STRATEGIC REALTY TRUST, INC. Item 8.01. Other Events.
Estimated Value Per Share
OnDecember 28, 2022 , the board of directors ofStrategic Realty Trust, Inc. (the "Company") approved an estimated value per share of the Company's common stock of$1.91 per share based on the estimated value of the Company's real estate assets and the estimated value of the Company's tangible other assets less the estimated value of the Company's liabilities divided by the number of shares and operating partnership units outstanding, all as ofSeptember 30, 2022 , with the exception of the inclusion of the disposition price for the Wilshire property which was as ofOctober 11, 2022 . There have been no material changes betweenSeptember 30, 2022 and the date of this filing to the net values of the Company's assets and liabilities that impacted the overall estimated value per share. The Company is providing this estimated value per share to assist broker-dealers that participated in the Company's initial public offering in meeting their customer account statement reporting obligations underFinancial Industry Regulatory Authority ("FINRA") Rule 2231. The valuation with an effective date ofDecember 28, 2022 was performed in accordance with the provisions of Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs , issued by theInstitute for Portfolio Alternatives (formerly known as theInvestment Program Association ) ("IPA") inApril 2013 . The Company's independent directors are responsible for the oversight of the valuation process, including the review and approval of the valuation process and methodology used to determine the Company's estimated value per share, the consistency of the valuation and appraisal methodologies with real estate industry standards and practices and the reasonableness of the assumptions used in the valuations and appraisals. The estimated value per share was determined after consultation withSRT Advisor, LLC (the "Advisor") andRobert A. Stanger & Company, Inc. ("Stanger"), an independent third-party valuation firm. The engagement of Stanger was approved by the board of directors, including all of its independent members. Stanger prepared individual appraisal reports (individually an "Appraisal Report"; collectively the "Appraisal Reports"), summarizing key inputs and assumptions, on eight of the nine properties in which the Company wholly owned or owned an interest in as ofSeptember 30, 2022 (the "Appraised Properties "). Stanger also prepared a net asset value report (the "NAV Report") which estimates the net asset value per share of the Company's stock as ofSeptember 30, 2022 . The NAV Report relied upon: (i) the Appraisal Reports for theAppraised Properties ; (ii) theOctober 11, 2022 closing statement for the Wilshire property, which reflects the disposition price, net of transaction costs for the property (the "Disposition Property"); (iii) Stanger's estimated value of the Company's mortgage loans payable and other debt; and (iv) the Advisor's estimate of the value of the Company's other assets and liabilities as ofSeptember 30, 2022 , to calculate an estimated net asset value per share of the Company's common stock of$1.91 . Upon the board of directors' receipt and review of the Appraisal Reports and the NAV Report, and in light of other factors considered, the board of directors, including the independent directors, approved$1.91 per share as the estimated value of the Company's common stock as ofSeptember 30, 2022 , which determination is ultimately and solely the responsibility of the board of directors.
The table below sets forth the calculation of the Company's estimated value per
share as of
--------------------------------------------------------------------------------
Estimated Value Per Share
(Dollars in Thousands, Except Per Share)
September 30, 2022 February 28, 2021
Estimated Value per Estimated Value per
Share Shares(1)
Assets
Investments in real estate, net $ 35,370 $ 58,740 Properties under development and development costs 12,540 15,692 Cash and cash equivalents 1,076 1,978 Prepaid expenses 202 69 Accounts receivables, net 175 832 Deferred costs and intangibles, net - 116 Assets held for sale 14,951 - Total assets 64,314 77,427 Liabilities Notes payable 42,573 39,119 Accounts payable and accrued expenses 704 633 Other liabilities 136 135 Total Liabilities 43,413 39,887 Stockholders' equity 20,901 37,540 Shares and OP units outstanding 10,957,289 10,957,289 Estimated value per share $ 1.91 $ 3.43 (1) TheFebruary 28, 2021 estimated value per share was determined using similar methodology to theSeptember 30, 2022 estimated value per share. For more information relating to theFebruary 28, 2021 estimated value per share and the assumptions and methodologies used by Stanger and the Advisor, see the Company's Current Report on Form 8-K filed with theSecurities and Exchange Commission (the "SEC") onJune 30, 2021 .
Methodology and Key Assumptions
The Company's goal in calculating an estimated value per share is to arrive at a value that is reasonable and supportable using what the Company deems to be appropriate valuation methodologies and assumptions and a process that is in compliance with the valuation guidelines established by the IPA.FINRA's current rules provide no guidance on the methodology an issuer must use to determine its estimated value per share. As with any valuation methodology, the methodologies used are based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different estimated value per share, and these differences could be significant. The estimated value per share is not audited and does not represent the fair value of the Company's assets less its liabilities according toU.S. generally accepted accounting principles ("GAAP"), nor does it represent a liquidation value of the Company's assets and liabilities or the amount the Company's shares of common stock would trade at on a national securities exchange. The estimated value per share does not reflect a discount for the fact that the -------------------------------------------------------------------------------- Company is externally managed, nor does it reflect a real estate portfolio premium/discount versus the sum of the individual property values. The estimated value per share also does not take into account estimated disposition costs and fees for real estate properties that are not held for sale, debt prepayment penalties that could apply upon the prepayment of certain of the Company's debt obligations or the impact of restrictions on the assumption of debt.
The following is a summary of the valuation and appraisal methodologies used to value the Company's assets and liabilities:
Real Estate
Independent Valuation Firm
Stanger was selected by the Advisor and approved by the Company's independent directors and board of directors to appraise theAppraised Properties with a valuation date ofSeptember 30, 2022 . Stanger is engaged in the business of appraising commercial real estate properties and is not affiliated with the Company or the Advisor. The compensation the Company paid to Stanger was based on the scope of work and not on the appraised values of theAppraised Properties . The Appraisal Reports were performed in accordance with the Code of Ethics and the Uniform Standards of Professional Appraisal Practice, or USPAP, the real estate appraisal industry standards created byThe Appraisal Foundation . Each Appraisal Report was reviewed, approved and signed by an individual with the professional designation of MAI licensed in the state where each real property is located. The use of the Appraisal Reports are subject to the requirements of theAppraisal Institute relating to review by its duly authorized representatives. In preparing the Appraisal Reports, Stanger did not, and was not requested to, solicit third-party indications of interest for the Company's common stock in connection with possible purchases thereof or the acquisition of all or any part of the Company. Stanger collected reasonably available material information that it deemed relevant in appraising theAppraised Properties . Stanger relied in part on property-level information provided by the Advisor, including (i) property historical and projected operating revenues and expenses; (ii) property lease agreements and/or lease abstracts; and (iii) information regarding recent or planned capital expenditures. In conducting their investigation and analyses, Stanger took into account customary and accepted financial and commercial procedures and considerations as they deemed relevant. Although Stanger reviewed information supplied or otherwise made available by the Company or the Advisor for reasonableness, they assumed and relied upon the accuracy and completeness of all such information and of all information supplied or otherwise made available to them by any other party and did not independently verify any such information. Stanger has assumed that any operating or financial forecasts and other information and data provided to or otherwise reviewed by or discussed with Stanger were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of the Company's management, board of directors and/or the Advisor. Stanger relied on the Company to advise them promptly if any information previously provided became inaccurate or was required to be updated during the period of their review. In performing its analyses, Stanger made numerous other assumptions as of various points in time with respect to industry performance, general business, economic and regulatory conditions and other matters, many of which are beyond their control and the Company's control. Stanger also made assumptions with respect to certain factual matters. For example, unless specifically informed to the contrary, Stanger assumed that the Company has clear and marketable title to each Appraised Property, that no title defects exist, that any improvements were made in accordance with law, that no hazardous materials are present or were present previously, that no significant deed restrictions exist, and that no changes to zoning ordinances or regulations governing use, density or shape are pending or being considered. Furthermore, Stanger's analyses, opinions and conclusions were necessarily based upon market, economic, financial and other circumstances and conditions existing as of or prior to the date of the Appraisal Reports, and any material change in such circumstances and conditions may affect Stanger's analyses and conclusions. The Appraisal Reports contain other assumptions, qualifications and limitations that qualify the analyses, opinions and conclusions set forth therein. Furthermore, the prices at which the Company's real estate properties may actually be sold could differ from Stanger's analyses. -------------------------------------------------------------------------------- Stanger is actively engaged in the business of appraising commercial real estate properties similar to those owned by the Company in connection with public security offerings, private placements, business combinations and similar transactions. The Company engaged Stanger to deliver the Appraisal Reports and assist in the net asset value calculation and Stanger received compensation for those efforts. In addition, the Company has agreed to indemnify Stanger against certain liabilities arising out of this engagement. In the two years prior to the date of this filing, Stanger has provided appraisal, valuation and financial advisory services for the Company and has received usual and customary fees in connection with those services. Stanger may from time to time in the future perform other services for the Company, so long as such other services do not adversely affect the independence of Stanger as certified in the applicable appraisal report. Although Stanger considered any comments received from the Company or the Advisor regarding the Appraisal Reports, the final appraised values of theAppraised Properties were determined by Stanger. The Appraisal Reports are addressed solely to the Company to assist it in calculating an updated estimated value per share of the Company's common stock. The Appraisal Reports are not addressed to the public and may not be relied upon by any other person to establish an estimated value per share of the Company's common stock and do not constitute a recommendation to any person to purchase or sell any shares of the Company's common stock. The foregoing is a summary of the standard assumptions, qualifications and limitations that generally apply to the Appraisal Reports. All of the Appraisal Reports, including the analysis, opinions and conclusions set forth in such reports, are qualified by the assumptions, qualifications and limitations set forth in each respective Appraisal Report.
Real Estate Valuation
As described above, the Company engaged Stanger to provide an appraisal of theAppraised Properties consisting of eight of the nine properties in the Company's portfolio (including the property owned in a joint venture), as ofSeptember 30, 2022 . The Wilshire property, the disposition of which was completed onOctober 11, 2022 , was valued based on the closing statement, which reflected the disposition price for the property, net of transaction costs. In preparing the Appraisal Reports, Stanger, among other things:
•interviewed the Company's officers or the Advisor's personnel to obtain information relating to the physical condition of each Appraised Property, including known environmental conditions, status of ongoing or planned property additions and reconfigurations, and other factors for such leased properties;
•reviewed lease agreements for those properties subject to a long-term lease and discussed with the Company or Advisor certain lease provisions and factors on each property; and •reviewed the acquisition criteria and parameters used by real estate investors for properties similar to the subject properties, including a search of real estate data sources and publications concerning real estate buyer's criteria, discussions with sources deemed appropriate, and a review of transaction data for similar properties. Stanger appraised each of theAppraised Properties , using various methodologies including a direct capitalization analysis, discounted cash flow analyses and sales comparison approach, as appropriate, and relied primarily on the discounted cash flow analyses for the final valuations of each of theAppraised Properties . Stanger calculated the discounted cash flow value of theAppraised Properties using property-level cash flow estimates, terminal capitalization rates and discount rates that fall within ranges they believe would be used by similar investors to value theAppraised Properties based on survey data adjusted for unique property and market-specific factors. The Disposition Property was included in the NAV Report at its disposition price pursuant to a purchase and sale agreement, net of transaction costs per theOctober 11, 2022 closing statement. The total acquisition cost of the nine properties in which the Company wholly owned or owned an interest in as ofSeptember 30, 2022 was$62.1 million , excluding acquisition fees and expenses. In addition, the Company had invested$27.5 million in capital and tenant improvements on these nine real estate assets since inception. As ofSeptember 30, 2022 , the total appraised value of theAppraised Properties was$47.9 million and the estimated value for the Disposition Property based on theOctober 11, 2022 closing statement was$15.0 million . The total estimated value of the nine properties in which the Company wholly owned or owned an interest in as ofSeptember 30, 2022 compared to the total acquisition cost plus subsequent capital improvements throughSeptember 30, 2022 of these assets, results in an overall decrease in the real estate value of those the properties of approximately$26.7 million or approximately 29.9%. The following summarizes the key assumptions that were used for properties that were valued -------------------------------------------------------------------------------- using a discounted cash flow model to arrive at the appraised value of theAppraised Properties : Weighted Range Average Terminal Capitalization Rate 5.25% - 6.25% 5.65% Discount Rate 6.25% - 7.75% 6.51% Income and Expense Growth Rate 3.00% 3.00% Projection Period 10.0 Years - 11.0 Years 10.1
Years
While the Company believes that Stanger's assumptions and inputs are reasonable, a change in these assumptions and inputs would significantly impact the calculation of the appraised value of theAppraised Properties and thus, the estimated value per share. The table below illustrates the impact on the estimated value per share if the terminal capitalization rates or discount rates were adjusted by 25 basis points, and assuming all other factors remain unchanged, with respect to the real estate properties referenced in the table above. Additionally, the table below illustrates the impact on the estimated value per share if the terminal capitalization rates or discount rates were adjusted by 5% in accordance with the IPA guidance: Increase (Decrease) on the Estimated Value Per Share due to Increase Decrease 25 Basis Points Increase 25 Basis Points Decrease 5.0% 5.0% Terminal Capitalization Rates$0.09 $(0.08) $0.10 $(0.09) Discount Rates$0.06 $(0.06) $0.08 $(0.08) Notes Payable Values for mortgage loans were estimated by Stanger using a discounted cash flow analysis, which used inputs based on the remaining loan terms and estimated current market interest rates for mortgage loans with similar characteristics, including remaining loan term, loan-to-value ratios, debt-service-coverage ratios, prepayment terms, and collateral property attributes (i.e. age, location, etc.). The current market interest rate was generally determined based on market rates for available comparable debt. The estimated current market interest rates for the Company's consolidated mortgage loans ranged from 6.04% to 8.60%. As ofSeptember 30, 2022 , Stanger's estimate of fair value of the Company's consolidated notes payable were$42.6 million . The weighted-average discount rate applied to the future estimated debt payments, which have a weighted-average remaining term of 0.4 years, was approximately 7.1% and the fair value of the notes payable approximated par. The table below illustrates the impact on the Company's estimated value per share if the discount rates were adjusted by 25 basis points, and assuming all other factors remain unchanged, with respect to the Company's notes payable. Additionally, the table below illustrates the impact on the estimated value per share if the discount rates were adjusted by 5% in accordance with the IPA guidance: Adjustment to Discount Rates +25BPS -25BPS +5% (5)% Estimated Fair Value$ 42,549 $ 42,573 $ 42,541 $ 42,573 Weighted Average Discount Rate 7.3% 6.8% 7.4% 6.7% Change in Value Per Share$0.00 $0.00 $0.00 $0.00
--------------------------------------------------------------------------------
Other Assets and Liabilities
The carrying values of a majority of the Company's other assets and liabilities are considered to equal their fair value due to their short maturities or liquid nature. Certain balances, such as straight-line rent receivables, lease intangible assets and liabilities, deferred financing costs, unamortized lease commissions and unamortized lease incentives, have been eliminated for the purpose of the valuation due to the fact that the value of those balances were already considered in the valuation of the respective investments. Different parties using different assumptions and estimates could derive a different estimated value per share, and these differences could be significant. The value of the Company's shares will fluctuate over time in response to developments related to individual assets in the Company's portfolio and the management of those assets and in response to the real estate and finance markets.
Limitations of Estimated Value Per Share
As mentioned above, the Company is providing this estimated value per share to assist broker-dealers that participated in the Company's initial public offering in meeting their customer account statement reporting obligations. As with any valuation methodology, the methodologies used are based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different estimated value per share. The estimated value per share is not audited and does not represent the fair value of the Company's assets or liabilities according to GAAP.
Accordingly, with respect to the estimated value per share, the Company can give no assurance that:
•a shareholder would be able to resell his or her shares at this estimated value;
•a shareholder would ultimately realize distributions per share equal to the Company's estimated value per share upon liquidation of the Company's assets and settlement of its liabilities or a sale of the Company;
•the Company's shares of common stock would trade at the estimated value per share on a national securities exchange;
•an independent third-party appraiser or other third-party valuation firm would agree with the Company's estimated value per share; or
•the methodology used to estimate the Company's value per share would be
acceptable to
Further, the value of the Company's shares will fluctuate over time in response to developments related to individual assets in the Company's portfolio and the management of those assets and in response to the real estate and finance markets. The estimated value per share does not reflect a discount for the fact that the Company is externally managed, nor does it reflect a real estate portfolio premium/discount versus the sum of the individual property values. The estimated value per share does not take into account estimated disposition costs and fees for real estate properties that are not held for sale, debt prepayment penalties that could apply upon the prepayment of certain of the Company's debt obligations or the impact of restrictions on the assumption of debt. OnDecember 21, 2022 , the Company completed the sale of the Sunset & Gardner Joint Venture Property. Inclusion of the actual disposition price, net of transaction costs, instead of the appraised value of the property as ofSeptember 30, 2022 , would have had no impact on the estimated value per share. The Company currently expects to utilize the Advisor and/or an independent valuation firm to update the estimated value per share in 2023, in accordance with the recommended IPA guidelines. --------------------------------------------------------------------------------
Historical Estimated Values per Share
The historical reported estimated values per share of the Company's common stock approved by the board of directors are set forth below:
Estimated value per Effective date of share valuation Filing with the Securities and
Current Report on Form 8-K, filed with the SEC on June 30 ,
$ 3.43 May 26, 2021 2021
Current Report on Form 8-K, filed with the SEC on
$ 5.25 September 2, 2020 September 15, 2020
Current Report on Form 8-K, filed with the SEC on August
$ 5.86 August 8, 2019 23, 2019
Current Report on Form 8-K, filed with the SEC on August
$ 6.04 August 1, 2018 20, 2018
Current Report on Form 8-K, filed with the SEC on August
$ 6.27 August 2, 2017 18, 2017
Current Report on Form 8-K, filed with the SEC on July 28 ,
$ 6.36 July 18, 2016 2016
Current Report on Form 8-K, filed with the SEC on August
$ 6.57 August 7, 2015 25, 2015
Current Report on Form 8-K, filed with the SEC on July 17 ,
$ 7.11 July 15, 2014 2014
Current Report on Form 8-K, filed with the SEC on November
$ 10.60 November 9, 2012 13, 2012
Current Report on Form 8-K, filed with the SEC on August
$ 10.40 August 13, 2012 16, 2021
Current Report on Form 8-K, filed with the SEC on May 21 ,
$ 10.18 May 14, 2012 2012
Current Report on Form 8-K, filed with the SEC on March
$ 10.14 March 16, 2012 21, 2012
Forward-Looking Statements
The foregoing includes forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. The Company intends that such forward-looking statements be subject to the safe harbors created by Section 21E of the Exchange Act. These statements include statements regarding the intent, belief or current expectations of the Company and members of its management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," " estimates," "expects," "plans," "intends," "should" or similar expressions. Further, forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law. Actual results may differ materially from those contemplated by such forward-looking statements. The appraisal methodology for theAppraised Properties assumes the properties realize the projected net operating income and expected exit cap rates and that investors would be willing to invest in such properties at yields equal to the expected discount rates. Though the appraisals of theAppraised Properties , with respect to Stanger, and the valuation estimates used in calculating the estimated value per share, with respect to Stanger, the Advisor and the Company, are the respective party's best estimates as ofSeptember 30, 2022 , the Company can give no assurance in this regard. Even small changes to these assumptions . . .
© Edgar Online, source
