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EX-99.1 - TNP STRATEGIC RETAIL TRUST, INC. LETTER TO STOCKHOLDERS - Strategic Realty Trust, Inc.d319009dex991.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported):

March 21, 2012

 

 

TNP Strategic Retail Trust, Inc.

(Exact Name of Registrant as Specified in Charter)

 

 

 

Maryland   000-54376   90-0413866

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

1900 Main Street, Suite 700

Irvine, California 92614

(Address of Principal Executive Offices, including Zip Code)

Registrant’s telephone number, including area code: (949) 833-8252

Not applicable

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 7.01 Regulation FD Disclosure.

On March 16, 2012, the board of directors of TNP Strategic Retail Trust, Inc. (which is referred to herein as the “company,” “we,” “us,” and “our”) has determined an estimated value per share of our common stock of $10.14 as of December 31, 2011. On March 21, 2012, we distributed a letter to our stockholders regarding the company’s estimated value per share. The full text of the letter to stockholders regarding the estimated value per share is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference into this Item 7.01.

 

Item 8.01 Other Events.

On March 16, 2012, our board of directors determined an estimated value per share of our common stock of $10.14 as of December 31, 2011. In determining an estimated value of a share of our common stock, our board of directors relied upon information provided by our advisor, TNP Strategic Retail Advisor, LLC, as well as our board of directors’ experience with, and knowledge about, our real estate portfolio. Our board of directors also reviewed (1) an appraisal by a real estate consulting firm, Robert A. Stanger & Co., Inc., which we refer to as the “real estate consultant,” as of September 30, 2011, on eight retail properties owned by us at September 30, 2011, (2) an appraisal by an independent third party appraiser, Cushman & Wakefield of Illinois, Inc., which we refer to as the “appraiser,” as of September 30, 2011, on a multitenant retail center known as Constitution Trail which we acquired in a consent foreclosure proceeding on October 21, 2011, (3) the acquisition cost of Osceola Village and Summit Point Shopping Center, or Summit Point, two additional properties we acquired during the fourth quarter of 2011, and (4) a separate report prepared by our advisor providing our estimated per share value, which we refer to as the “valuation report.” In determining our estimated value per share, our board of directors considered a number of other factors, including more recent appraisals obtained by our lenders in connection with a refinancing on our line of credit and estimated cash flows based on rent rolls as of December 31, 2011.

The appraiser and the real estate consultant each have MAI designations and have extensive experience in conducting appraisals on retail properties. The appraiser and real estate consultant retained by our affiliates on our behalf do not have any direct or indirect material interest in any transaction with us or in any currently proposed transaction to which we, our advisor or our directors or officers are a party. We and our affiliates retain each of the appraiser and real estate consultant from time to time to prepare appraisals on properties owned by us and our affiliates as well as provide other brokerage and consulting services to us and our affiliates. We believe there are no material conflicts of interest between the appraiser or real estate consultant, on the one hand, and us, our advisor and our directors or officers, on the other hand.

Methodology

The following is a summary of the valuation methodologies used for each type of asset:

Real Estate Investments. Our board of directors determined that the market value of the leased fee interests in our portfolio of eleven retail properties as of December 31, 2011 was $175,004,000. The purchase price for the same properties (as adjusted for related capital expenditures) was approximately $155,261,000. In determining the value of our property portfolio, our board of directors considered the value of the eight properties we owned as of September 30, 2011 based upon the appraisal by the real estate consultant, the value of the Constitution Trail property as of September 30, 2011 based upon the appraisal by the appraiser and the acquisition cost of Osceola Village and Summit Point which we acquired during the fourth quarter of 2011. In determining the estimated value per share, our board of directors made adjustments to the above values after consideration of other factors, including third party appraisals obtained from lenders on certain of our properties and rent roll information as of December 31, 2011.

In preparing the appraisal on the eight properties we owned at September 30, 2011, the real estate consultant conferred with our advisor and prepared a report containing appraisals of each of our real properties. To assist the real estate consultant in preparing the appraisal, our advisor provided certain necessary information to the real estate consultant, including, without limitation, comparable sales transactions, rent rolls, the costs of operating the properties and assumptions related to lease commissions, tenant improvement costs and market rental rates for the properties, all of which were reviewed and modified, as appropriate, by the real estate consultant in preparing the


appraisal. In determining the market value of the eight properties we owned at September 30, 2011, the real estate consultant estimated the value of the leased fee interests in our property portfolio based on both the sales comparison and income approaches. In applying the sales comparison approach, the real estate consultant utilized indices of value derived from actual or proposed sales of comparable properties. In using the income approach, the real estate consultant used future streams of income expected by each property and discounted them at an appropriate rate to convert the streams into a present value (the discounted cash flow analysis). In determining the market value of the eight properties we owned at September 30, 2011, the real estate consultant relied on the values it obtained under the income approach, utilizing a discounted cash flow analysis and the sales comparison approach. Our board of directors determined that the value of the eight properties we owned at September 30, 2011 was $107,200,000 as of December 31, 2011 compared to $104,400,000 as of September 30, 2011. The increase in value of these properties was due to the consideration by our board of directors of more recent appraisals on certain of our properties obtained by lenders in November 2011 in connection with a refinancing of debt and an updated cash flow analysis on these properties based upon rent roll information and other determinations of value as of December 31, 2011. Our board of directors also considered the sale of two pads at our properties during the fourth quarter of 2011.

The appraiser conducted an appraisal of Constitution Trail as of September 30, 2011 and valued the property at $29,000,000. The appraisal was based upon the sales comparison approach (discussed above) and the income capitalization approach. The income capitalization approach determines the value of a property based on the anticipated economic benefits by converting anticipated net income into value based on the direct capitalization method and the yield capitalization method. In determining the value of Constitution Trail, the appraiser gave more weight to the income capitalization approach. Subsequent to the appraisal of Constitution Trail, we discovered that due to a title error two pads comprising 3.41 acres were included in the Constitution Trail appraisal that should not have been included. As a result, our board of directors determined that the value of Constitution Trail, excluding the two pads, was $27,900,000 at December 31, 2011.

In addition to our acquisition of Constitution Trail, we acquired Osceola Village on October 11, 2011 and Summit Point on December 21, 2011 for an aggregate purchase price of $40,050,000. Our board of directors determined that the value of these two properties at December 31, 2011 was $41,400,000. Our board of directors determined to adjust the valuation of the Osceola Village after considering, among other factors, the cost of acquisition based on the review of an appraisal obtained by one of our lenders on the property. This appraisal was performed by Integra Realty Resources, Inc., or Integra, which was selected by our lender in its sole discretion and without our consent or involvement. One of our independent directors, Jeffry S. Rogers serves as President and Chief Operating Officer of Integra. Mr. Rogers had no involvement in the engagement of the services provided to our lender in connection with the appraisal of Osceola Village.

Notes Payable. The valuation report prepared by our advisor contained a valuation of our notes payable using a discounted cash flow analysis. Cash flows were based on the remaining loan terms and on our advisor’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio and type of collateral. Our notes payable increased from $82,917,000 at September 30, 2011 to $112,395,000 at December 31, 2011.

Other Assets and Liabilities. The valuation report prepared by our advisor contained a majority of our other assets and liabilities, consisting primarily of cash, restricted cash, accounts receivable, accounts payable and accrued liabilities, which were considered by our board of directors to be equal to fair value due to their short maturities. Certain balances, including interest receivable on real estate-related assets and acquired above/below market leases, have been eliminated for the purpose of determining the estimated value per share due to the fact that the value of those assets and liabilities were already considered in the valuation of the respective investments.

The estimated value per share was based upon 6,262,204 shares of equity interests outstanding as of December 31, 2011, which was comprised of 5,974,732 outstanding shares of our common stock and 287,472 outstanding limited partnership units issued by our operating partnership, TNP Strategic Retail Operating Partnership, L.P., in connection with our acquisition of Pinehurst Square East Shopping Center.

The estimated per share value does not reflect a liquidity discount for the fact that the shares of our common stock are not currently traded on a national securities exchange, a discount for the non-assumability or prepayment obligations associated with certain of our debt, or a discount for our corporate level overhead.


The following table presents how the estimated per share value was determined as of September 30, 2011 and December 31, 2011 (in thousands):

 

     September 30, 2011     December 31, 2011  

Value of Properties (1)

     133,400        135,100   

Value of Fourth Quarter Acquisitions

     —          41,400   

Cash

     2,733        3,240   

Other Assets

     1,033        1,384   
  

 

 

   

 

 

 
   $ 137,166      $ 181,124   

Other Liabilities

     (4,329     (4,955

Notes Payable

     (82,917     (112,395

Other Notes Payable

     (730     (300
  

 

 

   

 

 

 
   $ (87,976   $ (117,650

Book Value/Net Asset Value

   $ 49,190      $ 63,474   
  

 

 

   

 

 

 

Shares Outstanding

     4,879        6,262   
  

 

 

   

 

 

 

Estimated per share value

   $ 10.08      $ 10.14   
  

 

 

   

 

 

 

 

(1) Includes the value of Constitution Trail.

Allocation of Estimated Value

As of December 31, 2011, our estimated per share value was calculated as follows:

 

Real estate properties

   $ 27.95 (1) 

Mortgage debt

   $ (11.13

Line of credit

   $ (6.86

Other

   $ 0.18   

Estimated value per share

   $ 10.14   

 

(1) The following are the key assumptions (shown on a weighted average basis) that were used in the discounted cash flow models to estimate the value of our real estate assets:

 

Exit capitalization rate

     8.93

Discount rate

     10.13

Annual market rent growth rate (a)

     3.0

Average holding period

     10 years   

 

(a) Rates reflect estimated compounded annual growth rates (CAGRs) for market rents over the holding period. The range of CAGRs shown is the constant annual rate at which the market rent is projected to grow to reach the market rent in the final year of the hold period for each of the properties.

While we believe that our assumptions are reasonable, a change in these assumptions would impact the calculation of the value of our real estate assets. For example, assuming all other factors remain unchanged, an increase in the weighted average discount rate of 25 basis points would yield a decrease in the value of our real


estate assets of 1.7%, while a decrease in the weighted average discount rate of 25 basis points would yield an increase in the value of our real estate assets of 1.7%. Likewise, an increase in the weighted average exit capitalization rate of 25 basis points would yield a decrease in the value of our real estate assets of 1.3%, while a decrease in the weighted average exit capitalization rate of 25 basis points would yield an increase in the value of our real estate assets of 1.4%.

Limitations of the Estimated Value per Share

As with any valuation methodology, the methodologies used to determine the estimated value per share were based upon a number of assumptions, estimates and judgments that may not be accurate or complete. Further, different parties using different property-specific and general real estate and capital market assumptions, estimates, judgments and standards could derive a different estimated value per share, which could be significantly different from the estimated value per share determined by our board of directors. The estimated value per share determined by our board of directors does not represent the fair value of our assets less liabilities in accordance with GAAP, and such estimated value per share is not a representation, warranty or guarantee that:

 

   

a stockholder would be able to realize the estimated share value if such stockholder attempts to sell his or her shares;

 

   

a stockholder would ultimately realize distributions per share equal to the estimated value per share upon liquidation of our assets and settlement of our liabilities or a sale of the company;

 

   

shares of our common stock would trade at the estimated value per share on a national securities exchange;

 

   

a third party would offer the estimated value per share in an arms-length transaction to purchase all or substantially all of the shares of our common stock; or

 

   

the methodologies used to estimate the value per share would be acceptable to the Financial Industry Regulatory Authority, Inc. or under the Employee Retirement Income Security Act with respect to their respective requirements.

Further, the estimated value per share was calculated as of a moment in time, and, although the value of our shares will fluctuate over time as a result of, among other things, future acquisitions or dispositions of assets (including acquisitions and dispositions of real estate assets since December 31, 2011), developments related to individual assets and changes in the real estate and capital markets, we have only undertaken to update the estimated value per share quarterly through the quarter ended June 30, 2012. As a result, stockholders should not rely on the estimated value per share as being an accurate measure of the then-current value of our shares of common stock. For the reasons set forth above and due to the fact that we are still conducting our continuous public offering of common stock and remain in our acquisition phase, our board of directors has determined that it is not appropriate to revise the price at which shares of our common stock are offered in our continuous public offering or under our distribution reinvestment plan at this time. In addition, we have not changed the price of redemptions under our share redemption program at this time other than with respect to the death or disability of a stockholder in which case shares will be redeemed at the most recent estimated value per share.

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits

 

Exhibit

  

Description

99.1    TNP Strategic Retail Trust, Inc. letter to stockholders (regarding estimated value per share), dated March 21, 2012


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 hereunto duly authorized.

 

    TNP STRATEGIC RETAIL TRUST, INC.
Date: March 21, 2012   By:  

/s/ James R. Wolford

    James R. Wolford
    Chief Financial Officer


EXHIBIT INDEX

 

Exhibit

  

Description

99.1    TNP Strategic Retail Trust, Inc. letter to stockholders (regarding estimated value per share), dated March 21, 2012