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Strategic Realty Trust Settles Lingering Issues from Thompson National Era

Strategic Realty Trust Inc., formerly known as TNP Strategic Retail Trust Inc., reported that its board of directors authorized a special cash distribution totaling $2.248 million, or $0.206 per share, to correct an underreporting made in its 2011 federal income tax return prepared while being managed by Thompson National Properties, then the company’s sponsor. Additionally, the company announced that it has reached a $5 million settlement in regards to a class action securities suit brought in 2013 over alleged breaches of fiduciary duties by officers of Thompson National Properties.

The special distribution was authorized to remedy an insufficient distribution of taxable income under the tax rules that apply to REITs. The company underreported its taxable income relating to the acquisition of the Constitution Trail property on a 2011 federal income tax return.

In June 2011, Strategic Realty Trust acquired a debt obligation for $18 million under its prior advisor, TNP Strategic Retail Advisor LLC. In October 2011, the company received the underlying collateral in full settlement of its debt claim. At the time of the settlement, an independent valuation of the collateral’s fair market value was $27.6 million, minus certain adjustments, which was not properly reported or distributed in accordance with real estate investment trust qualification rules.

In a letter to investors, Andrew Batinovich, chief executive officer of Strategic Realty Trust, said, “By taking this step, the company will remedy the prior errors, preserve our REIT status, and allow us to put the issue behind us,”

The non-traded REIT expects to pay the special distribution, valued at approximately $0.206 per common share, on November 3, 2015 to shareholders of record as of August 10th. The total number of common shares to be issued in the special distribution will be 273,600, which was calculated by dividing approximately $1.8 million by $6.57, the estimated value of the common shares after giving effect to the declaration of the special distribution. As of the record date, the company had approximately 11.3 million common shares outstanding.

Strategic Realty Trust will incur more than $700,000 in costs and IRS penalties relating to the issue.

The company also reached a $5,000,000 settlement in the 2013 class action securities litigation that it was defending. According to the Girard Gibbs website, the law firm representing the investors of Strategic Realty Trust, the company was sued for breaches of fiduciary duties while operating under its former name, TNP Strategic Retail Trust, Inc.

The complaint alleges that the company, its former affiliates and certain current or former officers and directors violated Sections 11, 12(a)(2) and/or 15 of the Securities Act of 1933 by providing investors with offering materials during the initial public offering that contained material misrepresentations and omissions about the financial health of the company and its affiliates and about the performance of earlier real estate programs the company sponsored.

According to the website, “on January 16, 2013, the company revealed that it had defaulted on a $29 million loan that Tony Thompson, its chief executive officer and chairman, had personally and unconditionally guaranteed and on its $45 million revolving credit facility. Then, in August, issued a press release disclosing that a board-level ‘Special Committee’ had been formed a year earlier ‘for the protection of shareholders’ after one of the company’s affiliates was found to be paying fees to itself that had not been earned; and that its affiliates had defaulted on certain corporate debt obligations and had sustained significant corporate losses.”

According a letter sent to investors, the plaintiffs’ counsel intends to ask the court to award it 25 percent of the settlement amount ($1.25 million) as fees, plus $50,000 in expense reimbursements, as well as estimated administrative costs of $24,000. Using the plaintiff’s estimate, the resulting settlement paid to shareholders per damaged share would be approximately $0.43 per share.

Strategic Realty Trust, is a non-traded real estate investment trust which owns a portfolio of shopping centers that are anchored by such grocers as Publix, Kroger, and Wal-Mart. The company is advised by SRT Advisors LLC, an affiliate of Glenborough LLC, a privately held full-service real estate investment and management company that also acts as the company’s property manager.