SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported):
November 9, 2012
TNP Strategic Retail Trust, Inc.
(Exact Name of Registrant as Specified in Charter)
1900 Main Street, Suite 700
Irvine, California 92614
(Address of Principal Executive Offices, including Zip Code)
Registrants telephone number, including area code: (949) 833-8252
(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.):
On November 9, 2012, the board of directors of TNP Strategic Retail Trust, Inc. (which is referred to herein as the Company, we, us, and our) determined an estimated value per share of our common stock of $10.60 as of November 9, 2012. On November 13, 2012, we issued a press release regarding our estimated value per share. The full text of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by reference into this Item 7.01.
The information furnished under Item 7.01 of this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed to be filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section.
Our Board of Directors Determination of Our Estimated Value Per Share
On November 9, 2012, our board of directors determined an estimated value per share of our common stock of $10.60 as of November 9, 2012, an increase from the previously determined estimated value per share of $10.40 as of June 30, 2012, $10.18 as of March 31, 2012, $10.14 as of December 31, 2011 and $10.08 as of September 30, 2011. We are providing the estimated value per share to assist broker-dealers and stockholders in their evaluation of us. This is the fifth determination by our board of directors of an estimated value per share of our common stock. We anticipate disclosing an updated estimated value per share as deemed necessary through February 2013.
The objective of our board of directors in determining the estimated value per share was to arrive at a value, based on the most recent data available, that it believed was reasonable based on methodologies that it deemed appropriate after consultation with our advisor. The estimated value per share is based on (x) the estimated value of our assets less the estimated value of our liabilities divided by (y) the number of outstanding shares of our common stock plus the limited partnership units of our operating partnership issued to third party sellers in connection with our acquisition of Pinehurst Square East and the Shops at Turkey Creek, which we refer to as limited partnership units, all as of September 30, 2012. Investors are cautioned that the market for commercial real estate can fluctuate quickly and substantially and values of our assets and liabilities are expected to change in the future.
In determining an estimated value of a share of our common stock, our board of directors relied upon information provided by our advisor as well as our board of directors experience with, and knowledge about, our real estate portfolio. The information our board of directors reviewed with our advisor include: (1) prior appraisals on certain of our properties conducted by third party appraisers, (2) the acquisition cost of properties that had not been previously appraised and (3) a separate report prepared by our advisor providing our estimated per share value, which we refer to as the valuation report.
Our board of directors determined the estimated per share value in its sole discretion and is ultimately and solely responsible for establishing the estimated value of a share of our common stock. Our advisor did, however, engage the services of Duff & Phelps LLC, or Duff & Phelps, an independent valuation firm, to conduct valuation consulting services regarding all of our real estate assets.
Duff & Phelps reviewed our advisors real estate valuations and the methodologies and assumptions used in determining our advisors valuation conclusions (including discount rates, estimated cash flows and capitalization rates) on a property by property basis; meet with relevant members of our advisors deal teams to discuss individual property performance, expectations and strategy; reviewed general economic and industry trends; to the extent available, obtained comparable and financial data for sales of same or similar properties to support appropriate valuation rates used in our advisors valuation. Duff & Phelps shared its views regarding the reasonableness of our methodologies, assumptions and valuation conclusions. Nothing in the Duff & Phelps report caused our board of directors to question the reasonableness of our advisors valuation of our investments.
Duff & Phelps has extensive experience in conducting appraisals and valuations on real properties and certain of its personnel, including those who reviewed our valuations, have a Member of Appraisal Institute (MAI) designations. Duff & Phelps does not have any direct or indirect material interest in any transaction with the
Company or in any currently proposed transaction to which we, our advisor or our board of directors or officers are a party. We believe there are no material conflicts of interest between Duff & Phelps, on the one hand, and us, our advisor and our directors or officers, on the other hand.
The following is a summary of the valuation methodologies used for each type of asset:
Real Estate Investments. We determined that the market value of the leased fee interests in our portfolio of 21 retail properties as of November 9, 2012 was $328,762,000. The purchase price for the same properties (as adjusted for related capital expenditures) was approximately $289,686,000. We previously determined that the market value of the leased fee interests in our portfolio of 20 retail properties as of June 30, 2012 was $291,787,000.
In determining the value of our property portfolio, we considered the value of the 21 properties we owned as of November 9, 2012 based upon future streams of income expected by each property, discounted at an appropriate rate to convert the streams into a present value (the discounted cash flow analysis). In performing the discounted cash flow analysis, we reviewed cash flow projections based on internally generated budgets, market leasing assumptions, market rate estimates, absorption estimates and other property level information provided by our advisor.
Notes Payable. The valuation report prepared by our advisor contained a valuation of our notes payable based on the carrying value of our notes payable at September 30, 2012 plus the new debt acquired between September 30, 2012 and November 9, 2012. Our notes payable increased from $184,427,000 at June 30, 2012 to $210,956,000 at November 9, 2012.
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 us to be equal to fair value due to their short maturities. Certain balances, including acquired above/below market leases and other non-cash measures, 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 11,232,941 shares of equity interests outstanding as of November 9, 2012, which was comprised of 10,801,145 outstanding shares of our common stock and 431,796 outstanding limited partnership units.
The estimated per share value does not reflect a liquidity discount for the fact that the shares 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 value per share was determined as of November 9, 2012, June 30, 2012, March 31, 2012, December 31, 2011 and September 30, 2011 (in thousands):
Allocation of Estimated Value
As of November 9, 2012, June 30, 2012, March 31, 2012, December 31, 2011 and September 30, 2011 our estimated value per share was calculated as follows:
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 1.24%, 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 1.24%. 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 1.16%, 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 1.19%.
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 us. The estimated value per share determined by us 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:
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 November 9, 2012), 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 through November 9, 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 in making an investment decision. 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. Financial Industry Regulatory Authority, Inc. (FINRA) rules provide no guidance on the methodology an issuer must use to determine its estimated net asset value per share.
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.