Strategic Realty Trust Inc., formerly known as TNP Strategic Realty Trust Inc., recently informed its investors that the values of their shares (which were originally bought at $10 per share) were being re-priced to $7.11. The new per share valuation of this non-traded REIT resulted, among several other factors, from Strategic Realty Trust’s troubles in negotiating extensions to pay its loans.
For example, according to its quarterly report filed with the SEC filing on May 12, 2014, last year Strategic Realty defaulted on a credit facility loan that it has with KeyBank. After the non-traded REIT’s default, Strategic Realty Trust was forced to stop all distributions to investors. Subsequently, Strategic Realty Trust negotiated a forbearance agreement that allowed for a capped distribution to investors. As a result, the REIT began paying distributions again. And while this should normally be seen as good news to investors, once a number of other factors get analyzed, the picture actually looks rather grim.
THE UNFORTUNATE TRUTH FOR STRATEGIC REALTY TRUST INVESTORS
According to the documents filed with the SEC, part of the forbearance agreement requires Strategic Realty Trust to pay the entire outstanding balance of the loan (in excess of $4 million) along with the imputed interest on or before July 31, 2014. If Strategic Realty Trust fails to pay off the entire loan, the lenders will be entitled to “enforce, without further notice of any kind, any and all rights and remedies available to them as creditors at law, in equity, or pursuant to the Credit Facility or any other agreement as a result of the Existing Events of Default or any additional events of default which occur or come to light following the date of the Forbearance Agreement.”
The above is even more troublesome by the fact that, according to its own quarterly report, Strategic Realty Trust has approximately $124 million in loan balances accruing interest ranging from 4.5% to an astounding 15%. The REIT has also experienced an overall decrease in net income of 15.3% for the quarter ending in March of 2014, compared to the quarter ending in March of 2013. The occupancy of the REIT’s properties is also down from last year to approximately 87%. Finally, the REIT appears to have some geographic concentration concerns. Out of the approximately 1.5 million rentable square feet the REIT owns, approximately 46% is located in just three states (California, Texas, and Illinois).
Investors in Strategic Realty Trust have been unable to sell or redeem their shares for approximately a year and a half. This is even in cases of death or disability (which are normally grounds for the redemption of shares for most other non-traded REITs). To this effect, Strategic Realty Trust discloses the following statement:
Effective January 15, 2013, the Company suspended its share redemption program, including redemptions upon death and disability, and the Company did not redeem any common shares under its share redemption program during the three months ended March 31, 2014, and 2013.
WHAT SHOULD INVESTORS DO NEXT
The above developing nightmare to investors is occurring while Strategic Realty Trust continues to pay an overwhelming amount of money in fees (both internally and to related and non-related third parties). Some of the fees disclosed in Strategic Realty Trust’s most recent quarterly report include: Property Management fees, Acquisition and Origination fees, Asset Management fees, Disposition fees, Leasing Commission fees Legal Leasing fees, Financing Coordination fees, Guarantee fees, and Related Party Loans and Loans fees.
The Vernon Litigation Group’s team of investment fraud attorneys continues to represent investors nationwide who have suffered significant damages from non-traded REITs and other alternative investments such as Icon and Leaf equipment. Vernon Litigation Group’s investment fraud attorneys are currently representing investors nationwide who have collectively suffered more than $8 million in losses for investing in real estate investment trusts. If you need help or advice on what to do next, call us now (239) 319-4434.