Noted real estate investor Tony Thompson and the independent directors of a nontraded real estate investment trust he launched in 2009 are in a bitter struggle over why the REIT's dividend was erased last month and what the management of the REIT will be, going forward.
The $301 million TNP Strategic Retail Trust Inc. is facing significant problems.
The board decided in March to cut the distribution, or dividend, to investors. Mr. Thompson and the REIT's broker-dealer manager, TNP Securities LLC, both are under investigation by the Financial Industry Regulatory Authority Inc. for failing to deliver documents in a Finra inquiry.
Cutting the dividend is at the center of the dispute between the three independent board directors and Mr. Thompson, the REIT's chairman and co-chief executive. Mr. Thompson is widely known among independent broker-dealers for his role as a leading seller of tenant in common 1031 exchanges before the real estate crash of 2007-08.
In a letter to investors dated March 27, Mr. Thompson said the three independent directors on the board, Jeffrey Rogers, Phillip Levin and John Maier, “voted to not pay [first] quarter 2013 dividends. I opposed this decision and was not part of the board meeting.”
In his letter, which was not filed with the Securities and Exchange Commission, he accused the directors of jacking up expenses, leading to the distribution cut.
“I believe extraordinary expenses are one of the primary causes for the independent directors' decision not to pay a current distribution,” he wrote. “These expenses include attorney fees related to the independent directors' 'special committee' activities, the special committee's director fees, default interest” and other costs, including salaries of accountants.
The board earlier this week filed with the SEC a shareholder letter that said Mr. Thompson's assessment was wrong and that his letter was riddled with errors, including the actual number of properties the REIT owns. The three board members also “strongly disagreed” with Mr. Thompson's contention that “extraordinary expenses” and costs played a major role in the reason to cut the distribution.
“Such costs were relatively minor in relation to our overall expenditures,” the board members wrote. The reason for the cut in the REIT's dividend was a prohibition of distributions while a property owned by the REIT was in default, and low cash flow from other properties and operations, they wrote.
The board also is trying to fire as the REIT's manager another company controlled by Mr. Thompson, TNP Strategic Retail Advisers LLC, and find a new adviser.
Mr. Thompson declined to be interviewed about the dispute with the board. But in an e-mail to InvestmentNews, he wrote: “People occasionally disagree on the same facts. The adviser has never misled anyone.”
Mr. Maier did not return a phone call Friday seeking comment. Mr. Rogers and Mr. Levin could not be reached.