Strategic Realty Trust, Inc. - Quarter Report: 2013 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2013

OR

For the transition period from              to             

Commission file number 000-54376

TNP STRATEGIC RETAIL TRUST, INC.

(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  x

Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No   x

As of August 9, 2013, there were 10,969,714 shares of the Registrant’s common stock issued and outstanding.

TNP STRATEGIC RETAIL TRUST, INC.

INDEX

PART I

FINANCIAL INFORMATION

The accompanying condensed consolidated unaudited financial statements as of and for the three and six months ended June 30, 2013 have been prepared by TNP Strategic Retail Trust, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements and should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC on April 1, 2013. The financial statements herein should also be read in conjunction with the notes to the financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Quarterly Report on Form 10-Q. The results of operations for the three and six months ended June 30, 2013 are not necessarily indicative of the operating results expected for the full year. The information furnished in the Company’s accompanying condensed consolidated unaudited balance sheets and condensed consolidated unaudited statements of operations, equity, and cash flows reflects all adjustments that are, in management’s opinion, necessary for a fair presentation of the aforementioned financial statements. Such adjustments are of a normal recurring nature.

ITEM 1. FINANCIAL STATEMENTS

TNP STRATEGIC RETAIL TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

TNP STRATEGIC RETAIL TRUST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

TNP STRATEGIC RETAIL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

TNP STRATEGIC RETAIL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

TNP STRATEGIC RETAIL TRUST, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

1. ORGANIZATION AND BUSINESS

TNP Strategic Retail Trust, Inc. (the “Company”) was formed on September 18, 2008 as a Maryland corporation. The Company believes it qualifies as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and has elected REIT status beginning with the taxable year ended December 31, 2009, the year in which the Company began material operations. The Company was initially capitalized by the sale of shares of common stock to Thompson National Properties, LLC ( “TNP LLC”) on October 16, 2008.

On November 4, 2008, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to offer a maximum of 100,000,000 in shares of its common stock to the public in its primary offering at $10.00 per share and 10,526,316 shares of its common stock to the Company’s stockholders at $9.50 per share pursuant to its distribution reinvestment plan (“DRIP”) (collectively, the “Offering”). On August 7, 2009, the SEC declared the registration statement effective and the Company commenced the Offering. On February 7, 2013, the Company terminated the Offering and ceased offering shares of common stock in the primary offering and under the DRIP. As of December 31, 2012, the Company had accepted subscriptions for, and issued, 10,893,227 shares of common stock in the Offering (net of share redemptions), including 365,242 shares of common stock pursuant to the DRIP, resulting in gross offering proceeds of $107,609,000. As of the termination of the Offering on February 7, 2013, the Company had accepted subscriptions for, and issued, 10,969,714 shares of common stock (net of share redemptions), including 391,182 shares of common stock pursuant to the DRIP, resulting in gross offering proceeds of $108,357,000.

On June 15, 2012, the Company filed with the SEC a registration statement on Form S-11 to register up to $900,000,000 in shares of the Company’s common stock in a follow-on public offering. The Company subsequently determined not to proceed with the contemplated follow-on public offering and on March 1, 2013, the Company requested that the SEC withdraw the registration statement for the follow-on public offering, effective immediately. As a result of the termination of the Offering and the withdrawal of the registration statement for the Company’s follow-on public offering, offering proceeds are not currently available to fund the Company’s cash needs, and will not be available until the Company is able to successfully engage in an offering of its securities. The Company currently does not expect to commence a follow-on offering.

On August 7, 2013, the Company allowed its existing advisory agreement (the “Prior Advisory Agreement”) with the Company’s prior advisor, TNP Strategic Retail Advisor, LLC (the “Prior Advisor”), to expire without renewal. On August 10, 2013, the Company entered into a new advisory agreement (the “Advisory Agreement”) with SRT Advisor, LLC, a Delaware limited liability company (the “Advisor”). Advisor will manage the Company’s business as the Company’s external advisor pursuant to the Advisory Agreement. Advisor is an affiliate of Glenborough, LLC (together with its affiliates, “Glenborough”), a privately held full-service real estate investment and management company focused on the acquisition, management and leasing of high quality commercial properties. Glenborough and its predecessor entities have over three decades of experience in the commercial real estate industry. Advisor will depend on the capital from Glenborough and fees and other compensation that it receives from the Company in connection with the purchase, management and sale of the Company’s assets to conduct its operations.

In December 2012, the Company entered into a consulting agreement with Glenborough to assist the Company with the process of transitioning to a new external advisor (the “Consulting Agreement”). Pursuant to the Consulting Agreement, the Company paid Glenborough a monthly consulting fee and reimbursed Glenborough for its reasonable out-of-pocket expenses. From December 2012 through April 2013, the Company agreed to pay Glenborough a monthly consulting fee of $75,000 pursuant to the consulting agreement. Effective May 1, 2013, the Company and Glenborough amended the consulting agreement to expand the services provided to the Company by Glenborough and increase the monthly consulting fee payable to Glenborough to $90,000. On August 10, 2013, in connection with the execution of the Advisory Agreement, the Company terminated the Consulting Agreement.

Substantially all of the Company’s business is conducted through TNP Strategic Retail Trust Operating Partnership, L.P., a Delaware limited partnership (the “OP”). The initial limited partners of the OP were Prior Advisor and TNP Strategic Retail OP Holdings, LLC, a Delaware limited liability company affiliated with Prior Advisor (“TNP Holdings”). Prior Advisor invested $1,000 in the OP in exchange for common units of the OP (“Common Units”) and TNP Holdings invested $1,000 in the OP in exchange for a separate class of limited partnership units (the “Special Units”). As the Company accepted subscriptions for shares of its common stock, it transferred substantially all of the net proceeds of the Offering to the OP as a capital contribution. As of June 30, 2013 and December 31, 2012 the Company owned 96.2% of the limited partnership interest in the OP. As of June 30, 2013 and December 31, 2012, Prior Advisor owned 0.01% of the limited partnership interest in the OP. TNP Holdings owned 100% of the outstanding Special Units as of June 30, 2013 and December 31, 2012. In connection with the execution of the Advisory Agreement, within sixty (60) days of the execution of the Advisory Agreement, Advisor or its affiliate will contribute $1,000 to the OP in exchange for a separate class of Special Units.

On May 26, 2011, in connection with the acquisition of Pinehurst Square East (“Pinehurst”), a retail property located in Bismarck, North Dakota, the OP issued 287,472 Common Units to certain of the sellers of Pinehurst who elected to receive Common Units for an aggregate value of $2,587,000, or $9.00 per Common Unit. On March 12, 2012, in connection with the acquisition of the Shops at Turkey Creek (“Turkey Creek”), a retail property located in Knoxville, Tennessee, the OP issued 144,324 Common Units to certain of the sellers of Turkey Creek who elected to receive Common Units for an aggregate value of $1,371,000, or $9.50 per Common Unit.

The Company’s principal demand for funds has been for the acquisition of real estate assets, the payment of operating expenses and interest on outstanding indebtedness and the payment of distributions to stockholders. Substantially all of the proceeds of the completed Offering have been used to fund investments in real properties and other real estate-related assets, for payment of operating expenses, for payment of various fees and expenses such as acquisition fees and management fees and for payment of distributions to stockholders. As discussed below, the Company’s available capital resources, cash and cash equivalents on hand and sources of liquidity are currently limited. The Company expects its future cash needs will be funded using cash from operations, future asset sales, debt financing and the proceeds to the Company from any sale of equity that it conducts in the future. The Company expects that its investment activities will be significantly reduced for the foreseeable future until it is able to identify other significant sources of financing. The Company also has suspended its share redemption program and dividend distributions until an improvement in liquidity and capital resources occurs following the refinancing of the Company’s credit agreement with KeyBank National Association (“KeyBank”) following the expiration of the Company’s forbearance agreement with KeyBank (see Note 6. NOTES PAYABLE). For so long as the Company remains in default under the terms of the KeyBank financing, the Company’s forbearance agreement with KeyBank prohibits the payment of distributions to investors in the Company.

On August 2, 2012, the Company, the OP and Prior Advisor entered into an amendment to the Company’s advisory agreement, effective as of August 7, 2012, which, among other things, required the Prior Advisor to cause the Company to maintain at all times a cash reserve of at least $4,000,000 and provided that Prior Advisor may deploy any cash proceeds in excess of the cash reserve for the Company’s business pursuant to the terms of the Prior Advisory Agreement. As a result of the significant cash required to complete the Company’s acquisition of the Lahaina Gateway property on November 9, 2012, and the additional cash required by the mortgage lender for the Lahaina Gateway property acquisition for reserves and mandatory principal payments, the Company’s cash and cash equivalents had fallen to approximately $492,000 at June 30, 2013, significantly below the $4,000,000 cash reserve required under the Prior Advisory Agreement. Following the expiration of the Prior Advisory Agreement on August 7, 2013, the Company is no longer subject to the requirement to maintain such a minimum cash reserve. The Company’s cash and cash equivalents remain significantly limited until the Company finds other sources of cash, such as from borrowings, sales of equity capital or sales of assets. Although no assurances may be given, the Company believes that its current cash from operations will be sufficient to support the Company’s ongoing operations, including its debt service payments, other than the required payment on the Company’s credit agreement with KeyBank following the expiration of the Company’s forbearance agreement with KeyBank (see discussion below).

On April 1, 2013, the Company entered into a forbearance agreement with respect to the Company’s credit agreement with KeyBank, and on July 31, 2013 the Company entered into an amendment to the forbearance agreement which extended the term of the forbearance period (see additional discussion in Note 6 – NOTES PAYABLE). On or before the expiration of the forbearance period, the Company currently intends to (1) refinance the credit agreement on or before the expiration of the forbearance agreement with KeyBank or with another lender; or (2) refinance a portion of the credit agreement on or before the expiration of the forbearance agreement with KeyBank or with another lender, and pay down a portion of the balance of the credit agreement with proceeds from the disposition of certain properties securing the credit agreement.

The Company has invested in a portfolio of income-producing retail properties throughout the United States, with a focus on grocery anchored multi-tenant retail centers in the Western United States, including neighborhood, community and lifestyle shopping centers, multi-tenant shopping centers and free standing single-tenant retail properties. As of June 30, 2013, the Company’s portfolio was comprised of 20 properties with approximately 2,037,000 rentable square feet of retail space located in 14 states. As of June 30, 2013, the rentable space at the Company’s retail properties was 86% leased. Due to the Company’s currently limited capital resources, cash and cash equivalents on hand and sources of liquidity, the Company is not currently actively seeking additional investments.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The accompanying condensed consolidated unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Management is required to make estimates and assumptions in the preparation of financial statements in conformity with GAAP. These estimates and assumptions affected the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The condensed consolidated financial statements include the accounts of the Company, the OP, and their direct and indirect wholly owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows have been included.

The Company evaluates the need to consolidate joint ventures and variable interest entities based on standards set forth in ASC 810, Consolidation (“ASC 810”). In determining whether the Company has a controlling interest in a joint venture or a variable interest entity and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the partners/members as well as whether the entity is a variable interest entity for which the Company is the primary beneficiary. As of June 30, 2013, the Company did not have any joint ventures or variable interests in any variable interest entities.

Non-Controlling Interests

The Company’s non-controlling interests comprise primarily of the Common Units in the OP. The Company accounts for non-controlling interests in accordance with ASC 810. In accordance with ASC 810, the Company reports non-controlling interests in subsidiaries within equity in the condensed consolidated financial statements, but separate from the parent’s stockholders’ equity. Net income (loss) attributable to non-controlling interests is presented as a reduction from net income (loss) in calculating net income (loss) available to common stockholders on the statement of operations. Acquisitions or dispositions of non-controlling interests that do not result in a change of control are accounted for as equity transactions. In addition, ASC 810 requires that a parent company recognize a gain or loss in net income when a subsidiary is deconsolidated upon a change in control. In accordance with FASB ASC 480-10, Distinguishing Liabilities from Equity, non-controlling interests that are determined to be redeemable are carried at their fair value or redemption value as of the balance sheet date and reported as liabilities or temporary equity depending on their terms. The Company periodically evaluates individual non-controlling interests for the ability to continue to recognize the non-controlling interest as permanent equity in the condensed consolidated balance sheets. Any non-controlling interest that fails to qualify as permanent equity will be reclassified as liabilities or temporary equity and adjusted to the greater of (1) the carrying amount, or (2) its redemption value as of the end of the period in which the determination is made, and the resulting adjustment is recorded in the condensed consolidated statement of operations. All non-controlling interests at June 30, 2013 qualified as permanent equity.

Use of Estimates

The preparation of the Company’s financial statements requires significant management judgments, assumptions and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and the Company’s disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in the Company’s financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of the Company’s results of operations to those of companies in similar businesses. The Company considers significant estimates to include the carrying amounts and recoverability of investments in real estate, impairments, real estate acquisition purchase price allocations, allowance for doubtful accounts, estimated useful lives to determine depreciation and amortization and fair value determinations, among others.

Cash and Cash Equivalents

Cash and cash equivalents represents current bank accounts and other bank deposits free of encumbrances and having maturity dates of three months or less from the respective dates of deposit. The Company limits cash investments to financial institutions with high credit standing; therefore, the Company believes it is not exposed to any significant credit risk in cash.

Restricted Cash

Restricted cash includes escrow accounts for real property taxes, insurance, capital expenditures and tenant improvements, debt service and leasing costs held by lenders.

Revenue Recognition

Revenues include minimum rents, expense recoveries and percentage rental payments. Minimum rents are recognized on an accrual basis over the terms of the related leases on a straight-line basis when collectability is reasonably assured and the tenant has taken possession or controls the physical use of the leased property. If the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or the Company. When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. Tenant improvement ownership is determined based on various factors including, but not limited to:

For leases with minimum scheduled rent increases, the Company recognizes income on a straight-line basis over the lease term when collectability is reasonably assured. Recognizing rental income on a straight-line basis for leases results in recognized revenue amounts which differ from those that are contractually due from tenants on a cash basis. If the Company determines the collectability of straight-line rents is not reasonably assured, the Company limits future recognition to amounts contractually owed and paid, and, when appropriate, establishes an allowance for estimated losses.

The Company maintains an allowance for doubtful accounts, including an allowance for straight-line rent receivables, for estimated losses resulting from tenant defaults or the inability of tenants to make contractual rent and tenant recovery payments. The Company monitors the liquidity and creditworthiness of its tenants on an ongoing basis. For straight-line rent amounts, the Company’s assessment is based on amounts estimated to be recoverable over the term of the lease. The Company’s straight-line rent receivable, which is included in tenant receivables on the condensed consolidated balance sheets, was $1,994,000 and $1,380,000 at June 30, 2013 and December 31, 2012, respectively.

Certain leases contain provisions that require the payment of additional rents based on the respective tenants’ sales volume (contingent or percentage rent) and substantially all contain provisions that require reimbursement of the tenants’ allocable real estate taxes, insurance and common area maintenance costs (“CAM”). Revenue based on percentage of tenants’ sales is recognized only after the tenant exceeds its sales breakpoint. Revenue from tenant reimbursements of taxes, CAM and insurance is recognized in the period that the applicable costs are incurred in accordance with the lease agreement.

The Company recognizes gains or losses on sales of real estate in accordance with ASC 360. Profits are not recognized until (a) a sale has been consummated; (b) the buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for the property; (c) the Company’s receivable, if any, is not subject to future subordination; and (d) the Company has transferred to the buyer the usual risks and reward of ownership, and the Company does not have a substantial continuing involvement with the property. The results of operations of income producing properties where the Company does not have a continuing involvement are presented in the discontinued operations section of the Company’s condensed consolidated statements of operations when the property has been classified as held-for-sale or sold.

Valuation of Accounts Receivable

The Company makes estimates of the collectability of its tenant receivables related to base rents, including deferred rents receivable, expense reimbursements and other revenue or income.

The Company analyzes tenant receivables, deferred rent receivable, historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition, with respect to tenants in bankruptcy, the Company will make estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectability of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. When a tenant is in bankruptcy, the Company will record a bad debt reserve for the tenant’s receivable balance and generally will not recognize subsequent rental revenue until cash is received or until the tenant is no longer in bankruptcy and has the ability to make rental payments.

Concentration of Credit Risk

A concentration of credit risk arises in the Company’s business when a national or regionally based tenant occupies a substantial amount of space in multiple properties owned by the Company. In that event, if the tenant suffers a significant downturn in its business, it may become unable to make its contractual rent payments to the Company, exposing the Company to potential losses in rental revenue, expense recoveries, and percentage rent. Further, the impact may be magnified if the tenant is renting space in multiple locations. Generally, the Company does not obtain security from the nationally-based or regionally-based tenants in support of their lease obligations to the Company. The Company regularly monitors its tenant base to assess potential concentrations of credit risk. As of June 30, 2013, Publix is the Company’s largest tenant and accounted for approximately 99,979 square feet, or approximately 5% of the Company’s gross leasable area, and approximately $1,048,000, or 4% of the Company’s annual minimum rent. No other tenant accounted for over 5% of the Company’s annual minimum rent. There were no outstanding receivables from Publix at June 30, 2013.

The Company’s real estate properties are leased to tenants under operating leases for which the terms and expirations vary. As of June 30, 2013, the leases at the Company’s properties have remaining terms (excluding options to extend) of up to 14 years with a weighted-average remaining term (excluding options to extend) of eight years. The leases may have provisions to extend the lease agreements, options for early termination after paying a specified penalty, rights of first refusal to purchase the property at competitive market rates, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires security deposits from tenants in the form of a cash deposit and/or a letter of credit. Amounts required as security deposits vary depending upon the terms of the respective leases and the creditworthiness of the tenant, but generally are not significant amounts. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to tenant leases are included in other liabilities in the accompanying condensed consolidated balance sheets and totaled $555,000 and $651,000 as of June 30, 2013 and December 31, 2012, respectively.  

Business Combinations

The Company records the acquisition of income-producing real estate or real estate that will be used for the production of income as a business combination. All assets acquired and liabilities assumed in a business combination are measured at their acquisition-date fair values, including tenant improvements and identifiable intangible assets or liabilities. Tenant improvements represent the tangible assets associated with the existing leases valued on a fair value basis at the acquisition date. Tenant improvements are classified as assets under investments in real estate and are depreciated over the remaining lease terms. Identifiable intangible assets and liabilities relate to the value of in-place operating leases which come in three forms: (1) leasing commissions and legal costs, which represent the value associated with “cost avoidance” of acquiring in-place leases, such as lease commissions paid under terms generally experienced in markets in which the Company operates; (2) value of in-place leases, which represents the estimated loss of revenue and of costs incurred for the period required to lease the “assumed vacant” property to the occupancy level when purchased; and (3) above- or below-market value of in-place leases, which represents the difference between the contractual rents and market rents at the time of the acquisition, discounted for tenant credit risks. The value of in-place leases is recorded in acquired lease intangibles and amortized over the remaining lease term. Above- or below-market leases are classified in acquired lease intangibles, or in acquired below-market lease intangibles, depending on whether the contractual terms are above- or below-market. Above-market leases are amortized as a decrease to rental revenue over the remaining non-cancelable terms of the respective leases and below-market leases are amortized as an increase to rental revenue over the remaining initial lease term and any fixed rate renewal periods, if applicable.

Acquisition costs are expensed as incurred and costs that do not meet the definition of a liability at the acquisition date are expensed in periods subsequent to the acquisition date. During the six months ended June 30, 2013, the Company did not acquire any property. During the six months ended June 30, 2012, the Company acquired nine properties; Morningside Marketplace (“Morningside Marketplace”), Woodland West Marketplace (“Woodland West”), Ensenada Square (“Ensenada Square”), the Shops at Turkey Creek (“Turkey Creek”), Aurora Commons (“Aurora Commons”), Florissant Marketplace (“Florissant”), Willow Run Shopping Center (“Willow Run”), Bloomingdale Hills (“Bloomingdale Hills”) and Visalia Marketplace (“Visalia Marketplace”) for an aggregate purchase price of $103.4 million. The Company recorded these acquisitions as business combinations and incurred $3,037,000 of acquisition costs. Costs incurred in pursuit of targeted properties for acquisitions not yet closed or those determined to no longer be viable and costs incurred which are expected to result in future period disposals of property not currently classified as held for sale properties have been expensed and are also classified in the condensed consolidated statement of operations as transaction expenses.

Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require the Company to make significant assumptions to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate assumptions would result in an incorrect valuation of the Company’s acquired tangible assets, identifiable intangibles and assumed liabilities, which would impact the amount of the Company’s net income. These allocations also impact depreciation expense, amortization expense and gains or losses recorded on future sales of properties.

Reportable Segments

ASC 280, Segment Reporting, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. The Company has one reportable segment, income-producing retail properties, which consists of activities related to investing in real estate. The retail properties are geographically diversified throughout the United States, and the Company evaluates operating performance on an overall portfolio level.

Investments in Real Estate

Real property is recorded at cost, less accumulated depreciation and amortization. Costs include those related to acquisition, development and construction, including tenant improvements, interest incurred during development, costs of predevelopment and certain direct and indirect costs of development. Costs related to business combinations are expensed as incurred, and are included in transaction expense in the Company’s condensed consolidated statements of operations.

Depreciation and amortization is computed using a straight-line method over the estimated useful lives of the assets as follows:

Tenant improvement costs recorded as capital assets are depreciated over the shorter of (1) the tenant’s remaining lease term or (2) the life of the improvement.

Expenditures for ordinary maintenance and repairs are expensed to operations as they are incurred. Significant renovations and improvements that improve or extend the useful lives of assets are capitalized.

Impairment of Long-lived Assets

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its investments in real estate and related intangible assets may not be recoverable. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets may not be recoverable, the Company assesses the recoverability by estimating whether the Company will recover the carrying value of the real estate and related intangible assets through its undiscounted future cash flows and its eventual disposition. If, based on this analysis, the Company does not believe that it will be able to recover the carrying value of the real estate and related intangible assets and liabilities, the Company would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the investments in real estate and related intangible assets. Key inputs that the Company estimates in this analysis include projected rental rates, capital expenditures and property sale capitalization rates. The Company did not record any impairment loss on its investments in real estate and related intangible assets during the three and six months ended June 30, 2013 and 2012.

Assets Held-for-Sale and Discontinued Operations

When certain criteria are met, long-lived assets are classified as held-for-sale and are reported at the lower of their carrying value or their fair value less costs to sell and are no longer depreciated. Discontinued operations is a component of an entity that has either been disposed of or is deemed to be held-for-sale and (i) the operations and cash flows of the component have been or will be eliminated from ongoing operations as a result of the disposal transaction and (ii) the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction.

Fair Value Measurements

Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:

When available, the Company utilizes quoted market prices or other observable inputs (Level 2 inputs), such as interest rates or yield curves, from independent third-party sources to determine fair value and classify such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to use significant judgment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for an asset owned by it to be illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities when traded as assets or (ii) another a present value technique that considers the future cash flows based on contractual obligations discounted by an observed or estimated market rates of comparable liabilities. The use of contractual cash flows with regard to amount and timing significantly reduces the judgment applied in arriving at fair value.

Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.

The Company considers the following factors to be indicators of an inactive market: (1) there are few recent transactions, (2) price quotations are not based on current information, (3) price quotations vary substantially either over time or among market makers (for example, some brokered markets), (4) indexes that previously were highly correlated with the fair values of the asset or liability are demonstrably uncorrelated with recent indications of fair value for that asset or liability, (5) there is a significant increase in implied liquidity risk premiums, yields, or performance indicators (such as delinquency rates or loss severities) for observed transactions or quoted prices when compared with the Company’s estimate of expected cash flows, considering all available market data about credit and other nonperformance risk for the asset or liability, (6) there is a wide bid-ask spread or significant increase in the bid-ask spread, (7) there is a significant decline or absence of a market for new issuances (that is, a primary market) for the asset or liability or similar assets or liabilities, and (8) little information is released publicly (for example, a principal-to-principal market).

The Company considers the following factors to be indicators of non-orderly transactions: (1) there was not adequate exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities under current market conditions, (2) there was a usual and customary marketing period, but the seller marketed the asset or liability to a single market participant, (3) the seller is in or near bankruptcy or receivership (that is, distressed), or the seller was required to sell to meet regulatory or legal requirements (that is, forced), and (4) the transaction price is an outlier when compared with other recent transactions for the same or similar assets or liabilities.

Deferred Financing Costs

Deferred financing costs represent commitment fees, loan fees, legal fees and other third-party costs associated with obtaining financing. These costs are amortized over the terms of the respective financing agreements using the straight-line method which approximates the effective interest method. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financings that do not close are expensed in the period in which it is determined that the financing will not close.

Income Taxes

The Company has elected to be taxed as a REIT under the Internal Revenue Code. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Company’s annual REIT taxable income to stockholders (which is computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax on income that it distributes as dividends to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially and adversely affect the Company’s net income and net cash available for distribution to stockholders. However, the Company believes that it is organized and operates in such a manner as to qualify for treatment as a REIT. The Company may also be subject to certain state or local income taxes, or franchise taxes.

The Company evaluates tax positions taken in the financial statements under the interpretation for accounting for uncertainty in income taxes. As a result of this evaluation, the Company may recognize a tax benefit from an uncertain tax position only if it is “more-likely-than-not” that the tax position will be sustained on examination by taxing authorities.

When necessary, deferred income taxes are recognized in certain taxable entities. Deferred income tax is generally a function of the period’s temporary differences (items that are treated differently for tax purposes than for financial reporting purposes). A valuation allowance for deferred income tax assets is provided if all or some portion of the deferred income tax asset may not be realized. Any increase or decrease in the valuation allowance is generally included in deferred income tax expense.

The Company’s tax returns remain subject to examination and consequently, the taxability of the distributions is subject to change.

Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed after adjusting the basic EPS computation for the effect of potentially dilutive securities outstanding during the period. The effect of non-vested shares, if dilutive, is computed using the treasury stock method. The Company accounts for unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) as participating securities, which are included in the computation of earnings per share pursuant to the two-class method. The Company’s excess of distributions over earnings related to participating securities are shown as a reduction in income (loss) applicable to common stockholders in the Company’s computation of EPS.

Reclassification

Assets sold or held-for-sale have been reclassified on the condensed consolidated balance sheets and the related operating results reclassified from continuing to discontinued operations on the condensed consolidated statements of operations and condensed consolidated statements of cash flows. Certain amounts from the prior year have been reclassified to conform to current period presentation.

3. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

The Company reports as discontinued operations, properties held-for-sale and operating properties sold in the current or prior periods. The results of these discontinued operations are included in a separate component of income on the condensed consolidated statements of operations under the caption “Discontinued operations.”

During the three months ended March 31, 2013, the Company completed the sale of the Waianae Mall in Waianae, Hawaii (acquired in June 2010), for a sales price of $30,500,000. The Company classified assets and liabilities (including the mortgage debt) related to Waianae Mall as held for sale in the consolidated balance sheet at December 31, 2012. The results of operations related to Waianae Mall were classified as discontinued operations for the three and six months ended June 30, 2013 and 2012.

During the three months ended June 30, 2013, the Company announced a plan to place two properties securing the revolving credit facility with KeyBank on the market for sale. If the Company is successful in selling one or both of the properties placed on the market for sale on acceptable terms, net proceeds from the sale of these properties will be used to pay down the Company’s revolving credit facility with KeyBank. The results of operations related to these properties, Craig Promenade and Willow Run, were classified as discontinued operations for the three and six months ended June 30, 2013 and 2012. The Craig Promenade and Willow Run parcels were not classified as held for sale at December 31, 2012.

On December 4, 2012, the Company entered into a purchase and sale agreement, as amended, with a third party for the sale of the office building at the Aurora Commons property (acquired in March 2012). On or about May 9, 2013, the purchase and sale agreement, as amended, for the sale of the office building at the Aurora Commons property expired and the buyer did not release the contingencies in the purchase and sale agreement. The Company classified assets and liabilities related to the office portion of the Aurora Commons property as held for sale in the consolidated balance sheet at December 31, 2012. The results of operations related to the office building at Aurora Commons, previously classified as discontinued operations for the three months ended March 31, 2013, were included within continuing operations for the three months ended June 30, 2013 and all previously unrecorded depreciation was recorded.

Discontinued operations for the three and six months ended June 30, 2012 included the operating results of five parcels at Morningside Marketplace and Osceola Village which were sold in 2012 as well as the operating results related to Craig Promenade, Willow Run and Waianae Mall.

The components of income and expense relating to discontinued operations for the three and six months ended June 30, 2013 and 2012 are shown below.

The major classes of assets and liabilities related to assets held for sale included in the condensed consolidated balance sheets are as follows:

Amounts above are being presented at the lower of carrying value and estimated fair value less costs to sell.

4. FUTURE MINIMUM RENTAL INCOME

Operating Leases

The Company’s real estate properties are leased to tenants under operating leases for which the terms and expirations vary. As of June 30, 2013, the leases at the Company’s properties have remaining terms (excluding options to extend) of up to 14 years with a weighted-average remaining term (excluding options to extend) of eight years. The leases may have provisions to extend the lease agreements, options for early termination after paying a specified penalty, rights of first refusal to purchase the property at competitive market rates, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires security deposits from tenants in the form of a cash deposit and/or a letter of credit. Amounts required as security deposits vary depending upon the terms of the respective leases and the creditworthiness of the tenant, but generally are not significant amounts. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to tenant leases are included in other liabilities in the accompanying condensed consolidated unaudited balance sheets and totaled $555,000 and $651,000 as of June 30, 2013 and December 31, 2012, respectively.

As of June 30, 2013, the future minimum rental income from the Company’s properties under non-cancelable operating leases was as follows:

5. ACQUIRED LEASE INTANGIBLES AND BELOW-MARKET LEASE LIABILITIES

As of June 30, 2013 and December 31, 2012, the Company’s acquired lease intangibles and below-market lease liabilities were as follows:

Increases (decreases) in net income as a result of amortization of the Company’s lease intangibles and below-market lease liabilities for the three and six months ended June 30, 2013 and 2012 were as follows:

The scheduled amortization of lease intangibles and below-market lease liabilities as of June 30, 2013 was as follows:

6. NOTES PAYABLE

As of June 30, 2013 and December 31, 2012, the Company’s notes payable consisted of the following:

During the three months ended June 30, 2013 and 2012, the Company incurred $3,412,000 and $2,944,000, respectively, of interest expense, which included the amortization and write-off of deferred financing costs of $282,000 and $643,000, respectively. In connection with the refinancing completed in June 2012, the Company wrote off approximately $390,000 of the remaining unamortized deferred financing costs associated with the properties being refinanced during the three months ended June 30, 2012.

During the six months ended June 30, 2013 and 2012, the Company incurred $6,875,000 and $5,636,000, respectively, of interest expense, which included the amortization and write-off of deferred financing costs of $569,000 and $1,464,000, respectively. In connection with certain refinancings completed in January and June 2012, the Company wrote off approximately $930,000 of the remaining unamortized deferred financing costs associated with the properties being refinanced during the six months ended June 30, 2012.

As of June 30, 2013 and December 31, 2012, interest expense payable was $877,000 and $1,097,000, respectively.

The following is a schedule of principal maturities for all of the Company’s notes payable outstanding as of June 30, 2013:

KeyBank Credit Facility and Forbearance Agreement

On December 17, 2010, the Company, through its wholly owned subsidiary, TNP SRT Secured Holdings, LLC (“TNP SRT Holdings”), entered into a line of credit with KeyBank and certain other lenders (collectively, the “Lenders”) to establish a secured revolving credit facility with an initial maximum aggregate commitment of $35 million (the “Credit Facility”). The Credit Facility initially consisted of an A tranche (“Tranche A”) with an initial aggregate commitment of $25 million, and a B tranche (“Tranche B”) with an initial aggregate commitment of $10 million. Tranche B under the Credit Facility terminated as of June 30, 2011. The aggregate commitment under Tranche A was subsequently increased on multiple occasions to a maximum of $45 million. As of June 30, 2013, as a consequence of the Company’s default under the Credit Facility, the Company has no additional availability under the Tranche A commitment. As of June 30, 2013, the outstanding principal balance on the Credit Facility, including debt reclassified under liabilities held for sale, was $36,455,000. As discussed below, due to the Company’s events of default under the Credit Facility, the Company has entered into a forbearance agreement with KeyBank. Borrowings under the Credit Facility are secured by (1) pledges by the Company, the OP, TNP SRT Holdings, and certain subsidiaries of TNP SRT Holdings, of their respective direct and indirect equity ownership interests in, as applicable, any subsidiary of TNP SRT Holdings or us which directly or indirectly owns real property, subject to certain limitations and exceptions, (2) guarantees, granted by the Company and the OP on a joint and several basis, of the prompt and full payment of all of the obligations under the Credit Facility, (3) a security interest granted in favor of KeyBank with respect to all operating, depository, escrow and security deposit accounts and all cash management services of the Company, the OP, TNP SRT Holdings and any other borrower under the Credit Facility, and (4) a deed of trust, assignment agreement, security agreement and fixture filing in favor of KeyBank with respect to the San Jacinto Esplanade, Craig Promenade, Willow Run Shopping Center, Visalia Marketplace and Aurora Commons properties. As discussed below, due to the Company’s events of default under the Credit Facility, the Company has entered into a forbearance agreement with KeyBank.

Under the Credit Facility, the Company is required to comply with certain restrictive and financial covenants. In January 2013, the Company became aware of a number of events of default under the Credit Facility relating to, among other things, the Company’s failure to use the net proceeds from its sale of shares in the Offering and the sale of its assets to repay borrowings under the Credit Facility as required by the Credit Facility and its failure to satisfy certain financial covenants under the Credit Facility (collectively, the “Existing Events of Default”). The Company also failed to comply with certain financial covenants at March 31, 2013. Due to the Existing Events of Default, the Lenders became entitled to exercise all of their rights and remedies under the Credit Facility and applicable law.

On April 1, 2013, the Company, the OP, certain subsidiaries of the OP which are borrowers under the Credit Facility (collectively, the “Borrowers”) and KeyBank, as lender and agent for the other Lenders, entered into a forbearance agreement (the “Forbearance Agreement”) which amended the terms of the Credit Facility and provides for certain additional agreements with respect to the Existing Events of Default. On July 31, 2013, the OP, the Borrowers and KeyBank entered into an amendment to the Forbearance Agreement which extended the forbearance period under the Forbearance Agreement from July 31, 2013 to January 31, 2014. Pursuant to the terms of the Forbearance Agreement (as amended), KeyBank and the other Lenders agreed to forbear the exercise of their rights and remedies with respect to the Existing Events of Default until the earliest to occur of (1) January 31, 2014, (2) the Company’s default under or breach of any of the representations or covenants under the Forbearance Agreement or (3) the date any additional events of defaults (other than the Existing Events of Default) under the Credit Facility occur or become known to KeyBank or any other Lender, (the “Forbearance Expiration Date”). Upon the Forbearance Expiration Date, all forbearances, deferrals and indulgences granted by the Lenders pursuant to the Forbearance Agreement will automatically terminate and the Lenders will be entitled to enforce, without further notice of any kind, any and all rights and remedies available to them as creditors at law, in equity, or pursuant to the Credit Facility or any other agreement as a result of the existing events of default or any additional events of default which occur or come to light following the date of the Forbearance Agreement.

Pursuant to the Forbearance Agreement, the Company, the OP and all of the Borrowers under the Credit Facility have jointly and severally agreed to pay to KeyBank (1) any and all out-of-pocket costs or expenses (including legal fees and disbursements) incurred or sustained by the Lenders in connection with the preparation of the Forbearance Agreement and all related matters, and (2) from time to time after the occurrence of any default under the Forbearance Agreement any out-of-pocket costs or expenses (including legal fees and consulting and other similar professional fees and expenses) incurred by the Lenders in connection with the preservation of or enforcement of any rights of the Lenders under the Forbearance Agreement and the Credit Facility. In connection with the execution of the Forbearance Agreement, the Company has agreed to pay a market rate forbearance fee.

The Company paid down a total of $1,983,000 of the outstanding balance on the Credit Facility from the net proceeds from the sales of the Waianae Mall in January 2013 and the McDonalds pad at Willow Run in February 2013. The Forbearance Agreement converts the entire outstanding principal balance under the Credit Facility (the “Outstanding Loans”) into a term loan which is due and payable in full on January 31, 2014. Pursuant to the Forbearance Agreement, the Company, the OP and every other borrower under the Credit Facility must apply 100% of the net proceeds from, among other things, (1) the sale of shares in the Offering or any other sale of securities by the Company, the OP or any other borrower, (2) the sale or refinancing of any of the Company’s properties or other assets, and (3) the collection of insurance or condemnation proceeds due to any damage or destruction of properties or any condemnation for public use of any properties, to the repayment of the Outstanding Loans. The Forbearance Agreement provides that all commitments under the Credit Facility will terminate on January 31, 2014 and that, effective as of the date of the Forbearance Agreement, the Lenders have no further obligation whatsoever to advance any additional loans or amounts under the Credit Facility. The Forbearance Agreement also provides that neither the Company, the OP or any other borrower under the Credit Facility may, without KeyBank’s prior written consent, incur, assume, guarantee or be or remain liable, contingently or otherwise, with respect to any indebtedness other than the existing indebtedness specified in the Forbearance Agreement and any refinancing of such existing indebtedness which does not materially modify the terms of such existing indebtedness in a manner adverse to the Company or the Lenders.

Waianae Loan Assumption

On January 22, 2013, the Company sold the Waianae Mall in Waianae, Hawaii to an unaffiliated buyer for a final sales price of $29,763,000. The mortgage loan secured by the Waianae Mall with an outstanding balance of $19,717,000 was assumed by the buyer in connection with the sale. The Company incurred a disposition fee to Prior Advisor of $893,000 in connection with the sale.

Lahaina Loan

In connection with the acquisition of Lahaina Gateway Shopping Center on November 9, 2012, the Company, through TNP SRT Lahaina Gateway, LLC, the Company’s wholly-owned subsidiary (“TNP SRT Lahaina”), borrowed $29,000,000 (the “Lahaina Loan”) from DOF IV REIT Holdings, LLC, (the “Lahaina Lender”). The entire unpaid principal balance of the Lahaina Loan and all accrued and unpaid interest thereon is due and payable in full on October 1, 2017. The Lahaina Loan bore interest at a rate of 9.483% per annum for the initial 12 months, and then 11.429% for the remainder of the term of the loan. On each of December 1, 2012, January 1, 2013, and February 1, 2013, the Company was required to make a mandatory principal prepayment of $333,333, such that the Company would prepay an aggregate $1,000,000 of the outstanding principal balance of the Lahaina Loan, no later than February 1, 2013.

On January 14, 2013, the Company received a letter of default from the Lahaina Lender in connection with the certain Guaranty of Recourse Obligations by the Company and Anthony W. Thompson, the Company’s Chairman and Co-Chief Executive Officer, for the benefit of the Lahaina Lender, pursuant to which the Company and Mr. Thompson guaranteed the obligations of TNP SRT Lahaina under the Lahaina Loan. The letter of default stated that two events of default existed under the Lahaina Loan as a result of the failure of TNP SRT Lahaina to (1) pay a deposit into a rollover account, and (2) pay two mandatory principal payments. The Lahaina Lender requested payment of the missed deposit into the rollover account, the two overdue mandatory principal payments, and late payment charges and default interest in the aggregate amount of $1,281,000 by January 18, 2013. On January 22, 2013, the Company used a portion of the proceeds from our sale of the Waianae Mall (discussed above) to pay the entire amount requested by Lahaina Lender and cure the events of default under the Lahaina Loan.

Since the acquisition of the Lahaina Gateway property on November 9, 2012, cash from operations from the Lahaina Gateway property has not been sufficient to support the property’s operating expenses, the debt service obligations under the Lahaina Loan, and the various cash reserve requirements imposed by the Lahaina Lender. As a result, since the acquisition of the Lahaina Gateway property, the Company has supported the property’s cash requirements with cash from operations generated by other properties within the Company’s portfolio. In addition to the property cash flow issues, the Lahaina Loan contained a number of provisions that potentially exposed the Company to increased risk and constrained its ability to make certain strategic decisions. In order to settle the Company’s obligations under the Lahaina Loan and avoid potential litigation and foreclosure proceedings (and the associated delays and expenses), relating to the Lahaina Gateway property, the Company has entered into a deed in lieu of foreclosure agreement with the Lahaina Lender (the “DIL Agreement”). Pursuant to the DIL Agreement, on August 1, 2013, the Company conveyed title to the Lahaina Gateway property to a designee of the Lahaina Lender in exchange for the Lahaina Lender’s agreement not to seek payment from the Company for any amounts owed under the Lahaina Loan, subject to certain exceptions as set forth in the DIL Agreement and the agreements entered into in connection therewith.

KeyBank Mezzanine Loan

On June 13, 2012, the Company, through TNP SRT Portfolio II Holdings, LLC (“TNP SRT Portfolio II Holdings”) obtained a mezzanine loan from KeyBank in the original principal amount of $2,000,000 pursuant to a Loan Agreement by and between TNP SRT Portfolio II Holdings and KeyBank and a Promissory Note by TNP SRT Portfolio II Holdings in favor of KeyBank. The proceeds were also used to refinance the portions of the Credit Facility secured by Morningside Marketplace, Cochran Bypass (Bi Lo Grocery Store), Ensenada Square, Florissant Marketplace and Turkey Creek. The KeyBank Mezzanine Loan was paid in January 2013 using a portion of the proceeds from our sale of the Waianae Mall.

7. FAIR VALUE DISCLOSURES

The Company believes the total values reflected on its condensed consolidated balance sheets reasonably approximate the fair values for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, and amounts due to affiliates due to their short-term nature, except for the Company’s notes payable, which are disclosed below.

The fair value of the Company’s notes payable is estimated using a present value technique based on contractual cash flows and management’s observations of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. The Company significantly reduces the amount of judgment and subjectivity in its fair value determination through the use of cash flow inputs that are based on contractual obligations. Discount rates are determined by observing interest rates published by independent market participants for comparable instruments. The Company classifies these inputs as Level 2 inputs.

The following table provides the carrying values and fair values of the Company’s notes payable as of June 30, 2013 and December 31, 2012:

8. EQUITY

Common Stock

Under the Company’s Articles of Amendment and Restatement (the “Charter”), the Company has the authority to issue 400,000,000 shares of common stock. All shares of common stock have a par value of $0.01 per share. On October 16, 2008, the Company issued 22,222 shares of common stock to TNP LLC for an aggregate purchase price of $200,000. As of June 30, 2013, Anthony W. Thompson, the Company’s Co-Chief Executive Officer and President, directly owned 111,111 shares of the Company’s common stock for which he paid an aggregate purchase price of $1,000,000 and TNP LLC, which is controlled by Mr. Thompson, owned 22,222 shares of the Company’s common stock.

On February 7, 2013, the Company terminated the Offering and ceased offering shares of common stock in the primary offering and under the DRIP. As of the termination of the Offering on February 7, 2013, the Company had accepted subscriptions for, and issued, 10,969,714 shares of common stock (net of share redemptions), including 391,182 shares of common stock pursuant to the DRIP, resulting in gross offering proceeds of $108,357,000.

Common Units

Prior Advisor invested $1,000 in the OP in exchange for common units of the OP, and as of June 30, 2013, Prior Advisor owned 0.01% of the limited partnership interest in the OP. On May 26, 2011, in connection with the acquisition of Pinehurst Square East, a retail property located in Bismarck, North Dakota, the OP issued 287,472 Common Units to certain of the sellers of Pinehurst Square East who elected to receive Common Units for an aggregate value of approximately $2,587,000, or $9.00 per Common Unit. On March 12, 2012, in connection with the acquisition of Turkey Creek, a retail property located in Knoxville, Tennessee, the OP issued 144,324 Common Units to certain of the sellers of Turkey Creek who elected to receive Common Units for an aggregate value of approximately $1,371,079, or $9.50 per Common Unit.

Preferred Stock

The Charter authorizes the Company to issue 50,000,000 shares of $0.01 par value preferred stock. As of June 30, 2013 and December 31, 2012, no shares of preferred stock were issued and outstanding.

Share Redemption Program

The Company’s share redemption program allows for share repurchases by the Company when certain criteria are met by requesting stockholders. Share repurchases pursuant to the share redemption program are made at the sole discretion of the Company. The number of shares to be redeemed during any calendar year is limited to no more than (1) 5.0% of the weighted average of the number of shares of the Company’s common stock outstanding during the prior calendar year and (2) those that could be funded from the net proceeds from the sale of shares under the DRIP in the prior calendar year plus such additional funds as may be borrowed or reserved for that purpose by the Company’s board of directors. The Company reserves the right to reject any redemption request for any reason or no reason or to amend or terminate the share redemption program at any time. The Company did not redeem any common shares under its share redemption program during the six months ended June 30, 2013. During the six months ended June 30, 2012, the Company redeemed 19,073 shares (including 559 shares issued under the DRIP program) of common shares under its share redemption program.

Effective January 15, 2013, the Company suspended its share redemption program, including redemptions upon death and disability.

Distributions

In order to qualify as a REIT, the Company is required to distribute at least 90% of its annual REIT taxable income, subject to certain adjustments, to its stockholders. Some or all of the Company’s distributions have been paid, and in the future may continue to be paid from sources other than cash flows from operations.

Effective January 15, 2013, the Company announced that it will no longer be making monthly distributions. For so long as the Company remains in default under the terms of the Credit Facility, KeyBank prohibits the payment of distributions to investors in the Company. The Company’s board of directors periodically evaluates the Company’s ability to make quarterly distributions based on the Company’s other operational cash needs. Due to the KeyBank prohibitions and the Company’s current cash flow and liquidity position, the Company’s board of directors has determined that quarterly distributions for the quarter ended June 30, 2013 will not be made.

The following table sets forth the distributions declared and paid to the Company’s common stockholders and non-controlling Common Unit holders for the six months ended June 30, 2013 and the year ended December 31, 2012, respectively:

Distribution Reinvestment Plan

The Company adopted the DRIP to allow common stockholders to purchase additional shares of the Company’s common stock through the reinvestment of distributions, subject to certain conditions. The Company registered and reserved 10,526,316 shares of its common stock for sale pursuant to the DRIP The DRIP was terminated effective February 7, 2013 in connection with the expiration of the Offering and the Company’s deregistration of all of the unsold shares registered for sale pursuant to the Offering. For the six months ended June 30, 2013 and 2012, $246,000 and $976,000 in distributions were reinvested and 25,940 and 102,709 shares of common stock were issued under the DRIP, respectively.

9. EARNINGS PER SHARE

EPS is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during each period. Diluted EPS is computed after adjusting the basic EPS computation for the effect of potentially dilutive securities outstanding during the period. The effect of non-vested shares, if dilutive, is computed using the treasury stock method. The Company applies the two-class method for determining EPS as its outstanding unvested shares with non-forfeitable dividend rights are considered participating securities. The Company’s excess of distributions over earnings related to participating securities are shown as a reduction in income (loss) attributable to common stockholders in the Company’s computation of EPS.

The following table sets forth the computation of the Company’s basic and diluted loss per share:

10. INCENTIVE AWARD PLAN

The Company adopted an incentive award plan on July 7, 2009 (the “Incentive Award Plan”) that provides for the grant of equity awards to its employees, directors and consultants and those of the Company’s affiliates. The Incentive Award Plan authorizes the grant of non-qualified and incentive stock options, restricted stock awards, restricted stock units, stock appreciation rights, dividend equivalents and other stock-based awards or cash-based awards. The Company has reserved 2,000,000 shares of common stock for stock grants pursuant to the Incentive Award Plan.

Pursuant to the Company’s Amended and Restated Independent Directors Compensation Plan, which is a sub-plan of the Incentive Award Plan (the “Directors Plan”), the Company granted each of its independent directors an initial grant of 5,000 shares of restricted stock (the “initial restricted stock grant”) following the Company’s raising of the $2,000,000 minimum offering amount in the Offering on November 12, 2009. Each new independent director that subsequently joins the board of directors receives the initial restricted stock grant on the date he or she joins the board of directors. In addition, on the date of each of the Company’s annual stockholders meetings at which an independent director is re-elected to the board of directors, he or she will receive 2,500 shares of restricted stock. The restricted stock vests one-third on the date of grant and one-third on each of the next two anniversaries of the grant date. The restricted stock will become fully vested and non-forfeitable in the event of an independent director’s termination of service due to his or her death or disability, or upon the occurrence of a change in control of the Company.

For the three months ended June 30, 2013 and 2012, the Company recognized compensation expense of $10,000 and $13,000, respectively, related to restricted common stock grants to its independent directors, which is included in general and administrative expense in the Company’s accompanying condensed consolidated statements of operations. For the six months ended June 30, 2013 and 2012, the Company recognized compensation expense of $25,000 and $26,000, respectively. Shares of restricted common stock have full voting rights and rights to dividends.

As of June 30, 2013 and December 31, 2012, there was $34,000 and $60,000, respectively, of total unrecognized compensation expense related to non-vested shares of restricted common stock. As of June 30, 2013, this expense is expected to be realized over a remaining period of one year. As of June 30, 2013 and December 31, 2012, the fair value of the non-vested shares of restricted common stock was $60,000 and $90,000, respectively, and 6,667 and 10,000 shares remain unvested, respectively. During the six months ended June 30, 2013, there were no restricted stock grants issued and 3,333 shares of restricted stock vested.

A summary of the changes in restricted stock grants for the six months ended June 30, 2013 is presented below:

11. RELATED PARTY TRANSACTIONS

Pursuant to the Prior Advisory Agreement by and among the Company, the OP and the Prior Advisor, the Company was obligated to pay Advisor specified fees upon the provision of certain services related to the investment of funds in real estate and real estate-related investments, management of the Company’s investments and for other services. Pursuant to the dealer manager agreement (the “Dealer Manager Agreement”) by and among the Company, the OP, and TNP Securities, LLC (the “Dealer Manager” or “TNP Securities”), prior to the termination of the Offering, the Company was obligated to pay the Dealer Manager certain commissions and fees in connection with the sales of shares in the Offering. Subject to certain limitations, the Company was also obligated to reimburse Prior Advisor and Dealer Manager for organization and offering costs incurred by Prior Advisor and Dealer Manager on behalf of the Company, and the Company was obligated to reimburse Prior Advisor for acquisition and origination expenses and certain operating expenses incurred on behalf of the Company or incurred in connection with providing services to the Company. The Company records all related party fees as incurred, subject to any limitations described in the Prior Advisory Agreement.

On August 6, 2013, the Company allowed the Prior Advisory Agreement with the Prior Advisor to expire without renewal, and on August 10, 2013, the Company entered into the Advisory Agreement with Advisor. Advisor will manage the Company’s business as the Company’s external advisor pursuant to the Advisory Agreement. Pursuant to the Advisory Agreement, the Company will pay Advisor specified fees for services related to the investment of funds in real estate and real estate-related investments, management of the Company’s investments and for other services.

Organization and Offering Costs

Organization and offering costs of the Company (other than selling commissions and the dealer manager fee described below) were initially paid by Prior Advisor and its affiliates on the Company’s behalf. Such costs include legal, accounting, printing and other offering expenses, including marketing, salaries and direct expenses of certain of Prior Advisor’s employees and employees of Prior Advisor’s affiliates and others. Pursuant to the Prior Advisory Agreement, the Company was obligated to reimburse Prior Advisor or its affiliates, as applicable, for organization and offering costs associated with the Offering, provided the Company was not obligated to reimburse Prior Advisor to the extent organization and offering costs, other than selling commissions and dealer manager fees, incurred by the Company exceed 3.0% of the gross offering proceeds from the Offering. Any such reimbursement will not exceed actual expenses incurred by Prior Advisor.

As of June 30, 2013 and December 31, 2012, cumulative organization and offering costs incurred by Prior Advisor on the Company’s behalf were $3,272,000 and $3,016,000, respectively. These costs were payable by the Company to the extent organization and offering costs, other than selling commissions and dealer manager fees, did not exceed 3.0% of the gross proceeds of the Offering. As of June 30, 2013, cumulative organization and offering costs reimbursed to Prior Advisor or paid directly by the Company were $4,273,000, which amount exceeded 3.0% of the gross proceeds from the Offering by $1,001,000. This excess amount was billed to Prior Advisor and settled as of January 31, 2013.

Selling Commissions and Dealer Manager Fees

Prior to the termination of the Offering, the Dealer Manager received a sales commission of 7.0% of the gross proceeds from the sale of shares of common stock in the primary offering. The Dealer Manager also received 3.0% of the gross proceeds from the sale of shares in the primary offering in the form of a dealer manager fee as compensation for acting as the dealer manager. The Company incurred selling commissions and dealer manager fees during the following periods:

Reimbursement of Operating Expenses

The Company reimbursed Prior Advisor for all expenses paid or incurred by Prior Advisor in connection with the services provided to the Company, subject to the limitation that the Company did not reimburse Prior Advisor for any amount by which the Company’s operating expenses (including the asset management fee described below) at the end of the four preceding fiscal quarters exceeds the greater of: (1) 2% of its average invested assets (as defined in the Charter), or (2) 25% of its net income (as defined in the Charter) determined without reduction for any additions to depreciation, bad debts or other similar non-cash expenses and excluding any gain from the sale of the Company’s assets for that period (the “2%/25% guideline”). Notwithstanding the above, the Company could reimburse Prior Advisor for expenses in excess of the 2%/25% guideline if a majority of the independent directors determined that such excess expenses are justified based on unusual and nonrecurring factors. For the twelve months ended June 30, 2013, the Company’s total operating expenses (as defined in the Charter) did not exceed the 2%/25% guideline.

The Company reimbursed Prior Advisor for the cost of administrative services, including personnel costs and its allocable share of other overhead of Prior Advisor such as rent and utilities; provided, however, that no reimbursement could be made for costs of such personnel to the extent that personnel are used in transactions for which Prior Advisor received a separate fee or with respect to an officer of the Company. For the three months ended June 30, 2013 and 2012, the Company incurred administrative services of $171,000 and $239,000, respectively, of administrative services to Prior Advisor. For the six months ended June 30, 2013 and 2012, the Company incurred and paid $73,000 and $419,000, respectively, of administrative services to Prior Advisor. As of June 30, 2013 and December 31, 2012, administrative services of $0 and $209,000, respectively, were included in amounts due to affiliates.

Property Management Fee

The Company terminated its property management agreements with TNP Property Manager, LLC (“TNP Manager”), its property manager and an affiliate of Prior Advisor, effective August 9, 2013. The Company entered into new property management agreements effective August 10, 2013 with terms and conditions generally the same as the prior agreements except (i) the term of service has been dramatically reduced from 20 years to 1 year subject to earlier cancellation and (ii) the property management fees are calculated at a maximum of up to 4% of gross revenue (down from 5% in the prior agreements).

The Company paid TNP Manager a market-based property management fee of up to 5.0% of the gross revenues generated by each property in connection with the operation and management of the Company’s properties. For the three months ended June 30, 2013 and 2012, the Company incurred $347,000 and $288,000, respectively, in property management fees to TNP Manager. For the six months ended June 30, 2013 and 2012, the Company incurred $694,000 and $538,000, respectively, in property management fees to TNP Manager. As of June 30, 2013 and December 31, 2012, property management fees of $178,000 and $48,000, respectively, were included in amounts due to affiliates.

Acquisition and Origination Fee

The Company paid Prior Advisor an acquisition fee equal to 2.5% of the cost of investments acquired, including acquisition expenses and any debt attributable to such investments. The Company incurred and paid $0 and $1,383,000 in acquisition fees to Prior Advisor during the three months ended June 30, 2013 and 2012, respectively. The Company incurred and paid $13,000 and $2,595,000 in acquisition fees to Prior Advisor during the six months ended June 30, 2013 and 2012, respectively.

The Company paid Prior Advisor 2.5% of the amount funded by the Company to acquire or originate real estate-related loans, including third party expenses related to such investments and any debt used to fund the acquisition or origination of the real estate related loans. The Company did not incur any loan origination fees to Prior Advisor for the three and six months ended June 30, 2013 and 2012. As of June 30, 2013 and December 31, 2012, there were no acquisition and loan origination fee amounts due to affiliates.

Asset Management Fee

The Company paid Prior Advisor a monthly asset management fee equal to one-twelfth of 0.6% of the aggregate cost of all real estate investments the Company acquires; provided, however, that Prior Advisor could not be paid the asset management fee until the Company’s funds from operations exceed the lesser of (1) the cumulative amount of any distributions declared and payable to the Company’s stockholders or (2) an amount that is equal to a 10.0% cumulative, non-compounded, annual return on invested capital for the Company’s stockholders. On November 11, 2011, the board of directors approved Amendment No. 2 to the Prior Advisory Agreement to clarify that upon termination of the Prior Advisory Agreement, any asset management fees that may have accumulated in arrears, but which had not been earned pursuant to the terms of the Prior Advisory Agreement, will not be paid to Prior Advisor. There were no asset management fees incurred for the three and six month periods ended June 30, 2013 and 2012.

Disposition Fee

If Prior Advisor or its affiliates provided a substantial amount of services, as determined by the Company’s independent directors, in connection with the sale of a real property, Prior Advisor or its affiliates could be paid disposition fees up to 50.0% of a customary and competitive real estate commission, but not to exceed 3.0% of the contract sales price of each property sold. For the three months ended June 30, 2013 and 2012, the Company incurred $0 and $81,000, respectively, of disposition fees to Prior Advisor. For the six months ended June 30, 2013 and 2012, the Company incurred $924,000 and $105,000, respectively, of disposition fees to Prior Advisor related to the Waianae Sale and the sale of the McDonalds pad at Willow Run in 2013 and the disposition of certain parcels at Morningside Marketplace in 2012. There were no disposition fees payable to Prior Advisor as of June 30, 2013 and December 31, 2012.

Leasing Commission Fee

On June 9, 2011, pursuant to Section 11 of the Prior Advisory Agreement, the Company’s board of directors approved the payment of fees to the Prior Advisor for services it provides in connection with leasing the Company’s properties. For the three months ended June 30, 2013 and 2012, the Company incurred $19,000 and $0, respectively, of lease commissions to Prior Advisor or its affiliates. For the six months ended June 30, 2013 and 2012, the Company incurred and paid approximately $143,000 and $5,000, respectively, of lease commissions to Prior Advisor or its affiliates. As of June 30, 2013 and December 31, 2012, leasing commission fees of $19,000 and $14,000, respectively, were included in amounts due to affiliates.

Financing Coordination Fee

On January 12, 2012, the board of directors approved Amendment No. 3 to the Prior Advisory Agreement to provide for the payment of a financing coordination fee to Prior Advisor in an amount equal to 1.0% of any amount financed or refinanced by the Company or the OP. There were no financing coordination fees incurred for the three and six months ended June 30, 2013. For the three and six months ended June 30, 2012, the Company incurred and paid $450,000 and $811,000 of financing coordination fees to Prior Advisor or its affiliates.

Guaranty Fees

In connection with certain acquisition financings, the Company’s Chairman and Co-Chief Executive Officer and/or TNP LLC had executed certain guaranty agreements to the respective lenders. As consideration for such guaranty, the Company entered into a reimbursement and fee agreement to provide for an upfront payment and an annual guaranty fee payment for the duration of the guarantee period. For the three months ended June 30, 2013 and 2012, the Company incurred guaranty fees of approximately $5,000 and $24,000, respectively, of guaranty fees. For the six months ended June 30, 2013 and 2012, the Company incurred approximately $19,000 and $37,000, respectively, of guaranty fees. As of June 30, 2013 and December 31, 2012, guaranty fees of approximately $9,000 and $10,000, respectively, were included in amounts due to affiliates. At June 30, 2013, the Company’s outstanding guaranty agreements relate to the guarantee on the financing on Constitution Trail and Osceola Village.

Related Party Loans

In connection with the acquisition of Morningside Marketplace in January 2012, the Company financed the payment of a portion of the purchase price for Morningside Marketplace with the proceeds of (1) a loan in the aggregate principal amount of $235,000 from TNP LLC, (2) a loan in the aggregate principal amount of $200,000 from Mr. James Wolford, the Company’s former Chief Financial Officer, and (3) a loan in the aggregate principal amount of $920,000 from Mrs. Sharon Thompson, the spouse of Mr. Anthony W. Thompson, the Company’s Chairman, Co-Chief Executive Officer and President (collectively, the “Morningside Affiliate Loans”). The Morningside Affiliate Loans each accrued interest at a rate of 12% per annum and were due on April 8, 2012. All Morningside Affiliate Loans including unpaid accrued interest were paid in full during the first quarter of 2012.

There was no interest incurred on related party loans for the three and six months ended June 30, 2013. Interest expense incurred and paid by the Company to an affiliate of Prior Advisor during the three and six months ended June 30, 2012 was $0 and $20,000, respectively.

Summary of Related Party Fees

Summarized below are the related-party costs incurred by the Company for the three and six months ended June 30, 2013 and 2012, respectively, and payable as of June 30, 2013 and December 31, 2012:

A large portion of the reduction in related party fees over comparative periods in 2012 is attributable to the relative paucity of capital transactions (financings, acquisitions and dispositions) which resulted in significant fees due to the Prior Advisor in 2012.

In March 2012, the Company reimbursed its Prior Advisor $240,000 related to a non-refundable earnest deposit incurred by an affiliate of Prior Advisor in 2010 on a potential acquisition commonly known as Morrison Crossing. The reimbursement was subsequently determined by the Company to be non-reimbursable since the acquisition was not one that was approved by the Company’s board of directors in 2010 and accordingly, the Company recorded the amount as a receivable from Prior Advisor and recorded a provision to reserve the entire amount at June 30, 2013 and December 31, 2012. In May 2013, the Company settled with Prior Advisor and determined to not seek reimbursement from Prior Advisor for the amount previously paid.

12. COMMITMENTS AND CONTINGENCIES

Lahaina Gateway Ground Lease

The Lahaina Gateway property, which we disposed of pursuant to a deed-in-lieu-of-foreclosure transaction on August 1, 2013 (see “Subsequent Events” below) was encumbered by a ground lease which was assigned to the Company in connection with the acquisition of the property on November 9, 2012. The original lease term was for a period of 55 years, commencing on February 2, 2005 with an expiration date of February 1, 2060. The current annual base rent was $1,187,000.

Osceola Village Contingencies

In connection with the acquisition financing on Osceola Village, the Company through its subsidiary, granted a lender a profit participation in the property equal to 25% of the net profits received by the Company upon the sale of the property (the “Profit Participation Payment”). Net profits is calculated as (1) the gross proceeds received by the Company upon a sale of the property in an arms-length transaction at market rates to third parties less (2) the sum of: (a) principal repaid to the lender out of such sales proceeds at the time of such sale; (b) all bona fide closing costs and similar expenses provided that all such closing costs and similar expenses are paid to third parties, unaffiliated with the Company including, without limitation, reasonable brokerage fees and reasonable attorneys’ fees paid to third parties, unaffiliated with the Company and incurred by the Company in connection with the sale; and (c) a stipulated amount of $3,200,000. If for any reason consummation of such sale has not occurred on or before the scheduled maturity date or any earlier foreclosure of the underlying mortgage loan secured by the property, the Company shall be deemed to have sold the property as of the business day immediately preceding the mortgage loan maturity date or the filing date of the foreclosure action, whichever is applicable, for an amount equal to a stipulated sales price and shall pay the lender the Profit Participation Payment. In the event the underlying mortgage loan is prepaid, the Company shall also be required to immediately pay the Profit Participation Payment based upon a deemed sale of the property for a stipulated sales price. Based on the estimated sale price as of June 30, 2013, the Company determined that it does not have any liability under the Profit Participation Payment as of June 30, 2013.

Additionally, in connection with the acquisition financing on Osceola Village, the Company entered into a Master Lease Agreement (the “Master Lease”) with TNP SRT Osceola Village Master Lessee, LLC, a wholly-owned subsidiary of the OP (the “Master Lessee”). Pursuant to the Master Lease, TNP SRT Osceola Village leased to Master Lessee the approximately 23,000 square foot portion of Osceola Village which was not leased to third-party tenants as of the closing date (the “Premises”). The Master Lease provides that the Master Lessee will pay TNP SRT Osceola Village a monthly rent in an amount equal to $36,425, provided that such monthly amount will be reduced proportionally for each square foot of space at the premises subsequently leased to third-party tenants pursuant to leases which are reasonably acceptable to the lender and which satisfy certain criteria set forth in the Master Lease (“Approved Leases”). The Master Lease has a seven-year term, subject to earlier expiration upon the earlier to occur of (1) the date on which all available rentable space at the Premises is leased to third-party tenants pursuant to Approved Leases and (2) the date on which the mortgage loan is repaid in full in cash (other than as a result of a credit bid by the lender at a foreclosure sale). The Master Lessee has no right to assign or pledge the Master Lease or to sublet any part of the premises without the prior written consent of TNP SRT Osceola Village and the lender. In connection with the acquisition of Osceola Village, TNP SRT Osceola Village obtained a mortgage (the “Osceola Loan”) from American National Insurance Company (“ANICO”). The Master Lease was assigned to ANICO pursuant to the assignment of leases and rents in favor of ANICO entered into by TNP SRT Osceola Village in connection with the Osceola Loan. Pursuant to the Master Lease, the Master Lessee acknowledges and agrees that upon any default by TNP SRT Osceola Village under any of the loan documents related to the Osceola Loan, ANICO will be entitled to enforce the assignment of the Master Lease to ANICO and replace TNP SRT Osceola Village under the Master Lease for all purposes.

Constitution Trail Contingency

In connection with the financing of the Constitution Trail acquisition, TNP SRT Constitution Trail, LLC, a wholly owned subsidiary of the OP (“TNP SRT Constitution Trail”), TNP SRT Constitution Trail Master Lessee, LLC (the “Starplex Master Lessee”), a wholly owned subsidiary of the OP, and the Sponsor, entered into a Master Lease Agreement with respect to a portion of Constitution Trail (the “Starplex Master Lease”). Pursuant to the Starplex Master Lease, TNP SRT Constitution Trail leased to the Starplex Master Lessee an approximately 7.78 acre parcel of land included in the Constitution Trail property, and the approximately 44,064 square foot Starplex Cinemas building located thereon (the “Starplex Premises”). The Starplex Master Lease provides that, in the event that the annual gross sales from the Starplex premises are less than $2,800,000, then thereafter the Starplex Master Lessee will pay TNP SRT Constitution Trail a monthly rent in an amount equal to $62,424 ($749,088 annually), subject to an offset based on any minimum annual rent for the Starplex premises received by TNP SRT Constitution Trail. The Starplex Master Lease will expire upon the earlier to occur of (1) December 31, 2018 and (2) the date on which the Constitution Trail mortgage loan is repaid in full in cash (other than as a result of a credit bid by the lender at a foreclosure sale or refinancing of the Constitution Trail Loan). The Starplex Master Lessee has no right to assign or pledge the Starplex Master Lease or to sublet any part of the Starplex premises without the prior written consent of TNP SRT Constitution Trail and the lender of the mortgage loan.

Carson Plaza Contingency

In 2012, the Company pursued an acquisition commonly known as Carson Plaza and placed a non-refundable deposit of $250,000 into escrow which was expensed and included in transaction expense for the year ended December 31, 2012. The acquisition did not materialize as a result of the Company’s claim of certain undisclosed environmental conditions uncovered during due diligence. The seller disagreed with the Company’s claim. The outcome of the Company’s claim and the prospect of the recovery of the deposit were unknown as of June 30, 2013 and accordingly, the Company did not accrue for any recovery of such amount. On August 9, 2013, the Company received $125,000 as a partial refund of the deposit which will be recognized as a reduction to transaction expense in the third quarter of 2013.

Economic Dependency

As disclosed in “Note 1. Organization And Business”, the Company has recently transitioned to a new external advisor . The Company is dependent on Advisor and its affiliates for certain services that are essential to the Company, including the identification, evaluation, negotiation, purchase, and disposition of real estate and real estate-related investments, management of the daily operations of the Company’s real estate and real estate-related investment portfolio, and other general and administrative responsibilities In the event that the Advisor is unable to provide such services to the Company, the Company will be required to obtain such services from other sources.

Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. The Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s properties, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the properties could result in future environmental liabilities.

Legal Matters

From time to time, the Company is party to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on the Company’s results of operations or financial condition.

13. SUBSEQUENT EVENTS

Strategic Investment Transaction with Glenborough

SRT Secured Holdings Manager, LLC (“SRT Manager”), an affiliate of Glenborough, acquired a twelve percent (12%) membership interest in TNP SRT Holdings pursuant to a Membership Interest Purchase Agreement by and among the Company, SRT Manager, TNP SRT Holdings, and the OP as of July 9, 2013. TNP SRT Holdings owns five of the twenty multi-tenant retail properties in the Company’s property portfolio. Following the acquisition of the membership interest by SRT Manager, the remaining eighty-eight percent (88%) membership interest in TNP SRT Holdings is held by the OP. The day-to-day business, property and affairs of TNP SRT Holdings are under the management and control of SRT Manager as the sole manager of TNP SRT Holdings; provided, however, that the OP retains consent rights with respect to certain major decisions, including property sales, acquisition, leasing and financing. The Company’s independent directors approved the transaction in order to help enable the Company to meet its short-term liquidity needs for operations, as well as to build working capital for future operations.

Amendment to Forbearance Agreement with KeyBank

On July 31, 2013, the Company, the OP, the Borrowers and KeyBank entered into an amendment to the Forbearance Agreement with KeyBank. The amendment provides that the Lenders’ obligation to provide forbearance will terminate on the first to occur of (1) January 31, 2014, (2) a default under or breach of any of the representations, warranties or covenants of the Forbearance Agreement, or (3) an event of default (other than the existing events of default under the Forbearance Agreement) under the loan documents related to the Credit Facility occurring or becoming known to any Lender. The amendment also provides that the entire outstanding principal balance, and all interest thereon, of the outstanding Tranche A loans under the Credit Facility will become due and payable in full on January 31, 2014. In connection with the Forbearance Agreement, the Borrowers and KeyBank entered into a Fee Letter pursuant to which the Borrowers paid KeyBank a market rate loan extension fee. In connection with the amendment to the Forbearance Agreement, the Borrowers and KeyBank entered into an amendment to the Fee Letter pursuant to which the Borrowers agreed to pay KeyBank an additional market rate loan extension fee.

Lahaina Property Deed in Lieu of Foreclosure Agreement

On November 9, 2012, TNP SRT Lahaina, the Company’s wholly-owned subsidiary, financed TNP SRT Lahaina’s acquisition of a ground lease interest in the Lahaina Gateway property, a multi-tenant necessity retail center located in Lahaina, Maui, Hawaii, with the proceeds of the Lahaina Loan, from DOF IV REIT Holdings, LLC, or the Lahaina lender. On August 1, 2013, in order to resolve its obligations under the Lahaina Loan, mitigate certain risks presented by the terms of the Lahaina loan and avoid potential litigation and foreclosure proceedings (and the associated costs and delays), TNP SRT Lahaina granted and conveyed all of TNP SRT Lahaina’s right, title and interest in and to the leasehold estate in the Lahaina Gateway property, including all leases, improvements, licenses and permits and personal property related thereto, to DOF IV Lahaina, LLC, an affiliate of the Lahaina Lender, pursuant to a Deed In Lieu Of Foreclosure Agreement by and among the Company, TNP SRT Lahaina and the Lahaina lender.

Expiration of Advisory Agreement; New Advisory Agreement

On August 6, 2013, we allowed the Prior Advisory Agreement with our Prior Advisor to expire without renewal.

On August 10, 2013, the Company, the OP and Advisor, an affiliate of Glenborough, entered into the Advisory Agreement, pursuant to which Advisor will serve as our new external advisor. The Advisory Agreement has a one-year term, subject to an unlimited number of successive one-year renewals upon the mutual consent of the parties.

Changes to Management

Effective August 9, 2013, Anthony W. Thompson was removed from his position as the Company’s Co-Chief Executive Officer and President, Thomas O’Brien was removed from his position as the Company’s Co-Chief Executive Officer, and Dee R. Balch resigned from her positions as the Company’s Chief Financial Officer, Treasurer and Secretary and as a member of the Company’s board of directors.

Effective August 10, 2013, Andrew Batinovich was appointed as the Company’s Chief Executive Officer, Chief Financial Officer and a member of the Company’s board of directors.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our condensed consolidated unaudited financial statements, the notes thereto and the other unaudited financial data included in this Quarterly Report on Form 10-Q and in our audited consolidated financial statements and the notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2012 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, or SEC, on April 1, 2013, which we refer to herein as our “Form 10-K.” As used herein, the terms “we,” “our,” and “us” refer to TNP Strategic Retail Trust, Inc. and, as required by context, TNP Strategic Retail Operating Partnership, LP, a Delaware limited partnership (which we refer to as our “OP”) and to their subsidiaries. References to “shares” and “our common stock” refer to the shares of our common stock.

Forward-Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward-looking statements. These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events or our investments and results of operations could differ materially from those expressed or implied in any forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.

The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs, which involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. The following are some of the risks and uncertainties, although not all of the risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:

All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of our 2012 Annual Report on Form 10-K. Any of the assumptions underlying the forward-looking statements included herein could be inaccurate, and undue reliance should not be placed upon on any forward-looking statements included herein. All forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q, and the risk that actual results will differ materially from the expectations expressed herein will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements made after the date of this Quarterly Report on Form 10-Q, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward looking statements included in this Quarterly Report on Form 10-Q, and the risks described in Part I, Item 1A of our 2012 Annual Report on Form 10-K, the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Quarterly Report on Form 10-Q will be achieved.

Overview

TNP Strategic Retail Trust, Inc. is a Maryland corporation formed on September 18, 2008 to invest in and manage a portfolio of income producing retail properties, located primarily in the Western United States, and real estate-related assets, including the investment in or origination of mortgage, mezzanine, bridge and other loans related to commercial real estate. We have elected to be taxed as a real estate investment trust, or REIT, for federal income tax purposes, commencing with the taxable year ended December 31, 2009. We own substantially all of our assets and conduct our operations through our OP, of which we are the sole general partner.

On November 4, 2008, we filed a registration statement on Form S-11 with the Securities and Exchange Commission, or SEC, for our initial public offering of up to $1,000,000,000 in shares of our common stock to the public at $10.00 per share in our primary offering and up to $100,000,000 in shares of our common stock to our stockholders at $9.50 per share pursuant to our distribution reinvestment plan. On August 7, 2009, the SEC declared our registration statement effective and we commenced our initial public offering. On February 7, 2013, we terminated our initial public offering and ceased offering shares of our common stock in our primary offering and under our distribution reinvestment plan.

From the commencement of our initial public offering through the termination of our initial public offering on February 7, 2013, we accepted subscriptions for, and issued, 10,969,714 shares of our common stock (net of share redemptions), including 391,182 shares of our common stock issued pursuant to our distribution reinvestment plan, resulting in aggregate gross offering proceeds of $108,357,000, net of redemptions. As of June 30, 2013, we had redeemed 160,409 shares pursuant to our share redemption program for an aggregate redemption amount of approximately $1,604,000. Due to short-term liquidity issues and defaults under certain of our loan agreements, we suspended our share redemption program, including with respect to redemptions upon death and disability, effective as of January 15, 2013. For more information regarding our share redemption program, see Item 5, “Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer of Equity Securities—Share Redemption Program” in our 2012 Annual Report on Form 10-K.

On June 15, 2012, we filed a registration statement on Form S-11 with the SEC to register a following-on public offering of up to $900,000,000 in shares of our common stock. However, we subsequently determined not to proceed with our contemplated follow-on public offering and on March 1, 2013 we requested that the SEC withdraw the registration statement for our contemplated follow-on public offering, effective immediately. We currently do not expect to commence a follow-on offering.

Effective January 15, 2013, we announced that we will no longer be making monthly distributions. For so long as we remain in default under the terms of the Credit Facility, KeyBank prohibits the payment of distributions to our investors. Our board of directors periodically evaluates our ability to commence making quarterly distributions based on our other operational cash needs. Due to the KeyBank prohibitions on distributions, our board of directors has determined that quarterly distributions for the quarter ended June 30, 2013 will not be made.

On August 6, 2013, we allowed our existing advisory agreement with our prior advisor, TNP Strategic Retail Advisor, LLC, to expire without renewal. On August 10, 2013, we entered into a new advisory agreement, which we refer to as the “advisory agreement,” with SRT Advisor, LLC, which we refer to as our “advisor.” Our advisor will manage our business as our external advisor pursuant to the advisory agreement. Our advisor is an affiliate of Glenborough, LLC (together with its affiliates, “Glenborough”), a privately held full-service real estate investment and management company focused on the acquisition, management and leasing of high quality commercial properties. Glenborough and its predecessor entities have over three decades of experience in the commercial real estate industry. Our advisor will depend on the capital from our sponsor and fees and other compensation that it receives from us in connection with the purchase, management and sale of our assets to conduct its operations.

In December 2012, we entered into a consulting agreement with Glenborough to assist us through the process of transitioning to a new external advisor. Pursuant to the consulting agreement, we agreed to pay Glenborough a monthly consulting fee of $75,000 and reimburse Glenborough for its reasonable out-of-pocket expenses. From December 2012 through April 2013, we agreed to pay Glenborough a monthly consulting fee of $75,000 pursuant to the consulting agreement. Effective May 1, 2013, we amended the consulting agreement to expand the services provided to us by Glenborough and increase the monthly consulting fee payable to Glenborough to $90,000. On August 10, 2013, in connection with the execution of the advisory agreement with our advisor, we terminated the consulting agreement.

Properties

As of June 30, 2013, our portfolio included 20 retail properties (18 real estate investments and two properties held for sale), which we refer to as “our properties” or “our portfolio,” comprising an aggregate of 2,036,932 square feet of single- and multi-tenant, commercial retail space located in 14 states, which we purchased for an aggregate purchase price of $263,998,000. As of June 30, 2013 and December 31, 2012 there was $184,930,000 and $210,327,000 of indebtedness on our properties, respectively, including indebtedness on our held for sale properties.

Results of Operations

Comparison of the three months ended June 30, 2013 versus the three months ended June 30, 2012

The following table provides summary information about our results of operations for the three months ended June 30, 2013 and 2012:

Our results of operations for the three months ended June 30, 2013 are not necessarily indicative of those expected in future periods.

Revenue

Revenues increased by $2,571,000 to $7,796,000 during the three months ended June 30, 2013 compared to $5,225,000 for the three months ended June 30, 2012. The increase was primarily due to a full quarter of operations for the three property additions included within continuing operations acquired in the second quarter of 2012 and the addition of one property subsequent to June 30, 2012. The occupancy rate for our property portfolio included within continuing operations was 87%, based on 1,858,962 rentable square feet, as of June 30, 2013 compared to 88%, based on 1,722,519 rentable square feet, as of June 30, 2012.

Operating and maintenance expenses

Operating and maintenance expense increased by $1,726,000 to $3,250,000 during the three months ended June 30, 2013 compared to $1,524,000 for the three months ended June 30, 2012. The increase was primarily due to a full quarter of operations for the three property additions included within continuing operations acquired in the second quarter of 2012 and the addition of one property subsequent to June 30, 2012. Included in operating and maintenance expenses, which contributed to the increase for the three months ended June 30, 2013, are bad debt expense (increase of $499,000 due primarily to the continued aging of amounts billed to tenants earlier in 2013) and ground rent expense at the Lahaina Gateway property acquired in November 2012 (increase of $306,000).

General and administrative expenses

General and administrative expenses were $1,309,000 during the three months ended June 30, 2013 compared to $1,082,000 for the three months ended June 30, 2012, an increase of $227,000. The increase is primarily due to non recurring costs related to the transition from the former advisor, the need for interim accounting staff and the transition to the new advisor on August 10, 2013. Additional factors contributing to the increase in the three months ended June, 30, 2013, include the renewal of our Directors and Officers insurance policy in August of 2012 at a substantially higher cost and an increase in director’s compensation due to an increase in the number of meetings in 2013, compared to the comparative period in 2012, necessitated by the need to move away from the former advisor. As of July 5, 2013 the Special Committee of the board voted that there will be no further compensation to the directors for the balance of the year. This should leave the total board compensation for 2013 below 2012 levels. Advisory and accounting costs for the remainder of 2013 may decrease with the former advisor’s contract expiring August 6, 2013, the elimination of all accounting employees and staff at the Company in August 2013 and the commencement of a new advisor agreement in August 2013 which is estimated to result in lower costs. With the signing of the new advisor contract, the new advisor has agreed to refund $150,000 of consulting fees in the third quarter of 2013.

Depreciation and amortization expense

Depreciation and amortization expense increased by $957,000 to $2,927,000 during the three months ended June 30, 2013 compared to $1,970,000 for the three months ended June 30, 2012. The increase was primarily due to a full quarter of depreciation and amortization for the three property additions included within continuing operations acquired in the second quarter of 2012 and the addition of one property subsequent to June 30, 2012.

Transaction expenses

Transaction expenses decreased by $1,282,000 to $266,000 during the three months ended June 30, 2013 compared to $1,548,000 for the three months ended June 30, 2012. We incurred transaction expenses for three properties included within continuing operations acquired during the second quarter of 2012 and had no acquisitions during the second quarter of 2013 but we did incur legal expenses during the three months ended June 30, 2013 leading up to the August 1, 2013 grant and conveyance of the Lahaina Gateway property pursuant to a Deed In Lieu Of Foreclosure by and among us, TNP SRT Lahaina, LLC, our wholly-owned subsidiary (“TNP SRT Lahaina”) and DOF IV REIT Holdings, LLC (the “Lahaina Lender”).

Interest expense

Interest expense increased by $468,000 to $3,412,000 during the three months ended June 30, 2013 compared to $2,944,000 for the three months ended June 30, 2012. The increase was primarily due to the increased debt levels associated with the three properties included within continuing operations acquired during the second quarter of 2012 and the addition of one property subsequent to June 30, 2012 and was partially offset by the write-off of deferred financing costs in the prior year period. Interest expense for the three months ended June 30, 2012 included the amortization and write-off of deferred financing costs of $643,000. The write-off of approximately $390,000 of unamortized deferred financing costs was as a result of the refinancing of the four properties from our credit agreement onto a new term loan completed during the three months ended June 30, 2012.

Loss from discontinued operations

Loss from discontinued operations increased by $139,000 to $414,000 during the three months ended June 30, 2013 compared to $275,000 for the three months ended June 30, 2012. The increase during the three months ended June 30, 2013 is primarily attributed to a $111,000 writedown of the Craig Promenade property to fair value. Discontinued operations for the three months ended June 30, 2013 included the operating results related to Craig Promenade and Willow Run. Discontinued operations for the three months ended June 30, 2012 included the operating results of five parcels at Morningside Marketplace and Osceola Village which were sold in 2012 as well as the operating results related to Craig Promenade, Willow Run and Waianae Mall.

Net loss

Net loss for the three months ended June 30, 2013 was $3,782,000 compared to a net loss of $4,118,000 for the same period in 2012. The decrease in net loss for the three months ended June 30, 2013 compared to the three months ended June 30, 2012 is primarily attributed to a reduction in the loss from continuing operations in the quarter which was partially offset by a higher loss from discontinued operations.

Comparison of the six months ended June 30, 2013 versus the six months ended June 30, 2012

The following table provides summary information about our results of operations for the six months ended June 30, 2013 and 2012:

Our results of operations for the six months ended June 30, 2013 are not necessarily indicative of those expected in future periods.

Revenue

Revenues increased by $6,376,000 to $15,222,000 during the six months ended June 30, 2013 compared to $8,846,000 for the six months ended June 30, 2012. The increase was primarily due to a full six months of operations for the eight property additions included within continuing operations acquired in the six months ended June 30, 2012 and one property addition acquired subsequent to June 30, 2012.

Operating and maintenance expenses

Operating and maintenance expense increased by $3,191,000 to $6,026,000 during the six months ended June 30, 2013 compared to $2,835,000 for the six months ended June 30, 2012. The increase was primarily due to a full six months of operations for the eight property additions included within continuing operations acquired in the six months ended June 30, 2012. Included in operating and maintenance expenses which contributed to the increase for the six months ended June 30, 2013 are bad debt expense (increase of $636,000 due primarily to the continued aging of amounts billed to tenants earlier in 2013) and ground rent expense at the Lahaina Gateway property acquired in November 2012 (increase of $618,000).

General and administrative expenses

General and administrative expenses were $2,907,000 during the six months ended June 30, 2013 compared to $1,602,000 for the six months ended June 30, 2012, an increase of $1,305,000. The increase is primarily due to non recurring costs related to the transition from the former advisor, the need for interim accounting staff and the transition to the new advisor on August 10, 2013. Additional factors contributing to the increase in the six months ended June, 30, 2013, include higher levels of legal fees and higher audit fees due to additional billings received in early 2013 related to the 2012 audit. In addition, our Directors and Officers insurance policy renewed in August of 2012 at a substantially higher cost and we experienced an increase in director’s compensation due to an increase in the number of meetings in 2013, compared to the comparative period in 2012, necessitated by the need to move away from the former advisor. As of July 5, 2013 the Special Committee of the board voted that there will be no further compensation to the directors for the balance of the year. This should leave the total board compensation for 2013 below 2012 levels. Advisory and accounting costs for the remainder of the year may decrease with the former advisor’s contract expiring August 6, 2013, the elimination of all accounting employees and staff at the Company in August 2013, and the commencement of a new advisor agreement in August 2013 which is estimated to result in lower costs. With the signing of the new advisor contract, the new advisor has agreed to refund $150,000 of consulting fees in the third quarter of 2013.

Depreciation and amortization expense

Depreciation and amortization expense increased by $2,323,000 to $5,905,000 during the six months ended June 30, 2013 compared to $3,582,000 for the six months ended June 30, 2012. The increase was primarily due to a full six months of depreciation and amortization for the eight property additions included within continuing operations acquired in the six months ended June 30, 2012 and one property addition acquired subsequent to June 30, 2012.

Transaction expenses

Transaction expenses decreased by $3,115,000 to $317,000 during the six months ended June 30, 2013 compared to $3,432,000 for the six months ended June 30, 2012. We incurred transaction expenses for eight properties included within continuing operations acquired during the six months ended June 30, 2012 and had no acquisitions during the six months ended June 30, 2013 but we did incur legal expenses during the six months ended June 30, 2013 leading up to the August 1, 2013 grant and conveyance of the Lahaina Gateway property pursuant to a Deed In Lien Of Foreclosure by and among us, TNP SRT Lahaina and the Lahaina Lender.

Interest expense

Interest expense increased by $1,239,000 to $6,875,000 during the six months ended June 30, 2013 compared to $5,636,000 for the six months ended June 30, 2012. The increase was primarily due to the increased debt levels associated with the eight properties included within continuing operations acquired during the six months ended June 30, 2012 and was partially offset by a write-off of deferred financing costs in the prior year period. Interest expense for the six months ended June 30, 2012 included the amortization and write-off of deferred financing costs of $1,464,000. The write-off of approximately $930,000 of unamortized deferred financing costs was as a result of the refinancing of our credit agreement completed in January and June 2012.

Income (loss) from discontinued operations

Income from discontinued operations was $4,209,000 during the six months ended June 30, 2013 compared to a loss of $242,000 for the six months ended June 30, 2012. Income from discontinued operations during the six months ended June 30, 2013 is primarily attributed to the gain on sale of the Waianae Mall which was sold in January 2013. Discontinued operations for the six months ended June 30, 2013 included the operating results of Craig Promenade, Willow Run and Waianae Mall. Discontinued operations for the six months ended June 30, 2012 included the operating results of five parcels at Morningside Marketplace and Osceola Village which were sold in 2012 as well as the operating results related to Craig Promenade, Willow Run and Waianae Mall.

Net loss

Net loss decreased by $5,884,000 to $2,599,000 during the six months ended June 30, 2013 compared to $8,483,000 for the six months ended June 30, 2012. The decrease in net loss for the six months ended June 30, 2013 compared to the six months ended June 30, 2012 is primarily attributed to higher revenues, the gain on sale of real estate in the period and the reduction in non-recurring transaction expenses which was partially offset by higher operating and maintenance, general and administrative, depreciation and amortization and interest expenses.

Liquidity and Capital Resources

As of June 30, 2013, our portfolio included 20 retail properties (18 real estate investments and two properties held for sale), with a net carrying value aggregating $223.2 million. Our principal demand for funds has been for the acquisition of real estate assets, the payment of operating expenses and interest on our outstanding indebtedness and the payment of distributions to our stockholders. On February 7, 2013, as a result of the expiration of our initial public offering, we ceased offering shares of our common stock in our primary offering and under our distribution reinvestment plan. Additionally, we filed an application on March 1, 2013 with the SEC to withdraw the registration statement on Form S-11 for our follow-on public offering that was initially filed with the SEC on June 15, 2012. As a result of the termination of our initial public offering and our withdrawal of the registration statement for our follow-on public offering, offering proceeds from the sale of our securities are not currently available to fund our cash needs. We expect our future cash needs will be funded using cash from operations, future asset sales, debt financing and the proceeds to us from any sale of equity that we conduct in the future. We also expect our investment activity will be significantly reduced until we are able to identify other sources of equity capital or other significant sources of financing. Due to the decrease in capital resources, we suspended our share redemption program, including redemptions for death and disability, effective January 15, 2013. We intend to reevaluate our ability to resume share redemptions pursuant to our share redemption program after transitioning to a new advisor and addressing our liquidity issues. Our ability to resume share redemptions will be determined by our board of directors based on our liquidity and cash needs.

As a result of the significant cash required to complete the acquisition of Lahaina Gateway on November 9, 2012 and the additional cash required by the mortgage lender for the Lahaina Gateway acquisition for reserves and mandatory principal payments, our cash and cash equivalents have fallen to approximately $492,000 at June 30, 2013. Our restricted cash (funds held by the lenders for property taxes, insurance, tenant improvements, leasing commissions, capital expenditures, rollover reserves and other financing needs) has increased to $6,626,000 at June 30, 2013. For properties with such lender reserves, we may draw upon such reserves to fund the specific needs for which the funds were established.

On April 1, 2013, we entered into a forbearance agreement relating to our Credit Facility with KeyBank (the “Forbearance Agreement”). On July 31, 2013, we entered into an amendment to the Forbearance Agreement with KeyBank which extended the forbearance period. On or before the expiration of the forbearance period, we currently intend to (1) refinance the Credit Facility on or before the expiration of the Forbearance Agreement with KeyBank or with another lender; or (2) refinance a portion of the credit agreement on or before the expiration of the Forbearance Agreement with KeyBank or with another lender, and pay down a portion of the balance of the Credit Facility with proceeds from disposition of certain properties securing the Credit Facility (for additional discussion see “– KeyBank Credit Facility” below).

As of June 30, 2013, our borrowings exceeded 300% of the value of our net assets due to the exclusion from total assets of intangible assets that were acquired with our properties. Because these intangible assets were part of the purchase price and because our overall indebtedness was less than 75% of the book value of our assets at June 30, 2013, the excess over the borrowing limitation has been approved by our independent directors. As of December 31, 2012, our borrowings exceeded 300% of the value of our net assets due to the exclusion from total assets of intangible assets that were acquired with our properties. Because these intangible assets were part of the purchase price and because our overall indebtedness was less than 75% of the book value of our assets at December 31, 2012, the excess over the borrowing limitation has been approved by our independent directors.

Cash Flows from Operating Activities

During the six months ended June 30, 2013, net cash used in operating activities from continuing operations was $1,718,000 compared to net cash used in operating activities of $3,566,000 during the six months ended June 30, 2012, a reduction in cash flows used in operating activities of $1,848,000. The reduction in cash used in operating activities during the six months ended June 30, 2013 was primarily due to favorable changes in loss from continuing operations adjusted by non-cash depreciation, amortization and bad debt charges which were partially offset by negative net changes in operating asset and liability balances involving prepaid expenses, tenant receivables and other liabilities.

Cash Flows from Investing Activities

Our most significant component of cash used in investing activities involves our expenditures for real estate acquisitions. During the six months ended June 30, 2013, net cash used in investing activities from continuing operations was $1,707,000 compared to $90,438,000 during the six months ended June 30, 2012. The decrease was primarily attributed to the acquisition of eight properties within continuing operations during 2012 for an aggregate cash outlay of $89,016,000. No property acquisitions were completed in the six months ended June 30, 2013. Net cash provided by investing activities from discontinued operations during the six months ended June 30, 2013 primarily represented net cash received on the sale of Waianae Mall in January 2013. Net cash used in investing activities from discontinued operations during the six months ended June 30, 2012 was $10,082,000 which primarily represented the net cash outlay on the acquisition of Willow Run which was reclassified as held for sale in the six months ended June 30, 2013.

Cash Flows from Financing Activities

Our cash flows from financing activities consist primarily of proceeds from our initial public offering, debt financings and distributions paid to our stockholders. During the six months ended June 30, 2013, net cash used in financing activities from continuing operations was $6,887,000, compared to net cash provided by financing activities of $96,505,000 during the six months ended June 30, 2012. The primary components of net cash used in financing activities from continuing operations for the six months ended June 30, 2013 were repayments of notes payable ($5,647,000), an increase in restricted cash for financing related activities ($1,306,000) and cash distributions ($415,000). For the six months ended June 30, 2012, net cash provided by financing activities primarily related to proceeds received from our initial public offering ($43,198,000) and proceeds from the issue of notes payable related to our property acquisitions and refinancing of debt during the period ($218,240,000), net of repayments on our notes payable ($154,903,000).

Short-term Liquidity and Capital Resources

Our principal short-term demand for funds will be for the payment of operating expenses and the payment of principal and interest on our outstanding indebtedness. To date, our cash needs for operations have been covered from cash provided by property operations and the sale of shares of our common stock. Due to the termination of our initial public offering on February 7, 2013, we intend to fund our short-term operating cash needs from operations. Operating cash flows are expected to increase as operations in our existing portfolio stabilize and efficiencies are gained. Additionally, offering and organization costs associated with our initial public offering have been eliminated due to the termination of our initial public offering on February 7, 2013. Effective January 15, 2013, our monthly distributions have been suspended. Our board of directors periodically evaluates our ability to make quarterly distributions based on our other operational cash needs. Our board of directors has determined that quarterly distributions for the quarter ended June 30, 2013 will not be made due to the KeyBank prohibitions and our current cash flow and liquidity position.

Long-term Liquidity and Capital Resources

On a long-term basis, our principal demand for funds will be for real estate and real estate-related investments and the payment of acquisition-related expenses, operating expenses, distributions to stockholders (currently suspended), future redemptions of shares (currently suspended) and interest and principal payments on current and future indebtedness. Generally, we intend to meet cash needs for items other than acquisitions and acquisition-related expenses from our cash flow from operations. Until the termination of our initial public offering on February 7, 2013, our cash needs for acquisitions were satisfied from the net proceeds of the public offering and from debt financings. On a long-term basis, we expect that substantially all cash generated from operations will be used to pay distributions to our stockholders after satisfying our operating expenses including interest and principal payments. When market conditions improve, we may consider future public offerings or private placements of equity, as well as additional borrowings. See Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” and “Note 7. DEBT” to our consolidated financial statements included in our Annual Report for additional information on the maturity dates and terms of our outstanding indebtedness.

KeyBank Credit Facility and Forbearance Agreement

On December 17, 2010, we, through our wholly owned subsidiary, TNP SRT Secured Holdings, LLC, or TNP SRT Holdings, entered into the Credit Facility with KeyBank and certain other lenders, which we collectively refer to as the “lenders,” to establish a revolving credit facility with an initial maximum aggregate commitment of $35,000,000. The Credit Facility initially consisted of an A tranche, or “Tranche A,” with an initial aggregate commitment of $25 million, and a B tranche, or “Tranche B,” with an initial aggregate commitment of $10 million. Tranche B under the Credit Facility terminated as of June 30, 2011. The aggregate commitment under Tranche A was subsequently increased on multiple occasions to a maximum of $45 million. As of June 30, 2013, the Credit Facility had an outstanding balance of $36,455,000, including debt reclassified under liabilities held for sale.

Under the Credit Facility, we are required to comply with certain restrictive and financial covenants. In January 2013, we became aware of a number of events of default under the Credit Facility relating to, among other things, our failure to use the net proceeds from our sale of our shares in our public offering and the sale of our assets to repay our borrowings under the Credit Facility and our failure to satisfy certain financial covenants under the Credit Facility, which we collectively refer to as the “existing events of default.” We also failed to comply with certain financial covenants as of March 31, 2013. Due to the existing events of default, KeyBank and the other lenders became entitled to exercise all of their rights and remedies under the Credit Facility and applicable law. On April 1, 2013, we entered into the Forbearance Agreement with KeyBank which amended the terms of the Credit Facility and addressed certain events of default under the Credit Facility.

On April 1, 2013, our OP, certain subsidiaries of our OP which are borrowers under the Credit Facility (which we collectively refer to as the “Borrowers”) and KeyBank, as lender and agent for the other lenders, entered into the Forbearance Agreement which amended the terms of the Credit Facility and provided for certain additional agreements with respect to the existing events of default. Pursuant to the terms of the Forbearance Agreement, KeyBank and the other lenders agreed to forbear the exercise of their rights and remedies with respect to the existing events of default until the earliest to occur of (1) July 31, 2013, (2) our default under or breach of any of the representations or covenants under the Forbearance Agreement or (3) the date any additional events of defaults (other than the existing events of default) under the Credit Facility occur or become known to KeyBank or any other lender, which we refer to as the “forbearance expiration date.” On July 31, 2013, our OP, the Borrowers and KeyBank entered into an amendment to the Forbearance Agreement which extended the forbearance period under the Forbearance Agreement from July 31, 2013 to January 31, 2014. Upon the forbearance expiration date, all forbearances, deferrals and indulgences granted by the lenders pursuant to the Forbearance Agreement, as amended, will automatically terminate and the lenders will be entitled to enforce, without further notice of any kind, any and all rights and remedies available to them as creditors at law, in equity, or pursuant to the Credit Facility or any other agreement as a result of the existing events of default or any additional events of default which occur or come to light following the date of the Forbearance Agreement, as amended.

The Forbearance Agreement, as amended, converted the entire outstanding principal balance under the Credit Facility, and all interest and other amounts payable under the Credit Facility, which we refer to as the “outstanding loan,” into a term loan which is due and payable in full on January 31, 2014. Pursuant to the Forbearance Agreement, as amended, we, our OP and every other Borrower under the Credit Facility must apply 100% of the net proceeds from, among other things, (1) the sale of our shares in our completed public offering or any other sale of securities by us, our OP or any other Borrower, (2) the sale or refinancing of any of our properties or other assets, and (3) the collection of insurance or condemnation proceeds due to any damage or destruction of our properties or any condemnation for public use of any of our properties, to the repayment of the outstanding loan. The Forbearance Agreement, as amended, provides that all commitments under the Credit Facility will terminate of January 31, 2014 and that, effective as of the date of the Forbearance Agreement, as amended, the lenders have no further obligation whatsoever to advance any additional loans or amounts under the Credit Facility. The Forbearance Agreement, as amended, also provides that neither we, our OP or any other borrower under the Credit Facility may, without KeyBank’s prior written consent, incur, assume, guarantee or be or remain liable, contingently or otherwise, with respect to any indebtedness other than the existing indebtedness specified in the Forbearance Agreement, as amended, and any refinancing of such existing indebtedness which do not materially modify the terms of such existing indebtedness in a manner adverse to us or the lenders.

Pursuant to the Forbearance Agreement we, our OP and all of the Borrowers under the Credit Facility have jointly and severally agreed to pay to KeyBank (1) any and all out-of-pocket costs or expenses (including legal fees and disbursements) incurred or sustained by the lenders in connection with the preparation of the Forbearance Agreement and all related matters and (2) from time to time after the occurrence of any default under the Forbearance Agreement any out-of-pocket costs or expenses (including legal fees and consulting and other similar professional fees and expenses) incurred by the lenders in connection with the preservation of or enforcement of any rights of the lenders under the Forbearance Agreement and the Credit Facility. In connection with the execution of the Forbearance Agreement, we agreed to pay a market rate loan extension fee to KeyBank. In connection with the amendment of the Forbearance Agreement, we agreed to pay KeyBank an additional market rate loan extension fee.

Under the Forbearance Agreement, we are not permitted to make, without the lender’s consent, certain restricted payments (as defined in the Credit Facility) which includes the payment of distributions that are not required to maintain our REIT status.

Contractual Commitments and Contingencies

As of June 30, 2013, there have been no material changes in our enforceable and legally binding obligations, contractual obligations, and commitments from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Interim Financial Information

The financial information as of and for the period ended June 30, 2013 included in this quarterly report is unaudited, but includes all adjustments consisting of normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position and operating results for the six months ended June 30, 2013. These interim unaudited condensed consolidated financial statements do not include all disclosures required by GAAP for complete consolidated financial statements. Interim results of operations are not necessarily indicative of the results to be expected for the full year; and such results may be less favorable. Our accompanying interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012.

Limitation on Total Operating Expenses

We reimburse our advisor for all expenses paid or incurred by our advisor in connection with the services provided to us, except that we will not reimburse our advisor for any amount by which our total operating expenses at the end of the four preceding fiscal quarters exceed the greater of (1) 2% of our average invested assets, as defined in our charter, and (2) 25% of our net income, as defined in our charter, or the 2/25 Limit, unless a majority of our independent directors determines that such excess expenses are justified based on unusual and nonrecurring factors. For the twelve months ended June 30, 2013, our total operating expenses did not exceed the 2/25 Limit.

Inflation

The majority of our leases at our properties contain inflation protection provisions applicable to reimbursement billings for common area maintenance charges, real estate tax and insurance reimbursements on a per square foot basis, or in some cases, annual reimbursement of operating expenses above a certain per square foot allowance. We expect to include similar provisions in our future tenant leases designed to protect us from the impact of inflation. Due to the generally long-term nature of these leases, annual rent increases, as well as rents received from acquired leases, may not be sufficient to cover inflation and rent may be below market rates.

REIT Compliance

To qualify as a REIT for tax purposes, we are required to distribute at least 90% of our REIT taxable income to our stockholders. We must also meet certain asset and income tests, as well as other requirements. We will monitor the business and transactions that may potentially impact our REIT status. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which our REIT qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to our stockholders. As of June 30, 2013, we believe we are in compliance with the REIT qualification requirements.

Distributions

In order to qualify as a REIT, we are required to distribute at least 90% of our annual REIT taxable income, subject to certain adjustments, to our stockholders. Prior to the termination of our initial public offering on February 7, 2013, we funded all of our cash distributions from proceeds from our initial public offering of common stock. Following the termination of our initial public offering, we may not be able to pay distributions from our cash from operations, in which case distributions may be paid in part from debt financing or from other sources.

Effective January 15, 2013, we announced that we will no longer be making monthly distributions. For so long as we remain in default under the terms of the Credit Facility, KeyBank prohibits the payment of distributions to our investors. Our board of directors periodically evaluates our ability to commence making quarterly distributions based on our other operational cash needs. Due to the KeyBank prohibitions on distributions, our board of directors has determined that quarterly distributions for the quarter ended June 30, 2013 will not be made.

The following table sets forth the distributions declared and paid to our common stockholders and holders of common units in our OP for the six months ended June 30, 2013 and the year ended December 31, 2012, respectively: