpringHill Suites - Peabody, (iii) the Fairfield Inn – East Rutherford, (iv) the TownePlace Suites – Fayetteville and the TownePlace Suites – Little Rock (collectively, the “Arkansas Hotel Portfolio”), (v) the Holiday Inn - Opelika from the date it was acquired (April 1, 2014) and (vi) the Aloft – Tucson from the date it was acquired (April 8, 2014).

2015 Consolidated

Rental revenue

Rental revenue increased by $23.4 million to $33.1 million during the six months ended June 30, 2015 compared to $9.7 million for the same period in 2014. The increase is primarily attributable to the acquisition of the hotels described above as well as higher revenue at several of our hotels which underwent brand-required property improvement plans during 2014.

Property operating expenses

Property operating expenses increased by $14.4 million to $20.5 million during the six months ended June 30, 2015 compared to $6.1 million for the same period in 2014. The increase is primarily attributable to the acquisition of the hotels noted above.

Real estate taxes

Real estate taxes increased by $0.9 million to $1.2 million during the six months ended June 30, 2015 compared to $0.3 million for the same period in 2014. The increase is primarily attributable to the acquisition of the hotels described above.

General and administrative expenses

General and administrative expenses increased by $1.7 million to $2.7 million during the six months ended June 30, 2015 compared to $1.0 million for the same period in 2014. The increase is primarily attributable to the acquisition of the hotels described above partially offset by our Sponsor’s waiver of asset management fees in the first half of 2014 (see Note 8 of the Notes to Consolidated Financial Statements for additional information).

Depreciation and amortization

Depreciation and amortization expense increased by $2.4 million to $3.9 million during the six months ended June 30, 2015 compared to $1.5 million for the same period in 2014. The increase is primarily attributable to the acquisition of the hotels described above.

Interest and dividend income

Interest and dividend income increased by $0.2 million to $1.0 million during the six months ended June 30, 2015 compared to $0.8 million for the same period in 2014. The increase is primarily attributable to the interest income from our notes receivable from affiliate.

Other income, net

Other income, net increased by $0.2 million to $0.2 million during the six months ended June 30, 2015 compared to an expense of $35 for the same period in 2014. The increase is primarily attributable to the gain on the sale of an unconsolidated investment carried at cost.

Earnings from investments in unconsolidated affiliated entities

Our loss from investments in unconsolidated affiliated entities during the six months ended June 30, 2015 was $85 compared to $58 for the same period in 2014. Our earnings from investments in unconsolidated affiliated entities are attributable to our ownership interests in certain unconsolidated affiliated entities, which we account for under the equity method of accounting. See Note 3 of the Notes to Consolidated Financial Statements for additional information.

Interest expense

Interest expense was $2.0 million during the six months ended June 30, 2015 compared to $0.7 million for the same period in 2014. Interest expense during both periods primarily consisted of interest related to our mortgage indebtedness and increased during 2015 due to the financing of the acquisition of the hotels described above.

Noncontrolling interests

Financial Condition, Liquidity and Capital Resources

Overview:

For the six months ended June 30, 2015, our primary sources of funds were (i) $59.3 million of proceeds from mortgage financings and (ii) $1.7 million of cash contributions from noncontrolling interests. The primary source of capital required to fund our future purchases of real estate and/or real estate related investments will principally come from the remaining uninvested proceeds related to our public offering of shares of our common stock and from any indebtedness that we may incur either in connection with the acquisition of any real estate and real estate related investments or thereafter.

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

Our future sources of funds will primarily consist of (i) cash flows from our operations, (ii) proceeds from our borrowings, (iii) the repayment of revolving promissory notes (the “Notes Receivable from Affiliate”) from Lightstone Value Plus Real Estate Investment Trust III, Inc. (“Lightstone III”) and (iv) the release of funds held in restricted escrows. We currently 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 mortgage indebtedness totaling $115.5 million and a margin loan of $6.3 million. We have and intend to continue 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 our independent directors and is disclosed to our stockholders. Market conditions will dictate the overall leverage limit; as such our aggregate long-term permanent borrowings may be less than 75% of aggregate fair market value of all properties. 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. Market conditions will dictate the overall leverage limit; as such our aggregate borrowings may be less than 300% of net assets. As of June 30, 2015, our total borrowings aggregated $121.8 million which represented 67% of our net assets.

Our future 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 non-recourse debt. 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.

In general the types of future financing executed by us to a large extent will be dictated by the nature of the investment and current market conditions. For long-term real estate investments, it is our intent to finance future acquisitions using long-term fixed rate debt. However there may be certain types of investments and market circumstances which may result in variable rate debt being the more appropriate choice of financing. To the extent floating rate debt is used to finance the purchase of real estate, management will evaluate a number of protections against significant increases in interest rates, including the purchase of interest rate caps instruments.

We may also obtain lines of credit to be used to acquire properties. If obtained, these lines of credit will be at prevailing market terms and will be repaid from offering proceeds, proceeds from the sale or refinancing of properties, working capital and/or permanent financing. Our Sponsor and/or its affiliates may guarantee our lines of credit although they are not obligated to do so. We may draw upon lines of credit to acquire properties pending our receipt of proceeds from our public offerings. We expect that such properties may be purchased by our Sponsor’s affiliates on our behalf, in our name, in order to minimize the imposition of a transfer tax upon a transfer of such properties to us.

Additionally, in order to leverage our investments in marketable securities and seek a higher rate of return, we borrowed using a margin loan collateralized by the securities held with the financial institution that provided the margin loan. This loan is due on demand and will be paid upon the liquidation of securities.

On February 4, 2015, we entered into a revolving promissory note (the “Des Moines Note Receivable”) with Lightstone III, a real estate investment trust also sponsored by the Company’s sponsor. The Des Moines Note Receivable is for a term of one year and requires us to loan up to $10.0 million to Lightstone III. As of June 30, 2015, the balance of the Des Moines Note Receivable was $7.0 million which leaves an additional $3.0 million available to Lightstone III through February 4, 2016.

On May 15, 2015, we entered into a revolving promissory note (the “Durham Note Receivable”) with Lightstone III. The Durham Note Receivable is for a term of one year and requires us to loan up to $13.0 million to Lightstone III. As of June 30, 2015, the balance of the Durham Note Receivable was $10.8 million which leaves an additional $2.2 million available to Lightstone III through May 15, 2016.

In addition to making investments in accordance with our investment objectives, we have used and expect to continue to use our capital resources to make certain payments to our Advisor and our Property Managers during the various phases of our organization and operation. During our acquisition and development stage, payments may include asset acquisition fees and asset management fees, and the reimbursement of acquisition related expenses to our Advisor. During our operational stage, we will pay our Property Managers and/or other third-party property managers a property management fee and our Advisor an asset management fee. We will also reimburse our Advisor and its affiliates for actual expenses it incurs for administrative and other services provided to us. Additionally, our Operating Partnership may be required to make distributions to Lightstone SLP II LLC, an affiliate of the Advisor.

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

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2015		2014		2015		2014
Acquisition Fees	$	-	$	246	$	-	$	246
Development Fees		2		-		2		140
Asset Management Fees		495		-		879		-
Total	$	497	$	246	$	881	$	386

Summary of Cash Flows

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

	For the Six Months Ended June 30,
	2015			2014

Net cash provided by operating activities	$	10,149		$	2,338
Net cash used in investing activities		(111,809	)		(36,625	)
Net cash provided by financing activities		54,834			32,741
Net change in cash and cash equivalents		(46,826	)		(1,546	)
Cash and cash equivalents, beginning of the period		67,502			26,520
Cash and cash equivalents, end of the period	$	20,676		$	24,974

Our principal sources of cash flow were derived from the proceeds of mortgage financings. In the future, we expect to continue to operate and acquire properties which should provide a relatively consistent stream of cash flow to provide us with resources to fund our operating expenses, scheduled debt service and any quarterly distributions authorized by our Board of Directors.

Our principal demands for liquidity currently are acquisition and development activities, distributions and scheduled debt service on our mortgages payable.

Operating activities

The net cash provided by operating activities of approximately $10.1 million during the 2015 period primarily related to net income of $4.0 million adjusted by adding back approximately $4.1 million of depreciation and amortization and $2.0 million from the changes in assets and liabilities.

Investing activities

The net cash used by investing activities of approximately $111.8 million during the 2015 period primarily reflects (i) $95.4 million of capital expenditures and $17.8 million of net loans receivable to Lightstone III.

Financing activities

The net cash provided by financing activities of approximately $54.8 million during the 2015 period primarily consists of (i) proceeds from mortgage financing of $59.3 million and (ii) contributions of $1.7 million from certain noncontrolling interests partially offset by (i) distributions to common stockholders of $4.3 million, (ii) payments on our mortgages payable and margin loan of $0.4 million and (iii) payments of loan fees and expenses of $1.5 million.

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.

Distribution Reinvestment Plan and Share Repurchase Program

Our DRIP 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 of common stock back to us, subject to certain restrictions. From our inception through December 31, 2014 we repurchased 248,858 shares of common stock and for the six months ended June 30, 2015 we repurchased 38,047 shares of common stock, pursuant to our share repurchase program. We repurchased the shares at an average price per share of $9.58 per share. We funded share repurchases for the periods noted above from the cumulative proceeds of the sale of our shares pursuant to our DRIP.

The Company’s DRIP Registration Statement on Form S-3D was filed and became effective under the Securities Act of 1933 on September 26, 2014. On January 19, 2015, the Board of Directors suspended the Company’s DRIP effective April 15, 2015. For so long as the DRIP remains suspended, all future distributions will be in the form of cash.

Our Board of Directors reserves the right to terminate either program for any reason without cause by providing written notice of termination of the DRIP to all participants or written notice of termination of the share repurchase program to all stockholders.

Contractual Obligations

The following is a summary of our estimated contractual obligations outstanding over the next five years and thereafter as of June 30, 2015.

	Remainder of
Contractual Obligations	2015		2016		2017		2018		2019		Thereafter		Total
Principal maturities	$	626	$	1,303	$	7,151	$	106,422	$	-	$	-	$	115,502
Interest payments		2,924		5,881		5,606		2,079		-		-		16,490
Total	$	3,550	$	7,184	$	12,757	$	108,501	$	-	$	-	$	131,992

In addition to the mortgage payable described above, we have $0.7 million of remaining availability under the Revolving Credit Facility and a margin loan that was made available to us from a financial institution that holds custody of certain of our marketable securities. The margin loan is collateralized by the marketable securities in our account. The amounts available to us under the margin loan are at the discretion of the financial institution and not limited to the amount of collateral in our account. The amount outstanding under this margin loan was $6.3 million as of June 30, 2015 and is due on demand. The margin loan bears interest at Libor plus 0.85% (1.03% as of June 30, 2015).

On February 4, 2015, we entered into the Des Moines Note Receivable with Lightstone III, a real estate investment trust also sponsored by the Company’s sponsor. The Des Moines Note Receivable is for a term of one year and requires us to loan up to $10.0 million to Lightstone III. As of June 30, 2015, the balance of the Des Moines Note Receivable was $7.0 million which leaves an additional $3.0 million available to Lightstone III through February 4, 2016.

On May 15, 2015, we entered into the Durham Note Receivable with Lightstone III. The Durham Note Receivable is for a term of one year and requires us to loan up to $13.0 million to Lightstone III. As of June 30, 2015, the balance of the Durham Note Receivable was $10.8 million which leaves an additional $2.2 million available to Lightstone III through May 15, 2016.

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 generally accepted accounting principles in the United States, or 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, as revised in February 2004, or the White Paper. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property and asset impairment write-downs, 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. 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 indicators 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 undiscounted future 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 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 the proceeds from the primary offering are 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; gains or 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, 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 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 that of 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 as items which are unrealized and may not ultimately be realized. We view both gains and losses from dispositions of assets and fair value adjustments of derivatives as items 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.

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 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.

The below table illustrates the items deducted from or added to net income in the calculation of FFO and MFFO during the periods presented. The table discloses MFFO in the IPA recommended format and MFFO without the straight-line rent adjustment which management also uses as a performance measure. Items are presented net of non-controlling interest portions where applicable.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2015			2014			2015			2014
Net income	$	2,116		$	845		$	3,954		$	878
FFO adjustments:
Depreciation and amortization of real estate assets		2,145			931			3,894			1,495
Gain on disposition of unconsolidated affiliated entity		-			-			-			-
Bargain purchase gain		-			-						-
Adjustments to equity in earnings from unconsolidated entities, net		152			156			305			317
FFO		4,413			1,932			8,153			2,690
MFFO adjustments:
Other adjustments:
Acquisition and other transaction related costs expensed⁽¹⁾		198			360			472			513
Adjustments to equity in earnings from unconsolidated entities, net		-			(2	)		3			5
Amortization of above or below market leases and liabilities⁽²⁾		-			-			-			-
Accretion of discounts and amortization of premiums on debt investments		-			-			-			-
Mark-to-market adjustments⁽³⁾		(25	)		-			(32	)		-
Non-recurring gains/from extinguishment/sale of debt, derivatives or securities holdings⁽⁴⁾		-			-			(240	)		(112	)
MFFO		4,586			2,290			8,356			3,096
Straight-line rent⁽⁵⁾		-			-			-			-
MFFO - IPA recommended format	$	4,586		$	2,290		$	8,356		$	3,096

Net income	$	2,116		$	845		$	3,954		$	878
Less: income attributable to noncontrolling interests		(53	)		(31	)		(76	)		(36	)
Net income applicable to Company's common shares	$	2,063		$	814		$	3,878		$	842
Net income per common share, basic and diluted	$	0.11		$	0.08		$	0.21		$	0.09

FFO	$	4,413		$	1,932		$	8,153		$	2,690
Less: FFO attributable to noncontrolling interests		(131	)		(70	)		(204	)		(98	)
FFO attributable to Company's common shares	$	4,282		$	1,862		$	7,949		$	2,592
FFO per common share, basic and diluted	$	0.23		$	0.19		$	0.43		$	0.29

MFFO - IPA recommended format	$	4,586		$	2,290		$	8,356		$	3,096
Less: MFFO attributable to noncontrolling interests		(143	)		(69	)		(220	)		(97	)
MFFO attributable to Company's common shares	$	4,443		$	2,221		$	8,136		$	2,999

Weighted average number of common shares outstanding, basic and diluted		18,651			9,887			18,648			9,077

(1)

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. In evaluating investments in real estate, management differentiates the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for non-listed REITs that have completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition costs, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management’s analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our advisor or third parties. Acquisition fees and expenses under GAAP are considered operating expenses and as expenses included in the determination of net income and income from continuing operations, both of which are performance measures under GAAP. Such fees and expenses are paid in cash, and therefore such funds will not be available to distribute to investors. Such fees and expenses negatively impact our operating performance during the period in which properties are being acquired. Therefore, MFFO may not be an accurate indicator of our operating performance, especially during periods in which properties are being acquired. All paid and accrued acquisition fees and expenses 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 properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to the property. Acquisition fees and expenses will not be paid or reimbursed, as applicable, to our advisor even if there are no further proceeds from the sale of shares in our offering, and therefore such fees and expenses would 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.

(2)

Under GAAP, certain intangibles are accounted for at cost and reviewed at least annually for impairment, and certain intangibles are assumed to diminish predictably in value over time and amortized, similar to depreciation and amortization of other real estate related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, management believes that by excluding charges relating to amortization of these intangibles, MFFO provides useful supplemental information on the performance of the real estate.

(3)

Management believes that adjusting for mark-to-market adjustments is appropriate because they are nonrecurring items that may not be reflective of ongoing operations and reflects unrealized impacts on value based only on then current market conditions, although they may be based upon current operational issues related to an individual property or industry or general market conditions. Mark-to-market adjustments are made for items such as ineffective derivative instruments, certain marketable securities and any other items that GAAP requires we make a mark-to-market adjustment for. The need to reflect mark-to-market adjustments is a continuous process and is analyzed on a quarterly and/or annual basis in accordance with GAAP.

(4)

Management believes that adjusting for gains or losses related to extinguishment/sale of debt, derivatives or securities holdings is appropriate because they are items that may not be reflective of ongoing operations. By excluding these items, management believes that MFFO provides supplemental information related to sustainable operations that will be more comparable between other reporting periods.

(5)

Under GAAP, rental receipts are allocated to periods using various methodologies. This may result in income recognition that is significantly different than underlying contract terms. By adjusting for these items (to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments), MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, providing insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management’s analysis of operating performance.

Distributions Declared by our Board of Directors and Source of Distributions

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

	Year to Date June 30, 2015					Three Months Ended June 30, 2015					Three Months Ended March 31, 2015
Distribution period:			Percentage of Distributions			Q2 2015		Percentage of Distributions			Q1 2015		Percentage of Distributions

Date distribution declared							May 13, 2015					March 27, 2015

Date distribution paid							July 15, 2015					April 15, 2015

Distributions paid	$	6,010				$	3,022				$	2,988
Distributions reinvested		-					-					-
Total Distributions	$	6,010				$	3,022				$	2,988

Source of distributions:
Cash flows provided by operations	$	6,010		100	%	$	3,022		100	%	$	2,988		100	%
Offering proceeds		-		-			-		-			-		0	%
Proceeds from issuance of common stock through DRIP		-		-			-		-			-		0	%
Total Sources	$	6,010		100	%	$	3,022		100	%	$	2,988		100	%

Cash flows provided by operations (GAAP basis)	$	10,149				$	5,566				$	4,583

Number of shares (in thousands) of common stock issued pursuant to the Company's DRIP		-					-					-

	Year to Date June 30, 2014					Three Months Ended June 30, 2014					Three Months Ended March 31, 2014
Distribution period:			Percentage of Distributions			Q2 2015		Percentage of Distributions			Q1 2015		Percentage of Distributions

Date distribution declared							May 14, 2014					March 28, 2014

Date distribution paid							July 15, 2014					April 15, 2014

Distributions paid	$	1,449				$	785				$	664
Distributions reinvested		1,476					817					659
Total Distributions	$	2,925				$	1,602				$	1,323

Source of distributions:
Cash flows provided by operations	$	1,449		50	%	$	785		49	%	$	250		19	%
Offering proceeds		-		-			-		-			414		31	%
Proceeds from issuance of common stock through DRIP		1,476		50	%		817		51	%		659		50	%
Total Sources	$	2,925		100	%	$	1,602		100	%	$	1,323		100	%

Cash flows provided by operations (GAAP basis)	$	2,338				$	2,088				$	250

Number of shares (in thousands) of common stock issued pursuant to the Company's DRIP		155					86					69

The table below presents our cumulative distributions declared and cumulative FFO attributable to the Company’s common shares:

	For the period April, 28, 2008
	(date of inception) through
	June 30, 2015
FFO attributable to Company’s common shares	$	18,996
Distributions declared	$	25,897

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 2015 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 11 of the Notes to Consolidated Financial Statements for further information related to subsequent events during the period from July 1, 2015 through the date of this filing.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. The primary market risk to which we are currently and expect to continue to be exposed is interest rate risk.

We are currently and expect to continue to 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 have been and will continue to be to limit the impact of interest rate changes on our 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 June 30, 2015, we had one interest rate swap with an insignificant intrinsic value.

As of June 30, 2015, we held marketable securities with a fair value of $17.1 million, which are available for sale for general investment purposes. We regularly review the market prices of our investments for impairment purposes. As of June 30, 2015, a hypothetical adverse 10.0% movement in market values would result in a hypothetical loss in fair value of approximately $1.7 million.

The following table shows our estimated principal maturities during the next five years and thereafter as of June 30, 2015:

	Remainder of
Contractual Obligations	2015		2016		2017		2018		2019		Thereafter		Total
Principal maturities	$	626	$	1,303	$	7,151	$	106,422	$	-	$	-	$	115,502

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted escrows and deposits, accounts receivable (included in other assets), notes receivable from affiliate, accounts payable and accrued expenses and the margin loan approximated their fair values as of June 30, 2015 because of the short maturity of these instruments. The estimated fair value of our mortgages payable is as follows:

As of June 30, 2015

As of December 31, 2014

Carrying

Amount

Estimated Fair

Value

Carrying

Amount

Estimated Fair

Value

Mortgages payable

115,502

115,411

23,761

23,548

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

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 tenants, which may affect our ability to obtain or refinance debt in the future. As of June 30, 2015, we had no off-balance sheet arrangements.

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

ITEM 4. CONTROLS AND PROCEDURES.

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

There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no significant deficiencies or material weaknesses identified in the evaluation, and therefore, no corrective actions were taken.

PART II. OTHER INFORMATION:

ITEM 1. LEGAL PROCEEDINGS.

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

ITEM 1A. RISK FACTORS

We discuss in our Annual Report on Form 10-K various risks that may materially affect our business. We use this section to update this discussion to reflect material developments since our Form 10-K was filed. For the quarter ended June 30, 2015, there were no such material developments.

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

Recent Sales of Unregistered Securities

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit Number		Description

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”
32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Pursuant to SEC Release 34-47551 this Exhibit is furnished to the SEC and shall not be deemed to be “filed.”
101*		XBRL (eXtensible Business Reporting Language).The following financial information from Lightstone Value Plus Real Estate Investment Trust II, Inc. on Form 10-Q for the quarter ended June 30, 2015, filed with the SEC on August 14, 2015, formatted in XBRL includes: (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations, (3) Consolidated Statements of Comprehensive Income, (4) Consolidated Statements of Stockholders’ Equity, (5) Consolidated Statements of Cash Flows and (6) the Notes to the Consolidated Financial Statement.

*Filed herewith

SIGNATURES

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

	LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST II, INC.

Date: August 14, 2015	By:	/s/ David Lichtenstein
		David Lichtenstein
		Chairman and Chief Executive Officer (Principal Executive Officer)

Date: August 14, 2015

By:

/s/ Donna Brandin

Donna Brandin

Chief Financial Officer

(Duly Authorized Officer and Principal Financial and Accounting Officer)

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST II INC - FORM 10-Q - August 14, 2015

Attached files

LIGHTSTONE VALUE PLUS REAL ESTATE INVESTMENT TRUST II INC Reports