Thompson's former nontraded REIT drops nearly 30%

Shares in Strategic Realty Trust worth $7.11, down from $10

Jul 21, 2014 @ 12:20 pm

By Bruce Kelly

Investors in a nontraded real estate investment trust launched by Tony Thompson, the one-time noted real estate sponsor, were told last week that the net asset value of the REIT had eroded by nearly 30%.

In a letter to shareholders, Strategic Realty Trust Inc., formerly the TNP Strategic Realty Trust Inc., told investors that the REIT's valuation had been reduced to $7.11 per share from $10, a decline of 29%. The decrease in the REIT's estimated value comes after an appraisal and review of its financial statements from Robert A. Stanger & Co. Inc., an investment bank.

In a positive note, the board declared a 20% increase to the annual dividend, which is now 24 cents per share.

The REIT, which began raising money in August 2009, was sold at $10 per share by representatives at independent broker-dealers.

That was less than a year after the financial crisis and it was an optimal time for investors to buy inexpensive but potentially profitable commercial real estate as “capitalization rates,” or the rate of return based on expected income, hit peaks.

According to the letter to shareholders, the REIT, which owns a portfolio of 16 shopping centers, has seen property appreciation of $1.65 per share since its inception. Over the past five years those gains were offset by transactions costs of $1.54 per share, offering and organization costs of $1.23 per share, return of capital to investors through distributions of $1.04 per share, and a per-share loss of 52 cents on a property in Hawaii. It also had per-share losses of 21 cents for other, unnamed reasons and marking debt to market.

The REIT's current chief executive, Andrew Batinovich, did not return a call seeking comment.

Mr. Thompson had been the head of the REIT from its launch until last August, when the board removed him as co-CEO and president. He resigned as a director of the REIT in January and called off a proxy fight with the board after an affiliate of the REIT's adviser, real estate firm Glenborough, agreed to buy out Mr. Thompson's 133,333 shares. Mr. Thompson received $8 per share as part of that agreement. Mr. Batinovich is the CEO of both Strategic Realty Trust and Glenborough.

At the time, Mr. Batinovich told InvestmentNews that the $8 per share price was a negotiated price and not necessarily a valuation of the shares.

Mr. Thompson did not return a call seeking comment Monday afternoon.

The new valuation of $7.11 per share draws attention to Mr. Thompson's claim in January 2013 that the estimated net asset value of the REIT had increased to $10.60. At that time, Mr. Thompson sent a notice to broker-dealers hawking the TNP Strategic Realty Trust, noting that the REIT would soon close its sales, but that broker-dealers could still sell the REIT for $10 per share to investors. “Necessity retail: Now is the time!” the note said.

Mr. Thompson had been one of the most well-known real estate investors among independent broker-dealers for decades. He closed his broker-dealer last year and then handed in his securities license with the Financial Industry Regulatory Authority Inc.

Finra filed a complaint against Mr. Thompson last summer, alleging he had deceived and defrauded investors who bought $50 million in high-yield promissory notes sponsored by Thompson National Properties, his real estate company.

The Finra complaint against Mr. Thompson is still pending.

(An earlier version of this story said the REIT bought out Mr. Thompson's shares. This version clarifies that an affiliate of the REIT's adviser bought those shares.)

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